item 14 principal accounting fees services material included 2014 proxy statement headings audit fees nonaudit fees policy audit committee preapproval audit permissible nonaudit services independent auditor incorporated herein reference 2014 proxy statement filed march 14 2014 part iv item 15 item 14 exhibits financial statement schedules reports form 8k documents filed part form 10k 1 financial statements consolidated financial statements years ended december 31 1994 1993 1992 related report arthur andersen llp dated january 13 1995 appearing portions 1994 annual report captioned consolidated balance sheet consolidated statement earnings consolidated statement cash flows consolidated statement shareholders investment notes consolidated financial statements report independent public accountants respectively incorporated reference response item 14a1 exception portions 1994 annual report specifically incorporated herein reference report shall deemed filed part annual report form 10k otherwise deemed subject liabilities section 18 securities exchange act 1934 2 financial statement schedules required financial statement schedules found pages indicated schedules read conjunction consolidated financial statements 1994 annual report 3 exhibits required item 601 regulation sk information called paragraph incorporated herein reference exhibit index pages 16 17 form 10k b reports form 8k quarter ended december 31 1994 reports form 8k filed quarter ended december 31 1994 c exhibits filed see exhibit index pages 16 17 financial statement schedules filed see page 18 signatures pursuant requirements section 13 15d securities exchange act 1934 abbott laboratories duly caused report signed behalf undersigned thereunto duly authorized abbott laboratories duane l burnham duane l burnham chairman board chief executive officer date february 10 1995 pursuant requirements securities exchange act 1934 report signed following persons behalf abbott laboratories capacities dates indicated duane l burnham duane l burnham chairman board chief executive officer director abbott laboratories principal executive officer date february 10 1995 gary p coughlan gary p coughlan senior vice president finance chief financial officer principal financial officer date february 10 1995 thomas r hodgson thomas r hodgson president chief operating officer director abbott laboratories date february 10 1995 theodore olson theodore olson vice president controller principal accounting officer date february 10 1995 k frank austen k frank austen md director abbott laboratories date february 10 1995 h laurance fuller h laurance fuller director abbott laboratories date february 10 1995 bernard j hayhoe bernard j hayhoe director abbott laboratories date february 10 1995 allen f jacobson allen f jacobson director abbott laboratories date february 10 1995 david jones david jones director abbott laboratories date february 10 1995 boone powell jr boone powell jr director abbott laboratories date february 10 1995 barry rand barry rand director abbott laboratories date february 10 1995 w ann reynolds w ann reynolds director abbott laboratories date february 10 1995 william smithburg william smithburg director abbott laboratories date february 10 1995 john r walter john r walter director abbott laboratories date february 10 1995 william l weiss william l weiss director abbott laboratories date february 10 1995 exhibit index abbott laboratories annual report form 10k incorporated herein reference denotes management contract compensatory plan arrangement required filed exhibit hereto company furnish copies exhibits shareholder upon written request corporate secretary abbott laboratories 100 abbott park road abbott park illinois 600643500 abbott laboratories subsidiaries schedule iivaluation qualifying accounts years ended december 31 1994 1993 1992 dollars thousands supplemental report independent public accountants abbott laboratories audited accordance generally accepted auditing standards financial statements included companys annual report incorporated reference form 10k issued report thereon dated january 13 1995 audits made purpose forming opinion statements taken whole schedule ii responsibility companys management presented purposes complying securities exchange commissions rules part basic financial statements schedule subjected auditing procedures applied audits basic financial statements opinion fairly states material respects financial data required set forth therein relation basic financial statements taken whole arthur andersen llp chicago illinois january 13 1995 item 14 exhibits financial statement schedules reports form 8k documents filed part form 10k 1 financial statements see item 8 financial statements supplementary data page 32 hereof list financial statements 2 financial statement schedules required financial statement schedules found pages indicated schedules read conjunction consolidated financial statements schedules page valuation qualifying accounts schedule ii schedules iii iv v submitted applicable required supplemental report independent public accountants individual financial statements registrant omitted pursuant rule 305 paragraph 1 regulation sx 3 exhibits required item 601 regulation sk information called paragraph incorporated herein reference exhibit index pages 61 62 63 form 10k b reports form 8k quarter ended december 31 2001 reports form 8k filed quarter ended december 31 2001 c exhibits filed see exhibit index pages 61 62 63 financial statement schedules filed page 58 signatures pursuant requirements section 13 15d securities exchange act 1934 abbott laboratories duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf abbott laboratories february 15 2002 capacities indicated miles white miles white chairman board chief executive officer director abbott laboratories principal executive officer david jones david jones director abbott laboratories richard gonzalez richard gonzalez president chief operating officer medical products group director abbott laboratories david l owen david l owen director abbott laboratories jeffrey leiden jeffrey leiden president chief operating officer pharmaceutical products group director abbott laboratories boone powell jr boone powell jr director abbott laboratories thomas c freyman thomas c freyman senior vice president finance chief financial officer principal financial officer barry rand barry rand director abbott laboratories greg w linder greg w linder vice president controller principal accounting officer w ann reynolds w ann reynolds director abbott laboratories roxanne austin roxanne austin director abbott laboratories roy roberts roy roberts director abbott laboratories h laurence fuller h laurence fuller director abbott laboratories william smithburg william smithburg director abbott laboratories jack greenberg jack greenberg director abbott laboratories john r walter john r walter director abbott laboratories abbott laboratories subsidiaries schedule ii valuation qualifying accounts years ended december 31 2001 2000 1999 arepresents provisions related allowances doubtful accounts net change allowances sales deductions supplemental report independent public accountants abbott laboratories audited accordance auditing standards generally accepted united states financial statements abbott laboratories included annual report form 10k issued report thereon dated january 15 2002 audits made purpose forming opinion statements taken whole schedule ii responsibility abbotts management presented purposes complying securities exchange commissions rules part basic financial statements schedule subjected auditing procedures applied audits basic financial statements opinion fairly states material respects financial data required set forth therein relation basic financial statements taken whole arthur andersen llp chicago illinois january 15 2002 consent independent public accountants independent public accountants hereby consent incorporation reference reports included form 10k abbotts previously filed form s8 registration statements 3339798 abbott laboratories 1991 incentive stock program 33309071 33343381 33369547 33393253 33352768 33374228 abbott laboratories 1996 incentive stock program 33313091 33374222 abbott laboratories ashland union 401k plan trust 33368268 abbott laboratories 401k plan trust 33374220 abbott laboratories deferred compensation plan 33376516 abbott laboratories employee share ownership plan 33375442 abbott laboratories affiliate employee stock purchase plan 3326685 3351585 3356897 3365127 33319511 33343383 33369579 33393257 33374224 abbott laboratories stock retirement plan trust abbotts previously filed posteffective amendment 1 registration statement form s8 33385867 perclose inc 1992 stock plan perclose inc 1995 director option plan perclose inc 1997 stock plan perclose inc 1995 employee stock purchase plan abbotts previously filed s3 registration statements 3350253 33306155 33363481 33365601 33383647 33355446 arthur andersen llp chicago illinois february 20 2002 exhibit index abbott laboratories annual report form 10k exhibit table item 21 purchase agreement basf aktiengesellschaft abbott laboratories recorded december 14 2000 filed exhibit 21 2000 abbott laboratories annual report form 10k 22 amendment purchase agreement basf aktiengesellschaft abbott laboratories dated march 2 2001 23 second amendment purchase agreement basf aktiengesellschaft abbott laboratories recorded may 18 2001 24 agreement third amendment purchase agreement basf aktiengesellschaft abbott laboratories recorded july 24 2001 31 articles incorporation abbott laboratories filed exhibit 31 abbott laboratories quarterly report quarter ended march 31 1998 form 10q see also exhibit 430 32 corporate bylaws abbott laboratories 41 abbott laboratories deferred compensation plan filed exhibit 4 registration statement 33374220 42 abbott laboratories employee share ownership plan filed exhibit 4 registration statement 33376516 43 indenture dated october 1 1993 abbott laboratories harris trust savings bank filed exhibit 41 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 44 form 56 note issued pursuant indenture filed exhibit 42 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 45 form mediumterm note series fixed rate issued pursuant indenture filed exhibit 43 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 46 form mediumterm note series floating rate issued pursuant indenture filed exhibit 44 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 47 resolution abbotts board directors filed exhibit 45 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 48 actions authorized officers respect abbotts 200000000 56 notes filed exhibit 46 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 49 actions authorized officers respect abbotts mediumterm notes series filed exhibit 47 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 410 officers certificate company order respect abbotts 200000000 56 notes filed exhibit 48 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 411 form 68 note issued pursuant indenture filed exhibit 49 1995 abbott laboratories annual report form 10k 412 actions authorized officers respect abbotts 150000000 68 notes filed exhibit 410 1995 abbott laboratories annual report form 10k 413 officers certificate company order respect abbotts 150000000 68 notes filed exhibit 411 1995 abbott laboratories annual report form 10k 414 resolution abbotts board directors relating 64 notes filed exhibit 412 1996 abbott laboratories annual report form 10k 415 form 50000000 64 note issued pursuant indenture filed exhibit 413 1996 abbott laboratories annual report form 10k 416 form 200000000 64 note issued pursuant indenture filed exhibit 414 1996 abbott laboratories annual report form 10k 417 actions authorized officers respect abbotts 64 notes filed exhibit 415 1996 abbott laboratories annual report form 10k 418 officers certificate company order respect abbotts 64 notes filed exhibit 416 1996 abbott laboratories annual report form 10k 419 form 200000000 60 note issued pursuant indenture filed exhibit 42 abbott laboratories quarterly report quarter ended june 30 1998 form 10q 420 actions authorized officers respect abbotts 60 note filed exhibit 43 abbott laboratories quarterly report quarter ended june 30 1998 form 10q 421 officers certificate company order respect abbotts 60 note filed exhibit 44 abbott laboratories quarterly report quarter ended june 30 1998 form 10q 422 form 200000000 540 note issued pursuant indenture filed exhibit 42 abbott laboratories quarterly report quarter ended september 30 1998 form 10q 423 actions authorized officers respect abbotts 540 note filed exhibit 43 abbott laboratories quarterly report quarter ended september 30 1998 form 10q 424 officers certificate company order respect abbotts 540 note filed exhibit 44 abbott laboratories quarterly report quarter ended september 30 1998 form 10q 425 indenture dated february 9 2001 abbott laboratories bank one trust company na filed exhibit 41 registration statement 33355446 426 form 5125 note issued pursuant indenture filed exhibit 41 abbott laboratories quarterly report quarter ended june 30 2001 form 10q 427 form 5625 note issued pursuant indenture filed exhibit 42 abbott laboratories quarterly report quarter ended june 30 2001 form 10q 428 actions authorized officers respect abbotts 5125 notes 5625 notes filed exhibit 43 abbott laboratories quarterly report quarter ended june 30 2001 form 10q 429 officers certificate company order respect abbotts 5125 notes 5625 notes filed exhibit 44 abbott laboratories quarterly report quarter ended june 30 2001 form 10q 430 certificate designations preferences rights series junior participating preferred stock filed exhibit 41 abbott laboratories current report form 8k filed november 15 1999 431 rights agreement dated november 11 1999 abbott laboratories bankboston na rights agent filed exhibit 991 abbott laboratories current report form 8k filed november 15 1999 432 amendment 1 rights agreement dated december 7 1999 abbott laboratories bankboston na rights agent filed exhibit 991 abbott laboratories current report form 8k filed december 20 1999 433 amendment 2 rights agreement dated may 19 2000 filed exhibit 991 abbott laboratories current report form 8k filed may 19 2000 debt instruments omitted accordance item 601b4iiia regulation sk copies agreements furnished securities exchange commission upon request 101 supplemental plan abbott laboratories extended disability plan filed exhibit pages 5051 1992 abbott laboratories annual report form 10k 102 abbott laboratories 1991 incentive stock program filed exhibit 102 abbott laboratories quarterly report quarter ended september 30 2001 form 10q 103 abbott laboratories 401k supplemental plan 104 abbott laboratories supplemental pension plan 105 1986 abbott laboratories management incentive plan 106 abbott laboratories nonemployee directors fee plan 107 abbott laboratories 1996 incentive stock program filed exhibit 101 abbott laboratories quarterly report quarter ended september 30 2001 form 10q 108 1998 abbott laboratories performance incentive plan filed exhibit 101 abbott laboratories quarterly report quarter ended march 31 1998 form 10q 109 form agreement abbott laboratories white r gonzalez j leiden c b begley w g dempsey regarding change control filed exhibit 109 2001 abbott laboratories annual report form 10k computation ratio earnings fixed charges subsidiaries abbott laboratories consent independent public accountants 991 cautionary statement regarding forwardlooking statements 2002 abbott laboratories proxy statement filed securities exchange commission separate cover march 12 2002 incorporated herein reference commission file number 12189 denotes management contract compensatory plan arrangement required filed exhibit hereto certain portions exhibit omitted pursuant request confidential treatment separately filed securities exchange commission abbott furnish copies exhibits shareholder upon written request corporate secretary abbott laboratories 100 abbott park road abbott park illinois 600646400 part general development business financial information relating industry segments geographic areas classes similar products narrative description business information respect abbotts business general international operations executive officers registrant part ii consolidated statement earnings comprehensive income consolidated statement cash flows consolidated balance sheet consolidated statement shareholders investment notes consolidated financial statements report independent public accountants management report financial statements part iii part iv signatures abbott laboratories subsidiaries schedule ii valuation qualifying accounts years ended december 31 2001 2000 1999 supplemental report independent public accountants consent independent public accountants exhibit index abbott laboratories annual report form 10k 2001 item 14 principal accounting fees services material included 2017 proxy statement headings audit fees nonaudit fees policy audit committee preapproval audit permissible nonaudit services independent auditor incorporated herein reference 2017 proxy statement filed march 17 2017 part iv item 15 item 14 exhibits financial statement schedules reports form 8k documents filed part form 10k 1 financial statements consolidated financial statements years ended december 31 1995 1994 1993 related report arthur andersen llp dated january 15 1996 appearing portions 1995 annual report captioned consolidated balance sheet consolidated statement earnings consolidated statement cash flows consolidated statement shareholders investment notes consolidated financial statements report independent public accountants respectively incorporated reference response item 14a1 exception portions 1995 annual report specifically incorporated herein reference report shall deemed filed part annual report form 10k otherwise deemed subject liabilities section 18 securities exchange act 1934 2 financial statement schedules required financial statement schedules found pages indicated schedules read conjunction consolidated financial statements 1995 annual report 3 exhibits required item 601 regulation sk information called paragraph incorporated herein reference exhibit index pages 18 19 form 10k b reports form 8k quarter ended december 31 1995 reports form 8k filed quarter ended december 31 1995 c exhibits filed see exhibit index pages 18 19 financial statement schedules filed page 20 signatures pursuant requirements section 13 15d securities exchange act 1934 abbott laboratories duly caused report signed behalf undersigned thereunto duly authorized abbott laboratories duane l burnham duane l burnham chairman board chief executive officer date february 9 1996 pursuant requirements securities exchange act 1934 report signed following persons behalf abbott laboratories february 9 1996 capacities indicated duane l burnham duane l burnham chairman board chief executive officer director abbott laboratories principal executive officer gary p coughlan gary p coughlan senior vice president finance chief financial officer principal financial officer thomas r hodgson thomas r hodgson president chief operating officer director abbott laboratories theodore olson theodore olson vice president controller principal accounting officer k frank austen k frank austen md director abbott laboratories h laurance fuller h laurance fuller director abbott laboratories bernard j hayhoe bernard j hayhoe director abbott laboratories allen f jacobson allen f jacobson director abbott laboratories david jones david jones director abbott laboratories boone powell jr boone powell jr director abbott laboratories barry rand barry rand director abbott laboratories w ann reynolds w ann reynolds director abbott laboratories william smithburg william smithburg director abbott laboratories john r walter john r walter director abbott laboratories exhibit index abbott laboratories annual report form 10k incorporated herein reference denotes management contract compensatory plan arrangement required filed exhibit hereto company furnish copies exhibits shareholder upon written request corporate secretary abbott laboratories 100 abbott park road abbott park illinois 600643500 abbott laboratories subsidiaries schedule iivaluation qualifying accounts years ended december 31 1995 1994 1993 dollars thousands represents provisions related allowances doubtful accounts net change allowances sales deductions supplemental report independent public accountants abbott laboratories audited accordance generally accepted auditing standards financial statements included companys annual report incorporated reference form 10k issued report thereon dated january 15 1996 audits made purpose forming opinion statements taken whole schedule ii responsibility companys management presented purposes complying securities exchange commissions rules part basic financial statements schedule subjected auditing procedures applied audits basic financial statements opinion fairly states material respects financial data required set forth therein relation basic financial statements taken whole arthur andersen llp chicago illinois january 15 1996 item 14 controls procedures aevaluation disclosure controls procedures chief executive officer miles white chief financial officer thomas c freyman evaluated effectiveness abbott laboratories disclosure controls procedures date within 90 days filing report evaluation date concluded evaluation date abbott laboratories disclosure controls procedures effective ensure information abbott required disclose filings securities exchange commission securities exchange act 1934 recorded processed summarized reported within time periods specified commissions rules forms ensure information required disclosed abbott reports files exchange act accumulated communicated abbotts management including principal executive officer principal financial officer appropriate allow timely decisions regarding required disclosure bchanges internal controls procedures financial reporting significant changes abbotts internal controls factors could significantly affect controls subsequent evaluation date part iv item 15 item 14 principal accounting fees services material included 2013 proxy statement headings audit fees nonaudit fees policy audit committee preapproval audit permissible nonaudit services independent auditor incorporated herein reference 2013 proxy statement filed march 15 2013 part iv item 15 item 14 principal accounting fees services material included 2011 proxy statement headings audit fees nonaudit fees policy audit committee preapproval audit permissible nonaudit services independent auditor incorporated herein reference 2011 proxy statement filed march 15 2011 part iv item 15 item 14 principal accounting fees services material included 2015 proxy statement headings audit fees nonaudit fees policy audit committee preapproval audit permissible nonaudit services independent auditor incorporated herein reference 2015 proxy statement filed march 13 2015 part iv item 15 item 14 exhibits financial statement schedules reports form 8k documents filed part form 10k 1 financial statements consolidated financial statements years ended december 31 1993 1992 1991 related report arthur andersen co dated january 14 1994 appearing portions 1993 annual report captioned consolidated balance sheet consolidated statement earnings consolidated statement cash flows consolidated statement shareholders investment notes consolidated financial statements report independent public accountants respectively incorporated reference response item 14a1 exception portions 1993 annual report specifically incorporated herein reference report shall deemed filed part annual report form 10k otherwise deemed subject liabilities section 18 securities exchange act 1934 2 financial statement schedules required financial statement schedules found pages indicated schedules read conjunction consolidated financial statements 1993 annual report 3 exhibits required item 601 regulation sk information called paragraph incorporated herein reference exhibit index pages 16 17 form 10k b reports form 8k quarter ended december 31 1993 reports form 8k filed quarter ended december 31 1993 c exhibits filed see exhibit index pages 16 17 financial statement schedules filed see pages 18 23 signatures pursuant requirements section 13 15d securities exchange act 1934 abbott laboratories duly caused report signed behalf undersigned thereunto duly authorized abbott laboratories duane l burnham duane l burnham chairman board chief executive officer date february 11 1994 pursuant requirements securities exchange act 1934 report signed following persons behalf abbott laboratories capacities dates indicated duane l burnham duane l burnham chairman board chief executive officer director abbott laboratories principal executive officer date february 11 1994 gary p coughlan gary p coughlan senior vice president finance chief financial officer principal financial officer date february 11 1994 thomas r hodgson thomas r hodgson president chief operating officer director abbott laboratories date february 11 1994 theodore olson theodore olson vice president controller principal accounting officer date february 11 1994 k frank austen k frank austen md director abbott laboratories date february 11 1994 h laurance fuller h laurance fuller director abbott laboratories date february 11 1994 bernard j hayhoe bernard j hayhoe director abbott laboratories date february 11 1994 allen f jacobson allen f jacobson director abbot laboratories date february 11 1994 david jones david jones director abbott laboratories date february 11 1994 boone powell jr boone powell jr director abbott laboratories date february 11 1994 barry rand barry rand director abbott laboratories date february 11 1994 w ann reynolds w ann reynolds director abbott laboratories date february 11 1994 william smithburg william smithburg director abbott laboratories date february 11 1994 john r walter john r walter director abbott laboratories date february 11 1994 william l weiss william l weiss director abbott laboratories date february 11 1994 exhibit index abbott laboratories annual report form 10k incorporated herein reference company furnish copies exhibits shareholder upon written request corporate secretary abbott laboratories one abbott park road abbott park illinois 600643500 abbott laboratories subsidiaries schedule iinvestment securities maturing one year december 31 1993 dollars thousands abbott laboratories subsidiaries schedule vproperty equipment years ended december 31 1993 1992 1991 dollars thousands abbott laboratories subsidiaries schedule viaccumulated depreciation amortization property equipment years ended december 31 1993 1992 1991 dollars thousands abbott laboratories subsidiaries schedule viiivaluation qualifying accounts years ended december 31 1993 1992 1991 dollars thousands abbott laboratories subsidiaries schedule ix shortterm borrowings years ended december 31 1993 1992 1991 dollars thousands abbott laboratories subsidiaries schedule xsupplementary consolidated statement earnings information years ended december 31 1993 1992 1991 dollars thousands item 14 principal accounting fees services incorporated herein reference material headings audit fees nonaudit fees policy audit committee preapproval audit permissible nonaudit services independent registered public accounting firm 2005 proxy statement 2005 proxy statement filed march 18 2005 part iv item 15 item 14 principal accounting fees services material included 2021 proxy statement headings “audit fees nonaudit fees” “policy audit committee preapproval audit permissible nonaudit services independent auditor” incorporated herein reference 2021 definitive proxy statement filed march 12 2021 part iv item 15 item 14 exhibits financial statement schedules reports form 8k documents filed part form 10k 1 financial statements consolidated financial statements years ended december 31 1997 1996 1995 related report arthur andersen llp dated january 15 1998 except respect matter discussed note 12 date february 13 1998 appearing portions 1997 annual report captioned consolidated statement earnings consolidated statement cash flows consolidated balance sheet consolidated statement shareholders investment notes consolidated financial statements report independent public accountants respectively incorporated reference response item 14a1 exception portions 1997 annual report specifically incorporated herein reference report shall deemed filed part annual report form 10k otherwise deemed subject liabilities section 18 securities exchange act 1934 2 financial statement schedules required financial statement schedules found pages indicated schedules read conjunction consolidated financial statements 1997 annual report 3 exhibits required item 601 regulation sk information called paragraph incorporated herein reference exhibit index pages 26 27 form 10k b reports form 8k quarter ended december 31 1997 reports form 8k filed quarter ended december 31 1997 c exhibits filed see exhibit index pages 26 27 financial statement schedules filed page 23 signatures pursuant requirements section 13 15d securities exchange act 1934 abbott laboratories duly caused report signed behalf undersigned thereunto duly authorized abbott laboratories duane l burnham duane l burnham chairman board chief executive officer date february 13 1998 pursuant requirements securities exchange act 1934 report signed following persons behalf abbott laboratories february 13 1998 capacities indicated duane l burnham duane l burnham chairman board chief executive officer director abbott laboratories principal executive officer gary p coughlan gary p coughlan senior vice president finance chief financial officer principal financial officer thomas r hodgson thomas r hodgson president chief operating officer director abbott laboratories theodore olson theodore olson vice president controller principal accounting officer k frank austen md k frank austen md director abbott laboratories h laurance fuller h laurance fuller director abbott laboratories david jones david jones director abbott laboratories david l owen david l owen director abbott laboratories boone powell jr boone powell jr director abbott laboratories barry rand barry rand director abbott laboratories w ann reynolds w ann reynolds director abbott laboratories william smithburg william smithburg director abbott laboratories william l weiss william l weiss director abbott laboratories abbott laboratories subsidiaries valuation qualifying accounts years ended december 31 1997 1996 1995 unaudited represents provisions related allowances doubtful accounts net change allowances sales deductions supplemental report independent public accountants abbott laboratories audited accordance generally accepted auditing standards financial statements included companys annual report incorporated reference form 10k issued report thereon dated january 15 1998 except respect matter discussed note 12 date february 13 1998 audits made purpose forming opinion statements taken whole schedule ii responsibility companys management presented purposes complying securities exchange commissions rules part basic financial statements schedule subjected auditing procedures applied audits basic financial statements opinion fairly states material respects financial data required set forth therein relation basic financial statements taken whole arthur andersen llp chicago illinois january 15 1998 except respect matter discussed note 12 date february 13 1998 consent independent public accountants independent public accountants hereby consent incorporation reference following companys previously filed s8 registration statements 334368 abbott laboratories 1986 incentive stock program 3339798 abbott laboratories 1991 incentive stock program 33309071 33343381 abbott laboratories 1996 incentive stock program 33313091 abbott laboratories ashland union 401k plan trust 3326685 3351585 3356897 3365127 33319511 33343383 abbott laboratories stock retirement plan trust companys previously filed s3 registration statements 3350253 33306155 1 supplemental report dated january 15 1998 except respect matter discussed note 12 date february 13 1998 included annual report form 10k year ended december 31 1997 2 report dated january 15 1998 except respect matter discussed note 12 date february 13 1998 incorporated reference annual report form 10k year ended december 31 1997 arthur andersen llp chicago illinois march 9 1998 exhibit index abbott laboratories annual report form 10k incorporated herein reference denotes management contract compensatory plan arrangement required filed exhibit hereto company furnish copies exhibits shareholder upon written request corporate secretary abbott laboratories 100 abbott park road abbott park illinois 600643500 item 14 principal accounting fees services incorporated herein reference material headings audit fees nonaudit fees policy audit committee preapproval audit permissible nonaudit services independent auditor 2004 proxy statement 2004 proxy statement filed march 9 2004 part iv item 15 item 14 principal accounting fees services incorporated herein reference material headings audit fees nonaudit fees policy audit committee preapproval audit permissible nonaudit services independent auditor 2006 proxy statement 2006 proxy statement filed march 21 2006 part iv item 15 item 14 principal accounting fees services material included 2019 proxy statement headings audit fees nonaudit fees policy audit committee preapproval audit permissible nonaudit services independent auditor incorporated herein reference 2019 proxy statement filed march 15 2019 part iv item 15 item 14 principal accounting fees services incorporated herein reference material headings “audit fees nonaudit fees” “policy audit committee preapproval audit permissible nonaudit services independent auditor” 2007 proxy statement 2007 proxy statement filed march 19 2007 part iv item 15 item 14 principal accounting fees services material included 2009 proxy statement headings audit fees nonaudit fees policy audit committee preapproval audit permissible nonaudit services independent auditor incorporated herein reference 2009 proxy statement filed march 13 2009 part iv item 15 item 14 exhibits financial statement schedules reports form 8k documents filed part form 10k 1 financial statements consolidated financial statements years ended december 31 1998 1997 1996 related report arthur andersen llp dated january 14 1999 appearing portions 1998 annual report captioned consolidated statement earnings consolidated statement cash flows consolidated balance sheet consolidated statement shareholders investment notes consolidated financial statements report independent public accountants respectively incorporated reference response item 14a1 exception portions 1998 annual report specifically incorporated herein reference report shall deemed filed part annual report form 10k otherwise deemed subject liabilities section 18 securities exchange act 1934 2 financial statement schedules required financial statement schedules found pages indicated schedules read conjunction consolidated financial statements 1998 annual report 3 exhibits required item 601 regulation sk information called paragraph incorporated herein reference exhibit index pages 28 29 30 form 10k b reports form 8k quarter ended december 31 1998 reports form 8k filed quarter ended december 31 1998 c exhibits filed see exhibit index pages 28 29 30 financial statement schedules filed page 25 signatures pursuant requirements section 13 15d securities exchange act 1934 abbott laboratories duly caused report signed behalf undersigned thereunto duly authorized abbott laboratories miles white miles white chief executive officer date february 12 1999 pursuant requirements securities exchange act 1934 report signed following persons behalf abbott laboratories february 12 1999 capacities indicated duane l burnham duane l burnham chairman board director miles white miles white chief executive officer director principal executive officer robert l parkinson jr robert l parkinson jr president chief operating officer director gary p coughlan gary p coughlan senior vice president finance chief financial officer principal financial officer theodore olson theodore olson vice president controller principal accounting officer k frank austen md k frank austen md director h laurance fuller h laurance fuller director david jones david jones director david l owen david l owen director boone powell jr boone powell jr director barry rand barry rand director w ann reynolds w ann reynolds director roy roberts roy roberts director william smithburg william smithburg director john r walter john r walter director william l weiss william l weiss director abbott laboratories subsidiaries schedule ii valuation qualifying accounts years ended december 31 1998 1997 1996 unaudited represents provisions related allowances doubtful accounts net change allowances sales deductions supplemental report independent public accountants abbott laboratories audited accordance generally accepted auditing standards financial statements included abbotts annual report incorporated reference form 10k issued report thereon dated january 14 1999 audits made purpose forming opinion statements taken whole schedule ii responsibility abbotts management presented purposes complying securities exchange commissions rules part basic financial statements schedule subjected auditing procedures applied audits basic financial statements opinion fairly states material respects financial data required set forth therein relation basic financial statements taken whole arthur andersen llp chicago illinois january 14 1999 consent independent public accountants independent public accountants hereby consent incorporation reference following abbotts previously filed s8 registration statements 334368 abbott laboratories 1986 incentive stock program 3339798 abbott laboratories 1991 incentive stock program 33309071 33343381 33369547 abbott laboratories 1996 incentive stock program 33313091 abbott laboratories ashland union 401k plan trust 3326685 3351585 3356897 3365127 33319511 33343383 33369579 abbott laboratories stock retirement plan trust abbotts previously filed s3 registration statements 3350253 33306155 33363481 33365601 1 supplemental report dated january 14 1999 included annual report form 10k year ended december 31 1998 2 report dated january 14 1999 incorporated reference annual report form 10k year ended december 31 1998 arthur andersen llp chicago illinois march 9 1999 exhibit index abbott laboratories annual report form 10k incorporated herein reference commission file number 12189 denotes management contract compensatory plan arrangement required filed exhibit hereto abbott furnish copies exhibits shareholder upon written request corporate secretary abbott laboratories 100 abbott park road abbott park illinois 600646400 item 14 principal accounting fees services material included 2020 proxy statement headings “audit fees nonaudit fees” “policy audit committee preapproval audit permissible nonaudit services independent auditor” incorporated herein reference 2020 proxy statement filed march 13 2020 part iv item 15 item 14 principal accounting fees services incorporated herein reference material headings audit fees nonaudit fees policy audit committee preapproval audit permissible nonaudit services independent auditor 2008 proxy statement 2008 proxy statement filed march 19 2008 part iv item 15 item 14 principal accounting fees services material included 2016 proxy statement headings audit fees nonaudit fees policy audit committee preapproval audit permissible nonaudit services independent auditor incorporated herein reference 2016 proxy statement filed march 18 2016 part iv item 15 item 14 principal accounting fees services material included 2012 proxy statement headings audit fees nonaudit fees policy audit committee preapproval audit permissible nonaudit services independent auditor incorporated herein reference 2012 proxy statement filed march 15 2012 part iv item 15 item 14 exhibits financial statement schedules reports form 8k documents filed part form 10k 1 financial statements consolidated financial statements years ended december 31 1996 1995 1994 related report arthur andersen llp dated january 15 1997 appearing portions 1996 annual report captioned consolidated balance sheet consolidated statement earnings consolidated statement cash flows consolidated statement shareholders investment notes consolidated financial statements report independent public accountants respectively incorporated reference response item 14a1 exception portions 1996 annual report specifically incorporated herein reference report shall deemed filed part annual report form 10k otherwise deemed subject liabilities section 18 securities exchange act 1934 2 financial statement schedules required financial statement schedules found pages indicated schedules read conjunction consolidated financial statements 1996 annual report 3 exhibits required item 601 regulation sk information called paragraph incorporated herein reference exhibit index pages 21 22 form 10k b reports form 8k quarter ended december 31 1996 reports form 8k filed quarter ended december 31 1996 c exhibits filed see exhibit index pages 21 22 financial statement schedules filed page 23 signatures pursuant requirements section 13 15d securities exchange act 1934 abbott laboratories duly caused report signed behalf undersigned thereunto duly authorized abbott laboratories duane l burnham duane l burnham chairman board chief executive officer date february 14 1997 pursuant requirements securities exchange act 1934 report signed following persons behalf abbott laboratories february 14 1997 capacities indicated duane l burnham duane l burnham chairman board chief executive officer director abbott laboratories principal executive officer gary p coughlan gary p coughlan senior vice president finance chief financial officer principal financial officer thomas r hodgson thomas r hodgson president chief operating officer director abbott laboratories theodore olson theodore olson vice president controller principal accounting officer k frank austen md k frank austen md director abbott laboratories h laurance fuller h laurance fuller director abbott laboratories allen f jacobson allen f jacobson director abbott laboratories david jones david jones director abbott laboratories david l owen david l owen director abbott laboratories boone powell jr boone powell jr director abbott laboratories barry rand barry rand director abbott laboratories w ann reynolds w ann reynolds director abbott laboratories william smithburg william smithburg director abbott laboratories john r walter john r walter director abbott laboratories william l weiss william l weiss director abbott laboratories exhibit index abbott laboratories annual report form 10k incorporated herein reference denotes management contract compensatory plan arrangement required filed exhibit hereto company furnish copies exhibits shareholder upon written request corporate secretary abbott laboratories 100 abbott park road abbott park illinois 600643500 abbott laboratories subsidiaries schedule iivaluation qualifying accounts years ended december 31 1996 1995 1994 dollars thousands represents provisions related allowances doubtful accounts net change allowances sales deductions item 14 exhibits financial statement schedules reports form 8k documents filed part form 10k 1 financial statements consolidated financial statements years ended december 31 1999 1998 1997 related report arthur andersen llp dated january 17 2000 except respect matter discussed third paragraph note 12 date january 20 2000 appearing portions 1999 annual report captioned consolidated statement earnings comprehensive income consolidated statement cash flows consolidated balance sheet consolidated statement shareholders investment notes consolidated financial statements report independent public accountants respectively incorporated reference response item 14a1 exception portions 1999 annual report specifically incorporated herein reference report shall deemed filed part annual report form 10k otherwise deemed subject liabilities section 18 securities exchange act 1934 2 financial statement schedules required financial statement schedules found pages indicated schedules read conjunction consolidated financial statements 1999 annual report 3 exhibits required item 601 regulation sk information called paragraph incorporated herein reference exhibit index pages 30 31 32 form 10k b reports form 8k quarter ended december 31 1999 four reports form 8k filed quarter ended december 31 1999 form 8k dated november 2 1999 abbott reported consent decree entered united states district court northern district illinois settles issues involving abbotts diagnostic manufacturing operations lake county illinois report dated november 10 1999 abbott reported november 10 1999 board directors abbott adopted shareholder rights plan declared dividend one preferred stock purchase right outstanding share abbott common stock distributed shareholders record abbott close business december 1 1999 report dated november 11 1999 abbott reported november 11 1999 abbott bankboston na rights agent executed rights agreement relating preferred stock purchase rights distributed shareholders record abbott close business december 1 1999 report dated december 7 1999 abbott reported december 7 1999 abbott bankboston na rights agent executed amendment number 1 rights agreement abbott bankboston na rights agent dated november 11 1999 c exhibits filed see exhibit index pages 30 31 32 financial statement schedules filed page 27 signatures pursuant requirements section 13 15d securities exchange act 1934 abbott laboratories duly caused report signed behalf undersigned thereunto duly authorized abbott laboratories miles white miles white chairman board chief executive officer date february 11 2000 pursuant requirements securities exchange act 1934 report signed following persons behalf abbott laboratories february 11 2000 capacities indicated miles white miles white chairman board chief executive officer director abbott laboratories principal executive officer robert l parkinson jr robert l parkinson jr president chief operating officer director abbott laboratories gary p coughlan gary p coughlan senior vice president finance chief financial officer principal financial officer gary l flynn gary l flynn vice president controller principal accounting officer h laurance fuller h laurance fuller director abbott laboratories david jones david jones director abbott laboratories jeffrey leiden jeffrey leiden md director abbott laboratories david l owen david l owen director abbott laboratories boone powell jr boone powell jr director abbott laboratories barry rand barry rand director abbott laboratories w ann reynolds w ann reynolds director abbott laboratories roy roberts roy roberts director abbott laboratories william smithburg william smithburg director abbott laboratories john r walter john r walter director abbott laboratories william l weiss william l weiss director abbott laboratories abbott laboratories subsidiaries schedule ii valuation qualifying accounts years ended december 31 1999 1998 1997 represents provisions related allowances doubtful accounts net change allowances sales deductions supplemental report independent public accountants abbott laboratories audited accordance generally accepted auditing standards financial statements included abbotts annual report incorporated reference form 10k issued report thereon dated january 17 2000 except respect matter discussed third paragraph note 12 date january 20 2000 audits made purpose forming opinion statements taken whole schedule ii responsibility abbotts management presented purposes complying securities exchange commissions rules part basic financial statements schedule subjected auditing procedures applied audits basic financial statements opinion fairly states material respects financial data required set forth therein relation basic financial statements taken whole arthur andersen llp chicago illinois january 17 2000 except respect matter discussed third paragraph note 12 date january 20 2000 exhibit index abbott laboratories annual report form 10k 2000 abbott laboratories proxy statement filed securities exchange commission separate cover march 14 2000 incorporated herein reference commission file number 12189 denotes management contract compensatory plan arrangement required filed exhibit hereto abbott furnish copies exhibits shareholder upon written request corporate secretary abbott laboratories 100 abbott park road abbott park illinois 600646400 item 14 exhibits financial statement schedules reports form 8k documents filed part form 10k 1 financial statements see item 8 financial statements supplementary data page 28 hereof list financial statements 2 financial statement schedules required financial statement schedules found pages indicated schedules read conjunction consolidated financial statements schedules page valuation qualifying accounts schedule ii schedules iii iv v submitted applicable required supplemental report independent public accountants individual financial statements registrant omitted pursuant rule 305 paragraph 1 regulation sx 3 exhibits required item 601 regulation sk information called paragraph incorporated herein reference exhibit index pages 56 57 58 form 10k b reports form 8k quarter ended december 31 2000 reports form 8k filed quarter ended december 31 2000 form 8k dated december 15 2000 abbott furnished press release also dated december 15 2000 regarding abbotts pending acquisition pharmaceutical business basf including global knoll operations ii questions answers regarding acquisition pharmaceutical business basf c exhibits filed see exhibit index pages 56 57 58 financial statement schedules filed page 53 signatures pursuant requirements section 13 15d securities exchange act 1934 abbott laboratories duly caused report signed behalf undersigned thereunto duly authorized abbott laboratories miles white miles white chairman board chief executive officer date february 9 2001 pursuant requirements securities exchange act 1934 report signed following persons behalf abbott laboratories february 9 2001 capacities indicated miles white miles white chairman board chief executive officer director abbott laboratories principal executive officer h laurance fuller h laurance fuller director abbott laboratories jeffrey leiden jeffrey leiden executive vice president pharmaceuticals chief scientific officer director abbott laboratories jack greenberg jack greenberg director abbott laboratories gary p coughlan gary p coughlan senior vice president finance chief financial officer principal financial officer david jones david jones director abbott laboratories gary l flynn gary l flynn vice president controller principal accounting officer david l owen david l owen director abbott laboratories roxanne austin roxanne austin director abbott laboratories boone powell jr boone powell jr director abbott laboratories barry rand barry rand director abbott laboratories w ann reynolds w ann reynolds director abbott laboratories william smithburg william smithburg director abbott laboratories roy roberts roy roberts director abbott laboratories john r walter john r walter director abbott laboratories abbott laboratories subsidiaries schedule ii valuation qualifying accounts years ended december 31 2000 1999 1998 arepresents provisions related allowances doubtful accounts net change allowances sales deductions supplemental report independent public accountants abbott laboratories audited accordance auditing standards generally accepted united states financial statements included annual report form 10k issued report thereon dated january 15 2001 audits made purpose forming opinion statements taken whole schedule ii responsibility abbotts management presented purposes complying securities exchange commissions rules part basic financial statements schedule subjected auditing procedures applied audits basic financial statements opinion fairly states material respects financial data required set forth therein relation basic financial statements taken whole arthur andersen llp chicago illinois january 15 2001 consent independent public accountants independent public accountants hereby consent incorporation reference following abbotts previously filed form s8 registration statements 334368 abbott laboratories 1986 incentive stock program 3339798 abbott laboratories 1991 incentive stock program 33309071 33343381 33369547 33393253 33352768 abbott laboratories 1996 incentive stock program 33313091 abbott laboratories ashland union 401k plan trust 3326685 3351585 3356897 3365127 33319511 33343383 33369579 33393257 abbott laboratories stock retirement plan trust abbotts previously filed posteffective amendment 1 registration statement form s8 33385867 perclose inc 1992 stock plan perclose inc 1995 director option plan perclose inc 1997 stock plan perclose inc 1995 employee stock purchase plan abbotts previously filed s3 registration statements 3350253 33306155 33363481 33365601 33383647 33355446 1 supplemental report dated january 15 2001 included annual report form 10k year ended december 31 2000 2 report dated january 15 2001 included annual report form 10k year ended december 31 2000 arthur andersen llp chicago illinois february 15 2001 exhibit index abbott laboratories annual report form 10k exhibit table item 21 purchase agreement basf aktiengesellschaft abbott laboratories recorded december 14 2000 31 articles incorporationabbott laboratories filed exhibit 31 abbott laboratories quarterly report quarter ended march 31 1998 form 10q see also exhibit 423 32 corporate bylawsabbott laboratories 41 indenture dated october 1 1993 abbott laboratories harris trust savings bank filed exhibit 41 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 42 form 56 note issued pursuant indenture filed exhibit 42 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 43 form mediumterm note series fixed rate issued pursuant indenture filed exhibit 43 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 44 form mediumterm note series floating rate issued pursuant indenture filed exhibit 44 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 45 resolution abbotts board directors filed exhibit 45 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 46 actions authorized officers respect abbotts 200000000 56 notes filed exhibit 46 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 47 actions authorized officers respect abbotts mediumterm notes series filed exhibit 47 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 48 officers certificate company order respect abbotts 200000000 56 notes filed exhibit 48 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 49 form 68 note issued pursuant indenture filed exhibit 49 1995 abbott laboratories annual report form 10k 410 actions authorized officers respect abbotts 150000000 68 notes filed exhibit 410 1995 abbott laboratories annual report form 10k 411 officers certificate company order respect abbotts 150000000 68 notes filed exhibit 411 1995 abbott laboratories annual report form 10k 412 resolution abbotts board directors relating 64 notes filed exhibit 412 1996 abbott laboratories annual report form 10k 413 form 50000000 64 note issued pursuant indenture filed exhibit 413 1996 abbott laboratories annual report form 10k 414 form 200000000 64 note issued pursuant indenture filed exhibit 414 1996 abbott laboratories annual report form 10k 415 actions authorized officers respect abbotts 64 notes filed exhibit 415 1996 abbott laboratories annual report form 10k 416 officers certificate company order respect abbotts 64 notes filed exhibit 416 1996 abbott laboratories annual report form 10k 417 form 200000000 60 note issued pursuant indenture filed exhibit 42 abbott laboratories quarterly report quarter ended june 30 1998 form 10q 418 actions authorized officers respect abbotts 60 note filed exhibit 43 abbott laboratories quarterly report quarter ended june 30 1998 form 10q 419 officers certificate company order respect abbotts 60 note filed exhibit 44 abbott laboratories quarterly report quarter ended june 30 1998 form 10q 420 form 200000000 540 note issued pursuant indenture filed exhibit 42 abbott laboratories quarterly report quarter ended september 30 1998 form 10q 421 actions authorized officers respect abbotts 540 note filed exhibit 43 abbott laboratories quarterly report quarter ended september 30 1998 form 10q 422 officers certificate company order respect abbotts 540 note filed exhibit 44 abbott laboratories quarterly report quarter ended september 30 1998 form 10q 423 certificate designations preferences rights series junior participating preferred stock filed exhibit 41 abbott laboratories current report form 8k filed november 15 1999 424 rights agreement dated november 11 1999 abbott laboratories bankboston na rights agent filed exhibit 991 abbott laboratories current report form 8k filed november 15 1999 425 amendment 1 rights agreement dated december 7 1999 abbott laboratories bankboston na rights agent filed exhibit 991 abbott laboratories current report form 8k filed december 20 1999 426 amendment 2 rights agreement dated may 19 2000 filed exhibit 991 abbott laboratories current report form 8k filed may 19 2000 427 indenture dated february 9 2001 abbott laboratories bank one trust company na filed exhibit 41 registration statement 33355446 debt instruments omitted accordance item 601b4iiia regulation sk copies agreements furnished securities exchange commission upon request 101 supplemental plan abbott laboratories extended disability plan filed exhibit pages 5051 1992 abbott laboratories annual report form 10k 102 abbott laboratories 1986 incentive stock program filed exhibit 102 1997 abbott laboratories annual report form 10k 103 abbott laboratories 1991 incentive stock program filed exhibit 103 1997 abbott laboratories annual report form 10k 104 abbott laboratories 401k supplemental plan filed exhibit 107 abbott laboratories 1993 annual report form 10k 105 abbott laboratories supplemental pension plan filed exhibit 101 abbott laboratories quarterly report quarter ended june 30 1998 form 10q 106 1986 abbott laboratories management incentive plan filed exhibit 101 abbott laboratories quarterly report quarter ended june 30 1997 form 10q 107 abbott laboratories nonemployee directors fee plan filed exhibit 102 abbott laboratories quarterly report quarter ended june 30 2000 form 10q 108 abbott laboratories 1996 incentive stock program filed exhibit 101 abbott laboratories quarterly reportfor quarter ended june 30 2000 form 10q 109 1998 abbott laboratories performance incentive plan filed exhibit 101 abbott laboratories quarterly report quarter ended march 31 1998 form 10q 1010 form agreement abbott laboratories white g p coughlan r gonzalez j amundson w g dempsey regarding change control 1011 agreement abbott laboratories r l parkinson jr filed exhibit 101 abbott laboratories quarterly report quarter ended september 30 2000 form 10q computation ratio earnings fixed charges subsidiaries abbott laboratories consent independent public accountants 991 cautionary statement regarding forwardlooking statements 2001 abbott laboratories proxy statement filed securities exchange commission separate cover march 13 2001 incorporated herein reference commission file number 12189 denotes management contract compensatory plan arrangement required filed exhibit hereto certain portions exhibit omitted pursuant request confidential treatment separately filed securities exchange commission abbott furnish copies exhibits shareholder upon written request corporate secretary abbott laboratories 100 abbott park road abbott park illinois 600646400 part item 1 business general development business financial information relating industry segments geographic areas classes similar products narrative description business information respect abbotts business general international operations item 2 properties item 3 legal proceedings item 4 submission matters vote security holders executive officers registrant part ii item 5 market registrants common equity related stockholder matters item 6 selected financial data item 7 managements discussion analysis financial condition results operations private securities litigation reform act 1995 caution concerning forwardlooking statements item 7a quantitative qualitative disclosures market risk item 8 financial statements supplementary data consolidated statement earnings comprehensive income consolidated statement cash flows consolidated balance sheet consolidated statement shareholders’ investment notes consolidated financial statements report independent public accountants management report financial statements part iii item 10 directors executive officers registrant item 11 executive compensation item 12 security ownership certain beneficial owners management item 13 certain relationships related transactions part iv item 14 exhibits financial statement schedules reports form 8k signatures abbott laboratories subsidiaries schedule ii valuation qualifying accounts years ended december 31 2000 1999 1998 supplemental report independent public accountants consent independent public accountants exhibit index abbott laboratories annual report form 10k 2000 item 14 principal accounting fees services material included 2018 proxy statement headings audit fees nonaudit fees policy audit committee preapproval audit permissible nonaudit services independent auditor incorporated herein reference 2018 proxy statement filed march 16 2018 part iv item 15 item 14 principal accounting fees services material included 2010 proxy statement headings audit fees nonaudit fees policy audit committee preapproval audit permissible nonaudit services independent auditor incorporated herein reference 2010 proxy statement filed march 15 2010 part iv item 15 item 7 managements discussion analysis financial condition results operations financial review abbotts revenues derived primarily sale broad line health care products shortterm receivable arrangements patent protection licenses technological performance features inclusion abbotts products contract impact products sold price controls competition rebates impact net selling prices products foreign currency translation impacts measurement net sales costs abbotts primary products nutritional products branded generic pharmaceuticals diagnostic testing products vascular products sales international markets comprise approximately 70 percent consolidated net sales october 2011 abbott announced plan separate two publicly traded companies one diversified medical products researchbased pharmaceuticals accomplish separation abbott created new company abbvie inc abbvie researchbased pharmaceuticals business consists primarily abbotts historical proprietary pharmaceutical products segment january 1 2013 abbott distributed outstanding shares abbvie abbotts shareholders abbvie became independent company trading symbol abbv historical operating results researchbased proprietary pharmaceuticals business prior separation excluded earnings continuing operations presented earnings discontinued operations line abbotts consolidated statement earnings assets liabilities cash flows researchbased proprietary pharmaceuticals business included abbotts consolidated balance sheet consolidated statements cash flows periods prior january 1 2013 sales growth margin improvement nutritional diagnostics businesses challenging economic fiscal environment many countries around world impacted abbotts sales costs financial position last three years sales emerging markets increased 11 percent per year 2013 2012 excluding foreign exchange despite slowdown several emerging economies weakening key emerging market currencies 2013 emerging markets include countries except united states western europe japan canada australia abbotts worldwide nutritional products business sales last three years positively impacted demographics aging population increasing rate chronic disease developed markets rise middle class many emerging markets well numerous new product introductions leveraged abbotts strong brands time manufacturing distribution process changes cost reductions drove margin improvements across business operating margins business increased 132 percent 2011 187 percent 2013 sales growth international pediatric nutrition affected product recall initiated august 2013 china two markets certain pediatric nutritional products supplied abbott thirdparty manufacturer health issues associated recalled products supplier subsequently determined products safe consumption recall created significant disruption markets result international pediatric nutrition sales significantly lower abbotts previous expectations business second half 2013 abbott initiated investments third quarter 2013 markets rebuild consumer confidence abbott expects recall continue negative impact sales first half 2014 abbotts worldwide diagnostics business margin improvement continued key focus 2013 operating margins increased 192 percent sales 2011 222 percent 2013 business continued execute efficiency initiatives manufacturing supply chain functions addition continued margin improvement unit growth across geographical regions positively impacted worldwide diagnostic sales worldwide sales business increased 83 percent 2013 73 percent 2012 excluding foreign exchange established pharmaceutical products segment macroeconomic market pressures certain emerging markets impacted business 2013 nevertheless sales segments 14 key emerging markets increased 63 percent 2013 excluding effect foreign exchange however growth emerging markets largely offset declines developed markets austerity measures continued impact performance last three years vascular business abbott continued build xience drugeluting stent franchise receipt approval market xience xpedition various countries including japanese approval third quarter 2013 us approval fourth quarter 2012 xience pro received ce mark approval second quarter 2012 abbotts market share also benefited us launches xience nano xience prime 2011 japanese launches xience prime small vessel des 2013 xience prime april 2012 xience includes xience v prime nano pro xpedition ended 2013 marketleading drug eluting stent globally 2013 absorb mitraclip also contributed sales growth 2011 third party distributor promus product began transitioning away product supply agreement ended 2012 effect winding agreement continued first quarter 2013 abbotts short longterm debt totaled 66 billion december 31 2013 december 31 2013 abbotts longterm debt rating standard poors corporation a1 moodys investors service fourth quarter 2012 abbott extinguished 77 billion longterm debt incurred charge 135 billion related early repayment net gains unwinding interest rate swaps related debt october 2013 abbott announced 57 percent increase abbotts quarterly dividend 022 per share 014 per share effective dividend paid february 2014 abbott focus several key initiatives nutritional business abbott continue build product portfolio introduction new sciencebased products expand highgrowth emerging markets implement additional margin improvement initiatives established pharmaceuticals business abbott continue focus obtaining additional product approvals across numerous countries expanding presence emerging markets diagnostics business abbott focus development nextgeneration instrument platforms advanced technologies expansion emerging markets improvements segments operating margin vascular business abbott continue focus marketing products xience endovascular franchises increasing mitraclip sales well clinical development absorb bioresorbable vascular scaffold bvs device penetration absorb numerous countries abbotts segments abbott focus developing differentiated technologies higher growth markets critical accounting policies sales rebates 2013 approximately 49 percent abbotts consolidated gross revenues subject various forms rebates allowances abbott recorded reductions revenues time sale rebates allowances established pharmaceuticals nutritional products segments abbott provides rebates state agencies administer special supplemental nutrition program women infants children wic wholesalers group purchasing organizations government agencies private entities rebate amounts usually based upon volume purchases using contractual statutory prices product factors used rebate calculations include identification products sold subject rebate customer government agency price terms apply estimated lag time sale payment rebate using historical trends adjusted current changes abbott estimates amount rebate paid records liability reduction gross sales abbott records sale product settlement rebate generally occurs one six months sale abbott regularly analyzes historical rebate trends makes adjustments reserves changes trends terms rebate programs rebates chargebacks charged gross sales 2013 2012 2011 amounted approximately 20 billion 19 billion 17 billion respectively 161 percent 160 percent 168 percent respectively based gross sales approximately 125 billion 118 billion 101 billion respectively subject rebate onepercentage point increase percentage rebates related gross sales would decrease net sales approximately 125 million 2013 abbott considers onepercentage point increase reasonably likely increase percentage rebates related gross sales allowances charged gross sales approximately 150 million 149 million 117 million cash discounts 2013 2012 2011 respectively 208 million 199 million 170 million returns 2013 2012 2011 respectively cash discounts known within 15 30 days sale therefore reliably estimated returns reliably estimated abbotts historical returns low sales returns terms sales terms remained relatively unchanged several periods management analyzes adequacy ending rebate accrual balances quarter domestic nutritional business management uses internal external data available estimate level inventory distribution channel management access several large customers inventory management data customers utilizes data third party measures time retail shelf sources allow management make reliable estimates inventory distribution channel except transition period change supplier wic business state inventory distribution channel vary substantially management also estimates states processing lag time based claims data addition internal processing time factor estimating accrual wic business state sale made determining factor applicable price reliably determinable estimates required amount wic sales within state abbott wic business external data sources utilized estimate participant data us department agriculture usda administers wic program participant data states internally administered market research usda making data available many years internal data includes historical redemption rates pricing data december 31 2013 abbott wic business 23 states historically adjustments prior years rebate accruals material net income abbott employs various techniques verify accuracy claims submitted possible works organizations submitting claims gain insight changes might affect rebate amounts government agency programs calculation rebate involves interpretations relevant regulations subject challenge change interpretation income taxes abbott operates numerous countries income tax returns subject audits adjustments abbott operates globally nature audit items often complex objectives government auditors result tax income one country abbott employs internal external tax professionals minimize audit adjustment amounts possible accordance accounting rules relating measurement tax contingencies order recognize uncertain tax benefit taxpayer must likely sustaining position measurement benefit calculated largest amount 50 percent likely realized upon resolution benefit application rules requires significant amount judgment us abbotts federal income tax returns 2010 settled except three items income tax returns years 2010 open abbott record deferred income taxes earnings reinvested indefinitely foreign subsidiaries pension postemployment benefits abbott offers pension benefits postemployment health care many employees abbott engages outside actuaries assist determination obligations costs programs abbott must develop longterm assumptions significant health care cost trend rates discount rates expected return plan assets discount rates used measure liabilities determined based highquality fixed income securities match duration expected retiree benefits health care cost trend rates represent abbotts expected annual rates change cost health care benefits forward projection health care costs measurement date difference assumed rates actual rates known decades significant relation obligations annual cost recorded programs low interest rates significantly increased actuarial losses plans december 31 2013 pretax net actuarial losses prior service costs credits recognized accumulated comprehensive income loss abbotts defined benefit plans medical dental plans losses 18 billion 82 million respectively actuarial losses gains amortized remaining service attribution periods employees corridor method accordance rules accounting postemployment benefits differences expected longterm return plan assets actual annual return amortized fiveyear period note 12 consolidated financial statements describes impact onepercentage point change health care cost trend rate however certainty change would limited one percentage point valuation intangible assets abbott acquired continues acquire significant intangible assets abbott records fair value transactions involving purchase sale intangible assets occur frequency companies health care field valuations usually based discounted cash flow analysis discounted cash flow model requires assumptions timing amount future net cash flows risk cost capital terminal values market participants factors significantly affect value intangible asset abbott engages independent valuation experts review abbotts critical assumptions calculations acquisitions significant intangibles abbott reviews definitelived intangible assets impairment quarter using undiscounted net cash flows approach undiscounted cash flows intangible asset less carrying value intangible asset intangible asset written fair value usually discounted cash flow amount cash flows cannot identified individual asset review applied lowest group level cash flows identifiable goodwill indefinitelived intangible assets relate inprocess research development acquired business combination reviewed impairment annually event could result impairment occurs december 31 2013 goodwill amounted 98 billion intangibles amounted 57 billion amortization expense intangible assets amounted 791 million 2013 795 million 2012 884 million 2011 impairments goodwill 2013 2012 2011 2012 2011 abbott recorded impairment charges 69 million 125 million respectively certain research development assets due changes projected development regulatory timelines projects litigation abbott accounts litigation losses accordance fasb accounting standards codification 450 contingencies asc 450 loss contingency provisions recorded probable losses managements best estimate loss best estimate cannot made minimum loss contingency amount recorded estimates often initially developed substantially earlier ultimate loss known estimates refined accounting period additional information becomes known accordingly abbott often initially unable develop best estimate loss therefore minimum amount could zero recorded information becomes known either minimum loss amount increased resulting additional loss provisions best estimate made also resulting additional loss provisions occasionally best estimate amount changed lower amount events result expectation favorable outcome previously expected abbott estimates range possible loss approximately 70 million 90 million legal proceedings environmental exposures accruals approximately 80 million recorded december 31 2013 proceedings exposures accruals represent managements best estimate probable loss defined fasb asc 450 contingencies results operations sales following table details components sales growth reportable segment last two years increases total net sales 2013 2012 reflect unit growth partially offset impact unfavorable foreign exchange price declines related vascular products sales 2013 2012 primarily reflect pricing pressure drug eluting stents coronary products result market competition major markets comparison significant product group sales follows percent changes versus prior year based unrounded numbers 1other coronary products include primarily guidewires balloon catheters endovascular includes vessel closure carotid stents peripheral products excluding unfavorable effect exchange total established pharmaceutical products sales increased 07 percent 2013 21 percent 2012 established pharmaceutical products segment focused 14 key emerging markets including india russia china brazil excluding effect exchange sales 14 key emerging markets increased 63 percent 2013 128 percent 2012 macroeconomic market pressures various emerging markets negatively affected 2013 growth excluding effect exchange sales established pharmaceuticals markets decreased 4 percent 2013 56 percent 2012 declines markets category reflect unfavorable market conditions including continued effects european austerity measures 2012 japanese pricing actions excluding unfavorable effect exchange total nutritional products sales increased 54 percent 2013 89 percent 2012 international pediatric nutritional sales increased 2013 2012 due primarily volume growth developing countries suppliers recall product august 2013 certain international markets negatively impacted international pediatric nutritional sales third fourth quarters 2013 health issues associated supplier recall supplier subsequently determined product safe consumption event created significant disruption markets abbott expects sales disruption continue negatively impact international pediatric nutritional growth first half 2014 us pediatric sales flat 2013 due lower formula share partially offset higher shipments toddler products us pediatric nutritional sales 2012 reflect market share gains similac unit growth pediasure 2013 2012 increases international adult nutritional sales due primarily volume growth developing countries negatively impacted effect relatively stronger us dollar 1 percent decline 2013 us adult nutritional sales reflects abbotts exit certain noncore business lines part business margin improvement initiative sales decline resulting exit offset higher ensure revenues increase 2012 us adult nutritional sales reflects unit growth ensure glucerna products excluding unfavorable effect exchange total diagnostic products sales increased 83 percent 2013 73 percent 2012 sales increases reflect unit growth across geographical regions 2013 2012 sales immunochemistry products largest category segment reflect continued execution abbotts strategy deliver integrated solutions large healthcare customers excluding unfavorable effect exchange total vascular products sales flat 2013 decreased 56 percent 2012 2013 growth international markets driven continued share gains key geographies xience xpedition absorb offset declines us market due negative impact pricing pressure decline procedures due market conditions well expected decline certain royalty revenues 2012 decrease vascular products sales due pricing pressure well expected winding royalty supply agreements related certain thirdparty products including promus excluding royalty supply agreement revenue periods unfavorable effect exchange vascular products sales increased 34 percent 2012 abbott periodically sold product rights nonstrategic products recorded related gains net sales accordance abbotts revenue recognition policies discussed note 1 consolidated financial statements related net sales significant 2013 2012 2011 expiration licenses patent protection affect future revenues operating income abbott currently significant patent license expirations next three years expected affect abbott operating earnings gross profit margins 504 percent net sales 2013 506 percent 2012 491 percent 2011 gross profit margin 2013 remained relatively unchanged versus prior year improved margins nutritional diagnostics products segments offset margin declines established pharmaceuticals vascular products due pricing pressures unfavorable product mix well impact unfavorable foreign exchange across segments increase gross profit margin 2012 impacted improved gross margins across reportable segments result cost reduction initiatives impact exchange favorable product mix us states receive price rebates manufacturers infant formula federally subsidized special supplemental nutrition program women infants children also rebate programs pharmaceutical products numerous countries rebate programs continue negative effect gross profit margins nutritional established pharmaceutical products segments research development expense 1452 billion 2013 1544 billion 2012 1512 billion 2011 represented 60 percent decrease 2013 21 percent increase 2012 2013 decrease primarily reflects incurrence restructuring asset impairment charges 2012 recur 2013 research development expenditures totaled 336 million vascular products segment 416 million diagnostics products segment 239 million established pharmaceutical products segment 188 million nutritional products segment selling general administrative expenses decreased 68 percent 2013 increased 11 percent 2012 2013 decrease reflects transfer certain 2012 corporate costs abbvie separation well certain information technology back office support costs charged abbvie 2013 transition services agreements prudent cost management reduction restructuring costs also contributed decrease 2012 increase primarily reflects increased selling marketing support new products geographical expansion largely offset prudent cost management business acquisitions august 2013 abbott acquired 100 percent idev technologies net debt 310 million cash acquisition idev technologies expands abbotts endovascular portfolio allocation fair value acquisition resulted nondeductible acquired inprocess research development approximately 170 million accounted indefinitelived intangible asset regulatory approval discontinuation nondeductible definitelived intangible assets approximately 66 million nondeductible goodwill approximately 123 million net deferred tax liabilities 56 million acquired intangible assets consist developed technology amortized 11 years august 2013 abbott acquired 100 percent optimedica 260 million cash plus additional payments 150 million made upon completion certain development regulatory sales milestones acquisition optimedica provides abbott immediate entry point laser assisted cataract surgery market allocation fair value acquisition resulted nondeductible definitelived intangible assets approximately 160 million nondeductible acquired inprocess research development approximately 60 million accounted indefinitelived intangible asset regulatory approval discontinuation nondeductible goodwill approximately 151 million net deferred tax liabilities 70 million contingent consideration approximately 70 million fair value contingent consideration determined based independent appraisal acquired intangible assets consist primarily developed technology amortized 18 years preliminary allocations fair value acquisitions finalized valuations completed acquisitions taken place january 1 previous year consolidated net sales income would significantly different reported amounts restructurings 2013 abbott management approved plan reduce costs improve efficiencies across various functional areas well plan streamline certain manufacturing operations order reduce costs improve efficiencies abbotts established pharmaceuticals business 2012 abbott management approved plans streamline various commercial operations order reduce costs improve efficiencies abbotts core diagnostics established pharmaceutical nutritionals businesses abbott recorded employee related severance charges approximately 78 million 2013 167 million 2012 additional charges approximately 4 million 22 million also recorded 2013 2012 respectively primarily asset impairments approximately 35 million 2013 70 million 2012 recorded cost products sold approximately 47 million 2013 119 million 2012 recorded selling general administrative expense 2013 prior years abbott management approved plans realign worldwide pharmaceutical vascular manufacturing operations selected domestic international commercial research development operations order reduce costs 2013 abbott recorded employee severance charges approximately 11 million 2011 abbott recorded charges approximately 194 million reflecting impairment manufacturing facilities assets employee severance related charges approximately 11 million 2013 18 million 2011 classified cost products sold remaining 2011 charge 176 million related businesses transferred abbvie recognized results discontinued operations additional 41 million 110 million 25 million recorded 2013 2012 2011 respectively relating restructurings primarily accelerated depreciation 2012 abbott recorded charge approximately 150 million employee severance contractual obligations primarily related exit research development facility charges related businesses transferred abbvie recognized results discontinued operations 2011 abbott management approved plans streamline global manufacturing operations reduce overall costs improve efficiencies abbotts core diagnostic business 2011 charge 28 million recorded cost products sold addition charges approximately 16 million 42 million recorded 2012 2011 primarily accelerated depreciation product transfer costs interest expense 2013 interest expense decreased due lower level borrowings resulted transfer approximately 146 billion debt abbvie part separation 2012 interest expense included bridge facility fees related separation abbvie abbott change accounting principle income expense net prior january 1 2011 accounts foreign subsidiaries consolidated based fiscal year ended november 30 due time needed consolidate subsidiaries effective january 1 2011 one month lag consolidation accounts foreign subsidiaries eliminated yearend foreign subsidiaries changed december 31 abbott believes change accounting principle related elimination one month reporting lag preferable results contemporaneous reporting results foreign subsidiaries accordance applicable accounting literature change subsidiaries yearend treated change accounting principle requires retrospective application charge 100 million recorded income expense net 2011 recognize cumulative immaterial impacts 2009 2010 income expense net 2013 includes gains sales investments 2012 includes income approximately 40 million resolution contractual agreement net loss extinguishment debt 2012 abbott extinguished 77 billion longterm debt incurred cost 135 billion extinguish debt net gains unwinding interest rate swaps related debt taxes earnings income tax rates earnings continuing operations 55 percent 2013 897 percent 2012 89 percent 2011 2013 taxes earnings continuing operations include 234 million tax benefit related resolution various tax positions previous years addition result american taxpayer relief act 2012 signed law january 2013 abbott recorded tax benefit taxes continuing operations approximately 103 million 2013 retroactive extension research tax credit lookthrough rules section 954c6 internal revenue code beginning 2012 taxes earnings continuing operations 2012 reflect 472 million effect tax rate applied abbotts net debt extinguishment loss well recognition 212 million tax benefits result favorable resolution various tax positions pertaining prior year taxes earnings continuing operations 2011 reflect recognition 168 million tax benefits result favorable resolution various tax positions pertaining prior years exclusive discrete items effective rates lower us federal statutory rate 35 percent due primarily benefit lower tax rates tax exemptions foreign income reduced tax rates 180 757 149 percentage points 2013 2012 2011 respectively tax rate reductions primarily derived operations puerto rico switzerland ireland singapore abbott benefits combination favorable statutory tax rules tax rulings grants exemptions see note 13 consolidated financial statements full reconciliation effective tax rate us federal statutory rate 2014 abbott expects repatriate approximately 2 billion 2014 earnings generated outside us abbott also expects able accelerate utilization deferred tax assets thereby reduce cash taxes due us repatriation 150 million repatriation projected result approximately 550 600 million additional tax expense abbotts 2014 statement earnings excluding tax effect repatriation abbott expects apply annual effective rate approximately 19 percent 2014 results separation abbvie inc november 28 2012 abbotts board directors declared special dividend distribution outstanding shares common stock abbvie inc abbvie company formed hold abbotts researchbased proprietary pharmaceuticals business abbott common share held close business december 12 2012 abbott shareholders received one share abbvie stock january 1 2013 abbott received ruling internal revenue service separation qualifies taxfree distribution abbott us shareholders us federal income tax purposes historical operating results researchbased proprietary pharmaceuticals business prior separation excluded earnings continuing operations presented earnings discontinued operations line discontinued operations include results abbvies business except certain corporate overhead costs certain costs associated transition services provided abbott abbvie discontinued operations also include costs incurred abbott separate abbvie well allocation interest assuming uniform ratio consolidated debt equity abbotts historical operations assets liabilities cash flows researchbased proprietary pharmaceuticals business included abbotts consolidated balance sheet consolidated statements cash flows periods prior january 1 2013 following summary assets liabilities transferred abbvie part separation january 1 2013 billions addition approximately 1 billion accumulated comprehensive losses net income taxes primarily related pension benefit plan net liabilities well foreign translation transferred abbvie 2013 discontinued operations includes favorable adjustment tax expense 193 million result resolution various tax positions pertaining 2010 related abbvies operations summarized financial information discontinued operations 2012 2011 follows abbott abbvie entered transitional services agreements prior separation pursuant abbott abbvie providing various services interim transitional basis transition services may provided 24 months option oneyear extension recipient services provided abbott include certain information technology back office support billings abbott transitional services agreements recorded reduction costs provide respective service applicable expense category consolidated statement earnings transitional support enable abbvie establish standalone processes various activities previously provided abbott constitute significant continuing support abbvies operations small portion abbvies operations legal transfer abbvies assets net liabilities occur separation abbvie january 1 2013 due time required transfer marketing authorizations regulatory requirements countries terms separation agreement abbott abbvie subject risks entitled benefits generated operations assets majority operations transferred abbvie 2013 remainder expected transferred 2014 assets liabilities presented held disposition consolidated balance sheet december 31 2013 assets liabilities held disposition consist inventories 243 million trade accounts receivable 163 million current assets 32 million equipment 28 million assets 38 million trade accounts payable accrued liabilities 386 million liabilities 7 million abbotts obligation transfer net assets held disposition abbvie 111 million included accrued liabilities abbott retained liabilities us federal foreign income taxes income prior separation well certain nonincome taxes attributable abbvies business abbvie generally liable taxes attributable business connection separation abbott adjusted employee stock compensation awards separated defined benefit programs pensions postemployment medical dental benefit plans see notes 8 12 additional information research development programs abbott currently numerous pharmaceutical medical device diagnostic nutritional products development research development process established pharmaceuticals segment development process focuses geographic expansion continuous improvement segments existing products provide benefits patients customers established pharmaceuticals actively pursue primary research development usually begins work existing products acquisition advanced stage licensing opportunity depending upon product phases development may include •drug product development •phase bioequivalence studies compare future established pharmaceuticals brand already marketed compound active pharmaceutical ingredient api •phase ii studies test efficacy benefits small group patients •phase iii studies broaden testing wider population reflects actual medical use •phase iv postmarketing studies obtain new clinical use data existing products within approved indications specific requirements eg scope clinical trials obtaining regulatory approval vary across different countries geographic regions process may range one year bioequivalence study project 6 years complex formulations new indications geographic expansion specific countries china diagnostics segment phases research development process include •discovery focuses identification product address specific therapeutic area platform unmet clinical need •conceptfeasibility materials manufacturing processes evaluated testing may include product characterization analysis performed confirm clinical utility •development extensive testing performed demonstrate product meets specified design requirements design specifications conform user needs intended uses regulatory requirements diagnostic products vary across different countries geographic regions us fda classifies diagnostic products classes ii iii classification determines regulatory process approval diagnostics segment products three classes vast majority products categorized class ii submission separate regulatory filing required class products class ii devices typically require premarket notification fda regulatory filing known 510k submission class iii products subject fdas premarketing approval pma requirements class iii products used screen blood require submission approval biological license application bla eu diagnostic products also categorized different categories regulatory process governed european invitro diagnostic medical device directive depends upon category certain product categories require review approval independent company known notified body manufacturer affix ce mark product show compliance directive products require selfcertification process vascular segment research development process begins research specific technology evaluated feasibility commercial viability research program passes hurdle moves forward development process includes evaluation selection product design completion clinical trials test products safety efficacy validation manufacturing process demonstrate repeatability ability consistently meet predetermined specifications similar diagnostic products discussed us vascular products classified class ii iii abbotts vascular products classified class ii devices follow 510k regulatory process class iii devices subject pma process eu vascular products also categorized different classes regulatory process governed european medical device directive varies class product must bear ce mark show compliance directive products require submission design dossier appropriate regulatory authority review approval prior ce marking device products company required prepare technical file includes testing results clinical evaluations selfcertify ability apply ce mark product outside us eu regulatory requirements vary across different countries regions approval commercial launch vascular products postmarket trials may conducted either due conditional requirement regulatory market approval objective proving product superiority nutritional segment research development process generally focuses identifying developing ingredients products address nutritional needs particular populations eg infants athletes patients eg people diabetes depending upon country andor region claims regarding products efficacy made clinical studies typically must conducted product development product form change liquid powder generally necessitate clinical studies us fda requires notified proposed new formulations formulation packaging changes related infant formula products prior launch infant formula product packaging change company required obtain fdas confirmation objections proposed product packaging nutrition products notification preapproval fda required unless product includes new food additive countries regulatory approval may required certain nutritional products including infant formula medical nutritional products areas focus 2014 beyond abbotts significant areas therapeutic focus include following established pharmaceuticals abbott actively working development plans 20 30 key brands depending product development activities focus new data markets formulations combinations indications abbott focuses building countryspecific portfolios made global local pharmaceutical brands best meet local markets needs next several years established pharmaceuticals work expand product portfolio key markets geographic expansion existing brands new product enhancements strategic licensing activities vascular ongoing projects pipeline include •xience xpedition latest drugeluting stent des enhanced deliverability expanded size matrix utilizes xience prime stent everolimus biocompatible coating technology incorporates new catheter technology improved deliverability xience xpedition received us regulatory approval december 2012 also available europe parts asia latin america 2013 abbott continued expand des size offerings xience xpedition 48 received ce regulatory approval may 2013 making longest length des among major brands xience xpedition 20 mm diameter received ce regulatory approval december 2013 making smallest diameter des among major brands •absorb worlds first drug eluting bioresorbable vascular scaffold bvs device treatment coronary artery disease gradually resorbed vessel wall 2013 abbott made significant progress enrolling patients clinical trials regulatory approval united states china completed enrollment trials japan december 2013 •mitraclip device treatment mitral regurgitation mr october 2013 mitraclip received us regulatory approval patients significant symptomatic degenerative mr prohibitive risk mitral valve surgery mitraclip also available europe parts asia middle east latin america abbott expects seek product approval additional markets 2014 addition abbott continue clinical development mitraclip therapy including coapt trial landmark prospective randomized trial united states evaluate impact mitraclip treatment progression heart failure •supera veritas selfexpanding nitinol stent system acquired part acquisition idev technologies august 2013 proprietary interwoven wire technology supera veritas designed based biomimetic principles mimic bodys natural movement received ce mark europe treating blockages blood vessels due peripheral artery disease pad us supera veritas cleared treatment biliary strictures narrowing bile duct related cancer currently reviewed us food drug administration premarket approval application treatment superficial femoral proximal popliteal arteries main arteries thigh supply blood lower extremities abbott plans continue development superas size matrix next generation delivery system •coronary endovascular guide wires abbotts ht pilot ht progress guide wire families received fda clearance chronic total occlusions cto indication january 2013 medical optics abbott developing number new products patients undergoing cataract surgery designed improve physician efficiency patient outcomes 2013 abbotts tecnis toric monofocal intraocular lens combines optical qualities tecnis design astigmatism correction approved us china japan addition preloaded version tecnis 1 piece monofocal iol approved us canada india preloaded version tecnis 1 piece multifocal iol approved canada europe japan preloaded technology enables insertion tecnis 1 piece iol easy use disposable insertion system products received regulatory approval japan included tecnis optiblue monofocal iol standard cartridge insertion system well preloaded version idesign advanced vision diagnostic lasik treatment planning system previously approved europe 2012 received approval canada number latin american asian countries 2014 abbott plans continue work introduce new products including launch new preloaded iols designed improve ease use cataract surgeon molecular diagnostics various new molecular vitro diagnostic ivd products including oncology infectious disease assays next generation instrument system various stages development commercialization abbotts companion diagnostic test alk gene rearrangement test nonsmallcell lung cancer approved 69 countries around world includes options automated processing image analysis abbotts companion diagnostic program continues expand includes collaborative efforts multiple major pharmaceutical companies automated assay genotype hcvinfected patients aid choice appropriate therapy approved fda addition automated ivd assays flu abrsv cdifficle vanr launched many countries around world assays infectious diseases including mtb drug resistance oncology including kras braf mutation detection development core laboratory diagnostics abbott working development nextgeneration blood screening hematology immunochemistry instrument systems well assays various areas including infectious disease cardiac care metabolics oncology automation solutions increase efficiency laboratories diabetes care third quarter 2013 abbott received ce mark europe freestyle precision neo monitoring system new icondriven system visual glucose trend indicators insulin logging second half 2013 abbott received ce mark europe fda approval precision pro hospital glucose monitoring system provides improved accuracy dualband wireless access immediate test results abbott also developing new sensor based system expects submit approval europe 2014 nutrition abbott focusing research development spend six benefit platforms span pediatric adult performance nutrition areas immunity cognition lean body mass inflammation metabolism tolerance numerous new products build advances benefit platforms currently development including clinical outcome testing expected launched coming years given diversity abbotts business intention remain broadbased healthcare company numerous sources potential future growth individual project expected material cash flows results operations next five years factors considered included research development expenses projected incurred project next year relative abbotts total research development expenses well qualitative factors marketplace perceptions impact new product abbotts overall market position delays abbotts 2013 research development activities expected material impact operations aggregate cost complete numerous projects currently development expected material total cost complete depend upon abbotts ability successfully complete project rate project advances ultimate timing completion given potential significant delays high rate failure inherent development pharmaceutical medical device products technologies possible accurately estimate total cost complete projects currently development abbott plans manage portfolio projects achieve research development spend equal approximately 6 percent 7 percent sales year abbott regularly accumulate make management decisions based total expenses incurred particular development phase given period goodwill december 31 2013 goodwill recorded result business combinations totaled 98 billion goodwill reviewed impairment annually third quarter event could result impairment occurs results last impairment test indicated fair value reporting unit substantially excess carrying value except medical optics unit fair value medical optics business exceeds carrying value extended economic pressure governmentreimbursed cataract procedures europe global lasik surgery business well longer regulatory approval timelines products currently development integration optimedica negative impact foreign currency movements could result valuation future fair value medical optics unit declined carrying value thereby triggering requirement estimate implied fair value goodwill measure impairment financial condition cash flow net cash operating activities amounted 33 billion 93 billion 90 billion 2013 2012 2011 respectively decrease net cash operating activities 2013 due separation abbvie january 1 2013 net cash operating activities 2013 reflects approximately 435 million onetime net cash outflows related separation abbvie 724 million contributions defined benefit pension plans income tax component operating cash flow 2013 2012 2011 includes 427 million 408 million 580 million respectively noncash tax benefits related favorable resolution various tax positions pertaining prior years 2013 also includes 103 million tax benefit retroactive impact us tax law changes expected realized future years trade accounts payable liabilities net cash operating activities 2012 includes payment approximately 15 billion related litigation accrual recorded 2011 related business operations abbvie partially offset increases liabilities primarily restructuring reserves substantially cash equivalents december 31 2013 2012 2011 considered reinvested indefinitely foreign subsidiaries abbott expect reinvestment affect liquidity capital resources funds needed operations us abbott would required accrue pay us income taxes repatriate funds abbott believes sufficient sources liquidity support assumption disclosed amount undistributed earnings december 31 2013 considered reinvested indefinitely abbott funded 724 million 2013 379 million 2012 394 million 2011 defined benefit pension plans abbott expects pension funding approximately 400 million 2014 pension plans approximately 300 million relates main domestic pension plans abbott expects annual cash flow operating activities continue exceed abbotts capital expenditures cash dividends debt capital december 31 2013 abbotts longterm debt rating standard poors corporation a1 moodys investors service abbott readily available financial resources including unused lines credit 50 billion support commercial paper borrowing arrangements expire 2017 2012 abbott redeemed 77 billion longterm notes preparation separation abbvie abbott repaid 1 billion longterm notes due 2012 addition abbvie inc wholly owned subsidiary abbott issued 147 billion longterm notes guaranteed abbott abbvies separation abbott january 1 2013 2011 abbott repaid 20 billion longterm notes using primarily shortterm borrowings october 2008 board directors authorized purchase 5 billion abbotts common shares time authorization 330 million 370 million shares purchased 2013 2012 cost approximately 12 billion 22 billion respectively additional purchases common shares made authorization june 2013 board directors authorized purchase 30 billion abbotts common shares time 105 million shares purchased authorization cost 388 million 2013 abbott indicated plans purchase 2 billion additional shares time 2014 abbott declared dividends 064 per share 2013 compared 167 per share 2012 dividends paid 882 million 2013 compared 32 billion 2012 yearoveryear change dividends reflects impact separation abbvie january 2013 october 2013 abbott announced increase companys quarterly dividend 022 per share 014 per share representing increase 57 percent increase took effect dividend paid february 2014 shareholders record close business january 15 2014 working capital reduction cash equivalents 108 billion december 31 2012 35 billion december 31 2013 reflects transfer 59 billion cash equivalents abbvie part separation january 1 2013 working capital 97 billion december 31 2013 180 billion december 31 2012 decrease working capital 2013 due transfer approximately 9 billion working capital abbvie january 1 2013 part separation see note 2 separation abbvie additional information substantially abbotts trade receivables italy spain portugal greece governmental health systems collection outstanding receivables countries held steady improved 2013 depending upon country result governmental receivables four countries accounted approximately 1 percent abbotts total assets 12 percent total net trade receivables december 31 2013 latter 16 percent december 31 2012 exception greece abbott historically collected almost outstanding receivables countries abbott continues monitor credit worthiness customers located geographic areas establishes allowance trade receivable probable balance collected addition closely monitoring economic conditions budgetary fiscal developments countries abbott regularly communicates customers regarding status receivable balances including payment plans obtains positive confirmation validity receivables abbott also monitors potential periodically utilized factoring arrangements mitigate credit risk although receivables included arrangements historically material amount total outstanding receivables government funding become unavailable countries significant adverse changes reimbursement practices occur abbott may able collect entire balance capital expenditures capital expenditures 11 billion 2013 18 billion 2012 15 billion 2011 principally upgrading expanding manufacturing research development facilities equipment various segments investments information technology laboratory instruments placed customers 2013 decrease reflects separation abbvie beginning 2013 contractual obligations table summarizes abbotts estimated contractual obligations december 31 2013 apurchase commitments purchases made normal course business meet operational capital expenditure requirements bunrecognized tax benefits totaling 13 billion excluded table abbott unable reasonably estimate period cash settlement respective taxing authorities items see note 13 taxes income details company employee benefit obligations consisting pensions postemployment benefits including medical life excluded table discussion companys pension postretirement plans including funding matters included note 12 postemployment benefits contingent obligations abbott periodically entered agreements ordinary course business assignment product rights companies resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote addition abbott periodically acquires business product rights abbott agrees pay contingent consideration based attaining certain thresholds based occurrence certain events legislative issues abbotts primary markets highly competitive subject substantial government regulations throughout world abbott expects debate continue availability method delivery payment health care products services possible predict extent abbott health care industry general might adversely affected factors future complete discussion factors contained item 1 business item 1a risk factors annual report form 10k private securities litigation reform act 1995 caution concerning forwardlooking statements safe harbor provisions private securities litigation reform act 1995 abbott cautions investors forwardlooking statements projections made abbott including made document subject risks uncertainties may cause actual results differ materially projected economic competitive governmental technological factors may affect abbotts operations discussed item 1a risk factors annual report form 10k item 7a item 7 managements discussion analysis financial condition results operations incorporated herein reference managements discussion analysis financial condition results operations years 1994 1993 1992 found section captioned financial review 1994 annual report item 8 item 7 managements discussion analysis financial condition results operations financial review results operations sales following table details components sales growth segment last three years 2001 pharmaceutical international segment sales favorably impacted acquisition pharmaceutical business basf sales new products 2001 estimated 939 million excluding effect acquisition pharmaceutical business basf increases disclosed note 14 adult nutritionals three years antiinfectives 1999 primarily due unit increases decreases antiinfectives 2001 2000 due primarily unit decreases operating earnings gross profit margins sales less cost products sold including distribution expenses 524 percent net sales 2001 546 percent 2000 1999 decrease gross profit margin 2001 due primarily increased goodwill intangibles amortization result acquisition pharmaceutical business basf onetime integration charges partially offset favorable product mix gross profit margins years also affected productivity improvements partially offset negative effect relatively stronger us dollar higher project expenses new products higher manufacturing capacity costs anticipated unit growth effects inflation competitive pricing pressures us states receive price rebates manufacturers infant formula federally subsidized special supplemental food program women infants children also rebate programs pharmaceutical products rebate programs continue negative effect gross profit margins ross pharmaceutical segments result consent decree entered us government 1999 discussed note 17 abbott prohibited manufacturing distributing certain diagnostic products abbott ensures processes lake county ill diagnostics manufacturing operations conform us food drug administrations fda quality system regulation qsr terms amended consent decree abbott must ensure diagnostics manufacturing operations conformance qsr various dates january 15 2001 fda determine abbotts conformance qsr inspection abbotts facilities fourth quarter 2001 first quarter 2002 fda concludes operations conformance qsr abbott may subject additional costs fda announced 1997 manufacturers levothyroxine drug products synthroid market many years would required part agencys regulatory process file either new drug application nda citizen petition showing products new drugs therefore require nda synthroids manufacturer time knoll pharmaceutical company abbott acquired march 2001 exercised citizen petition option synthroids long history excellent track record april 26 2001 fda denied knolls petition abbott promptly responded fda abbott would submit nda synthroid abbott submitted august 1 2001 abbott expects nda review process take approximately 10 12 months date fda filed nda july 11 2001 fda published guidance distribution levothyroxine sodium products nda review process guidance allows synthroid remain market agency reviews nda abbott submitted synthroid however guidance also requires levothyroxine sodium products without approved ndas subject gradually reducing quarterly limits distribution measured average monthly distribution six months ended august 1 2001 august 14 2003 levothyroxine sodium products without approved ndas would required cease distribution upon nda approval limits distribution removed 2001 abbott recorded us net sales synthroid 445 million research development expense 16 billion 2001 represented 97 percent net sales compared 98 percent net sales 2000 91 percent net sales 1999 increase research development expenses 2001 concentrated primarily pharmaceutical products research development expenditures continue concentrated pharmaceutical diagnostic products selling general administrative expenses increased 290 percent 2001 net favorable effect relatively stronger us dollar 24 percent compared increases 13 percent 2000 35 percent 1999 increase selling general administration 2001 due primarily acquisition pharmaceutical business basf increases net exchange three years also reflect inflation additional selling marketing support primarily international pharmaceutical hospital segments abbotts income tap pharmaceutical products inc tap joint venture adversely affected 2001 2000 result settlement us department justice investigation taps marketing lupron discussed note 16 interest income expense net interest expense increased 2001 primarily due higher level borrowings result acquisition pharmaceutical business basf net interest expense decreased 2000 1999 due lower level borrowings higher level investment securities taxes earnings effective income tax rates 177 percent 2001 270 percent 2000 280 percent 1999 2001 tax rate lower 2000 tax rate due primarily effect benefit tax exemptions several taxing jurisdictions relation abbotts decreased pretax income 2001 compared 2000 excluding effects acquisitions pharmaceutical business basf vysis inc effective tax rate 2001 would approximately 26 percent 2000 tax rate lower 1999 tax rate due part domestic dividend exclusion applicable increased earnings tap pharmaceutical products inc earnings abbott recorded certain nonrecurring charges earnings 2001 primarily related acquisitions pharmaceutical business basf vysis inc items managements analysis nonrecurring items compared reported net income diluted earnings per share accordance generally accepted accounting principles gaap follows financial condition cash flow abbott expects annual cash flow operating activities continue approximate exceed abbotts capital expenditures cash dividends abbott material exposures offbalance sheet arrangements including special purpose entities activities include nonexchangetraded contracts accounted fair value debt capital december 31 2001 abbotts bond ratings aa standard poors corporation aa3 moodys investors service abbott readily available financial resources including unused domestic lines credit 30 billion support domestic commercial paper borrowing arrangements result acquisition pharmaceutical business basf abbotts credit ratings adjusted reflect increased borrowings financed acquisition registration statement filed securities exchange commission 2001 abbott issued 3250 billion longterm debt securities proceeds issuance used reduce shortterm commercial paper borrowings primarily used finance acquisition pharmaceutical business basf registration statement abbott may issue 250 million future form debt securities common shares without par value working capital december 31 2001 2000 1999 working capital 492 million 31 billion 19 billion respectively capital expenditures capital expenditures 12 billion 2001 10 billion 2000 987 million 1999 principally upgrading expanding manufacturing research development administrative support facilities segments laboratory instruments hospital equipment placed customers level capital expenditures expected continue increased proportion dedicated hospital international diagnostic segments legislative issues abbotts primary markets highly competitive subject substantial government regulation abbott expects debate continue federal state levels availability method delivery payment health care products services legislation enacted could effect reducing prices reducing rate price increases medical products services international operations also subject significant degree government regulation possible predict extent abbott health care industry general might adversely affected factors future business combinations divestiture march 2 2001 abbott acquired cash pharmaceutical business basf includes global operations knoll pharmaceuticals approximately 72 billion acquisition financed primarily short longterm borrowings acquisition accounted purchase method accounting allocation acquisition cost follows billions dollars acquisition cost allocated intangible assets goodwill acquired inprocess research development net tangible assets based independent appraisal fair values date acquisition product rights currently marketed products amortized straightline basis 10 16 years average 13 years goodwill amortized 2001 straightline basis 20 years acquired inprocess research development charged expense 2001 net tangible assets acquired consist primarily property equipment approximately 630 million trade accounts receivable approximately 402 million inventories approximately 275 million net assumed liabilities primarily trade accounts payable liabilities prior date acquisition abbott began plan integration restructuring business 2001 abbott formally approved several restructuring plans continuing assess formulate restructuring plans specific business activities certain costs implementing formally approved plans included reported amount goodwill abbott expects additional restructuring plans finalized formally approved increase amount reported goodwill addition integration acquired operations result charges recorded earnings periods integration plans finalized following unaudited pro forma financial information reflects consolidated results operations abbott acquisition pharmaceutical business basf taken place january 1 2000 pro forma information includes primarily adjustments acquired inprocess research development amortization product rights currently marketed products interest expense estimated acquisition debt amortization goodwill pro forma financial information necessarily indicative results operations would transaction effected assumed date november 2001 abbott acquired cash outstanding common stock vysis inc leading genomic disease management company cash acquisition cost approximately 362 million 162 million allocated developed technology amortized 15 years 143 million charged earnings 2001 acquired inprocess research development remaining acquisition cost allocated net tangible assets goodwill acquisition taken place january 1 previous year consolidated sales income would significantly different reported amounts 2000 abbott sold agricultural products business sumitomo chemical co ltd resulting 138 million gain restructuring plans millions dollars 2001 abbott began implementing restructuring plans related operations acquired pharmaceutical business basf addition abbott announced 2001 closing one manufacturing operations relocating production abbott facilities following summarizes restructuring activity 2070 total restructuring charges 1555 recorded goodwill associated acquisition pharmaceutical business basf amount expensed approximately 358 classified cost products sold 133 selling general administrative 24 research development employeerelated costs primarily severance pay relocation former basf employees outplacement services approved restructuring plans cover 2393 employees approximately 1200 severed year end employee groups covered restructuring plans include manufacturing research development sales administrativerelated functions recently issued accounting standards june 2001 financial accounting standards board issued statement financial accounting standards sfas 141 business combinations sfas 142 goodwill intangible assets sfas 141 requires business combinations initiated june 30 2001 accounted using purchase method accounting adoption sfas 142 january 1 2002 goodwill longer subject amortization estimated useful life goodwill subject least annual assessment impairment applying fairvaluebased test beginning date adoption new standard abbott assessing potential impact may caused assessment impairment requirements sfas 142 abbott estimates annual goodwill amortization 2001 subject new rule would approximately 80 million 100 million aftertax basis addition 2001 financial accounting standards board issued statement financial accounting standards 143 accounting asset retirement obligations 144 accounting impairment disposal longlived assets adoption provisions statements material effect financial statements abbott private securities litigation reform act 1995 caution concerning forwardlooking statements safe harbor provisions private securities litigation reform act 1995 abbott cautions investors forwardlooking statements projections made abbott including made document subject risks uncertainties may cause actual results differ materially projected economic competitive governmental technological factors may affect abbotts operations discussed exhibit 991 annual report form 10k item 7a item 7 managements discussion analysis financial condition results operations financial review abbotts revenues derived primarily sale broad line health care products shortterm receivable arrangements patent protection licenses technological performance features inclusion abbotts products contract impact products sold price controls competition rebates impact net selling prices products foreign currency translation impacts measurement net sales costs abbotts primary products nutritional products branded generic pharmaceuticals diagnostic testing products vascular products sales international markets comprise approximately 70 percent consolidated net sales january 4 2017 abbott completed acquisition st jude medical inc st jude medical global medical device manufacturer approximately 236 billion including approximately 136 billion cash approximately 10 billion abbott common shares based abbotts closing stock price acquisition date part acquisition approximately 58 billion st jude medicals debt assumed refinanced abbott transaction provides expanded opportunities future growth important part companys ongoing effort develop strong diverse portfolio devices diagnostics nutritionals branded generic pharmaceuticals combined company compete nearly every area 30 billion cardiovascular market well neuromodulation market acquisition st jude medical completed december 31 2016 abbotts consolidated financial statements include financial condition operating results st jude medical periods presented herein september 2016 abbott announced entered definitive agreement sell abbott medical optics amo vision care business johnson 4325 billion cash subject customary purchase price adjustments cash debt working capital decision sell amo reflects abbotts proactive shaping portfolio line strategic priorities transaction expected close first quarter 2017 subject customary closing conditions including regulatory approvals operating results amo continued included earnings continuing operations qualify reporting discontinued operations assets liabilities business reported held disposition abbotts consolidated balance sheet december 31 2016 january 30 2016 abbott entered definitive agreement acquire alere inc alere diagnostic device service provider 5600 per common share cash acquisition subject satisfaction customary closing conditions including accuracy aleres representations warranties subject certain materiality qualifications compliance material respects aleres covenants receipt applicable regulatory approvals due number adverse developments occurred respect alere since date agreement abbott filed complaint delaware court chancery seeking terminate acquisition agreement basis alere experienced material adverse effect acquisition agreement materially breached certain covenants february 27 2015 abbott completed sale developed markets branded generics pharmaceuticals business previously included established pharmaceutical products segment mylan inc 110 million shares mylan nv newly formed entity combined mylans existing business abbotts developed markets branded generics pharmaceuticals business abbott retained branded generics pharmaceuticals business products established pharmaceutical products segment emerging markets april 2015 abbott sold 4025 million mylan nv ordinary shares abbott currently owns 6975 million mylan nv ordinary shares last three years sales growth driven primarily established pharmaceuticals nutritional diagnostics businesses sales emerging markets represent nearly 50 percent total company sales increased 63 percent 2016 171 percent 2015 excluding impact foreign exchange emerging markets include countries except united states western europe japan canada australia new zealand last three years margin improvement driven primarily nutritional diagnostics businesses abbott expanded operating margin approximately 120 basis points per year 2016 2015 abbotts sales costs financial position period impacted strengthening us dollar relative international currencies challenging economic fiscal environment several emerging economies abbotts worldwide nutritional products business sales last three years positively impacted demographics aging population increasing rate chronic disease developed markets rise middle class many emerging markets well numerous new product introductions leveraged abbotts strong brands 2016 excluding impact foreign exchange strong performance several markets across latin america southeast asia well increased us sales partially offset challenging market conditions chinese pediatric nutritional business respect profitability nutritional products business manufacturing distribution process changes lower commodity costs cost reductions drove margin improvements across business last three years although improvements offset negative impact foreign exchange 2016 operating margins business increased 210 percent 2014 241 percent 2016 abbotts worldwide diagnostics business sales growth last three years reflected continued market penetration core laboratory business us china growth emerging markets notably latin america addition point care diagnostics business continued expand geographic presence targeted developed emerging markets worldwide diagnostic sales increased 55 percent 2016 73 percent 2015 excluding impact foreign exchange 2016 abbott initiated launch alinity™ integrated family nextgeneration diagnostic systems solutions designed increase efficiency running tests less space generating test results faster minimizing human errors continuing provide quality results fourth quarter 2016 abbott obtained ce mark alinity™ point care immunoassay clinical chemistry blood screening systems initiated launch four systems europe next two years abbott work obtain approval launch alinity™ systems multiple geographies every area diagnostics business competes margin improvement continued key focus diagnostics business 2016 although improvements offset negative impact foreign exchange operating margins increased 229 percent sales 2014 248 percent 2016 business continued execute efficiency initiatives manufacturing supply chain functions established pharmaceutical products segment focuses sale products emerging markets sale developed markets business mylan february 27 2015 acquisition cfr pharmaceuticals sa cfr september 2014 doubled abbotts branded generics pharmaceutical presence latin america expanded presence emerging markets acquisition veropharm leading russian pharmaceutical company december 2014 abbott established manufacturing footprint russia obtained portfolio medicines well aligned abbotts current pharmaceutical therapeutic areas focus excluding impact foreign exchange established pharmaceutical sales continuing operations increased 105 percent 2016 341 percent 2015 sales increase 2016 driven doubledigit growth brazil russia india china bric geographies comprise approximately 45 percent sales established pharmaceutical products segment excluding impact 2014 acquisitions well impact foreign exchange 2015 established pharmaceutical sales continuing operations increased 134 percent vascular business excluding unfavorable impact foreign exchange total sales increased low single digits 2014 2016 driven doubledigit growth abbotts sales mitraclip structural heart device treatment mitral regurgitation well endovascular franchise sales growth increases partially offset pricing pressures primarily related drugeluting stents des lower market share abbotts xience des franchise certain geographies xience des franchise includes xience v prime nano pro prox xpedition alpine abbott continued develop worldwide marketleading xience des franchise last three years abbott vascular products latest product introduction xience alpine launched various markets across europe asia 2015 2016 us late 2014 xience franchise maintained marketleading global position 2016 operating margins declined 365 percent 2014 358 percent 2016 primarily due unfavorable effect foreign exchange ongoing pricing pressures coronary business abbotts short longterm debt totaled 220 billion december 31 2016 included debt issued anticipation st jude medical acquisition december 31 2016 abbotts longterm debt rating standard poors corporation a2 moodys investors service conjunction completion st jude medical acquisition january 4 2017 ratings adjusted bbb standard poors corporation baa3 moodys investors service anticipation acquisition st jude medical november 2016 abbott issued 151 billion longterm debt consisting 285 billion 235 maturing 2019 285 billion 290 maturing 2021 150 billion 340 maturing 2023 300 billion 375 maturing 2026 165 billion 475 maturing 2036 325 billion 490 maturing 2046 november 2016 abbott also entered interest rate swap contracts totaling 30 billion related new debt effect changing abbotts obligation fixed interest rate variable interest rate obligation related debt instruments march 2015 abbott issued 25 billion longterm debt consisting 750 million 200 maturing 2020 750 million 255 maturing 2022 10 billion 295 maturing 2025 march 2015 abbott also entered interest rate swap contracts totaling 25 billion related debt issuance contracts effect changing abbotts obligation fixed interest rate variable interest rate obligation fourth quarter 2014 abbott extinguished approximately 500 million longterm debt assumed part acquisition cfr incurred charge 183 million related early repayment debt abbott declared dividends 1045 per share 2016 compared 098 per share 2015 increase approximately 7 dividends paid 1539 billion 2016 compared 1443 billion 2015 yearoveryear change dividends reflects impact increase dividend rate december 2016 abbott increased companys quarterly dividend 0265 per share 026 per share effective dividend paid february 2017 abbott focus integrating st jude medical well several key initiatives focus integration combine st jude medical business abbotts existing vascular business create bestinclass organization successfully deliver new product launches contribute broader comprehensive cardiovascular neuromodulation portfolio nutritional business abbott continue build product portfolio introduction new sciencebased products expand highgrowth emerging markets implement additional margin improvement initiatives established pharmaceuticals business abbott continue focus obtaining additional product approvals across numerous countries increasing penetration emerging markets diagnostics business abbott work launch full alinity™ suite across europe additional geographies including us next two years diagnostics business also focus expansion emerging markets improvements segments operating margin abbotts segments abbott focus developing differentiated technologies higher growth markets critical accounting policies sales rebates 2016 approximately 43 percent abbotts consolidated gross revenues subject various forms rebates allowances abbott recorded reductions revenues time sale rebates allowances 2016 nutritional products diabetes care segments abbott provides rebates state agencies administer special supplemental nutrition program women infants children wic wholesalers group purchasing organizations government agencies private entities rebate amounts usually based upon volume purchases using contractual statutory prices product factors used rebate calculations include identification products sold subject rebate customer government agency price terms apply estimated lag time sale payment rebate using historical trends adjusted current changes abbott estimates amount rebate paid records liability reduction gross sales abbott records sale product settlement rebate generally occurs one six months sale abbott regularly analyzes historical rebate trends makes adjustments reserves changes trends terms rebate programs rebates chargebacks charged gross sales 2016 2015 2014 amounted approximately 25 billion 22 billion 21 billion respectively 229 percent 216 percent 201 percent respectively based gross sales approximately 107 billion 103 billion 103 billion respectively subject rebate onepercentage point increase percentage rebates related gross sales would decrease net sales approximately 107 million 2016 abbott considers onepercentage point increase reasonably likely increase percentage rebates related gross sales allowances charged gross sales approximately 160 million 124 million 138 million cash discounts 2016 2015 2014 respectively 242 million 238 million 210 million returns 2016 2015 2014 respectively cash discounts known within 15 30 days sale therefore reliably estimated returns reliably estimated abbotts historical returns low sales returns terms sales terms remained relatively unchanged several periods management analyzes adequacy ending rebate accrual balances quarter domestic nutritional business management uses internal external data available estimate level inventory distribution channel management access several large customers inventory management data customers utilizes data third party measures time retail shelf sources allow management make reliable estimates inventory distribution channel except transition period change supplier wic business state inventory distribution channel vary substantially management also estimates states processing lag time based claims data wic business state sale made determining factor applicable price reliably determinable estimates required amount wic sales within state abbott wic business external data sources utilized estimate participant data us department agriculture usda administers wic program participant data states internally administered market research usda making data available many years internal data includes historical redemption rates pricing data december 31 2016 abbott wic business 31 states historically adjustments prior years rebate accruals material net income abbott employs various techniques verify accuracy claims submitted possible works organizations submitting claims gain insight changes might affect rebate amounts government agency programs calculation rebate involves interpretations relevant regulations subject challenge change interpretation income taxes abbott operates numerous countries income tax returns subject audits adjustments abbott operates globally nature audit items often complex objectives government auditors result tax income one country abbott employs internal external tax professionals minimize audit adjustment amounts possible accordance accounting rules relating measurement tax contingencies order recognize uncertain tax benefit taxpayer must likely sustaining position measurement benefit calculated largest amount 50 percent likely realized upon resolution benefit application rules requires significant amount judgment us abbotts federal income tax returns 2013 settled abbott record deferred income taxes earnings reinvested indefinitely foreign subsidiaries pension postemployment benefits abbott offers pension benefits postemployment health care many employees abbott engages outside actuaries assist determination obligations costs programs abbott must develop longterm assumptions significant health care cost trend rates discount rates expected return plan assets discount rates used measure liabilities determined based highquality fixed income securities match duration expected retiree benefits health care cost trend rates represent abbotts expected annual rates change cost health care benefits forward projection health care costs measurement date difference assumed rates actual rates known years significant relation obligations annual cost recorded programs low interest rates significantly increased actuarial losses plans december 31 2016 pretax net actuarial losses prior service costs credits recognized accumulated comprehensive income loss abbotts defined benefit plans medical dental plans losses 33 billion 119 million respectively actuarial losses gains amortized remaining service attribution periods employees corridor method accordance rules accounting postemployment benefits differences expected longterm return plan assets actual annual return amortized fiveyear period note 13 consolidated financial statements describes impact onepercentage point change health care cost trend rate however certainty change would limited one percentage point valuation intangible assets abbott acquired continues acquire significant intangible assets abbott records fair value acquisition date transactions involving purchase sale intangible assets occur frequency companies health care field valuations usually based discounted cash flow analysis discounted cash flow model requires assumptions timing amount future net cash flows risk cost capital terminal values market participants factors significantly affect value intangible asset abbott engages independent valuation experts review abbotts critical assumptions calculations acquisitions significant intangibles abbott reviews definitelived intangible assets impairment quarter using undiscounted net cash flows approach undiscounted cash flows intangible asset less carrying value intangible asset intangible asset written fair value usually discounted cash flow amount cash flows cannot identified individual asset review applied lowest group level cash flows identifiable goodwill indefinitelived intangible assets relate inprocess research development acquired business combination reviewed impairment annually event could result impairment occurs december 31 2016 goodwill amounted 77 billion intangibles amounted 45 billion excluding approximately 20 billion goodwill 529 million intangibles noncurrent assets held disposition due pending sale amo amortization expense continuing operations intangible assets amounted 550 million 2016 601 million 2015 555 million 2014 impairments goodwill 2016 2015 2014 litigation abbott accounts litigation losses accordance fasb accounting standards codification 450 contingencies asc 450 loss contingency provisions recorded probable losses managements best estimate loss best estimate cannot made minimum loss contingency amount recorded estimates often initially developed substantially earlier ultimate loss known estimates refined accounting period additional information becomes known accordingly abbott often initially unable develop best estimate loss therefore minimum amount could zero recorded information becomes known either minimum loss amount increased resulting additional loss provisions best estimate made also resulting additional loss provisions occasionally best estimate amount changed lower amount events result expectation favorable outcome previously expected abbott estimates range possible loss approximately 35 million 45 million legal proceedings environmental exposures accruals approximately 40 million recorded december 31 2016 proceedings exposures accruals represent managements best estimate probable loss defined fasb asc 450 contingencies results operations sales following table details components sales growth reportable segment last two years increases total net sales 2016 2015 reflect unit growth partially offset impact unfavorable foreign exchange price declines related vascular products sales 2016 2015 primarily reflect pricing pressure drug eluting stents result market competition us major markets competitive pressures managed medicaid medicare segments abbotts diabetes care business also contributed overall 29 price decline us 2016 comparison significant product group sales follows percent changes versus prior year based unrounded numbers 1coronary devices include des bvs product portfolio structural heart guidewires balloon catheters coronary products endovascular includes vessel closure carotid stents peripheral products 2coronary devices include des bvs product portfolio structural heart guidewires balloon catheters coronary products endovascular includes vessel closure carotid stents peripheral products excluding unfavorable impact foreign exchange total established pharmaceutical products sales increased 105 percent 2016 341 percent 2015 established pharmaceutical products segment focused several key emerging markets including india russia china brazil excluding impact foreign exchange sales key emerging markets increased 133 percent 2016 324 percent 2015 excluding impact foreign exchange sales established pharmaceuticals emerging markets increased 20 percent 2016 increased 396 percent 2015 increase 2015 includes impact acquisitions cfr pharmaceuticals september 2014 veropharm december 2014 excluding sales acquisitions impact foreign exchange revenues increased 134 percent 2015 excluding unfavorable impact foreign exchange total nutritional products sales increased 12 percent 2016 55 percent 2015 abbotts international pediatric nutritional business 2016 decrease sales driven challenging market conditions china including impact new food safety regulations require reregistration 2018 infant toddler formulas contributing oversupply product market sales decrease china partially offset continued strong performance several markets across latin america southeast asia increase 2016 us pediatric nutritional sales primarily reflects abovemarket performance abbotts pediasure® toddler brand well recent infant product launches including similac® advance® nongmo similac sensitive® nongmo excluding unfavorable impact foreign exchange 2016 2015 increases international adult nutritional sales due primarily volume growth emerging markets continued expansion adult nutrition category internationally increase 2016 us adult nutritional revenues driven growth ensure® sales decrease 2015 reflected effects increased competition market dynamics retail institutional categories excluding unfavorable impact foreign exchange total diagnostic products sales increased 55 percent 2016 73 percent 2015 sales increases primarily driven share gains core laboratory point care markets us internationally 2016 2015 sales immunochemistry products largest category segment reflect continued execution abbotts strategy deliver integrated solutions large healthcare customers excluding unfavorable impact foreign exchange total vascular products sales grew 45 percent 2016 13 percent 2015 2016 doubledigit growth sales abbotts mitraclip structural heart device treatment mitral regurgitation partially offset lower sales des products increase endovascular business driven higher supera vessel closure sales vascular products sales 2016 also favorably impacted resolution previously disputed third party royalty revenue related prior year excluding royalty impact worldwide sales vascular products would increased 34 percent 2016 2015 growth abbotts mitraclip structural heart product endovascular business including supera peripheral stent absorb bioresorbable vascular scaffold various international markets almost entirely offset pricing pressures des products abbott periodically sold product rights nonstrategic products recorded related gains net sales accordance abbotts revenue recognition policies discussed note 1 consolidated financial statements related net sales significant 2016 2015 2014 expiration licenses patent protection affect future revenues operating income abbott significant patent license expirations next three years expected affect abbott operating earnings gross profit margins 541 percent net sales 2016 542 percent 2015 517 percent 2014 2016 unfavorable effect foreign exchange offset continued underlying margin expansion primarily diagnostics nutritional segments improvement 2015 reflects higher margins nutritional diagnostics vascular products segments us states receive price rebates manufacturers infant formula federally subsidized special supplemental nutrition program women infants children also rebate programs pharmaceutical products numerous countries rebate programs continue negative effect gross profit margins nutritional established pharmaceutical products segments research development expense 1422 billion 2016 1405 billion 2015 1345 billion 2014 represented 12 percent increase 2016 45 percent increase 2015 2016 increase research development expenses primarily due higher spending various projects impairment inprocess research development asset related nonreportable segment partially offset lower restructuring costs 2016 research development expenditures totaled 513 million diagnostics products segment 259 million vascular products segment 205 million nutritional products segment 137 million established pharmaceutical products segment selling general administrative expenses decreased 17 percent 2016 increased 39 percent 2015 versus respective prior year 2016 decrease reflects favorable impact foreign exchange continued efforts reduce back office costs lower restructuring charges compared prior year 2015 increase reflects impact cfr veropharm acquisitions partially offset impact cost improvement initiatives favorable impact foreign exchange business acquisitions january 4 2017 abbott completed acquisition st jude medical global medical device manufacturer approximately 236 billion including approximately 136 billion cash approximately 10 billion abbott common shares represented approximately 254 million shares abbott common stock based abbotts closing stock price acquisition date part acquisition approximately 58 billion st jude medicals debt assumed refinanced abbott transaction provides expanded opportunities future growth important part companys ongoing effort develop strong diverse portfolio devices diagnostics nutritionals branded generic pharmaceuticals combined company compete nearly every area 30 billion cardiovascular market well neuromodulation market acquisition st jude medical completed december 31 2016 abbotts consolidated financial statements include financial condition operating results st jude medical periods presented herein terms agreement st jude medical common share st jude medical shareholders received 4675 cash 08708 abbott common share abbott stock price 3936 reflects closing price january 4 2017 represented value approximately 81 per st jude medical common share total purchase consideration 236 billion cash portion acquisition funded combination medium longterm debt issued november 2016 20 billion 120day senior unsecured bridge term loan facility see note 10 debt lines credit details regarding financing arrangements preliminary allocation fair value st jude medical acquisition shown table allocation fair value acquisition finalized valuation completed differences preliminary final allocation could material acquisition st jude medical occurred beginning 2016 unaudited pro forma consolidated net sales would approximately 268 billion unaudited pro forma consolidated net earnings would 157 million includes amortization approximately 700 million inventory stepup unaudited pro forma information necessarily indicative consolidated results operations would realized st jude medical acquisition completed beginning 2016 meant indicative future results operations combined entity experience 2016 abbott st jude medical agreed sell certain products terumo corporation approximately 112 billion sale includes st jude medical angioseal™ femoseal™ vascular closure products abbotts vado® steerable sheath sale closed january 20 2017 january 30 2016 abbott entered definitive agreement acquire alere inc diagnostic device service provider 5600 per common share cash acquisition subject satisfaction customary closing conditions including accuracy aleres representations warranties subject certain materiality qualifications compliance material respects aleres covenants receipt applicable regulatory approvals due number adverse developments occurred respect alere since date agreement abbott filed complaint delaware court chancery seeking terminate acquisition agreement basis alere experienced material adverse effect acquisition agreement materially breached certain covenants august 2015 abbott completed acquisition equity tendyne holdings inc tendyne abbott already approximately 225 million cash plus additional payments 150 million made upon completion certain regulatory milestones acquisition tendyne focused developing minimally invasive mitral valve replacement therapies allows abbott broaden foundation treatment mitral valve disease final allocation fair value acquisition resulted nondeductible acquired inprocess research development approximately 220 million accounted indefinitelived intangible asset regulatory approval discontinuation nondeductible goodwill approximately 142 million deferred tax assets net assets approximately 18 million deferred tax liabilities approximately 85 million contingent consideration approximately 70 million goodwill identifiable vascular products segment september 2014 abbott completed acquisition controlling interest cfr pharmaceuticals sa cfr approximately 29 billion cash 28 billion net cfr cash hand closing including assumption approximately 570 million debt total cost acquisition 34 billion acquisition cfr doubles abbotts branded generics pharmaceutical presence latin america expands presence emerging markets cfrs financial results included abbotts financial statements beginning september 26 2014 date abbott acquired control business abbott currently owns 100 cfr fair value noncontrolling interest acquisition date approximately 3 million acquisition funded cash equivalents shortterm investments final allocation fair value acquisition shown table acquired intangible assets consist primarily product rights currently marketed products amortized 12 16 years weighted average 15 years goodwill primarily attributable intangible assets qualify separate recognition goodwill identifiable established pharmaceutical products segment acquired tangible assets consist primarily cash equivalents approximately 94 million trade accounts receivable approximately 180 million inventory approximately 169 million current assets approximately 51 million property equipment approximately 210 million longterm assets approximately 145 million assumed liabilities consist borrowings approximately 570 million trade accounts payable current liabilities approximately 240 million noncurrent liabilities approximately 14 million net sales cfr pharmaceuticals totaled approximately 750 million 2015 december 2014 abbott acquired control veropharm leading russian pharmaceutical company approximately 315 million excluding assumed debt plus subsequent 5 million payment related working capital adjustment acquisition abbott establishes manufacturing footprint russia obtains portfolio medicines well aligned abbotts current pharmaceutical therapeutic areas focus abbott acquired control veropharm purchase limited liability company garden hills holding company owns approximately 98 percent veropharm including assumption approximately 90 million debt noncontrolling interest fair value 5 million total value acquired business approximately 415 million final allocation fair value acquisition resulted definitelived nondeductible intangible assets approximately 100 million nondeductible goodwill approximately 140 million net deferred tax liabilities approximately 25 million nondeductible goodwill identifiable established pharmaceutical products segment additionally abbott acquired property plant equipment approximately 150 million accounts receivable approximately 45 million inventory approximately 25 million net liabilities approximately 20 million acquired intangible assets consist developed technology amortized 16 years 2015 abbott acquired remaining shares veropharm increasing ownership 100 percent december 2014 abbott completed acquisition topera inc approximately 250 million cash plus additional payments 300 million made upon completion certain regulatory sales milestones acquisition topera provides abbott foundational entry electrophysiology market final allocation fair value acquisition resulted nondeductible acquired inprocess research development approximately 60 million accounted indefinitelived intangible asset regulatory approval discontinuation nondeductible definitelived intangible assets approximately 215 million nondeductible goodwill approximately 145 million net deferred tax liabilities approximately 80 million contingent consideration approximately 90 million fair value contingent consideration determined based independent appraisal acquired intangible assets consist developed technology trademarks amortized 17 years except st jude medical acquisition aggregate year acquisitions taken place beginning comparable prior annual reporting period consolidated net sales earnings would significantly different reported amounts restructurings 2016 2015 2014 abbott management approved plans streamline operations order reduce costs improve efficiencies various abbott businesses including nutritional established pharmaceuticals vascular businesses abbott recorded employeerelated severance charges approximately 33 million 2016 95 million 2015 164 million 2014 approximately 9 million 2016 18 million 2015 20 million 2014 recorded cost products sold approximately 5 million 2016 34 million 2015 53 million 2014 recorded research development approximately 19 million 2016 43 million 2015 91 million 2014 recorded selling general administrative expense additional charges approximately 2 million 2016 45 million 2015 39 million 2014 recorded primarily accelerated depreciation 2013 2015 abbott management approved various plans reduce costs improve efficiencies across various functional areas 2013 abbott management also approved plans streamline certain manufacturing operations order reduce costs improve efficiencies abbotts established pharmaceuticals business 2012 abbott management approved plans streamline various commercial operations order reduce costs improve efficiencies abbotts core diagnostics established pharmaceuticals nutritionals businesses abbott recorded employeerelated severance charges approximately 18 million 2016 66 million 2015 125 million 2014 approximately 4 million 2016 9 million 2015 7 million 2014 recorded cost products sold approximately 2 million 2015 6 million 2014 recorded research development approximately 14 million 2016 55 million 2015 112 million 2014 recorded selling general administrative expense interest expense interest income 2016 interest expense increased primarily due amortization bridge financing fees related financing st jude medical acquisition closed january 4 2017 pending alere acquisition interest expense 2016 also increased due 151 billion debt issued november 2016 2015 interest expense increased due issuance 25 billion longterm debt year 2014 interest expense increased due higher level shortterm borrowings year interest income increased 2015 due higher return earned shortterm investments year income expense net income expense net 2016 includes expense adjust abbotts holding mylan nv ordinary shares due decline fair value securities considered abbott temporary 2015 includes pretax gain sale portion mylan nv shares received sale developed markets branded generics pharmaceuticals business income resulting decrease fair value contingent consideration related business acquisition 2014 includes charges associated impairment certain equity investments partially offset gains sales investments net loss extinguishment debt 2014 abbott extinguished approximately 500 million longterm debt assumed part cfr pharmaceuticals acquisition incurred cost 183 million extinguish debt taxes earnings income tax rates earnings continuing operations 248 percent 2016 181 percent 2015 316 percent 2014 2016 taxes earnings continuing operations include impact net tax benefit approximately 225 million primarily result resolution various tax positions prior years partially offset unfavorable impact nondeductible foreign exchange losses related venezuela adjustment mylan nv equity investment well recognition deferred taxes associated pending sale amo 2015 taxes earnings continuing operations include 71 million tax expense related gain disposal shares mylan nv stock 2015 effective tax rate includes impact rd tax credit made permanent us protecting americans tax hikes act 2015 2014 taxes earnings continuing operations include 440 million tax expense associated onetime repatriation 2014 nonus earnings partially offset 125 million tax benefits related resolution various tax positions adjustment tax uncertainties prior years exclusive discrete items tax expense favorably impacted lower tax rates tax exemptions foreign income primarily derived operations puerto rico switzerland ireland netherlands singapore abbott benefits combination favorable statutory tax rules tax rulings grants exemptions tax jurisdictions see note 14 consolidated financial statements full reconciliation effective tax rate us federal statutory rate earnings discontinued operations net tax 2016 reflects recognition 325 million net tax benefits primarily result resolution various tax positions related prior years 2015 tax expense related discontinued operations includes 667 million tax expense certain currentyear funds earned outside us designated permanently reinvested overseas abbott accrued us taxes approximately 22 billion 2014 earnings generated outside us connection repatriation earnings addition 440 million tax expense discussed repatriation resulted 82 million additional tax expense abbotts 2014 income discontinued operations abbott accelerated utilization deferred tax assets therefore cash taxes due us repatriation material discontinued operations february 27 2015 abbott completed sale developed markets branded generics pharmaceuticals business mylan inc mylan equity ownership newly formed entity mylan nv combined mylans existing business abbotts developed markets pharmaceuticals business mylan nv publicly traded historically business included abbotts established pharmaceutical products segment date closing 110 million mylan nv shares abbott received valued 577 billion abbott recorded aftertax gain sale business approximately 16 billion abbott retained branded generics pharmaceuticals business emerging markets close transaction abbott mylan entered transition services agreement pursuant abbott mylan providing various back office support services interim transitional basis transition services may provided 2 years certain services extended additional five ten months charges abbott transition services agreement recorded reduction costs provide respective service applicable expense category consolidated statement earnings transitional support constitute significant continuing involvement mylans operations abbott also entered manufacturing supply agreements mylan related certain products supply term ranging 3 10 years requiring 2 year notice prior termination cash flows associated transition services manufacturing supply agreements expected significant therefore cash flows direct cash flows disposed component accounting standards codification 205 february 10 2015 abbott completed sale animal health business zoetis inc first quarter 2016 abbott received additional 25 million proceeds due expiration holdback agreement associated sale business reported aftertax gain 16 million result disposition businesses prior years operating results businesses date sale reported part discontinued operations earnings discontinued operations net taxes line consolidated statement earnings discontinued operations include allocation interest expense assuming uniform ratio consolidated debt equity abbotts historical operations january 1 2013 abbott completed separation abbvie inc abbvie formed hold abbotts researchbased proprietary pharmaceuticals business abbott received ruling internal revenue service separation qualifies taxfree distribution abbott us shareholders us federal income tax purposes small portion abbvies operations legal transfer abbvies assets net liabilities occur separation abbvie january 1 2013 due time required transfer marketing authorizations regulatory requirements countries terms separation agreement abbott abbvie subject risks entitled benefits generated operations assets majority operations transferred abbvie 2013 2014 assets liabilities presented held disposition consolidated balance sheet december 31 2015 abbott retained liabilities us federal foreign income taxes income prior separation well certain nonincome taxes attributable abbvies business abbvie generally liable taxes attributable business 2016 2015 2014 discontinued operations include favorable adjustment tax expense 318 million 3 million 166 million respectively result resolution various tax positions pertaining abbvies operations operating results abbotts developed markets branded generics pharmaceuticals animal health businesses well income tax benefit related businesses transferred abbvie reported discontinued operations follows assets liabilities held disposition september 2016 abbott announced entered definitive agreement sell amo vision care business johnson 4325 billion cash subject customary purchase price adjustments cash debt working capital decision sell amo reflects abbotts proactive shaping portfolio line strategic priorities transaction expected close first quarter 2017 subject customary closing conditions including regulatory approvals operating results amo included continuing operations qualify reporting discontinued operations year ended december 31 2016 2015 amos earnings taxes 30 million 64 million respectively result pending sale amo assets liabilities business meet criteria qualify held disposition december 31 2016 assets liabilities held disposition december 31 2016 relate amo assets liabilities held disposition december 31 2015 relate abbvie business following summary assets liabilities held disposition research development programs abbott currently numerous pharmaceutical medical devices diagnostic nutritional products development research development process established pharmaceuticals segment development process focuses geographic expansion continuous improvement segments existing products provide benefits patients customers established pharmaceuticals actively pursue primary research development usually begins work existing products acquisition advanced stage licensing opportunity depending upon product phases development may include • drug product development • phase bioequivalence studies compare future established pharmaceuticals brand already marketed compound active pharmaceutical ingredient api • phase ii studies test efficacy benefits small group patients • phase iii studies broaden testing wider population reflects actual medical use • phase iv postmarketing studies obtain new clinical use data existing products within approved indications specific requirements eg scope clinical trials obtaining regulatory approval vary across different countries geographic regions process may range one year bioequivalence study project 6 years complex formulations new indications geographic expansion specific countries china diagnostics segment phases research development process include • discovery focuses identification product address specific therapeutic area platform unmet clinical need • conceptfeasibility materials manufacturing processes evaluated testing may include product characterization analysis performed confirm clinical utility • development extensive testing performed demonstrate product meets specified design requirements design specifications conform user needs intended uses regulatory requirements diagnostic products vary across different countries geographic regions us fda classifies diagnostic products classes ii iii classification determines regulatory process approval diagnostics segment products three classes vast majority products categorized class ii submission separate regulatory filing required class products class ii devices typically require premarket notification fda regulatory filing known 510k submission class iii products subject fdas premarketing approval pma requirements class iii products used screen blood require submission approval biological license application bla eu diagnostic products also categorized different categories regulatory process governed european invitro diagnostic medical device directive depends upon category certain product categories require review approval independent company known notified body manufacturer affix ce mark product show compliance directive products require selfcertification process vascular segment research development process begins research specific technology evaluated feasibility commercial viability research program passes hurdle moves forward development process includes evaluation selection product design completion clinical trials test products safety efficacy validation manufacturing process demonstrate repeatability ability consistently meet predetermined specifications similar diagnostic products discussed us vascular products classified class ii iii abbotts vascular products classified class ii devices follow 510k regulatory process class iii devices subject pma process eu vascular products also categorized different classes regulatory process governed european medical device directive varies class product must bear ce mark show compliance directive products require submission design dossier appropriate regulatory authority review approval prior ce marking device products company required prepare technical file includes testing results clinical evaluations selfcertify ability apply ce mark product outside us eu regulatory requirements vary across different countries regions approval commercial launch vascular products postmarket trials may conducted either due conditional requirement regulatory market approval objective proving product superiority nutritional segment research development process generally focuses identifying developing ingredients products address nutritional needs particular populations eg infants adults patients eg people diabetes depending upon country andor region claims regarding products efficacy made clinical studies typically must conducted us fda requires notified proposed new formulations formulation packaging changes related infant formula products prior launch infant formula product packaging change company required obtain fdas confirmation objections proposed product packaging nutritional products notification preapproval fda required unless product includes new food additive countries regulatory approval may required certain nutritional products including infant formula medical nutritional products areas focus 2017 beyond abbotts significant areas therapeutic focus include following established pharmaceuticals abbott focuses building country specific portfolios made global local pharmaceutical brands best meet needs patients emerging markets 400 development projects active one several emerging markets next several years established pharmaceuticals plans expand product portfolio key therapeutic areas aim among first launch new branded generic medicines particular pharmaceutical products addition established pharmaceuticals continues expand existing brands new markets implement product enhancements provide value patients acquire strategic products technology licensing activities abbott also actively working development several key brands creon duphaston influvac depending product activities focus development new data markets formulations delivery systems indications vascular ongoing projects pipeline include •mitraclip device treatment mitral regurgitation consistent abbotts nearterm vision grow mitral tricuspid valve programs abbott continues work expanding use mitraclip device clinical trials mitraclip underway objective broadening mitraclips footprint new key markets enrollment coapt trial study safety effectiveness mitraclip device heart failure patients functional mitral regurgitation projected completed 2017 leveraging expertise percutaneous leaflet coaptation abbott working expand clipbased technology address unmet needs tricuspid regurgitation • portico resheathable transcatheter aortic valve system us clinical trial objective clinical trial evaluate safety effectiveness portico transcatheter heart valve delivery systems via transfemoral alternative delivery methods •thoratec momentum 3 multicenter study maglev technology heartmate 3™ hm3 clinical study protocol objective clinical study evaluate safety effectiveness hm3 left ventricular assist system lvas used treatment advanced refractory left ventricular heart failure short term arm study complete results presented american heart association november 2016 long term arm requires twoyear patient followup hm3 intended use inside outside hospital • amplatzer™ amulet™ laa occluder trial objective clinical trial evaluate safety efficacy device patients nonvalvular atrial fibrillation patients eligible trial randomized receive either amulet device commercially available watchman device followed 5 years device implant • tendyne transcatheter mitral valve replacement device selfexpanding fully retrievable repositionable bioprosthesis simple controlled deployment procedure trial support ce mark began 2016 projected completed 2017 •supera selfexpanding nitinol stent system acquired part acquisition idev technologies august 2013 proprietary interwoven wire technology supera designed based biomimetic principles mimic bodys natural movement supera available us europe various countries asia middle east latin america treatment blockages blood vessels due peripheral artery disease expanded size matrix approved us abbott developing superas next generation delivery system • abbott also developing future versions metallic des guide wires balloon delivery catheters molecular diagnostics various new molecular vitro diagnostic ivd products next generation instrument systems various stages development commercialization core laboratory diagnostics abbott continues commercialize nextgeneration blood screening immunoassay clinical chemistry hematology systems along assays various areas including infectious disease cardiac care metabolics oncology well informatics automation solutions increase efficiency laboratories diabetes care 2016 abbott expanded results replace outcome trial covered type 2 diabetes patients publication results impact study showed improved glycemic outcomes people type 1 diabetes using freestyle libre system freestyle libre system eliminates need routine finger sticks reading glucose levels sensor worn back upper arm 14 days also requires finger sticks calibration 2014 abbott attained ce mark europe freestyle libre system 2016 abbott launched two apps europe freestyle libre librelink enables people diabetes access glucose data directly freestyle libre sensor android smartphones librelinkup caregiver app remotely monitoring glucose values us third quarter 2016 abbott received fda approval freestyle libre pro designed used healthcare professionals clinic setting submitted pma consumer version freestyle libre nutritionals abbott focusing research development spend platforms span pediatric adult performance nutrition areas gastro intestinalimmunity health brain health mobility metabolism user experience platforms numerous new products build advances platforms currently development including clinical outcome testing expected launched coming years given diversity abbotts business intention remain broadbased healthcare company numerous sources potential future growth individual project expected material cash flows results operations next five years factors considered included research development expenses projected incurred project next year relative abbotts total research development expenses well qualitative factors marketplace perceptions impact new product abbotts overall market position delays abbotts 2016 research development activities expected material impact operations aggregate cost complete numerous projects currently development expected material total cost complete depend upon abbotts ability successfully complete project rate project advances ultimate timing completion given potential significant delays high rate failure inherent development pharmaceutical medical device diagnostic products technologies possible accurately estimate total cost complete projects currently development abbott plans manage portfolio projects achieve research development spending competitive businesses participates spending expected approximate 75 percent total abbott sales 2017 abbott regularly accumulate make management decisions based total expenses incurred particular development phase given period goodwill december 31 2016 goodwill recorded result business combinations totaled 77 billion goodwill reviewed impairment annually third quarter event could result impairment occurs using quantitative assessment determine whether likely fair value reporting unit less carrying amount income market approaches used calculate fair value reporting unit results last impairment test indicated fair value reporting unit substantially excess carrying value financial condition cash flow net cash operating activities amounted 32 billion 30 billion 37 billion 2016 2015 2014 respectively increase net cash operating activities 2016 reflects additional focus management working capital decrease net cash operating activities 2015 due large part divestiture developed market established pharmaceuticals business february 2015 well increase contributions defined benefit plans 2015 income tax component operating cash flow 2016 2015 2014 includes 550 million 70 million 268 million respectively noncash tax benefits primarily related favorable resolution various tax positions pertaining prior years 2015 reflects noncash impact approximately 11 billion tax expense associated gain sale businesses foreign currency loss related venezuela reduced abbotts cash approximately 410 million 2016 included effect exchange rate changes cash equivalents line within consolidated statement cash flows future fluctuations strength us dollar foreign currencies expected materially impact abbotts liquidity excluding proceeds november 2016 longterm debt issuance 85 cash equivalents december 31 2016 considered reinvested indefinitely foreign subsidiaries abbott expect reinvestment affect liquidity capital resources funds needed operations us abbott may required accrue pay us income taxes repatriate funds abbott believes sufficient sources liquidity support assumption disclosed amount undistributed earnings december 31 2016 considered reinvested indefinitely abbott funded 582 million 2016 579 million 2015 393 million 2014 defined benefit pension plans abbott expects pension funding approximately 364 million 2017 pension plans approximately 270 million relates main domestic pension plan abbott expects annual cash flow operating activities continue exceed abbotts capital expenditures cash dividends debt capital december 31 2016 abbotts longterm debt rating standard poors corporation a2 moodys investors service conjunction completion st jude medical acquisition january 4 2017 ratings adjusted bbb standard poors corporation baa3 moodys investors service abbott expects maintain investment grade rating abbott readily available financial resources including unused lines credit 50 billion expire 2019 support commercial paper borrowing arrangements november 2016 abbott issued 151 billion medium longterm debt primarily fund cash portion acquisition st jude medical abbott issued 285 billion 235 senior notes due november 22 2019 285 billion 290 senior notes due november 30 2021 150 billion 340 senior notes due november 30 2023 300 billion 375 senior notes due november 30 2026 165 billion 475 senior notes due november 30 2036 325 billion 490 senior notes due november 30 2046 november 2016 abbott also entered interest rate swap contracts totaling 30 billion related new debt swaps effect changing abbotts obligation fixed interest rate variable interest rate obligation related debt instruments april 2016 abbott obtained commitment 364day senior unsecured bridge term loan facility amount exceed 172 billion comprised 152 billion 364day bridge loan 20 billion 120day bridge loan provide financing acquisition st jude medical 152 billion component commitment terminated november 2016 abbott issued 151 billion longterm debt december 2016 abbott formalized 20 billion component entered 120day bridge term loan facility provided abbott ability borrow 20 billion unsecured basis partially fund st jude medical acquisition january 4 2017 abbott borrowed 20 billion facility 12 billion repaid january 31 2017 february 2016 abbott obtained commitment 364day senior unsecured bridge term loan facility amount exceed 9 billion conjunction pending acquisition alere commitment automatically extended 90 days january 29 2017 march 2015 abbott issued 25 billion longterm debt consisting 750 million 200 senior notes due march 15 2020 750 million 255 senior notes due march 15 2022 10 billion 295 senior notes due march 15 2025 proceeds debt used pay shortterm borrowings march 2015 abbott also entered interest rate swap contracts totaling 25 billion contracts effect changing abbotts obligation fixed interest rate variable interest rate obligation 2014 abbott redeemed approximately 500 million longterm notes assumed part acquisition cfr pharmaceuticals september 2014 board directors authorized repurchase 30 billion abbotts common shares time 2014 authorization addition 512 million unused portion previous program announced june 2013 2016 abbott repurchased 104 million shares cost 408 million program authorized 2014 2015 abbott repurchased 113 million shares cost 512 million unused portion 2013 authorization 362 million shares cost 17 billion program authorized 2014 total 475 million shares cost 22 billion 2014 abbott repurchased 546 million shares cost 21 billion program announced june 2013 april 27 2016 board directors authorized issuance sale general corporate purposes 75 million common shares would result proceeds 3 billion shares issued authorization abbott declared dividends 1045 per share 2016 compared 098 per share 2015 increase approximately 7 dividends paid 1539 billion 2016 compared 1443 billion 2015 yearoveryear change dividends reflects impact increase dividend rate working capital working capital 201 billion december 31 2016 50 billion december 31 2015 increase working capital 2016 due 136 billion increase cash equivalents 18 billion reduction shortterm borrowings resulting proceeds longterm debt issued november 2016 well cash generated operating activities january 4 2017 approximately 136 billion 186 billion cash equivalents december 31 2016 used fund cash portion acquisition st jude medical substantially abbotts trade receivables italy spain portugal greece governmental health systems collection outstanding receivables countries stable 2015 2016 governmental receivables four countries accounted less 1 percent abbotts total assets years 6 percent total net trade receivables december 31 2016 7 percent december 31 2015 exception greece abbott historically collected almost outstanding receivables countries abbott continues monitor credit worthiness customers located geographic areas establishes allowance trade receivable probable balance collected addition closely monitoring economic conditions budgetary fiscal developments countries abbott regularly communicates customers regarding status receivable balances including payment plans obtains positive confirmation validity receivables abbott also monitors potential periodically utilized factoring arrangements mitigate credit risk although receivables included arrangements historically material amount total outstanding receivables government funding become unavailable countries significant adverse changes reimbursement practices occur abbott may able collect entire balance venezuela operations since january 2010 venezuela designated highly inflationary economy us gaap 2014 2015 government venezuela operated multiple mechanisms exchange bolivars us dollars mechanisms included cencoex sicad simadi rates stood 63 135 approximately 200 respectively december 31 2015 abbott continued use cencoex rate 63 venezuelan bolivars us dollar report results financial position cash flows related operations venezuela since abbott continued qualify exchange rate pay import various products venezuela february 17 2016 venezuelan government announced threetier exchange rate system would reduced two rates renamed dipro dicom rates dipro rate official rate food medicine imports adjusted 63 10 bolivars per us dollar dicom rate floating market rate published daily venezuelan central bank end first quarter 2016 approximately 263 bolivars per us dollar result decreasing government approvals convert bolivars us dollars pay intercompany accounts well accelerating deterioration economic conditions country abbott concluded appropriate move dicom rate end first quarter 2016 result abbott recorded foreign currency exchange loss 480 million 2016 revalue net monetary assets venezuela abbott continuing use dicom rate report results operations remeasure net monetary assets venezuela end quarter december 31 2016 abbotts venezuelan operations represented approximately 01 abbotts consolidated assets additional foreign currency losses related venezuela expected material capital expenditures capital expenditures 11 billion 2016 2015 2014 principally upgrading expanding manufacturing research development facilities equipment various segments investments information technology laboratory instruments placed customers contractual obligations table summarizes abbotts estimated contractual obligations december 31 2016 apurchase commitments purchases made normal course business meet operational capital expenditure requirements bnet unrecognized tax benefits totaling approximately 560 million excluded table abbott unable reasonably estimate period cash settlement respective taxing authorities items see note 14 taxes earnings continuing operations details company employee benefit obligations consisting pensions postemployment benefits including medical life excluded table discussion companys pension postretirement plans including funding matters included note 13 postemployment benefits contingent obligations abbott periodically entered agreements companies ordinary course business assignment product rights resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote addition abbott periodically acquires business product rights abbott agrees pay contingent consideration based attaining certain thresholds based occurrence certain events legislative issues abbotts primary markets highly competitive subject substantial government regulations throughout world abbott expects debate continue availability method delivery payment health care products services possible predict extent abbott health care industry general might adversely affected factors future complete discussion factors contained item 1 business item 1a risk factors recently issued accounting standards october 2016 financial accounting standards board fasb issued accounting standards update asu 201616 income taxes topic 740 intraentity transfers assets inventory requires recognition income tax effects intercompany sales transfers assets inventory period transfer occurs standard becomes effective abbott beginning first quarter 2018 early adoption permitted abbott currently evaluating impact asu 201616 consolidated financial statements march 2016 fasb issued asu 201609 improvements employee sharebased payment accounting asu 201609 modifies several aspects accounting sharebased payment transactions including accounting income taxes classification statement cash flows standard becomes effective abbott beginning first quarter 2017 abbott anticipate new guidance material impact consolidated financial statements abbott cannot predict impact consolidated financial statements future reporting periods following adoption dependent upon various factors including number shares issued changes price shares february 2016 fasb issued asu 201602 leases requires lessees recognize assets liabilities leases balance sheet standard becomes effective abbott beginning first quarter 2019 early adoption permitted adoption requires application new guidance periods presented abbott currently evaluating impact new guidance consolidated financial statements january 2016 fasb issued asu 201601 financial instruments recognition measurement financial assets financial liabilities provides new guidance recognition measurement presentation disclosure financial assets liabilities standard becomes effective abbott beginning first quarter 2018 early adoption permitted abbott currently evaluating effect standard consolidated financial statements related disclosures may 2015 fasb issued asu 201507 fair value measurement topic 820 disclosures investments certain entities calculate net asset value per share equivalent removes requirement categorize fair value hierarchy investments measured net asset value per share using practical expedient guidance effective public business entities years beginning december 15 2015 abbott adopted guidance december 31 2016 applied retrospective basis adoption asu 201507 impacted form content basis fair value measurement disclosures related assets associated defined benefit medical dental plans impact abbotts consolidated financial position results operations cash flows may 2014 fasb issued asu 201409 revenue contracts customers provides single comprehensive model accounting revenue contracts customers supersede existing revenue recognition guidance standard becomes effective abbott first quarter 2018 abbott continuing evaluate effect standard consolidated financial statements related disclosures including areas variable consideration new disclosure requirements abbott continue monitor additional modifications clarifications interpretations undertaken fasb may impact abbotts current conclusions abbott currently expecting use modified retrospective method adopt standard private securities litigation reform act 1995 caution concerning forwardlooking statements safe harbor provisions private securities litigation reform act 1995 abbott cautions investors forwardlooking statements projections made abbott including made document subject risks uncertainties may cause actual results differ materially projected economic competitive governmental technological factors may affect abbotts operations discussed item 1a risk factors item 7a item 7 managements discussion analysis financial condition results operations incorporated herein reference managements discussion analysis financial condition results operations years 1995 1994 1993 found section captioned financial review 1995 annual report item 8 item 7 managements discussion analysis financial condition results operations financial review critical accounting policies litigation abbott accounts litigation losses accordance statement financial accounting standards sfas 5 accounting contingencies sfas 5 loss contingency provisions recorded probable losses managements best estimate loss best estimate cannot made minimum loss contingency amount recorded estimates often initially developed substantially earlier ultimate loss known estimates refined accounting period additional information known accordingly abbott often initially unable develop best estimate loss therefore minimum amount could zero recorded information becomes known either minimum loss amount increased resulting additional loss provisions best estimate made also resulting additional loss provisions occasionally best estimate amount changed lower amount events result expectation favorable outcome previously expected noted abbott unable estimate loss industrywide enteral nutritional business investigation sales rebates large part abbotts domestic businesses sell products distributors resell products end customers abbott must provide rebates members buying groups purchase abbotts distributors sell customers prices determined contract abbott customer state agencies administer various programs federal medicaid medicare programs special supplemental food program women infants children rebate amounts usually based upon volume purchases reference specific price product therefore abbott estimates amount rebate paid records liability reduction revenue abbott records sale product settlement rebate generally occurs three 24 months sale abbott regularly analyzes historical rebate trends makes adjustments recorded reserves changes trends terms rebate programs income taxes abbott operates numerous countries income tax returns subject audits adjustments abbott operates globally nature audit items often complex objectives government auditors result tax income one country company employs internal external tax professionals minimize audit adjustment amounts possible part abbotts calculation provision taxes earnings abbott records amount expects incur result audits united states internal revenue service currently auditing abbotts us income tax returns years 1993 1995 pension postemployment benefits abbott offers pension benefits postemployment health care many employees abbott engages outside actuaries calculate obligations programs assistance outside actuaries abbott must develop longterm assumptions significant health care cost trend rate discount rate expected return plan assets differences expected return plan assets actual return amortized fiveyear period difference assumed rates actual rates known decades significant relation obligation annual expense recorded programs note 5 consolidated financial statements describes impact onepercentage point change health care cost trend rate however certainty change would limited one percentage point 2002 abbott recorded minimum pension liability adjustments 343 million accumulated benefit obligations certain domestic international defined benefit plans exceeded market value plans assets resulted charge accumulated comprehensive loss 203 million net taxes discount rate used 2002 determining accumulated benefit obligations 675 onepercentage point reduction discount rate would result increase minimum pension liability adjustments approximately 368 million valuation intangible assets abbott acquired continues acquire significant intangible assets abbott values records assets yet regulatory approval alternative uses expensed acquired inprocess research development regulatory approval capitalized generally transactions involving purchase sale intangible assets occur frequency companies health care field valuations usually based discounted cash flow analysis abbott uses discounted cash flow model value intangible assets acquired assessment impairment discounted cash flow model requires assumptions timing amount future cash inflows outflows risk cost capital terminal values factors significantly affect value intangible asset abbott engages independent valuation experts review abbotts critical assumptions significant acquisitions intangibles abbott reviews intangible assets impairment quarter using undiscounted net cash flows approach undiscounted cash flows intangible asset less carrying value intangible asset intangible asset written discounted cash flow value cash flows cannot identified individual asset review applied lowest group level cash flows identifiable goodwill reviewed impairment annually event could result impairment goodwill occurs results operations sales following table details components sales growth segment last three years 2001 pharmaceutical international segment sales favorably impacted compared 2000 acquisition pharmaceutical business basf comparison product group sales segment follows dollars millions sales new products 2002 estimated 531 million led ross products international segments 2001 acquisition pharmaceutical business basf favorably impacted diabetesmetabolism cardiologyurology product sales pharmaceutical products segment pharmaceuticals product sales international segment abbott periodically sold product rights nonstrategic products recorded related gains net sales accordance abbotts revenue recognition policies discussed note 1 gains recorded net sales 164 million 2002 44 million 2001 98 million 2000 december 31 2002 fda approved humira treatment rheumatoid arthritis worldwide sales humira forecasted 150 million 2003 expiration patent protection affect future revenues operating income abbott significant patent expirations activities next three years follows original us compound patent clarithromycin expires 2005 approximately 50 us sales clarithromycin 2002 made form covered patents expire later 2005 us sales clarithromycin 487 million 2002 abbott markets tricor us license agreement patents covering tricor challenged competitors abbott vigorously defending patents us sales tricor 403 million 2002 nda synthroid protected patent approved fda 2002 fda studying conditions competitors may rely abbotts nda market competitive product us sales synthroid 489 million 2002 operating earnings gross profit margins sales less cost products sold including distribution expenses 519 percent net sales 2002 524 percent 2001 546 percent 2000 gross profit margin 2002 negatively impacted fda consent decree charge restructuring charges discussed unfavorable product mix partially offset absence goodwill amortization 2002 decrease gross profit margin 2001 due primarily increased goodwill intangibles amortization integration charges result acquisition pharmaceutical business basf gross profit margins years also affected productivity improvements higher project expenses new products higher manufacturing capacity costs anticipated unit growth effects inflation competitive pricing pressures us states receive price rebates manufacturers infant formula federally subsidized special supplemental food program women infants children also rebate programs pharmaceutical products rebate programs continue negative effect gross profit margins ross pharmaceutical products segments addition gross profit margins ross segment negatively impacted due pricing pressure unfavorable product mix gross profit margins pharmaceutical products segment unfavorably impacted 2002 unfavorable product mix favorably impacted 2001 favorable product mix gross profit margins diagnostic products segment negatively impacted effect consent decree three years discussed november 1999 abbott reached agreement us government consent decree entered settle issues involving abbotts diagnostics manufacturing operations lake county ill decree amended december 2000 requires abbott ensure diagnostics manufacturing processes lake county conform us food drug administrations fda quality system regulation qsr decree allows continued manufacture distribution medically necessary diagnostic products made lake county however abbott prohibited manufacturing distributing certain diagnostic products abbott ensures processes lake county diagnostics manufacturing operations conform qsr decree allows abbott export diagnostic products components sale distribution outside united states meet export requirements federal food drug cosmetic act terms amended consent decree abbott ensure diagnostics manufacturing operations conformance qsr january 15 2001 fda performed inspection abbotts lake county ill diagnostics manufacturing operations fourth quarter 2001 first quarter 2002 determine whether operations conformity qsr may 2002 operations found conformity accordingly abbott required make additional payments government continue efforts achieve full compliance pretax charge 129 million 6 cents per share related matter recorded cost products sold 2002 fda determine abbotts conformance qsr reinspection abbotts facilities fda concludes operations conformance qsr abbott may continue subject additional costs loss revenue consent decree affects sales margin immunochemistry products diagnostic products segment research development expense 16 billion 2002 2001 14 billion 2000 represented 88 percent net sales 2002 compared 97 percent net sales 2001 98 percent net sales 2000 decline research development percentage sales 2002 due part decline spending phase iii clinical trials 2002 research development expenditures continue concentrated pharmaceutical diagnostic products selling general administrative expenses increased 65 percent 2002 net favorable effect relatively stronger us dollar 09 percent compared increases 290 percent 2001 13 percent 2000 increases selling general administration 2002 2001 due part acquisition pharmaceutical business basf 2001 2002 result restructuring charges increases net exchange three years also reflect inflation additional selling marketing support primarily international pharmaceutical hospital segments 2003 pharmaceutical products international segments incur additional selling administrative expenses launch humira us attorneys office southern district illinois conducting industrywide investigation enteral nutritional business including abbotts ross division abbott cooperating investigation responding subpoenas issued investigation civil criminal nature feasible predict outcome investigation certainty adverse outcome investigation could material adverse effect abbotts cash flows results operations particular year material adverse effect abbotts financial position abbotts income tap pharmaceutical products inc tap joint venture adversely affected 2001 result settlement us governments investigation taps marketing lupron discussed note 9 income expense net income expense net 2002 2001 2000 includes charges 211 million 99 million 76 million respectively result temporary declines market values certain equity securities net interest expense net interest expense decreased 2002 due lower level borrowings lower interest rates net interest expense increased 2001 primarily due higher level borrowings result acquisition pharmaceutical business basf taxes earnings effective income tax rates 240 percent 2002 177 percent 2001 270 percent 2000 2001 tax rate lower 2002 2000 tax rates due primarily effect benefit tax exemptions several taxing jurisdictions relation abbotts decreased pretax income 2001 compared 2002 2000 excluding effects acquisitions pharmaceutical business basf vysis inc effective tax rate 2001 would approximately 26 percent 2002 tax rate lower 2001 tax rate excluding effects acquisitions due part domestic dividend exclusion applicable increased earnings tap pharmaceutical products inc earnings abbott recorded certain nonrecurring charges earnings 2002 primarily related fda consent decree temporary declines market value equity securities restructuring charges acquisitions 2001 primarily related acquisition pharmaceutical business basf items management excludes impacts analyzing performance better identify ongoing business performance managements analysis nonrecurring items compared reported net income diluted earnings per share accordance generally accepted accounting principles gaap follows financial condition cash flow abbott expects annual cash flow operating activities continue approximate exceed abbotts capital expenditures cash dividends 2002 106 million funded main domestic pension plan 2003 contributions expected 200 million addition 221 million longterm debt due paid 2003 abbott fund payments operating cash flow abbott expects pension funding main domestic plan 2004 beyond 200 million 400 million annually abbott material exposures offbalance sheet arrangements special purpose entities activities include nonexchangetraded contracts accounted fair value debt capital december 31 2002 abbotts bond ratings aa standard poors corporation aa3 moodys investors service abbott readily available financial resources including unused lines credit 30 billion support commercial paper borrowing arrangements registration statement filed securities exchange commission abbott issued 3250 billion longterm debt securities 2001 proceeds issuance used reduce shortterm commercial paper borrowings primarily used finance acquisition pharmaceutical business basf registration statement abbott may issue 250 million future form debt securities common shares without par value june 2000 board directors authorized purchase 25 million shares abbotts common stock 2000 2001 abbott purchased 106 million shares authorization 482 million common stock purchases temporarily suspended january 2001 following abbotts announced acquisition pharmaceutical business basf 2003 abbott announced plans purchase remaining 144 million shares time open market beginning 2003 working capital december 31 2002 2001 2000 working capital 21 billion 492 million 31 billion respectively increase working capital 2002 primarily due operating cash flows used decrease shortterm commercial paper borrowings capital expenditures capital expenditures 13 billion 2002 12 billion 2001 10 billion 2000 principally upgrading expanding manufacturing research development administrative support facilities segments laboratory instruments hospital equipment placed customers level capital expenditures expected continue increased proportion dedicated international pharmaceutical segments business combinations technology acquisition divestiture second quarter 2002 abbott acquired cardiovascular stent business biocompatibles international plc certain cardiovascular stent technology rights medtronic inc addition abbott acquired additional 288 percent issued common shares hokuriku seiyaku co ltd resulting abbott owning substantially common shares hokuriku seiyaku co ltd aggregate cash purchase price 586 million strategic business technology acquisitions resulted pretax charge acquired inprocess research development approximately 108 million intangible assets approximately 145 million nontax deductible goodwill approximately 257 million acquired intangible assets primarily product technology amortized 4 13 years average approximately 8 years acquisitions taken place january 1 previous year consolidated sales income would significantly different reported amounts march 2 2001 abbott acquired cash pharmaceutical business basf included global operations knoll pharmaceuticals approximately 72 billion acquisition financed primarily short longterm borrowings acquisition accounted purchase method accounting allocation acquisition cost follows billions dollars acquisition cost allocated intangible assets goodwill acquired inprocess research development net tangible assets based independent appraisal fair values product rights marketed products amortized straightline basis 10 16 years average 13 years goodwill amortized 2001 straightline basis 20 years acquired inprocess research development charged expense 2001 net tangible assets acquired consist primarily property equipment approximately 630 million trade accounts receivable approximately 402 million inventories approximately 275 million net assumed liabilities primarily trade accounts payable liabilities prior date acquisition abbott began plan integration restructuring business 2001 2002 abbott formally approved several restructuring plans certain costs implementing formally approved plans included reported amount goodwill following unaudited pro forma financial information reflects consolidated results operations abbott acquisition pharmaceutical business basf taken place january 1 2000 pro forma information includes primarily adjustments acquired inprocess research development amortization product rights marketed products interest expense estimated acquisition debt amortization goodwill pro forma financial information necessarily indicative results operations would transaction effected assumed date 2001 abbott acquired cash outstanding common stock vysis inc leading genomic disease management company cash acquisition cost approximately 362 million 162 million allocated developed technology amortized 15 years 143 million charged earnings 2001 acquired inprocess research development remaining acquisition cost allocated net tangible assets goodwill acquisition taken place january 1 previous year consolidated sales income would significantly different reported amounts 2000 abbott sold agricultural products business resulting 1385 million gain restructuring plans millions dollars october 2002 abbott announced restructuring plans align abbotts global manufacturing operations scientific focus achieve greater operating efficiencies diagnostics international segments 2002 abbott recorded pretax charge earnings 174 reflecting impairment manufacturing facilities assets employee severance charges approximately 83 classified cost products sold 5 research development 86 selling general administrative restructuring plans result elimination 2600 positions offset part addition 500 positions approximately 1400 employees left abbott december 31 2002 employee groups covered restructuring plans include manufacturing research development sales administrativerelated functions abbott expects restructuring yield aftertax annual savings 80 100 upon full implementation plans following summarizes restructuring activity 2001 2002 abbott implemented restructuring plans related operations acquired pharmaceutical business basf addition abbott announced 2001 closing one manufacturing operations relocating production abbott facilities following summarizes restructuring activity 2002 59 restructuring charge recorded goodwill associated acquisition pharmaceutical business basf 2001 total 207 restructuring charges 156 recorded goodwill associated acquisition pharmaceutical business basf amount expensed approximately 36 classified cost products sold 2 research development 13 selling general administrative employeerelated costs primarily severance pay relocation former basf employees outplacement services approved restructuring plans cover approximately 2400 employees approximately 2000 left abbott december 31 2002 employee groups covered restructuring plan include manufacturing research development sales administrativerelated functions recently issued accounting standards june 2001 financial accounting standards board fasb issued statement financial accounting standards sfas 143 accounting asset retirement obligations effective financial statements issued fiscal years beginning june 15 2002 november 2002 fasb issued interpretation 45 guarantors accounting disclosure requirements guarantees including indirect guarantees indebtedness others interpretation requires recognition certain guarantees liabilities fair market value effective guarantees issued modified december 31 2002 adoption provisions statement interpretation material effect financial statements abbott june 2002 fasb issued sfas 146 accounting costs associated exit disposal activities sfas 146 requires liability costs associated exit disposal activity recognized measured initially fair value liability incurred sfas 146 effective exit disposal activities initiated december 31 2002 material effect financial statements abbott accounted 2002 restructuring plans accordance emerging issues task force eitf issue 943 accordingly charged income 2002 appropriate exit costs plans approved management december 31 2002 accounting restructuring plans sfas 146 would resulted expenses recorded 2002 recorded 2003 however significant amount expenses would charged income 2002 either eitf 943 sfas 146 legislative issues abbotts primary markets highly competitive subject substantial government regulation abbott expects debate continue federal state levels availability method delivery payment health care products services legislation enacted could effect reducing prices reducing rate price increases medical products services international operations also subject significant degree government regulation possible predict extent abbott health care industry general might adversely affected factors future private securities litigation reform act 1995 caution concerning forwardlooking statements safe harbor provisions private securities litigation reform act 1995 abbott cautions investors forwardlooking statements projections made abbott including made document subject risks uncertainties may cause actual results differ materially projected economic competitive governmental technological factors may affect abbotts operations discussed exhibit 991 annual report form 10k item 7a item 7 managements discussion analysis financial condition results operations financial review abbotts revenues derived primarily sale broad line health care products shortterm receivable arrangements patent protection licenses technological performance features inclusion abbotts products contract pharmacy benefit manager impact products sold price controls competition rebates impact net selling prices products foreign currency translation impacts measurement net sales costs abbotts primary products nutritional products prescription pharmaceuticals diagnostic testing products vascular products october 2011 abbott announced plan separate two publicly traded companies one diversified medical products researchbased pharmaceuticals accomplish separation abbott created new company abbvie inc abbvie researchbased pharmaceuticals business consists primarily abbotts proprietary pharmaceutical products segment january 1 2013 abbott distributed outstanding shares abbvie abbotts shareholders result distribution abbvie independent company trading symbol abbv beginning first quarter 2013 historical results researchbased pharmaceuticals business reflected abbotts consolidated financial statements discontinued operations prior separation abbvie sales international markets approximately 60 percent consolidated net sales postseparation sales outside us expected comprise approximately 70 percent net sales continued robust growth humira broad range indications acquisitions solvays pharmaceuticals business solvay pharmaceuticals piramal healthcare limiteds healthcare solutions business sales growth margin improvement nutritional diagnostics businesses government investigation abbotts sales marketing activities related depakote challenging economic fiscal environment many countries around world impacted abbotts sales costs financial position last three years pharmaceutical research development focused last three years therapeutic areas included immunology oncology neuroscience pain management hepatitis c hcv chronic kidney disease womens health addition abbott acquired rights various inprocess pharmaceutical research development projects including development secondgeneration oral antioxidant inflammation modulators oral nextgeneration jak1 inhibitor potential treat multiple autoimmune diseases 2003 abbott began worldwide launch humira rheumatoid arthritis followed launches six additional indications us eight additional indications european union humiras worldwide sales increased 93 billion 2012 compared 79 billion 2011 65 billion 2010 generic competition tricor began fourth quarter 2012 austerity measures implemented several european countries reduced healthcare spending affected pharmaceutical pricing last three years us proprietary pharmaceuticals business negatively affected 2010 us health care reform legislation resulted rebate changes beginning 2010 payment annual fee beginning 2011 february 2010 abbott acquired solvay pharmaceuticals provided abbott large complementary portfolio pharmaceutical products expanded abbotts presence key global emerging markets acquisition added approximately 31 billion abbotts 2010 net sales primarily outside us september 2010 abbott completed acquisition piramals healthcare solutions business propelling abbott market leadership indian pharmaceutical market accelerating companys growth emerging markets abbott recorded expense approximately 262 million 2012 345 million 2011 710 million 2010 related integration solvay business restructuring plans streamline operations improve efficiencies reduce costs primarily certain solvay sites functions may 2012 abbott reached resolution depakoterelated federal claims medicaidrelated claims 49 states district columbia consumer protection claims 45 states district columbia abbott recorded charges related matter 15 billion 2011 100 million 2012 approximately 16 billion paid 2012 abbotts worldwide nutritional products business sales positively impacted demographics aging population increasing rate chronic disease developed markets rise middle class many emerging markets well numerous new product introductions leveraged abbotts strong brands time manufacturing distribution process changes cost reductions drove margin improvements across business abbotts worldwide diagnostics business margin improvement continued key focus operating margins increased 147 percent sales 2010 187 percent 2012 last three years abbott continued build xience drugeluting stent franchise receipt approval market xience xpedition various countries including us approval fourth quarter 2012 well launches xience nano xience prime us 2011 xience prime xience v japan april 2012 january 2010 respectively xience includes xience v prime nano xpedition ended 2012 marketleading drug eluting stent globally 2011 third party distributor promus product began transitioning away product supply agreement ended 2012 effect winding agreement continue first quarter 2013 2010 us government passed health care reform legislation included increase medicaid rebate rates extension rebate drugs provided medicaid managed care organizations beginning 2010 legislation also imposed annual fees pharmaceutical manufacturers began paying 2011 medical device companies begin paying 2013 well additional rebates related medicare part donut hole beginning 2011 addition 2010 onetime charge approximately 60 million reduce deferred tax assets associated retiree health care liabilities related medicare part retiree drug subsidy legislations negative impact abbotts performance grew 200 million 2010 approximately 400 million per year 2011 2012 400 million annual impact included approximately 100 million annual pharmaceutical manufacturer fee taxdeductible included selling general administrative expenses separation abbvie beginning 2013 abbott longer sells pharmaceutical products us therefore longer subject annual pharmaceutical fee additional rebates beginning 2013 abbott begin paying 23 percent medical device tax us health care reform legislation tax included selling general administrative expenses amount tax expected material fourth quarter 2012 abbott extinguished 77 billion longterm debt incurred charge 135 billion related early repayment net gains unwinding interest rate swaps related debt abbotts short longterm debt totaled 205 billion december 31 2012 balance includes 1 billion shortborrowings 147 billion longterm debt issued abbvie inc 2012 separation abbvie january 1 2013 abbott remaining obligations related 157 billion debt december 31 2012 abbotts longterm debt rating standard poors corporation a1 moodys investors service operating cash flows excess capital expenditures cash dividends partially funded acquisitions last three years 2013 abbott focus several key initiatives nutritional business abbott continue build product portfolio introduction new sciencebased products expand highgrowth emerging markets implement additional margin improvement initiatives established pharmaceuticals business includes international sales branded generic products abbott continue focus obtaining additional product approvals across numerous countries expanding presence emerging markets diagnostics business abbott focus development nextgeneration instruments advanced technologies expansion emerging markets improvements segments operating margin vascular business abbott continue focus marketing products xience endovascular franchises increasing international mitraclip sales obtaining regulatory review mitraclip device us well clinical development absorb bioresorbable vascular scaffold bvs device rollout absorb numerous countries abbotts segments abbott focus developing differentiated technologies higher growth markets critical accounting policies sales rebates 2012 approximately 56 percent abbotts consolidated gross revenues subject various forms rebates allowances abbott recorded reductions revenues time sale rebates allowances proprietary pharmaceutical products segment nutritional products segment abbott provides rebates pharmacy benefit management companies state agencies administer federal medicaid program insurance companies administer medicare drug plans state agencies administer special supplemental nutrition program women infants children wic wholesalers group purchasing organizations government agencies private entities rebate amounts usually based upon volume purchases using contractual statutory prices product factors used rebate calculations include identification products sold subject rebate customer government agency price terms apply estimated lag time sale payment rebate using historical trends adjusted current changes abbott estimates amount rebate paid records liability reduction gross sales abbott records sale product settlement rebate generally occurs two eight months sale abbott regularly analyzes historical rebate trends makes adjustments reserves changes trends terms rebate programs rebates chargebacks charged gross sales 2012 2011 2010 amounted approximately 62 billion 55 billion 49 billion respectively 229 percent 222 percent 231 percent respectively based gross sales approximately 269 billion 248 billion 211 billion respectively subject rebate onepercentage point increase percentage rebates related gross sales would decrease net sales approximately 269 million 2012 abbott considers onepercentage point increase reasonably likely increase percentage rebates related gross sales allowances charged gross sales approximately 542 million 409 million 415 million cash discounts 2012 2011 2010 respectively 365 million 490 million 537 million returns 2012 2011 2010 respectively cash discounts known within 15 30 days sale therefore reliably estimated returns reliably estimated abbotts historical returns low sales returns terms sales terms remained relatively unchanged several periods management analyzes adequacy ending rebate accrual balances quarter domestic nutritional business management uses internal external data available estimate level inventory distribution channel management access several large customers inventory management data customers utilizes data third party measures time retail shelf sources allow management make reliable estimates inventory distribution channel except transition period change supplier wic business state inventory distribution channel vary substantially management also estimates states processing lag time based claims data addition internal processing time factor estimating accrual wic business state sale made determining factor applicable price reliably determinable estimates required amount wic sales within state abbott wic business external data sources utilized estimate participant data us department agriculture usda administers wic program participant data states internally administered market research usda making data available many years internal data includes historical redemption rates pricing data december 31 2012 abbott wic business 22 states domestic proprietary pharmaceutical business significant charges gross sales medicaid medicare rebates pharmacy benefit manager rebates wholesaler chargebacks order evaluate adequacy ending accrual balances management uses internal external data estimate level inventory distribution channel rebate claims processing lag time external data sources used estimate inventory distribution channel include inventory levels periodically reported wholesalers third party market data purchased abbott management estimates processing lag time based periodic sampling claims data estimate price rebate percentage systems calculations used track sales product customer estimate contractual statutory price abbotts systems calculations developed time rebates become significant abbott believes reliable following table analysis four largest rebate accruals comprise approximately 70 percent consolidated rebate provisions charged revenues 2012 remaining rebate provisions charged gross sales significant determination operating earnings dollars millions historically adjustments prior years rebate accruals material net income abbott employs various techniques verify accuracy claims submitted possible works organizations submitting claims gain insight changes might affect rebate amounts medicaid medicare government agency programs calculation rebate involves interpretations relevant regulations subject challenge change interpretation income taxes abbott operates numerous countries income tax returns subject audits adjustments abbott operates globally nature audit items often complex objectives government auditors result tax income one country abbott employs internal external tax professionals minimize audit adjustment amounts possible accordance accounting rules relating measurement tax contingencies order recognize uncertain tax benefit taxpayer must likely sustaining position measurement benefit calculated largest amount 50 percent likely realized upon resolution benefit application rules requires significant amount judgment us abbotts federal income tax returns 2009 settled except one item income tax returns years 2009 open abbott record deferred income taxes earnings reinvested indefinitely foreign subsidiaries pension postemployment benefits abbott offers pension benefits postemployment health care many employees abbott engages outside actuaries assist determination obligations costs programs abbott must develop longterm assumptions significant health care cost trend rates discount rates expected return plan assets discount rates used measure liabilities determined based highquality fixed income securities match duration expected retiree benefits health care cost trend rates represent abbotts expected annual rates change cost health care benefits forward projection health care costs measurement date difference assumed rates actual rates known decades significant relation obligations annual cost recorded programs low asset returns due poor market conditions low interest rates significantly increased actuarial losses plans december 31 2012 pretax net actuarial losses prior service costs credits recognized accumulated comprehensive income loss abbotts defined benefit plans medical dental plans losses 48 billion 379 million respectively actuarial losses gains amortized remaining service attribution periods employees corridor method accordance rules accounting postemployment benefits differences expected longterm return plan assets actual annual return amortized fiveyear period note 4 consolidated financial statements describes impact onepercentage point change health care cost trend rate however certainty change would limited one percentage point valuation intangible assets abbott acquired continues acquire significant intangible assets abbott records fair value transactions involving purchase sale intangible assets occur frequency companies health care field valuations usually based discounted cash flow analysis discounted cash flow model requires assumptions timing amount future net cash flows risk cost capital terminal values market participants factors significantly affect value intangible asset abbott engages independent valuation experts review abbotts critical assumptions calculations acquisitions significant intangibles abbott reviews definitelived intangible assets impairment quarter using undiscounted net cash flows approach undiscounted cash flows intangible asset less carrying value intangible asset intangible asset written fair value usually discounted cash flow amount cash flows cannot identified individual asset review applied lowest group level cash flows identifiable goodwill indefinitelived intangible assets relate inprocess research development acquired business combination reviewed impairment annually event could result impairment occurs december 31 2012 goodwill intangibles amounted 158 billion 86 billion respectively amortization expense intangible assets amounted 14 billion 2012 impairments goodwill 2012 2011 2010 2012 2011 abbott recorded impairment charges 82 million 174 million respectively certain research development assets due changes projected development regulatory timelines projects litigation abbott accounts litigation losses accordance fasb accounting standards codification 450 contingencies asc 450 loss contingency provisions recorded probable losses managements best estimate loss best estimate cannot made minimum loss contingency amount recorded estimates often initially developed substantially earlier ultimate loss known estimates refined accounting period additional information becomes known accordingly abbott often initially unable develop best estimate loss therefore minimum amount could zero recorded information becomes known either minimum loss amount increased resulting additional loss provisions best estimate made also resulting additional loss provisions occasionally best estimate amount changed lower amount events result expectation favorable outcome previously expected abbott estimates range possible loss approximately 70 million 100 million legal proceedings environmental exposures accruals approximately 80 million recorded december 31 2012 proceedings exposures accruals represent managements best estimate probable loss defined fasb asc 450 contingencies results operations sales following table details components sales growth reportable segment last three years total net sales 2012 reflect unit growth partially offset impact unfavorable foreign exchange decrease 2012 vascular products sales partially due winding royalty supply agreements related certain thirdparty products including promus excluding royalty supply agreement revenue periods unfavorable effect exchange vascular products sales increased 34 percent 2012 2011 2010 total net total us total international proprietary pharmaceutical products segment established pharmaceutical products segment sales reflect acquisition solvays pharmaceuticals business february 15 2010 unit growth relatively weaker us dollar favorably impacted international sales across segments total net total international established pharmaceutical products segment sales growth 2011 also reflects acquisition piramal healthcare limiteds healthcare solution business september 2010 comparison significant product group sales follows percent changes versus prior year based unrounded numbers nm percent change meaningful 1other coronary products include primarily guidewires balloon catheters endovascular includes vessel closure carotid stents peripheral products excluding negative effect exchange total international proprietary sales increased 89 percent 2012 proprietary pharmaceuticals generic version tricor entered us market fourth quarter 2012 total established pharmaceutical products sales decreased 2012 due negative effect exchange decreased sales clarithromycin serc due part pricing pressures europe partially offset growth emerging markets excluding effect exchange total established pharmaceutical products sales increased 21 percent us pediatric nutritional sales 2012 reflect market share gains similac unit growth pediasure increase 2012 us adult nutritional sales reflects unit growth ensure glucerna products international pediatric adult nutritionals sales increases three years due primarily volume growth developing countries negatively impacted 2012 effect relatively stronger us dollar increases us proprietary product sales 2011 2010 primarily due increased sales humira acquisition solvay pharmaceuticals february 2010 partially offset decreased sales depakote zemplar kaletra increases established pharmaceutical sales 2011 2010 primarily due acquisitions solvay pharmaceuticals piramal growth emerging markets us pediatric nutritionals sales 2011 2010 affected voluntary recall certain similacbrand powder infant formulas september 2010 subsequent recovery market share 2011 international proprietary pharmaceuticals international adult nutritionals immunochemistry sales positively impacted effect relatively weaker us dollar 2011 2010 abbott periodically sold product rights nonstrategic products recorded related gains net sales accordance abbotts revenue recognition policies discussed note 1 consolidated financial statements related net sales approximately 58 million 2010 significant sales 2012 2011 expiration licenses patent protection generic competition affect future revenues operating income abbott currently significant patent license expirations next three years expected affect abbott separation abbvie operating earnings gross profit margins 621 percent net sales 2012 600 percent 2011 583 percent 2010 increase gross profit margin 2012 impacted improved gross margins across reportable segments result cost reduction initiatives impact exchange favorable product mix increase gross profit margin 2011 due part improved margins established pharmaceutical diagnostics diabetes businesses partially offset unfavorable effect exchange profit margin ratio increase gross profit margin 2010 due part improved margins established pharmaceutical vascular diabetes diagnostics nutritional businesses favorable effect exchange gross profit margin ratio us states receive price rebates manufacturers infant formula federally subsidized special supplemental nutrition program women infants children also rebate programs pharmaceutical products numerous countries rebate programs continue negative effect gross profit margins nutritional proprietary pharmaceutical established pharmaceutical products segments research development expense 4322 billion 2012 4129 billion 2011 3724 billion 2010 represented increases 47 percent 2012 109 percent 2011 357 percent 2010 excluding charges related solvay restructurings announced september 2010 research development expense increased 62 percent 2011 294 percent 2010 increase exclusive effects restructuring charges reflects acquisitions solvays pharmaceuticals business february 2010 facet biotech april 2010 increases 2012 2011 2010 also reflect continued pipeline spending including programs biologics hepatitis c diagnostics majority research development expenditures three years concentrated pharmaceutical products 29 billion abbotts 2012 research development expenses related abbotts pharmaceutical products 22 billion directly allocated proprietary pharmaceutical products segment 2012 research development expenditures totaled 367 million vascular products segment 382 million diagnostics products segment 275 million established pharmaceutical products segment 186 million nutritional products segment selling general administrative expenses decreased 55 percent 2012 increased 229 percent 2011 234 percent 2010 2012 includes approximately 405 million related separation abbvie abbott 100 million litigation charge related government investigation related depakote 2011 includes litigation charge 15 billion related depakote investigation excluding separation costs litigation charges solvayrelated restructuring integration costs selling general administrative expenses increased 46 percent 2012 67 percent 2011 excluding charges related solvay restructuring integration projects selling general administrative expenses 2010 increased 182 percent increase exclusive effects restructuring integration charges reflects acquisitions solvays pharmaceuticals business 2010 advanced medical optics inc 2009 higher provisions litigation 2010 remaining increases selling general administrative expenses three year period due primarily increased selling marketing support new existing products including continued spending humira inflation 2011 impact pharmaceutical fee imposed us healthcare reform legislation restructurings 2012 abbott management approved plans streamline various commercial operations order reduce costs improve efficiencies abbotts core diagnostics established pharmaceutical nutritionals businesses abbott recorded employee related severance charges approximately 167 million 2012 additional charges approximately 22 million also recorded 2012 primarily asset impairments approximately 70 million recorded cost products sold approximately 119 million selling general administrative expense december 31 2012 significant cash payments made relating actions 2011 prior years abbott management approved plans realign worldwide pharmaceutical vascular manufacturing operations selected domestic international commercial research development operations order reduce costs 2011 2010 abbott recorded charges approximately 194 million 56 million respectively reflecting impairment manufacturing facilities assets employee severance related charges approximately 76 million 2011 classified cost products sold 69 million research development 49 million selling general administrative approximately 56 million 2010 classified cost products sold following summarizes activity restructurings dollars millions additional 110 million 25 million 13 million recorded 2012 2011 2010 respectively relating restructurings primarily accelerated depreciation 2012 2010 abbott management approved restructuring plans primarily related acquisition solvays pharmaceuticals business plans streamline operations improve efficiencies reduce costs certain solvay sites functions well certain abbott solvay commercial organizations various countries 2012 abbott recorded charge approximately 150 million employee severance contractual obligations primarily related exit research development facility approximately 142 million recorded research development 8 million selling general administrative 2010 abbott recorded charges cost products sold research development selling general administrative approximately 99 million 152 million 272 million respectively following summarizes activity restructurings dollars millions additional 38 million 102 million 12 million recorded 2012 2011 2010 respectively relating restructurings primarily additional employee severance accelerated depreciation 2011 2008 abbott management approved plans streamline global manufacturing operations reduce overall costs improve efficiencies abbotts core diagnostic business 2011 charge 28 million recorded cost products sold following summarizes activity restructurings dollars millions addition charges approximately 16 million 42 million 60 million recorded 2012 2011 2010 primarily accelerated depreciation product transfer costs interest expense interest income 2012 interest expense increased primarily due bridge facility fees related separation abbvie abbott 2011 interest expense decreased due lower debt levels interest income 2012 2011 decreased result lower rates 2010 interest expense increased due primarily increased debt levels interest income decreased 2010 due lower investment balances change accounting principle income expense net prior january 1 2011 accounts foreign subsidiaries consolidated based fiscal year ended november 30 due time needed consolidate subsidiaries effective january 1 2011 one month lag consolidation accounts foreign subsidiaries eliminated yearend foreign subsidiaries changed december 31 abbott believes change accounting principle related elimination one month reporting lag preferable results contemporaneous reporting results foreign subsidiaries accordance applicable accounting literature change subsidiaries yearend treated change accounting principle requires retrospective application cumulative effect change increase retained earnings 289 million january 1 2009 corresponding decrease longterm liabilities impact change material results operations previously reported annual interim periods january 1 2009 thus results revised charge 137 million recorded income expense net 2011 recognize cumulative immaterial impacts 2009 2010 financial statements revised net sales operating earnings net earnings 2010 would decreased 21 million 195 million 175 million respectively income expense net 2012 includes income approximately 60 million resolution contractual agreement loss approximately 62 million impairment certain equity securities income expense net 2011 includes 56 million fair value adjustments accretion contingent consideration related acquisition solvays pharmaceutical business income expense net 2012 2011 2010 also includes ongoing contractual payments takeda associated conclusion tap joint venture net loss extinguishment debt fourth quarter 2012 abbott extinguished 77 billion longterm debt abbott incurred cost 135 billion extinguish debt net gains unwinding interest rate swaps related debt taxes earnings income tax rates earnings 48 percent 2012 90 percent 2011 190 percent 2010 taxes earnings 2012 reflect 493 million effect tax rate applied abbotts net debt extinguishment loss well recognition 408 million tax benefits result favorable resolution various tax positions pertaining prior year also decreased gross amount unrecognized tax benefits approximately 560 million taxes earnings 2011 reflect effect tax rate applied litigation reserve recognition 580 million tax benefits result favorable resolution various tax positions pertaining prior years also decreased gross amount unrecognized tax benefits approximately 13 billion exclusive discrete items effective rates lower us federal statutory rate 35 percent due primarily benefit lower foreign tax rates tax exemptions reduced tax rates 249 229 194 percentage points 2012 2011 2010 respectively tax rate reductions primarily derived operations puerto rico switzerland ireland singapore abbott benefits combination favorable statutory tax rules tax rulings grants exemptions see note 5 consolidated financial statements full reconciliation effective tax rate us federal statutory rate result american taxpayer relief act 2012 signed law january 2013 abbott expects record tax benefit approximately 100 million first quarter 2013 retroactive extension research tax credit lookthrough rules section 954c6 internal revenue code beginning 2012 excluding discrete items abbott expects apply annual effective rate approximately 21 percent result patient protection affordable care act health care education reconciliation act signed law 2010 abbott recorded charge approximately 60 million 2010 reduce deferred tax assets associated retiree health care liabilities related medicare part retiree drug subsidy october 2010 puerto rico enacted legislation assesses tax beginning 2011 certain products manufactured puerto rico tax levied gross intercompany purchases puerto rican entities included inventory costs 2012 2011 cost goods sold included 187 million 111 million respectively related tax creditable us income tax purposes research development programs abbott currently numerous pharmaceutical medical nutritional products development research development process proprietary pharmaceuticals segment research development process generally begins discovery research focuses identification molecule desired effect given disease preclinical testing identified compound proves successful compound moves clinical development generally includes following phases •phase involves first human tests small number healthy volunteers assess tolerability potential dosing •phase ii tests molecules efficacy disease small group patients •phase iii tests molecule demonstrates favorable results earlier phases significantly larger patient population demonstrate efficacy safety based regulatory criteria clinical trials development phases provide data required prepare submit new drug application nda biological license application bla submission regulatory approval us food drug administration fda similar government agencies outside us specific requirements eg scope clinical trials obtaining regulatory approval vary across different countries geographic regions research development process discovery new drug launch typically takes 8 12 years even longer significant amount uncertainty inherent research development new pharmaceutical products guarantee molecule receive regulatory approval required launch new drug indication addition development new products new formulations proprietary pharmaceutical research development projects also may include phase iv trials sometimes called postmarketing studies projects clinical trials designed conducted collect additional data regarding among parameters benefits risks approved drug established pharmaceuticals segment development process focuses geographic expansion continuous improvement segments existing products provide benefits patients customers established pharmaceuticals actively pursue primary research development usually begins work existing products acquisition advanced stage licensing opportunity depending upon product phases development may include •drug product development •phase bioequivalence studies compare future established pharmaceuticals brand already marketed compound active pharmaceutical ingredient api •phase ii studies test efficacy benefits small group patients •phase iii studies broaden testing wider population reflects actual medical use •phase iv postmarketing studies obtain new clinical use data existing products within approved indications specific requirements eg scope clinical trials obtaining regulatory approval vary across different countries geographic regions process may range one year bioequivalence study project 6 years complex formulations new indications geographic expansion specific countries china diagnostics segment phases research development process include •discovery focuses identification product address specific therapeutic area platform unmet clinical need •conceptfeasibility materials manufacturing processes evaluated testing may include product characterization analysis performed confirm clinical utility •development extensive testing performed demonstrate product meets specified design requirements design specifications conform user needs intended uses pharmaceutical products regulatory requirements diagnostic products vary across different countries geographic regions us fda classifies diagnostic products classes ii iii classification determines regulatory process approval diagnostics segment products three classes vast majority products categorized class ii submission separate regulatory filing required class products class ii devices typically require premarket notification fda regulatory filing known 510k submission class iii products subject fdas premarketing approval pma requirements class iii products used screen blood require submission approval bla eu diagnostic products also categorized different categories regulatory process governed european vitro diagnostic medical device directive depends upon category certain product categories require review approval independent company known notified body manufacturer affix ce mark product show compliance directive products require selfcertification process vascular segment research development process begins research specific technology evaluated feasibility commercial viability research program passes hurdle moves forward development process includes evaluation selection product design completion clinical trials test products safety efficacy validation manufacturing process demonstrate repeatability ability consistently meet predetermined specifications similar diagnostic products discussed us vascular products classified class ii iii abbotts vascular products classified class ii devices follow 510k regulatory process class iii devices subject pma process eu vascular products also categorized different classes regulatory process governed european medical device directive varies class product must bear ce mark show compliance directive products require submission design dossier appropriate regulatory authority review approval prior ce marking device products company required prepare technical file includes testing results clinical evaluations selfcertify ability apply ce mark product outside us eu regulatory requirements vary across different countries regions approval commercial launch vascular products postmarket trials may conducted either due conditional requirement regulatory market approval objective proving product superiority nutritional segment research development process generally focuses identifying developing ingredients products address nutritional needs particular populations eg infants athletes patients eg people diabetes depending upon country andor region claims regarding products efficacy made clinical studies typically must conducted product development product form change liquid powder generally necessitate clinical studies us fda requires notified proposed new formulations formulation packaging changes related infant formula products prior launch infant formula product packaging change company required obtain fdas confirmation objections proposed product packaging nutrition products notification preapproval fda required unless product includes new food additive countries regulatory approval may required certain nutritional products including infant formula medical nutritional products areas focus 2013 beyond abbotts significant areas therapeutic focus include following established pharmaceuticals abbott actively working plans 20 30 key brands depending product development activities focus new data markets formulations combinations indications abbott focuses building countryspecific portfolios made global local pharmaceutical brands best meet local markets needs next several years established pharmaceuticals work expand market many products registrations across multiple geographies including key emerging markets vascular ongoing projects pipeline include •xience xpedition nextgeneration drugeluting stent des enhanced deliverability expanded size matrix utilizes xience prime stent everolimus biocompatible coating technology incorporates new catheter technology improved deliverability xience xpedition received us regulatory approval december 2012 also available europe parts asia latin america abbott expects launch product additional markets 2013 •absorb worlds first drug eluting bioresorbable vascular scaffold bvs device treatment coronary artery disease gradually resorbed vessel wall january 2013 abbott initiated absorb iii clinical trial designed enroll approximately 2250 patients majority us data trial used support us regulatory filing absorb 2011 abbott released fiveyear data absorb clinical trial showed efficacy safety results consistent fouryear data 2011 receiving ce mark approval absorb abbott initiated randomized controlled clinical trial study device expanded population europe 2010 abbott initiated absorb extend clinical trial enroll 1000 patients complex coronary artery disease •mitraclip device treatment mitral regurgitation abbotts mitraclip system market europe parts asia latin america currently review approval fda amended filing fda submitted december 2011 fda panel expected review filing first half 2013 •coronary endovascular core product projects including new coronary endovascular guide wires absolute pro omnilink elite stent systems treatment iliac artery disease form peripheral artery disease affects lower extremities launched us 2012 medical optics abbott developing number new products patients undergoing cataract surgery designed improve physician efficiency patient outcomes abbott developed advanced intraocular lenses iols address astigmatism well presbyopia tecnis brand monofocal toric iol sold europe currently undergoing us regulatory review multifocal version toric iol launched number international markets 2012 preloaded iol insertion system designed improve surgeon efficiency also currently regulatory review us product launched europe 2012 abbott continuing development activities required obtain us approval enhanced version synchrony iol designed mimic eyes natural ability change focus deliver improved vision distances product launched europe late 2012 abbott also developed new diagnostic instrument laser treatment planning software designed improve visual outcomes receipt ce mark approval november 2011 instrument software launched europe 2012 pma filing us regulatory approval product submitted 2012 molecular diagnostics various new molecular vitro diagnostic ivd products including oncology infectious disease assays next generation instrument system various stages development commercialization abbotts companion diagnostic test alk gene rearrangement test nonsmallcell lung cancer approved 40 countries around world 2012 companion diagnostic efforts expanded include collaborative efforts multiple major pharmaceutical companies us assay genotype hcvinfected patients aid choice appropriate therapy submitted regulatory approval additional assays infectious diseases including mtb drug resistance development core laboratory diagnostics abbott working development assays various areas including infectious disease cardiac care fertility metabolics nextgeneration blood screening hematology immunochemistry instrument systems abbott also focusing nearterm launches automation solutions nextgeneration track system accelerator a3600 increase efficiency laboratories diabetes care first quarter 2012 abbott obtained us regulatory approval freestyle insulinx blood glucose monitoring system includes touchscreen interface features designed support insulinusing patient receiving ce mark system may 2011 health canada approval october 2011 abbott continuing provide rd support product launched additional markets development also continuing updated hospital blood glucose monitoring system filing approval projected submitted us first half 2013 abbott also developing nextgeneration monitoring system precision product platform abbott anticipates submitting filings approval various markets second half 2013 nutrition abbott focusing research development spend six benefit platforms span pediatric adult performance nutrition areas immunity cognition lean body mass inflammation metabolism tolerance numerous new products build advances benefit platforms currently development expected launched coming years given diversity abbotts business intention remain broadbased healthcare company numerous sources potential future growth individual project expected material cash flows results operations next five years factors considered included research development expenses projected incurred project next year relative abbotts total research development expenses well qualitative factors marketplace perceptions impact new product abbotts overall market position delays abbotts 2012 research development activities expected material impact operations aggregate cost complete numerous projects currently development expected material total cost complete depend upon abbotts ability successfully complete project rate project advances ultimate timing completion given potential significant delays high rate failure inherent research development new pharmaceutical medical device products technologies possible accurately estimate total cost complete projects currently development separation abbvie abbott plans manage portfolio projects achieve research development spend equal approximately 6 percent 7 percent sales year abbott regularly accumulate make management decisions based total expenses incurred particular development phase given period business combinations technology acquisitions related transactions september 8 2010 abbott acquired piramal healthcare limiteds healthcare solutions business leader indian branded generics market 22 billion cash plus additional payments 400 million annually 2011 2012 2013 2014 abbott recorded 16 billion liability present value additional payments acquisition date acquisition financed cash allocation fair value acquisition resulted recording 27 billion deductible acquired intangible assets 10 billion deductible goodwill acquired intangible assets consist primarily trade names customer relationships associated rights amortized average 19 years february 2010 abbott acquired solvays pharmaceuticals business solvay pharmaceuticals approximately 61 billion cash plus additional payments eur 100 million per year certain sales milestones met 2011 2012 2013 contingent consideration approximately 290 million recorded acquisition solvay pharmaceuticals provided abbott large complementary portfolio pharmaceutical products expands abbotts presence key global emerging markets abbott acquired control business february 15 2010 financial results acquired operations included financial statements beginning date net sales acquired operations 2010 approximately 31 billion pretax loss acquired operations including acquisition integration restructuring expenses 2010 approximately 395 million acquisition funded cash shortterm investments allocation fair value acquisition resulted recording 22 billion nondeductible goodwill 41 billion nondeductible intangible assets 500 million nondeductible acquired inprocess research development assets net tangible assets 700 million deferred income taxes 11 billion acquired intangible assets consist primarily product rights currently marketed products amortized 2 14 years average 11 years acquired inprocess research development projects accounted indefinite lived intangible assets regulatory approval discontinuation net tangible assets acquired consist primarily trade accounts receivable approximately 675 million inventory approximately 390 million property equipment approximately 725 million net assumed liabilities primarily trade accounts payable accrued compensation liabilities acquisition solvay pharmaceuticals taken place january 1 2010 unaudited pro forma net sales net earnings diluted earnings per share 2010 would 358 billion 46 billion 296 respectively pro forma information includes adjustments amortization intangible assets fair value adjustments acquisitiondate inventory well acquisition integration restructuring expenses pro forma financial information necessarily indicative results operations would transaction effected assumed date march 2010 abbott acquired starlims technologies approximately 100 million cash net cash held starlims providing abbott leading products expertise build position laboratory informatics substantial portion fair value acquisition allocated goodwill amortizable intangible assets april 2010 abbott acquired outstanding shares facet biotech corporation approximately 430 million cash net cash held facet acquisition enhanced abbotts early midstage pharmaceutical pipeline including biologic multiple sclerosis compounds complement abbotts oncology program substantial portion fair value acquisition allocated acquired inprocess research development accounted indefinitelived intangible asset regulatory approval discontinuation except acquisition solvay pharmaceuticals acquisitions taken place january 1 previous year consolidated net sales income would significantly different reported amounts abbotts proprietary pharmaceutical products segment entered various collaboration research development agreements 2012 abbott acquired ap214 drug development prevention acute kidney injury associated major cardiac surgery patients increased risk result transaction abbott recorded charge acquired inprocess collaborations research development 110 million addition 2012 abbott entered global collaboration develop commercialize oral nextgeneration jak1 inhibitor phase ii development potential treat multiple autoimmune diseases result transaction abbott recorded charge acquired inprocess collaborations research development 150 million additional payments approximately 12 billion could required achievement certain development regulatory commercial milestones agreement another collaboration abbott granted rights 2012 utilize three antibodydrug conjugate compounds abbott recorded charge acquired inprocess collaborations research development 28 million additional payments approximately 220 million licensed compound could required achievement certain development regulatory commercial milestones agreement connection acquisition solvay pharmaceuticals achievement certain sales milestone resulted payment approximately 134 million first quarter 2012 liability previously established 2010 2011 abbott entered series transactions reata pharmaceuticals included 1 collaboration agreement joint development commercialization second generation oral antioxidant inflammation modulators resulting charge acquired inprocess collaborations research development 400 million 2011 2 agreement acquire licensing rights outside us excluding certain asian markets bardoxolone methyl product development treatment chronic kidney disease resulting charge acquired inprocess collaborations research development 238 million 2010 3 acquisition equity interests reata 62 million 2011 2010 2011 certain milestones achieved development treatment chronic kidney disease charges acquired inprocess collaborations research development 188 million recorded first quarter 2012 50 million research development expense recorded related achievement clinical development milestone license agreement license agreement requires additional payments 150 million certain development regulatory milestones associated chronic kidney disease compound achieved october 17 2012 reata informed abbott discontinuing phase iii clinical study bardoxolone methyl chronic kidney disease reata abbott closely examine data study determine whether appropriate path forward development bardoxolone methyl chronic kidney disease indications fourth quarter 2012 abbott recorded charge approximately 50 million impairment equity investment reata 2011 abbott entered agreement biotest ag develop commercialize treatment rheumatoid arthritis psoriasis resulting charge acquired inprocess collaborations research development 85 million additional payments totaling 395 million based projected regulatory approval timelines could required achievement certain development regulatory commercial milestones agreement 2010 abbott entered agreement neurocrine biosciences develop commercialize product treatment endometriosis resulting charge acquired inprocess collaborations research development 75 million additional payments approximately 500 million could required achievement certain development regulatory commercial milestones agreement goodwill december 31 2012 goodwill recorded result business combinations totaled 158 billion goodwill reviewed impairment annually event could result impairment occurs results last impairment test indicated fair value reporting unit substantially excess carrying value except medical optics unit fair value medical optics business exceeds carrying value extended economic pressure governmentreimbursed cataract procedures europe global lasik surgery business well longer regulatory approval timelines products currently development could result valuation future fair value medical optics unit declined carrying value thereby triggering requirement estimate implied fair value goodwill measure impairment financial condition cash flow net cash operating activities amounted 93 billion 90 billion 87 billion 2012 2011 2010 respectively trade accounts payable liabilities net cash operating activities 2012 includes payment approximately 15 billion related litigation accrual recorded 2011 partially offset increases liabilities primarily restructuring reserves income taxes payable 2012 2011 includes 408 million 580 million respectively tax benefits related favorable resolution various tax positions pertaining prior years substantially cash equivalents december 31 2012 retained abbott separation cash equivalents december 31 2011 2010 considered reinvested indefinitely foreign subsidiaries abbott expect reinvestment affect liquidity capital resources funds needed operations us abbott would required accrue pay us income taxes repatriate funds abbott believes sufficient sources liquidity support assumption disclosed amount undistributed earnings december 31 2012 considered reinvested indefinitely abbott funded 379 million 2012 394 million 2011 525 million 2010 defined pension plans abbott expects pension funding main domestic pension plan 170 million 2013 decrease primarily reflects separation abbvie transfer certain plan assets liabilities abbvie abbott expects annual cash flow operating activities continue exceed abbotts capital expenditures cash dividends 2010 reductions cash equivalents due effect exchange rate changes primarily driven impact changes value us dollar compared euro nondollar denominated cash equivalents future fluctuations value us dollar foreign currencies could substantial effect dollar value abbotts cash equivalents fluctuations expected materially impact abbotts liquidity debt capital december 31 2012 abbotts longterm debt rating standard poors corporation a1 moodys investors service 2012 abbott replaced unused lines credit 30 billion 37 billion expire october 2012 2013 respectively two fiveyear credit facilities totaling 70 billion support commercial paper borrowing arrangements one credit facilities totaling 20 billion support abbvie commercial paper borrowings separation expired abbott separation abbvie abbott january 1 2013 2012 abbott redeemed 77 billion longterm notes preparation separation abbvie abbott repaid 1 billion longterm notes due 2012 addition abbvie inc wholly owned subsidiary abbott issued 147 billion longterm notes guaranteed abbott abbvies separation abbott january 1 2013 2011 abbott repaid 20 billion longterm notes using primarily shortterm borrowings registration statement filed securities exchange commission february 2009 abbott issued 30 billion longterm debt second quarter 2010 maturity dates 2015 2020 2040 interest rates 27 percent 4125 percent 53 percent respectively debt due 2015 extinguished 2012 proceeds debt used pay shortterm borrowings october 2008 board directors authorized purchase 5 billion abbotts common shares time authorization 370 million 148 million shares purchased 2012 2010 cost approximately 22 billion 800 million respectively shares purchased authorization 2011 abbott plans purchase shares time 2013 judgment entered 2009 us district court eastern district texas abbott litigation new york university centocor inc required abbott secure judgment event appeal federal circuit court unsuccessful overturning district courts decision first quarter 2010 abbott deposited 187 billion escrow agent considered assets restricted february 23 2011 federal circuit reversed district courts final judgment found centocors patent invalid april 25 2011 centocor petitioned federal circuit rehear reconsider decision june 2011 federal circuit denied centocors petition restrictions funds lifted working capital working capital 180 billion december 31 2012 83 billion december 31 2011 51 billion december 31 2010 increase working capital 2012 due primarily higher cash generated operating activities higher cash investments result net issuance longterm debt connection separation abbvie abbott increase working capital 2011 due primarily higher cash generated operating activities lower debt levels decrease working capital 2010 due primarily cash investments used acquire solvays pharmaceuticals business piramal healthcare limiteds healthcare solutions business substantially abbotts trade receivables italy spain portugal greece governmental health systems given economic conditions sovereign debt issues countries time takes collect outstanding receivables increased 2011 2012 collection times improved relative 2011 exception greece outstanding net governmental receivables countries december 31 2012 dollars millions exception greece abbott historically collected almost outstanding receivables countries abbott continues monitor credit worthiness customers located geographic areas establishes allowance trade receivable probable balance collected addition closely monitoring economic conditions budgetary fiscal developments countries abbott regularly communicates customers regarding status receivable balances including payment plans obtains positive confirmation validity receivables abbott also monitors potential periodically utilized factoring arrangements mitigate credit risk although receivables included arrangements historically material amount total outstanding receivables government funding become unavailable countries significant adverse changes reimbursement practices occur abbott may able collect entire balance capital expenditures capital expenditures 18 billion 2012 15 billion 2011 10 billion 2010 principally upgrading expanding manufacturing research development administrative support facilities segments investments information technology laboratory instruments placed customers contractual obligations table summarizes abbotts estimated contractual obligations december 31 2012 amounts reflect separation abbvie abbott january 1 2013 separation abbvie abbott january 1 2013 principal payments required longterm debt outstanding retained abbott 309 million 2013 33 billion 2019 thereafter payments longterm debt made abbvie including interest total approximately 196 billion apurchase commitments purchases made normal course business meet operational capital expenditure requirements bunrecognized tax benefits totaling 20 billion excluded table abbott unable reasonably estimate period cash settlement respective taxing authorities items contingent obligations abbott periodically entered agreements ordinary course business assignment product rights companies resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote addition abbott periodically acquires business product rights abbott agrees pay contingent consideration based attaining certain thresholds based occurrence certain events legislative issues 2010 patient protection affordable care act health care education reconciliation act collectively referred herein health care reform legislation signed law us health care reform legislation included increase basic medicaid rebate rate 151 percent 231 percent extended rebate drugs provided medicaid managed care organizations beginning 2013 health care reform legislation eliminate federal income tax deduction prescription drug expenses retirees abbott receives reimbursement medicare part retiree drug subsidy program result abbott recorded charge approximately 60 million first quarter 2010 reduce deferred tax assets associated retiree health care liabilities 2011 abbott began recording annual fee imposed health care reform legislation companies sell branded prescription drugs specified government programs amount annual fee based ratio certain abbotts sales compared total sales covered entities multiplied fixed dollar amount specified legislation year 2011 additional rebates incurred related medicare part coverage gap donut hole beginning 2013 abbott record 23 percent excise tax imposed health care reform legislation sale certain medical devices us abbotts primary markets highly competitive subject substantial government regulations throughout world abbott expects debate continue availability method delivery payment health care products services possible predict extent abbott health care industry general might adversely affected factors future complete discussion factors contained item 1 business item 1a risk factors annual report form 10k private securities litigation reform act 1995 caution concerning forwardlooking statements safe harbor provisions private securities litigation reform act 1995 abbott cautions investors forwardlooking statements projections made abbott including made document subject risks uncertainties may cause actual results differ materially projected economic competitive governmental technological factors may affect abbotts operations discussed item 1a risk factors annual report form 10k item 7a item 7 managements discussion analysis financial condition results operations financial review abbotts revenues derived primarily sale broad line health care products shortterm receivable arrangements patent protection licenses technological performance features inclusion abbotts products contract pharmacy benefit manager impact products sold price controls competition rebates impact net selling prices products foreign currency translation impacts measurement net sales costs abbotts primary products prescription pharmaceuticals nutritional products diagnostic testing products vascular products sales international markets approximately 55 percent consolidated net sales continued robust growth humira worldwide launch additional indications acquisitions solvays pharmaceuticals business solvay pharmaceuticals piramal healthcare limiteds healthcare solutions business advanced medical optics inc launch xience v drug eluting stent conclusion tap pharmaceutical products inc joint venture loss patent protection pharmaceutical products challenging economic environment many countries around world impacted abbotts sales costs financial position last three years pharmaceutical research development focused therapeutic areas include immunology oncology neuroscience pain management hepatitis c hcv chronic kidney disease womens health 2003 abbott began worldwide launch humira rheumatoid arthritis followed launches five additional indications increased humiras worldwide sales 65 billion 2010 compared 55 billion 2009 45 billion 2008 abbott forecasts growth low teens worldwide humira sales 2011 abbott studying additional indications humira substantial research development selling support continues dedicated maximizing worldwide potential humira increased generic competition resulted us depakote sales declining 13 billion 2008 161 million 2010 austerity measures implemented several european countries reduced healthcare spending affected pharmaceutical pricing second half 2010 impact expected continue 2011 february 2010 abbott acquired solvay pharmaceuticals provided abbott large complementary portfolio pharmaceutical products expanded abbotts presence key global emerging markets acquisition added approximately 31 billion abbotts 2010 total sales primarily outside us 2010 abbott recorded approximately 710 million expense related integration solvay business restructuring plan announced september streamline operations improve efficiencies reduce costs primarily certain solvay sites functions restructuring plan described september 2010 abbott completed acquisition piramals healthcare solutions business propelling abbott market leadership indian pharmaceutical market accelerating companys growth emerging markets 2007 abbotts nutritional products businesses reorganized worldwide business better leverage opportunities available strong nutritional brands significant efforts focused capturing opportunities particularly developing markets growth strong 2008 abbott received fda approval market xience v drug eluting stent us 2006 received european union approval xience v became marketleading drug eluting stent us fourth quarter 2008 june 2009 xience prime abbotts next generation drug eluting stent received ce mark approval launched europe august 2009 abbott received approval market xience v japan january 2010 xience v became marketleading drug eluting stent japan second quarter 2010 us government passed health care reform legislation included increase medicaid rebate rates extension rebate drugs provided medicaid managed care organizations beginning 2010 legislation also imposes annual fees paid pharmaceutical manufacturers medical device companies beginning 2011 2013 respectively well additional rebates related medicare part donut hole beginning 2011 addition onetime charge approximately 60 million reduce deferred tax assets associated retiree health care liabilities related medicare part retiree drug subsidy legislation negatively impacted abbotts performance 200 million 2010 expected increase 400 million 2011 abbotts short longterm debt totaled 189 billion december 31 2010 largely incurred finance acquisitions operating cash flows excess capital expenditures cash dividends partially funded acquisitions last three years december 31 2010 abbotts longterm debt rating aa standard poors corporation a1 moodys investors service april 2008 abbott takeda concluded tap pharmaceutical products inc tap joint venture evenly splitting value assets joint venture taxfree exchange abbott received taps lupron business exchange abbotts 50 percent ownership tap luprons us results included pharmaceutical products segment beginning may 2008 abbott also receives payments based specified development approval commercial events achieved respect products retained takeda payments takeda based sales products retained takeda 2011 abbott focus several key initiatives pharmaceutical business abbott continue build global presence expand presence emerging markets diversify sources growth solvay pharmaceuticals piramal healthcare solutions acquisitions abbott also continue maximizing market potential humira pharmaceutical research development efforts continue focus significant portion expenditures compounds immunology oncology neuroscience pain management hcv chronic kidney disease womens health compounds include one phase iii compound multiple sclerosis one phase iii compound three phase ii compounds oncology three phase ii compounds targeting hcv three phase ii compounds targeting alzheimers disease cognitive disorders schizophrenia two phase ii compounds targeting chronic kidney disease one phase ii compound womens health pain management vascular business abbott continue focus marketing xience prime europe markets obtaining regulatory review xience nano xience prime mitraclip device us limited european rollout well clinical development absorb bioresorbable vascular scaffold bvs device business segments abbott focus developing acquiring differentiated technologies higher growth segments markets critical accounting policies sales rebates approximately 50 percent abbotts consolidated gross revenues subject various forms rebates allowances abbott records reductions revenues time sale rebates allowances pharmaceutical products segment nutritional products segment abbott provides rebates pharmacy benefit management companies state agencies administer federal medicaid program insurance companies administer medicare drug plans state agencies administer special supplemental nutrition program women infants children wic wholesalers group purchasing organizations government agencies private entities rebate amounts usually based upon volume purchases using contractual statutory prices product factors used rebate calculations include identification products sold subject rebate customer government agency price terms apply estimated lag time sale payment rebate using historical trends adjusted current changes abbott estimates amount rebate paid records liability reduction gross sales abbott records sale product settlement rebate generally occurs two 24 months sale abbott regularly analyzes historical rebate trends makes adjustments reserves changes trends terms rebate programs rebates chargebacks charged gross sales 2010 2009 2008 amounted approximately 49 billion 44 billion 38 billion respectively 231 percent 238 percent 228 percent respectively based gross sales approximately 211 billion 184 billion 168 billion respectively subject rebate onepercentage point increase percentage rebates related gross sales would decrease net sales approximately 211 million 2010 abbott considers onepercentage point increase reasonably likely increase percentage rebates related gross sales allowances charged gross sales approximately 415 million 414 million 362 million cash discounts 2010 2009 2008 respectively 537 million 456 million 439 million returns 2010 2009 2008 respectively cash discounts known within 15 30 days sale therefore reliably estimated returns reliably estimated abbotts historical returns low sales returns terms sales terms remained relatively unchanged several periods management analyzes adequacy ending rebate accrual balances quarter domestic nutritional business management uses internal external data available estimate level inventory distribution channel management access several large customers inventory management data customers utilizes data third party measures time retail shelf sources allow management make reliable estimates inventory distribution channel except transition period change supplier wic business state inventory distribution channel vary substantially management also estimates states processing lag time based claims data addition internal processing time factor estimating accrual wic business state sale made determining factor applicable price reliably determinable estimates required amount wic sales within state abbott wic business external data sources utilized estimate participant data us department agriculture usda administers wic program participant data states internally administered market research usda making data available many years internal data includes historical redemption rates pricing data december 31 2010 abbott exclusive wic business 23 states domestic pharmaceutical business significant charges gross sales medicaid medicare rebates pharmacy benefit manager rebates wholesaler chargebacks order evaluate adequacy ending accrual balances management uses internal external data estimate level inventory distribution channel rebate claims processing lag time external data sources used estimate inventory distribution channel include inventory levels periodically reported wholesalers third party market data purchased abbott management estimates processing lag time based periodic sampling claims data estimate price rebate percentage systems calculations used track sales product customer estimate contractual statutory price abbotts systems calculations developed time rebates become significant abbott believes reliable following table analysis four largest rebate accruals comprise approximately 69 percent consolidated rebate provisions charged revenues 2010 remaining rebate provisions charged gross sales significant determination operating earnings dollars millions historically adjustments prior years rebate accruals material net income abbott employs various techniques verify accuracy claims submitted possible works organizations submitting claims gain insight changes might affect rebate amounts medicaid medicare government agency programs calculation rebate involves interpretations relevant regulations subject challenge change interpretation income taxes abbott operates numerous countries income tax returns subject audits adjustments abbott operates globally nature audit items often complex objectives government auditors result tax income one country abbott employs internal external tax professionals minimize audit adjustment amounts possible accordance accounting rules relating measurement tax contingencies order recognize uncertain tax benefit taxpayer must likely sustaining position measurement benefit calculated largest amount 50 percent likely realized upon resolution benefit application rules requires significant amount judgment us abbotts federal income tax returns 2005 settled income tax returns years 2005 open abbott record deferred income taxes earnings reinvested indefinitely foreign subsidiaries pension postemployment benefits abbott offers pension benefits postemployment health care many employees abbott engages outside actuaries assist determination obligations costs programs abbott must develop longterm assumptions significant health care cost trend rates discount rates expected return plan assets discount rates used measure liabilities determined based highquality fixed income securities match duration expected retiree benefits health care cost trend rates represent abbotts expected annual rates change cost health care benefits forward projection health care costs measurement date difference assumed rates actual rates known decades significant relation obligations annual cost recorded programs negative asset returns 2008 due poor market conditions low interest rates significantly increased actuarial losses plans december 31 2010 pretax net actuarial losses prior service costs credits recognized accumulated comprehensive income loss abbotts defined benefit plans medical dental plans losses 29 billion 307 million respectively actuarial losses gains amortized remaining service attribution periods employees corridor method accordance rules accounting postemployment benefits differences expected longterm return plan assets actual annual return amortized fiveyear period note 4 consolidated financial statements describes impact onepercentage point change health care cost trend rate however certainty change would limited one percentage point valuation intangible assets abbott acquired continues acquire significant intangible assets abbott records fair value transactions involving purchase sale intangible assets occur frequency companies health care field valuations usually based discounted cash flow analysis discounted cash flow model requires assumptions timing amount future net cash flows risk cost capital terminal values market participants factors significantly affect value intangible asset abbott engages independent valuation experts review abbotts critical assumptions calculations acquisitions significant intangibles abbott reviews definitelived intangible assets impairment quarter using undiscounted net cash flows approach undiscounted cash flows intangible asset less carrying value intangible asset intangible asset written fair value usually discounted cash flow amount cash flows cannot identified individual asset review applied lowest group level cash flows identifiable goodwill indefinitelived intangible assets relate inprocess research development acquired business combination reviewed impairment annually event could result impairment occurs december 31 2010 goodwill intangibles amounted 159 billion 122 billion respectively amortization expense intangible assets amounted 14 billion 2010 impairments goodwill 2010 2009 2008 litigation abbott accounts litigation losses accordance fasb accounting standards codification 450 contingencies asc 450 loss contingency provisions recorded probable losses managements best estimate loss best estimate cannot made minimum loss contingency amount recorded estimates often initially developed substantially earlier ultimate loss known estimates refined accounting period additional information becomes known accordingly abbott often initially unable develop best estimate loss therefore minimum amount could zero recorded information becomes known either minimum loss amount increased resulting additional loss provisions best estimate made also resulting additional loss provisions occasionally best estimate amount changed lower amount events result expectation favorable outcome previously expected abbott estimates range possible loss approximately 75 million 115 million legal proceedings environmental exposures reserves approximately 95 million recorded december 31 2010 proceedings exposures reserves represent managements best estimate probable loss defined fasb asc 450 contingencies stock compensation abbott records fair value stock options results operations since market trading employee stock options management must use fair value method certainty results fair value method would value employee stock options would traded cash fair value methods require management make several assumptions significant selection fair value model stock price volatility average life option abbott readily available grantbygrant historical activity several years option administration system uses developing assumptions abbott uses blackscholes model value stock options abbott uses historical volatility stock price implied volatility traded options develop volatility assumptions abbott uses historical grant activity combined expectations future exercise activity develop average life assumptions abbott also used historical grant data evaluate whether certain holders stock options exercised options differently holders found differentiating pattern among holders results operations sales following table details components sales growth reportable segment last three years worldwide sales growth 2010 reflects acquisition solvays pharmaceuticals business february 15 2010 unit growth positive effect relatively weaker us dollar worldwide sales growth 2009 reflects unit growth acquisition advanced medical optics inc february 25 2009 partially offset negative effect relatively stronger us dollar worldwide us pharmaceutical products segment sales also reflect decreased sales depakote due generic competition 2009 excluding us depakote sales worldwide sales increased 77 percent us sales increased 76 percent pharmaceutical products segment sales increased 43 percent 2008 2009 worldwide 2008 sales growth reflects unit growth positive effect relatively weaker us dollar comparison significant product group sales follows percent changes versus prior year based unrounded numbers decreased sales depakote due generic competition impacted us specialty product sales 2010 2009 2008 lower sales zemplar kaletra lupron affected us specialty product sales 2010 partially offset increased sales humira three years addition lupron sales conclusion tap joint venture april 2008 increased us specialty product sales 2009 2008 us sales humira 28 billion 25 billion 22 billion 2010 2009 2008 respectively us sales depakote 161 million 331 million 13 billion 2010 2009 2008 respectively us primary care sales impacted discontinuation azmacort generic competition cardizem la 2010 decreased sales synthroid 2009 2008 decreased sales omnicef biaxin 2008 due generic competition partially offset three years increased sales niaspan 2010 2008 higher tricortrilipix franchise sales increased sales volume humira 2010 2009 2008 favorably impacted international pharmaceuticals sales partially offset decreased sales clarithromycin international sales humira 37 billion 30 billion 23 billion 2010 2009 2008 respectively relatively weaker dollar increased international pharmaceutical sales 2010 2008 19 percent 73 percent respectively relatively stronger us dollar decreased international pharmaceutical sales 2009 86 percent international pediatric nutritionals sales increases due primarily volume growth developing countries us pediatric nutritionals sales 2010 affected voluntary recall certain similacbrand powder infant formulas september 2010 international adult nutritionals sales immunochemistry sales 2010 2008 positively impacted effect relatively weaker us dollar negatively impacted 2009 effect relatively stronger us dollar abbott periodically sold product rights nonstrategic products recorded related gains net sales accordance abbotts revenue recognition policies discussed note 1 consolidated financial statements related net sales approximately 58 million 120 million 111 million 2010 2009 2008 respectively expiration licenses patent protection generic competition affect future revenues operating income abbott currently significant patent license expirations next three years license agreement tricor 145 mg generic competition could begin early march 2011 expected july 2012 agreement relating abbotts niacin products acquired kos pharmaceuticals acquisition niaspan may become subject generic competition september 2013 operating earnings gross profit margins 583 percent net sales 2010 571 percent 2009 573 percent 2008 increase gross profit margin 2010 due part improved margins pharmaceutical vascular diabetes diagnostics businesses favorable effect exchange gross profit margin ratio decrease gross profit margin 2009 due part negative impact lower sales depakote unfavorable effect exchange gross profit margin ratio partially offset improved margins vascular diagnostics businesses increase gross profit margin 2008 due part favorable product mix favorable impact foreign exchange us states receive price rebates manufacturers infant formula federally subsidized special supplemental nutrition program women infants children also rebate programs pharmaceutical products rebate programs continue negative effect gross profit margins nutritional pharmaceutical products segments research development expense 3724 billion 2010 2744 billion 2009 2689 billion 2008 represented increases 357 percent 2010 20 percent 2009 73 percent 2008 excluding charges related solvay restructurings announced september 2010 research development expenses 2010 increased 294 percent increase exclusive effects restructuring charges reflects acquisitions solvays pharmaceuticals business february 2010 facet biotech april 2010 increase 2009 reflects favorable effect exchange rates reduced research development expense 2009 excluding effect exchange research development expenses increased 34 percent 2009 increases 2010 2009 2008 also reflect continued pipeline spending including programs vascular devices biologics neuroscience oncology hepatitis c majority research development expenditures concentrated pharmaceutical products selling general administrative expenses increased 234 percent 2010 decreased 04 percent 2009 increased 139 percent 2008 excluding charges related solvay restructuring integration charges selling general administrative expenses 2010 increased 182 percent increase exclusive effects restructuring integration charges reflects acquisitions solvays pharmaceuticals business 2010 advanced medical optics inc 2009 higher provisions litigation 2010 2009 decrease reflects favorable effect exchange rates offset expenses relating acquisition advanced medical optics inc settlement litigation excluding effects charges exchange selling general administrative expenses increased 09 percent 2009 2008 increase reflects settlement litigation relating tricor increased selling general administration expenses 31 percentage points remaining increases selling general administrative expenses due primarily increased selling marketing support new existing products including continued spending humira xience v inflation conclusion tap pharmaceutical products inc joint venture sale abbotts spine business april 30 2008 abbott takeda concluded tap pharmaceutical products inc tap joint venture evenly splitting value assets joint venture abbott exchanged 50 percent equity interest tap assets liabilities employees related taps lupron business subsequent conclusion joint venture tap merged two takeda entities exchange abbotts investment tap taps lupron business resulted gain closing approximately 94 million internal revenue service issued private letter ruling transaction qualifies taxfree us income tax purposes beginning may 1 2008 abbott began recording us lupron net sales costs operating results longer records income tap joint venture taps sales lupron 182 million four months ended april 30 2008 abbott also receives payments based specified development approval commercial events achieved respect products retained takeda payments takeda based sales products retained takeda recorded abbott income expense net specified event achieved applicable sales made exchange transaction accounted sale abbotts equity interest tap acquisition taps lupron business sale abbotts equity interest tap resulted recording net assets related lupron business primarily cash receivables inventory assets net accounts payable accrued liabilities offset credit abbotts investment tap amount approximately 280 million acquired lupron business abbott recorded intangible assets primarily lupron product rights approximately 700 million goodwill approximately 350 million deferred tax liabilities related primarily intangible assets approximately 260 million intangible assets amortized 15 years abbott agreed remit cash takeda certain research development events achieved development assets retained takeda amounts recorded liability closing amount approximately 11 billion related deferred tax assets approximately 410 million also recorded 11 billion abbott made taxdeductible payments 36 million 83 million 200 million 2010 2009 2008 2009 events occurred resulting remaining payments required remaining liability amount 797 million derecognized recorded income expense net 2008 abbott sold spine business approximately 360 million cash resulting aftertax gain approximately 147 million presented gain sale discontinued operations net taxes accompanying statement income operations financial position spine business presented discontinued operations effects would significant restructurings 2010 abbott management approved restructuring plan primarily related acquisition solvays pharmaceuticals business plan streamlines operations improves efficiencies reduces costs certain solvay sites functions well certain abbott solvay commercial organizations various countries action plans identified expected implemented within next two years plan result pretax charges approximately 810 million 970 million life plan charges include employeerelated costs approximately 650 million accelerated depreciation asset writedowns approximately 105 million related exit costs approximately 215 million mainly related discontinuation certain research development programs product transfers plan abbott recorded charges cost products sold research development selling general administrative approximately 99 million 152 million 272 million respectively additional charges 12 million subsequently recorded primarily accelerated depreciation following summarizes activity restructuring dollars millions 2010 prior years abbott management approved plans realign worldwide pharmaceutical vascular manufacturing operations selected domestic international commercial research development operations order reduce costs 2010 2009 2008 abbott recorded charges approximately 56 million 114 million 36 million respectively reflecting impairment manufacturing facilities assets employee severance related charges approximately 56 million 2010 classified cost products sold 114 million 36 million 2009 2008 respectively classified selling general administrative additional 13 million 47 million 81 million subsequently recorded 2010 2009 2008 respectively relating restructurings primarily accelerated depreciation following summarizes activity restructurings dollars millions 2008 abbott management approved plan streamline global manufacturing operations reduce overall costs improve efficiencies abbotts core diagnostic business 2008 abbott recorded charge cost products sold approximately 129 million plan additional charges approximately 60 million 54 million 16 million recorded 2010 2009 2008 respectively relating restructuring primarily accelerated depreciation product transfer costs additional charges incurred 2011 result product reregistration timelines required manufacturing regulations number countries product transition timelines following summarizes activity restructuring dollars millions interest expense interest income 2010 interest expense increased due primarily increased debt levels 2009 2008 interest expense decreased primarily result lower interest rates partially offset increased debt levels 2009 related acquisition advanced medical optics inc interest income decreased 2010 due lower investment balances decreased 2009 due lower interest rates increased 2008 due higher interest rates income expense net income expense net 2009 includes derecognition contingent liability 797 million associated conclusion tap pharmaceutical products inc joint venture discussed 287 million gain settlement reached abbott medtronic inc resolving outstanding intellectual property litigation two parties income recording certain investments fair value connection business acquisitions income expense net 2010 2009 2008 also includes ongoing contractual payments takeda associated conclusion tap joint venture gain 2008 sale equity investment accounted availableforsale investment addition abbott recorded gain approximately 94 million connection dissolution tap joint venture 2008 taxes earnings income tax rates earnings continuing operations 190 percent 2010 201 percent 2009 192 percent 2008 result patient protection affordable care act health care education reconciliation act signed law 2010 abbott recorded charge approximately 60 million 2010 reduce deferred tax assets associated retiree health care liabilities related medicare part retiree drug subsidy tax rate 2009 affected higher tax rate applied derecognition contingent liability associated conclusion tap pharmaceutical products inc joint venture medtronic intellectual property litigation settlement october 2010 puerto rico enacted legislation assesses tax beginning 2011 certain products manufactured puerto rico excise tax recorded cost products sold although tax expected creditable us income tax purposes research development programs abbott currently numerous pharmaceutical medical nutritional products development significant areas therapeutic focus include following pharmaceutical products immunology projects ongoing identify new mechanisms potential treat array immunemediated diseases projects include early stage work oral dmard therapies number biologic candidates phase iii trials ongoing additional indications humira including ulcerative colitis japan ankylosing spondylitits china pediatric crohns disease us european union eu uvetis us eu japan peripheral axial spondyloarthritis us eu global regulatory applications ulcerative colitis submitted early 2011 neurosciencepain abbott focused development compounds target receptors brain help regulate mood memory neurological functions address conditions alzheimers disease schizophrenia pain parkinsons disease multiple sclerosis ms includes three compounds directed toward treatment alzheimers disease abt126 abt288 completing phase ii studies early 2011 abt384 complete phase ii study later 2011 daclizumab nextgeneration antibody entered phase iii clinical trials relapsing remitting ms second quarter 2010 oncology abbott focused development targeted treatments inhibit tumor growth improve response common cancer therapies abbott new molecular entities development dozen types cancer including •abt869 multitargeted kinase inhibitor phase iii trial liver cancer initiated 2010 phase ii studies cancer types ongoing •abt263 bcl2 family protein antagonist currently phase ii development chronic lymphoid leukemia •abt888 parpinhibitor completing phase ii early 2011 •elotuzamab collaboration agreement acquired part facet biotech acquisition 2010 abbott expects begin phase iii development elotuzamab treatment multiple myeloma partner 2011 hepatitis c abbotts antiviral program focused developing treatments hepatitis c hcv includes partnership enanta pharmaceuticals discover protease inhibitors well internal programs focused additional viral targets 2010 abbott initiated phase ii clinical trials evaluate three abbotts hcv antiviral agents including investigational protease inhibitor abt450 part enanta collaboration polymerase inhibitors abt333 abt072 well abt267 ns5a inhibitor currently developed exclusively abbott womens health 2010 abbott entered collaboration agreement neurocrine develop commercialize elagolix oral gonadotropinreleasing hormone gnrh antagonist treatment endometriosisrelated pain fibroids phase ii study endometriosis recently completed chronic kidney disease 2010 abbott entered agreement reata pharmaceuticals exus rights excluding certain asian markets bardoxolone investigational treatment chronic kidney disease ckd phase iib study recently completed global phase iii trial targeted begin 2011 addition new formulations abbotts existing pharmaceutical products including lupron 6month depot androgel 162 currently fda review work also continuing numerous earlystage programs including biologic acquired pangenetics chronic pain late 2009 cmet antibody cancer partnership pierre fabre sa programs across abbotts therapeutic areas focus vascular ongoing projects pipeline include •xience nano version xience v small vessels currently regulatory review us •xience prime nextgeneration drugeluting stent des based xience v attributes ongoing clinical trials xience prime us evaluating range stent sizes including small vessel long lengths •absorb bioresorbable vascular scaffold bvs device treatment coronary artery disease gradually resorbed vessel wall 2010 abbott released fouryear data absorb clinical trial showed efficacy safety results consistent threeyear data early 2010 abbott also initiated absorb extend clinical trial enroll 1000 patients complex coronary artery disease 2011 receiving ce mark approval absorb abbott announced plans initiate randomized controlled clinical trial later 2011 study device expanded population europe global trial including us geographies planned later year •mitraclip device treatment mitral regurgitation september 2010 abbott announced additional data everest ii endovascular valve edgeto edge repair study trial safety clinical benefits mitraclip system abbotts mitraclip system market europe currently review approval fda •coronary endovascular core product projects including new coronary endovascular guide wires herculink elite stent renal indication us various stages development andor undergoing regulatory approvals medical optics abbott expanding proprietary laser platforms new vision correction applications including cataract surgery developing new diagnostic instruments treatments improve visual outcomes synchrony nextgeneration intraocular lens iol designed mimic eyes natural ability change focus deliver improved vision distances patients following cataract surgery currently fda review abbott also developing new products patients undergoing cataract surgery including new intraocular lenses address astigmatism new insertion system facilitate microincision surgery ophthalmic viscoelastic us market molecular diagnostics numerous new molecular diagnostic products including oncology infectious disease assays well improved instrument systems currently development assay aid management hcvinfected patients undergoing antiviral therapy currently us regulatory review additional assays detect presence hiv virus tuberculosis cmv viral load test detect hepatitis b drug resistance patients regulatory review ce mark approval core laboratory diagnostics abbott researching dozens novel biomarkers focusing areas diabetes infectious disease neuroscience disorders also several next generation instrument systems hematology immunochemistry blood screening development diabetes care abbott developing new products diabetes patients including next generation freestyle glucose monitoring system new features supporting insulinusing patient new system currently regulatory review ce mark approval filing fda approval expected submitted 2011 nutrition abbott focusing rd spend six benefit platforms span pediatric adult performance nutrition areas immunity cognition lean body mass inflammation metabolism tolerance numerous new products build advances benefit platforms currently development expected launched 2011 given diversity abbotts business intention remain broadbased healthcare company numerous sources potential future growth individual project expected material cash flows results operations factors considered included research development expenses projected incurred project compound device next year relative abbotts total research development expenses well qualitative factors marketplace perceptions impact new product abbotts overall market position delays abbotts 2010 research development activities expected material impact operations aggregate cost complete numerous pharmaceutical medical device projects currently development expected material total cost complete depend upon abbotts ability successfully complete project rate project advances ultimate timing completion given potential significant delays high rate failure inherent research development new pharmaceutical medical device products technologies possible accurately estimate total cost complete projects currently development however abbott plans continue manage portfolio projects achieve research development spend equal approximately 95 percent 10 percent sales year business combinations technology acquisitions related transactions january 1 2009 abbott adopted provisions sfas 141 revised 2007 business combinations codified fasb asc 805 business combinations asc 805 acquired inprocess research development accounted indefinitelived intangible asset approval discontinuation rather expense addition acquisition costs connection acquisition expensed rather added cost acquisition fair value contingent consideration date acquisition added cost acquisition september 8 2010 abbott acquired piramal healthcare limiteds healthcare solutions business leader indian branded generics market 22 billion cash plus additional payments 400 million annually 2011 2012 2013 2014 abbott recorded 16 billion liability present value additional payments acquisition date acquisition financed current cash preliminary allocation fair value acquisition resulted recording 27 billion deductible acquired intangible assets 10 billion deductible goodwill acquired intangible assets consist primarily trade names customer relationships associated rights amortized average 19 years allocation fair value acquisition finalized valuation completed february 2010 abbott acquired solvays pharmaceuticals business solvay pharmaceuticals approximately 61 billion cash plus additional payments eur 100 million per year certain sales milestones met 2011 2012 2013 contingent consideration approximately 290 million recorded based preliminary valuation acquisition solvay pharmaceuticals provides abbott large complementary portfolio pharmaceutical products expands abbotts presence key global emerging markets abbott acquired control business february 15 2010 financial results acquired operations included financial statements beginning date net sales acquired operations 2010 approximately 31 billion pretax loss acquired operations including acquisition integration restructuring expenses 2010 approximately 395 million acquisition funded current cash shortterm investments preliminary allocation fair value acquisition shown table billions dollars allocation fair value acquisition finalized valuation completed acquired intangible assets consist primarily product rights currently marketed products amortized 2 14 years average 11 years acquired inprocess research development accounted indefinite lived intangible assets regulatory approval discontinuation net tangible assets acquired consist primarily trade accounts receivable approximately 675 million inventory approximately 390 million property equipment approximately 725 million net assumed liabilities primarily trade accounts payable accrued compensation liabilities following unaudited pro forma financial information reflects consolidated results operations abbott acquisition solvay pharmaceuticals taken place january 1 2010 january 1 2009 pro forma information includes adjustments amortization intangible assets fair value adjustments acquisitiondate inventory well acquisition integration restructuring expenses pro forma financial information necessarily indicative results operations would transaction effected assumed date billions dollars except per share amounts march 2010 abbott acquired starlims technologies approximately 100 million cash net cash held starlims providing abbott leading products expertise build position laboratory informatics substantial portion fair value acquisition allocated goodwill amortizable intangible assets allocation fair value acquisition finalized valuation completed april 2010 abbott acquired outstanding shares facet biotech corporation approximately 430 million cash net cash held facet acquisition enhances abbotts early midstage pharmaceutical pipeline including biologic multiple sclerosis compounds complement abbotts oncology program substantial portion fair value acquisition allocated acquired inprocess research development accounted indefinitelived intangible asset regulatory approval discontinuation february 2009 abbott acquired outstanding shares advanced medical optics inc amo approximately 14 billion cash net cash held amo prior acquisition abbott held small investment amo abbott acquired amo take advantage increasing demand vision care technologies due population growth demographic shifts amos premier position field abbott acquired control business february 25 2009 financial results acquired operations included financial statements beginning date acquisition financed longterm debt allocation fair value acquisition shown table dollars billions acquired intangible assets consist established customer relationships developed technology trade names amortized 2 30 years average 15 years acquired inprocess research development accounted indefinitelived intangible asset regulatory approval discontinuation net tangible assets acquired consist primarily trade accounts receivable inventory property equipment assets net assumed liabilities primarily trade accounts payable accrued compensation liabilities addition subsequent acquisition abbott repaid substantially acquired debt amo october 2009 abbott acquired 100 percent visiogen inc 400 million cash providing abbott nextgeneration accommodating intraocular lens iol technology address presbyopia cataract patients allocation fair value acquisition resulted nondeductible acquired inprocess research development approximately 200 million accounted indefinitelived intangible asset regulatory approval discontinuation nondeductible definitelived intangible assets approximately 24 million goodwill approximately 200 million october 2009 abbott acquired evalve inc 320 million cash plus additional payment 90 million made upon completion certain regulatory milestones abbott acquired evalve obtain presence growing area nonsurgical treatment structural heart disease including previous investment evalve abbott acquired 100 percent outstanding shares evalve connection acquisition carrying amount investment revalued fair value resulting recording 28 million income reported income expense net allocation fair value acquisition resulted nondeductible definitelived intangible assets approximately 140 million nondeductible acquired inprocess research development approximately 220 million accounted indefinitelived intangible asset regulatory approval discontinuation goodwill approximately 100 million deferred income taxes approximately 110 million acquired intangible assets consist developed technology amortized 11 years january 2009 abbott acquired ibis biosciences inc ibis 175 million cash expand abbotts position molecular diagnostics infectious disease including 40 million investment ibis 2008 abbott acquired 100 percent outstanding shares ibis substantial portion fair value acquisition allocated goodwill amortizable intangible assets acquired inprocess research development accounted indefinitelived intangible asset regulatory approval discontinuation investment ibis 2008 resulted charge acquired inprocess research development connection acquisition carrying amount investment revalued fair value resulting recording 33 million income reported income expense net except acquisition solvay pharmaceuticals acquisitions taken place january 1 previous year consolidated net sales income would significantly different reported amounts 2010 abbott entered agreement acquire licensing rights outside us excluding certain asian markets product development treatment chronic kidney disease resulting charge acquired inprocess research development 238 million addition abbott acquired equity interest approximately 62 million 2011 abbott expects acquire additional equity interest make milestone payments related license agreement totaling approximately 300 million 2010 abbott also entered agreement develop commercialize product treatment endometriosis resulting charge acquired inprocess research development 75 million additional payments approximately 500 million could required achievement certain development regulatory commercial milestones 2009 abbott acquired global rights novel biologic treatment chronic pain 170 million cash resulting charge acquired inprocess research development goodwill december 31 2010 goodwill recorded result business combinations totaled 159 billion goodwill reviewed impairment annually event could result impairment occurs results last impairment test indicated fair value reporting unit substantially excess carrying value except medical optics unit fair value medical optics business exceeds carrying value extended economic pressure particularly lasik surgery business longer regulatory approval timelines products currently development could result valuation future fair value medical optics unit declined carrying value thereby triggering requirement estimate implied fair value goodwill measure impairment financial condition cash flow net cash operating activities continuing operations amounted 87 billion 73 billion 70 billion 2010 2009 2008 respectively 20 billion longterm debt paid march may 2011 funded operating cash flow borrowings abbott funded 525 million 2010 862 million 2009 285 million 2008 defined pension plans abbott expects pension funding main domestic pension plan 200 million annually abbott expects annual cash flow operating activities continue exceed abbotts capital expenditures cash dividends debt capital december 31 2010 abbotts longterm debt rating aa standard poors corporation a1 moodys investors service abbott readily available financial resources including unused lines credit 67 billion support commercial paper borrowing arrangements 30 billion facility expires october 2012 37 billion facility expires 2013 related compensating balances subject withdrawal abbott option commitment fees material october 2008 board directors authorized purchase 5 billion abbotts common shares time authorization 148 million shares purchased 2010 cost approximately 800 million 145 million shares purchased 2009 cost approximately 800 million 146400 shares purchased 2008 cost approximately 8 million 2008 abbott also purchased approximately 190 million common shares cost approximately 11 billion prior authorization registration statement filed securities exchange commission february 2009 abbott issued 30 billion longterm debt second quarter 2010 matures 2015 2020 2040 interest rates 27 percent 4125 percent 53 percent respectively proceeds debt used pay shortterm borrowings february 2009 registration statement abbott issued 30 billion longterm debt first quarter 2009 matures 2019 2039 interest rates 5125 percent 60 percent respectively proceeds debt used fund acquisition advanced medical optics inc repay debt advanced medical optics inc addition abbott repaid 1 billion longterm notes due 2009 using shortterm borrowings connection judgment entered us district court eastern district texas abbott litigation new york university centocor inc abbott executed collaterized escrow agreement february 2010 financial institution secure judgment event abbotts appeal federal circuit court unsuccessful overturning district courts decision abbott deposited approximately 187 billion escrow agent considers assets restricted assets invested us treasury bills money market funds per terms agreement working capital working capital 51 billion december 31 2010 103 billion december 31 2009 55 billion december 31 2008 decrease working capital 2010 due primarily cash investments used acquire solvays pharmaceuticals business piramal healthcare limiteds healthcare solutions business increase working capital 2009 due primarily increased levels cash investments derecognition contingent liability associated conclusion tap joint venture partially offset increased debt levels capital expenditures capital expenditures 10 billion 2010 11 billion 2009 13 billion 2008 principally upgrading expanding manufacturing research development investments information technology administrative support facilities segments laboratory instruments placed customers contractual obligations following table summarizes abbotts estimated contractual obligations december 31 2010 dollars millions apurchase commitments purchases made normal course business meet operational capital expenditure requirements bunrecognized tax benefits totaling 25 billion excluded table abbott unable reasonably estimate period cash settlement respective taxing authorities items contingent obligations abbott periodically entered agreements ordinary course business assignment product rights companies resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote addition abbott periodically acquires business product rights abbott agrees pay contingent consideration based attaining certain thresholds based occurrence certain events legislative issues first quarter 2010 patient protection affordable care act health care education reconciliation act collectively referred herein health care reform legislation signed law us health care reform legislation included increase basic medicaid rebate rate 151 percent 231 percent extended rebate drugs provided medicaid managed care organizations medicaid rebate changes continue negative effect gross profit margin pharmaceutical products segment future quarters beginning 2013 health care reform legislation eliminate federal income tax deduction prescription drug expenses retirees abbott receives reimbursement medicare part retiree drug subsidy program result abbott recorded charge approximately 60 million first quarter 2010 reduce deferred tax assets associated retiree health care liabilities 2011 abbott begin recording annual fee imposed health care reform legislation companies sell branded prescription drugs specified government programs amount annual fee based ratio certain abbotts sales compared total sales covered entities multiplied fixed dollar amount specified legislation year 2011 additional rebates incurred related medicare part coverage gap donut hole beginning 2013 abbott record 23 percent excise tax imposed health care reform legislation sale certain medical devices us abbotts primary markets highly competitive subject substantial government regulations throughout world abbott expects debate continue availability method delivery payment health care products services possible predict extent abbott health care industry general might adversely affected factors future complete discussion factors contained item 1 business item 1a risk factors annual report form 10k private securities litigation reform act 1995 caution concerning forwardlooking statements safe harbor provisions private securities litigation reform act 1995 abbott cautions investors forwardlooking statements projections made abbott including made document subject risks uncertainties may cause actual results differ materially projected economic competitive governmental technological factors may affect abbotts operations discussed item 1a risk factors annual report form 10k item 7a item 7 managements discussion analysis financial condition results operations financial review abbotts revenues derived primarily sale broad line health care products shortterm receivable arrangements patent protection licenses technological performance features inclusion abbotts products contract impact products sold price controls competition rebates impact net selling prices products foreign currency translation impacts measurement net sales costs abbotts primary products nutritional products branded generic pharmaceuticals diagnostic testing products vascular products sales international markets comprise approximately 70 percent consolidated net sales july 2014 abbott announced sell developed markets branded generics pharmaceuticals business mylan inc mylan 110 million shares newly formed publically traded entity combine mylans existing business abbotts developed markets pharmaceuticals business sale business closed february 27 2015 november 2014 abbott entered agreement sell animal health business zoetis inc sale business closed february 10 2015 january 1 2013 abbott completed separation abbvie inc abbvie formed hold abbotts researchbased proprietary pharmaceuticals business historical operating results businesses prior disposition excluded earnings continuing operations presented earnings discontinued operations line abbotts consolidated statement earnings assets liabilities related businesses reported held sale abbotts consolidated balance sheet december 31 2014 cash flows businesses date disposition separation included consolidated statements cash flows periods presented last three years sales growth margin improvement driven primarily nutritional diagnostics businesses sales emerging markets represent nearly 50 percent total company sales increased 125 percent 2014 108 percent 2013 excluding impact foreign exchange emerging markets include countries except united states western europe japan canada australia new zealand abbott expanded operating margin 200 basis points 2014 380 basis points 2013 abbotts sales costs financial position period impacted challenging economic fiscal environment several emerging economies strengthening us dollar relative several international currencies 2013 2014 abbotts worldwide nutritional products business sales last three years positively impacted demographics aging population increasing rate chronic disease developed markets rise middle class many emerging markets well numerous new product introductions leveraged abbotts strong brands time manufacturing distribution process changes cost reductions drove margin improvements across business operating margins business increased 157 percent 2012 210 percent 2014 second half 2013 first two quarters 2014 sales growth international pediatric nutrition affected product recall initiated august 2013 china two markets certain pediatric nutritional products supplied abbott thirdparty manufacturer health issues associated recalled products supplier subsequently determined products safe consumption recall created significant disruption markets result international pediatric nutrition sales significantly lower abbotts previous expectations business second half 2013 abbott initiated investments third quarter 2013 markets rebuild consumer confidence business recovered disruption beginning third quarter 2014 abbott increased local presence nutrition business various countries investing global infrastructure abbott opened three new manufacturing plants one china one india one united states meet demand products formed strategic alliance fonterra worlds largest dairy cooperative develop proposed dairy farm hub china abbotts worldwide diagnostics business margin improvement continued key focus 2014 operating margins increased 192 percent sales 2012 229 percent 2014 business continued execute efficiency initiatives manufacturing supply chain functions addition continued margin improvement unit growth across geographical regions positively impacted worldwide diagnostic sales worldwide sales business increased 64 percent 2014 83 percent 2013 excluding foreign exchange established pharmaceutical products segment abbott announced july 2014 sell developed markets branded generics pharmaceuticals business mylan inc result current prior year operating results developed markets branded generics business reported part discontinued operations following close transaction established pharmaceuticals business operate entirely emerging markets september 26 2014 abbott completed acquisition controlling interest cfr pharmaceuticals sa cfr acquisition cfr doubles abbotts branded generics pharmaceutical presence latin america expands presence emerging markets december 12 2014 abbott acquired control veropharm leading russian pharmaceutical company acquisition abbott establishes manufacturing footprint russia obtains portfolio medicines well aligned abbotts current pharmaceutical therapeutic areas focus growth established pharmaceuticals sales continuing operations accelerated course 2014 macroeconomic market pressures certain emerging markets impacted business 2013 year total 2014 sales increased 149 percent excluding effect foreign exchange vascular business last three years abbott continued develop worldwide marketleading xience drugeluting stent des franchise xience franchise includes xience v prime nano pro prox xpedition alpine abbott vascular products latest product introduction xience alpine launched us late fourth quarter 2014 product market us indication treat chronic total inclusions cto xience franchise maintained marketleading global position 2014 2013 mitraclip absorb endovascular franchise contributed sales growth total vascular sales flat excluding unfavorable effect exchange volume increases almost entirely offset pricing pressures primarily related des coronary products well lower des market share us operating margins improved 332 percent 2012 365 percent 2014 cost improvement initiatives executed across business abbotts short longterm debt totaled 78 billion december 31 2014 december 31 2014 abbotts longterm debt rating standard poors corporation a1 moodys investors service fourth quarter 2014 abbott extinguished approximately 500 million longterm debt assumed part acquisition cfr incurred charge 183 million related early repayment debt fourth quarter 2012 abbott extinguished 77 billion longterm debt incurred charge 135 billion related early repayment net gains unwinding interest rate swaps related debt abbott declared dividends 090 per share 2014 compared 064 per share 2013 40 increase dividends paid 1342 billion 2014 compared 882 million 2013 yearoveryear change dividends reflects impact increase dividend rate december 2014 abbott increased companys quarterly dividend 024 per share 022 per share effective dividend paid february 2015 abbott focus several key initiatives nutritional business abbott continue build product portfolio introduction new sciencebased products expand highgrowth emerging markets implement additional margin improvement initiatives established pharmaceuticals business abbott continue focus obtaining additional product approvals across numerous countries increasing penetration emerging markets diagnostics business abbott focus development nextgeneration instrument platforms advanced technologies expansion emerging markets improvements segments operating margin vascular business abbott continue focus marketing products coronary endovascular franchises increasing mitraclip sales well clinical development absorb bioresorbable vascular scaffold bvs device penetration absorb numerous countries abbotts segments abbott focus developing differentiated technologies higher growth markets critical accounting policies sales rebates 2014 approximately 43 percent abbotts consolidated gross revenues subject various forms rebates allowances abbott recorded reductions revenues time sale rebates allowances 2014 nutritional products diabetes care segments abbott provides rebates state agencies administer special supplemental nutrition program women infants children wic wholesalers group purchasing organizations government agencies private entities rebate amounts usually based upon volume purchases using contractual statutory prices product factors used rebate calculations include identification products sold subject rebate customer government agency price terms apply estimated lag time sale payment rebate using historical trends adjusted current changes abbott estimates amount rebate paid records liability reduction gross sales abbott records sale product settlement rebate generally occurs one six months sale abbott regularly analyzes historical rebate trends makes adjustments reserves changes trends terms rebate programs rebates chargebacks charged gross sales 2014 2013 2012 amounted approximately 21 billion 19 billion 18 billion respectively 192 percent 184 percent 183 percent respectively based gross sales approximately 107 billion 105 billion 98 billion respectively subject rebate onepercentage point increase percentage rebates related gross sales would decrease net sales approximately 107 million 2014 abbott considers onepercentage point increase reasonably likely increase percentage rebates related gross sales allowances charged gross sales approximately 138 million 146 million 144 million cash discounts 2014 2013 2012 respectively 210 million 208 million 198 million returns 2014 2013 2012 respectively cash discounts known within 15 30 days sale therefore reliably estimated returns reliably estimated abbotts historical returns low sales returns terms sales terms remained relatively unchanged several periods management analyzes adequacy ending rebate accrual balances quarter domestic nutritional business management uses internal external data available estimate level inventory distribution channel management access several large customers inventory management data customers utilizes data third party measures time retail shelf sources allow management make reliable estimates inventory distribution channel except transition period change supplier wic business state inventory distribution channel vary substantially management also estimates states processing lag time based claims data addition internal processing time factor estimating accrual wic business state sale made determining factor applicable price reliably determinable estimates required amount wic sales within state abbott wic business external data sources utilized estimate participant data us department agriculture usda administers wic program participant data states internally administered market research usda making data available many years internal data includes historical redemption rates pricing data december 31 2014 abbott wic business 23 states historically adjustments prior years rebate accruals material net income abbott employs various techniques verify accuracy claims submitted possible works organizations submitting claims gain insight changes might affect rebate amounts government agency programs calculation rebate involves interpretations relevant regulations subject challenge change interpretation income taxes abbott operates numerous countries income tax returns subject audits adjustments abbott operates globally nature audit items often complex objectives government auditors result tax income one country abbott employs internal external tax professionals minimize audit adjustment amounts possible accordance accounting rules relating measurement tax contingencies order recognize uncertain tax benefit taxpayer must likely sustaining position measurement benefit calculated largest amount 50 percent likely realized upon resolution benefit application rules requires significant amount judgment us abbotts federal income tax returns 2011 settled except four items income tax returns years 2011 open abbott record deferred income taxes earnings reinvested indefinitely foreign subsidiaries pension postemployment benefits abbott offers pension benefits postemployment health care many employees abbott engages outside actuaries assist determination obligations costs programs abbott must develop longterm assumptions significant health care cost trend rates discount rates expected return plan assets discount rates used measure liabilities determined based highquality fixed income securities match duration expected retiree benefits health care cost trend rates represent abbotts expected annual rates change cost health care benefits forward projection health care costs measurement date difference assumed rates actual rates known decades significant relation obligations annual cost recorded programs low interest rates significantly increased actuarial losses plans december 31 2014 pretax net actuarial losses prior service costs credits recognized accumulated comprehensive income loss abbotts defined benefit plans medical dental plans losses 32 billion 161 million respectively actuarial losses gains amortized remaining service attribution periods employees corridor method accordance rules accounting postemployment benefits differences expected longterm return plan assets actual annual return amortized fiveyear period note 13 consolidated financial statements describes impact onepercentage point change health care cost trend rate however certainty change would limited one percentage point valuation intangible assets abbott acquired continues acquire significant intangible assets abbott records fair value transactions involving purchase sale intangible assets occur frequency companies health care field valuations usually based discounted cash flow analysis discounted cash flow model requires assumptions timing amount future net cash flows risk cost capital terminal values market participants factors significantly affect value intangible asset abbott engages independent valuation experts review abbotts critical assumptions calculations acquisitions significant intangibles abbott reviews definitelived intangible assets impairment quarter using undiscounted net cash flows approach undiscounted cash flows intangible asset less carrying value intangible asset intangible asset written fair value usually discounted cash flow amount cash flows cannot identified individual asset review applied lowest group level cash flows identifiable goodwill indefinitelived intangible assets relate inprocess research development acquired business combination reviewed impairment annually event could result impairment occurs december 31 2014 goodwill amounted 101 billion intangibles amounted 62 billion amortization expense continuing operations intangible assets amounted 555 million 2014 588 million 2013 595 million 2012 impairments goodwill 2014 2013 2012 abbott recorded impairment charges 69 million certain research development assets due changes projected development regulatory timelines projects litigation abbott accounts litigation losses accordance fasb accounting standards codification 450 contingencies asc 450 loss contingency provisions recorded probable losses managements best estimate loss best estimate cannot made minimum loss contingency amount recorded estimates often initially developed substantially earlier ultimate loss known estimates refined accounting period additional information becomes known accordingly abbott often initially unable develop best estimate loss therefore minimum amount could zero recorded information becomes known either minimum loss amount increased resulting additional loss provisions best estimate made also resulting additional loss provisions occasionally best estimate amount changed lower amount events result expectation favorable outcome previously expected abbott estimates range possible loss approximately 70 million 85 million legal proceedings environmental exposures accruals approximately 80 million recorded december 31 2014 proceedings exposures accruals represent managements best estimate probable loss defined fasb asc 450 contingencies results operations sales following table details components sales growth reportable segment last three years increases total net sales 2014 2013 reflect unit growth partially offset impact unfavorable foreign exchange price declines related vascular products sales 2014 2013 primarily reflect pricing pressure drug eluting stents coronary products result market competition us major markets impact reimbursement reductions centers medicare medicaid services abbotts diabetes care business also contributed overall 39 price decline us 2014 comparison significant product group sales follows percent changes versus prior year based unrounded numbers 1other coronary products include primarily guidewires balloon catheters endovascular includes vessel closure carotid stents peripheral products 2other coronary products include primarily guidewires balloon catheters endovascular includes vessel closure carotid stents peripheral products excluding unfavorable effect exchange total established pharmaceutical products sales increased 149 percent 2014 75 percent 2013 established pharmaceutical products segment focused several key emerging markets including india russia china brazil excluding effect exchange sales key emerging markets increased 77 percent 2014 60 percent 2013 excluding effect exchange sales established pharmaceuticals emerging markets increased 431 percent 2014 increased 144 percent 2013 increase 2014 includes impact acquisition cfr pharmaceuticals september 2014 excluding sales cfr effects exchange revenues increased 79 2014 excluding unfavorable effect exchange total nutritional products sales increased 50 percent 2014 54 percent 2013 international pediatric nutritional sales increased 2014 2013 due primarily volume growth developing countries suppliers recall product august 2013 certain international markets negatively impacted international pediatric nutritional sales third fourth quarters 2013 well first two quarters 2014 health issues associated supplier recall supplier subsequently determined product safe consumption event created significant disruption markets decline 2014 us pediatric nutritional sales primarily reflects lower infant formula revenue us pediatric sales flat 2013 due lower formula share partially offset higher sales toddler products 2014 2013 increases international adult nutritional sales due primarily volume growth developing countries negatively impacted effect relatively stronger us dollar decrease 2014 us adult nutritional sales reflects decline performance nutrition well weakness institutional market segment 31 percent decline 2013 us adult nutritional sales reflects abbotts exit certain noncore business lines part business margin improvement initiative sales decline resulting exit offset higher ensure revenues excluding unfavorable effect exchange total diagnostic products sales increased 64 percent 2014 83 percent 2013 sales increases reflect unit growth across geographical regions 2014 2013 sales immunochemistry products largest category segment reflect continued execution abbotts strategy deliver integrated solutions large healthcare customers excluding unfavorable effect exchange total vascular products sales virtually flat 2014 2013 2014 growth abbotts mitraclip structural heart product endovascular business including supera peripheral stent well increased penetration absorb bioresorbable vascular scaffold various international markets offset decline sales des products due yearoveryear decreases us des market share 2013 growth international markets driven continued share gains key geographies xience xpedition absorb offset declines us market due negative impact pricing pressure decline procedures due market conditions well expected decline certain royalty revenues abbott periodically sold product rights nonstrategic products recorded related gains net sales accordance abbotts revenue recognition policies discussed note 1 consolidated financial statements related net sales significant 2014 2013 2012 expiration licenses patent protection affect future revenues operating income abbott currently significant patent license expirations next three years expected affect abbott operating earnings gross profit margins 517 percent net sales 2014 502 percent 2013 502 percent 2012 gross profit margin improvement 2014 reflects higher margins nutritional diagnostics vascular products segments gross profit margin 2013 remained relatively unchanged versus prior year improved margins nutritional diagnostics products segments offset margin declines established pharmaceuticals vascular products due pricing pressures product mix well impact unfavorable foreign exchange across segments us states receive price rebates manufacturers infant formula federally subsidized special supplemental nutrition program women infants children also rebate programs pharmaceutical products numerous countries rebate programs continue negative effect gross profit margins nutritional established pharmaceutical products segments research development expense 1345 billion 2014 1371 billion 2013 1461 billion 2012 represented 19 percent decrease 2014 62 percent decrease 2013 2014 decrease research development expenses primarily reflects lower investment due completion several programs vascular business 2014 research development expenditures totaled 268 million vascular products segment 432 million diagnostics products segment 129 million established pharmaceutical products segment 191 million nutritional products segment selling general administrative expenses increased 25 percent 2014 decreased 54 percent 2013 versus respective prior year 2014 increase reflects increase restructuring costs associated cost reduction initiatives deal expenses related recent acquisitions partially offset continued prudent cost management 2013 decrease reflects transfer certain 2012 corporate costs abbvie separation well certain information technology back office support costs charged abbvie 2013 transition services agreements prudent cost management reduction restructuring costs also contributed decrease business acquisitions september 2014 abbott completed acquisition controlling interest cfr pharmaceuticals sa cfr approximately 29 billion cash 28 billion net cfr cash hand closing including assumption approximately 570 million debt total cost acquisition 34 billion acquisition cfr doubles abbotts branded generics pharmaceutical presence latin america expands presence emerging markets cfrs financial results included abbotts financial statements beginning september 26 2014 date abbott acquired control business abbott owns 999 outstanding ordinary shares cfr fair value noncontrolling interest acquisition date approximately 3 million acquisition funded cash equivalents shortterm investments preliminary allocation fair value acquisition shown table allocation fair value acquisition finalized valuation completed acquired intangible assets consist primarily product rights currently marketed products amortized 12 16 years average 15 years goodwill primarily attributable intangible assets qualify separate recognition goodwill identifiable established pharmaceutical products segment acquired tangible assets consist primarily cash equivalents approximately 94 million trade accounts receivable approximately 179 million inventory approximately 177 million current assets approximately 51 million property equipment approximately 214 million longterm assets approximately 138 million assumed liabilities consist borrowings approximately 570 million trade accounts payable current liabilities approximately 192 million noncurrent liabilities approximately 15 million annualized net sales cfr pharmaceuticals expected total approximately 800 million acquisition cfr pharmaceuticals taken place january 1 2013 consolidated net sales earnings abbott would significantly different reported amounts december 2014 abbott acquired control veropharm leading russian pharmaceutical company approximately 315 million excluding assumed debt acquisition abbott establishes manufacturing footprint russia obtains portfolio medicines well aligned abbotts current pharmaceutical therapeutic areas focus abbott acquired control veropharm purchase limited liability company garden hills holding company owns approximately 98 percent veropharm including assumption approximately 90 million debt minority interest fair value 5 million total value acquired business approximately 410 million preliminary allocation fair value acquisition resulted definite lived intangible assets approximately 120 million goodwill approximately 60 million net deferred tax liabilities approximately 35 million goodwill identifiable established pharmaceutical products segment additionally abbott acquired property plant equipment approximately 185 million accounts receivable approximately 45 million inventory approximately 25 million assets approximately 10 million acquired intangible assets consist developed technology amortized 16 years december 2014 abbott completed acquisition topera inc approximately 250 million cash plus additional payments 300 million made upon completion certain regulatory sales milestones acquisition topera provides abbott foundational entry electrophysiology market preliminary allocation fair value acquisition resulted nondeductible acquired inprocess research development approximately 20 million accounted indefinitelived intangible asset regulatory approval discontinuation nondeductible definitelived intangibles assets approximately 325 million nondeductible goodwill approximately 190 million net deferred tax liabilities approximately 120 million contingent consideration approximately 165 million preliminary fair value contingent consideration determined based independent appraisal acquired intangible assets consist developed technology trademarks amortized 16 years preliminary allocations fair value acquisitions finalized valuations completed aggregate acquisitions taken place january 1 2013 consolidated net sales income would significantly different reported amounts august 2013 abbott acquired 100 percent idev technologies net debt 310 million cash acquisition idev technologies expands abbotts endovascular portfolio final allocation fair value acquisition resulted nondeductible acquired inprocess research development approximately 170 million accounted indefinitelived intangible asset regulatory approval discontinuation nondeductible definitelived intangible assets approximately 66 million nondeductible goodwill approximately 112 million net deferred tax liabilities 47 million acquired intangible assets consist developed technology amortized 11 years august 2013 abbott acquired 100 percent optimedica 260 million cash plus additional payments 150 million made upon completion certain development regulatory sales milestones acquisition optimedica provides abbott immediate entry point laser assisted cataract surgery market final allocation fair value acquisition resulted nondeductible definitelived intangible assets approximately 160 million nondeductible acquired inprocess research development approximately 60 million accounted indefinitelived intangible asset regulatory approval discontinuation nondeductible goodwill approximately 130 million net deferred tax liabilities 49 million contingent consideration approximately 70 million fair value contingent consideration determined based independent appraisal acquired intangible assets consist primarily developed technology amortized 18 years restructurings 2014 abbott management approved plans streamline operations order reduce costs improve efficiencies various abbott businesses including nutritional established pharmaceuticals businesses abbott recorded employee related severance charges approximately 164 million 2014 approximately 20 million recognized cost products sold 53 million recognized research development approximately 91 million recognized selling general administrative expense additional charges approximately 39 million 2014 also recorded primarily accelerated depreciation 2014 2013 abbott management approved plans reduce costs improve efficiencies across various functional areas well plan streamline certain manufacturing operations order reduce costs improve efficiencies abbotts established pharmaceuticals business addition 2012 abbott management approved plans streamline various commercial operations order reduce costs improve efficiencies abbotts core diagnostics established pharmaceutical nutritionals businesses abbott recorded employee related severance charges approximately 125 million 2014 78 million 2013 167 million 2012 approximately 7 million 2014 14 million 2013 48 million 2012 recognized cost products sold 6 million recognized research development 2014 approximately 112 million 2014 32 million 2013 48 million 2012 recognized selling general administrative expense remaining charges 32 million 2013 71 million 2012 related abbotts developed market established pharmaceutical business recognized results discontinued operations additional charges approximately 4 million 2013 22 million 2012 also recorded primarily accelerated depreciation 2013 prior years abbott management approved plans realign worldwide pharmaceutical vascular manufacturing operations selected domestic international commercial research development operations order reduce costs 2013 abbott recorded employee severance charges approximately 11 million approximately 11 million 2013 classified cost products sold additional 41 million 110 million recorded 2013 2012 respectively relating restructurings primarily accelerated depreciation 2012 2010 abbott management approved restructuring plans primarily related acquisition solvays pharmaceuticals business plans streamline operations improve efficiencies reduce costs certain solvay sites functions well certain abbott solvay commercial organizations various countries 2012 abbott recorded charge approximately 150 million employee severance contractual obligations primarily related exit research development facility charges related businesses transferred abbvie recognized results discontinued operations accrued restructuring reserves 115 million december 31 2012 related actions transferred abbvie january 1 2013 part separation remaining accruals reported abbotts balance sheet december 31 2013 interest expense interest income 2014 interest expense increased due higher level shortterm borrowings year 2013 interest expense decreased due lower level borrowings resulted transfer approximately 146 billion debt abbvie part separation 2012 interest expense included bridge facility fees related separation abbvie abbott interest income increased 2014 due higher return earned shortterm investments year 2013 interest income increased result higher level investments income expense net income expense net 2014 includes charges associated impairment certain equity investments partially offset gains sales investments 2013 includes gains sales investments 2012 includes approximately 40 million income resolution contractual agreement net loss extinguishment debt 2014 abbott extinguished approximately 500 million longterm debt assumed part cfr pharmaceuticals acquisition incurred cost 183 million extinguish debt 2012 abbott extinguished 77 billion longterm debt incurred cost 135 billion extinguish debt net gains unwinding interest rate swaps related debt taxes earnings income tax rates earnings continuing operations 316 percent 2014 26 percent 2013 2077 percent 2012 2014 taxes earnings continuing operations include 440 million tax expense associated onetime repatriation 2014 nonus earnings partially offset 125 million tax benefits related resolution various tax positions adjustment tax uncertainties prior years 2013 taxes earnings continuing operations include 230 million tax benefit related resolution various tax positions previous years addition result american taxpayer relief act 2012 signed law january 2013 abbott recorded tax benefit taxes continuing operations approximately 103 million 2013 retroactive extension research tax credit lookthrough rules section 954c6 internal revenue code beginning 2012 taxes earnings continuing operations 2012 reflect 472 million effect tax rate applied abbotts net debt extinguishment loss well recognition 212 million tax benefits result favorable resolution various tax positions pertaining prior year exclusive discrete items tax expense 2013 2012 favorably impacted lower tax rates tax exemptions foreign income primarily derived operations puerto rico switzerland ireland netherlands singapore abbott benefits combination favorable statutory tax rules tax rulings grants exemptions tax jurisdictions see note 14 consolidated financial statements full reconciliation effective tax rate us federal statutory rate abbott accrued us taxes approximately 22 billion 2014 earnings generated outside us connection repatriation earnings addition 440 million tax expense discussed repatriation resulted 82 million additional tax expense abbotts 2014 income discontinued operations abbott expects accelerate utilization deferred tax assets therefore cash taxes due us repatriation expected material discontinued operations separation abbvie inc november 28 2012 abbotts board directors declared special dividend distribution outstanding shares common stock abbvie inc abbvie company formed hold abbotts researchbased proprietary pharmaceuticals business abbott common share held close business december 12 2012 abbott shareholders received one share abbvie stock january 1 2013 abbott received ruling internal revenue service separation qualifies taxfree distribution abbott us shareholders us federal income tax purposes historical operating results researchbased proprietary pharmaceuticals business prior separation excluded earnings continuing operations presented earnings discontinued operations line discontinued operations include results abbvies business except certain corporate overhead costs certain costs associated transition services provided abbott abbvie discontinued operations also include costs incurred abbott separate abbvie well allocation interest assuming uniform ratio consolidated debt equity abbotts historical operations assets liabilities cash flows researchbased proprietary pharmaceuticals business included abbotts consolidated balance sheet consolidated statements cash flows periods prior january 1 2013 net assets 27 billion transferred abbvie part separation january 1 2013 addition approximately 1 billion accumulated comprehensive losses net income taxes primarily related pension benefit plan net liabilities well foreign translation transferred abbvie 2013 discontinued operations includes favorable adjustment tax expense 193 million result resolution various tax positions pertaining 2010 related abbvies operations abbott abbvie entered transitional services agreements prior separation pursuant abbott abbvie providing various services interim transitional basis transition services may provided 24 months option oneyear extension recipient services provided abbott include certain information technology back office support billings abbott transitional services agreements recorded reduction costs provide respective service applicable expense category consolidated statement earnings transitional support enable abbvie establish standalone processes various activities previously provided abbott constitute significant continuing support abbvies operations small portion abbvies operations legal transfer abbvies assets net liabilities occur separation abbvie january 1 2013 due time required transfer marketing authorizations regulatory requirements countries terms separation agreement abbott abbvie subject risks entitled benefits generated operations assets majority operations transferred abbvie 2013 2014 remainder expected transferred 2015 assets liabilities presented held disposition consolidated balance sheet december 31 2014 assets liabilities held disposition consist trade accounts receivable 79 million inventories 45 million equipment 3 million assets 30 million trade accounts payable accrued liabilities 277 million abbotts obligation transfer net liabilities held disposition abbvie 120 million included prepaid assets abbott retained liabilities us federal foreign income taxes income prior separation well certain nonincome taxes attributable abbvies business abbvie generally liable taxes attributable business connection separation abbott adjusted employee stock compensation awards separated defined benefit programs pensions postemployment medical dental benefit plans see notes 9 13 additional information july 2014 abbott announced sell developed markets branded generics pharmaceuticals business mylan inc mylan equity ownership newly formed entity combine mylans existing business abbotts developed markets pharmaceuticals business publicly traded historically business included abbotts established pharmaceutical products segment abbott retain branded generics pharmaceuticals business emerging markets close transaction abbott mylan entered transitional services agreements pursuant abbott mylan provide various back office support services interim transitional basis transition services may provided 2 years charges abbott transitional services agreements recorded reduction costs provide respective service applicable expense category consolidated statement earnings transitional support constitute significant continuing support mylans operations abbott also entered manufacturing supply agreements mylan related certain products supply term ranging 3 10 years requiring 2 year notice prior termination cash flows associated transitional service manufacturing supply agreements expected significant november 2014 abbott entered agreement sell animal health business zoetis inc transaction closed february 10 2015 result disposition businesses separation abbvie current prior years operating results businesses reported part discontinued operations earnings discontinued operations net tax line consolidated statement earnings discontinued operations include allocation interest expense assuming uniform ratio consolidated debt equity abbotts historical operations operating results abbotts developed markets branded generics pharmaceuticals animal health businesses well businesses transferred abbvie noted reported discontinued operations follows yearoveryear decline net sales related developed markets branded generics pharmaceuticals business driven primarily impact declining prices unfavorable impact changes foreign currency exchange rates research development programs abbott currently numerous pharmaceutical medical devices diagnostic nutritional products development research development process established pharmaceuticals segment development process focuses geographic expansion continuous improvement segments existing products provide benefits patients customers established pharmaceuticals actively pursue primary research development usually begins work existing products acquisition advanced stage licensing opportunity depending upon product phases development may include • drug product development • phase bioequivalence studies compare future established pharmaceuticals brand already marketed compound active pharmaceutical ingredient api • phase ii studies test efficacy benefits small group patients • phase iii studies broaden testing wider population reflects actual medical use • phase iv postmarketing studies obtain new clinical use data existing products within approved indications specific requirements eg scope clinical trials obtaining regulatory approval vary across different countries geographic regions process may range one year bioequivalence study project 6 years complex formulations new indications geographic expansion specific countries china diagnostics segment phases research development process include • discovery focuses identification product address specific therapeutic area platform unmet clinical need • conceptfeasibility materials manufacturing processes evaluated testing may include product characterization analysis performed confirm clinical utility • development extensive testing performed demonstrate product meets specified design requirements design specifications conform user needs intended uses regulatory requirements diagnostic products vary across different countries geographic regions us fda classifies diagnostic products classes ii iii classification determines regulatory process approval diagnostics segment products three classes vast majority products categorized class ii submission separate regulatory filing required class products class ii devices typically require premarket notification fda regulatory filing known 510k submission class iii products subject fdas premarketing approval pma requirements class iii products used screen blood require submission approval biological license application bla eu diagnostic products also categorized different categories regulatory process governed european invitro diagnostic medical device directive depends upon category certain product categories require review approval independent company known notified body manufacturer affix ce mark product show compliance directive products require selfcertification process vascular segment research development process begins research specific technology evaluated feasibility commercial viability research program passes hurdle moves forward development process includes evaluation selection product design completion clinical trials test products safety efficacy validation manufacturing process demonstrate repeatability ability consistently meet predetermined specifications similar diagnostic products discussed us vascular products classified class ii iii abbotts vascular products classified class ii devices follow 510k regulatory process class iii devices subject pma process eu vascular products also categorized different classes regulatory process governed european medical device directive varies class product must bear ce mark show compliance directive products require submission design dossier appropriate regulatory authority review approval prior ce marking device products company required prepare technical file includes testing results clinical evaluations selfcertify ability apply ce mark product outside us eu regulatory requirements vary across different countries regions approval commercial launch vascular products postmarket trials may conducted either due conditional requirement regulatory market approval objective proving product superiority nutritional segment research development process generally focuses identifying developing ingredients products address nutritional needs particular populations eg infants athletes patients eg people diabetes depending upon country andor region claims regarding products efficacy made clinical studies typically must conducted us fda requires notified proposed new formulations formulation packaging changes related infant formula products prior launch infant formula product packaging change company required obtain fdas confirmation objections proposed product packaging nutrition products notification preapproval fda required unless product includes new food additive countries regulatory approval may required certain nutritional products including infant formula medical nutritional products areas focus 2015 beyond abbotts significant areas therapeutic focus include following established pharmaceuticals abbott focuses building country specific portfolios made global local pharmaceutical brands best meet needs patients country 300 branded generic development projects active one several emerging markets next several years established pharmaceuticals plans expand product portfolio key markets development launch new branded generics aim among first market new branded generic particular pharmaceutical product geographic expansion existing brands new product enhancements strategic licensing activities abbott also actively working development plans several key brands creon duphaston influvac depending product development activities focus new data markets formulations combinations indications vascular ongoing projects pipeline include •xience alpine newest drugeluting stent des received us fda approval september 2014 des indication chronic total occlusions ctos xience alpine also approved sale europe japan parts latin america 2014 •absorb worlds first drug eluting bioresorbable vascular scaffold bvs device treatment coronary artery disease gradually resorbed vessel wall 2014 abbott completed enrollment patients clinical trials regulatory approval us china enrollment trials japan completed fourth quarter 2013 abbott initiated trial objective demonstrating absorb costeffective provides patient higher quality life permanent metallic drug eluting stent abbott also actively working development future generations bvs technologies •mitraclip device treatment mitral regurgitation mr mitraclip available us europe parts asia middle east latin america patients significant symptomatic degenerative mr prohibitive risk mitral valve surgery abbott continued clinical development mitraclip therapy including coapt trial prospective randomized trial united states evaluate impact mitraclip treatment progression heart failure addition abbott continues work development next generation system treatment mr •supera selfexpanding nitinol stent system acquired part acquisition idev technologies august 2013 proprietary interwoven wire technology supera designed based biomimetic principles mimic bodys natural movement supera received us fda approval march 2014 treatment superficial femoral proximal popliteal arteries main arteries thigh supply blood lower extremities supera also available europe parts asia middle east latin america treatment blockages blood vessels due peripheral artery disease pad abbott continues work development supera size matrix next generation delivery system • coronary endovascular guide wires abbotts versaturn guide wire received ce regulatory approval july 2014 510k clearance us august 2014 medical optics abbott developing number new products designed improve patient outcomes patients undergoing cataract lasik surgery 2014 abbott launched tecnis® symfony intraocular lens iol europe tecnis® symfony provides extended continuous range highquality vision including distance intermediate near vision visual side effects similar standard monofocal iol toric version tecnis® symfony corrects patients astigmatism approved launched europe late 2014 abbott received approval two new tecnis® multifocal low add products us new tecnis® multifocal iols allow surgeon customize treatment based patients vision needs lifestyle tecnis® optiblue toric iol approved japan standard preloaded options treatment cataract patients astigmatism compact intuitiv phacoemulsification system removing cataract approved us europe abbott received approval us europe cos 30 new software upgrade loi12 new disposable patient interface catalys precision femtosecond laser cataract system together improve surgeon efficiency 2015 abbott continue work develop introduce new products including tecnis1 monofocal iol preloaded insertion system upgrade signature phacoemulsification system cataract removal upgrade catalys laser cataract system helps surgeons identify cataract patients axis astigmatism idesign advanced vision diagnostic lasik treatment planning system molecular diagnostics various new molecular vitro diagnostic ivd products next generation instrument systems various stages development commercialization december 2014 iridica instrument used rapidly identify broad range infection causing pathogens including bacteria fungi viruses critically ill patients became available europe cemark recognized countries abbotts companion diagnostic program continues expand includes collaborative efforts multiple major pharmaceutical companies core laboratory diagnostics abbott working development nextgeneration blood screening hematology immunochemistry instrument systems well assays various areas including infectious disease cardiac care metabolics oncology automation solutions increase efficiency laboratories diabetes care third quarter 2014 abbott received ce mark europe freestyle libre flash glucose monitoring system eliminates need routine finger pricks reading glucose levels sensor worn back upper arm 14 days freestyle libre system also requires finger pricks calibration nutrition abbott focusing research development spend six platforms span pediatric adult performance nutrition areas immunity cognition lean body mass inflammation metabolism tolerance numerous new products build advances platforms currently development including clinical outcome testing expected launched coming years given diversity abbotts business intention remain broadbased healthcare company numerous sources potential future growth individual project expected material cash flows results operations next five years factors considered included research development expenses projected incurred project next year relative abbotts total research development expenses well qualitative factors marketplace perceptions impact new product abbotts overall market position delays abbotts 2014 research development activities expected material impact operations aggregate cost complete numerous projects currently development expected material total cost complete depend upon abbotts ability successfully complete project rate project advances ultimate timing completion given potential significant delays high rate failure inherent development pharmaceutical medical device diagnostic products technologies possible accurately estimate total cost complete projects currently development abbott plans manage portfolio projects achieve research development spending equal approximately 6 percent 7 percent sales year abbott regularly accumulate make management decisions based total expenses incurred particular development phase given period goodwill december 31 2014 goodwill recorded result business combinations totaled 101 billion goodwill reviewed impairment annually third quarter event could result impairment occurs results last impairment test indicated fair value reporting unit substantially excess carrying value except medical optics unit fair value medical optics business exceeds carrying value extended economic pressure governmentreimbursed cataract procedures europe global lasik surgery business well longer regulatory approval timelines products currently development integration optimedica negative impact foreign currency movements could result valuation future fair value medical optics unit declined carrying value thereby triggering requirement estimate implied fair value goodwill measure impairment financial condition cash flow net cash operating activities amounted 37 billion 33 billion 93 billion 2014 2013 2012 respectively increase net cash operating activities 2014 due improvement operating results well lower cash contributions pension plans decrease cash operating activities 2012 2013 due separation abbvie january 1 2013 net cash operating activities 2013 reflects approximately 435 million onetime net cash outflows related separation abbvie 724 million contributions defined benefit pension plans income tax component operating cash flow 2014 2013 2012 includes 268 million 427 million 408 million respectively noncash tax benefits primarily related favorable resolution various tax positions pertaining prior years 2013 also includes 103 million tax benefit retroactive impact us tax law changes expected realized future years trade accounts payable liabilities net cash operating activities 2012 includes payment approximately 15 billion related litigation accrual recorded 2011 related business operations abbvie partially offset increases liabilities primarily restructuring reserves 85 cash equivalents december 31 2014 considered reinvested indefinitely foreign subsidiaries abbott expect reinvestment affect liquidity capital resources funds needed operations us abbott may required accrue pay us income taxes repatriate funds abbott believes sufficient sources liquidity support assumption disclosed amount undistributed earnings december 31 2014 considered reinvested indefinitely abbott funded 393 million 2014 724 million 2013 379 million 2012 defined benefit pension plans abbott expects pension funding approximately 585 million 2015 pension plans approximately 470 million relates main domestic pension plans abbott expects fund cash dividends capital expenditures investments businesses cash flow operating activities cash hand shortterm investments borrowings debt capital december 31 2014 abbotts longterm debt rating standard poors corporation a1 moodys investors service abbott readily available financial resources including unused lines credit 50 billion support commercial paper borrowing arrangements expire 2019 2014 abbott redeemed approximately 500 million longterm notes assumed part acquisition cfr pharmaceuticals 2012 abbott redeemed 77 billion longterm notes preparation separation abbvie abbott repaid 1 billion longterm notes due 2012 addition abbvie inc wholly owned subsidiary abbott issued 147 billion longterm notes guaranteed abbott abbvies separation abbott january 1 2013 september 2014 board directors authorized repurchase 3 billion abbotts common shares time new authorization addition 512 million unused portion previous program announced june 2013 program announced june 2013 board directors authorized purchase 30 billion abbotts common shares program abbott repurchased 546 million shares cost 21 billion 2014 105 million shares cost 388 million last six months 2013 leaving 512 million unused program first six months 2013 330 million shares purchased cost approximately 12 billion previous share repurchase authorization abbott declared dividends 090 per share 2014 compared 064 per share 2013 40 increase dividends paid 1342 billion 2014 compared 882 million 2013 yearoveryear change dividends reflects impact increase dividend rate working capital increase cash equivalents 35 billion december 31 2013 41 billion december 31 2014 reflects increase cash generated operating activities well proceeds sale investment securities working capital 47 billion december 31 2014 97 billion december 31 2013 decrease working capital 2014 due decline shortterm investments increase shortterm borrowings primarily fund recent acquisitions share repurchases substantially abbotts trade receivables italy spain portugal greece governmental health systems collection outstanding receivables countries improved 2014 result governmental receivables four countries accounted less 1 percent abbotts total assets 9 percent total net trade receivables december 31 2014 12 percent december 31 2013 exception greece abbott historically collected almost outstanding receivables countries abbott continues monitor credit worthiness customers located geographic areas establishes allowance trade receivable probable balance collected addition closely monitoring economic conditions budgetary fiscal developments countries abbott regularly communicates customers regarding status receivable balances including payment plans obtains positive confirmation validity receivables abbott also monitors potential periodically utilized factoring arrangements mitigate credit risk although receivables included arrangements historically material amount total outstanding receivables government funding become unavailable countries significant adverse changes reimbursement practices occur abbott may able collect entire balance foreign currency developments since january 2010 venezuela designated highly inflationary economy us gaap 2014 government venezuela operated multiple mechanisms exchange bolivars us dollars 2014 abbott continued use official rate 63 venezuelan bolivars us dollar report results financial position cash flows related operations venezuela since abbott continued qualify exchange rate pay import various products venezuela abbott cannot predict whether devaluation venezuelan bolivar whether continue able exchange bolivars 63 rate december 31 2014 abbott net monetary assets subject revaluation venezuela approximately 240 million 2014 revenue operations venezuela represented approximately 2 abbotts total net sales capital expenditures capital expenditures 11 billion 2014 2013 18 billion 2012 principally upgrading expanding manufacturing research development facilities equipment various segments investments information technology laboratory instruments placed customers contractual obligations table summarizes abbotts estimated contractual obligations december 31 2014 apurchase commitments purchases made normal course business meet operational capital expenditure requirements bunrecognized tax benefits totaling approximately 13 billion excluded table abbott unable reasonably estimate period cash settlement respective taxing authorities items see note 14 taxes income details company employee benefit obligations consisting pensions postemployment benefits including medical life excluded table discussion companys pension postretirement plans including funding matters included note 13 postemployment benefits contingent obligations abbott periodically entered agreements companies ordinary course business assignment product rights resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote addition abbott periodically acquires business product rights abbott agrees pay contingent consideration based attaining certain thresholds based occurrence certain events legislative issues abbotts primary markets highly competitive subject substantial government regulations throughout world abbott expects debate continue availability method delivery payment health care products services possible predict extent abbott health care industry general might adversely affected factors future complete discussion factors contained item 1 business item 1a risk factors annual report form 10k recently issued accounting standards may 2014 financial accounting standards board issued accounting standards update 201409 revenue contracts customers provides single comprehensive model accounting revenue contracts customers supersede existing revenue recognition guidance early adoption permitted standard becomes effective abbott first quarter 2017 abbott currently evaluating effect standard consolidated financial statements related disclosures private securities litigation reform act 1995 caution concerning forwardlooking statements safe harbor provisions private securities litigation reform act 1995 abbott cautions investors forwardlooking statements projections made abbott including made document subject risks uncertainties may cause actual results differ materially projected economic competitive governmental technological factors may affect abbotts operations discussed item 1a risk factors annual report form 10k item 7a item 7 managements discussion analysis financial condition results operations incorporated herein reference managements discussion analysis financial condition results operations years 1993 1992 1991 found section captioned financial review 1993 annual report item 8 item 7 managements discussion analysis financial condition results operations financial review abbotts revenues derived primarily sale broad line health care products shortterm receivable arrangements patent protection licenses technological performance features inclusion abbotts products contract pharmacy benefit manager impact products sold price controls competition rebates impact net selling prices products foreign currency translation impacts measurement net sales abbotts primary products prescription pharmaceuticals nutritional products diagnostic testing products abbott also owns 50 percent tap pharmaceutical products inc tap abbott accounts equity method integration activities regulatory legal issues worldwide launch humira hospira spinoff impacted abbotts sales costs financial position last three years subsequent abbotts 2001 acquisition knoll pharmaceutical business significantly increased scale abbotts pharmaceutical business abbott focused reorganizing growing global pharmaceutical business abbott established global research development organization global manufacturing distribution organization serve domestic international commercial pharmaceutical operations pharmaceutical research development focused five therapeutic areas immunology oncology neuroscience diabetesmetabolism viral diseases us commercial pharmaceutical operations focused primary care specialty hospital pharmaceuticals 2003 abbott began worldwide launch humira achieved worldwide sales 852 million 2004 abbott separated diagnostic segment four separate divisions immunoassayhematology glucose testing molecular point care better focus commercial scientific opportunities early 2004 abbott acquired therasense 12 billion began integrate abbotts glucose testing business late 2003 abbott informed fda may distribute immunoassay products us impacted regulatory restrictions imposed 1999 net sales profits business declined restricted period stabilized 2004 abbott diagnostics launched 80 new products ross segment 2003 abbott settled portion industrywide investigation enteral nutritional business 614 million 2004 abbott completed spinoff hospira abbotts former hospital products business prior spinoff hospital pharmaceutical vascular device businesses abbott retained transferred pharmaceutical business abbott vascular products segment respectively annual sales hospira approximately 24 billion part spinoff hospira assumed 700 million debt historical operating cash flow results hospira presented discontinued operations hospira contractually obligated purchase international hospital assets operations included spinoff taps contribution abbotts earnings declined last two years part decline due increased competition prevacid taps largest selling product due market contraction prescription proton pump inhibitors 2004 tap recorded additional litigation reserves 125 million anticipated legal settlement abbotts short longterm debt totaled 68 billion december 31 2004 largely incurred finance acquisitions operating cash flows excess capital expenditures cash dividends allowed abbott reduce debt fund acquisitions last three years december 31 2004 abbotts longterm debt rating aa standard poors a1 moodys investors service 2005 abbott focus several key initiatives pharmaceutical business abbott expects worldwide sales humira rheumatoid arthritis drug launched 2003 2004 exceed 13 billion 2005 abbott also focus appropriate market support synthroid became subject generic us competition mid2004 us synthroid sales 2004 2003 637 million 565 million respectively projected exceed 400 million 2005 abbott expects response fda abbotts regulatory submissions made 2004 xinlay prostate cancer kaletra oncedaily dosing zemplar capsules additional humira indications tap expects response filing febuxostat abbott expects submit similar number additional pharmaceutical regulatory filings 2005 pharmaceutical research development efforts continue focused five therapeutic areas noted significant portion development expenditures allocated new humira indications immunoassay business attention focused improving revenue growth capitalizing recent product launches launching additional products commercial execution existing broad product portfolio addition abbott expects place customers additional architect immunochemistry diagnostic instruments 2005 greater focus consumer marketing ross maximize strength core brands expand healthyliving market presence business segments abbott focus developing acquiring differentiated technologies higher growth segments markets critical accounting policies sales rebatesapproximately 40 percent abbotts consolidated gross revenues subject various forms rebates allowances abbott records reductions revenues time sale allowances two abbotts domestic segmentsthe pharmaceutical products segment ross products segment abbott provides rebates pharmacy benefit management companies state agencies administer federal medicaid program special supplemental food program women infants children wic wholesalers group purchasing organizations government private entities rebate amounts usually based upon volume purchases using contractual statutory prices product factors used rebate calculations include identification products sold subject rebate customer government price terms apply estimated lag time sale payment rebate using historical trends adjusted current changes abbott estimates amount rebate paid records liability reduction gross sales abbott records sale product settlement rebate occurs two 24 months sale abbott regularly analyzes historical rebate trends makes adjustments reserves changes trends terms rebate programs rebates chargebacks charged gross sales 2004 amounted approximately 24 billion 256 percent based gross sales approximately 93 billion subject rebate rebates chargebacks charged gross sales approximately 18 billion 2003 14 billion 2002 onepercentage point increase percentage rebates related gross sales would decrease 2004 net sales operating earnings approximately 93 million allowances charged gross sales approximately 233 million 191 million 164 million cash discounts 2004 2003 2002 respectively 163 million 171 million 157 million returns 2004 2003 2002 respectively cash discounts known within 15 30 days sale therefore reliably estimated returns reliably estimated abbotts historical returns low sales returns terms sales terms remained relatively unchanged several periods management analyzes adequacy ending accrual balances quarter ross nutritional business management uses internal external data available estimate level inventory distribution channel management internally estimates inventory retail channel retail shelf third party continuously measures time retail shelf relatively significant portion time inventory distribution channel except transition period change supplier wic business state inventory distribution channel vary substantially management also estimates states processing lag time based claims data addition internal processing time factor estimating accrual wic business state sale made determining factor applicable price reliably estimable estimates required amount wic sales within state abbott wic business external data sources utilized estimate participant data us department agriculture usda administers wic program participant data states internally administered market surveys usda making data available many years internal data includes historical redemption rates pricing data december 31 2004 ross exclusive wic business 12 states recent competitive market conditions resulted trend towards wic sales therefore higher sales rebate provision domestic pharmaceutical business significant charges gross sales medicaid rebates pharmacy benefit manager rebates wholesaler chargebacks order evaluate adequacy ending accrual balances management uses internal external estimates level inventory distribution channel rebate claims processing lag time external data sources used estimate inventory distribution channel include inventory levels periodically reported wholesalers third party market data purchased abbott management estimates processing lag time based periodic sampling claims data estimate price rebate percentage systems calculations used track sales product customer estimate contractual statutory price abbotts systems calculations developed time rebates become significant abbott believes reliable settlement rebate accruals date sale ranges 5 12 weeks wic 31 35 weeks medicaid 27 31 weeks pharmacy benefit managers 2 8 weeks wholesaler chargebacks average settlement times 8 weeks wic 33 weeks medicaid 29 weeks pharmacy benefit managers 6 weeks wholesaler chargebacks following table analysis four largest rebate accruals comprise approximately 82 percent consolidated rebate provisions charged revenues 2004 information necessary prepare table 2003 2002 available due spinoff hospira occurred 2004 remaining rebate provisions charged gross sales significant determination operating earnings dollars thousands analysis due systems limitations practical necessary break current versus prior year activity applicable abbott analyzes current year activity identify whether material changes estimate current period relate prior period sales changes estimates current prior years rebate chargeback accruals material operating income abbott employs various techniques verify accuracy claims submitted possible works organizations submitting claims gain insight changes might affect rebate amounts medicaid government agency programs calculation rebate involves interpretations relevant regulations subject challenge change interpretation income taxes abbott operates numerous countries income tax returns subject audits adjustments abbott operates globally nature audit items often complex objectives government auditors result tax income one country abbott employs internal external tax professionals minimize audit adjustment amounts possible part abbotts calculation provision taxes earnings abbott records amount expects incur result audits quarter abbott reviews exposures accordance statement financial accounting standards sfas 5 accounting contingencies us abbotts federal income tax returns years 1993 1995 process settled amounts approximate recorded reserves years 1996 2000 settled income tax returns years 2000 open discussed detail legislative issues february 2005 result american jobs creation act 2004 management concluded would remit portion foreign earnings previously considered reinvested indefinitely foreign subsidiaries except dividends remitted act abbott record deferred income taxes earnings reinvested indefinitely foreign subsidiaries pension postemployment benefits abbott offers pension benefits postemployment health care many employees abbott engages outside actuaries calculate obligations costs programs assistance outside actuaries abbott must develop longterm assumptions significant health care cost trend rate discount rate expected return plan assets difference assumed rates actual rates known decades significant relation obligations annual cost recorded programs recent low interest rates significantly increased unrecognized actuarial losses plans december 31 2004 unrecognized actuarial losses abbotts defined benefit plans medical dental plans 1495 billion 588 million respectively unrecognized actuarial losses gains amortized remaining service periods employees corridor method accordance rules accounting postemployment benefits differences expected longterm return plan assets actual annual return amortized fiveyear period footnote 5 consolidated financial statements describes impact onepercentage point change health care cost trend rate however certainty change would limited one percentage point 2004 2003 2002 abbott recorded minimum pension liability adjustments 120 million 155 million 343 million respectively accumulated benefit obligations certain defined benefit plans exceeded market value plans assets resulted charges accumulated comprehensive income loss 76 million 99 million 203 million net taxes 2004 2003 2002 respectively weighted average discount rate used december 31 2004 determining accumulated benefit obligations defined benefit plans whose accumulated benefit obligations excess plan assets 57 percent onepercentage point reduction discount rate december 31 2004 would result increase minimum pension liability adjustments increase charge accumulated comprehensive income loss approximately 779 million 507 million respectively valuation intangible assets abbott acquired continues acquire significant intangible assets abbott values records assets yet regulatory approval alternative uses expensed acquired inprocess research development regulatory approval capitalized transactions involving purchase sale intangible assets occur frequency companies health care field valuations usually based discounted cash flow analysis abbott uses discounted cash flow model value acquired intangible assets discounted cash flow model requires assumptions timing amount future net cash inflows risk cost capital terminal values factors significantly affect value intangible asset abbott engages independent valuation experts review abbotts critical assumptions calculations significant acquisitions intangibles abbott reviews intangible assets impairment quarter using undiscounted net cash flows approach undiscounted cash flows intangible asset less carrying value intangible asset intangible asset written fair value usually discounted cash flow amount cash flows cannot identified individual asset review applied lowest group level cash flows identifiable goodwill reviewed impairment annually event could result impairment goodwill occurs december 31 2004 goodwill intangibles amounted 57 billion 52 billion respectively amortization expense intangible assets amounted approximately 448 million 2004 impairments goodwill 2004 litigation abbott accounts litigation losses accordance sfas 5 accounting contingencies sfas 5 loss contingency provisions recorded probable losses managements best estimate loss best estimate cannot made minimum loss contingency amount recorded estimates often initially developed substantially earlier ultimate loss known estimates refined accounting period additional information becomes known accordingly abbott often initially unable develop best estimate loss therefore minimum amount could zero recorded information becomes known either minimum loss amount increased resulting additional loss provisions best estimate made also resulting additional loss provisions occasionally best estimate amount changed lower amount events result expectation favorable outcome previously expected legal proceedings environmental exposures abbott estimates range possible loss approximately 150 million 210 million abbott recorded reserves december 31 2004 approximately 155 million proceedings exposures reserves represent managements best estimate probable loss except one recorded minimum defined sfas 5 stock compensation abbott currently measures compensation cost using intrinsic valuebased method accounting stock options replacement stock options granted employees discloses impact fair value method footnotes consolidated financial statements december 2004 financial accounting standards board issued revised statement financial accounting standards 123 share based payment requires fair value recorded results operations beginning later july 1 2005 since market trading employee stock options certainty result fair value method would value employee stock options would traded cash fair value methods require several assumptions significant stock price volatility average life option see recently issued accounting standards discussion results operations sales following table details components sales growth segment last three years comparison product group sales segment follows percentage changes versus prior year based unrounded numbers sales new products 2004 estimated approximately 18 billion led humira pharmaceutical products international segments incremental sales approximately 300 million acquisitions therasense zoneperfect eas sales pharmaceutical products segment mobic tricor flomax 2004 2003 favorably impacted primary care products sales increased sales humira favorably impacted specialty products sales 2004 2003 increased sales humira also favorably impacted pharmaceuticals sales international segment 2004 worldwide sales humira totaled 852 million 2004 280 million 2003 forecasted 13 billion 2005 diagnostic products international segment products sales favorably impacted 2004 2003 effect relatively weaker us dollar diabetes care product sales diagnostic products segment favorably impacted acquisition therasense second quarter 2004 addition adult nutritionals product sales ross products segment favorably impacted acquisitions zoneperfect third quarter 2003 eas fourth quarter 2004 abbotts annual report form 10k year ended december 31 2003 abbott disclosed fda studying conditions competitors could rely abbotts nda market competitive product synthroid second quarter 2004 fda granted approval generic competition synthroid generic competitors entered market us sales synthroid 2004 2003 2002 637 million 565 million 489 million respectively late 2004 clarithromycin became subject generic competition united kingdom germany may 2005 composition matter patent clarithromycin us expires us abbott markets clarithromycin two forms immediate release extended release forms covered additional noncomposition matter patents may generic competition clarithromycin us countries 2005 depending results legal proceedings related patents us sales clarithromycin 2004 458 million international sales 725 million sevoflurane subject generic competition isolated markets outside us generic competition international markets possible international sales sevoflurane 484 million 2004 abbott periodically sold product rights nonstrategic products recorded related gains net sales accordance abbotts revenue recognition policies discussed footnote 1 consolidated financial statements related net sales 144 million 2004 241 million 2003 157 million 2002 expiration licenses patent protection affect future revenues operating income abbott significant patent expirations activities next three years follows pharmaceutical products segment markets tricor us license agreement patents covering tricor challenged competitors abbott vigorously defending patents us sales tricor 779 million 2004 abbott received approval form tricor additional therapeutic benefits form covered noncomposition matter patents expire 2017 pharmaceutical products segment agreement boehringer ingelheim copromote distribute three products copromotion rights three products phase time beginning 2004 ending 2006 distribution rights expire predominately 2007 partially 2008 margins disproportionately lower products segment related revenues recorded 2004 16 billion increase 39 percent 2003 operating earnings gross profit margins 549 percent net sales 2004 550 percent 2003 554 percent 2002 gross profit margin 2004 impacted favorable mix effect exchange gross profit margin unfavorable product mix primarily increased sales lower margin boehringer ingelheim products discussed pharmaceutical products segment gross profit margin 2003 impacted charge 88 million impairment assets expenses result lower sales forecast abbokinase partially offset favorable product mix resulting mainly increased sales pharmaceutical products segment gross profit margin 2002 included effects lake county diagnostic fda consent decree charge restructuring charges unfavorable product mix partially offset absence goodwill amortization 2002 gross profit margins years also affected productivity improvements higher project expenses new products higher manufacturing capacity costs anticipated unit growth effects inflation competitive pricing pressures us states receive price rebates manufacturers infant formula federally subsidized special supplemental food program women infants children also rebate programs pharmaceutical products rebate programs continue negative effect gross profit margins ross pharmaceutical products segments addition pricing pressures unfavorably impacted gross profit margins ross products segment 2004 2003 2002 gross profit margins pharmaceutical products segment unfavorably impacted 2004 2002 unfavorable product mix favorably impacted 2003 favorable product mix addition gross profit margins 2004 2003 pharmaceutical products segment unfavorably impacted increased sales lower margin boehringer ingelheim products higher manufacturing costs gross profit margins 2003 2002 diagnostic products segment impacted effects fda consent decree discussed terms 1999 consent decree us government abbott prohibited manufacturing certain diagnostic products sale us lake county ill manufacturing facilities found substantial conformity food drug administrations fda quality system regulation december 2003 fda found facilities substantial conformity abbott began process manufacturing impacted products sale us connection consent decree abbott recorded remediation costs payments government including pretax charge 129 million 2002 research development expense excluding acquired inprocess research development 17 billion 2004 16 billion 2003 15 billion 2002 represented 86 percent net sales 2004 compared 94 percent net sales 2003 97 percent net sales 2002 research development increased 2004 2003 rate sales due part lower spending phase iii clinical trials 2004 2003 compared 2002 majority research development expenditures concentrated pharmaceutical products selling general administrative expenses increased 24 percent 2004 compared increases 291 percent 2003 67 percent 2002 2003 abbott recorded selling general administrative expenses pretax charge 614 million related settlement ross enteral nutritional investigation 2003 charge reduced increase selling general administrative expenses 150 percentage points 2004 increased selling general administration expenses 165 percentage points 2002 increases selling general administrative expenses excluding charge investigation due primarily increased selling marketing support new existing products including spending launch humira well spending marketed pharmaceutical products increases three years also reflect inflation effect acquisitions additional selling marketing support primarily pharmaceutical products international segments 2004 abbott reflected requirements financial accounting standards board staff position 1062 accounting disclosure requirements related medicare prescription drug improvement modernization act 2003 effect change reduced postemployment medical dental plan net cost 2004 approximately 33 million income tap pharmaceutical products inc joint venture abbotts income tap pharmaceutical products inc tap joint venture lower 2004 2003 due decreased sales due market contraction prescription proton pump inhibitors 2004 approximately 40 million result agreement plaintiffs settle litigation income expense net income expense net 2002 includes charge 194 million result temporary declines market values certain equity securities net interest expense net interest expense increased 2004 due higher level debt partially offset higher interest income net interest expense decreased 2003 2002 due lower level borrowings lower interest rates taxes earnings effective income tax rates income continuing operations 230 percent 2004 261 percent 2003 233 percent 2002 effective tax rate 2004 reflects adjustments prior years tax requirements primarily result resolutions prior years tax audits 2004 effective tax rate also reflects effect nondeductible acquired inprocess research development effect items 2004 decrease effective tax rate approximately 12 percentage points effective tax rate 2003 includes effect charge settlement ross enteral nutritional investigation charges acquired inprocess research development effect charges 2003 increase effective tax rate approximately 24 percentage points abbott expects apply annual effective rate around 240 percent 2005 excluding effects adoption new stock compensation rules dividends remitted american jobs creation act 2004 discussed spinoff abbotts core hospital products business april 12 2004 abbotts board directors declared special dividend distribution outstanding shares common stock hospira inc every 10 abbott common shares held close business april 22 2004 abbott shareholders received one share hospira common stock april 30 2004 shares hospiras common stock distributed abbott shareholders prorata basis abbott received ruling internal revenue service spinoff qualifies taxfree distribution abbott us shareholders us federal income tax purposes cash generally taxable recipient paid lieu fractional shares hospira included operations relating manufacture sale hospital products including specialty injectable pharmaceuticals medication delivery systems critical care devices injectable pharmaceutical contract manufacturing hospira included abbotts hospital products segment segments reorganization january 1 2004 portions abbotts international segment income cash flows hospira direct transaction costs spinoff presented discontinued operations consolidated statement earnings statement cash flows prior years balance sheets adjusted reflect effect spinoff legal transfer certain operations assets net liabilities outside united states expected occur 2005 2006 approximately half operations expected transferred hospira 2005 remaining operations transferring first half 2006 operations assets used conduct hospiras international business hospira subject risks entitled benefits generated operations assets liabilities presented held sale consolidated balance sheet december 31 2004 assets liabilities held sale consist primarily inventories trade accounts receivable equipment trade accounts payable salaries accruals april 2004 abbott borrowed hospira assumed 700 million debt proceeds retained abbott reduce shortterm borrowings hospira solely responsible repayment principal payment interest debt abbott retained liabilities taxes income prior spinoff postemployment medical dental benefits hospiras us retired employees us retirement eligible employees certain potential liabilities related alleged improper pricing practices connection federal state private reimbursement certain drugs defined benefit retirement plan liabilities plan assets hospiras retired employees connection spinoff abbotts defined benefit medical dental employee stock option programs adjusted business combinations technology acquisitions 2004 abbott paid approximately 23 billion strategic business technology acquisitions follows fourth quarter 2004 abbott acquired eas nutritional company portfolio nationally recognized brands approximately 320 million cash spine next manufacturer orthopedic spinal implant devices approximately 58 million cash plus additional milestone payments 23 million upon achievement future targets fourth quarter acquisitions resulted charge 47 million acquired inprocess research development intangible assets approximately 152 million nontax deductible goodwill approximately 191 million deferred income taxes approximately 60 million acquired intangible assets primarily trade names amortized 5 20 years average approximately 18 years second quarter 2004 abbott acquired therasense inc leader development manufacturing marketing blood glucose selfmonitoring systems approximately 12 billion cash second quarter 2004 abbott also acquired certain product technologies approximately 352 million second quarter acquisitions resulted charge 164 million acquired inprocess research development intangible assets approximately 912 million nontax deductible goodwill approximately 623 million deferred income taxes approximately 241 million acquired intangible assets primarily product technology amortized 9 17 years average approximately 13 years first quarter 2004 abbott acquired istat corporation manufacturer pointofcare diagnostic products blood analysis approximately 394 million cash acquisition resulted charge approximately 60 million acquired inprocess research development intangible assets approximately 263 million nontax deductible goodwill approximately 109 million deferred income taxes approximately 105 million acquired intangible assets primarily product technology amortized 7 18 years average approximately 17 years 2003 abbott paid approximately 459 million strategic business technology acquisitions follows abbott acquired zoneperfect nutrition company marketer healthy nutritious products active people approximately 160 million cash integrated vascular systems inc developer novel vessel closure technology approximately 65 million cash spinal concepts inc marketer spinal fixation products used treatment spinal disorders diseases injuries approximately 166 million cash plus additional milestone payments 40 million agreed upon targets met abbott also acquired assets jomed nvs coronary peripheral interventional business approximately 68 million cash acquisitions resulted charge approximately 100 million acquired inprocess research development intangible assets approximately 222 million nontax deductible goodwill approximately 182 million acquired intangible assets primarily product technology amortized 9 25 years average approximately 16 years 2002 abbott acquired cardiovascular stent business biocompatibles international plc certain cardiovascular stent technology rights medtronic inc addition abbott acquired additional 288 percent issued common shares hokuriku seiyaku co ltd resulting abbott owning substantially common shares hokuriku seiyaku co ltd aggregate cash purchase price 586 million acquisitions resulted charge acquired inprocess research development approximately 108 million intangible assets approximately 145 million nontax deductible goodwill approximately 257 million acquired intangible assets primarily product technology amortized 4 13 years average approximately 8 years acquisitions taken place january 1 previous year consolidated sales income would significantly different reported amounts financial condition cash flow net cash operating activities continuing operations amounted 43 billion 34 billion 37 billion 2004 2003 2002 respectively net cash operating activities 2003 lower 2002 due part payment ross enteral nutritional settlement discussed 2004 2003 2002 482 million 200 million 106 million respectively contributed main domestic defined benefit plan addition abbott transferred approximately 45 million hospira 2004 accordance employee benefit agreement governing assumption hospira certain defined benefit plan assets liabilities january 2005 approximately 640 million contributed main domestic defined benefit plan 140 million contributed postemployment medical dental benefit plans abbott expects pension funding main domestic pension plan 2006 2010 200 million 400 million annually increased contribution 2005 due part anticipation investment cash remitted american jobs creation act 2004 debt capital december 31 2004 abbotts longterm debt rating aa standard poors a1 moodys investors service abbott readily available financial resources including unused lines credit 30 billion support domestic commercial paper borrowing arrangements june 2000 board directors authorized purchase 25 million shares abbotts common stock abbott purchased 133 million shares authorization 2000 2003 2004 abbott purchased remaining 117 million common shares authorization cost approximately 500 million october 2004 board directors authorized purchase 50 million shares abbotts common stock time purchases authorization made 2004 registration statement filed securities exchange commission september 2003 abbott issued 15 billion longterm debt 2004 matures 2009 2014 interest rates ranging 35 percent 435 percent proceeds debt used fund acquisition therasense pay domestic commercial paper borrowings connection borrowings abbott entered interest rate hedge contracts totaling 15 billion manage exposure changes fair value 15 billion debt contracts designated fair value hedges variability fair value fixedrate debt due changes longterm benchmark interest rates effect hedge change fixed interest rate variable rate abbott retained 700 million proceeds borrowings hospira assumed result spinoff used proceeds reduce domestic commercial paper borrowings addition abbott retired longterm debt 165 billion 2004 proceeds domestic commercial paper borrowings working capital december 31 2004 2003 2002 working capital 39 billion 27 billion 21 billion respectively capital expenditures capital expenditures 13 billion 2004 11 billion 2003 2002 principally upgrading expanding manufacturing research development investments information technology administrative support facilities segments laboratory instruments placed customers increased proportion capital expenditures dedicated domestic international pharmaceutical operations contractual obligations abbott periodically entered agreements ordinary course business assignment product rights companies resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote addition abbott periodically acquires small companies abbott agrees pay contingent consideration based attaining certain thresholds following table summarizes abbotts estimated contractual obligations december 31 2004 apurchase commitments purchases made normal course business meet operational capital expenditure requirements recently issued accounting standards december 2004 financial accounting standards board fasb issued revised statement financial accounting standards sfas 123 share based payment revised sfas 123 requires fair value stock options recorded results operations beginning later july 1 2005 stock compensation expense prior rules would reduced reported diluted earnings per share 12 cents 2004 upon adoption revised standard prior awards charged expense prior rules awards adoption charged expense revised rules abbott determined effect new standard earnings however expense new standard could somewhat higher effect adopting new rules reported diluted earnings per share dependent number options granted future terms awards fair values therefore effect diluted earnings per share could change abbott expects adopt revised rules july 1 2005 determined whether would adopt prospectively retrospectively january 1 2005 see footnote 11 consolidated financial statements assumptions used management calculating fair value employee stock options november 2004 fasb issued sfas 151 inventory costs statement clarifies accounting abnormal amount idle facilities expense freight handling costs wasted material statement requires items recognized currentperiod expense addition statement requires allocation fixed overhead cost conversion based normal capacity production facilities statement effective inventory costs incurred december 31 2005 adoption statement material effect financial statements abbott june 2002 fasb issued sfas 146 accounting costs associated exit disposal activities sfas 146 requires liability costs associated exit disposal activity recognized measured initially fair value liability incurred sfas 146 effective exit disposal activities initiated december 31 2002 material effect financial statements abbott accounted 2002 restructuring plans accordance emerging issues task force eitf issue 943 accordingly charged income 2002 appropriate exit costs plans approved management december 31 2002 accounting restructuring plans sfas 146 would resulted expenses recorded 2002 recorded 2003 however significant amount expenses would charged income 2002 either eitf 943 sfas 146 legislative issues october 22 2004 president united states signed american jobs creation act 2004 among provisions act provision allows exclusion income portion remittances earnings foreign subsidiaries us shareholders december 31 2005 portion earnings available remittance earnings designated reinvested indefinitely foreign operations disclosed abbotts 2002 financial statements abbott would approximately 42 billion earnings available remittance estimated tax 340 million entire amount remitted current language legislation act continues subject interpretation rulemaking estimated expense could affected activity january 13 2005 us treasury irs issued initial guidance covering act financial accounting staff position 1092 requires companies recognize tax liability remittance earnings act period management concludes would remit earnings december 31 2004 management decided remit earnings act february 2005 abbott concluded would remit approximately 600 million 2005 foreign earnings previously reinvested indefinitely accordance provisions act abbott continuing evaluate whether remit portion remaining 36 billion available remittance act expects decide later year additional income tax expense required 600 million remittance would approximately 60 million recorded first quarter 2005 provisions act include new deduction qualified domestic production activities elimination extraterritorial income exclusion eti financial accounting staff position 1091 requires deduction production activities recognized year reported income tax return deduction production activities gradually phased 2005 2009 eti gradually phased 2005 2006 abbott expects net effect two changes approximately offset phaseins completed 2005 neutral slightly higher expense 2006 2009 effective january 1 2005 medicare formula reimbursement providers physicianadministered drugs changed abbott determined formula change expected significant effect results operations abbotts primary markets highly competitive subject substantial government regulation abbott expects debate continue us federal state levels availability method delivery payment health care products services abbott believes legislation enacted could effect reducing access health care products services reducing prices rate price increases health care products services international operations also subject significant degree government regulation possible predict extent abbott health care industry general might adversely affected factors future complete discussion factors contained item 1 business annual report form 10k private securities litigation reform act 1995 caution concerning forwardlooking statements safe harbor provisions private securities litigation reform act 1995 abbott cautions investors forwardlooking statements projections made abbott including made document subject risks uncertainties may cause actual results differ materially projected economic competitive governmental technological factors may affect abbotts operations discussed exhibit 991 annual report form 10k item 7a item 7 management’s discussion analysis financial condition results operations financial review abbott’s revenues derived primarily sale broad line health care products shortterm receivable arrangements patent protection licenses technological performance features inclusion abbott’s products contract impact products sold price controls competition rebates impact net selling prices products foreign currency translation impacts measurement net sales costs abbott’s primary products medical devices diagnostic testing products nutritional products branded generic pharmaceuticals sales international markets comprise approximately 62 percent consolidated net sales 2020 coronavirus covid19 pandemic affected abbott’s diversified health care businesses various ways described businesses performed levels required successfully meet new demands others faced challenges still others relatively less impacted pandemic abbott’s diagnostics business experienced significant change sales 2019 2020 sales new tests related products detect covid19 outweighed negative impact covid19 routine diagnostic testing volumes abbott mobilized teams across multiple fronts develop launch following new diagnostic tests covid19 2020 ●in march abbott launched molecular test using polymerase chain reaction pcr methods m2000™ realtime labbased platform detect covid19 pursuant emergency use authorization eua us ce mark ●in march abbott also launched molecular test detect covid19 id now™ rapid pointofcare platform us pursuant eua ●in april abbott launched igg immunoglobulin g labbased serology blood test architect® i1000sr i2000sr® laboratory instruments detection antibody determine someone previously infected virus serology test granted eua us ce mark april ●in may abbott launched labbased serology blood test alinity® system pursuant eua us ce mark ●in may abbott also launched molecular pcr test alinity system detect covid19 pursuant eua us abbott received ce mark test june ●in june abbott launched lateral flow covid19 rapid antibody test panbio™ system select countries pursuant ce mark serology test detects antibody determine someone previously infected virus ●in august abbott launched advisedx sarscov2 igm immunoglobulin labbased serology test use architect alinity platforms pursuant ce mark abbott granted eua us test october ●in august abbott launched binaxnow™ covid19 ag card test portable lateral flow rapid test detect covid19 pursuant eua us ●in september abbott launched panbio rapid antigen test detect covid19 pursuant ce mark october abbott received approval world health organization emergency use listing panbio antigen test ●in december abbott received ce mark launched sarscov2igg ii quantitative labbased serology blood test use architect alinity platforms ●in december abbott received eua us virtually guided athome use binaxnow covid19 ag card rapid test detect covid19 launched product athome use ●in december abbott launched multiplex molecular test alinity system detect covid19 flu b respiratory syncytial virus rsv pursuant ce mark 2020 abbott’s covid19 testing related sales totaled approximately 3884 billion led sales related abbott’s binaxnow panbio id rapid testing platforms addition negatively impacting routine core diagnostic testing volumes pandemic negatively affected number cardiovascular neuromodulation procedures performed health care providers globally thereby reducing demand abbott’s cardiovascular neuromodulation devices routine diagnostic tests 2020 decrease began february china country implemented quarantine restrictions postponed nonemergency health care activities negative impact cardiovascular neuromodulation procedures routine diagnostic tests expanded countries geographic regions covid19 spread geographically first half 2020 health care systems countries shifted focus fighting covid19 extent impact timing recovery number procedures routine testing particular country geographic region depended upon progression covid19 cases country region recovery procedures routine testing volumes china began march parts world us europe volumes improved across abbott’s hospitalbased businesses second quarter progressed improvement continued third quarter however fourth quarter improving trends demand procedures routine testing flattened negatively impacted depending upon business region many countries experienced increase number covid19 cases hospitalizations abbott’s branded generic pharmaceuticals business also negatively affected pandemic 2020 covid19 spread across emerging market countries second third quarters 2020 abbott’s nutritional diabetes care businesses least affected pandemic discussed abbott continually implementing business continuity plans face pandemic due critical nature products services abbott generally exempt governmental orders issued first quarter 2020 us countries requiring businesses cease operations majority officebased work conducted remotely period governmental orders company implemented strict travel restrictions governmental orders lifted may june 2020 abbott entered new phase operations whereby officebased employees started working abbott’s offices rotational basis various governmental orders guidelines modified fourth quarter put place new restrictions abbott continued ensure guidance aligned restrictions abbott taken aggressive steps limit exposure enhance safety facilities employees due unpredictability duration impact current covid19 pandemic extent covid19 pandemic material effect business financial condition results operations uncertain abbott’s 2020 sales significantly affected covid19 pandemic increase total sales last three years also reflects volume growth due introduction new products across various businesses well higher sales various existing products sales emerging markets represent approximately 37 percent total company sales increased 20 percent 2020 82 percent 2019 excluding impact foreign exchange emerging markets include countries except united states western europe japan canada australia new zealand last three years abbott’s operating margin percentage sales increased 119 percent 2018 142 percent 2019 155 percent 2020 increase 2020 reflects sales volume increases rapid molecular diagnostics businesses partially offset lower medical devices sales due impact pandemic unfavorable effect foreign exchange addition reduction costs associated business acquisitions restructuring activities drove improvement operating margins 2018 2020 2019 increase abbott’s operating margin also reflects margin improvement various businesses lower intangible amortization expense compared 2018 respect performance reportable segment last three years sales medical devices segment excluding impact foreign exchange decreased 38 percent 2020 increased 105 percent 2019 sales decrease 2020 driven abbott’s cardiovascular neuromodulation businesses due primarily reduced procedure volumes result covid19 pandemic decreases partially offset doubledigit growth diabetes care sales increase 2019 driven primarily higher diabetes care structural heart electrophysiology heart failure sales 2020 operating earnings medical devices segment decreased 194 percent operating margin profile decreased 308 percent sales 2019 258 percent 2020 primarily due lower sales manufacturing volumes result pandemic pricing pressures drug eluting stents des result market competition us major markets 2020 key product approvals medical devices segment included ●ce mark abbott’s tendyne™ transcatheter mitral valve implantation system treatment significant mitral regurgitation mr patients requiring heart valve replacement candidates openheart surgery transcatheter mitral valve repair ●ce mark abbott’s triclip® heart valve repair system world’s first minimally invasive clipbased device repair leaky tricuspid heart valve ●us food drug administration fda clearance freestyle® libre 2 integrated continuous glucose monitoring icgm system adults children ages 4 older diabetes ●ce mark abbott’s freestyle libre 3 system automatically delivers real time uptotheminute glucose readings 14day accuracy realtime glucose alarms ●ce mark libre sense™ glucose sport biosensor provides continuous glucose monitoring help athletes better understand efficacy nutrition choices training athletic performance ●us fda approval nextgeneration gallant™ implantable cardioverter defibrillator cardiac resynchronization therapy defibrillator devices help manage heart rhythm disorders offer bluetooth technology new patient smartphone app improved remote monitoring enhanced patientphysician engagement ●ce mark mitraclip® g4 abbott’s nextgeneration mitraclip mitral valve repair device ●ce mark ensite™ x ep system nextgeneration 3d cardiac mapping platform used ablation therapy treat abnormal heart rhythms ●us fda clearance ce mark ionicrf™ generator nonsurgical minimally invasive device uses heat target specific nerves management chronic pain ●us fda approval updated labeling allow abbott’s heartmate 3™ heart pump used pediatric patients advanced refractory left ventricular heart failure abbott’s worldwide diagnostics business sales increased 406 percent 2020 59 percent 2019 excluding impact foreign exchange discussed sales growth 2020 driven demand abbotts portfolio covid19 diagnostics tests across rapid labbased platforms partially offset lower volumes routine laboratory testing due pandemic growth 2019 reflected continued market penetration core laboratory business us internationally 2019 growth included continued adoption customers alinity abbott’s integrated family nextgeneration diagnostic systems solutions designed increase efficiency running tests less space generating test results faster minimizing human errors continuing provide quality results abbott regulatory approvals us europe china markets “alinity c” “alinity i” instruments continued build test menu clinical chemistry immunoassay diagnostics abbott obtained regulatory approval “alinity h” instrument hematology europe japan abbott also obtained regulatory approvals us europe “alinity s” blood screening “alinity m” molecular instruments several testing assays 2020 operating earnings diagnostics segment increased 948 percent operating margin profile increased 249 percent sales 2018 345 percent 2020 primarily due higher sales 2020 rapid diagnostics molecular diagnostics partially offset lower volumes routine testing core laboratory abbott’s worldwide nutritional products business sales last three years positively impacted numerous new product introductions including rollouts human milk oligosaccharide hmo infant formula highprotein ensure® leveraged abbott’s strong brands sales also positively affected demographics aging population increasing rate chronic disease developed markets rise middle class many emerging markets excluding impact foreign exchange total adult nutrition sales increased 103 percent 2020 66 percent 2019 led continued growth ensure abbott’s marketleading complete balanced nutrition brand glucerna® abbott’s marketleading diabetesspecific nutrition brand across several countries 2019 sales growth partially offset unfavorable impact discontinuation noncore product line us excluding impact foreign exchange total pediatric nutrition sales increased 03 percent 2020 34 percent 2019 driven pediasure® pedialyte® brands us well infant toddler product growth across several markets asia latin america partially offset challenging market dynamics infant category greater china 2020 increase also driven higher similac® sales us established pharmaceutical products segment focuses sale products emerging markets excluding impact foreign exchange established pharmaceutical sales increased 19 percent 2020 73 percent 2019 sales increases 2020 2019 reflect higher sales several geographies including india china brazil russia operating margins decreased 202 percent sales 2018 185 percent 2020 primarily due unfavorable impact foreign exchange product mix lower gross margins respect abbott’s financial position december 31 2020 abbott’s cash equivalents shortterm investments total approximately 71 billion compared 41 billion december 31 2019 abbott’s longterm debt shortterm borrowings total 187 billion 181 billion december 31 2020 2019 respectively abbott declared dividends 153 per share 2020 compared 132 per share 2019 increase approximately 16 percent dividends paid totaled 2560 billion 2020 compared 2270 billion 2019 yearoveryear change amount dividends paid primarily reflects increase dividend rate december 2020 abbott increased company’s quarterly dividend 25 percent 045 per share 036 per share effective dividend paid february 2021 abbott focus continuing meet demand covid19 tests continue invest product development areas provide opportunity strong sustainable growth next several years diagnostics business abbott continue focus driving market adoption geographic expansion alinity suite diagnostics instruments medical devices business abbott continue focus expanding market position various areas including diabetes care structural heart electrophysiology heart failure nutritionals business abbott continue focus driving growth globally enhancing portfolio introduction line extensions sciencebased products established pharmaceuticals business abbott continue focus growing business depth breadth portfolio emerging markets critical accounting policies sales rebates 2020 approximately 41 percent abbott’s consolidated gross revenues subject various forms rebates allowances abbott recorded reductions revenues time sale rebates allowances 2020 nutritional products diabetes care businesses abbott provides rebates state agencies administer special supplemental nutrition program women infants children wic wholesalers group purchasing organizations government agencies private entities rebate amounts usually based upon volume purchases using contractual statutory prices product factors used rebate calculations include identification products sold subject rebate customer government agency price terms apply estimated lag time sale payment rebate using historical trends adjusted current changes abbott estimates amount rebate paid records liability reduction gross sales abbott records sale product settlement rebate generally occurs one six months sale abbott regularly analyzes historical rebate trends makes adjustments reserves changes trends terms rebate programs rebates chargebacks charged gross sales 2020 2019 2018 amounted approximately 33 billion 31 billion 30 billion respectively 201 percent 191 percent 190 percent gross sales respectively based gross sales approximately 166 billion 163 billion 160 billion respectively subject rebate onepercentage point increase percentage rebates related gross sales would decrease net sales approximately 166 million 2020 abbott considers onepercentage point increase reasonably likely increase percentage rebates related gross sales allowances charged gross sales approximately 207 million 169 million 175 million cash discounts 2020 2019 2018 respectively 232 million 192 million 191 million returns 2020 2019 2018 respectively cash discounts known within 15 30 days sale therefore reliably estimated returns reliably estimated abbott’s historical returns low sales returns terms sales terms remained relatively unchanged several periods management analyzes adequacy ending rebate accrual balances quarter domestic nutritional business management uses internal external data available estimate accruals wic business estimates required amount wic sales within state abbott holds wic contract state sale made determining factor applicable rebated price reliably determinable rebated prices based contractually obligated agreements generally lasting period two four years except change contract price transition period change supplier wic business state accruals based historical redemption rates data us department agriculture usda states submitting rebate claims usda administers wic program making data available many years management also estimates states processing lag time based sales claims data inventory retail distribution channel vary substantially management access several large customers inventory management data allows management make reliable estimates inventory retail distribution channel december 31 2020 abbott wic business 27 states historically adjustments prior years’ rebate accruals material net income abbott employs various techniques verify accuracy claims submitted possible works organizations submitting claims gain insight changes might affect rebate amounts government agency programs calculation rebate involves interpretations relevant regulations subject challenge change interpretation income taxes abbott operates numerous countries income tax returns subject audits adjustments abbott operates globally nature audit items often complex objectives government auditors result tax income one country abbott employs internal external tax professionals minimize audit adjustment amounts possible accordance accounting rules relating measurement tax contingencies order recognize uncertain tax benefit taxpayer must likely sustaining position measurement benefit calculated largest amount 50 percent likely realized upon resolution benefit application rules requires significant amount judgment us abbott’s federal income tax returns 2016 settled undistributed foreign earnings remain indefinitely reinvested foreign operations determining amount unrecognized deferred tax liability related remaining undistributed foreign earnings subject transition tax additional outside basis difference foreign entities practicable pension postemployment benefits abbott offers pension benefits postemployment health care many employees abbott engages outside actuaries assist determination obligations costs programs abbott must develop longterm assumptions significant health care cost trend rates discount rates expected return plan assets discount rates used measure liabilities determined based highquality fixed income securities match duration expected retiree benefits health care cost trend rates represent abbott’s expected annual rates change cost health care benefits forward projection health care costs measurement date difference assumed rates actual rates known years significant relation obligations annual cost recorded programs low interest rates significantly increased actuarial losses plans december 31 2020 pretax net actuarial losses prior service costs credits recognized accumulated comprehensive income loss net losses 46 billion abbott’s defined benefit plans net losses 419 million abbott’s medical dental plans actuarial losses gains amortized remaining service attribution periods employees corridor method accordance rules accounting postemployment benefits differences expected longterm return plan assets actual annual return amortized fiveyear period valuation intangible assets abbott acquired continues acquire significant intangible assets abbott records fair value acquisition date transactions involving purchase sale intangible assets occur frequency companies health care field valuations usually based discounted cash flow analysis discounted cash flow model requires assumptions timing amount future net cash flows risk cost capital terminal values market participants factors significantly affect value intangible asset abbott engages independent valuation experts review abbott’s critical assumptions calculations acquisitions significant intangibles abbott reviews definitelived intangible assets impairment quarter using undiscounted net cash flows approach undiscounted cash flows intangible asset less carrying value intangible asset intangible asset written fair value usually discounted cash flow amount cash flows cannot identified individual asset review applied lowest group level cash flows identifiable goodwill indefinitelived intangible assets relate inprocess research development acquired business combination reviewed impairment annually event could result impairment occurs december 31 2020 goodwill amounted 237 billion net intangibles amounted 148 billion amortization expense continuing operations intangible assets amounted 21 billion 2020 19 billion 2019 22 billion 2018 reduction goodwill relating impairments 2020 2019 2018 litigation abbott accounts litigation losses accordance financial accounting standards board fasb accounting standards codification asc 450 “contingencies” asc 450 loss contingency provisions recorded probable losses management’s best estimate loss best estimate cannot made minimum loss contingency amount recorded estimates often initially developed substantially earlier ultimate loss known estimates refined accounting period additional information becomes known accordingly abbott often initially unable develop best estimate loss therefore minimum amount could zero recorded information becomes known either minimum loss amount increased resulting additional loss provisions best estimate made also resulting additional loss provisions occasionally best estimate amount changed lower amount events result expectation favorable outcome previously expected abbott estimates range possible loss approximately 90 million 120 million legal proceedings environmental exposures accruals approximately 105 million recorded december 31 2020 proceedings exposures accruals represent management’s best estimate probable loss defined fasb asc 450 “contingencies” results operations sales following table details components sales growth reportable segment last two years increase total net sales 2020 reflects volume growth diagnostics nutritional products segments medical devices impact covid19 abbott’s cardiovascular neuromodulation businesses partially offset doubledigit volume growth diabetes care increase total net sales 2019 reflects volume growth across abbott’s segments price declines related medical devices segment 2020 2019 primarily reflect des pricing pressures result market competition us major markets comparison significant product group sales follows percent changes versus prior year based unrounded numbers order compute results excluding impact exchange rates current year us dollar sales multiplied divided appropriate current year average foreign exchange rates amounts multiplied divided appropriate prior year average foreign exchange rates total established pharmaceutical products sales increased 19 percent 2020 73 percent 2019 excluding unfavorable impact foreign exchange established pharmaceutical products segment focused several key emerging markets including india russia china brazil excluding impact foreign exchange total sales key emerging markets increased 26 percent 2020 79 percent 2019 due higher sales several geographies including china brazil india russia excluding impact foreign exchange sales established pharmaceuticals’ emerging markets decreased 05 percent 2020 increased 56 percent 2019 total nutritional products sales increased 47 percent 2020 48 percent 2019 excluding impact foreign exchange 2020 international pediatric nutritional sales excluding effect foreign exchange decreased 41 percent growth across abbott’s pediatric products various countries southeast asia offset challenging market dynamics infant category greater china 46 percent increase 2019 international pediatric nutritional sales excluding effect foreign exchange driven growth across abbott’s portfolio including similac pediasure various countries asia latin america pedialyte latin america growth partially offset challenging market dynamics infant category greater china us pediatric nutritional business sales increased 58 percent 2020 19 percent 2019 reflecting growth similac 2020 growth pediasure pedialyte years international adult nutritional business sales increased 136 percent 109 percent 2020 2019 respectively excluding effect foreign exchange due continued growth ensure glucerna several countries 2020 us adult nutritional sales increased 49 percent primarily due growth ensure 2019 us adult nutritional sales unchanged 2018 due impact abbott’s discontinuation noncore product line third quarter 2018 offset growth areas business diagnostics segment core laboratory sales decreased 28 percent 2020 excluding effect foreign exchange lower volume routine testing performed hospital laboratories due covid19 partially offset sales abbott’s covid19 laboratorybased tests detection igg igm antibodies determine someone previously infected virus core laboratory antibody testingrelated sales abbott’s architect alinity platforms 268 million 2020 2257 percent increase molecular diagnostics sales 2020 excluding effect foreign exchange reflects higher volumes due demand abbott’s laboratorybased molecular tests covid19 m2000 alinity platforms abbott received us fda approval march 2020 alinity molecular diagnostics system molecular diagnostics covid19 testingrelated sales 1023 billion 2020 rapid diagnostics sales increased 1123 percent 2020 excluding effect foreign exchange due strong demand abbott’s pointofcare covid19 molecular test id platform binaxnow covid19 ag card test us well international demand covid19 rapid tests panbio system increased testing first quarter flu us increases partially offset unfavorable impact covid19 routine diagnostic testing rapid diagnostics covid19 testingrelated sales 2593 billion 2020 diagnostics segment sales increase 2019 driven abovemarket growth core laboratory us internationally abbott achieved continued adoption alinity family diagnostic instruments 63 percent decrease 2019 molecular sales excluding effect foreign exchange reflects negative impact lower nongovernmental organization purchases africa rapid diagnostics sales growth 2019 various areas including infectious disease testing developed markets cardiometabolic testing mostly offset lower expected infectious disease testing sales africa excluding effect foreign exchange total medical devices sales decreased 38 percent increased 105 percent 2020 2019 respectively 2020 doubledigit growth diabetes care offset decreases abbott’s cardiovascular neuromodulation businesses due impact covid19 lower vascular sales china fourth quarter 2020 result new national tender program 2019 sales increase driven doubledigit growth diabetes care structural heart electrophysiology heart failure 2020 2019 growth diabetes care revenue driven continued growth freestyle libre abbott’s continuous glucose monitoring system internationally us 2020 freestyle libre sales totaled 2635 billion reflected 426 percent increase 2019 excluding effect foreign exchange freestyle libre sales 2019 1842 billion reflected 698 percent increase excluding effect foreign exchange 2018 sales totaled 1128 billion 2019 growth structural heart revenue broadbased across several areas business including mitraclip abbotts marketleading device minimally invasive treatment mitral regurgitation mr leaky heart valve 2019 growth electrophysiology revenue reflects higher sales cardiac diagnostic ablation catheters us internationally growth heart failure revenue 2019 driven rapid market adoption us abbotts heartmate 3® left ventricular assist device lvad following fda approval october 2018 destination longterm use therapy people living advanced heart failure well higher sales abbott’s cardiomems® heart failure monitoring system vascular excluding effect foreign exchange sales 2019 flat 13 percent increase coronary endovascular product sales includes drugeluting stents balloon catheters guidewires vascular imagingdiagnostics products vessel closure carotid coronary peripheral products offset reductions royalty contract manufacturing revenue rhythm management higher 2019 international sales excluding effect foreign exchange offset 44 percent decrease us revenue 2019 24 percent decline neuromodulation sales excluding effect foreign exchange reflects 42 percent decline us sales abbott periodically sold product rights nonstrategic products recorded related gains net sales accordance abbott’s revenue recognition policies discussed note 1 consolidated financial statements related net sales significant 2020 2019 2018 expiration licenses patent protection affect future revenues operating income abbott significant patent license expirations next three years expected materially affect abbott april 2017 abbott received warning letter us fda related manufacturing facility sylmar ca acquired abbott january 4 2017 part acquisition st jude medical inc st jude medical facility manufactures implantable cardioverter defibrillators cardiac resynchronization therapy defibrillators monitors abbott prepared executed comprehensive plan corrective actions april 28 2020 abbott received letter fda indicating based fda’s evaluation appeared abbott addressed items warning letter result warning letter considered closed operating earnings gross profit margins 505 percent net sales 2020 525 percent 2019 513 percent 2018 2020 decrease primarily reflects mix sales across abbott’s various businesses operational inefficiencies due impact covid19 well increase intangible asset amortization impairment intangible assets unfavorable effect foreign exchange gross margin 2020 2019 increase primarily reflects lower intangible amortization expense lower integration restructuring costs research development rd expenses 24 billion 2020 2019 23 billion 2018 rd spending 2020 relatively flat compared 2019 impact immediate expensing 2019 rd asset valued 102 million acquired conjunction acquisition cephea valve technologies inc cephea partially offset 55 million impairment inprocess rd intangible asset 2020 rd expense 2020 also reflects lower integration restructuring costs 2020 related rd partially offset higher spending various projects rd expenses 2019 increased 61 percent primarily reflecting immediate expensing cephea rd asset well higher rd spending various businesses primarily medical devices partially offset favorable effect foreign exchange 2020 rd expenditures totaled 13 billion medical devices segment 608 million diagnostic products segment 189 million nutritional products segment 177 million established pharmaceutical products segment selling general administrative sga expenses basically flat 2020 2019 versus respective prior years 2020 favorable effect foreign exchange income approximately 100 million litigation settlement 2020 lower spending due covid19 travel restrictions impact various cost saving initiatives offset higher spending drive growth various businesses 2019 favorable effect foreign exchange lower acquisitionrelated integration costs offset higher selling marketing costs drive continued growth across various businesses restructurings 2017 2020 abbott management approved restructuring plans part integration acquisitions st jude medical devices segment alere inc alere diagnostic products segment order leverage economies scale reduce costs december 31 2017 accrued balance associated actions 68 million 2018 2020 abbott recorded employee related severance charges totaling approximately 137 million comprised 13 million 2020 72 million 2019 52 million 2018 approximately 30 million recorded cost products sold approximately 15 million recorded research development approximately 92 million recorded selling general administrative expense last three years december 31 2020 accrued liabilities remaining consolidated balance sheet related actions total 25 million primarily represent severance obligations 2016 2020 abbott management approved plans streamline operations order reduce costs improve efficiencies various abbott businesses including nutritional established pharmaceuticals vascular businesses abbott recorded employee related severance charges approximately 36 million 2020 66 million 2019 28 million 2018 approximately 6 million 2020 16 million 2019 10 million 2018 recorded cost products sold approximately 2 million 2020 28 million 2019 2 million 2018 recorded research development approximately 28 million 2020 22 million 2019 16 million 2018 recorded selling general administrative expense interest expense interest income interest expense net decreased 76 million 2020 due reduction interest expense resulting favorable impact euro debt financing november 2019 repayment debt december 2019 lower interest rate environment 2020 2019 interest expense net decreased 145 million due favorable impact euro debt financing september 2018 well repayment debt 2018 first quarter 2019 debt extinguishment costs december 19 2019 abbott redeemed 2850 billion principal amount 29 notes due 2021 abbott incurred charge 63 million related early repayment debt october 28 2018 abbott redeemed approximately 4 billion debt included 750 million principal amount 200 notes due 2020 597 million principal amount 4125 notes due 2020 900 million principal amount 325 notes due 2023 450 million principal amount 34 notes due 2023 1300 billion principal amount 375 notes due 2026 abbott incurred net charge 153 million related early repayment debt unwinding related interest rate swaps march 22 2018 abbott redeemed 947 million principal amount 5125 notes due 2019 well 1055 billion 2850 billion principal amount 235 notes due 2019 abbott incurred net charge 14 million related early repayment debt income expense net income expense net 2020 2019 2018 includes approximately 205 million 225 million 160 million income year respectively related nonservice cost components net periodic benefit costs associated pension postretirement medical plans income expense net 2020 also includes equity investment impairments totaled approximately 115 million taxes earnings income tax rates earnings continuing operations 100 percent 2020 96 percent 2019 188 percent 2018 2020 taxes earnings continuing operations include recognition approximately 170 million tax benefits associated impairment certain assets approximately 140 million net tax benefits result resolution various tax positions related prior years approximately 100 million excess tax benefits associated sharebased compensation 2020 taxes earnings continuing operations also include 26 million increase transition tax associated 2017 tax cuts jobs act tcja 26 million increase transition tax liability result resolution various tax positions related prior years adjustment increased cumulative net tax expense related tcja 153 billion 2019 taxes earnings continuing operations included approximately 100 million excess tax benefits associated sharebased compensation 86 million reduction transition tax 68 million tax expense resulting tax legislation enacted fourth quarter 2019 india 86 million reduction transition tax liability result issuance final transition tax regulations us department treasury 2019 2018 taxes earnings continuing operations included 98 million net tax expense related settlement abbott’s 20142016 federal income tax audit us partial settlement former st jude medical consolidated group’s 2014 2015 federal income tax returns us audit settlements various countries well approximately 90 million excess tax benefits associated sharebased compensation 2018 abbott also recorded 130 million additional tax expense related tcja 130 million reflected 120 million increase transition tax 289 billion 301 billion 10 million reduction net benefit related remeasurement deferred tax assets liabilities exclusive discrete items tax expense favorably impacted lower tax rates tax exemptions foreign income primarily derived operations puerto rico switzerland ireland netherlands costa rica singapore malta abbott benefits combination favorable statutory tax rules tax rulings grants exemptions tax jurisdictions see note 15 consolidated financial statements full reconciliation effective tax rate us federal statutory rate discontinued operations net earnings discontinued operations include income tax benefits 24 million 2020 39 million 2018 2020 tax benefits primarily relate resolution various tax positions related abbott’s developed markets branded generic pharmaceuticals business sold mylan inc mylan 2015 tax positions relate years prior sale mylan 2018 tax benefits primarily relate resolution various tax positions related operations abbvie inc abbvie years prior separation abbott completed separation abbvie formed hold abbott’s researchbased proprietary pharmaceuticals business january 2013 abbott retained liabilities us federal foreign income taxes income prior separation research development programs abbott currently numerous pharmaceutical medical devices diagnostic nutritional products development research development process established pharmaceuticals segment development process focuses geographic expansion continuous improvement segment’s existing products provide benefits patients customers established pharmaceuticals actively pursue primary research development usually begins work existing products acquisition advanced stage licensing opportunity depending upon product phases development may include ●drug product development ●phase bioequivalence studies compare future established pharmaceutical’s brand already marketed compound active pharmaceutical ingredient api ●phase ii studies test efficacy benefits small group patients ●phase iii studies broaden testing wider population reflects actual medical use ●phase iv postmarketing studies obtain new clinical use data existing products within approved indications specific requirements eg scope clinical trials obtaining regulatory approval vary across different countries geographic regions process may range one year bioequivalence study project 6 years complex formulations new indications geographic expansion specific countries china diagnostics segment phases research development process include ●discovery focuses identification product address specific therapeutic area platform unmet clinical need ●conceptfeasibility materials manufacturing processes evaluated testing may include product characterization analysis performed confirm clinical utility ●development extensive testing performed demonstrate product meets specified design requirements design specifications conform user needs intended uses regulatory requirements diagnostic products vary across different countries geographic regions us fda classifies diagnostic products classes ii iii classification determines regulatory process approval diagnostics segment products three classes vast majority products categorized class ii submission separate regulatory filing required class products class ii devices typically require premarket notification fda regulatory filing known 510k submission class iii products subject fda’s premarket approval pma requirements class iii products used screen blood require submission approval biological license application bla european union eu diagnostic products also categorized different categories regulatory process governed european vitro diagnostic medical device directive depends upon category certain product categories requiring review approval independent company known notified body manufacturer affix ce mark product declare conformity directive products require selfcertification process second quarter 2017 eu adopted new vitro diagnostic regulation ivdr replaces existing directive eu vitro diagnostic products ivdr apply fiveyear transition period imposes additional premarket postmarket regulatory requirements manufacturers products medical devices segment research development process begins research specific technology evaluated feasibility commercial viability research program passes hurdle moves forward development process includes evaluation selection qualification product design completion applicable clinical trials test product’s safety efficacy validation manufacturing process demonstrate repeatability ability consistently meet predetermined specifications similar diagnostic products discussed us medical devices classified class ii iii abbott’s medical device products classified class ii devices follow 510k regulatory process class iii devices subject pma process eu medical devices also categorized different classes regulatory process governed european medical device directive active implantable medical device directive varies class product must bear ce mark show compliance directive second quarter 2017 eu adopted new medical devices regulation mdr replaces existing directives eu medical devices imposes additional premarket postmarket regulatory requirements manufacturers products mdr previously adopted apply three year transition period 2020 european parliament postponed date application one year products require submission design dossier appropriate regulatory authority review approval prior ce marking device products company required prepare technical file includes testing results clinical evaluations selfcertify ability apply ce mark product outside us eu regulatory requirements vary across different countries regions approval commercial launch medical devices postmarket trials may conducted either due conditional requirement regulatory market approval objective proving product superiority nutritional segment research development process generally focuses identifying developing ingredients products address nutritional needs particular populations eg infants adults patients eg people diabetes depending upon country andor region claims regarding product’s efficacy made clinical studies typically must conducted us fda requires notified proposed new formulations formulation packaging changes related infant formula products prior launch infant formula product packaging change company required obtain fda’s confirmation objections proposed product packaging nutritional products notification preapproval fda required unless product includes new food additive countries regulatory approval may required certain nutritional products including infant formula medical nutritional products areas focus 2021 beyond abbott’s significant areas therapeutic focus include following established pharmaceuticals abbott focuses building countryspecific portfolios made highquality medicines meet needs people emerging markets next several years abbott plans expand product portfolio key therapeutic areas aim among first launch new offpatent differentiated medicines addition abbott continues expand existing brands new markets implement product enhancements provide value patients acquire strategic products technology licensing activities abbott also actively working development several key brands creon™ duphaston™ duphalac™ influvac™ depending product activities focus development new data markets formulations delivery systems indications one example includes launch abbott’s quadrivalent influenza vaccination influvac® tetra 12 markets expanded indication 16 markets cover children adolescents young adults 3 17 years old medical devices abbott’s research development programs focus ●cardiac rhythm management development nextgeneration rhythm management technologies including advanced communication capabilities leadless pacing therapies ●heart failure continued enhancements abbott’s mechanical circulatory support pulmonary artery pressure systems including enhanced clinical performance usability ●electrophysiology development nextgeneration technologies areas ablation diagnostic mapping visualization recording ●vascular development nextgeneration technologies use coronary peripheral vascular procedures ●structural heart development minimallyinvasive transcatheter surgical devices repair replacement heart valves structural heart conditions ●neuromodulation development additional clinical evidence nextgeneration technologies leveraging digital health improve patient physician engagement treat chronic pain movement disorders indications ●diabetes care develop enhancements additional indications freestyle libre platform continuous glucose monitoring products help patients improve ability manage diabetes use beyond diabetes nutritionals abbott focusing research development spend platforms span pediatric adult nutrition areas gastro intestinalimmunity health brain health mobility metabolism user experience platforms numerous new products build advances platforms currently development including clinical outcome testing expected launched coming years core laboratory diagnostics abbott continues commercialize nextgeneration blood screening immunoassay clinical chemistry hematology systems along assays including focus unmet medical need various areas including infectious disease cardiac care metabolics oncology well informatics solutions help optimize diagnostics laboratory performance automation solutions increase efficiency laboratories molecular diagnostics several new molecular vitro diagnostic ivd tests various stages development launch rapid diagnostics abbott’s research development programs focus development diagnostic products infectious disease cardiometabolic disease toxicology addition diagnostics divisions pursuing fda’s customary regulatory process various covid19 tests eua obtained 2020 given diversity abbott’s business intention remain broadbased health care company numerous sources potential future growth individual project expected material cash flows results operations next five years factors considered included research development expenses projected incurred project next year relative abbott’s total research development expenses well qualitative factors marketplace perceptions impact new product abbott’s overall market position delays abbott’s 2020 research development activities expected material impact operations aggregate cost complete numerous projects currently development expected material total cost complete depend upon abbott’s ability successfully finish project rate project advances ultimate timing completion given potential significant delays risk failure inherent development medical device diagnostic pharmaceutical products technologies possible accurately estimate total cost complete projects currently development abbott plans manage portfolio projects achieve research development spending competitive businesses participates spending expected approximate 70 percent total abbott sales 2021 abbott regularly accumulate make management decisions based total expenses incurred particular development phase given period goodwill december 31 2020 goodwill recorded result business combinations totaled 237 billion goodwill reviewed impairment annually third quarter event could result impairment occurs using quantitative assessment determine whether likely fair value reporting unit less carrying amount income market approaches used calculate fair value reporting unit results last impairment test indicated fair value reporting unit substantially excess carrying value financial condition cash flow net cash operating activities amounted 79 billion 61 billion 63 billion 2020 2019 2018 respectively increase net cash operating activities 2020 primarily due favorable cash flow impact higher segment operating earnings lower payments related interest integration expenses restructuring actions proceeds litigation settlement partially offset increased investment working capital higher income tax payments decrease net cash operating activities 2019 primarily due increased investment working capital timing pension contributions relative 2018 higher income tax payments partially offset favorable cash flow impact improved segment operating earnings lower interest acquisitionrelated expenses significant portion abbott’s cash equivalents december 31 2020 reinvested foreign subsidiaries abbott expect reinvestment affect liquidity capital resources due enactment tcja funds needed operations us abbott expect incur significant additional income taxes future repatriate funds abbott funded 400 million 2020 382 million 2019 114 million 2018 defined benefit pension plans abbott expects pension funding approximately 410 million 2021 pension plans abbott expects annual cash flow operating activities continue exceed abbott’s capital expenditures cash dividends debt capital december 31 2020 abbott’s longterm debt rating standard poor’s corporation a3 moody’s abbott expects maintain investment grade rating abbott readily available financial resources including unused lines credit support commercial paper borrowing arrangements provide abbott ability borrow 5 billion unsecured basis lines credit part five year credit agreement revolving credit agreement abbott entered november 12 2020 time abbott also terminated 2018 revolving credit agreement outstanding borrowings 2018 revolving credit agreement time termination borrowings revolving credit agreement mature payable november 12 2025 borrowings revolving credit agreement bear interest abbott’s option based either base rate eurodollar rate plus applicable margin based abbott’s credit ratings 2020 financing activities related issuance repayment longterm debt included following ●on june 24 2020 abbott completed issuance 13 billion aggregate principal amount senior notes consisting 650 million 115 notes due 2028 650 million 140 notes due 2030 ●on september 28 2020 abbott repaid €1140 billion outstanding principal amount 000 notes due 2020 upon maturity repayment equated approximately 13 billion december 31 2020 abbott’s total debt 187 billion 2018 2019 abbott committed reducing debt levels increased part acquisitions st jude medical alere 2017 2018 net repayments totaled approximately 83 billion debt february 24 2019 abbott redeemed 500 million outstanding principal amount 280 notes due 2020 september 2019 board directors authorized early redemption 5 billion outstanding longterm notes bond redemption authorization superseded board’s previous authorization 700 million yet redeemed december 19 2019 abbott redeemed 2850 billion outstanding principal amount 290 notes due 2021 215 billion 2019 5 billion redemption authorization remains available december 31 2020 november 19 2019 abbott’s wholly owned subsidiary abbott ireland financing dac completed euro debt offering €1180 billion longterm debt proceeds equated approximately 13 billion notes guaranteed abbott november 21 2019 abbott borrowed ¥598 billion 5year term loan designated yendenominated loan hedge net investment certain foreign subsidiaries term loan bears interest tibor plus fixed spread interest rate reset quarterly proceeds equated approximately 550 million total 2019 transactions resulted repayment approximately 16 billion debt net borrowings september 2014 board directors authorized repurchase 30 billion abbott’s common shares time program authorized 2014 abbott repurchased 362 million shares cost 1666 billion 2015 104 million shares cost 408 million 2016 19 million shares cost 130 million 2018 63 million shares cost 525 million 2019 16 million shares cost 173 million 2020 total approximately 29 billion october 2019 board directors authorized repurchase 3 billion abbott’s common shares time 2019 authorization addition approximately 100 million unused portion share repurchase program authorized 2014 april 27 2016 board directors authorized issuance sale general corporate purposes 75 million common shares would result proceeds 3 billion shares issued authorization abbott declared dividends 153 per share 2020 compared 132 per share 2019 increase approximately 16 percent dividends paid 2560 billion 2020 compared 2270 billion 2019 yearoveryear change dividends paid primarily reflects impact increase dividend rate working capital working capital 85 billion december 31 2020 48 billion december 31 2019 increase due large part higher level cash equivalents due primarily increase cash generated operating activities repayment current portion long term debt issuance new long term notes 2020 working capital also increased due higher levels accounts receivable inventory partially offset increase accounts payable associated growth business abbott monitors credit worthiness customers establishes allowance reflects current estimate credit losses expected incurred life financial asset abbott considers various factors establishing monitoring adjusting allowance doubtful accounts including aging accounts aging trends historical level chargeoffs specific exposures related particular customers abbott also monitors risk factors forwardlooking information country risk determining credit limits customers establishing adequate allowances capital expenditures capital expenditures 22 billion 2020 16 billion 2019 14 billion 2018 principally upgrading expanding manufacturing research development facilities equipment various segments investments information technology laboratory instruments placed customers 2020 increase capital expenditures primarily reflects building capacity manufacture covid19 diagnostics tests contractual obligations table summarizes abbott’s estimated contractual obligations december 31 2020 apurchase commitments purchases made normal course business meet operational capital expenditure requirements bother longterm liabilities include estimated payments transition tax tcja net applicable credits cnet unrecognized tax benefits totaling approximately 740 million excluded table abbott unable reasonably estimate period cash settlement respective taxing authorities items see note 15 taxes earnings continuing operations details company employee benefit obligations consisting pensions postemployment benefits including medical life excluded table discussion company’s pension postretirement plans including funding matters included note 14 postemployment benefits contingent obligations abbott periodically acquires business product rights abbott agrees pay contingent consideration based attaining certain thresholds based occurrence certain events legislative issues abbott’s primary markets highly competitive subject substantial government regulations throughout world abbott expects debate continue availability method delivery payment health care products services possible predict extent abbott health care industry general might adversely affected factors future complete discussion factors contained item 1 business item 1a risk factors recently issued accounting standards december 2019 fasb issued accounting standards update asu 201912 income taxes topic 740 simplifying accounting income taxes among things eliminates certain exceptions current rules regarding approach intraperiod tax allocations methodology calculating income taxes interim period clarifies accounting transactions result stepup tax basis goodwill standard becomes effective abbott first quarter 2021 adoption new standard material impact abbott’s consolidated financial statements february 2018 fasb issued asu 201802 reclassification certain tax effects accumulated comprehensive income allows companies reclassify stranded tax effects resulting 2017 tax cuts jobs act accumulated comprehensive income loss retained earnings employed business abbott adopted new standard beginning fourth quarter 2018 result adoption new standard approximately 337 million stranded tax effects reclassified accumulated comprehensive income loss earnings employed business october 2016 fasb issued asu 201616 income taxes topic 740 intraentity transfers assets inventory requires recognition income tax effects intercompany sales transfers assets inventory period transfer occurs abbott adopted standard january 1 2018 using modified retrospective approach recorded cumulative catchup adjustment earnings employed business consolidated balance sheet significant june 2016 fasb issued asu 201613 financial instruments credit losses changes methodology used measure credit losses certain financial instruments financial assets including trade receivables new methodology requires recognition allowance reflects current estimate credit losses expected incurred life financial asset abbott adopted standard january 1 2020 recorded cumulative adjustment significant earnings employed business consolidated balance sheet private securities litigation reform act 1995 caution concerning forwardlooking statements safe harbor provisions private securities litigation reform act 1995 abbott cautions investors forwardlooking statements projections made abbott including made document subject risks uncertainties may cause actual results differ materially projected economic competitive governmental technological factors may affect abbott’s operations discussed item 1a risk factors item 7a item 7 managements discussion analysis financial condition results operations incorporated herein reference managements discussion analysis financial condition results operations years 1997 1996 1995 found section captioned financial review 1997 annual report item 7a item 7 managements discussion analysis financial condition results operations financial review abbotts revenues derived primarily sale broad line health care products manufactured abbott facilities sold customers shortterm receivable arrangements patent protection licenses technological performance features inclusion abbotts products contract pharmacy benefit manager impact products sold price controls competition rebates impact net selling prices products foreign currency translation impacts measurement net sales abbotts primary products prescription pharmaceuticals diagnostic testing products nutritional hospital products acquisitions regulatory issues legal issues impacted abbotts sales costs financial position last three years 2001 abbott acquired knoll pharmaceutical business basf 72 billion financed purchase debt knoll business increased scale abbotts pharmaceutical business added significant commercial research development capabilities also last three years abbott financed debt cash acquisitions several businesses technologies targeted deliver sales growth result acquisitions abbott recorded goodwill intangibles 70 billion net amortization acquired inprocess research development 15 billion portion abbotts diagnostic business subject product distribution restrictions due regulatory review 1999 net sales costs impacted segment result restrictions late 2003 abbott informed may distribute products impacted restrictions also 2003 abbott settled portion industrywide investigation enteral nutritional business 614 million abbotts short longterm debt totaled 59 billion december 31 2003 largely reflecting acquisitions described abbott two acquisitions pending aggregate purchase amounts 16 billion financed combination operating cash flow domestic commercial paper borrowings longterm debt december 31 2003 abbotts longterm debt rating aa standard poors a1 moodys investors service 2003 abbott announced would distribute shares core hospital products business hospira inc abbott shareholders taxfree spinoff hospira business comprised large portion hospital products segment small portion international segment annual sales hospira approximately 24 billion subsequent spinoff historical results hospira presented discontinued operations distribution expected occur first half 2004 abbott focus several key initiatives pharmaceutical products group includes pharmaceutical products international segments abbotts penetration rheumatoid arthritis market continue global launch humira abbott expects worldwide sales humira exceed 700 million 2004 pharmaceutical research development efforts continue focused five therapeutic areas significant portion development expenditures allocated new humira indications abbott also realigning pharmaceutical manufacturing operations global structure create worldclass supply chain better aligns commercial research manufacturing organizations medical products group includes diagnostic products hospital products ross products segments hospira spinoff projected take place first half 2004 2003 focus within medical products group repositioning various businesses higher growth focus 2004 executing major initiatives already way including increasing consumer presence ross nutritional business integrating recent acquisitions positioning vascular molecular blood glucose monitoring businesses deliver strong sales growth also 2004 following successful inspection lake county diagnostic facility stabilization reacceleration sales growth immunoassay business expected accomplished focus nearterm product launches commercial execution critical accounting policies litigation abbott accounts litigation losses accordance statement financial accounting standards sfas 5 accounting contingencies sfas 5 loss contingency provisions recorded probable losses managements best estimate loss best estimate cannot made minimum loss contingency amount recorded estimates often initially developed substantially earlier ultimate loss known estimates refined accounting period additional information becomes known accordingly abbott often initially unable develop best estimate loss therefore minimum amount could zero recorded information becomes known either minimum loss amount increased resulting additional loss provisions best estimate made also resulting additional loss provisions occasionally best estimate amount changed lower amount events result expectation favorable outcome previously expected legal proceedings environmental exposures abbott estimates range possible loss approximately 125 million 200 million abbott recorded reserves approximately 140 million proceedings exposures reserves represent managements best estimate probable loss defined sfas 5 sales rebates large part abbotts domestic businesses sell products distributors resell products end customers abbott must provide rebates members buying groups purchase abbotts distributors sell customers prices determined contract abbott customer state agencies administer various programs federal medicaid medicare programs special supplemental food program women infants children wic rebate amounts usually based upon volume purchases reference specific price product factors complicate rebate calculations identification products sold subject rebate customer government price terms apply estimated lag time sale payment rebate using historical trends adjusted current changes abbott estimates amount rebate paid records liability reduction gross sales abbott records sale product settlement rebate generally occurs three 24 months sale abbott regularly analyzes historical rebate trends makes adjustments recorded reserves changes trends terms rebate programs rebates charged gross sales 2003 amounted approximately 26 billion 283 percent based gross sales approximately 92 billion onepercentage point increase percentage rebates related gross sales would decrease net sales operating income approximately 92 million income taxes abbott operates numerous countries income tax returns subject audits adjustments abbott operates globally nature audit items often complex objectives government auditors result tax income one country company employs internal external tax professionals minimize audit adjustment amounts possible part abbotts calculation provision taxes earnings abbott records amount expects incur result audits united states abbotts income tax returns years 1992 open pension postemployment benefits abbott offers pension benefits postemployment health care many employees abbott engages outside actuaries calculate obligations costs programs assistance outside actuaries abbott must develop longterm assumptions significant health care cost trend rate discount rate expected return plan assets difference assumed rates actual rates known decades significant relation obligations annual cost recorded programs differences expected longterm return plan assets actual annual return amortized fiveyear period note 5 consolidated financial statements describes impact onepercentage point change health care cost trend rate however certainty change would limited one percentage point 2003 2002 abbott recorded minimum pension liability adjustments 155 million 343 million respectively accumulated benefit obligations certain domestic international defined benefit plans exceeded market value plans assets resulted charges accumulated comprehensive income loss 99 million 203 million net taxes 2003 2002 respectively weighted average discount rate used december 31 2003 determining accumulated benefit obligations defined benefit plans whose accumulated benefit obligations excess plan assets 59 percent onepercentage point reduction discount rate december 31 2003 would result increase minimum pension liability adjustments increase charge accumulated comprehensive income loss approximately 780 million 500 million respectively valuation intangible assets abbott acquired continues acquire significant intangible assets abbott values records assets yet regulatory approval alternative uses expensed acquired inprocess research development regulatory approval capitalized transactions involving purchase sale intangible assets occur frequency companies health care field valuations usually based discounted cash flow analysis abbott uses discounted cash flow model value acquired intangible assets discounted cash flow model requires assumptions timing amount future net cash inflows risk cost capital terminal values factors significantly affect value intangible asset abbott engages independent valuation experts review abbotts critical assumptions calculations significant acquisitions intangibles abbott reviews intangible assets impairment quarter using undiscounted net cash flows approach undiscounted cash flows intangible asset less carrying value intangible asset intangible asset written fair value usually discounted cash flow amount cash flows cannot identified individual asset review applied lowest group level cash flows identifiable goodwill reviewed impairment annually event could result impairment goodwill occurs last three years increase acquired intangible assets net amortization goodwill amounted approximately 32 billion 38 billion respectively amortization intangible assets amounted approximately 363 million 2003 results operations sales following table details components sales growth segment last three years 2001 pharmaceutical products international segment sales favorably impacted compared 2000 acquisition pharmaceutical business basf comparison product group sales segment follows dollars millions sales new products 2003 estimated approximately 940 million led pharmaceutical products hospital products international segments sales increases pharmaceutical products segment antiinfectives 2003 cardiology three years represent primarily volume increases effect relatively weaker us dollar 2003 favorably impacted sales diagnostic products international segments sales increase 2003 pediatric nutritionals ross products segment due increased penetration similac advance well incremental sales related abbotts award wic contract california acquisition pharmaceutical business basf 2001 favorably impacted diabetesmetabolism cardiology product sales pharmaceutical products segment pharmaceuticals product sales international segment 2001 abbott periodically sold product rights nonstrategic products recorded related gains net sales accordance abbotts revenue recognition policies discussed note 1 gains recorded net sales 241 million 2003 164 million 2002 44 million 2001 december 31 2002 fda approved humira treatment rheumatoid arthritis september 2003 european union approved humira us sales humira reported immunology product sales 246 million 2003 international sales humira 34 million 2003 worldwide sales humira forecasted 700 million 2004 expiration licenses patent protection affect future revenues operating income abbott significant patent expirations activities next three years follows original us compound patent clarithromycin expires 2005 approximately 61 us sales clarithromycin 2003 made form covered patents expire 2005 us sales clarithromycin 538 million 2003 abbott markets tricor us license agreement patents covering tricor challenged competitors abbott vigorously defending patents us sales tricor 566 million 2003 abbotts nda synthroid protected patent approved fda 2002 fda studying conditions competitors may rely abbotts nda market competitive product could grant approval generic products time us sales synthroid 565 million 2003 operating earnings gross profit margins 519 percent net sales 2003 2002 compared 524 percent 2001 gross profit margin 2003 impacted charge 88 million impairment assets expenses result lower sales forecast abbokinase partially offset favorable product mix resulting mainly increased sales pharmaceutical products segment gross profit margin 2002 included effects fda consent decree charge restructuring charges discussed unfavorable product mix partially offset absence goodwill amortization 2002 decrease gross profit margin 2001 due primarily increased goodwill intangibles amortization integration charges result acquisition pharmaceutical business basf gross profit margins years also affected productivity improvements higher project expenses new products higher manufacturing capacity costs anticipated unit growth effects inflation competitive pricing pressures us states receive price rebates manufacturers infant formula federally subsidized special supplemental food program women infants children also rebate programs pharmaceutical products rebate programs continue negative effect gross profit margins ross pharmaceutical products segments addition pricing pressures unfavorably impacted gross profit margins ross products segment gross profit margins pharmaceutical products segment favorably impacted 2003 2001 favorable product mix unfavorably impacted 2002 unfavorable product mix addition gross profit margin 2003 pharmaceutical products segment unfavorably impacted higher costs copromoted products higher manufacturing costs gross profit margins diagnostic products segment impacted effect consent decree three years discussed terms 1999 consent decree us government abbott prohibited manufacturing certain diagnostic products sale us lake county ill manufacturing facilities found substantial conformity food drug administrations fda quality system regulation december 2003 fda found facilities substantial conformity abbott start process manufacturing impacted products sale us connection consent decree abbott recorded remediation costs payments government including pretax charge 129 million 2002 research development expense excluding acquired inprocess research development 17 billion 2003 16 billion 2002 2001 represented 88 percent net sales 2003 2002 compared 97 percent net sales 2001 decline research development percentage sales 2003 2002 compared 2001 due part decline spending phase iii clinical trials 2003 2002 majority research development expenditures concentrated pharmaceutical products selling general administrative expenses increased 269 percent 2003 compared increases 65 percent 2002 290 percent 2001 2003 abbott recorded selling general administrative expense pretax charge 614 million related settlement ross enteral nutritional investigation charge increased selling general administration expenses 154 percent 2002 increases selling general administrative expense excluding charge investigation due primarily increased selling marketing support new existing products including accelerated spending launch humira due earlierthanexpected fda approval well spending marketed pharmaceutical products increase selling general administration 2001 reflects acquisition pharmaceutical business basf 2001 increases three years also reflect inflation additional selling marketing support primarily pharmaceutical products international hospital products segments net interest expense net interest expense decreased 2003 2002 due lower level borrowings lower interest rates income tap pharmaceutical products inc joint venture abbotts income tap pharmaceutical products inc tap joint venture lower 2003 reflecting decreased sales higher level selling marketing spending 2001 reflecting settlement us governments investigation taps marketing lupron discussed note 9 income expense net income expense net 2002 2001 includes charges 211 million 99 million respectively result temporary declines market values certain equity securities taxes earnings effective income tax rates 263 percent 2003 240 percent 2002 177 percent 2001 effective tax rate 2003 includes effect charge settlement ross enteral nutritional investigation charges acquired inprocess research development effect substantially nondeductible charges 2003 increase effective tax rate approximately 23 percentage points 2001 tax rate lower 2003 2002 tax rates due primarily effect benefit tax exemptions several taxing jurisdictions relation abbotts lower pretax income 2001 compared 2003 2002 effect decreasing effective tax rate 83 percentage points 2002 tax rate lower 2001 tax rate excluding effects acquisitions pharmaceutical business basf vysis inc 2001 due part domestic dividend exclusion applicable increased earnings tap pharmaceutical products inc abbott expects apply annual effective rate 245 percent 2004 due part comparatively lower benefit domestic dividend exclusion compared abbotts total pretax income acquired inprocess research development relating pending 2004 business acquisitions discussed tax effected discrete tax rates spinoff abbotts core hospital products business august 2003 abbott announced plan create separate publicly traded company existing core hospital products business new company hospira inc include operations relating manufacture sale hospital products including specialty injectable pharmaceuticals medication delivery systems critical care devices injectable pharmaceutical contract manufacturing hospira expected spun abbott first half 2004 pending final approval distribution abbotts board directors include abbotts hospital products segment portions abbotts international segment shares hospiras common stock distributed abbott shareholders taxfree distribution prorata basis abbott received ruling internal revenue service spinoff qualifies taxfree distribution hospira borrow assume approximately 750 million debt proceeds retained abbott pay domestic commercial paper borrowings hospira filed preliminary form 10 securities exchange commission includes 2002 pro forma annual net sales approximately 24 billion pro forma annual earnings income taxes approximately 350 million annual net cash flow operating investing activities approximately 340 million subsequent spinoff financial results hospira presented discontinued operations abbotts financial statements business combinations technology acquisitions 2003 abbott acquired zoneperfect nutritional company marketer healthy nutritious products active people approximately 160 million cash integrated vascular systems inc developer novel vessel closure technology approximately 65 million cash spinal concepts inc marketer spinal fixation products used treatment spinal disorders diseases injuries approximately 166 million cash plus additional milestone payments 40 million agreed upon targets met 2003 abbott also acquired assets jomed nvs coronary peripheral interventional business approximately 68 million cash acquisitions resulted charge approximately 100 million acquired inprocess research development intangible assets approximately 222 million nontax deductible goodwill approximately 182 million acquired intangible assets primarily product technology amortized 9 25 years average approximately 16 years acquisitions taken place january 1 previous year consolidated sales income would significantly different reported amounts 2002 abbott acquired cardiovascular stent business biocompatibles international plc certain cardiovascular stent technology rights medtronic inc addition abbott acquired additional 288 percent issued common shares hokuriku seiyaku co ltd resulting abbott owning substantially common shares hokuriku seiyaku co ltd aggregate cash purchase price 586 million strategic business technology acquisitions resulted pretax charge acquired inprocess research development approximately 108 million intangible assets approximately 145 million nontax deductible goodwill approximately 257 million acquired intangible assets primarily product technology amortized 4 13 years average approximately 8 years acquisitions taken place january 1 previous year consolidated sales income would significantly different reported amounts march 2 2001 abbott acquired cash pharmaceutical business basf included global operations knoll pharmaceuticals approximately 72 billion acquisition financed primarily short longterm debt accounted purchase method accounting acquisition cost allocated intangible assets 35 billion goodwill 24 billion acquired inprocess research development 12 billion net tangible assets 01 billion based independent appraisal fair values product rights marketed products amortized straightline basis 10 16 years average 13 years goodwill amortized 2001 straightline basis 20 years acquired inprocess research development charged expense 2001 net tangible assets acquired consist primarily property equipment approximately 630 million trade accounts receivable approximately 402 million inventories approximately 275 million net assumed liabilities primarily trade accounts payable liabilities prior date acquisition abbott began plan integration restructuring business 2001 2002 abbott formally approved several restructuring plans certain costs implementing formally approved plans included goodwill acquisition taken place january 1 2000 pro forma consolidated sales 2001 would 167 billion pro forma net income would 23 billion pro forma diluted earnings per share would 146 2001 abbott acquired cash outstanding common stock vysis inc leading genomic disease management company cash acquisition cost approximately 362 million 162 million allocated developed technology amortized 15 years 143 million charged earnings 2001 acquired inprocess research development remaining acquisition cost allocated net tangible assets goodwill acquisition taken place january 1 previous year consolidated sales income would significantly different reported amounts january 2004 abbott announced entered agreement acquire capital stock therasense inc leader development manufacturing marketing blood glucose selfmonitoring systems 12 billion cash completion acquisition subject approval holders majority therasense common stock regulatory approvals customary closing conditions expected close second quarter 2004 addition january 2004 abbott acquired approximately 392 million cash shares istat corporation leading manufacturer pointofcare diagnostic systems blood analysis abbott already 2004 abbott expects record charge approximately 171 million acquired inprocess research development amount subject final appraisal approximately 115 million restructuring integration costs connection acquisitions financial condition cash flow net cash operating activities amounted 37 billion 42 billion 36 billion 2003 2002 2001 respectively net cash operating activities 2003 lower 2002 due part payment ross enteral nutritional settlement discussed 2003 2002 abbott funded 200 million 106 million respectively main domestic pension plan funding plan 2004 expected 250 million 300 million abbott expects pension funding main domestic pension plan next three five years 200 million 400 million annually acquisitions therasense istat 2004 financed combination operating cash flow domestic commercial paper borrowings longterm debt addition 1650 billion longterm debt due paid july 2004 abbott fund operating cash flow domestic commercial paper borrowings abbott expects retain approximately 750 million proceeds borrowings assumed hospira result spinoff abbott intends use proceeds reduce domestic commercial paper borrowings debt capital december 31 2003 abbotts longterm debt rating aa standard poors a1 moodys investors service abbott readily available financial resources including unused lines credit 30 billion support domestic commercial paper borrowing arrangements fourth quarter 2003 abbott issued longterm yen denominated notes amount approximately 926 million mature 2007 2013 proceeds notes used pay shortterm yen denominated borrowings reduce domestic commercial paper borrowings registration statement filed securities exchange commission september 2003 abbott issued 500 million longterm debt february 2004 abbott may issue additional 10 billion future form debt registration statement june 2000 board directors authorized purchase 25 million shares abbotts common stock 2000 2001 abbott purchased 106 million shares authorization 482 million common stock purchases temporarily suspended january 2001 following abbotts announced acquisition pharmaceutical business basf 2003 abbott announced plans purchase remaining 144 million shares time open market purchased 27 million common shares cost 98 million december 31 2003 additional 117 million shares may purchased future periods september 2000 authorization board directors first quarter 2004 abbott purchased common stock open market authorization working capital december 31 2003 2002 2001 working capital 27 billion 21 billion 492 million respectively increase working capital 2003 2002 versus 2001 primarily due operating cash flows used decrease shortterm domestic commercial paper borrowings incurred result acquisition pharmaceutical business basf 2001 capital expenditures capital expenditures 12 billion 2003 13 billion 2002 12 billion 2001 principally upgrading expanding manufacturing research development investments information technology administrative support facilities segments laboratory instruments hospital equipment placed customers level capital expenditures expected lower 2004 following spinoff hospira increased proportion capital expenditures dedicated international pharmaceutical products segments restructuring plans millions dollars 2002 discussed note 10 abbott announced restructuring plans align abbotts global manufacturing operations scientific focus achieve greater operating efficiencies diagnostic products international segments 2002 abbott recorded pretax charge earnings 174 reflecting impairment manufacturing facilities assets employee severance charges approximately 83 classified cost products sold 5 research development 86 selling general administrative restructuring plans resulted elimination approximately 2100 net positions employee groups covered restructuring plans included manufacturing research development sales administrativerelated functions accrued restructuring reserve balance december 31 2003 approximately 23 relates primarily employee severance obligations local laws must paid time 2001 2002 discussed note 10 abbott implemented restructuring plans related operations acquired pharmaceutical business basf closing one abbotts manufacturing operations 2001 total 207 restructuring charges 156 recorded goodwill associated acquisition pharmaceutical business basf amount expensed approximately 36 classified cost products sold 2 research development 13 selling general administrative employeerelated costs primarily severance pay relocation former basf employees outplacement services restructuring plans resulted elimination approximately 2400 positions employee groups covered restructuring plans included manufacturing research development sales administrativerelated functions 2002 59 restructuring charge recorded goodwill associated acquisition pharmaceutical business basf accrued restructuring reserve balance december 31 2003 approximately 11 relates primarily employee severance obligations local laws must paid time contractual obligations millions dollars abbott material exposures offbalance sheet arrangements special purpose entities activities include nonexchangetraded contracts accounted fair value abbott periodically entered agreements ordinary course business assignment product rights companies resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote addition abbott periodically acquires small companies abbott agrees pay contingent consideration based attaining certain thresholds following table summarizes abbotts estimated contractual obligations 1purchase commitments purchases made normal course business meet operational capital expenditure requirements 2excludes approximately 19 billion longterm liabilities related primarily postemployment benefit plans see note 5 disclosures relating plans recently issued accounting standards june 2001 financial accounting standards board fasb issued statement financial accounting standards sfas 143 accounting asset retirement obligations effective financial statements issued fiscal years beginning june 15 2002 november 2002 fasb issued interpretation 45 guarantors accounting disclosure requirements guarantees including indirect guarantees indebtedness others interpretation requires recognition certain guarantees liabilities fair market value effective guarantees issued modified december 31 2002 adoption provisions statement interpretation material effect financial statements abbott june 2002 fasb issued sfas 146 accounting costs associated exit disposal activities sfas 146 requires liability costs associated exit disposal activity recognized measured initially fair value liability incurred sfas 146 effective exit disposal activities initiated december 31 2002 material effect financial statements abbott accounted 2002 restructuring plans accordance emerging issues task force eitf issue 943 accordingly charged income 2002 appropriate exit costs plans approved management december 31 2002 accounting restructuring plans sfas 146 would resulted expenses recorded 2002 recorded 2003 however significant amount expenses would charged income 2002 either eitf 943 sfas 146 legislative issues december 8 2003 president united states signed medicare prescription drug improvement modernization act 2003 among provisions act provision granting subsidy sponsors retirement medical plans prescription drug coverage benefit least actuarially equivalent medicare part benefit financial accounting standards board issued final rules specifying sponsors account subsidy abbott estimated expected favorable impact legislation retiree medical obligations costs therefore reflected effect legislation financial statements final rules issued financial accounting standards board could require companies including abbott retroactively change amounts included accompanying consolidated financial statements abbotts primary markets highly competitive subject substantial government regulation abbott expects debate continue federal state levels availability method delivery payment health care products services additional legislation enacted could effect reducing prices reducing rate price increases medical products services international operations also subject significant degree government regulation possible predict extent abbott health care industry general might adversely affected factors future private securities litigation reform act 1995 caution concerning forwardlooking statements safe harbor provisions private securities litigation reform act 1995 abbott cautions investors forwardlooking statements projections made abbott including made document subject risks uncertainties may cause actual results differ materially projected economic competitive governmental technological factors may affect abbotts operations discussed exhibit 991 annual report form 10k item 7a item 7 managements discussion analysis financial condition results operations financial review abbotts revenues derived primarily sale broad line health care products shortterm receivable arrangements patent protection licenses technological performance features inclusion abbotts products contract pharmacy benefit manager impact products sold price controls competition rebates impact net selling prices products foreign currency translation impacts measurement net sales abbotts primary products prescription pharmaceuticals nutritional products diagnostic testing products abbott also owns 50 percent tap pharmaceutical products inc tap abbott accounts equity method worldwide launch humira spinoff hospira integration restructuring activities loss patent protection products impacted abbotts sales costs financial position last three years subsequent abbotts 2001 acquisition knoll pharmaceutical business significantly increased scale abbotts pharmaceutical business abbott focused reorganizing growing global pharmaceutical business abbott established global research development organization global manufacturing distribution organization serve domestic international commercial pharmaceutical operations pharmaceutical research development focused five therapeutic areas immunology oncology neuroscience diabetesmetabolism viral diseases us commercial pharmaceutical operations focused mainly primary care specialty pharmaceuticals 2003 abbott began worldwide launch humira increased worldwide sales 14 billion 2005 compared 852 million 2004 2005 abbott boehringer ingelheim bi amended agreement whereby abbott distributed promoted bi products effective january 1 2006 abbott longer distribute bi products receive residual commissions abbotts gross margins bi products prior agreement effect december 31 2005 substantially lower average gross margin 2005 sales bi products 23 billion increased generic competition resulted us sales synthroid declining 22 percent 2005 holding 36 percent market share 2004 abbott separated diagnostic segment four separate divisions immunoassayhematology diabetes care molecular point care better focus commercial scientific opportunities early 2004 abbott acquired therasense 12 billion began integrate abbotts diabetes care business late 2003 abbott informed fda may distribute immunoassay products us impacted regulatory restrictions imposed 1999 net sales profits business declined restricted period stabilized 2004 2005 abbott diagnostics launched 50 new products ross segment 2003 abbott settled portion industrywide investigation enteral nutritional business 614 million 2004 abbott completed spinoff hospira abbotts former hospital products business annual sales hospira approximately 24 billion part spinoff hospira assumed 700 million debt historical operating cash flow results hospira presented discontinued operations hospira contractually obligated purchase international hospital assets operations included spinoff legal transfer certain remaining operations assets net liabilities outside united states expected occur first half 2006 early 2006 abbott reached agreement acquire guidants vascular intervention endovascular solutions businesses subject boston scientifics acquisition guidant guidants annual revenues businesses approximately 1 billion purchase price would 41 billion plus contingent milestone payments 500 million taps contribution abbotts earnings declined 2004 2003 part decline due increased competition prevacid taps largest selling product due market contraction prescription proton pump inhibitors 2004 tap recorded additional litigation reserves 125 million anticipated legal settlement abbotts short longterm debt totaled 66 billion december 31 2005 largely incurred finance acquisitions operating cash flows excess capital expenditures cash dividends allowed abbott reduce debt fund acquisitions last three years december 31 2005 abbotts longterm debt rating aa standard poors a1 moodys investors service 2006 abbott focus several key initiatives global pharmaceutical business abbott launch newly approved indications humira abbott also focus appropriate market support synthroid became subject generic us competition mid2004 sevoflurane became subject generic competition december 2005 tap received approvable letter fda febuxostat contingent upon fda approval tap plans launch febuxostat 2006 pharmaceutical research development efforts continue focused five therapeutic areas noted significant portion development expenditures allocated new humira indications abbott expects submit additional pharmaceutical regulatory filings 2006 immunoassay business attention focused improving revenue growth capitalizing recent product launches including us launch blood screening system prism launching additional products commercial execution existing broad product portfolio hematology business attention focused continued launch celldyn sapphire analyzers diabetes care abbott continue launch freestyle connect abbott anticipates approval freestyle navigator 2006 upon closure acquisition guidants vascular business planning integration would key activity vascular business focus business also 2005 launch xact carotid stent emboshield embolic protection system projected approval zomaxx abbotts drugeluting stent europe greater focus consumer marketing ross maximize strength core brands develop healthyliving market presence business segments abbott focus developing acquiring differentiated technologies higher growth segments markets critical accounting policies sales rebates approximately 40 percent abbotts consolidated gross revenues subject various forms rebates allowances abbott records reductions revenues time sale rebates allowances two abbotts domestic segments pharmaceutical products segment ross products segment abbott provides rebates pharmacy benefit management companies state agencies administer federal medicaid program special supplemental food program women infants children wic wholesalers group purchasing organizations government agencies private entities rebate amounts usually based upon volume purchases using contractual statutory prices product factors used rebate calculations include identification products sold subject rebate customer government agency price terms apply estimated lag time sale payment rebate using historical trends adjusted current changes abbott estimates amount rebate paid records liability reduction gross sales abbott records sale product settlement rebate generally occurs two 24 months sale abbott regularly analyzes historical rebate trends makes adjustments reserves changes trends terms rebate programs rebates chargebacks charged gross sales 2005 2004 2003 amounted approximately 25 billion 24 billion 18 billion respectively 229 percent 256 percent 227 percent respectively based gross sales approximately 109 billion 93 billion 80 billion respectively subject rebate onepercentage point increase percentage rebates related gross sales would decrease net sales operating earnings approximately 109 million 2005 allowances charged gross sales approximately 284 million 233 million 191 million cash discounts 2005 2004 2003 respectively 162 million 163 million 171 million returns 2005 2004 2003 respectively cash discounts known within 15 30 days sale therefore reliably estimated returns reliably estimated abbotts historical returns low sales returns terms sales terms remained relatively unchanged several periods management analyzes adequacy ending accrual balances quarter ross nutritional business management uses internal external data available estimate level inventory distribution channel management internally estimates inventory retail channel retail shelf third party continuously measures time retail shelf relatively significant portion time inventory distribution channel except transition period change supplier wic business state inventory distribution channel vary substantially management also estimates states processing lag time based claims data addition internal processing time factor estimating accrual wic business state sale made determining factor applicable price reliably estimable estimates required amount wic sales within state abbott wic business external data sources utilized estimate participant data us department agriculture usda administers wic program participant data states internally administered market surveys usda making data available many years internal data includes historical redemption rates pricing data december 31 2005 ross exclusive wic business 11 states domestic pharmaceutical business significant charges gross sales medicaid rebates pharmacy benefit manager rebates wholesaler chargebacks order evaluate adequacy ending accrual balances management uses internal external estimates level inventory distribution channel rebate claims processing lag time external data sources used estimate inventory distribution channel include inventory levels periodically reported wholesalers third party market data purchased abbott management estimates processing lag time based periodic sampling claims data estimate price rebate percentage systems calculations used track sales product customer estimate contractual statutory price abbotts systems calculations developed time rebates become significant abbott believes reliable following table analysis four largest rebate accruals comprise approximately 80 percent consolidated rebate provisions charged revenues 2005 remaining rebate provisions charged gross sales significant determination operating earnings dollars thousands adjustments prior years rebate accruals material abbott employs various techniques verify accuracy claims submitted possible works organizations submitting claims gain insight changes might affect rebate amounts medicaid government agency programs calculation rebate involves interpretations relevant regulations subject challenge change interpretation income taxes abbott operates numerous countries income tax returns subject audits adjustments abbott operates globally nature audit items often complex objectives government auditors result tax income one country abbott employs internal external tax professionals minimize audit adjustment amounts possible part abbotts calculation provision taxes earnings abbott records amount expects incur result audits quarter abbott reviews exposures accordance statement financial accounting standards sfas 5 accounting contingencies us abbotts federal income tax returns 2000 settled income tax returns years 2000 open except taxes dividends remitted american jobs creation act 2004 abbott record deferred income taxes earnings reinvested indefinitely foreign subsidiaries pension postemployment benefits abbott offers pension benefits postemployment health care many employees abbott engages outside actuaries calculate obligations costs programs assistance outside actuaries abbott must develop longterm assumptions significant health care cost trend rate discount rate expected return plan assets discount rate used measure liabilities december 31 2005 determined based highquality fixed income investments match duration expected retiree benefits prior december 31 2005 discount rate determined reference composite corporate aa bond index health care cost trend rate represents abbotts expected annual rates change cost health care benefits forward projection health care costs measurement date difference assumed rates actual rates known decades significant relation obligations annual cost recorded programs recent low interest rates significantly increased unrecognized actuarial losses plans december 31 2005 unrecognized actuarial losses abbotts defined benefit plans medical dental plans 15 billion 698 million respectively unrecognized actuarial losses gains amortized remaining service periods employees corridor method accordance rules accounting postemployment benefits differences expected longterm return plan assets actual annual return amortized fiveyear period footnote 4 consolidated financial statements describes impact onepercentage point change health care cost trend rate however certainty change would limited one percentage point 2005 abbott reversed previously recorded minimum pension liability adjustments 562 million assets certain defined benefit plans excess accumulated benefit obligations due primarily plan contributions 2005 resulted credit accumulated comprehensive income loss 346 million net taxes 2004 2003 abbott recorded minimum pension liability adjustments 120 million 155 million respectively accumulated benefit obligations certain defined benefit plans exceeded market value plans assets resulted charges accumulated comprehensive income loss 76 million 99 million net taxes 2004 2003 respectively valuation intangible assets abbott acquired continues acquire significant intangible assets abbott records fair value assets yet regulatory approval alternative uses expensed acquired inprocess research development regulatory approval capitalized transactions involving purchase sale intangible assets occur frequency companies health care field valuations usually based discounted cash flow analysis using market participant assumptions abbott uses discounted cash flow model value acquired intangible assets discounted cash flow model requires assumptions timing amount future net cash inflows risk cost capital terminal values factors significantly affect value intangible asset abbott engages independent valuation experts review abbotts critical assumptions calculations significant acquisitions intangibles abbott reviews intangible assets impairment quarter using undiscounted net cash flows approach undiscounted cash flows intangible asset less carrying value intangible asset intangible asset written fair value usually discounted cash flow amount cash flows cannot identified individual asset review applied lowest group level cash flows identifiable goodwill reviewed impairment annually event could result impairment goodwill occurs december 31 2005 goodwill intangibles amounted 52 billion 47 billion respectively amortization expense intangible assets amounted approximately 490 million 2005 impairments goodwill 2005 2004 2003 litigation abbott accounts litigation losses accordance sfas 5 accounting contingencies sfas 5 loss contingency provisions recorded probable losses managements best estimate loss best estimate cannot made minimum loss contingency amount recorded estimates often initially developed substantially earlier ultimate loss known estimates refined accounting period additional information becomes known accordingly abbott often initially unable develop best estimate loss therefore minimum amount could zero recorded information becomes known either minimum loss amount increased resulting additional loss provisions best estimate made also resulting additional loss provisions occasionally best estimate amount changed lower amount events result expectation favorable outcome previously expected legal proceedings environmental exposures abbott estimates range possible loss approximately 15 million 60 million reserves approximately 35 million recorded december 31 2005 proceedings exposures reserves represent managements best estimate probable loss defined sfas 5 stock compensation december 31 2005 abbott measured compensation cost using intrinsic valuebased method accounting stock options replacement stock options granted employees disclosed impact fair value method footnotes consolidated financial statements 2006 abbott adopt sfas 123 revised 2004 sharebased payment requires fair value recorded results operations since market trading employee stock options management must use fair value method certainty results fair value method would value employee stock options would traded cash fair value methods require management make several assumptions significant selection fair value model stock price volatility average life option abbott began preparing adoption new standard 2004 abbott readily available grantbygrant historical activity several years option administration system using data abbott compared valuation results using binomial method blackscholes method abbott using found results comparable abbott evaluated whether certain holders stock options exercised options differently holders find differentiating pattern among holders abbott studied implied volatility concluded combination historical implied volatility better measure historical volatility alone abbott also quantified additional paid capital amount available use determining tax effects early exercise measurement tax expense abbott use modified prospective method adoption method prior years financial results include impact recording stock options using fair value footnote 10 quantifies effect application fair value 2005 prior awards based upon valuation stock options granted 2006 annual grant comprise majority grant activity year abbott estimates impact 2006 change stock compensation expense diluted earnings per share approximately 015 includes 014 per diluted share impact expensing fair value stock options 2006 expense stock compensation dependent number options granted future terms awards fair value therefore effect diluted earnings per share could change results operations sales following table details components sales growth segment last three years comparison product group sales segment follows percentage changes versus prior year based unrounded numbers sales pharmaceutical products segment mobic tricor omnicef flomax favorably impacted primary care products sales increased sales humira favorably impacted specialty products sales us sales synthroid subject generic competition 498 million 637 million 565 million 2005 2004 2003 respectively increased sales humira kaletra also favorably impacted pharmaceuticals sales international segment 2005 2004 worldwide sales humira totaled 14 billion 2005 852 million 2004 280 million 2003 diagnostic products international segment products sales favorably impacted 2005 2004 2003 effect relatively weaker us dollar diabetes care product sales diagnostic products segment favorably impacted acquisition therasense second quarter 2004 addition adult nutritionals product sales ross products segment favorably impacted acquisitions zoneperfect third quarter 2003 eas fourth quarter 2004 decrease sales pediatric nutritionals 2005 primarily due overall infant nutritionals nonwic category decline competitive share loss abbott periodically sold product rights nonstrategic products recorded related gains net sales accordance abbotts revenue recognition policies discussed footnote 1 consolidated financial statements related net sales 177 million 2005 144 million 2004 241 million 2003 sales new products 2005 estimated approximately 16 billion led humira pharmaceutical products international segments incremental sales approximately 260 million 2004 acquisitions therasense eas expiration licenses patent protection generic competition affect future revenues operating income abbott significant ongoing generic activities significant patent license expirations next three years follows us composition matter patent depakote expires 2008 pharmaceutical products segments sales depakote 2005 1 billion pharmaceutical products segment agreement boehringer ingelheim copromote distribute three products 2005 abbott boehringer ingelheim amended agreement effective january 1 2006 abbott longer distributes records sales boehringer ingelheim products continue copromote one product micardis march 31 2006 receive residual commissions boehringer ingelheims sales three products amount pretax income amended agreement expected previous agreement net sales boehringer ingelheim products 2005 approximately 23 billion second quarter 2004 fda granted approval generic competition synthroid generic competitors entered market 2004 2005 clarithromycin became subject generic competition several european markets international segment sales clarithromycin 2005 760 million us pharmaceutical products segment markets clarithromycin two forms immediate release extended release forms covered additional noncomposition matter patents may 2005 composition matter patent clarithromycin us expired several immediate release generic products launched competitors manufacturers extended release forms clarithromycin enjoined entering us market due abbotts noncomposition matter patents us sales clarithromycin 2005 2004 306 million 458 million respectively may generic competition clarithromycin us countries 2006 depending results legal proceedings related patents upon december 2005 expiration court order related licenses sevoflurane baxter permitted market competitive form sevoflurane addition sevoflurane subject generic competition competitors isolated markets outside us generic competition international markets possible worldwide sales sevoflurane 2005 874 million composition matter patent omnicef expires may 2007 abbott holds additional noncomposition matter patent expires 2011 pharmaceutical products segment sales omnicef 2005 495 million mid 2006 ross segments copromotion agreement synagis terminate us copromotion revenues 231 million 2005 abbott continue market synagis market followon product numax select international markets receive residual commissions us sales synagis operating earnings gross profit margins 524 percent net sales 2005 549 percent 2004 550 percent 2003 decrease gross profit margin 2005 due unfavorable product mix primarily result increased sales boehringer ingelheim products lower margins products pharmaceutical products segment restructuring charges discussed reduced gross profit margin 2005 08 percentage points gross profit margin 2004 impacted favorable mix effect exchange gross profit margin unfavorable product mix primarily increased sales lower margin boehringer ingelheim products discussed pharmaceutical products segment gross profit margin 2003 impacted charge 88 million impairment assets expenses result lower sales forecast abbokinase partially offset favorable product mix resulting mainly increased sales pharmaceutical products segment gross profit margins years also affected productivity improvements higher project expenses new products higher manufacturing capacity costs anticipated unit growth effects inflation competitive pricing pressures us states receive price rebates manufacturers infant formula federally subsidized special supplemental food program women infants children also rebate programs pharmaceutical products rebate programs continue negative effect gross profit margins ross pharmaceutical products segments addition pricing pressures unfavorably impacted gross profit margins ross products segment 2005 2004 2003 gross profit margins pharmaceutical products segment unfavorably impacted 2005 2004 unfavorable product mix favorably impacted 2003 favorable product mix unfavorable product mix 2005 2004 due primarily increased sales lower margin boehringer ingelheim products higher manufacturing costs gross profit margin 2003 diagnostic products segment impacted effects fda consent decree research development expense excluding acquired inprocess research development 18 billion 2005 17 billion 2004 16 billion 2003 represented increases 73 percent 2005 45 percent 2004 101 percent 2003 majority research development expenditures concentrated pharmaceutical products selling general administrative expenses increased 117 percent 2005 compared increases 24 percent 2004 291 percent 2003 restructuring charges discussed increase bad debt reserve associated unfavorable court ruling increased percent change 2004 27 percentage points 2005 2003 abbott recorded selling general administrative expenses pretax charge 614 million related settlement ross enteral nutritional investigation 2003 charge reduced increase selling general administrative expenses 150 percentage points 2004 increased selling general administrative expenses 165 percentage points 2002 increases selling general administrative expenses excluding restructuring charges charge investigation due primarily increased selling marketing support new existing products including commercial activities related sales force expansion product launches including abbotts carotid stent new humira indications increases also reflect effects acquisitions therasense eas 2004 increases three years also reflect inflation additional selling marketing support primarily pharmaceutical products international segments restructurings dollars millions 2005 abbott management approved plans realign global manufacturing operations selected domestic international commercial operations 2005 abbott recorded pretax charges earnings approximately 256 reflecting impairment manufacturing facilities assets employee severance related charges approximately 174 classified cost products sold 10 research development 72 selling general administrative additional 14 subsequently recorded 2005 relating restructurings primarily accelerated depreciation result product reregistration timelines required manufacturing regulations number countries manufacturing related realignments expected continue 2007 following summarizes restructuring activity global pharmaceutical manufacturing operations restructuring following summarizes restructuring activity restructurings individually material abbott expects incur additional 150 future periods restructuring plans primarily accelerated depreciation plant equipment dispositions income tap pharmaceutical products inc joint venture abbotts income tap pharmaceutical products inc joint venture lower 2005 2004 compared 2003 due decreased sales due market contraction prescription proton pump inhibitors 2004 approximately 40 million result agreement plaintiffs settle litigation net interest expense net interest expense increased 2005 2004 due impact higher interest rates debt levels partially offset higher interest income net interest expense decreased 2003 due lower level borrowings lower interest rates taxes earnings effective income tax rates income continuing operations 270 percent 2005 230 percent 2004 261 percent 2003 2005 abbott remitted 43 billion foreign earnings accordance american jobs creation act 2004 recorded additional tax expense 245 million increased effective tax rate approximately 53 percentage points partially offset adjustments prior years tax accounts resulting primarily resolution prior years accrual requirements decreased effective tax rate 23 percentage points effective tax rate 2004 reflects adjustments prior years tax requirements primarily result resolutions prior years tax audits effect nondeductible acquired inprocess research development effect items 2004 decrease effective tax rate approximately 12 percentage points effective tax rate 2003 includes effect charge settlement ross enteral nutritional investigation charges acquired inprocess research development effect charges 2003 increase effective tax rate approximately 24 percentage points abbott expects apply annual effective rate 235 percent 240 percent 2006 spinoff abbotts core hospital products business april 12 2004 abbotts board directors declared special dividend distribution outstanding shares common stock hospira inc payable april 30 2004 hospira included operations relating manufacture sale hospital products including specialty injectable pharmaceuticals medication delivery systems critical care devices injectable pharmaceutical contract manufacturing hospira included abbotts hospital products segment segments reorganization january 1 2004 portions abbotts international segment income cash flows hospira direct transaction costs spinoff presented discontinued operations consolidated statement earnings statement cash flows prior years balance sheets adjusted reflect effect spinoff legal transfer certain remaining operations assets net liabilities outside united states expected occur first half 2006 operations assets used conduct hospiras international business hospira subject risks entitled benefits generated operations assets liabilities presented held sale consolidated balance sheets december 31 2005 2004 assets liabilities held sale consist primarily inventories trade accounts receivable equipment trade accounts payable salaries accruals abbott retained liabilities taxes income prior spinoff defined benefit postemployment medical dental plan obligations assets spinoff hospiras us retired employees us retirement eligible employees certain potential liabilities related alleged improper pricing practices prior spinoff connection federal state private reimbursement certain drugs business combinations technology acquisitions 2005 abbott acquired remaining interest small medical products company previously accounted equity method accounting less 50 percent equity interest small medical products company aggregate cash purchase price approximately 25 million acquisition accounting resulted recording nontax deductible goodwill approximately 69 million intangible assets approximately 22 million charge approximately 17 million acquired inprocess research development 2005 abbott acquired additional rights related humira approximately 270 million amortized 13 years 2004 abbott paid approximately 23 billion strategic business technology acquisitions follows abbott acquired therasense inc leader development manufacturing marketing blood glucose selfmonitoring systems approximately 12 billion cash istat corporation manufacturer pointofcare diagnostic products blood analysis approximately 394 million cash eas nutritional company portfolio nationally recognized brands approximately 320 million cash spine next manufacturer orthopedic spinal implant devices approximately 58 million cash plus additional milestone payments 23 million upon achievement future targets abbott also acquired certain product technologies approximately 352 million acquisitions resulted charge 271 million acquired inprocess research development intangible assets approximately 13 billion nontax deductible goodwill approximately 923 million deferred income taxes approximately 406 million acquired intangible assets primarily trade names amortized 5 20 years average approximately 14 years 2003 abbott paid approximately 459 million strategic business technology acquisitions follows abbott acquired zoneperfect nutrition company marketer healthy nutritious products active people approximately 160 million cash integrated vascular systems inc developer novel vessel closure technology approximately 65 million cash spinal concepts inc marketer spinal fixation products used treatment spinal disorders diseases injuries approximately 166 million cash plus additional milestone payments 40 million agreed upon targets met abbott also acquired assets jomed nvs coronary peripheral interventional business approximately 68 million cash acquisitions resulted charge approximately 100 million acquired inprocess research development intangible assets approximately 222 million nontax deductible goodwill approximately 182 million acquired intangible assets primarily product technology amortized 9 25 years average approximately 16 years acquisitions taken place january 1 previous year consolidated sales income would significantly different reported amounts early 2006 abbott agreed acquire guidants interventional vascular endovascular solutions businesses 41 billion connection boston scientifics acquisition guidant abbott would also pay 250 million upon government approvals market guidants drugeluting stent us japan addition abbott agreed provide boston scientific 900 million 4 percent loan acquire 14 billion boston scientific common stock directly boston scientific contingent upon closing guidant acquisition expected completed first half 2006 financial condition cash flow net cash operating activities continuing operations amounted 50 billion 43 billion 34 billion 2005 2004 2003 respectively 2005 2004 2003 641 million 482 million 200 million respectively contributed main domestic defined benefit plan addition abbott transferred approximately 45 million hospira 2004 accordance employee benefit agreement governing assumption hospira certain defined benefit plan assets liabilities abbott expects pension funding main domestic pension plan 2006 2011 200 million 400 million annually increased contribution 2005 due part investment cash remitted american jobs creation act 2004 debt capital december 31 2005 abbotts longterm debt rating aa standard poors a1 moodys investors service abbott readily available financial resources including unused lines credit 30 billion support domestic commercial paper borrowing arrangements subsequent announced potential acquisition guidants vascular intervention endovascular solutions businesses standard poors affirmed current debt ratings abbott maintained current stable outlook moodys investors service indicated would likely affirm current debt ratings abbott would likely change current outlook stable negative october 2004 board directors authorized purchase 50 million shares abbotts common stock time shares purchased authorization 2004 2005 abbott purchased approximately 30 million common shares authorization cost approximately 13 billion 2004 2003 abbott purchased approximately 117 million 27 million respectively common shares cost approximately 500 million 98 million respectively prior authorization 2005 abbott borrowed 19 billion longterm debt matures may 2008 variable interest rates libor proceeds debt invested shortterm investments abbott issued 15 billion longterm debt 2004 matures 2009 2014 interest rates ranging 35 percent 435 percent proceeds debt used fund acquisition therasense pay domestic commercial paper borrowings abbott retained 700 million proceeds borrowings hospira assumed result spinoff used proceeds reduce domestic commercial paper borrowings addition abbott retired longterm debt 165 billion 2004 proceeds domestic commercial paper borrowings working capital working capital 40 billion december 31 2005 39 billion december 31 2004 27 billion december 31 2003 capital expenditures capital expenditures 12 billion 2005 13 billion 2004 11 billion 2003 principally upgrading expanding manufacturing research development investments information technology administrative support facilities segments laboratory instruments placed customers contractual obligations following table summarizes abbotts estimated contractual obligations december 31 2005 apurchase commitments purchases made normal course business meet operational capital expenditure requirements contingent obligations abbott periodically entered agreements ordinary course business assignment product rights companies resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote addition abbott periodically acquires small companies abbott agrees pay contingent consideration based attaining certain thresholds previously noted connection potential acquisition certain guidant businesses abbott agreed acquire 69 billion assets comprised 41 billion businesses 500 million milestone payments 900 million loan boston scientific 14 billion boston scientific common stock connection spinoff hospira abbott retained liabilities taxes income prior spinoff certain potential liabilities related alleged improper pricing practices connection federal state private reimbursement certain drugs recently issued accounting standards 2006 abbott must adopt statement financial accounting standards sfas 123 revised 2004 sharebased payment requires fair value stock options granted employees recorded results operations abbott use modified prospective method adoption method prior years financial results include impact recording stock options using fair value footnote 10 quantifies effect application fair value 2005 prior awards based upon valuation stock options granted 2006 annual grant comprise majority grant activity year abbott estimates impact 2006 change stock compensation expense diluted earnings per share approximately 015 includes 014 per diluted share impact expensing fair value stock options 2006 expense stock compensation dependent number options granted future terms awards fair value therefore effect diluted earnings per share could change may 2005 financial accounting standards board fasb issued sfas 154 accounting changes error corrections statement generally requires retrospective application prior periods financial statements voluntary changes accounting principles prior rules changes accounting principles generally recognized including net income period change cumulative effect changing new accounting principle statement change previous requirements reporting correction error previously issued financial statements change accounting estimate justification change accounting principle basis preferability statement effective accounting changes made fiscal years beginning december 15 2005 adoption provisions statement expected material effect results operations financial position abbott november 2004 fasb issued sfas 151 inventory costs statement clarifies accounting abnormal amount idle facilities expense freight handling costs wasted material statement requires items recognized currentperiod expense addition statement requires allocation fixed overhead cost conversion based normal capacity production facilities statement effective inventory costs incurred december 31 2005 adoption statement material effect financial statements abbott legislative issues abbotts primary markets highly competitive subject substantial government regulation abbott expects debate continue us federal state levels availability method delivery payment health care products services abbott believes legislation enacted could effect reducing access health care products services reducing prices rate price increases health care products services international operations also subject significant degree government regulation possible predict extent abbott health care industry general might adversely affected factors future complete discussion factors contained item 1 business item 1a risk factors form 10k private securities litigation reform act 1995 caution concerning forwardlooking statements safe harbor provisions private securities litigation reform act 1995 abbott cautions investors forwardlooking statements projections made abbott including made document subject risks uncertainties may cause actual results differ materially projected economic competitive governmental technological factors may affect abbotts operations discussed exhibit 991 annual report form 10k item 7a item 7 managements discussion analysis financial condition results operations financial review abbotts revenues derived primarily sale broad line health care products shortterm receivable arrangements patent protection licenses technological performance features inclusion abbotts products contract impact products sold price controls competition rebates impact net selling prices products foreign currency translation impacts measurement net sales costs abbotts primary products cardiovascular neuromodulation products diagnostic testing products nutritional products branded generic pharmaceuticals sales international markets comprise approximately 65 percent consolidated net sales last several years abbott proactively shaped company strategic intent deliver sustainable growth businesses significant steps last three years included • january 2017 abbott acquired st jude medical inc st jude medical global medical device manufacturer approximately 236 billion including approximately 136 billion cash approximately 10 billion abbott common shares based abbotts closing stock price acquisition date part acquisition abbott assumed repaid refinanced approximately 59 billion st jude medicals debt acquisition provided expanded opportunities future growth important part companys effort develop strong diverse portfolio combined business competes nearly every area 30 billion global cardiovascular device market well neuromodulation treats chronic pain movement disorders • october 2017 abbott acquired alere inc alere diagnostic device service provider 5100 per common share cash equated purchase price approximately 45 billion part acquisition abbott also tendered aleres preferred shares total value approximately 07 billion assumed subsequently repaid approximately 30 billion aleres debt acquisition established abbott leader point care testing expanded abbotts global diagnostics presence provided access new products channels geographies • february 2017 abbott completed sale abbott medical optics amo vision care business johnson 4325 billion cash recognized aftertax gain 728 million operating results amo included earnings continuing operations date sale business qualify reporting discontinued operations sales increase last three years reflects 2017 acquisitions st jude medical alere volume growth across abbotts businesses notably established pharmaceuticals diabetes care diagnostics businesses volume growth reflects introduction new products well higher sales existing products 2017 acquisitions st jude medical alere partially offset sale amo contributed 265 percentage points abbotts total sales growth versus 2016 sales emerging markets represent approximately 40 percent total company sales increased 123 percent 2018 139 percent 2017 excluding impact foreign exchange emerging markets include countries except united states western europe japan canada australia new zealand last three years abbotts operating margin positively impacted margin improvements across various businesses including established pharmaceuticals core laboratory diabetes care partially offset higher amortization costs associated acquisitions 2018 abbotts operating margin increased approximately 6 percentage points primarily due operating margin improvement various businesses lower inventory stepup amortization integration costs associated acquisitions partially offset higher intangible amortization 2017 abbotts operating margin decreased approximately 9 percentage points primarily due costs associated acquisitions including higher intangible amortization expense inventory stepup amortization integration costs partially offset operating margin improvement various businesses since beginning first quarter 2017 results abbotts cardiovascular neuromodulation products segment include abbotts historical vascular products segment st jude medical date acquisition excluding impact foreign exchange sales cardiovascular neuromodulation products segment increased 49 percent 2018 2074 percent 2017 sales increase 2018 driven primarily higher structural heart electrophysiology neuromodulation sales increase 2017 driven acquisition st jude medical excluding impact acquisition well impact foreign exchange sales cardiovascular neuromodulation products segment essentially unchanged 2017 versus prior year 2017 higher structural heart endovascular sales offset lower coronary stent sales comparison impact favorable 2016 resolution thirdparty royalty agreement abbotts vascular business 2018 operating earnings segment increased 99 percent operating margin profile declined 358 percent sales 2016 317 percent 2018 primarily due mix business resulting acquisition st jude medical ongoing pricing pressures coronary business cost improvement initiatives contributed improvement operating margin profile 305 percent 2017 317 percent 2018 cardiovascular neuromodulation products segment received approval clearance us food drug administration fda following products • advisor® hd grid mapping catheter sensor enabled™ creates highly detailed maps heart expands abbotts electrophysiology product portfolio • nextgeneration version abbotts leading mitraclip® heart valve repair device • heartmate 3® left ventricular assist device lvad destination longterm use therapy • xience sierra® drug eluting stent system next generation drugeluting coronary stent system xience sierra drug eluting stent system also received national reimbursement japan treat people coronary artery disease abbotts worldwide diagnostics business sales growth last three years reflected acquisition alere october 2017 well continued market penetration core laboratory business us internationally aleres results included abbotts diagnostic products reportable segment date acquisition worldwide diagnostic sales increased 336 percent 2018 167 percent 2017 excluding impact foreign exchange excluding impact alere acquisition well impact foreign exchange sales diagnostic products segment increased 65 percent 2018 55 percent 2017 growth includes continued rollout alinity® abbotts integrated family nextgeneration diagnostic systems solutions designed increase efficiency running tests less space generating test results faster minimizing human errors continuing provide quality results abbott regulatory approvals us europe china markets alinity c alinity instruments clinical chemistry immunoassay diagnostics respectively 2018 abbott accelerated launch alinity europe international markets broad range assays obtained regulatory approval added test menu abbott also continued rollout alinity blood plasma screening margin improvement continued key focus diagnostics business 2018 2017 operating margins 249 percent sales 2018 remained relatively unchanged 248 percent sales reported 2016 reflects dilution operating margin profit acquisition alere negative impact foreign exchange offset continued execution efficiency initiatives manufacturing supply chain functions abbotts worldwide nutritional products business sales last three years positively impacted demographics aging population increasing rate chronic disease developed markets rise middle class many emerging markets well numerous new product introductions leveraged abbotts strong brands 2018 excluding impact foreign exchange nutritional business experienced abovemarket growth worldwide pediatric business driven market leading brands similac® pedialyte® us well growth across several markets asia worldwide adult nutrition sales increased 2018 led growth ensure® abbotts marketleading complete balanced nutrition brand glucerna® abbotts marketleading diabetesspecific nutrition brand 2017 nutritionals business experienced growth us driven abovemarket performance abbotts infant toddler brands internationally 2017 sales growth china india partially offset challenging market conditions infant formula market various emerging markets respect profitability nutritional products business manufacturing distribution process changes well cost reductions drove margin improvements across business last three years although improvements offset inflation commodity costs decrease operating margins business 241 percent sales 2016 229 percent 2018 primarily due negative impact foreign exchange established pharmaceutical products segment focuses sale products emerging markets excluding impact foreign exchange established pharmaceutical sales increased 70 percent 2018 95 percent 2017 sales increase 2018 driven doubledigit growth india china sales increase 2017 primarily driven doubledigit growth china various countries latin america operating margins increased 187 percent sales 2016 202 percent 2018 primarily due continued focus cost reduction initiatives diabetes business abbott received us fda approval freestyle libre® 14 day sensor making longest lasting wearable glucose sensor available freestyle libre system continuous glucose monitoring system require user calibration conjunction funding st jude medical alere acquisitions assumption st jude medicals aleres existing debt abbotts total shortterm longterm debt increased approximately 90 billion december 31 2015 279 billion december 31 2017 beginning 2018 abbott committed reducing debt levels 2018 abbott repaid approximately 83 billion debt net borrowings bringing total debt 196 billion abbott declared dividends 116 per share 2018 compared 1075 per share 2017 increase approximately 8 percent dividends paid totaled 1974 billion 2018 compared 1849 billion 2017 yearoveryear change amount dividends paid reflects increase dividend rate december 2018 abbott increased companys quarterly dividend approximately 14 percent 032 per share 028 per share effective dividend paid february 2019 abbott focus continuing invest product development areas provide opportunity strong sustainable growth next several years diagnostics business abbott continue focus driving market adoption geographic expansion alinity suite diagnostics instruments cardiovascular neuromodulation business abbott continue focus expanding market position various areas including electrophysiology heart failure structural heart nutritionals business abbott continue focus driving growth globally enhancing portfolio introduction several new sciencebased products established pharmaceuticals business abbott continue focus growing business depth breadth portfolio emerging markets diabetes care business abbott focus driving continued market adoption freestyle libre continuous glucose monitoring system critical accounting policies sales rebates 2018 approximately 45 percent abbotts consolidated gross revenues subject various forms rebates allowances abbott recorded reductions revenues time sale rebates allowances 2018 nutritional products diabetes care segments abbott provides rebates state agencies administer special supplemental nutrition program women infants children wic wholesalers group purchasing organizations government agencies private entities rebate amounts usually based upon volume purchases using contractual statutory prices product factors used rebate calculations include identification products sold subject rebate customer government agency price terms apply estimated lag time sale payment rebate using historical trends adjusted current changes abbott estimates amount rebate paid records liability reduction gross sales abbott records sale product settlement rebate generally occurs one six months sale abbott regularly analyzes historical rebate trends makes adjustments reserves changes trends terms rebate programs rebates chargebacks charged gross sales 2018 2017 2016 amounted approximately 30 billion 28 billion 25 billion respectively 190 percent 205 percent 229 percent gross sales respectively based gross sales approximately 160 billion 139 billion 107 billion respectively subject rebate onepercentage point increase percentage rebates related gross sales would decrease net sales approximately 160 million 2018 abbott considers onepercentage point increase reasonably likely increase percentage rebates related gross sales allowances charged gross sales approximately 175 million 166 million 160 million cash discounts 2018 2017 2016 respectively 191 million 204 million 242 million returns 2018 2017 2016 respectively cash discounts known within 15 30 days sale therefore reliably estimated returns reliably estimated abbotts historical returns low sales returns terms sales terms remained relatively unchanged several periods management analyzes adequacy ending rebate accrual balances quarter domestic nutritional business management uses internal external data available estimate accruals wic business estimates required amount wic sales within state abbott holds wic contract state sale made determining factor applicable rebated price reliably determinable rebated prices based contractually obligated agreements generally lasting period two four years except change contract price transition period change supplier wic business state accruals based historical redemption rates data us department agriculture usda states submitting rebate claims usda administers wic program making data available many years management also estimates states processing lag time based sales claims data inventory retail distribution channel vary substantially management access several large customers inventory management data allows management make reliable estimates inventory retail distribution channel december 31 2018 abbott wic business 27 states historically adjustments prior years rebate accruals material net income abbott employs various techniques verify accuracy claims submitted possible works organizations submitting claims gain insight changes might affect rebate amounts government agency programs calculation rebate involves interpretations relevant regulations subject challenge change interpretation income taxes abbott operates numerous countries income tax returns subject audits adjustments abbott operates globally nature audit items often complex objectives government auditors result tax income one country abbott employs internal external tax professionals minimize audit adjustment amounts possible accordance accounting rules relating measurement tax contingencies order recognize uncertain tax benefit taxpayer must likely sustaining position measurement benefit calculated largest amount 50 percent likely realized upon resolution benefit application rules requires significant amount judgment us abbotts federal income tax returns 2016 settled except federal income tax returns former alere consolidated group settled 2014 former st jude medical consolidated group settled 2013 undistributed foreign earnings remain indefinitely reinvested foreign operations determining amount unrecognized deferred tax liability related remaining undistributed foreign earnings subject transition tax additional outside basis difference foreign entities practicable pension postemployment benefits abbott offers pension benefits postemployment health care many employees abbott engages outside actuaries assist determination obligations costs programs abbott must develop longterm assumptions significant health care cost trend rates discount rates expected return plan assets discount rates used measure liabilities determined based highquality fixed income securities match duration expected retiree benefits health care cost trend rates represent abbotts expected annual rates change cost health care benefits forward projection health care costs measurement date difference assumed rates actual rates known years significant relation obligations annual cost recorded programs low interest rates significantly increased actuarial losses plans december 31 2018 pretax net actuarial losses prior service costs credits recognized accumulated comprehensive income loss abbotts defined benefit plans medical dental plans losses 33 billion 198 million respectively actuarial losses gains amortized remaining service attribution periods employees corridor method accordance rules accounting postemployment benefits differences expected longterm return plan assets actual annual return amortized fiveyear period note 14 consolidated financial statements describes impact onepercentage point change health care cost trend rate however certainty change would limited one percentage point valuation intangible assets abbott acquired continues acquire significant intangible assets abbott records fair value acquisition date transactions involving purchase sale intangible assets occur frequency companies health care field valuations usually based discounted cash flow analysis discounted cash flow model requires assumptions timing amount future net cash flows risk cost capital terminal values market participants factors significantly affect value intangible asset abbott engages independent valuation experts review abbotts critical assumptions calculations acquisitions significant intangibles abbott reviews definitelived intangible assets impairment quarter using undiscounted net cash flows approach undiscounted cash flows intangible asset less carrying value intangible asset intangible asset written fair value usually discounted cash flow amount cash flows cannot identified individual asset review applied lowest group level cash flows identifiable goodwill indefinitelived intangible assets relate inprocess research development acquired business combination reviewed impairment annually event could result impairment occurs december 31 2018 goodwill amounted 233 billion net intangibles amounted 189 billion amortization expense continuing operations intangible assets amounted 22 billion 2018 20 billion 2017 550 million 2016 significant reduction goodwill relating impairments 2018 2017 2016 litigation abbott accounts litigation losses accordance financial accounting standards board fasb accounting standards codification asc 450 contingencies asc 450 loss contingency provisions recorded probable losses managements best estimate loss best estimate cannot made minimum loss contingency amount recorded estimates often initially developed substantially earlier ultimate loss known estimates refined accounting period additional information becomes known accordingly abbott often initially unable develop best estimate loss therefore minimum amount could zero recorded information becomes known either minimum loss amount increased resulting additional loss provisions best estimate made also resulting additional loss provisions occasionally best estimate amount changed lower amount events result expectation favorable outcome previously expected abbott estimates range possible loss approximately 125 million 165 million legal proceedings environmental exposures accruals approximately 145 million recorded december 31 2018 proceedings exposures accruals represent managements best estimate probable loss defined fasb asc 450 contingencies results operations sales following table details components sales growth reportable segment last two years increase total net sales 2018 reflects acquisition alere well volume growth across abbotts businesses increase total net sales 2017 reflects acquisitions st jude medical alere well volume growth established pharmaceuticals diagnostics businesses price declines related cardiovascular neuromodulation products segment 2018 2017 primarily reflect pricing pressure drug eluting stents des result market competition us major markets comparison significant product group sales follows percent changes versus prior year based unrounded numbers nm percent change meaningful notein order compute results excluding impact exchange rates current year us dollar sales multiplied divided appropriate current year average foreign exchange rates amounts multiplied divided appropriate prior year average foreign exchange rates total established pharmaceutical products sales increased 70 percent 2018 95 percent 2017 excluding impact foreign exchange established pharmaceutical products segment focused several key emerging markets including india russia china brazil excluding impact foreign exchange total sales key emerging markets increased 74 percent 2018 119 percent 2017 excluding impact foreign exchange 2018 sales india china 2017 sales china various countries latin america experienced doubledigit growth excluding impact foreign exchange sales established pharmaceuticals emerging markets increased 58 percent 2018 22 percent 2017 sales growth established pharmaceuticals emerging markets includes unfavorable impact venezuelan operations excluding venezuela effect foreign exchange sales emerging markets increased 75 percent 2017 total nutritional products sales increased 49 percent 2018 06 percent 2017 excluding unfavorable impact foreign exchange increases 2018 2017 us pediatric nutritional sales primarily reflect continued abovemarket performance abbotts infant toddler brands including similac pedialyte 2018 international pediatric nutritional sales increased primarily due growth asia latin america 2017 decrease international pediatric nutritional sales driven challenging market conditions infant formula market various emerging markets partially offset growth china india 2018 sales increase international adult nutritional business led growth ensure abbotts marketleading complete balanced nutrition brand glucerna abbotts marketleading diabetesspecific nutrition brand asia latin america us adult nutritional business sales decreased 2018 primarily driven wind noncore product line excluding unfavorable impact foreign exchange 2017 increase international adult nutritional sales due primarily growth ensure well volume growth emerging markets continued expansion adult nutrition category internationally us adult nutritional revenues decreased 2017 due competitive market dynamics total diagnostic products sales increased 336 percent 2018 167 percent 2017 excluding impact foreign exchange sales increases 2018 2017 included acquisition alere completed october 3 2017 excluding impact acquisition well impact foreign exchange sales diagnostic products segment 2018 2017 increased 65 55 percent respectively 2018 increase sales primarily driven abovemarket growth core laboratory us internationally 2018 abbott accelerated roll alinity systems core laboratory europe 2017 increase sales primarily driven share gains core laboratory markets globally well performance point care led continued adoption abbotts istat® handheld system excluding effect foreign exchange total cardiovascular neuromodulation products sales grew 49 percent 2018 sales increase driven growth several areas including doubledigit growth electrophysiology structural heart growth electrophysiology 2018 led higher sales cardiac mapping ablation catheters well us launch abbotts confirm rx® insertable cardiac monitor icm worlds first smartphonecompatible icm designed help physicians remotely identify cardiac arrhythmias may 2018 abbott announced us fda clearance advisor hd grid mapping catheter sensor enabled creates detailed maps heart expands abbotts electrophysiology product portfolio growth structural heart 2018 driven several product areas including mitraclip abbotts marketleading device minimallyinvasive treatment mitral regurgitation amplatzer® pfo occluder device designed close holelike opening heart july 2018 abbott announced us fda approval nextgeneration version mitraclip september 2018 abbott announced positive clinical results coapt study demonstrated mitraclip improved survival clinical outcomes select patients functional mitral regurgitation fourth quarter 2018 coapt study data submitted us fda request approval expanded indication mitraclip growth neuromodulation 2018 reflects higher revenue various products treatment chronic pain movement disorders vascular growth imaging vessel closure endovascular revenues 2018 partially offset lower des sales due lower us market share price erosion various markets second quarter 2018 abbott received approval us fda xience sierra drug eluting stent system newest generation coronary stent system second quarter 2018 xience sierra drug eluting stent system also received national reimbursement japan treat people coronary artery disease rhythm management market share gains new patient segment offset replacement cycle dynamics heart failure international sales growth offset lower us sales october 2018 heartmate 3 left ventricular assist device lvad received us fda approval destination therapy people living advanced heart failure 2017 excluding effect foreign exchange total cardiovascular neuromodulation products sales grew 2074 percent increase sales primarily driven acquisition st jude medical completed january 4 2017 excluding impact acquisition well impact foreign exchange sales vascular business essentially flat 2017 versus prior year lower coronary stent sales comparison impact favorable 2016 resolution thirdparty royalty agreement offset higher structural heart endovascular sales abbott periodically sold product rights nonstrategic products recorded related gains net sales accordance abbotts revenue recognition policies discussed note 1 consolidated financial statements related net sales significant 2018 2017 2016 expiration licenses patent protection affect future revenues operating income abbott significant patent license expirations next three years expected materially affect abbott april 2017 abbott received warning letter us fda related manufacturing facility sylmar ca acquired abbott january 4 2017 part acquisition st jude medical facility manufactures implantable cardioverter defibrillators cardiac resynchronization therapy defibrillators monitors warning letter relates fdas observations inspection facility abbott prepared comprehensive plan corrective actions provided fda execution plan progressing operating earnings gross profit margins 513 percent net sales 2018 475 percent 2017 538 percent 2016 2018 increase primarily reflects lower inventory stepup amortization related st jude medical alere acquisitions margin improvements various businesses partially offset higher intangible amortization expense 2017 decrease primarily reflects higher intangible amortization expense inventory stepup amortization related st jude medical alere acquisitions partially offset margin improvements various businesses research development expense 23 billion 2018 23 billion 2017 14 billion 2016 represented 17 percent increase 2018 562 percent increase 2017 2018 increase research development expenses primarily due higher spending various projects partially offset lower restructuring integration costs 2017 increase research development expenses primarily due acquisition st jude medical business 2018 research development expenditures totaled 10 billion cardiovascular neuromodulation products segment 585 million diagnostic products segment 198 million nutritional products segment 184 million established pharmaceutical products segment selling general administrative expenses increased 61 percent 2018 363 percent 2017 versus respective prior year 2018 increase primarily due impact acquisition alere business october 2017 well higher spending drive continued growth market expansion various businesses partially offset lower acquisitionrelated expenses 2017 increase primarily due acquisition st jude medical business well incremental expenses integrate st jude medical abbotts existing vascular business partially offset impact cost improvement initiatives across various functions businesses business acquisitions january 4 2017 abbott completed acquisition st jude medical global medical device manufacturer approximately 236 billion including approximately 136 billion cash approximately 10 billion abbott common shares represented approximately 254 million shares abbott common stock based abbotts closing stock price acquisition date part acquisition approximately 59 billion st jude medicals debt assumed repaid refinanced abbott acquisition provides expanded opportunities future growth important part companys ongoing effort develop strong diverse portfolio devices diagnostics nutritionals branded generic pharmaceuticals combined business competes nearly every area cardiovascular device market well neuromodulation market terms agreement st jude medical common share st jude medical shareholders received 4675 cash 08708 abbott common share abbott stock price 3936 reflected closing price january 4 2017 represented value approximately 81 per st jude medical common share total purchase consideration 236 billion cash portion acquisition funded combination medium longterm debt issued november 2016 20 billion 120day senior unsecured bridge term loan facility subsequently repaid final allocation fair value st jude medical acquisition shown table goodwill primarily attributable expected synergies combining operations well intangible assets qualify separate recognition goodwill identifiable cardiovascular neuromodulation products reportable segment acquired tangible assets consist primarily trade accounts receivable approximately 11 billion inventory approximately 17 billion current assets 176 million property equipment approximately 15 billion longterm assets approximately 455 million acquired tangible liabilities consist trade accounts payable current liabilities approximately 11 billion noncurrent liabilities approximately 870 million 2016 abbott st jude medical agreed sell certain businesses terumo corporation approximately 112 billion sale included st jude medical angioseal™ femoseal™ vascular closure abbotts vado® steerable sheath businesses sale closed january 20 2017 gain loss recorded consolidated statement earnings october 3 2017 abbott acquired alere diagnostic device service provider 5100 per common share cash equated purchase price approximately 45 billion part acquisition abbott tendered aleres preferred shares total value approximately 07 billion addition approximately 30 billion aleres debt assumed subsequently repaid acquisition establishes abbott leader point care testing expands abbotts global diagnostics presence provides access new products channels geographies abbott utilized combination cash hand debt fund acquisition see note 11 debt lines credit details regarding debt utilized acquisition final allocation fair value alere acquisition shown table goodwill primarily attributable expected synergies combining operations well intangible assets qualify separate recognition goodwill identifiable diagnostic products reportable segment approximate value acquired tangible assets consists 430 million trade accounts receivable 425 million inventory 225 million current assets 540 million property equipment 210 million longterm assets approximate value acquired tangible liabilities consists 675 million trade accounts payable current liabilities 145 million noncurrent liabilities third quarter 2017 alere entered agreements sell triage meterpro cardiovascular toxicology business assets liabilities related btype natriuretic peptide assay business run beckman coulter analyzers quidel corporation quidel transactions quidel reflect total purchase price 400 million payable close transaction 240 million payable six annual installments beginning approximately six months close transaction contingent consideration maximum value 40 million third quarter 2017 alere entered agreement siemens diagnostics holding ii bv siemens sell subsidiary epocal inc approximately 200 million payable close transaction alere agreed divest businesses connection review federal trade commission european commission abbotts agreement acquire alere sale quidel closed october 6 2017 sale siemens closed october 31 2017 gain loss sales recorded consolidated statement earnings july 17 2017 abbott commenced tender offer purchase cash 177 million outstanding shares aleres series b convertible perpetual preferred stock price 402 per share plus accrued unpaid dividends including settlement date tender offer tender offer subject satisfaction certain conditions including abbotts acquisition alere upon validly tendered properly withdrawn expiration date tender offer number shares preferred stock equaled least majority preferred stock issued outstanding expiration tender offer conditions offer satisfied abbott accepted payment 1748 million shares preferred stock validly tendered properly withdrawn remaining shares cashed amount equal 40000 per share liquidation preference shares plus accrued unpaid dividends without interest payment shares preferred stock made fourth quarter 2017 restructurings 2017 2018 abbott management approved restructuring plans part integration acquisition st jude medical cardiovascular neuromodulation products segment alere diagnostic products segment order leverage economies scale reduce costs abbott recorded charges including onetime employee termination benefits approximately 52 million 2018 187 million 2017 approximately 5 million 2018 2017 recorded cost products sold approximately 10 million 2018 recorded research development approximately 37 million 2018 182 million 2017 selling general administrative expense 2016 2018 abbott management approved plans streamline operations order reduce costs improve efficiencies various abbott businesses including nutritional established pharmaceuticals vascular businesses abbott recorded employeerelated severance charges approximately 28 million 2018 120 million 2017 32 million 2016 approximately 10 million 2018 7 million 2017 9 million 2016 recorded cost products sold approximately 2 million 2018 77 million 2017 5 million 2016 recorded research development approximately 16 million 2018 36 million 2017 18 million 2016 recorded selling general administrative expense additional charges approximately 2 million 2017 2016 recorded primarily accelerated depreciation interest expense interest income 2018 interest expense decreased primarily due net repayment 83 billion debt partially offset lower interest income due lower cash balances 2017 interest expense increased primarily due 151 billion debt issued november 2016 related financing st jude medical acquisition closed january 4 2017 2016 interest expense increased primarily due amortization bridge financing fees related financing st jude medical alere acquisitions interest expense 2016 also increased due 151 billion debt issued november 2016 debt extinguishment costs october 28 2018 abbott redeemed approximately 4 billion debt included 750 million principal amount 200 notes due 2020 597 million principal amount 4125 notes due 2020 900 million principal amount 325 notes due 2023 450 million principal amount 34 notes due 2023 1300 billion principal amount 375 notes due 2026 abbott incurred net charge 153 million related early repayment debt unwinding related interest rate swaps march 22 2018 abbott redeemed 947 million principal amount 5125 notes due 2019 well 1055 billion 2850 billion principal amount 235 notes due 2019 abbott incurred net charge 14 million related early repayment debt income expense net income expense net 2018 2017 2016 includes approximately 160 million income year related nonservice cost components net periodic benefit costs associated pension postretirement medical plans amounts reported income expense result adoption new accounting standard recognizing pension cost 2017 includes pretax gain 1163 billion sale amo johnson 2016 includes 947 million expense adjust abbotts holding mylan nv ordinary shares due decline fair value securities considered abbott temporary taxes earnings income tax rates earnings continuing operations 188 percent 2018 842 percent 2017 248 percent 2016 tax cuts jobs act tcja enacted us december 22 2017 tcja reduces us federal corporate tax rate 35 21 requires companies pay onetime transition tax earnings certain foreign subsidiaries previously tax deferred creates new taxes certain foreign sourced earnings december 31 2018 abbott completed accounting enactment date income tax effects tcja additional regulations issued us department treasury december 31 2018 result change judgment effect regulations accounted period regulations finalized effective fiscal years beginning december 31 2017 tcja subjects taxpayers tax global intangible lowtaxed income gilti earned certain foreign subsidiaries january 2018 financial accounting standards board staff provided guidance entity may make accounting policy election either recognize deferred taxes related items give rise gilti future years provide tax expense related gilti year tax incurred abbott elected treat gilti tax period expense provide tax year tax incurred fourth quarter 2017 abbott recorded estimate net tax expense 146 billion impact tcja included taxes earnings continuing operations consolidated statement earnings estimate provisional included charge approximately 289 billion transition tax partially offset net benefit approximately 142 billion remeasurement deferred tax assets liabilities net benefit approximately 10 million related certain impacts tcja 2018 abbott recorded 130 million additional tax expense increased final tax expense related tcja 159 billion 130 million additional tax expense reflects 120 million increase transition tax 289 billion 301 billion 10 million reduction net benefit related remeasurement deferred tax assets liabilities onetime transition tax based abbotts total post1986 earnings profits ep previously deferred us income taxes tax computation also requires determination amount post1986 ep considered held cash specified assets december 31 2018 remaining balance abbotts transition tax obligation approximately 158 billion paid next eight years allowed tcja 2018 taxes earnings continuing operations included 98 million net tax expense related settlement abbotts 20142016 federal income tax audit us partial settlement former st jude medical consolidated groups 2014 2015 federal income tax returns us audit settlements various countries 2017 taxes earnings continuing operations include 435 million tax expense related gain sale amo business 2016 taxes earnings continuing operations include impact net tax benefit approximately 225 million primarily result resolution various tax positions prior years partially offset unfavorable impact nondeductible foreign exchange losses related venezuela adjustment mylan nv equity investment well recognition deferred taxes associated pending sale amo exclusive discrete items tax expense favorably impacted lower tax rates tax exemptions foreign income primarily derived operations puerto rico switzerland ireland netherlands costa rica singapore abbott benefits combination favorable statutory tax rules tax rulings grants exemptions tax jurisdictions see note 15 consolidated financial statements full reconciliation effective tax rate us federal statutory rate discontinued operations earnings discontinued operations net tax 34 million 124 million 321 million 2018 2017 2016 respectively driven primarily recognition net tax benefits result resolution various tax positions pertaining abbvies operations years prior separation january 1 2013 abbott completed separation abbvie inc abbvie formed hold abbotts researchbased proprietary pharmaceuticals business abbott retained liabilities us federal foreign income taxes income prior separation well certain nonincome taxes attributable abbvies business abbvie generally liable taxes attributable business assets held disposition september 2016 abbott announced entered definitive agreement sell abbott medical optics amo vision care business johnson 4325 billion cash subject customary purchase price adjustments cash debt working capital decision sell amo reflected abbotts proactive shaping portfolio line strategic priorities february 2017 abbott completed sale amo johnson recognized pretax gain 1163 billion including working capital adjustments reported income expense net line consolidated statement earnings 2017 abbott recorded aftertax gain 728 million 2017 related sale amo operating results amo date sale continued included earnings continuing operations business qualify reporting discontinued operations 2017 2016 amo earnings losses taxes included abbotts consolidated earnings 18 million 30 million respectively discussed business acquisitions section conjunction acquisition alere abbott sold triage meterpro cardiovascular toxicology business assets liabilities related btype natriuretic peptide assay business run beckman coulter analyzers quidel legal transfer certain assets related businesses occur close sale quidel due among factors time required transfer marketing authorizations regulatory requirements various countries terms sale agreement abbott quidel subject risks entitled benefits generated operations assets presented held disposition consolidated balance sheet december 31 2018 2017 primarily relate businesses sold quidel following summary assets held disposition december 31 2018 2017 research development programs abbott currently numerous pharmaceutical medical devices diagnostic nutritional products development research development process established pharmaceuticals segment development process focuses geographic expansion continuous improvement segments existing products provide benefits patients customers established pharmaceuticals actively pursue primary research development usually begins work existing products acquisition advanced stage licensing opportunity depending upon product phases development may include • drug product development • phase bioequivalence studies compare future established pharmaceuticals brand already marketed compound active pharmaceutical ingredient api • phase ii studies test efficacy benefits small group patients • phase iii studies broaden testing wider population reflects actual medical use • phase iv postmarketing studies obtain new clinical use data existing products within approved indications specific requirements eg scope clinical trials obtaining regulatory approval vary across different countries geographic regions process may range one year bioequivalence study project 6 years complex formulations new indications geographic expansion specific countries china diagnostics segment phases research development process include • discovery focuses identification product address specific therapeutic area platform unmet clinical need • conceptfeasibility materials manufacturing processes evaluated testing may include product characterization analysis performed confirm clinical utility • development extensive testing performed demonstrate product meets specified design requirements design specifications conform user needs intended uses regulatory requirements diagnostic products vary across different countries geographic regions us fda classifies diagnostic products classes ii iii classification determines regulatory process approval diagnostics segment products three classes vast majority products categorized class ii submission separate regulatory filing required class products class ii devices typically require premarket notification fda regulatory filing known 510k submission class iii products subject fdas premarketing approval pma requirements class iii products used screen blood require submission approval biological license application bla european union eu diagnostic products also categorized different categories regulatory process governed european vitro diagnostic medical device directive depends upon category certain product categories require review approval independent company known notified body manufacturer affix ce mark product show compliance directive products require selfcertification process cardiovascular neuromodulation segment research development process begins research specific technology evaluated feasibility commercial viability research program passes hurdle moves forward development process includes evaluation selection qualification product design completion applicable clinical trials test products safety efficacy validation manufacturing process demonstrate repeatability ability consistently meet predetermined specifications similar diagnostic products discussed us cardiovascular neuromodulation products classified class ii iii abbotts cardiovascular neuromodulation products classified class ii devices follow 510k regulatory process class iii devices subject pma process eu cardiovascular neuromodulation products also categorized different classes regulatory process governed european medical device directive active implantable medical device directive varies class product must bear ce mark show compliance directive products require submission design dossier appropriate regulatory authority review approval prior ce marking device products company required prepare technical file includes testing results clinical evaluations selfcertify ability apply ce mark product outside us eu regulatory requirements vary across different countries regions approval commercial launch cardiovascular neuromodulation products postmarket trials may conducted either due conditional requirement regulatory market approval objective proving product superiority second quarter 2017 eu adopted new medical devices regulation mdr vitro diagnostic regulation ivdr replace existing directives eu medical devices vitro diagnostic products mdr ivdr apply threeyear fiveyear transition period respectively impose additional premarket postmarket regulatory requirements manufacturers products nutritional segment research development process generally focuses identifying developing ingredients products address nutritional needs particular populations eg infants adults patients eg people diabetes depending upon country andor region claims regarding products efficacy made clinical studies typically must conducted us fda requires notified proposed new formulations formulation packaging changes related infant formula products prior launch infant formula product packaging change company required obtain fdas confirmation objections proposed product packaging nutritional products notification preapproval fda required unless product includes new food additive countries regulatory approval may required certain nutritional products including infant formula medical nutritional products areas focus 2019 beyond abbotts significant areas therapeutic focus include following established pharmaceuticals abbott focuses building countryspecific portfolios made highquality medicines meet needs people emerging markets next several years abbott plans expand product portfolio key therapeutic areas aim among first launch new offpatent differentiated medicines addition abbott continues expand existing brands new markets implement product enhancements provide value patients acquire strategic products technology licensing activities abbott also actively working development several key brands creon™ duphaston™ duphalac™ influvac™ depending product activities focus development new data markets formulations delivery systems indications cardiovascular neuromodulation abbotts research development programs focus • cardiac rhythm management development nextgeneration rhythm management technologies including enhanced patient engagement expanded magnetic resonance mrcompatibility • heart failure continued enhancements abbotts left ventricular assist systems pulmonary artery heart failure system including enhanced connectivity userinterfaces remote patient monitoring • electrophysiology development nextgeneration technologies areas ablation diagnostic mapping visualization recording monitoring • vascular development nextgeneration technologies use coronary peripheral vascular procedures • structural heart development minimallyinvasive devices repair replacement heart valves structural heart conditions • neuromodulation development nextgeneration technologies enhanced patient physician engagement expanded mrcompatibility treat chronic pain movement disorders indications diabetes care develop enhancements additional indications freestyle libre continuous glucose monitoring system help patients improve ability manage diabetes core laboratory diagnostics abbott continues commercialize nextgeneration blood screening immunoassay clinical chemistry hematology systems along assays including focus unmet medical need various areas including infectious disease cardiac care metabolics oncology well informatics automation solutions increase efficiency laboratories molecular diagnostics several new molecular vitro diagnostic ivd tests alinity next generation instrument system various stages development launch rapid diagnostics abbotts research development programs focus development diagnostic products cardiometabolic disease infectious disease toxicology nutritionals abbott focusing research development spend platforms span pediatric adult nutrition areas gastro intestinalimmunity health brain health mobility metabolism user experience platforms numerous new products build advances platforms currently development including clinical outcome testing expected launched coming years given diversity abbotts business intention remain broadbased healthcare company numerous sources potential future growth individual project expected material cash flows results operations next five years factors considered included research development expenses projected incurred project next year relative abbotts total research development expenses well qualitative factors marketplace perceptions impact new product abbotts overall market position delays abbotts 2018 research development activities expected material impact operations aggregate cost complete numerous projects currently development expected material total cost complete depend upon abbotts ability successfully finish project rate project advances ultimate timing completion given potential significant delays risk failure inherent development medical device diagnostic pharmaceutical products technologies possible accurately estimate total cost complete projects currently development abbott plans manage portfolio projects achieve research development spending competitive businesses participates spending expected approximate 75 percent total abbott sales 2019 abbott regularly accumulate make management decisions based total expenses incurred particular development phase given period goodwill december 31 2018 goodwill recorded result business combinations totaled 233 billion goodwill reviewed impairment annually third quarter event could result impairment occurs using quantitative assessment determine whether likely fair value reporting unit less carrying amount income market approaches used calculate fair value reporting unit results last impairment test indicated fair value reporting unit substantially excess carrying value financial condition cash flow net cash operating activities amounted 63 billion 56 billion 32 billion 2018 2017 2016 respectively increase net cash operating activities 2018 primarily due higher segment operating earnings continued improvements working capital management timing pension contributions lower acquisitionrelated expenses increase net cash operating activities 2017 primarily due favorable impact improved working capital management acquisition st jude medical businesses higher segment operating earnings income tax component cash operating activities 2018 includes noncash impact 120 million adjustment transition tax associated tcja income tax component operating cash flow 2017 includes noncash impact 146 billion net tax expense related estimated impact tcja income tax component operating cash flow 2016 includes 550 million noncash tax benefits primarily related favorable resolution various tax positions pertaining prior years foreign currency loss related venezuela reduced abbotts cash approximately 410 million 2016 included effect exchange rate changes cash equivalents line within consolidated statement cash flows future fluctuations strength us dollar foreign currencies expected materially impact abbotts liquidity significant portion abbotts cash equivalents december 31 2018 reinvested foreign subsidiaries abbott expect reinvestment affect liquidity capital resources due enactment tcja funds needed operations us abbott expect incur significant additional income taxes future repatriate funds abbott funded 114 million 2018 645 million 2017 582 million 2016 defined benefit pension plans abbott expects pension funding approximately 380 million 2019 pension plans abbott expects annual cash flow operating activities continue exceed abbotts capital expenditures cash dividends debt capital december 31 2018 abbotts longterm debt rating bbb standard poors corporation baa1 moodys abbott expects maintain investment grade rating abbott readily available financial resources including unused lines credit support commercial paper borrowing arrangements provide abbott ability borrow 5 billion unsecured basis lines credit part 2018 revolving credit agreement expires 2023 abbott entered new revolving credit agreement terminated 2014 revolving credit agreement november 30 2018 outstanding borrowings 2014 revolving credit agreement time termination borrowings new revolving credit agreement bear interest abbotts option based either base rate eurodollar rate plus applicable margin based abbotts credit ratings conjunction funding st jude medical alere acquisitions assumption st jude medicals aleres existing debt abbotts total shortterm longterm debt increased approximately 90 billion december 31 2015 279 billion december 31 2017 increase debt included following transactions 2016 2017 • april 2016 abbott obtained commitment 364day senior unsecured bridge term loan facility amount exceed 172 billion comprised 152 billion 364day bridge loan 20 billion 120day bridge loan provide financing acquisition st jude medical facility terminated discussed • november 2016 abbott issued 151 billion medium longterm debt primarily fund cash portion acquisition st jude medical abbott also entered interest rate swap contracts totaling 30 billion related new debt swaps effect changing abbotts obligation fixed interest rate variable interest rate obligation related debt instruments 152 billion component commitment bridge term loan facility terminated november 2016 abbott issued 151 billion longterm debt • december 2016 abbott formalized 20 billion component bridge term loan facility entered 120day bridge term loan facility provided abbott ability borrow 20 billion unsecured basis partially fund st jude medical acquisition january 4 2017 part funding cash portion st jude medical acquisition abbott borrowed 20 billion 120day senior unsecured bridge term loan facility repaid first quarter 2017 • first quarter 2017 part acquisition st jude medical approximately 59 billion st jude medicals debt assumed repaid refinanced abbott included exchange certain st jude medical debt obligations aggregate principal amount approximately 29 billion approximately 29 billion debt issued abbott following exchange approximately 1942 million existing st jude medical notes remained outstanding significant costs associated exchange debt addition first quarter 2017 abbott assumed subsequently repaid approximately 28 billion various st jude medical debt obligations • 2017 abbott borrowed 28 billion unsecured basis 5year term loan agreement borrowed 17 billion lines credit proceeds borrowings used finance acquisition alere repay certain indebtedness abbott alere pay fees expenses connection acquisition borrowings bore interest based eurodollar rate plus applicable margin based abbotts credit ratings abbott paid term loan january 2018 ahead 2022 due date paid 550 million line credit fourth quarter 2017 remaining 115 billion january 5 2018 fourth quarter 2017 conjunction acquisition alere abbott assumed subsequently repaid 30 billion aleres debt • 2017 abbott also paid 479 million yendenominated shortterm borrowing year issued 364day yendenominated debt 199 million 195 million outstanding december 31 2018 2017 respectively 2018 abbott committed reducing debt levels february 16 2018 board directors authorized early redemption 5 billion outstanding longterm notes redemptions authorization 2018 included 0947 billion principal amount 5125 notes due 2019 2850 billion principal amount 235 notes due 2019 abbott incurred net charge 14 million related early repayment debt september 17 2018 abbott repaid upon maturity 500 million aggregate principal amount outstanding 200 senior notes due 2018 september 27 2018 abbotts wholly owned subsidiary abbott ireland financing dac completed euro debt offering €3420 billion longterm debt proceeds equated approximately 4 billion notes guaranteed abbott october 28 2018 abbott redeemed 40 billion principal amount outstanding longterm debt amount addition 5 billion authorization discussed conjunction redemption abbott unwound approximately 11 billion interest rate swaps relating 340 note due 2023 375 note due 2026 abbott incurred net charge 153 million related early repayment debt unwinding related interest rate swaps 2018 transactions described including repayment 28 billion 5year term loan 115 billion borrowings lines credit resulted net repayment approximately 83 billion debt january 25 2019 abbott notified holders 280 notes due 2020 redeem 500 million outstanding principal amount notes february 24 2019 redemption 280 notes approximately 700 million 5 billion debt redemption authorized abbotts board directors 2018 remain available september 2014 board directors authorized repurchase 30 billion abbotts common shares time program authorized 2014 abbott repurchased 362 million shares cost 17 billion 2015 104 million shares cost 408 million 2016 19 million shares cost 130 million 2018 total approximately 22 billion april 27 2016 board directors authorized issuance sale general corporate purposes 75 million common shares would result proceeds 3 billion shares issued authorization abbott declared dividends 116 per share 2018 compared 1075 per share 2017 increase approximately 8 percent dividends paid 1974 billion 2018 compared 1849 billion 2017 yearoveryear change dividends paid reflects impact increase dividend rate working capital working capital 56 billion december 31 2018 112 billion december 31 2017 decrease working capital 2018 reflects use cash repay longterm debt dividends abbott monitors credit worthiness customers establishes allowance trade receivable probable balance collected addition closely monitoring economic conditions budgetary fiscal developments abbott regularly communicates customers regarding status receivable balances including payment plans obtains positive confirmation validity receivables abbott also monitors potential periodically utilized factoring arrangements mitigate credit risk although receivables included arrangements historically material amount total outstanding receivables venezuela operations since january 2010 venezuela designated highly inflationary economy us gaap february 17 2016 venezuelan government announced threetier exchange rate system would reduced two rates renamed dipro dicom rates dipro official rate food medicine imports adjusted 63 10 bolivars per us dollar dicom rate floating market rate published daily venezuelan central bank end first quarter 2016 approximately 263 bolivars per us dollar result decreasing government approvals convert bolivars us dollars pay intercompany accounts well accelerating deterioration economic conditions country abbott concluded appropriate move dicom rate end first quarter 2016 result abbott recorded foreign currency exchange loss 480 million 2016 revalue net monetary assets venezuela revaluation abbotts investment venezuelan operations significant capital expenditures capital expenditures 14 billion 2018 11 billion 2017 11 billion 2016 principally upgrading expanding manufacturing research development facilities equipment various segments investments information technology laboratory instruments placed customers contractual obligations table summarizes abbotts estimated contractual obligations december 31 2018 apurchase commitments purchases made normal course business meet operational capital expenditure requirements bother longterm liabilities include estimated payments transition tax tcja net applicable credits cnet unrecognized tax benefits totaling approximately 465 million excluded table abbott unable reasonably estimate period cash settlement respective taxing authorities items see note 15 taxes earnings continuing operations details company employee benefit obligations consisting pensions postemployment benefits including medical life excluded table discussion companys pension postretirement plans including funding matters included note 14 postemployment benefits contingent obligations abbott periodically entered agreements companies ordinary course business assignment product rights resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote addition abbott periodically acquires business product rights abbott agrees pay contingent consideration based attaining certain thresholds based occurrence certain events legislative issues abbotts primary markets highly competitive subject substantial government regulations throughout world abbott expects debate continue availability method delivery payment health care products services possible predict extent abbott health care industry general might adversely affected factors future complete discussion factors contained item 1 business item 1a risk factors recently issued accounting standards february 2018 fasb issued asu 201802 reclassification certain tax effects accumulated comprehensive income allows companies reclassify stranded tax effects resulting tcja accumulated comprehensive income loss retained earnings employed business standard would become effective abbott beginning first quarter 2019 early adoption permitted abbott elected adopt new standard beginning fourth quarter 2018 result adoption new standard approximately 337 million stranded tax effects reclassified accumulated comprehensive income loss earnings employed business august 2017 fasb issued asu 201712 targeted improvements accounting hedging activities makes changes designation measurement guidance qualifying hedging relationships presentation hedge results standard would become effective abbott beginning first quarter 2019 early adoption permitted abbott elected early adopt asu 201712 fourth quarter 2018 impact adopting standard significant abbotts consolidated balance sheet consolidated statement earnings march 2017 fasb issued asu 201707 compensation retirement benefits topic 715 improving presentation net periodic pension cost net periodic postretirement benefit cost changes financial statement presentation requirements pension postretirement benefit expense service cost continues reported financial statement line items current employee compensation costs asu requires components pension postretirement benefit expense presented separately service cost outside subtotal income operations standard adopted abbott beginning first quarter 2018 change presentation components pension cost per year applied retrospectively result approximately 160 million net pensionrelated income per year moved operating lines consolidated statement earnings nonoperating income 2017 2016 november 2016 fasb issued asu 201618 statement cash flows restricted cash requires restricted cash included cash equivalents reconciling beginning endofperiod total amounts shown statement cash flows abbott adopted standard beginning first quarter 2018 applied guidance retrospectively periods presented abbott restricted cash balances periods presented except 75 million restricted cash acquired part alere acquisition october 2017 restrictions cash eliminated prior end 2017 october 2016 fasb issued asu 201616 income taxes topic 740 intraentity transfers assets inventory requires recognition income tax effects intercompany sales transfers assets inventory period transfer occurs abbott adopted standard january 1 2018 using modified retrospective approach recorded cumulative catchup adjustment earnings employed business consolidated balance sheet significant august 2016 fasb issued asu 201615 statement cash flows classification certain cash receipts cash payments clarifies companies present classify certain cash receipts cash payments statement cash flows asu became effective abbott first quarter 2018 material impact companys consolidated statement cash flows february 2016 fasb issued asu 201602 leases requires lessees recognize assets liabilities leases balance sheet standard becomes effective abbott beginning first quarter 2019 abbott completed detailed review leases abbott use modified retrospective approach package practical expedients allows abbott carry forward historical lease classification existing expired leases account lease nonlease components single lease component lessee arrangements abbott expect new lease accounting standard material impact amounts reported consolidated statement earnings result adopting asu 201602 abbott expects record approximately 800 million 900 million right use assets lease liabilities operating leases consolidated balance sheet january 2016 fasb issued asu 201601 financial instruments recognition measurement financial assets financial liabilities provides new guidance recognition measurement presentation disclosure financial assets liabilities abbott adopted standard january 1 2018 new standard changes fair value equity investments readily determinable fair values recorded income expense net within consolidated statement earnings previously fair value changes recorded comprehensive income abbott elected measurement alternative allowed asu 201601 equity investments without readily determinable fair values investments measured cost less impairment plus minus changes resulting observable price changes orderly transactions identical similar investment issuer changes measurement investments recorded income expense net within consolidated statement earnings part adoption cumulativeeffect adjustment earnings employed business consolidated balance sheet net unrealized losses equity investments recorded accumulated comprehensive income loss december 31 2017 significant may 2014 fasb issued asu 201409 revenue contracts customers provides single comprehensive model accounting revenue contracts customers supersedes nearly previously existing revenue recognition guidance core principle asu entity recognize revenue transfers promised goods services customers amount reflects consideration entity expects entitled exchange goods services abbott adopted new standard january 1 2018 using modified retrospective approach method entities recognize cumulative effect applying new standard date initial application restatement comparative periods presented cumulative effect applying new standard resulted increase earnings employed business consolidated balance sheet 23 million recorded january 1 2018 new standard applied contracts completed january 1 2018 impact adopting asu 201409 significant individual financial statement line items consolidated balance sheet consolidated statement earnings private securities litigation reform act 1995 caution concerning forwardlooking statements safe harbor provisions private securities litigation reform act 1995 abbott cautions investors forwardlooking statements projections made abbott including made document subject risks uncertainties may cause actual results differ materially projected economic competitive governmental technological factors may affect abbotts operations discussed item 1a risk factors item 7a item 7 management’s discussion analysis financial condition results operations financial review abbott’s revenues derived primarily sale broad line health care products shortterm receivable arrangements patent protection licenses technological performance features inclusion abbott’s products contract pharmacy benefit manager impact products sold price controls competition rebates impact net selling prices products foreign currency translation impacts measurement net sales abbott’s primary products prescription pharmaceuticals nutritional products vascular products diagnostic testing products abbott also owns 50 percent tap pharmaceutical products inc abbott accounts equity method worldwide launch humira acquisition guidant’s vascular business amendment boehringer ingelheim agreement loss patent protection pharmaceutical products impacted abbott’s sales costs financial position last three years pharmaceutical research development focused therapeutic areas include immunology oncology neuroscience metabolism viral diseases 2003 abbott began worldwide launch humira increased worldwide sales 20 billion 2006 compared 14 billion 2005 substantial research development selling support continues dedicated maximizing worldwide potential humira december 2006 abbott acquired kos pharmaceuticals complements abbott’s existing franchise dyslipidemia market strengthens latestage midterm pharmaceutical pipeline opportunities cholesterol management asthma inhaled insulin 2005 abbott boehringer ingelheim bi amended agreement whereby abbott distributed promoted bi products effective january 1 2006 abbott longer distributed recorded sales distribution activities bi products abbott’s gross margins bi products prior agreement effect december 31 2005 substantially lower average gross margins sales bi products 150 million 23 billion 2006 2005 respectively addition increased generic competition resulted worldwide sales clarithromycin declining 23 percent 2006 2005 2006 abbott’s nutritional products businesses reorganized worldwide business better leverage opportunities available strong nutritional brands significant efforts focused capturing opportunities particularly developing markets april 2006 abbott acquired guidant’s vascular intervention endovascular solutions businesses began integrate abbott’s vascular business acquisition significantly improved abbott’s competitive position business characterized rapid innovation 2006 abbott received european union approval market xience v drug eluting stent abbott’s diagnostic segment comprised four separate divisions immunoassayhematology diabetes care molecular point care early 2004 abbott acquired therasense 12 billion began integrate abbott’s diabetes care business january 2007 abbott announced agreed sell core laboratory diagnostics business including abbott point care ge 813 billion cash abbott expects sale close first half 2007 abbott’s molecular diagnostics diabetes care businesses part transaction remain part abbott’s short longterm debt totaled 124 billion december 31 2006 largely incurred finance recent acquisitions operating cash flows excess capital expenditures cash dividends allowed abbott fund acquisitions last three years december 31 2006 abbott’s longterm debt rating aa standard poor’s corporation a1 moody’s investors service 2007 abbott focus several key initiatives pharmaceutical business abbott continue launch newly approved indications humira also focus integration kos pharmaceuticals pharmaceutical products segment pharmaceutical research development efforts continue focus therapeutic areas noted significant portion development expenditures allocated new humira indications abbott expects submit additional pharmaceutical regulatory filings 2007 vascular business abbott continue launch xience v drugeluting stent europe launch us upon approval fda diabetes care abbott anticipates approval freestyle navigator effort also required sale separation abbott’s core laboratory point care diagnostics businesses business segments abbott focus developing acquiring differentiated technologies higher growth segments markets critical accounting policies sales rebates approximately 40 percent abbott’s consolidated gross revenues subject various forms rebates allowances abbott records reductions revenues time sale rebates allowances pharmaceutical products segment nutritional products segment abbott provides rebates pharmacy benefit management companies state agencies administer federal medicaid medicare programs special supplemental food program women infants children wic wholesalers group purchasing organizations government agencies private entities rebate amounts usually based upon volume purchases using contractual statutory prices product factors used rebate calculations include identification products sold subject rebate customer government agency price terms apply estimated lag time sale payment rebate using historical trends adjusted current changes abbott estimates amount rebate paid records liability reduction gross sales abbott records sale product settlement rebate generally occurs two 24 months sale abbott regularly analyzes historical rebate trends makes adjustments reserves changes trends terms rebate programs rebates chargebacks charged gross sales 2006 2005 2004 amounted approximately 26 billion 25 billion 24 billion respectively 232 percent 229 percent 256 percent respectively based gross sales approximately 110 billion 109 billion 93 billion respectively subject rebate onepercentage point increase percentage rebates related gross sales would decrease net sales operating earnings approximately 110 million 2006 allowances charged gross sales approximately 247 million 284 million 233 million cash discounts 2006 2005 2004 respectively 209 million 162 million 163 million returns 2006 2005 2004 respectively cash discounts known within 15 30 days sale therefore reliably estimated returns reliably estimated abbott’s historical returns low sales returns terms sales terms remained relatively unchanged several periods management analyzes adequacy ending rebate accrual balances quarter domestic nutritional business management uses internal external data available estimate level inventory distribution channel management internally estimates inventory retail channel retail shelf third party continuously measures time retail shelf relatively significant portion time inventory distribution channel except transition period change supplier wic business state inventory distribution channel vary substantially management also estimates states’ processing lag time based claims data addition internal processing time factor estimating accrual wic business state sale made determining factor applicable price reliably estimable estimates required amount wic sales within state abbott wic business external data sources utilized estimate participant data us department agriculture usda administers wic program participant data states internally administered market surveys usda making data available many years internal data includes historical redemption rates pricing data december 31 2006 abbott exclusive wic business 11 states domestic pharmaceutical business significant charges gross sales medicaid medicare rebates pharmacy benefit manager rebates wholesaler chargebacks order evaluate adequacy ending accrual balances management uses internal external estimates level inventory distribution channel rebate claims processing lag time external data sources used estimate inventory distribution channel include inventory levels periodically reported wholesalers third party market data purchased abbott management estimates processing lag time based periodic sampling claims data estimate price rebate percentage systems calculations used track sales product customer estimate contractual statutory price abbott’s systems calculations developed time rebates become significant abbott believes reliable following table analysis four largest rebate accruals comprise approximately 76 percent consolidated rebate provisions charged revenues 2006 remaining rebate provisions charged gross sales significant determination operating earnings dollars thousands adjustments prior years’ rebate accruals material abbott employs various techniques verify accuracy claims submitted possible works organizations submitting claims gain insight changes might affect rebate amounts medicaid medicare government agency programs calculation rebate involves interpretations relevant regulations subject challenge change interpretation income taxes abbott operates numerous countries income tax returns subject audits adjustments abbott operates globally nature audit items often complex objectives government auditors result tax income one country abbott employs internal external tax professionals minimize audit adjustment amounts possible part abbott’s calculation provision taxes earnings abbott records amount expects incur result audits quarter abbott reviews exposures accordance statement financial accounting standards sfas 5 “accounting contingencies” us abbott’s federal income tax returns 2003 settled income tax returns years 2003 open except taxes dividends remitted american jobs creation act 2004 abbott record deferred income taxes earnings reinvested indefinitely foreign subsidiaries january 1 2007 abbott must adopt provisions fasb interpretation 48 “accounting uncertainty income taxes” changes measurement tax contingencies interpretation order recognize uncertain tax benefit taxpayer must likely sustaining position measurement benefit calculated largest amount 50 percent likely realized upon resolution benefit interpretation result significantly effort assess tax uncertainties required sfas 5 may result initial recording tax expense exceeds expected resolution tax uncertainties adoption interpretation expected material effect abbott’s january 1 2007 balance sheet 2007 provision income taxes pension postemployment benefits abbott offers pension benefits postemployment health care many employees abbott engages outside actuaries calculate obligations costs programs abbott must develop longterm assumptions significant health care cost trend rate discount rate expected return plan assets discount rates used measure liabilities december 31 2006 2005 determined based highquality fixed income securities match duration expected retiree benefits prior december 31 2005 discount rate determined reference composite corporate aa bond index health care cost trend rate represents abbott’s expected annual rates change cost health care benefits forward projection health care costs measurement date difference assumed rates actual rates known decades significant relation obligations annual cost recorded programs recent low interest rates significantly increased actuarial losses plans december 31 2006 pretax net actuarial losses prior service costs credits recognized accumulated comprehensive income loss abbott’s defined benefit plans medical dental plans 14 billion 537 million respectively actuarial losses gains amortized remaining service periods employees corridor method accordance rules accounting postemployment benefits differences expected longterm return plan assets actual annual return amortized fiveyear period footnote 4 consolidated financial statements describes impact onepercentage point change health care cost trend rate however certainty change would limited one percentage point december 31 2006 abbott adopted provisions sfas 158 “employers’ accounting defined benefit pension postretirement plans” provisions statement require immediate recognition deferrals balance sheet corresponding charge accumulated comprehensive income loss adoption statement december 31 2006 resulted decrease abbott’s shareholders’ equity approximately 13 billion valuation intangible assets abbott acquired continues acquire significant intangible assets abbott records fair value assets yet regulatory approval alternative uses expensed acquired inprocess research development regulatory approval capitalized transactions involving purchase sale intangible assets occur frequency companies health care field valuations usually based discounted cash flow analysis discounted cash flow model requires assumptions timing amount future net cash inflows risk cost capital terminal values factors significantly affect value intangible asset abbott engages independent valuation experts review abbott’s critical assumptions calculations significant acquisitions intangibles abbott reviews intangible assets impairment quarter using undiscounted net cash flows approach undiscounted cash flows intangible asset less carrying value intangible asset intangible asset written fair value usually discounted cash flow amount cash flows cannot identified individual asset review applied lowest group level cash flows identifiable goodwill reviewed impairment annually event could result impairment goodwill occurs december 31 2006 goodwill intangibles amounted 94 billion 64 billion respectively amortization expense intangible assets amounted 575 million 2006 impairments goodwill 2006 2005 2004 december 31 2006 valuations guidant kos acquisitions finalized litigation abbott accounts litigation losses accordance sfas 5 “accounting contingencies” sfas 5 loss contingency provisions recorded probable losses management’s best estimate loss best estimate cannot made minimum loss contingency amount recorded estimates often initially developed substantially earlier ultimate loss known estimates refined accounting period additional information becomes known accordingly abbott often initially unable develop best estimate loss therefore minimum amount could zero recorded information becomes known either minimum loss amount increased resulting additional loss provisions best estimate made also resulting additional loss provisions occasionally best estimate amount changed lower amount events result expectation favorable outcome previously expected except one group cases relating pharmaceutical pricing abbott unable estimate loss abbott estimates range possible loss approximately 165 million 295 million legal proceedings environmental exposures reserves approximately 200 million recorded december 31 2006 proceedings exposures reserves represent management’s best estimate probable loss defined sfas 5 stock compensation december 31 2005 abbott measured compensation cost using intrinsic valuebased method accounting stock options granted employees disclosed impact fair value method footnotes consolidated financial statements january 1 2006 abbott adopted sfas 123 revised 2004 “sharebased payment” requires fair value recorded results operations since market trading employee stock options management must use fair value method certainty results fair value method would value employee stock options would traded cash fair value methods require management make several assumptions significant selection fair value model stock price volatility average life option abbott readily available grantbygrant historical activity several years option administration system uses developing assumptions abbott uses blackscholes method value stock options results blackscholes model periodically compared binomial model results comparable abbott uses historical volatility stock price implied volatility currently traded options develop volatility assumptions abbott uses historical grant activity combined expectations future exercise activity develop average life assumptions abbott also used historical grant data evaluate whether certain holders stock options exercised options differently holders found differentiating pattern among holders abbott quantified additional paid capital amount available use determining tax effects early exercise measurement tax expense abbott used modified prospective method adoption method prior years’ financial results include impact recording stock options using fair value footnote 9 quantifies effect 2005 2004 compensation cost determined using fair value method results operations sales following table details components sales growth reportable segment last three years pharmaceutical products segment agreement boehringer ingelheim bi copromote distribute three products us 2005 abbott bi amended agreement effective january 1 2006 abbott longer distributed recorded sales distribution activities bi products increases sales 2006 excluding bi products 116 percent total net sales 123 percent total us sales 78 percent pharmaceutical products segment sales comparison significant product group sales follows percent changes versus prior year based unrounded numbers increased sales volume humira increased volume price kaletra depakote favorably impacted us specialty sales increased sales volume tricor omnicef favorably impacted us primary care sales partially offset lower us sales biaxin due primarily generic competition immediaterelease formulation us sales biaxin 151 million 306 million 458 million 2006 2005 2004 respectively increased sales volume humira favorably impacted international pharmaceuticals sales partially offset decreased sales volume 2006 due generic competition clarithromycin diabetes care product sales growth 2005 2004 favorably impacted acquisition therasense second quarter 2004 decrease sales us pediatric nutritionals 2005 primarily due overall infant nutritionals nonwic category decline competitive share loss international pediatric nutritionals sales increases due primarily volume growth developing countries us adult nutritionals sales 2005 2004 favorably impacted acquisition eas fourth quarter 2004 abbott periodically sold product rights nonstrategic products recorded related gains net sales accordance abbott’s revenue recognition policies discussed footnote 1 consolidated financial statements related net sales 199 million 2006 177 million 2005 144 million 2004 expiration licenses patent protection generic competition affect future revenues operating income abbott significant ongoing generic activities significant patent license expirations next three years follows us composition matter patent depakote expires 2008 abbott holds noncomposition matter patents extended release form depakote us sales depakote 2006 12 billion 2004 fda granted approval generic competition synthroid generic competitors entered market us sales synthroid 470 million 2006 498 million 2005 clarithromycin subject generic competition european markets european market sales clarithromycin 2006 2005 329 million 416 million respectively us clarithromycin marketed two forms immediate release extended release forms may 2005 composition matter patent clarithromycin expired several immediate release generic products launched competitors abbott holds noncomposition matter patents extended release form clarithromycin december 2006 extended release generic product launched competitor us district court northern district illinois denied abbott’s request grant temporary restraining order competitor may generic competition clarithromycin countries 2007 depending results legal proceedings related patents upon december 2005 expiration court order related licenses sevoflurane baxter permitted market competitive form sevoflurane addition sevoflurane subject generic competition competitors isolated markets outside us generic competition international markets possible worldwide sales sevoflurane 2006 2005 799 million 874 million respectively composition matter patent omnicef expires may 2007 abbott holds additional noncomposition matter patent omnicef sales omnicef 2006 2005 637 million 495 million respectively pharmaceutical products segment markets products patent prevacid licensed tap pharmaceuticals tap expires 2009 abbott records tap’s results equity method operating earnings gross profit margins 563 percent net sales 2006 524 percent 2005 549 percent 2004 increase gross profit margin 2006 due favorable product mix primarily result decreased sales boehringer ingelheim products lower margins products pharmaceutical products segment decrease gross profit margin 2005 due unfavorable product mix primarily result increased sales boehringer ingelheim products restructuring charges discussed reduced gross profit margins 2006 2005 11 percentage points 08 percentage points respectively gross profit margin 2004 impacted favorable mix effect exchange gross profit margin unfavorable product mix primarily increased sales lower margin boehringer ingelheim products pharmaceutical products segment gross profit margins years also affected productivity improvements higher project expenses new products higher manufacturing capacity costs anticipated unit growth effects inflation us states receive price rebates manufacturers infant formula federally subsidized special supplemental food program women infants children also rebate programs pharmaceutical products rebate programs continue negative effect gross profit margins nutritional pharmaceutical products segments addition pricing pressures unfavorably impacted gross profit margins nutritional products segment 2006 2005 2004 gross profit margins pharmaceutical products segment favorably impacted 2006 unfavorably impacted 2005 2004 product mix favorable product mix 2006 due decreased sales lower margin boehringer ingelheim products unfavorable product mix 2005 2004 due primarily increased sales lower margin boehringer ingelheim products higher manufacturing costs research development expense excluding acquired inprocess collaborations research development 23 billion 2006 18 billion 2005 17 billion 2004 represented increases 238 percent 2006 73 percent 2005 45 percent 2004 effect recording compensation expense relating sharebased awards additional costs associated abbott’s decision discontinue commercial development zomaxx drugeluting stent increased research development expenses 63 percentage points 2005 remaining increase due acquisition guidant’s vascular intervention endovascular solutions businesses increased spending support pipeline programs including followon indications humira latestage clinical programs pharmaceuticals diabetes care vascular majority research development expenditures concentrated pharmaceutical products selling general administrative expenses increased 155 percent 2006 compared increases 117 percent 2005 24 percent 2004 2006 includes effect recording compensation expense relating sharebased awards philanthropic contribution abbott fund acquisition guidant’s vascular intervention endovascular solutions businesses items increased selling general administrative expenses 86 percentage points 2005 restructuring charges discussed increase bad debt reserve associated unfavorable court ruling increased percent change 2004 27 percentage points 2005 2003 abbott recorded selling general administrative expenses pretax charge 614 million related settlement 2003 charge reduced increase selling general administrative expenses 150 percentage points 2004 remaining increases selling general administrative expenses due primarily increased selling marketing support new existing products including continued spending humira well spending marketed pharmaceutical products increases also reflect effects acquisitions therasense eas 2004 increases three years also reflect inflation additional selling marketing support primarily pharmaceutical products segment restructurings dollars millions 2006 2005 abbott management approved plans realign worldwide pharmaceutical manufacturing operations selected domestic international commercial research development operations order reduce costs 2006 2005 abbott recorded pretax charges earnings approximately 210 256 respectively reflecting impairment manufacturing facilities assets employee severance related charges approximately 181 174 respectively classified cost products sold 29 10 respectively research development 72 2005 selling general administrative additional 70 14 subsequently recorded 2006 2005 respectively relating restructurings primarily accelerated depreciation result product reregistration timelines required manufacturing regulations number countries manufacturing related realignments expected continue 2007 following summarizes activity restructurings abbott expects incur additional 128 future periods restructuring plans primarily accelerated depreciation net interest expense net interest expense increased 2006 due primarily higher borrowings result acquisition guidant’s vascular intervention endovascular solutions businesses abbott’s investments common stock boston scientific note receivable partially offset higher interest income expense net increase income expense 2006 primarily due fairvalue gain adjustments certain derivative financial instruments related investment boston scientific common stock taxes earnings effective income tax rates income continuing operations 246 percent 2006 270 percent 2005 230 percent 2004 taxes earnings 2006 reflect effect tax rates applied acquired inprocess collaborations research development resolution prior years’ income tax audits effect discrete tax events 2006 tax rates applied acquired inprocess collaborations research development increased effective tax rate 66 percentage points effect income tax audit resolution discrete tax events decreased effective tax rate 55 percentage points 2005 abbott remitted 43 billion foreign earnings accordance american jobs creation act 2004 recorded additional tax expense 245 million increased effective tax rate approximately 53 percentage points partially offset adjustments prior years’ tax accounts resulting primarily resolution prior years’ accrual requirements decreased effective tax rate 23 percentage points effective tax rate 2004 reflects adjustments prior years’ tax requirements primarily result resolutions prior years’ tax audits effect nondeductible acquired inprocess research development effect items 2004 decrease effective tax rate approximately 12 percentage points abbott expects apply annual effective rate approximately 225 percent 2007 spinoff abbott’s core hospital products business 2004 abbott’s board directors declared special dividend distribution outstanding shares common stock hospira inc payable april 30 2004 hospira included operations relating manufacture sale hospital products including specialty injectable pharmaceuticals medication delivery systems critical care devices injectable pharmaceutical contract manufacturing hospira included abbott’s hospital products segment’s reorganization january 1 2004 portions former international segment income cash flows hospira direct transaction costs spinoff presented discontinued operations consolidated statement earnings statement cash flows abbott retained liabilities taxes income prior spinoff defined benefit postemployment medical dental plan obligations assets spinoff hospira’s us retired employees us retirement eligible employees certain potential liabilities related alleged improper pricing practices prior spinoff connection federal state private reimbursement certain drugs business combinations technology acquisitions related transactions december 2006 abbott acquired kos pharmaceuticals inc cash approximately 38 billion net cash held kos pharmaceuticals expand abbott’s presence lipid management market provide several onmarket latestage pipeline products kos pharmaceuticals inc specialty pharmaceutical company develops markets proprietary medications treatment chronic cardiovascular metabolic respiratory diseases business acquired december 13 2006 financial results acquired operations included financial statements beginning date acquisition financed primarily shortterm debt preliminary allocation acquisition cost shown table millions dollars acquired intangible assets amortized 1 15 years nondeductible acquired inprocess research development charged income 2006 net tangible assets acquired consist primarily trade accounts receivable inventories property equipment net assumed liabilities primarily accrued salaries wages liabilities order expand abbott’s presence growing vascular market abbott acquired guidant’s vascular intervention endovascular solutions businesses approximately 41 billion cash connection boston scientific’s acquisition guidant businesses acquired april 21 2006 financial results acquired operations included financial statements beginning date addition abbott also pay boston scientific 250 million upon government approvals market xience v drugeluting stent us japan 250 million payment result recording additional goodwill preliminary allocation acquisition cost shown table millions dollars valuation intellectual property including intangible assets acquired inprocess research development substantially complete valuations assets liabilities preliminary allocation finalized certain information regarding assets liabilities known acquired intangible assets amortized 3 15 years average approximately 10 years tax deductible acquired inprocess research development charged income 2006 net tangible assets acquired consist primarily property equipment approximately 530 million trade accounts receivable approximately 250 million inventories approximately 120 million net assumed liabilities primarily trade accounts payable litigation reserves liabilities order facilitate boston scientific’s acquisition guidant abbott also acquired 646 million shares boston scientific common stock directly boston scientific loaned 900 million whollyowned subsidiary boston scientific abbott required dispose shares october 2008 sales shares limited approximately 54 million shares per month october 2007 amount recorded upon acquisition shares includes discount market based appraisal reflect value restrictions sale date acquisition half shares recorded available sale accordance sfas 115 remainder cost method accordance apb 18 december 31 2006 shares recorded available sale accordance sfas 115 loan due april 2011 guaranteed boston scientific bears favorable effective interest rate 4 percent reflected valuation note receivable connection acquisition shares boston scientific entitled certain aftertax gains upon abbott’s sale shares abbott would retain gains sale boston scientific shares sales price 2383 boston scientific would receive aftertax gains sale shares portion sales price excess 2383 lower 2600 boston scientific would receive onehalf aftertax gain portion sales price excess 2599 based appraisal abbott recorded approximately 114 million gainsharing derivative financial instrument liability addition boston scientific agreed reimburse abbott certain borrowing costs debt incurred acquire boston scientific shares abbott incurs first 10 million interest cost debt incurred acquire shares boston scientific reimburse abbott next 60 million interest cost reimbursement incremental interest cost form additional common stock boston scientific payable 18 months acquisition abbott recorded approximately 55 million interest derivative financial instrument asset effect recording shares loan boston scientific derivative financial instruments fair value date acquisition resulted recording additional goodwill approximately 204 million financial assets liability acquired boston scientific valued recorded acquisition follows millions dollars 2005 abbott acquired remaining interest small medical products company previously accounted equity method accounting less 50 percent equity interest small medical products company aggregate cash purchase price approximately 25 million acquisition accounting resulted recording nontax deductible goodwill approximately 69 million intangible assets approximately 22 million charge approximately 17 million acquired inprocess research development 2005 abbott acquired additional rights related humira approximately 270 million amortized 13 years 2004 abbott acquired therasense inc leader development manufacturing marketing blood glucose selfmonitoring systems approximately 12 billion cash istat corporation manufacturer pointofcare diagnostic products blood analysis approximately 394 million cash eas nutritional company portfolio nationally recognized brands approximately 320 million cash spine next manufacturer orthopedic spinal implant devices approximately 58 million cash plus additional milestone payments 23 million upon achievement future targets abbott also acquired certain product technologies approximately 352 million acquisitions resulted charge 271 million acquired inprocess research development intangible assets approximately 13 billion nontax deductible goodwill approximately 923 million deferred income taxes approximately 406 million acquired intangible assets primarily trade names amortized 5 20 years average approximately 14 years acquisitions taken place january 1 previous year consolidated net sales income would significantly different reported amounts subsequent event announced sales businesses january 18 2007 abbott announced agreed sell core laboratory diagnostics business including abbott point care ge 813 billion cash sale expected close first half 2007 subject customary closing conditions including regulatory approvals carrying amount assets liabilities included sale estimated approximately 26 billion net sales businesses approximately 27 billion 2006 abbott estimates tax expense approximately 20 billion recorded gain financial condition cash flow net cash operating activities continuing operations amounted 53 billion 50 billion 43 billion 2006 2005 2004 respectively increase cash operating activities 2006 compared 2005 due higher net earnings adjusted aftertax noncash charges acquired inprocess research development sharebased compensation higher contributions retirement benefit plans 2005 compared 2006 partially offset higher income tax payments 2006 including tax payments related 2005 remittances foreign earnings american jobs creation act 2006 2005 2004 200 million 641 million 482 million respectively contributed main domestic defined benefit plan abbott expects pension funding main domestic pension plan 200 million annually increased contribution 2005 due part investment cash remitted american jobs creation act 2004 abbott expects annual cash flow operating activities continue exceed abbott’s capital expenditures cash dividends debt capital december 31 2006 abbott’s longterm debt rating aa standard poor’s corporation a1 moody’s investors service abbott readily available financial resources including unused lines credit 70 billion including 4 billion shortterm facility support commercial paper borrowing arrangements subsequent announced potential acquisition kos pharmaceuticals inc standard poor’s affirmed current debt ratings abbott maintained current “stable” outlook moody’s investors service affirmed current debt ratings abbott affirmed current “negative” outlook october 2006 board directors authorized purchase 25 billion abbott’s common shares time shares purchased authorization 2006 2005 2004 abbott purchased approximately 173 million 300 million 117 million respectively common shares prior authorizations cost approximately 755 million 13 billion 500 million respectively registration statement filed securities exchange commission february 2006 abbott issued 40 billion longterm debt 2006 matures 2009 2016 interest rates ranging 5375 percent 5875 percent proceeds debt used pay domestic commercial paper borrowings incurred partially fund acquisition guidant’s vascular intervention endovascular solutions businesses acquisition kos pharmaceuticals financed primarily commercial paper borrowings addition commercial paper borrowings used repay 19 billion longterm debt 2006 2005 abbott borrowed 19 billion longterm debt matures may 2008 variable interest rates libor 2006 16 billion debt paid prior maturity 2004 abbott issued 15 billion longterm debt matures 2009 2014 interest rates ranging 35 percent 435 percent working capital december 31 2006 current liabilities exceeded current assets approximately 669 million result increased shortterm borrowings used acquire kos pharmaceuticals december 2006 working capital 40 billion december 31 2005 39 billion december 31 2004 capital expenditures capital expenditures 13 billion 2006 12 billion 2005 13 billion 2004 principally upgrading expanding manufacturing research development investments information technology administrative support facilities segments laboratory instruments placed customers contractual obligations following table summarizes abbott’s estimated contractual obligations december 31 2006 purchase commitments purchases made normal course business meet operational capital expenditure requirements contingent obligations abbott periodically entered agreements ordinary course business assignment product rights companies resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote addition abbott periodically acquires small companies product rights abbott agrees pay contingent consideration based attaining certain thresholds connection acquisition common shares boston scientific boston scientific entitled certain aftertax gains upon abbott’s sales boston scientific shares addition abbott retained liabilities taxes income prior spinoff hospira certain potential liabilities related alleged improper pricing practices connection federal state private reimbursement certain drugs recently issued accounting standards july 2006 fasb issued interpretation 48 “accounting uncertainty income taxes” interpretation requires recorded tax benefit must likely sustained upon examination tax authorities based upon technical merits amount benefit recorded largest amount benefit greater 50 percent likely realized upon ultimate settlement upon adoption adjustment recorded directly beginning retained earnings interpretation effective abbott beginning later january 1 2007 abbott yet adopted provisions interpretation adoption interpretation expected material effect abbott’s january 1 2007 balance sheet 2007 provision income taxes september 2006 fasb issued statement financial accounting standards sfas 157 “fair value measurements” new statement establishes framework measuring fair value generally accepted accounting principles expands disclosures fair value measurements statement effective fiscal years beginning november 15 2007 adoption provisions statement expected material effect results operations financial position abbott legislative issues august 2006 president united states signed pension protection act 2006 among things act establishes new minimum funding requirements plan years beginning 2008 abbott expect act significantly impact future fundings domestic defined benefit pension plans abbott’s primary markets highly competitive subject substantial government regulation throughout world abbott expects debate continue availability method delivery payment health care products services abbott believes legislation enacted could effect reducing access health care products services reducing prices rate price increases health care products services possible predict extent abbott health care industry general might adversely affected factors future complete discussion factors contained item 1 business item 1a risk factors form 10k private securities litigation reform act 1995 caution concerning forwardlooking statements safe harbor provisions private securities litigation reform act 1995 abbott cautions investors forwardlooking statements projections made abbott including made document subject risks uncertainties may cause actual results differ materially projected economic competitive governmental technological factors may affect abbott’s operations discussed 1a risk factors annual report form 10k item 7a item 7 managements discussion analysis financial condition results operations financial review abbotts revenues derived primarily sale broad line health care products shortterm receivable arrangements patent protection licenses technological performance features inclusion abbotts products contract pharmacy benefit manager impact products sold price controls competition rebates impact net selling prices products foreign currency translation impacts measurement net sales costs abbotts primary products prescription pharmaceuticals nutritional products diagnostic testing products vascular products sales international markets approximately 50 percent consolidated net sales worldwide launch additional indications humira conclusion tap pharmaceutical products inc joint venture acquisitions kos pharmaceuticals inc guidants vascular intervention endovascular solutions businesses followed launch xience v drug eluting stent amendment ending us synagis copromotion agreement loss patent protection pharmaceutical products realized gains unrealized losses boston scientific common stock impacted abbotts sales costs financial position last three years pharmaceutical research development focused therapeutic areas include immunology oncology neuroscience pain management infectious diseases 2003 abbott began worldwide launch humira rheumatoid arthritis followed launches five additional indications increased humiras worldwide sales 45 billion 2008 compared 30 billion 2007 20 billion 2006 abbott forecasts worldwide humira sales increase 25 percent 2009 abbott studying two additional indications humira substantial research development selling support continues dedicated maximizing worldwide potential humira december 2006 abbott acquired kos pharmaceuticals inc complemented abbotts existing franchise dyslipidemia market strengthened pharmaceutical pipeline cholesterol management abbotts trilipix nextgeneration product management triglycerides first product approved use combination statin launched 2008 increased generic competition resulted us sales omnicef declining 637 million 2006 25 million 2008 worldwide sales clarithromycin declining 816 million 2006 651 million 2008 abbott seen generic competition begin second half 2008 depakote us sales 13 billion 2008 december 31 2006 us copromotion agreement synagis terminated revenues copromotion synagis 373 million 2006 2007 abbotts nutritional products businesses reorganized worldwide business better leverage opportunities available strong nutritional brands significant efforts focused capturing opportunities particularly developing markets growth strong april 2006 abbott acquired guidants vascular intervention endovascular solutions businesses began integrate abbotts vascular business acquisition significantly improved abbotts competitive position business characterized rapid innovation 2008 abbott received fda approval market xience v drug eluting stent us 2006 received european union approval xience v became marketleading drug eluting stent us fourth quarter 2008 april 2006 abbott acquired 646 million shares boston scientific connection abbotts acquisition vascular intervention endovascular solutions businesses guidant 2007 net loss charged expense investment 153 million december 31 2007 abbott held 264 million shares boston scientific common stock 2008 shares sold resulting small gain abbotts short longterm debt totaled 114 billion december 31 2008 largely incurred finance recent acquisitions operating cash flows excess capital expenditures cash dividends partially funded acquisitions last three years december 31 2008 abbotts longterm debt rating aa standard poors corporation a1 moodys investors service abbotts access shortterm financing affected recent credit market conditions april 2008 abbott takeda concluded tap pharmaceutical products inc tap joint venture evenly splitting value assets joint venture taxfree exchange abbott received taps lupron business exchange abbotts 50 percent ownership tap luprons us results included pharmaceutical products segment beginning may 2008 2009 abbott focus several key initiatives abbott announced agreement acquire advanced medical optics inc amo new line business january 2009 investment amo approximately 28 billion including debt financed operating cash flow debt amos sales 1 billion per year pharmaceutical business abbott continue maximizing market potential humira continue leverage product pipeline opportunities lipid franchise pharmaceutical research development efforts continue focus therapeutic areas noted significant portion development expenditures allocated new humira indications trilipixcrestor fixed dose combination abt874 biologic psoriasis crohns disease pain relief medication well several phase ii clinical programs neuroscience oncology hepatitis c vascular business abbott continue launch xience v drugeluting stent us fdas approval 2008 focus development next generation drug eluting stent bioabsorbable stent diabetes care abbott build upon 2008 launch freestyle freedom lite monitor us business segments abbott focus developing acquiring differentiated technologies higher growth segments markets critical accounting policies sales rebates approximately 47 percent abbotts consolidated gross revenues subject various forms rebates allowances abbott records reductions revenues time sale rebates allowances pharmaceutical products segment nutritional products segment abbott provides rebates pharmacy benefit management companies state agencies administer federal medicaid program insurance companies administer medicare drug plans state agencies administer special supplemental nutrition program women infants children wic wholesalers group purchasing organizations government agencies private entities rebate amounts usually based upon volume purchases using contractual statutory prices product factors used rebate calculations include identification products sold subject rebate customer government agency price terms apply estimated lag time sale payment rebate using historical trends adjusted current changes abbott estimates amount rebate paid records liability reduction gross sales abbott records sale product settlement rebate generally occurs two 24 months sale abbott regularly analyzes historical rebate trends makes adjustments reserves changes trends terms rebate programs rebates chargebacks charged gross sales 2008 2007 2006 amounted approximately 38 billion 32 billion 26 billion respectively 228 percent 215 percent 232 percent respectively based gross sales approximately 168 billion 150 billion 110 billion respectively subject rebate onepercentage point increase percentage rebates related gross sales would decrease net sales approximately 168 million 2008 abbott considers onepercentage point increase reasonably likely increase percentage rebates related gross sales allowances charged gross sales approximately 362 million 325 million 247 million cash discounts 2008 2007 2006 respectively 439 million 269 million 209 million returns 2008 2007 2006 respectively cash discounts known within 15 30 days sale therefore reliably estimated returns reliably estimated abbotts historical returns low sales returns terms sales terms remained relatively unchanged several periods management analyzes adequacy ending rebate accrual balances quarter domestic nutritional business management uses internal external data available estimate level inventory distribution channel management access several large customers inventory management data customers utilizes data third party measures time retail shelf sources allow management make reliable estimates inventory distribution channel except transition period change supplier wic business state inventory distribution channel vary substantially management also estimates states processing lag time based claims data addition internal processing time factor estimating accrual wic business state sale made determining factor applicable price reliably determinable estimates required amount wic sales within state abbott wic business external data sources utilized estimate participant data us department agriculture usda administers wic program participant data states internally administered market research usda making data available many years internal data includes historical redemption rates pricing data december 31 2008 abbott exclusive wic business 24 states domestic pharmaceutical business significant charges gross sales medicaid medicare rebates pharmacy benefit manager rebates wholesaler chargebacks order evaluate adequacy ending accrual balances management uses internal external data estimate level inventory distribution channel rebate claims processing lag time external data sources used estimate inventory distribution channel include inventory levels periodically reported wholesalers third party market data purchased abbott management estimates processing lag time based periodic sampling claims data estimate price rebate percentage systems calculations used track sales product customer estimate contractual statutory price abbotts systems calculations developed time rebates become significant abbott believes reliable following table analysis four largest rebate accruals comprise approximately 70 percent consolidated rebate provisions charged revenues 2008 remaining rebate provisions charged gross sales significant determination operating earnings dollars millions historically adjustments prior years rebate accruals material net income 2007 adjustments made prior years rebate accruals medicaid medicare rebate accrual reduced approximately 69 million wic rebate accrual increased approximately 19 million abbott employs various techniques verify accuracy claims submitted possible works organizations submitting claims gain insight changes might affect rebate amounts medicaid medicare government agency programs calculation rebate involves interpretations relevant regulations subject challenge change interpretation income taxes abbott operates numerous countries income tax returns subject audits adjustments abbott operates globally nature audit items often complex objectives government auditors result tax income one country abbott employs internal external tax professionals minimize audit adjustment amounts possible january 1 2007 abbott adopted provisions fasb interpretation 48 accounting uncertainty income taxes changed measurement tax contingencies interpretation order recognize uncertain tax benefit taxpayer must likely sustaining position measurement benefit calculated largest amount 50 percent likely realized upon resolution benefit application interpretation requires significant amount judgment us abbotts federal income tax returns 2005 settled income tax returns years 2005 open abbott record deferred income taxes earnings reinvested indefinitely foreign subsidiaries pension postemployment benefits abbott offers pension benefits postemployment health care many employees abbott engages outside actuaries assist determination obligations costs programs abbott must develop longterm assumptions significant health care cost trend rates discount rates expected return plan assets discount rates used measure liabilities determined based highquality fixed income securities match duration expected retiree benefits health care cost trend rates represent abbotts expected annual rates change cost health care benefits forward projection health care costs measurement date difference assumed rates actual rates known decades significant relation obligations annual cost recorded programs negative asset returns due recent poor market conditions low interest rates significantly increased actuarial losses plans december 31 2008 pretax net actuarial losses prior service costs credits recognized accumulated comprehensive income loss abbotts defined benefit plans medical dental plans losses 26 billion 381 million respectively actuarial losses gains amortized remaining service attribution periods employees corridor method accordance rules accounting postemployment benefits differences expected longterm return plan assets actual annual return amortized fiveyear period footnote 5 consolidated financial statements describes impact onepercentage point change health care cost trend rate however certainty change would limited one percentage point december 31 2006 abbott adopted provisions sfas 158 employers accounting defined benefit pension postretirement plans provisions statement require recognition deferrals balance sheet corresponding charge accumulated comprehensive income loss adoption statement december 31 2006 resulted decrease abbotts shareholders equity approximately 13 billion valuation intangible assets abbott acquired continues acquire significant intangible assets abbott records fair value assets yet regulatory approval alternative uses expensed acquired inprocess research development regulatory approval capitalized adoption sfas 141r business combinations january 1 2009 result acquired inprocess research development assets acquired business combination initially recorded indefinite lived intangible assets transactions involving purchase sale intangible assets occur frequency companies health care field valuations usually based discounted cash flow analysis discounted cash flow model requires assumptions timing amount future net cash flows risk cost capital terminal values market participants factors significantly affect value intangible asset abbott engages independent valuation experts review abbotts critical assumptions calculations acquisitions significant intangibles abbott reviews intangible assets impairment quarter using undiscounted net cash flows approach undiscounted cash flows intangible asset less carrying value intangible asset intangible asset written fair value usually discounted cash flow amount cash flows cannot identified individual asset review applied lowest group level cash flows identifiable goodwill reviewed impairment annually event could result impairment goodwill occurs december 31 2008 goodwill intangibles amounted 100 billion 52 billion respectively amortization expense intangible assets amounted 787 million 2008 impairments goodwill 2008 2007 2006 litigation abbott accounts litigation losses accordance sfas 5 accounting contingencies sfas 5 loss contingency provisions recorded probable losses managements best estimate loss best estimate cannot made minimum loss contingency amount recorded estimates often initially developed substantially earlier ultimate loss known estimates refined accounting period additional information becomes known accordingly abbott often initially unable develop best estimate loss therefore minimum amount could zero recorded information becomes known either minimum loss amount increased resulting additional loss provisions best estimate made also resulting additional loss provisions occasionally best estimate amount changed lower amount events result expectation favorable outcome previously expected except cases discussed footnote 8 abbott unable estimate loss abbott estimates range possible loss approximately 255 million 495 million legal proceedings environmental exposures reserves approximately 325 million recorded december 31 2008 proceedings exposures reserves represent managements best estimate probable loss defined sfas 5 stock compensation abbott records fair value stock options results operations since market trading employee stock options management must use fair value method certainty results fair value method would value employee stock options would traded cash fair value methods require management make several assumptions significant selection fair value model stock price volatility average life option abbott readily available grantbygrant historical activity several years option administration system uses developing assumptions abbott uses blackscholes method value stock options abbott uses historical volatility stock price implied volatility traded options develop volatility assumptions abbott uses historical grant activity combined expectations future exercise activity develop average life assumptions abbott also used historical grant data evaluate whether certain holders stock options exercised options differently holders found differentiating pattern among holders results operations sales following table details components sales growth reportable segment last three years worldwide 2008 sales growth compared 2007 reflects unit growth positive effect relatively weaker us dollar worldwide 2007 sales compared 2006 reflect acquisitions guidants vascular intervention endovascular solutions businesses april 21 2006 kos pharmaceuticals inc fourth quarter 2006 addition pharmaceutical products segment agreement boehringer ingelheim bi copromote distribute three products us 2005 abbott bi amended agreement effective january 1 2006 abbott longer distributed recorded sales distribution activities bi products although abbott recorded small amount copromotion revenue 2006 increases sales 2006 excluding bi products 116 percent total net sales 123 percent total us sales 78 percent pharmaceutical products segment sales growth 2007 nutritional products segment reflects completion us copromotion synagis 2006 excluding sales synagis 2006 nutritional products segment sales increased 113 percent comparison significant product group sales follows percent changes versus prior year based unrounded numbers increased sales humira addition lupron sales 2008 accounted majority sales increase us specialty products 2008 increased sales humira depakote accounted majority sales increases us specialty products 2007 2006 us sales humira 22 billion 16 billion 12 billion 2008 2007 2006 respectively us primary care sales 2008 impacted significant decrease sales omnicef due generic competition partially offset increased sales niaspan tricortrilipix franchise us primary care sales 2007 favorably impacted sales niaspan new product acquisition kos pharmaceuticals inc fourth quarter 2006 addition increased sales tricor 2007 2006 favorably impacted us primary care sales increases partially offset lower sales omnicef 2008 2007 lower us sales biaxin three years due primarily introduction generic competition us sales omnicef 25 million 235 million 637 million 2008 2007 2006 respectively us sales biaxin 14 million 36 million 151 million 2008 2007 2006 respectively increased sales volume humira three years favorably impacted international pharmaceuticals sales partially offset decreased sales volume 2008 2006 due generic competition clarithromycin international sales humira 23 billion 14 billion 868 million 2008 2007 2006 respectively international pediatric nutritionals sales increases due primarily volume growth developing countries international sales 2008 2007 also favorably impacted effect relatively weaker us dollar abbott periodically sold product rights nonstrategic products recorded related gains net sales accordance abbotts revenue recognition policies discussed footnote 1 consolidated financial statements related net sales 111 million 184 million 199 million 2008 2007 2006 respectively expiration licenses patent protection generic competition affect future revenues operating income abbott significant ongoing generic activities significant patent license expirations next three years follows us composition matter patent depakote expired 2008 abbott seen generic competition begin second half 2008 depakote us sales 13 billion 2008 operating earnings gross profit margins 573 percent net sales 2008 559 percent 2007 563 percent 2006 increase gross profit margin 2008 due part favorable product mix favorable impact foreign exchange decrease gross profit margin 2007 due part unfavorable impact 2007 completion us copromotion synagis 2006 well generic competition omnicef biaxin sales 2007 increase gross profit margin 2006 due favorable product mix primarily result decreased sales boehringer ingelheim products lower margins products pharmaceutical products segment restructuring charges discussed reduced gross profit margins 2008 2007 2006 04 percentage points 07 percentage points 11 percentage points respectively gross profit margins years also affected productivity improvements higher commodity costs higher project expenses new products higher manufacturing capacity costs anticipated unit growth effects inflation us states receive price rebates manufacturers infant formula federally subsidized special supplemental nutrition program women infants children also rebate programs pharmaceutical products rebate programs continue negative effect gross profit margins nutritional pharmaceutical products segments higher commodity costs unfavorably impacted gross profit margins nutritional products segment 2008 2007 pricing pressures unfavorably impacted gross profit margin 2006 research development expense excluding acquired inprocess collaborations research development 27 billion 2008 25 billion 2007 23 billion 2006 represented increases 73 percent 2008 111 percent 2007 238 percent 2006 effect recording compensation expense relating sharebased awards 2006 additional costs associated abbotts decision discontinue commercial development zomaxx drugeluting stent increased research development expenses 63 percentage points 2005 increases 2007 2006 also affected acquisitions guidants vascular intervention endovascular solutions businesses april 2006 kos pharmaceuticals inc fourth quarter 2006 increases also reflect increased spending support pipeline programs including new indications humira trilipix trilipixcrestor fixeddose combination abt874 biologic psoriasis crohns disease pain relief medication xience v well several phase ii clinical programs neuroscience oncology hepatitis c majority research development expenditures concentrated pharmaceutical products selling general administrative expenses increased 139 percent 2008 compared increases 167 percent 2007 155 percent 2006 2008 increase reflects settlement litigation relating tricor increased selling general administration expenses 31 percentage points 2007 increase reflects acquisitions guidants vascular intervention endovascular solutions businesses kos pharmaceuticals inc 2006 increase reflects recording compensation expense relating sharebased awards philanthropic contribution abbott fund acquisition guidants vascular intervention endovascular solutions businesses items increased selling general administrative expenses 86 percentage points 2005 remaining increases selling general administrative expenses due primarily increased selling marketing support new existing products including continued spending humira continuing launch xience v well spending marketed pharmaceutical products increases three years also reflect inflation additional selling marketing support primarily pharmaceutical products segment conclusion tap pharmaceutical products inc joint venture sale abbotts spine business april 30 2008 abbott takeda concluded tap pharmaceutical products inc tap joint venture evenly splitting value assets joint venture abbott exchanged 50 percent equity interest tap assets liabilities employees related taps lupron business subsequent conclusion joint venture tap merged two takeda entities exchange abbotts investment tap taps lupron business resulted gain closing approximately 94 million internal revenue service issued private letter ruling transaction qualifies taxfree us income tax purposes beginning may 1 2008 abbott began recording us lupron net sales costs operating results longer records income tap joint venture taps sales lupron 182 million four months ended april 30 2008 645 million 662 million 2007 2006 respectively abbott also receives payments based specified development approval commercial events achieved respect products retained takeda payments takeda based sales products retained takeda recorded abbott income expense net earned payments subject tax expected approximate 14 billion fiveyear period beginning may 1 2008 exchange transaction accounted sale abbotts equity interest tap acquisition taps lupron business sfas 141 business combinations sale abbotts equity interest tap resulted recording net assets related lupron business primarily cash receivables inventory assets net accounts payable accrued liabilities offset credit abbotts investment tap amount approximately 280 million acquired lupron business abbott recorded intangible assets primarily lupron product rights approximately 700 million goodwill approximately 350 million deferred tax liabilities related primarily intangible assets approximately 260 million intangible assets amortized 15 years abbott also agreed remit cash takeda certain research development events achieved development assets retained takeda amounts recorded liability closing amount approximately 11 billion related deferred tax assets approximately 410 million also recorded resulting aftertax liability approximately 700 million 11 billion abbott made taxdeductible payment 200 million 2008 abbott make taxdeductible payment approximately 120 million 2009 remaining payments required liability would reduced gain would recorded 50 percentowned joint venture accounted equity method accounting summarized financial information tap follows results 2008 include results april 30 dollars millions fourth quarter 2008 abbott sold spine business approximately 360 million cash resulting aftertax gain approximately 147 million presented gain sale discontinued operations net taxes accompanying statement income operations financial position spine business presented discontinued operations effects would significant restructurings 2008 abbott management approved plan streamline global manufacturing operations reduce overall costs improve efficiencies abbotts core diagnostic business plan result pretax charges approximately 370 million next several years charges include employeerelated costs approximately 110 million accelerated depreciation approximately 75 million related exit costs approximately 185 million mainly related product transfers 2008 abbott recorded charge cost products sold approximately 129 million plan additional charges approximately 16 million recorded 2008 relating restructuring primarily accelerated depreciation remainder charges occur 2011 result product reregistration timelines required manufacturing regulations number countries product transition timelines following summarizes activity restructuring dollars millions 2008 2007 2006 abbott management approved plans realign worldwide pharmaceutical vascular manufacturing operations selected domestic international commercial research development operations order reduce costs 2008 2007 2006 abbott recorded charges approximately 36 million 107 million 210 million respectively reflecting impairment manufacturing facilities assets employee severance related charges approximately 94 million 181 million 2007 2006 respectively classified cost products sold 3 million 29 million 2007 2006 respectively research development 36 million 10 million 2008 2007 respectively selling general administrative fair value determination amount asset impairments determined primarily based discounted cash flow method additional 81 million 90 million 70 million subsequently recorded 2008 2007 2006 respectively relating restructurings primarily accelerated depreciation addition abbott implemented facilities restructuring plans 2007 related acquired operations kos pharmaceuticals inc resulted increase goodwill approximately 52 million abbott expects incur additional 21 million future periods restructuring plans primarily accelerated depreciation following summarizes activity restructurings dollars millions interest expense interest income 2008 interest expense decreased primarily result lower interest rates interest income increased primarily result higher investment balances interest expense increased 2007 2006 due primarily higher borrowings result acquisitions guidants vascular intervention endovascular solutions businesses kos pharmaceuticals inc abbotts investment boston scientific common stock note receivable income expense net described abbott recorded gain approximately 94 million connection dissolution tap pharmaceutical products inc joint venture 2008 included income expense net income expense net 2008 also includes gain approximately 52 million sale equity investment accounted availableforsale investment remainder income expense net 2008 relates primarily contractual payments based specified development approval commercial events achieved respect products retained takeda payments takeda based sales products retained takeda income expense net 2007 includes 190 million fair market value loss adjustment abbotts investment boston scientific common stock realized gain 37 million sales boston scientific common stock income expense net 2007 2006 includes fair value gain adjustments 28 million 91 million respectively certain derivative financial instruments included investment boston scientific common stock taxes earnings income tax rates earnings continuing operations 192 percent 2008 193 percent 2007 246 percent 2006 taxes earnings continuing operations 2006 reflect effect tax rates applied acquired inprocess research development resolution prior years income tax audits effect discrete tax items 2006 tax rates applied acquired inprocess collaborations research development increased effective tax rate 66 percentage points effect income tax audit resolution discrete tax items decreased effective tax rate 55 percentage points abbott expects apply annual effective rate 175 percent 180 percent 2009 business combinations technology acquisitions related transactions december 2006 abbott acquired kos pharmaceuticals inc cash approximately 38 billion net cash held kos pharmaceuticals inc expand abbotts presence lipid management market provide several onmarket latestage pipeline products kos pharmaceuticals inc specialty pharmaceutical company developed marketed proprietary medications treatment chronic cardiovascular metabolic respiratory diseases business acquired december 13 2006 financial results acquired operations included financial statements beginning date acquisition financed primarily shortterm debt allocation purchase price resulted charge 13 billion acquired inprocess research development intangible assets 821 million goodwill primarily nondeductible 16 billion net liabilities primarily deferred income taxes recorded acquisition 331 million acquired intangible assets amortized 4 15 years nondeductible acquired inprocess research development charged income 2006 order expand abbotts presence growing vascular market abbott acquired guidants vascular intervention endovascular solutions businesses april 21 2006 approximately 41 billion cash connection boston scientifics acquisition guidant addition abbott agreed pay boston scientific 250 million upon government approvals market xience v drugeluting stent us japan 2008 fda approved marketing xience v abbott paid boston scientific 250 million resulting recording additional goodwill government approval japan anticipated late 2009 early 2010 also result recording additional goodwill allocation purchase price resulted charge 665 million acquired inprocess research development intangible assets 12 billion goodwill primarily deductible 17 billion tangible net assets 580 million acquired intangible assets amortized 4 15 years deductible acquired inprocess research development charged income 2006 net tangible assets acquired consist primarily property equipment approximately 530 million trade accounts receivable approximately 250 million inventories approximately 120 million net assumed liabilities primarily trade accounts payable litigation reserves liabilities acquisitions taken place january 1 previous year consolidated net sales income would significantly different reported amounts order facilitate boston scientifics acquisition guidant abbott also acquired 646 million shares boston scientific common stock directly boston scientific loaned 900 million whollyowned subsidiary boston scientific common stock valued 13 billion note receivable valued 829 million acquisition date connection acquisition shares boston scientific entitled certain aftertax gains upon abbotts sale shares addition boston scientific agreed reimburse abbott certain borrowing costs debt incurred acquire boston scientific shares abbott recorded net derivative financial instruments liability 59 million gainsharing derivative financial instrument liability interest derivative financial instrument asset effect recording shares loan boston scientific derivative financial instruments fair value date acquisition resulted recording additional goodwill approximately 204 million changes fair value derivative financial instruments net recorded income expense net subsequent event business combination january 2009 abbott announced agreement acquire advanced medical optics inc amo marketer ophthalmic surgical technology devices well eye care solutions approximately 28 billion cash debt take advantage increasing demand vision care technologies due population growth demographic shifts transaction expected close first quarter 2009 amos sales 1 billion per year financial condition cash flow net cash operating activities continuing operations amounted 70 billion 52 billion 53 billion 2008 2007 2006 respectively cash operating activities continuing operations 2008 compared 2007 higher due higher operating earnings decreased prepaid expenses assets increased trade accounts payable liabilities cash operating activities continuing operations 2007 2006 compared 2005 higher due higher net earnings adjusted aftertax noncash charges acquired inprocess research development 2006 sharebased compensation higher contributions retirement benefit plans 2005 compared 2007 2006 partially offset higher income tax payments 2006 including tax payments related 2005 remittances foreign earnings american jobs creation act abbott funds domestic pension plans according irs funding limitations 2008 2007 2006 200 million funded main domestic pension abbott expects pension funding main domestic pension plan 700 million 2009 200 million annually thereafter abbott expects annual cash flow operating activities continue exceed abbotts capital expenditures cash dividends debt capital december 31 2008 abbotts longterm debt rating aa standard poors corporation a1 moodys investors service abbott readily available financial resources including unused lines credit 53 billion support commercial paper borrowing arrangements 23 billion facility expires december 2009 30 billion facility expires 2012 abbotts access shortterm financing affected recent credit market conditions 2006 board directors authorized purchase 25 billion abbotts common shares time shares purchased authorization 2006 2008 2007 abbott purchased approximately 190 million common shares period cost approximately 11 billion 10 billion respectively authorization effective fourth quarter 2008 purchases common shares made 2006 authorization october 2008 board directors authorized purchase 5 billion abbotts common shares time 146400 shares purchased authorization 2008 cost approximately 8 million registration statement filed securities exchange commission february 2006 abbott issued 35 billion longterm debt 2007 matures 2012 2037 interest rates ranging 515 percent 615 percent proceeds debt used pay shortterm borrowings incurred partially fund acquisition kos pharmaceuticals inc registration statement abbott issued 40 billion longterm debt 2006 matures 2009 2016 interest rates ranging 5375 percent 5875 percent proceeds debt used pay domestic commercial paper borrowings incurred partially fund acquisition guidants vascular intervention endovascular solutions businesses 2009 acquisition advanced medical optics inc funding abbotts main domestic pension plan payment longterm debt financed operating cash flow debt working capital working capital 55 billion december 31 2008 49 billion december 31 2007 december 31 2006 current liabilities exceeded current assets approximately 669 million result increased shortterm borrowings used acquire kos pharmaceuticals inc december 2006 capital expenditures capital expenditures 13 billion 2008 17 billion 2007 13 billion 2006 principally upgrading expanding manufacturing research development investments information technology administrative support facilities segments laboratory instruments placed customers contractual obligations following table summarizes abbotts estimated contractual obligations december 31 2008 dollars millions apurchase commitments purchases made normal course business meet operational capital expenditure requirements contingent obligations abbott periodically entered agreements ordinary course business assignment product rights companies resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote addition abbott periodically acquires business product rights abbott agrees pay contingent consideration based attaining certain thresholds based occurrence certain events connection acquisition guidants vascular intervention endovascular solutions businesses abbott pay boston scientific 250 million upon government approval market xience v drugeluting stent japan government approval anticipated late 2009 early 2010 addition abbott retained liabilities taxes income prior spinoff hospira certain potential liabilities related alleged improper pricing practices connection federal state private reimbursement certain drugs recently issued accounting standards 2007 fasb issued sfas 141 revised 2007 business combinations sfas 160 noncontrolling interests consolidated financial statements amendment arb 51 abbott adopt standards january 1 2009 statement 141 revised 2007 impact abbott primarily five areas acquired inprocess research development accounted indefinite lived intangible asset approval discontinuation rather expense acquisition costs expensed rather added cost acquisition restructuring costs connection acquisition expensed rather added cost acquisition fair value contingent consideration date acquisition included cost acquisition fair value contingent liabilities likely occurrence recorded date acquisition effect changes applicable acquisitions january 1 2009 adoption statement 160 material effect abbott legislative issues abbotts primary markets highly competitive subject substantial government regulation throughout world abbott expects debate continue availability method delivery payment health care products services abbott believes legislation enacted could change access health care products services reduce prices rate price increases health care products services possible predict extent abbott health care industry general might adversely affected factors future complete discussion factors contained item 1 business item 1a risk factors annual report form 10k private securities litigation reform act 1995 caution concerning forwardlooking statements safe harbor provisions private securities litigation reform act 1995 abbott cautions investors forwardlooking statements projections made abbott including made document subject risks uncertainties may cause actual results differ materially projected economic competitive governmental technological factors may affect abbotts operations discussed item 1a risk factors annual report form 10k item 7a item 7 managements discussion analysis financial condition results operations incorporated herein reference managements discussion analysis financial condition results operations years 1998 1997 1996 found section captioned financial review 1998 annual report item 7a item 7 management’s discussion analysis financial condition results operations financial review abbott’s revenues derived primarily sale broad line health care products shortterm receivable arrangements patent protection licenses technological performance features inclusion abbott’s products contract impact products sold price controls competition rebates impact net selling prices products foreign currency translation impacts measurement net sales costs abbott’s primary products medical devices diagnostic testing products nutritional products branded generic pharmaceuticals sales international markets comprise approximately 64 percent consolidated net sales last several years abbott proactively shaped company strategic intent deliver sustainable growth businesses significant steps last three years included ●in january 2017 abbott acquired st jude medical inc st jude medical global medical device manufacturer approximately 236 billion part acquisition abbott also assumed repaid refinanced approximately 59 billion st jude medical’s debt acquisition provided expanded opportunities future growth important part companys effort develop strong diverse portfolio ●in october 2017 abbott acquired alere inc alere diagnostic device service provider approximately 45 billion part acquisition abbott also tendered alere’s preferred shares total value approximately 07 billion assumed subsequently repaid approximately 30 billion alere’s debt acquisition established abbott leader point care testing expanded abbott’s global diagnostics presence provided access new products channels geographies ●in february 2017 abbott completed sale abbott medical optics amo vision care business johnson 4325 billion cash recognized aftertax gain 728 million increase total sales last three years reflects volume growth across abbott’s businesses 2017 acquisitions st jude medical alere volume growth reflects introduction new products well higher sales existing products sales emerging markets represent approximately 40 percent total company sales increased 82 percent 2019 123 percent 2018 excluding impact foreign exchange emerging markets include countries except united states western europe japan canada australia new zealand last three years abbott’s operating margin positively impacted margin improvements various businesses including established pharmaceutical products diabetes care rapid diagnostics structural heart reduction costs associated recent business acquisitions also drove improvement operating margins 2017 2019 abbott’s operating margin increased approximately 2 percentage points primarily due lower intangible amortization expense lower business integration restructuring costs compared 2018 abbott’s operating margin increased approximately 6 percentage points primarily due operating margin improvement various businesses lower inventory stepup amortization integration costs associated acquisitions beginning fourth quarter 2019 results diabetes care business previously included nonreportable segment category aggregated results businesses cardiovascular neuromodulation segment comprise medical devices reportable segment historic periods adjusted reflect change excluding impact foreign exchange sales medical devices segment increased 105 percent 2019 90 percent 2018 sales increase 2019 driven primarily higher diabetes care structural heart electrophysiology heart failure sales increase 2018 driven primarily higher diabetes care structural heart electrophysiology neuromodulation sales 2019 operating earnings segment increased 77 percent operating margin profile increased 292 percent sales 2017 308 percent 2019 primarily due sales volume growth various cost improvement initiatives partially offset investment spending drive growth new products 2019 medical devices segment product approvals us food drug administration fda included ●the tacticath® contact force ablation catheter sensor enabled™ designed help physicians treat atrial fibrillation form irregular heartbeat ●a new expanded indication abbott’s mitraclip® heart valve repair device treat clinically significant secondary mitral regurgitation mr result underlying heart failure new indication expands number people mr treated mitraclip device ●the nextgeneration version mitraclip device includes new leaflet grasping enhancement expanded range clip sizes facilitation procedure assessment real time offer doctors options treating mitral valve disease ●the proclaim xr rechargefree neurostimulation system people living chronic pain works using low doses mild electrical pulses change pain signals travel spinal cord brain march 2019 abbott announced new data momentum 3 clinical study largest randomized controlled trial assess outcomes patients receiving heart pump treat advanced heart failure demonstrated abbotts heartmate 3® left ventricular assist device lvad improved survival clinical outcomes patient population october 2018 fda approved heartmate 3 destination longterm use therapy patients living advanced heart failure december 2019 abbott received ce mark approval europe nextgeneration highvoltage implantable cardioverter defibrillator icd cardiac resynchronization therapy defibrillator crtd devices january 2020 abbott received ce mark approval europe tendyne transcatheter mitral valve implantation system treatment significant mr patients requiring heart valve replacement candidates openheart surgery transcatheter mitral valve repair abbott’s worldwide diagnostics business sales growth last three years reflected acquisition alere october 2017 well continued market penetration core laboratory business us internationally alere’s results included abbott’s diagnostic products reportable segment date acquisition worldwide diagnostic sales increased 59 percent 2019 336 percent 2018 excluding impact foreign exchange excluding impact alere acquisition well impact foreign exchange sales diagnostic products segment increased 65 percent 2018 2019 2018 growth includes continued adoption customers alinity® abbott’s integrated family nextgeneration diagnostic systems solutions designed increase efficiency running tests less space generating test results faster minimizing human errors continuing provide quality results abbott regulatory approvals us europe china markets “alinity c” “alinity i” instruments multiple assays clinical chemistry immunoassay diagnostics respectively abbott obtained regulatory approval “alinity h” instrument hematology europe japan 2019 abbott continued rollout europe “alinity s” blood plasma screening system received us fda approval “alinity s” several testing assays 2019 abbott also announced obtained ce mark “alinity m” molecular diagnostics system several testing assays 2019 operating earnings diagnostics segment increased 23 percent operating margin profile decreased 261 percent sales 2017 248 percent 2019 primarily due dilution acquisition alere negative impact foreign exchange costs accelerate rollout alinity partially offset continued focus cost improvement abbott’s worldwide nutritional products business sales last three years positively impacted numerous new product introductions including rollout hmo infant formula leveraged abbott’s strong brands sales also positively affected demographics aging population increasing rate chronic disease developed markets rise middle class many emerging markets 2019 excluding impact foreign exchange total adult nutrition sales increased 66 percent led continued growth ensure® abbott’s marketleading complete balanced nutrition brand glucerna® abbott’s marketleading diabetesspecific nutrition brand across several countries partially offset unfavorable impact discontinuation noncore product line us 2019 excluding impact foreign exchange total pediatric nutrition sales increased 34 percent driven pediasure® pedialyte® brands us well infant toddler product growth across several markets asia latin america partially offset challenging conditions greater china market 2018 excluding impact foreign exchange nutritional business experienced abovemarket growth worldwide pediatric business driven similac® pedialyte brands us well growth across several markets asia worldwide adult nutrition sales increased 2018 led growth ensure glucerna established pharmaceutical products segment focuses sale products emerging markets excluding impact foreign exchange established pharmaceutical sales increased 73 percent 2019 70 percent 2018 sales increase 2019 driven growth several geographies including china brazil russia india sales increase 2018 driven doubledigit growth india china operating margins increased 198 percent sales 2017 201 percent 2019 primarily due continued focus cost reduction initiatives partially offset unfavorable impact foreign exchange conjunction funding st jude medical alere acquisitions assumption st jude medical’s alere’s existing debt abbott’s total shortterm longterm debt increased approximately 90 billion december 31 2015 279 billion december 31 2017 2018 abbott repaid approximately 83 billion debt net borrowings bringing total debt 196 billion december 31 2018 2019 abbott repaid approximately 16 billion debt net borrowings bringing total debt 181 billion december 31 2019 abbott declared dividends 132 per share 2019 compared 116 per share 2018 increase approximately 14 percent dividends paid totaled 2270 billion 2019 compared 1974 billion 2018 yearoveryear change amount dividends paid primarily reflects increase dividend rate december 2019 abbott increased company’s quarterly dividend approximately 125 percent 036 per share 032 per share effective dividend paid february 2020 abbott focus continuing invest product development areas provide opportunity strong sustainable growth next several years diagnostics business abbott continue focus driving market adoption geographic expansion alinity suite diagnostics instruments medical devices business abbott continue focus expanding market position various areas including diabetes care structural heart electrophysiology heart failure nutritionals business abbott continue focus driving growth globally enhancing portfolio introduction several new sciencebased products established pharmaceuticals business abbott continue focus growing business depth breadth portfolio emerging markets critical accounting policies sales rebates 2019 approximately 44 percent abbott’s consolidated gross revenues subject various forms rebates allowances abbott recorded reductions revenues time sale rebates allowances 2019 nutritional products diabetes care businesses abbott provides rebates state agencies administer special supplemental nutrition program women infants children wic wholesalers group purchasing organizations government agencies private entities rebate amounts usually based upon volume purchases using contractual statutory prices product factors used rebate calculations include identification products sold subject rebate customer government agency price terms apply estimated lag time sale payment rebate using historical trends adjusted current changes abbott estimates amount rebate paid records liability reduction gross sales abbott records sale product settlement rebate generally occurs one six months sale abbott regularly analyzes historical rebate trends makes adjustments reserves changes trends terms rebate programs rebates chargebacks charged gross sales 2019 2018 2017 amounted approximately 31 billion 30 billion 28 billion respectively 191 percent 190 percent 205 percent gross sales respectively based gross sales approximately 163 billion 160 billion 139 billion respectively subject rebate onepercentage point increase percentage rebates related gross sales would decrease net sales approximately 163 million 2019 abbott considers onepercentage point increase reasonably likely increase percentage rebates related gross sales allowances charged gross sales approximately 169 million 175 million 166 million cash discounts 2019 2018 2017 respectively 192 million 191 million 204 million returns 2019 2018 2017 respectively cash discounts known within 15 30 days sale therefore reliably estimated returns reliably estimated abbott’s historical returns low sales returns terms sales terms remained relatively unchanged several periods management analyzes adequacy ending rebate accrual balances quarter domestic nutritional business management uses internal external data available estimate accruals wic business estimates required amount wic sales within state abbott holds wic contract state sale made determining factor applicable rebated price reliably determinable rebated prices based contractually obligated agreements generally lasting period two four years except change contract price transition period change supplier wic business state accruals based historical redemption rates data us department agriculture usda states submitting rebate claims usda administers wic program making data available many years management also estimates states processing lag time based sales claims data inventory retail distribution channel vary substantially management access several large customers inventory management data allows management make reliable estimates inventory retail distribution channel december 31 2019 abbott wic business 26 states historically adjustments prior years’ rebate accruals material net income abbott employs various techniques verify accuracy claims submitted possible works organizations submitting claims gain insight changes might affect rebate amounts government agency programs calculation rebate involves interpretations relevant regulations subject challenge change interpretation income taxes abbott operates numerous countries income tax returns subject audits adjustments abbott operates globally nature audit items often complex objectives government auditors result tax income one country abbott employs internal external tax professionals minimize audit adjustment amounts possible accordance accounting rules relating measurement tax contingencies order recognize uncertain tax benefit taxpayer must likely sustaining position measurement benefit calculated largest amount 50 percent likely realized upon resolution benefit application rules requires significant amount judgment us abbott’s federal income tax returns 2016 settled except federal income tax returns former alere consolidated group settled 2015 former st jude medical consolidated group settled 2013 undistributed foreign earnings remain indefinitely reinvested foreign operations determining amount unrecognized deferred tax liability related remaining undistributed foreign earnings subject transition tax additional outside basis difference foreign entities practicable pension postemployment benefits abbott offers pension benefits postemployment health care many employees abbott engages outside actuaries assist determination obligations costs programs abbott must develop longterm assumptions significant health care cost trend rates discount rates expected return plan assets discount rates used measure liabilities determined based highquality fixed income securities match duration expected retiree benefits health care cost trend rates represent abbott’s expected annual rates change cost health care benefits forward projection health care costs measurement date difference assumed rates actual rates known years significant relation obligations annual cost recorded programs low interest rates significantly increased actuarial losses plans december 31 2019 pretax net actuarial losses prior service costs credits recognized accumulated comprehensive income loss abbott’s defined benefit plans medical dental plans losses 41 billion 434 million respectively actuarial losses gains amortized remaining service attribution periods employees corridor method accordance rules accounting postemployment benefits differences expected longterm return plan assets actual annual return amortized fiveyear period note 15 consolidated financial statements describes impact onepercentage point change health care cost trend rate however certainty change would limited one percentage point valuation intangible assets abbott acquired continues acquire significant intangible assets abbott records fair value acquisition date transactions involving purchase sale intangible assets occur frequency companies health care field valuations usually based discounted cash flow analysis discounted cash flow model requires assumptions timing amount future net cash flows risk cost capital terminal values market participants factors significantly affect value intangible asset abbott engages independent valuation experts review abbott’s critical assumptions calculations acquisitions significant intangibles abbott reviews definitelived intangible assets impairment quarter using undiscounted net cash flows approach undiscounted cash flows intangible asset less carrying value intangible asset intangible asset written fair value usually discounted cash flow amount cash flows cannot identified individual asset review applied lowest group level cash flows identifiable goodwill indefinitelived intangible assets relate inprocess research development acquired business combination reviewed impairment annually event could result impairment occurs december 31 2019 goodwill amounted 232 billion net intangibles amounted 170 billion amortization expense continuing operations intangible assets amounted 19 billion 2019 22 billion 2018 20 billion 2017 significant reduction goodwill relating impairments 2019 2018 2017 litigation abbott accounts litigation losses accordance financial accounting standards board fasb accounting standards codification asc 450 “contingencies” asc 450 loss contingency provisions recorded probable losses management’s best estimate loss best estimate cannot made minimum loss contingency amount recorded estimates often initially developed substantially earlier ultimate loss known estimates refined accounting period additional information becomes known accordingly abbott often initially unable develop best estimate loss therefore minimum amount could zero recorded information becomes known either minimum loss amount increased resulting additional loss provisions best estimate made also resulting additional loss provisions occasionally best estimate amount changed lower amount events result expectation favorable outcome previously expected abbott estimates range possible loss approximately 95 million 130 million legal proceedings environmental exposures accruals approximately 110 million recorded december 31 2019 proceedings exposures accruals represent management’s best estimate probable loss defined fasb asc 450 “contingencies” results operations sales following table details components sales growth reportable segment last two years note diabetes care sales previously reported included medical devices segment historic periods adjusted reflect change increase total net sales 2019 reflects volume growth across abbott’s segments increase total net sales 2018 reflects acquisition alere well volume growth across abbott’s segments price declines related medical devices segment 2019 2018 primarily reflect pricing pressures drug eluting stents des result market competition us major markets comparison significant product group sales follows percent changes versus prior year based unrounded numbers nm percent change meaningful note insertable cardiac monitor icm sales previously reported electrophysiology included rhythm management historic periods adjusted reflect change order compute results excluding impact exchange rates current year us dollar sales multiplied divided appropriate current year average foreign exchange rates amounts multiplied divided appropriate prior year average foreign exchange rates total established pharmaceutical products sales increased 73 percent 2019 70 percent 2018 excluding unfavorable impact foreign exchange established pharmaceutical products segment focused several key emerging markets including india russia china brazil excluding impact foreign exchange total sales key emerging markets increased 79 percent 2019 due growth several geographies including china brazil russia india 2018 excluding impact foreign exchange total sales key emerging markets increased 74 percent sales india china experienced doubledigit growth excluding impact foreign exchange sales established pharmaceuticals’ emerging markets increased 56 percent 2019 58 percent 2018 total nutritional products sales increased 48 percent 2019 49 percent 2018 excluding impact foreign exchange 2019 46 percent increase international pediatric nutritional sales excluding effect foreign exchange driven growth across abbott’s portfolio including similac pediasure various countries asia latin america pedialyte latin america growth partially offset challenging market dynamics greater china infant category 72 percent increase 2018 international pediatric nutritional sales excluding effect foreign exchange driven primarily growth asia latin america us pediatric nutritional business 19 percent increase 2019 sales reflects growth pedialyte pediasure 2018 us pediatric nutritional sales increased 37 percent primarily due abovemarket performance abbott’s infant toddler brands including similac pedialyte international adult nutritional business 109 percent increase 2019 sales excluding effect foreign exchange reflects continued growth ensure abbott’s marketleading complete balanced nutrition brand glucerna abbott’s marketleading diabetesspecific nutrition brand several countries 2018 80 percent sales increase international adult nutritional business excluding effect foreign exchange led growth ensure glucerna asia latin america 2019 us adult nutritional sales unchanged 2018 due impact abbott’s discontinuation noncore product line third quarter 2018 offset growth areas business 2018 17 percent decrease us adult nutritional also primarily driven wind noncore product line total diagnostic products sales increased 59 percent 2019 336 percent 2018 excluding impact foreign exchange sales increase 2019 driven abovemarket growth core laboratory us internationally abbott achieving continued adoption alinity family diagnostic instruments july 2019 abbott received us fda approval “alinity s” blood plasma screening system several testing assays 63 percent decrease 2019 molecular sales excluding effect foreign exchange reflects negative impact lower nongovernmental organization purchases africa march 2019 abbott announced obtained ce mark “alinity m” molecular diagnostics system several testing assays rapid diagnostics sales growth 2019 various areas including infectious disease testing developed markets cardiometabolic testing mostly offset lower expected infectious disease testing sales africa 2018 increase total diagnostic products sales included acquisition alere completed october 3 2017 excluding impact acquisition well impact foreign exchange sales diagnostic products segment 2018 increased 65 percent 2018 increase sales primarily driven abovemarket growth core laboratory us internationally 2018 abbott accelerated roll alinity systems core laboratory europe excluding effect foreign exchange total medical devices sales grew 105 percent 90 percent 2019 2018 respectively 2019 sales increase driven doubledigit growth diabetes care structural heart electrophysiology heart failure 2018 sales increase driven growth several areas including doubledigit growth diabetes care electrophysiology structural heart 2019 2018 growth diabetes care revenue driven continued growth freestyle libre abbott’s continuous glucose monitoring system internationally us 2019 freestyle libre sales totaled 1842 billion reflected 698 percent increase 2018 sales excluding effect foreign exchange july 2018 abbott received us fda approval freestyle libre 14 day sensor making longest lasting wearable glucose sensor available october 2018 abbott obtained ce mark freestyle libre 2 system nextgeneration product offering optional realtime alarms 2019 growth structural heart revenue broadbased across several areas business including mitraclip abbotts marketleading device minimally invasive treatment mitral regurgitation mr leaky heart valve first quarter 2019 abbott received us fda approval new expanded indication mitraclip treat clinically significant secondary mr result underlying heart failure new indication expands number people mr treated mitraclip device july 2019 abbott received us fda approval next generation mitraclip device includes new leaflet grasping enhancement expanded range clip sizes facilitation procedure assessment real time offer doctors options treating mitral valve disease 2018 growth structural heart driven several product areas including mitraclip amplatzer® pfo occluder device designed close holelike opening heart september 2018 abbott announced positive clinical results coapt study demonstrated mitraclip improved survival clinical outcomes select patients functional mr september 2019 abbott announced additional data coapt trial shows mitraclip projected increase life expectancy quality life compared guidelinedirected medical therapy alone heart failure patients secondary mr 2019 growth electrophysiology revenue reflects higher sales cardiac diagnostic ablation catheters us internationally january 2019 abbott announced us fda approval tacticath® contact force ablation catheter sensor enabled™ designed help physicians treat atrial fibrillation form irregular heartbeat 2018 growth electrophysiology led higher sales cardiac mapping ablation catheters may 2018 abbott announced us fda clearance advisor hd grid mapping catheter sensor enabled creates detailed maps heart expands abbotts electrophysiology product portfolio 2019 growth heart failure revenue driven rapid market adoption us abbotts heartmate 3® left ventricular assist device lvad following fda approval october 2018 destination longterm use therapy people living advanced heart failure well higher sales abbott’s cardiomems® heart failure monitoring system march 2019 abbott announced new data momentum 3 clinical study largest randomized controlled trial assess outcomes patients receiving heart pump treat advanced heart failure demonstrated heartmate 3 improved survival clinical outcomes patient population 2018 growth international heart failure sales offset lower us sales vascular excluding effect foreign exchange sales 2019 flat 13 percent increase coronary endovascular product sales includes drugeluting stents balloon catheters guidewires vascular imagingdiagnostics products vessel closure carotid coronary peripheral products offset reductions royalty contract manufacturing revenue 2018 growth vascular imaging vessel closure endovascular revenues partially offset lower des sales due lower us market share price erosion various markets second quarter 2018 abbott received approval us fda xience sierra drug eluting stent system newest generation coronary stent system second quarter 2018 xience sierra drug eluting stent system also received national reimbursement japan treat people coronary artery disease rhythm management higher 2019 international sales excluding effect foreign exchange offset 44 percent decrease us revenue 2018 market share gains new patient segment rhythm management us launch abbott’s confirm rx® insertable cardiac monitor icm world’s first smartphonecompatible icm designed help physicians remotely identify cardiac arrhythmias partially offset replacement cycle dynamics 2019 24 percent decline neuromodulation sales excluding effect foreign exchange reflects 42 percent decline us sales 2018 growth neuromodulation reflects higher revenue various products treatment chronic pain movement disorders abbott periodically sold product rights nonstrategic products recorded related gains net sales accordance abbott’s revenue recognition policies discussed note 1 consolidated financial statements related net sales significant 2019 2018 2017 expiration licenses patent protection affect future revenues operating income abbott significant patent license expirations next three years expected materially affect abbott april 2017 abbott received warning letter us fda related manufacturing facility sylmar ca acquired abbott january 4 2017 part acquisition st jude medical facility manufactures implantable cardioverter defibrillators cardiac resynchronization therapy defibrillators monitors warning letter relates fda’s observations inspection facility abbott prepared comprehensive plan corrective actions provided fda abbott continuing execute corrective actions plan operating earnings gross profit margins 525 percent net sales 2019 513 percent 2018 475 percent 2017 2019 increase primarily reflects lower intangible amortization expense lower integration restructuring costs 2018 increase primarily reflects lower inventory stepup amortization related st jude medical alere acquisitions margin improvements various businesses research development rd expense 24 billion 2019 23 billion 2018 23 billion 2017 represented 61 percent increase 2019 17 percent increase 2018 increase rd spending 2019 primarily reflects higher spending acquisition rd assets immediately expensed 2019 spending rd assets totaled 116 million included acquisition rd asset valued 102 million acquired conjunction acquisition cephea valve technologies inc 2018 abbott acquired rd assets valued 47 million also immediately expensed 2019 increase rd expense also driven higher rd spending various businesses primarily medical devices partially offset favorable effect foreign exchange 2018 increase rd expenses primarily due higher spending various projects partially offset lower restructuring integration costs 2019 rd expenditures totaled 12 billion medical devices segment 553 million diagnostic products segment 193 million nutritional products segment 185 million established pharmaceutical products segment selling general administrative sga expenses basically flat 2019 increased 61 percent 2018 versus respective prior year 2019 favorable effect foreign exchange lower acquisitionrelated integration costs offset higher selling marketing costs drive continued growth across various businesses 2018 increase primarily due impact acquisition alere business october 2017 well higher spending drive continued growth market expansion various businesses partially offset lower acquisitionrelated expenses business acquisitions january 4 2017 abbott completed acquisition st jude medical global medical device manufacturer approximately 236 billion including approximately 136 billion cash approximately 10 billion abbott common shares represented approximately 254 million shares abbott common stock based abbott’s closing stock price acquisition date cash portion acquisition funded combination medium longterm debt issued november 2016 20 billion 120day senior unsecured bridge term loan facility subsequently repaid part acquisition approximately 59 billion st jude medical’s debt assumed repaid refinanced abbott acquisition provides expanded opportunities future growth important part companys ongoing effort develop strong diverse portfolio devices diagnostics nutritionals branded generic pharmaceuticals combined business competes nearly every area cardiovascular device market well neuromodulation market 2016 abbott st jude medical agreed sell certain businesses terumo corporation approximately 112 billion sale included st jude medical angioseal™ femoseal™ vascular closure abbott’s vado® steerable sheath businesses sale closed january 20 2017 gain loss recorded consolidated statement earnings october 3 2017 abbott acquired alere diagnostic device service provider 5100 per common share cash equated purchase price approximately 45 billion part acquisition abbott tendered alere’s preferred shares total value approximately 07 billion addition approximately 30 billion alere’s debt assumed subsequently repaid acquisition establishes abbott leader point care testing expands abbott’s global diagnostics presence provides access new products channels geographies abbott utilized combination cash hand debt fund acquisition see note 11 debt lines credit details regarding debt utilized acquisition third quarter 2017 alere entered agreements sell triage meterpro cardiovascular toxicology business assets liabilities related btype natriuretic peptide assay business run beckman coulter analyzers quidel corporation quidel transactions quidel reflect total purchase price 400 million payable close transaction 240 million payable six annual installments beginning approximately six months close transaction contingent consideration maximum value 40 million third quarter 2017 alere entered agreement siemens diagnostics holding ii bv siemens sell subsidiary epocal inc approximately 200 million payable close transaction alere agreed divest businesses connection review federal trade commission european commission abbott’s agreement acquire alere sale quidel closed october 6 2017 sale siemens closed october 31 2017 gain loss sales recorded consolidated statement earnings july 17 2017 abbott commenced tender offer purchase cash 177 million outstanding shares alere’s series b convertible perpetual preferred stock price 402 per share plus accrued unpaid dividends including settlement date tender offer tender offer subject satisfaction certain conditions including abbott’s acquisition alere upon validly tendered properly withdrawn expiration date tender offer number shares preferred stock equaled least majority preferred stock issued outstanding expiration tender offer conditions offer satisfied abbott accepted payment 1748 million shares preferred stock validly tendered properly withdrawn remaining shares cashed amount equal 40000 per share liquidation preference shares plus accrued unpaid dividends without interest payment shares preferred stock made fourth quarter 2017 restructurings 2017 2019 abbott management approved restructuring plans part integration acquisitions st jude medical devices segment alere diagnostic products segment order leverage economies scale reduce costs abbott recorded employee related severance charges approximately 72 million 2019 52 million 2018 187 million 2017 approximately 19 million 2019 5 million 2018 5 million 2017 recorded cost products sold approximately 4 million 2019 10 million 2018 recorded research development approximately 49 million 2019 37 million 2018 182 million 2017 recorded selling general administrative expense abbott also assumed restructuring liabilities approximately 23 million part st jude medical alere acquisitions 2016 2019 abbott management approved plans streamline operations order reduce costs improve efficiencies various abbott businesses including nutritional established pharmaceuticals vascular businesses abbott recorded employee related severance charges approximately 66 million 2019 28 million 2018 120 million 2017 approximately 16 million 2019 10 million 2018 7 million 2017 recorded cost products sold approximately 28 million 2019 2 million 2018 77 million 2017 recorded research development approximately 22 million 2019 16 million 2018 36 million 2017 recorded selling general administrative expense additional charges approximately 2 million 2017 recorded primarily accelerated depreciation interest expense interest income interest expense decreased 156 million 2019 due favorable impact euro debt financing september 2018 well repayment debt 2018 first quarter 2019 2018 interest expense decreased primarily due net repayment 83 billion debt partially offset lower interest income due lower cash balances 2017 interest expense increased primarily due 151 billion debt issued november 2016 related financing st jude medical acquisition closed january 4 2017 debt extinguishment costs december 19 2019 abbott redeemed 2850 billion principal amount 29 notes due 2021 abbott incurred charge 63 million related early repayment debt october 28 2018 abbott redeemed approximately 4 billion debt included 750 million principal amount 200 notes due 2020 597 million principal amount 4125 notes due 2020 900 million principal amount 325 notes due 2023 450 million principal amount 34 notes due 2023 1300 billion principal amount 375 notes due 2026 abbott incurred net charge 153 million related early repayment debt unwinding related interest rate swaps march 22 2018 abbott redeemed 947 million principal amount 5125 notes due 2019 well 1055 billion 2850 billion principal amount 235 notes due 2019 abbott incurred net charge 14 million related early repayment debt income expense net income expense net 2019 2018 2017 includes approximately 225 million 160 million 160 million income year respectively related nonservice cost components net periodic benefit costs associated pension postretirement medical plans 2017 includes pretax gain 1163 billion sale amo johnson taxes earnings income tax rates earnings continuing operations 96 percent 2019 188 percent 2018 842 percent 2017 tax cuts jobs act tcja enacted us december 22 2017 tcja reduces us federal corporate tax rate 35 21 requires companies pay onetime transition tax earnings certain foreign subsidiaries previously tax deferred creates new taxes certain foreign sourced earnings december 31 2018 abbott completed accounting enactment date income tax effects tcja effective fiscal years beginning december 31 2017 tcja subjects taxpayers tax global intangible lowtaxed income gilti earned certain foreign subsidiaries january 2018 fasb staff provided guidance entity may make accounting policy election either recognize deferred taxes related items give rise gilti future years provide tax expense related gilti year tax incurred abbott elected treat gilti tax period expense provide tax year tax incurred fourth quarter 2017 abbott recorded estimate net tax expense 146 billion impact tcja included taxes earnings continuing operations consolidated statement earnings estimate provisional included charge approximately 289 billion transition tax partially offset net benefit approximately 142 billion remeasurement deferred tax assets liabilities net benefit approximately 10 million related certain impacts tcja 2018 abbott recorded 130 million additional tax expense increased final tax expense related tcja 159 billion 130 million additional tax expense reflects 120 million increase transition tax 289 billion 301 billion 10 million reduction net benefit related remeasurement deferred tax assets liabilities 2019 taxes earnings continuing operations include 86 million reduction transition tax 86 million reduction transition tax liability result issuance final transition tax regulations us department treasury 2019 adjustment decreased cumulative net tax expense related tcja 150 billion onetime transition tax based abbott’s total post1986 earnings profits ep previously deferred us income taxes tax computation also requires determination amount post1986 ep considered held cash specified assets december 31 2019 remaining balance abbott’s transition tax obligation approximately 133 billion paid next seven years allowed tcja 2019 taxes earnings continuing operations included 68 million tax expense resulting tax legislation enacted fourth quarter 2019 india 2018 taxes earnings continuing operations included 98 million net tax expense related settlement abbott’s 20142016 federal income tax audit us partial settlement former st jude medical consolidated group’s 2014 2015 federal income tax returns us audit settlements various countries 2017 taxes earnings continuing operations include 435 million tax expense related gain sale amo business exclusive discrete items tax expense favorably impacted lower tax rates tax exemptions foreign income primarily derived operations puerto rico switzerland ireland netherlands costa rica singapore abbott benefits combination favorable statutory tax rules tax rulings grants exemptions tax jurisdictions see note 16 consolidated financial statements full reconciliation effective tax rate us federal statutory rate discontinued operations earnings discontinued operations net tax 34 million 124 million 2018 2017 respectively driven primarily recognition net tax benefits result resolution various tax positions pertaining abbvie’s operations years prior separation january 1 2013 abbott completed separation abbvie inc abbvie formed hold abbott’s researchbased proprietary pharmaceuticals business abbott retained liabilities us federal foreign income taxes income prior separation well certain nonincome taxes attributable abbvie’s business abbvie generally liable taxes attributable business disposition september 2016 abbott announced entered definitive agreement sell abbott medical optics amo vision care business johnson 4325 billion cash subject customary purchase price adjustments cash debt working capital decision sell amo reflected abbotts proactive shaping portfolio line strategic priorities february 2017 abbott completed sale amo johnson recognized pretax gain 1163 billion including working capital adjustments reported income expense net line consolidated statement earnings 2017 abbott recorded aftertax gain 728 million 2017 related sale amo operating results amo date sale continued included earnings continuing operations business qualify reporting discontinued operations 2017 amo loss taxes included abbott’s consolidated earnings 18 million research development programs abbott currently numerous pharmaceutical medical devices diagnostic nutritional products development research development process established pharmaceuticals segment development process focuses geographic expansion continuous improvement segment’s existing products provide benefits patients customers established pharmaceuticals actively pursue primary research development usually begins work existing products acquisition advanced stage licensing opportunity depending upon product phases development may include ●drug product development ●phase bioequivalence studies compare future established pharmaceutical’s brand already marketed compound active pharmaceutical ingredient api ●phase ii studies test efficacy benefits small group patients ●phase iii studies broaden testing wider population reflects actual medical use ●phase iv postmarketing studies obtain new clinical use data existing products within approved indications specific requirements eg scope clinical trials obtaining regulatory approval vary across different countries geographic regions process may range one year bioequivalence study project 6 years complex formulations new indications geographic expansion specific countries china diagnostics segment phases research development process include ●discovery focuses identification product address specific therapeutic area platform unmet clinical need ●conceptfeasibility materials manufacturing processes evaluated testing may include product characterization analysis performed confirm clinical utility ●development extensive testing performed demonstrate product meets specified design requirements design specifications conform user needs intended uses regulatory requirements diagnostic products vary across different countries geographic regions us fda classifies diagnostic products classes ii iii classification determines regulatory process approval diagnostics segment products three classes vast majority products categorized class ii submission separate regulatory filing required class products class ii devices typically require premarket notification fda regulatory filing known 510k submission class iii products subject fda’s premarket approval pma requirements class iii products used screen blood require submission approval biological license application bla european union eu diagnostic products also categorized different categories regulatory process governed european vitro diagnostic medical device directive depends upon category certain product categories requiring review approval independent company known notified body manufacturer affix ce mark product declare conformity directive products require selfcertification process second quarter 2017 eu adopted new vitro diagnostic regulation ivdr replaces existing directive eu vitro diagnostic products ivdr apply fiveyear transition period imposes additional premarket postmarket regulatory requirements manufacturers products medical devices segment research development process begins research specific technology evaluated feasibility commercial viability research program passes hurdle moves forward development process includes evaluation selection qualification product design completion applicable clinical trials test product’s safety efficacy validation manufacturing process demonstrate repeatability ability consistently meet predetermined specifications similar diagnostic products discussed us medical devices classified class ii iii abbott’s medical device products classified class ii devices follow 510k regulatory process class iii devices subject pma process eu medical devices also categorized different classes regulatory process governed european medical device directive active implantable medical device directive varies class product must bear ce mark show compliance directive second quarter 2017 eu adopted new medical devices regulation mdr replaces existing directives eu medical devices mdr apply three fiveyear depending product classification transition period imposes additional premarket postmarket regulatory requirements manufacturers products require submission design dossier appropriate regulatory authority review approval prior ce marking device products company required prepare technical file includes testing results clinical evaluations selfcertify ability apply ce mark product outside us eu regulatory requirements vary across different countries regions approval commercial launch medical devices postmarket trials may conducted either due conditional requirement regulatory market approval objective proving product superiority nutritional segment research development process generally focuses identifying developing ingredients products address nutritional needs particular populations eg infants adults patients eg people diabetes depending upon country andor region claims regarding product’s efficacy made clinical studies typically must conducted us fda requires notified proposed new formulations formulation packaging changes related infant formula products prior launch infant formula product packaging change company required obtain fda’s confirmation objections proposed product packaging nutritional products notification preapproval fda required unless product includes new food additive countries regulatory approval may required certain nutritional products including infant formula medical nutritional products areas focus 2020 beyond abbott’s significant areas therapeutic focus include following established pharmaceuticals abbott focuses building countryspecific portfolios made highquality medicines meet needs people emerging markets next several years abbott plans expand product portfolio key therapeutic areas aim among first launch new offpatent differentiated medicines addition abbott continues expand existing brands new markets implement product enhancements provide value patients acquire strategic products technology licensing activities abbott also actively working development several key brands creon™ duphaston™ duphalac™ influvac™ depending product activities focus development new data markets formulations delivery systems indications medical devices abbott’s research development programs focus ●cardiac rhythm management development nextgeneration rhythm management technologies including enhanced patient engagement expanded magnetic resonance mrcompatibility ●heart failure continued enhancements abbott’s left ventricular assist systems pulmonary artery heart failure system including enhanced connectivity userinterfaces remote patient monitoring ●electrophysiology development nextgeneration technologies areas ablation diagnostic mapping visualization recording monitoring ●vascular development nextgeneration technologies use coronary peripheral vascular procedures ●structural heart development minimallyinvasive devices repair replacement heart valves structural heart conditions ●neuromodulation development nextgeneration technologies enhanced patient physician engagement expanded mrcompatibility treat chronic pain movement disorders indications ●diabetes care develop enhancements additional indications freestyle libre platform continuous glucose monitoring products help patients improve ability manage diabetes core laboratory diagnostics abbott continues commercialize nextgeneration blood screening immunoassay clinical chemistry hematology systems along assays including focus unmet medical need various areas including infectious disease cardiac care metabolics oncology well informatics solutions help optimize diagnostics laboratory performance automation solutions increase efficiency laboratories molecular diagnostics several new molecular vitro diagnostic ivd tests ‘alinity m’ next generation instrument system various stages development launch rapid diagnostics abbott’s research development programs focus development diagnostic products cardiometabolic disease infectious disease toxicology nutritionals abbott focusing research development spend platforms span pediatric adult nutrition areas gastro intestinalimmunity health brain health mobility metabolism user experience platforms numerous new products build advances platforms currently development including clinical outcome testing expected launched coming years given diversity abbott’s business intention remain broadbased healthcare company numerous sources potential future growth individual project expected material cash flows results operations next five years factors considered included research development expenses projected incurred project next year relative abbott’s total research development expenses well qualitative factors marketplace perceptions impact new product abbott’s overall market position delays abbott’s 2019 research development activities expected material impact operations aggregate cost complete numerous projects currently development expected material total cost complete depend upon abbott’s ability successfully finish project rate project advances ultimate timing completion given potential significant delays risk failure inherent development medical device diagnostic pharmaceutical products technologies possible accurately estimate total cost complete projects currently development abbott plans manage portfolio projects achieve research development spending competitive businesses participates spending expected approximate 70 percent total abbott sales 2020 abbott regularly accumulate make management decisions based total expenses incurred particular development phase given period goodwill december 31 2019 goodwill recorded result business combinations totaled 232 billion goodwill reviewed impairment annually third quarter event could result impairment occurs using quantitative assessment determine whether likely fair value reporting unit less carrying amount income market approaches used calculate fair value reporting unit results last impairment test indicated fair value reporting unit substantially excess carrying value financial condition cash flow net cash operating activities amounted 61 billion 63 billion 56 billion 2019 2018 2017 respectively decrease net cash operating activities 2019 primarily due increased investment working capital timing pension contributions relative 2018 higher income tax payments partially offset favorable cash flow impact improved segment operating earnings lower interest acquisitionrelated expenses increase net cash operating activities 2018 primarily due higher segment operating earnings continued improvements working capital management timing pension contributions lower acquisitionrelated expenses income tax component cash operating activities 2018 includes noncash impact 120 million adjustment transition tax associated tcja income tax component operating cash flow 2017 includes noncash impact 146 billion net tax expense related estimated impact tcja significant portion abbott’s cash equivalents december 31 2019 reinvested foreign subsidiaries abbott expect reinvestment affect liquidity capital resources due enactment tcja funds needed operations us abbott expect incur significant additional income taxes future repatriate funds abbott funded 382 million 2019 114 million 2018 645 million 2017 defined benefit pension plans abbott expects pension funding approximately 387 million 2020 pension plans abbott expects annual cash flow operating activities continue exceed abbott’s capital expenditures cash dividends debt capital december 31 2019 abbott’s longterm debt rating standard poor’s corporation a3 moody’s abbott expects maintain investment grade rating abbott readily available financial resources including unused lines credit support commercial paper borrowing arrangements provide abbott ability borrow 5 billion unsecured basis lines credit part 2018 revolving credit agreement expires 2023 borrowings current revolving credit agreement bear interest abbott’s option based either base rate eurodollar rate plus applicable margin based abbott’s credit ratings conjunction funding st jude medical alere acquisitions assumption st jude medical’s alere’s existing debt abbott’s total shortterm longterm debt increased 279 billion december 31 2017 increase debt included following transactions ●in first quarter 2017 part acquisition st jude medical approximately 59 billion st jude medical’s debt assumed repaid refinanced abbott included exchange certain st jude medical debt obligations aggregate principal amount approximately 29 billion approximately 29 billion debt issued abbott following exchange approximately 1942 million existing st jude medical notes remained outstanding significant costs associated exchange debt addition first quarter 2017 abbott assumed subsequently repaid approximately 28 billion various st jude medical debt obligations ●in 2017 abbott borrowed 28 billion unsecured basis 5year term loan agreement borrowed 17 billion lines credit proceeds borrowings used finance acquisition alere repay certain indebtedness abbott alere pay fees expenses connection acquisition borrowings bore interest based eurodollar rate plus applicable margin based abbott’s credit ratings abbott paid term loan january 2018 ahead 2022 due date paid 550 million line credit fourth quarter 2017 remaining 115 billion january 5 2018 fourth quarter 2017 conjunction acquisition alere abbott assumed subsequently repaid 30 billion alere’s debt ●in 2017 abbott also paid 479 million yendenominated shortterm borrowing year issued 364day yendenominated debt 201 million 199 million outstanding december 31 2019 2018 respectively 2018 abbott committed reducing debt levels february 16 2018 board directors authorized early redemption 5 billion outstanding longterm notes redemptions authorization 2018 included 0947 billion principal amount 5125 notes due 2019 2850 billion principal amount 235 notes due 2019 abbott incurred net charge 14 million related early repayment debt september 17 2018 abbott repaid upon maturity 500 million aggregate principal amount outstanding 200 senior notes due 2018 september 27 2018 abbott’s wholly owned subsidiary abbott ireland financing dac completed euro debt offering €3420 billion longterm debt proceeds equated approximately 4 billion notes guaranteed abbott october 28 2018 abbott redeemed 40 billion principal amount outstanding longterm debt amount addition 5 billion authorization discussed conjunction redemption abbott unwound approximately 11 billion interest rate swaps relating 340 note due 2023 375 note due 2026 abbott incurred net charge 153 million related early repayment debt unwinding related interest rate swaps 2018 transactions described including repayment 28 billion 5year term loan 115 billion borrowings lines credit resulted net repayment approximately 83 billion debt february 24 2019 abbott redeemed 500 million outstanding principal amount 280 notes due 2020 september 2019 board directors authorized early redemption 5 billion outstanding longterm notes bond redemption authorization superseded board’s previous authorization 700 million yet redeemed december 19 2019 abbott redeemed 2850 billion outstanding principal amount 290 notes due 2021 redemption 290 notes 215 billion 5 billion debt redemption authorization remains available november 19 2019 abbott’s wholly owned subsidiary ireland financing dac completed euro debt offering €1180 billion longterm debt proceeds equated approximately 13 billion notes guaranteed abbott november 21 2019 abbott borrowed ¥598 billion 5year term loan designated yendenominated loan hedge net investment certain foreign subsidiaries term loan bears interest tibor plus fixed spread interest rate reset quarterly proceeds equated approximately 550 million 2019 transactions described resulted repayment approximately 16 billion debt net borrowings bringing abbott’s total debt 181 billion december 31 2019 september 2014 board directors authorized repurchase 30 billion abbott’s common shares time program authorized 2014 abbott repurchased 362 million shares cost 1666 billion 2015 104 million shares cost 408 million 2016 19 million shares cost 130 million 2018 63 million shares cost 525 million 2019 total approximately 2730 billion october 2019 board directors authorized repurchase 3 billion abbott’s common shares time new authorization addition 270 million unused portion share repurchase program authorized 2014 april 27 2016 board directors authorized issuance sale general corporate purposes 75 million common shares would result proceeds 3 billion shares issued authorization abbott declared dividends 132 per share 2019 compared 116 per share 2018 increase approximately 14 percent dividends paid 2270 billion 2019 compared 1974 billion 2018 yearoveryear change dividends paid primarily reflects impact increase dividend rate working capital working capital 48 billion december 31 2019 56 billion december 31 2018 decrease working capital 2019 reflects presentation 13 billion senior notes due 2020 current liabilities december 31 2019 partially offset overall net increase working capital approximately 485 million due changes accounts receivable inventory accounts payable associated growth business abbott monitors credit worthiness customers establishes allowance trade receivable probable balance collected addition closely monitoring economic conditions budgetary fiscal developments abbott regularly communicates customers regarding status receivable balances including payment plans obtains positive confirmation validity receivables abbott also monitors potential periodically utilized factoring arrangements mitigate credit risk although receivables included arrangements historically material amount total outstanding receivables capital expenditures capital expenditures 16 billion 2019 14 billion 2018 11 billion 2017 principally upgrading expanding manufacturing research development facilities equipment various segments investments information technology laboratory instruments placed customers contractual obligations table summarizes abbott’s estimated contractual obligations december 31 2019 apurchase commitments purchases made normal course business meet operational capital expenditure requirements bother longterm liabilities include estimated payments transition tax tcja net applicable credits cnet unrecognized tax benefits totaling approximately 580 million excluded table abbott unable reasonably estimate period cash settlement respective taxing authorities items see note 16 taxes earnings continuing operations details company employee benefit obligations consisting pensions postemployment benefits including medical life excluded table discussion company’s pension postretirement plans including funding matters included note 15 postemployment benefits contingent obligations abbott periodically entered agreements companies ordinary course business assignment product rights resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote addition abbott periodically acquires business product rights abbott agrees pay contingent consideration based attaining certain thresholds based occurrence certain events legislative issues abbott’s primary markets highly competitive subject substantial government regulations throughout world abbott expects debate continue availability method delivery payment health care products services possible predict extent abbott health care industry general might adversely affected factors future complete discussion factors contained item 1 business item 1a risk factors recently issued accounting standards december 2019 financial accounting standards board fasb issued accounting standards update asu 201912 income taxes topic 740 simplifying accounting income taxes among things eliminates certain exceptions current rules regarding approach intraperiod tax allocations methodology calculating income taxes interim period clarifies accounting transactions result stepup tax basis goodwill standard becomes effective abbott first quarter 2021 early adoption permitted abbott expect adoption new standard material impact consolidated financial statements february 2018 fasb issued asu 201802 reclassification certain tax effects accumulated comprehensive income allows companies reclassify stranded tax effects resulting 2017 tax cuts jobs act accumulated comprehensive income loss retained earnings employed business abbott adopted new standard beginning fourth quarter 2018 result adoption new standard approximately 337 million stranded tax effects reclassified accumulated comprehensive income loss earnings employed business october 2016 fasb issued asu 201616 income taxes topic 740 intraentity transfers assets inventory requires recognition income tax effects intercompany sales transfers assets inventory period transfer occurs abbott adopted standard january 1 2018 using modified retrospective approach recorded cumulative catchup adjustment earnings employed business consolidated balance sheet significant june 2016 fasb issued asu 201613 financial instruments credit losses changes methodology used measure credit losses certain financial instruments financial assets including trade receivables new methodology requires recognition allowance reflects current estimate credit losses expected incurred life financial asset new standard effective abbott beginning 2020 adoption new standard material impact consolidated financial statements february 2016 fasb issued asu 201602 leases requires lessees measure recognize lease asset liability balance sheet leases including operating leases abbott adopted new standard january 1 2019 using modified retrospective approach applied standard’s transition provisions january 1 2019 result changes made december 31 2018 consolidated balance sheet abbott elected apply package practical expedients related transition practical expedients allowed abbott carry forward historical assessments whether existing contracts contain leases lease classification lease existing january 1 2019 whether initial direct costs leases qualified capitalization new lease accounting standard material impact amounts reported consolidated statement earnings material impact amounts reported consolidated balance sheet adoption new standard resulted recording approximately 850 million new right use rou assets additional liabilities operating leases consolidated balance sheet january 1 2019 january 2016 fasb issued asu 201601 financial instruments recognition measurement financial assets financial liabilities provides new guidance recognition measurement presentation disclosure financial assets liabilities abbott adopted standard january 1 2018 new standard changes fair value equity investments readily determinable fair values recorded income expense net within consolidated statement earnings previously fair value changes recorded comprehensive income abbott elected measurement alternative allowed asu 201601 equity investments without readily determinable fair values investments measured cost less impairment plus minus changes resulting observable price changes orderly transactions identical similar investment issuer changes measurement investments recorded income expense net within consolidated statement earnings part adoption cumulativeeffect adjustment earnings employed business consolidated balance sheet net unrealized losses equity investments recorded accumulated comprehensive income loss december 31 2017 significant may 2014 fasb issued asu 201409 revenue contracts customers provides single comprehensive model accounting revenue contracts customers supersedes nearly previously existing revenue recognition guidance core principle asu entity recognize revenue transfers promised goods services customers amount reflects consideration entity expects entitled exchange goods services abbott adopted new standard january 1 2018 using modified retrospective approach method entities recognize cumulative effect applying new standard date initial application restatement comparative periods presented cumulative effect applying new standard resulted increase earnings employed business consolidated balance sheet 23 million recorded january 1 2018 new standard applied contracts completed january 1 2018 impact adopting asu 201409 significant individual financial statement line items consolidated balance sheet consolidated statement earnings private securities litigation reform act 1995 caution concerning forwardlooking statements safe harbor provisions private securities litigation reform act 1995 abbott cautions investors forwardlooking statements projections made abbott including made document subject risks uncertainties may cause actual results differ materially projected economic competitive governmental technological factors may affect abbott’s operations discussed item 1a risk factors item 7a item 7 managements discussion analysis financial condition results operations financial review abbotts revenues derived primarily sale broad line health care products shortterm receivable arrangements patent protection licenses technological performance features inclusion abbotts products contract pharmacy benefit manager impact products sold price controls competition rebates impact net selling prices products foreign currency translation impacts measurement net sales costs abbotts primary products prescription pharmaceuticals nutritional products diagnostic testing products vascular products abbott also owns 50 percent tap pharmaceutical products inc abbott accounts equity method worldwide launch additional indications humira acquisitions guidants vascular intervention endovascular solutions businesses kos pharmaceuticals inc amendments ending boehringer ingelheim agreement synagis copromotion agreement loss patent protection pharmaceutical products realized gains unrealized losses boston scientific common stock impacted abbotts sales costs financial position last three years pharmaceutical research development focused therapeutic areas include immunology oncology neuroscience pain management infectious diseases 2003 abbott began worldwide launch humira rheumatoid arthritis followed launches three additional indications increased humiras worldwide sales 30 billion 2007 compared 20 billion 2006 14 billion 2005 including launch fifth indication 2008 abbott forecasts worldwide humira sales approximately 4 billion 2008 substantial research development selling support continues dedicated maximizing worldwide potential humira december 2006 abbott acquired kos pharmaceuticals inc complements abbotts existing franchise dyslipidemia market strengthened pharmaceutical pipeline cholesterol management 2005 abbott boehringer ingelheim bi amended agreement whereby abbott distributed promoted bi products effective january 1 2006 abbott longer distributed recorded sales distribution activities bi products abbotts gross margins bi products prior agreement effect december 31 2005 substantially lower average gross margins sales bi products 150 million 23 billion 2006 2005 respectively addition increased generic competition resulted us sales omnicef declining 637 million 2006 235 million 2007 worldwide sales clarithromycin declining 11 billion 2005 724 million 2007 december 31 2006 us copromotion agreement synagis terminated revenues copromotion synagis 373 million 2006 abbotts nutritional products businesses reorganized worldwide business better leverage opportunities available strong nutritional brands significant efforts focused capturing opportunities particularly developing markets growth strong april 2006 abbott acquired guidants vascular intervention endovascular solutions businesses began integrate abbotts vascular business acquisition significantly improved abbotts competitive position business characterized rapid innovation 2006 abbott received european union approval market xience v drug eluting stent abbott awaiting approval us abbotts diagnostic segment comprises three separate divisions immunochemistryhematology point care molecular subsequent termination agreement sell immunochemistryhematology point care businesses ge abbott refocused managing growing businesses abbott acquired 646 million shares boston scientific connection abbotts acquisition vascular intervention endovascular solutions businesses guidant 2007 net loss charged expense investment 153 million december 31 2007 abbott held 264 million shares boston scientific common stock subsequent year end shares sold resulting small gain abbotts short longterm debt totaled 122 billion december 31 2007 largely incurred finance recent acquisitions operating cash flows excess capital expenditures cash dividends partially funded acquisitions last three years december 31 2007 abbotts longterm debt rating aa standard poors corporation a1 moodys investors service 2008 abbott focus several key initiatives pharmaceutical business abbott continue launch newly approved indications humira continue leverage product pipeline opportunities lipid franchise including kos pharmaceuticals inc business pharmaceutical research development efforts continue focus therapeutic areas noted significant portion development expenditures allocated new humira indications well simcor abt335 cholesterol drugs abt335crestor fixed dose combination abt874 biologic psoriasis crohns disease controlled release vicodin cr well several phase ii clinical programs neuroscience oncology vascular business abbott continue launch xience v drugeluting stent internationally launch us upon approval fda diabetes care abbott anticipates launching freestyle freedom lite monitor us well freestyle navigator business segments abbott focus developing acquiring differentiated technologies higher growth segments markets critical accounting policies sales rebates approximately 48 percent abbotts consolidated gross revenues subject various forms rebates allowances abbott records reductions revenues time sale rebates allowances pharmaceutical products segment nutritional products segment abbott provides rebates pharmacy benefit management companies state agencies administer federal medicaid medicare programs special supplemental food program women infants children wic wholesalers group purchasing organizations government agencies private entities rebate amounts usually based upon volume purchases using contractual statutory prices product factors used rebate calculations include identification products sold subject rebate customer government agency price terms apply estimated lag time sale payment rebate using historical trends adjusted current changes abbott estimates amount rebate paid records liability reduction gross sales abbott records sale product settlement rebate generally occurs two 24 months sale abbott regularly analyzes historical rebate trends makes adjustments reserves changes trends terms rebate programs rebates chargebacks charged gross sales 2007 2006 2005 amounted approximately 32 billion 26 billion 25 billion respectively 215 percent 232 percent 229 percent respectively based gross sales approximately 150 billion 110 billion 109 billion respectively subject rebate onepercentage point increase percentage rebates related gross sales would decrease net sales operating earnings approximately 150 million 2007 abbott considers onepercentage point increase reasonably likely increase percentage rebates related gross sales allowances charged gross sales approximately 325 million 247 million 284 million cash discounts 2007 2006 2005 respectively 269 million 209 million 162 million returns 2007 2006 2005 respectively cash discounts known within 15 30 days sale therefore reliably estimated returns reliably estimated abbotts historical returns low sales returns terms sales terms remained relatively unchanged several periods management analyzes adequacy ending rebate accrual balances quarter domestic nutritional business management uses internal external data available estimate level inventory distribution channel management access several large customers inventory management systems customers utilizes data third party continuously measures time retail shelf sources allow management make reliable estimates inventory distribution channel except transition period change supplier wic business state inventory distribution channel vary substantially management also estimates states processing lag time based claims data addition internal processing time factor estimating accrual wic business state sale made determining factor applicable price reliably determinable estimates required amount wic sales within state abbott wic business external data sources utilized estimate participant data us department agriculture usda administers wic program participant data states internally administered market surveys usda making data available many years internal data includes historical redemption rates pricing data december 31 2007 abbott exclusive wic business 27 states domestic pharmaceutical business significant charges gross sales medicaid medicare rebates pharmacy benefit manager rebates wholesaler chargebacks order evaluate adequacy ending accrual balances management uses internal external estimates level inventory distribution channel rebate claims processing lag time external data sources used estimate inventory distribution channel include inventory levels periodically reported wholesalers third party market data purchased abbott management estimates processing lag time based periodic sampling claims data estimate price rebate percentage systems calculations used track sales product customer estimate contractual statutory price abbotts systems calculations developed time rebates become significant abbott believes reliable following table analysis four largest rebate accruals comprise approximately 74 percent consolidated rebate provisions charged revenues 2007 remaining rebate provisions charged gross sales significant determination operating earnings dollars thousands historically adjustments prior years rebate accruals material net income 2007 adjustments made prior years rebate accruals medicaid medicare rebate accrual reduced approximately 69 million wic rebate accrual increased approximately 19 million abbott employs various techniques verify accuracy claims submitted possible works organizations submitting claims gain insight changes might affect rebate amounts medicaid medicare government agency programs calculation rebate involves interpretations relevant regulations subject challenge change interpretation income taxes abbott operates numerous countries income tax returns subject audits adjustments abbott operates globally nature audit items often complex objectives government auditors result tax income one country abbott employs internal external tax professionals minimize audit adjustment amounts possible january 1 2007 abbott adopted provisions fasb interpretation 48 accounting uncertainty income taxes changed measurement tax contingencies interpretation order recognize uncertain tax benefit taxpayer must likely sustaining position measurement benefit calculated largest amount 50 percent likely realized upon resolution benefit application interpretation requires significant amount judgment us abbotts federal income tax returns 2003 settled income tax returns years 2003 open abbott record deferred income taxes earnings reinvested indefinitely foreign subsidiaries pension postemployment benefits abbott offers pension benefits postemployment health care many employees abbott engages outside actuaries calculate obligations costs programs abbott must develop longterm assumptions significant health care cost trend rates discount rate expected return plan assets discount rates used measure liabilities determined based highquality fixed income securities match duration expected retiree benefits health care cost trend rates represent abbotts expected annual rates change cost health care benefits forward projection health care costs measurement date difference assumed rates actual rates known decades significant relation obligations annual cost recorded programs recent low interest rates significantly increased actuarial losses plans december 31 2007 pretax net actuarial losses prior service costs credits recognized accumulated comprehensive income loss abbotts defined benefit plans medical dental plans 960 million 408 million respectively actuarial losses gains amortized remaining service attribution periods employees corridor method accordance rules accounting postemployment benefits differences expected longterm return plan assets actual annual return amortized fiveyear period footnote 4 consolidated financial statements describes impact onepercentage point change health care cost trend rate however certainty change would limited one percentage point december 31 2006 abbott adopted provisions sfas 158 employers accounting defined benefit pension postretirement plans provisions statement require recognition deferrals balance sheet corresponding charge accumulated comprehensive income loss adoption statement december 31 2006 resulted decrease abbotts shareholders equity approximately 13 billion valuation intangible assets abbott acquired continues acquire significant intangible assets abbott records fair value assets yet regulatory approval alternative uses expensed acquired inprocess research development regulatory approval capitalized transactions involving purchase sale intangible assets occur frequency companies health care field valuations usually based discounted cash flow analysis discounted cash flow model requires assumptions timing amount future net cash inflows risk cost capital terminal values market participants factors significantly affect value intangible asset abbott engages independent valuation experts review abbotts critical assumptions calculations significant acquisitions intangibles abbott reviews intangible assets impairment quarter using undiscounted net cash flows approach undiscounted cash flows intangible asset less carrying value intangible asset intangible asset written fair value usually discounted cash flow amount cash flows cannot identified individual asset review applied lowest group level cash flows identifiable goodwill reviewed impairment annually event could result impairment goodwill occurs december 31 2007 goodwill intangibles amounted 101 billion 57 billion respectively amortization expense intangible assets amounted 782 million 2007 impairments goodwill 2007 2006 2005 litigation abbott accounts litigation losses accordance sfas 5 accounting contingencies sfas 5 loss contingency provisions recorded probable losses managements best estimate loss best estimate cannot made minimum loss contingency amount recorded estimates often initially developed substantially earlier ultimate loss known estimates refined accounting period additional information becomes known accordingly abbott often initially unable develop best estimate loss therefore minimum amount could zero recorded information becomes known either minimum loss amount increased resulting additional loss provisions best estimate made also resulting additional loss provisions occasionally best estimate amount changed lower amount events result expectation favorable outcome previously expected except patent case majority cases relating pharmaceutical pricing abbott unable estimate loss abbott estimates range possible loss approximately 110 million 325 million legal proceedings environmental exposures reserves approximately 165 million recorded december 31 2007 proceedings exposures reserves represent managements best estimate probable loss defined sfas 5 stock compensation january 1 2006 abbott adopted sfas 123 revised 2004 sharebased payment requires fair value stock options recorded results operations since market trading employee stock options management must use fair value method certainty results fair value method would value employee stock options would traded cash fair value methods require management make several assumptions significant selection fair value model stock price volatility average life option abbott readily available grantbygrant historical activity several years option administration system uses developing assumptions abbott uses blackscholes method value stock options results blackscholes model periodically compared binomial model results comparable abbott uses historical volatility stock price implied volatility currently traded options develop volatility assumptions abbott uses historical grant activity combined expectations future exercise activity develop average life assumptions abbott also used historical grant data evaluate whether certain holders stock options exercised options differently holders found differentiating pattern among holders results operations sales following table details components sales growth reportable segment last three years worldwide 2007 sales compared 2006 reflect acquisitions guidants vascular intervention endovascular solutions businesses april 21 2006 kos pharmaceuticals inc fourth quarter 2006 addition pharmaceutical products segment agreement boehringer ingelheim bi copromote distribute three products us 2005 abbott bi amended agreement effective january 1 2006 abbott longer distributed recorded sales distribution activities bi products although abbott recorded small amount copromotion revenue 2006 increases sales 2006 excluding bi products 116 percent total net sales 123 percent total us sales 78 percent pharmaceutical products segment sales growth 2007 nutritional products segment reflects completion us copromotion synagis 2006 excluding sales synagis 2006 nutritional products segment sales increased 113 percent comparison significant product group sales follows percent changes versus prior year based unrounded numbers increased sales volume humira increased volume price depakote favorably impacted us specialty sales us primary care sales 2007 favorably impacted sales niaspan new product acquisition kos pharmaceuticals inc fourth quarter 2006 addition increased sales volume omnicef 2006 2005 increased sales tricor three years favorably impacted us primary care sales increases partially offset lower sales omnicef 2007 lower us sales biaxin three years due primarily introduction generic competition us sales omnicef 235 million 637 million 495 million 2007 2006 2005 respectively us sales biaxin 36 million 151 million 306 million 2007 2006 2005 respectively increased sales volume humira favorably impacted international pharmaceuticals sales partially offset decreased sales volume 2006 due generic competition clarithromycin decrease sales us pediatric nutritionals 2005 primarily due overall infant nutritionals nonwic category decline competitive share loss international pediatric nutritionals sales increases due primarily volume growth developing countries us adult nutritionals sales 2005 favorably impacted acquisition eas fourth quarter 2004 international sales 2007 also favorably impacted effect relatively weaker us dollar abbott periodically sold product rights nonstrategic products recorded related gains net sales accordance abbotts revenue recognition policies discussed footnote 1 consolidated financial statements related net sales 184 million 2007 199 million 2006 177 million 2005 expiration licenses patent protection generic competition affect future revenues operating income abbott significant ongoing generic activities significant patent license expirations next three years follows us composition matter patent depakote expires july 2008 abbott holds noncomposition matter patents extended release form depakote us sales depakote 15 billion 2007 pharmaceutical products segment markets depakote patents license vascular products segment related rapid exchange technology expire 2008 however impact expected material patent prevacid marketed tap pharmaceuticals expires 2009 operating earnings gross profit margins 559 percent net sales 2007 563 percent 2006 524 percent 2005 decrease gross profit margin 2007 due part effect unfavorable impact 2007 completion us copromotion synagis 2006 well generic competition omnicef biaxin sales 2007 increased amortization intangible assets acquired 2006 also unfavorable impact gross profit margins 2007 increase gross profit margin 2006 due favorable product mix primarily result decreased sales boehringer ingelheim products lower margins products pharmaceutical products segment decrease gross profit margin 2005 due unfavorable product mix primarily result increased sales boehringer ingelheim products restructuring charges discussed reduced gross profit margins 2007 2006 2005 07 percentage points 11 percentage points 08 percentage points respectively gross profit margins years also affected productivity improvements higher commodity costs higher project expenses new products higher manufacturing capacity costs anticipated unit growth effects inflation us states receive price rebates manufacturers infant formula federally subsidized special supplemental food program women infants children also rebate programs pharmaceutical products rebate programs continue negative effect gross profit margins nutritional pharmaceutical products segments higher commodity costs unfavorably impacted gross profit margins nutritional products segment 2007 pricing pressures unfavorably impacted gross profit margins 2006 2005 gross profit margins pharmaceutical products segment favorably impacted 2006 unfavorably impacted 2005 product mix favorable product mix 2006 due decreased sales lower margin boehringer ingelheim products unfavorable impact gross profit margin 2005 due primarily increased sales lower margin boehringer ingelheim products higher manufacturing costs research development expense excluding acquired inprocess collaborations research development 25 billion 2007 23 billion 2006 18 billion 2005 represented increases 111 percent 2007 238 percent 2006 73 percent 2005 effect recording compensation expense relating sharebased awards 2006 additional costs associated abbotts decision discontinue commercial development zomaxx drugeluting stent increased research development expenses 63 percentage points 2005 increases 2007 2006 also affected acquisitions guidants vascular intervention endovascular solutions businesses april 2006 kos pharmaceuticals inc fourth quarter 2006 increases also reflect increased spending support pipeline programs including new indications humira abt335 cholesterol drug abt335crestor fixeddose combination abt874 biologic psoriasis crohns disease controlledrelease vicodin cr xience v well several phase ii clinical programs neuroscience oncology majority research development expenditures concentrated pharmaceutical products selling general administrative expenses increased 167 percent 2007 compared increases 155 percent 2006 117 percent 2005 2007 increase reflects acquisitions guidants vascular intervention endovascular solutions businesses kos pharmaceuticals inc 2006 increase reflects recording compensation expense relating sharebased awards philanthropic contribution abbott fund acquisition guidants vascular intervention endovascular solutions businesses items increased selling general administrative expenses 86 percentage points 2005 restructuring charges discussed increase bad debt reserve associated unfavorable court ruling increased percent change 2004 27 percentage points 2005 remaining increases selling general administrative expenses due primarily increased selling marketing support new existing products including continued spending humira continuing international launch xience v well spending marketed pharmaceutical products increases three years also reflect inflation additional selling marketing support primarily pharmaceutical products segment restructurings dollars millions 2007 2006 2005 abbott management approved plans realign worldwide pharmaceutical vascular manufacturing operations selected domestic international commercial research development operations order reduce costs 2007 2006 2005 abbott recorded pretax charges earnings approximately 107 210 256 respectively reflecting impairment manufacturing facilities assets employee severance related charges approximately 94 181 174 respectively classified cost products sold 3 29 10 respectively research development 10 2007 72 2005 selling general administrative fair value determination amount asset impairments determined primarily based discounted cash flow method additional 90 70 14 subsequently recorded 2007 2006 2005 respectively relating restructurings primarily accelerated depreciation addition abbott implemented facilities restructuring plans 2007 related acquired operations kos pharmaceuticals inc resulted increase goodwill approximately 52 following summarizes activity restructurings abbott expects incur additional 73 future periods restructuring plans primarily accelerated depreciation interest expense interest expense increased 2007 2006 due primarily higher borrowings result acquisitions guidants vascular intervention endovascular solutions businesses kos pharmaceuticals inc abbotts investment boston scientific common stock note receivable income expense net income expense net 2007 includes 190 million fair market value loss adjustment abbotts investment boston scientific common stock realized gain 37 million sales boston scientific common stock income expense net 2007 2006 includes fair value gain adjustments 28 million 91 million respectively certain derivative financial instruments included investment boston scientific common stock taxes earnings income tax rates earnings 193 percent 2007 246 percent 2006 270 percent 2005 taxes earnings 2006 reflect effect tax rates applied acquired inprocess research development resolution prior years income tax audits effect discrete tax items 2006 tax rates applied acquired inprocess collaborations research development increased effective tax rate 66 percentage points effect income tax audit resolution discrete tax items decreased effective tax rate 55 percentage points 2005 abbott remitted 43 billion foreign earnings accordance american jobs creation act 2004 recorded additional tax expense 245 million increased effective tax rate approximately 53 percentage points partially offset adjustments prior years tax accounts resulting primarily resolution prior years accrual requirements decreased effective tax rate 23 percentage points abbott expects apply annual effective rate somewhat 19 percent 2008 recently adopted accounting standards effective january 1 2007 abbott adopted statement financial accounting standards sfas 157 fair value measurements sfas 159 fair value option financial assets financial liabilities adoption standards material impact abbotts financial position however adoption sfas 159 sfas 157 resulted decrease earnings employed business approximately 189 million substantially offset increase accumulated comprehensive income loss approximately 182 million january 1 2007 effective january 1 2007 abbott adopted fasb interpretation 48 accounting uncertainty income taxes fasb interpretation 48 requires recorded tax benefit must likely sustained upon examination tax authorities based upon technical merits amount benefit recorded largest amount benefit greater 50 percent likely realized upon ultimate settlement adoption interpretation material impact abbotts financial position business combinations technology acquisitions related transactions december 2006 abbott acquired kos pharmaceuticals inc cash approximately 38 billion net cash held kos pharmaceuticals inc expand abbotts presence lipid management market provide several onmarket latestage pipeline products kos pharmaceuticals inc specialty pharmaceutical company developed marketed proprietary medications treatment chronic cardiovascular metabolic respiratory diseases business acquired december 13 2006 financial results acquired operations included financial statements beginning date acquisition financed primarily shortterm debt allocation purchase price resulted charge 13 billion acquired inprocess research development intangible assets 821 million goodwill primarily nondeductible 16 billion net liabilities primarily deferred income taxes recorded acquisition 331 million acquired intangible assets amortized 4 15 years nondeductible acquired inprocess research development charged income 2006 substantial amount acquired inprocess research development charge relating kos acquisition related primarily cholesterol treatment drugs research efforts ranged 70 percent 80 percent complete date acquisition valuation method used fair value projects multiperiod excess earnings method income approach riskadjusted discount rate used 16 percent developing assumptions valuation model comparable abbott products marketed competitors used estimate pricing margins expense levels december 31 2007 one drug approved marketing us remaining research efforts primarily schedule estimated projected costs complete projects totaled approximately 75 million december 31 2007 anticipated product launches 2008 2010 significant changes development plans acquired incomplete projects significant net cash inflows commence launches products order expand abbotts presence growing vascular market abbott acquired guidants vascular intervention endovascular solutions businesses april 21 2006 approximately 41 billion cash connection boston scientifics acquisition guidant addition abbott also pay boston scientific 250 million upon government approvals market xience v drugeluting stent us japan government approvals anticipated 2008 us 2009 japan 250 million payment result recording additional goodwill allocation purchase price resulted charge 665 million acquired inprocess research development intangible assets 12 billion goodwill primarily deductible 17 billion tangible net assets 580 million acquired intangible assets amortized 4 15 years deductible acquired inprocess research development charged income 2006 net tangible assets acquired consist primarily property equipment approximately 530 million trade accounts receivable approximately 250 million inventories approximately 120 million net assumed liabilities primarily trade accounts payable litigation reserves liabilities substantial amount acquired inprocess research development charge relating guidant acquisition related drug eluting bioabsorbable stents research efforts ranged 35 percent 85 percent complete date acquisition valuation method used fair value projects multiperiod excess earnings method income approach riskadjusted discount rates used ranged 16 percent 25 percent developing assumptions valuation model comparable abbott products marketed competitors used estimate pricing margins expense levels december 31 2007 research efforts primarily schedule estimated projected costs complete totaled approximately 390 million december 31 2007 anticipated product launch dates 2008 2013 significant changes development plans acquired incomplete projects significant net cash inflows commence within one two years product launch order facilitate boston scientifics acquisition guidant abbott also acquired 646 million shares boston scientific common stock directly boston scientific loaned 900 million whollyowned subsidiary boston scientific common stock valued 13 billion note receivable valued 829 million acquisition date connection acquisition shares boston scientific entitled certain aftertax gains upon abbotts sale shares addition boston scientific agreed reimburse abbott certain borrowing costs debt incurred acquire boston scientific shares abbott recorded net derivative financial instruments liability 59 million gainsharing derivative financial instrument liability interest derivative financial instrument asset effect recording shares loan boston scientific derivative financial instruments fair value date acquisition resulted recording additional goodwill approximately 204 million changes fair value derivative financial instruments net recorded income expense net 2005 abbott acquired remaining interest small medical products company less 50 percent equity interest small medical products company 25 million 2005 abbott also acquired additional rights related humira approximately 270 million amortized 13 years acquisitions taken place january 1 previous year consolidated net sales income would significantly different reported amounts financial condition cash flow net cash operating activities amounted 52 billion 53 billion 50 billion 2007 2006 2005 respectively cash operating activities 2007 2006 compared 2005 higher due higher net earnings adjusted aftertax noncash charges acquired inprocess research development 2006 sharebased compensation higher contributions retirement benefit plans 2005 compared 2007 2006 partially offset higher income tax payments 2006 including tax payments related 2005 remittances foreign earnings american jobs creation act abbott funds domestic pension plans according irs funding limitations 2007 2006 200 million funded main domestic pension plan 2005 641 million funded main domestic pension plan abbott expects pension funding main domestic pension plan 200 million annually increased contribution 2005 due part investment cash remitted american jobs creation act 2004 abbott expects annual cash flow operating activities continue exceed abbotts capital expenditures cash dividends debt capital december 31 2007 abbotts longterm debt rating aa standard poors corporation a1 moodys investors service abbott readily available financial resources including unused lines credit 30 billion support commercial paper borrowing arrangements lines credit expire 2012 october 2006 board directors authorized purchase 25 billion abbotts common shares time shares purchased authorization 2006 2007 abbott purchased approximately 190 million common shares cost approximately 10 billion 2006 2005 abbott purchased approximately 173 million 300 million respectively common shares prior authorizations cost approximately 755 million 13 billion respectively registration statement filed securities exchange commission february 2006 abbott issued 35 billion longterm debt 2007 matures 2012 2037 interest rates ranging 515 percent 615 percent proceeds debt used pay shortterm borrowings incurred partially fund acquisition kos pharmaceuticals inc registration statement abbott issued 40 billion longterm debt 2006 matures 2009 2016 interest rates ranging 5375 percent 5875 percent proceeds debt used pay domestic commercial paper borrowings incurred partially fund acquisition guidants vascular intervention endovascular solutions businesses addition commercial paper borrowings used repay 19 billion longterm debt 2006 2005 abbott borrowed 19 billion longterm debt scheduled mature may 2008 variable interest rates libor 2007 2006 300 million 16 billion respectively debt paid prior maturity working capital working capital 49 billion december 31 2007 40 billion december 31 2005 december 31 2006 current liabilities exceeded current assets approximately 669 million result increased shortterm borrowings used acquire kos pharmaceuticals inc december 2006 capital expenditures capital expenditures 17 billion 2007 13 billion 2006 12 billion 2005 principally upgrading expanding manufacturing research development investments information technology administrative support facilities segments laboratory instruments placed customers contractual obligations following table summarizes abbotts estimated contractual obligations december 31 2007 apurchase commitments purchases made normal course business meet operational capital expenditure requirements contingent obligations abbott periodically entered agreements ordinary course business assignment product rights companies resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote addition abbott periodically acquires business product rights abbott agrees pay contingent consideration based attaining certain thresholds based occurrence certain events connection acquisition guidants vascular intervention endovascular solutions businesses abbott pay boston scientific 250 million upon government approvals market xience v drugeluting stent us japan government approvals anticipated 2008 us 2009 japan addition abbott retained liabilities taxes income prior spinoff hospira certain potential liabilities related alleged improper pricing practices connection federal state private reimbursement certain drugs recently issued accounting standards december 2007 fasb issued two standards sfas 141 revised 2007 business combinations sfas 160 noncontrolling interests consolidated financial statements amendment arb 51 abbott adopt standards january 1 2009 statement 141 revised 2007 impact abbott primarily five areas acquired inprocess research development accounted indefinite lived intangible asset approval discontinuation rather expense acquisition costs expensed rather added cost acquisition restructuring costs connection acquisition expensed rather added cost acquisition fair value contingent consideration date acquisition included cost acquisition fair value contingent liabilities likely occurrence recorded date acquisition effect changes applicable acquisitions january 1 2009 adoption statement 160 material effect abbott legislative issues august 2006 president united states signed pension protection act 2006 among things act establishes new minimum funding requirements plan years beginning 2008 abbott expect act significantly impact future fundings domestic defined benefit pension plans abbotts primary markets highly competitive subject substantial government regulation throughout world abbott expects debate continue availability method delivery payment health care products services abbott believes legislation enacted could effect reducing access health care products services reducing prices rate price increases health care products services possible predict extent abbott health care industry general might adversely affected factors future complete discussion factors contained item 1 business item 1a risk factors form 10k private securities litigation reform act 1995 caution concerning forwardlooking statements safe harbor provisions private securities litigation reform act 1995 abbott cautions investors forwardlooking statements projections made abbott including made document subject risks uncertainties may cause actual results differ materially projected economic competitive governmental technological factors may affect abbotts operations discussed 1a risk factors annual report form 10k item 7a item 7 managements discussion analysis financial condition results operations financial review abbotts revenues derived primarily sale broad line health care products shortterm receivable arrangements patent protection licenses technological performance features inclusion abbotts products contract impact products sold price controls competition rebates impact net selling prices products foreign currency translation impacts measurement net sales costs abbotts primary products nutritional products branded generic pharmaceuticals diagnostic testing products vascular products sales international markets comprise approximately 70 percent consolidated net sales february 27 2015 abbott completed sale developed markets branded generics pharmaceuticals business mylan inc mylan 110 million shares newly formed publicly traded entity combined mylans existing business abbotts developed markets pharmaceuticals business february 10 2015 abbott completed sale animal health business zoetis inc january 1 2013 abbott completed separation abbvie inc abbvie formed hold abbotts researchbased proprietary pharmaceuticals business historical operating results businesses prior disposition separation excluded earnings continuing operations presented earnings discontinued operations line abbotts consolidated statement earnings assets liabilities related businesses reported held disposition abbotts consolidated balance sheet december 31 2015 2014 cash flows businesses date disposition separation included consolidated statements cash flows periods presented last three years sales growth driven primarily established pharmaceuticals nutritional diagnostics businesses sales emerging markets represent nearly 50 percent total company sales increased 171 percent 2015 125 percent 2014 excluding impact foreign exchange emerging markets include countries except united states western europe japan canada australia new zealand last three years margin improvement driven primarily nutritional diagnostics vascular businesses abbott expanded operating margin 120 basis points 2015 200 basis points 2014 abbotts sales costs financial position period impacted strengthening us dollar relative international currencies challenging economic fiscal environment several emerging economies abbotts worldwide nutritional products business sales last three years positively impacted demographics aging population increasing rate chronic disease developed markets rise middle class many emerging markets well numerous new product introductions leveraged abbotts strong brands time manufacturing distribution process changes lower commodity costs cost reductions drove margin improvements across business operating margins business increased 187 percent 2013 250 percent 2015 2014 abbott increased local presence nutrition business various countries investing global infrastructure abbott opened three new manufacturing plants one china one india one united states meet demand products formed strategic alliance fonterra worlds largest dairy cooperative develop proposed dairy farm hub china abbotts worldwide diagnostics business sales growth last three years reflected continued market penetration core laboratory business us china growth emerging markets notably latin america addition point care diagnostics business continued expand geographic presence targeted developed emerging markets worldwide diagnostic sales increased 73 percent 2015 64 percent 2014 excluding impact foreign exchange margin improvement continued key focus 2015 operating margins increased 222 percent sales 2013 252 percent 2015 business continued execute efficiency initiatives manufacturing supply chain functions established pharmaceutical products segment focuses sale products emerging markets sale developed markets business mylan february 27 2015 acquisition cfr pharmaceuticals sa cfr september 2014 doubled abbotts branded generics pharmaceutical presence latin america expanded presence emerging markets acquisition veropharm leading russian pharmaceutical company december 2014 abbott established manufacturing footprint russia obtained portfolio medicines well aligned abbotts current pharmaceutical therapeutic areas focus excluding impact foreign exchange established pharmaceutical sales continuing operations increased 341 percent 2015 149 percent 2014 excluding impact 2014 acquisitions well impact foreign exchange 2015 established pharmaceutical sales continuing operations increased 134 percent vascular business last three years abbott continued develop worldwide marketleading xience drugeluting stent des franchise xience franchise includes xience v prime nano pro prox xpedition alpine abbott vascular products latest product introduction xience alpine launched various markets across europe asia 2015 us late 2014 product market us indication treat chronic total occlusions xience franchise maintained marketleading global position 2015 2013 2015 total vascular sales flat excluding unfavorable impact foreign exchange mitraclip absorb endovascular franchise sales growth almost entirely offset pricing pressures primarily related des coronary products well lower des market share certain geographies operating margins improved 320 percent 2013 380 percent 2015 cost improvement initiatives executed across business january 30 2016 abbott entered definitive agreement acquire alere inc alere annual sales approximately 25 billion alere global leader point care diagnostics acquisition expected significantly advance abbotts global diagnostics presence leadership subject approval alere shareholders satisfaction customary closing conditions including applicable regulatory approvals terms agreement abbott pay 56 per common share total expected equity value 58 billion aleres net debt currently 26 billion assumed refinanced abbott february 2016 abbott obtained commitment 364day senior unsecured bridge term loan facility amount exceed 9 billion conjunction pending acquisition alere abbott plans use cash hand time acquisition anticipated longterm borrowings acquire alere bridge facility provide backup financing abbotts short longterm debt totaled 90 billion december 31 2015 december 31 2015 abbotts longterm debt rating standard poors corporation a2 moodys investors service result pending acquisition alere abbotts credit ratings review anticipated ratings adjusted reflect increased borrowings incurred finance acquisition march 2015 abbott issued 25 billion longterm debt consisting 750 million matures 2020 750 million 2022 10 billion 2025 fixed interest rates 20 percent 255 percent 295 percent respectively abbott also entered interest rate swap contracts totaling 25 billion related debt issuance contracts effect changing abbotts obligation fixed interest rate variable interest rate obligation fourth quarter 2014 abbott extinguished approximately 500 million longterm debt assumed part acquisition cfr incurred charge 183 million related early repayment debt abbott declared dividends 098 per share 2015 compared 090 per share 2014 9 increase dividends paid 1443 billion 2015 compared 1342 billion 2014 yearoveryear change dividends reflects impact increase dividend rate december 2015 abbott increased companys quarterly dividend 026 per share 024 per share effective dividend paid february 2016 addition preparing close alere acquisition abbott focus several key initiatives 2016 nutritional business abbott continue build product portfolio introduction new sciencebased products expand highgrowth emerging markets implement additional margin improvement initiatives established pharmaceuticals business abbott continue focus obtaining additional product approvals across numerous countries increasing penetration emerging markets diagnostics business abbott focus development nextgeneration instrument platforms advanced technologies expansion emerging markets improvements segments operating margin vascular business abbott continue focus marketing products coronary endovascular franchises increasing mitraclip sales well clinical development absorb bioresorbable vascular scaffold bvs device penetration absorb numerous countries abbotts segments abbott focus developing differentiated technologies higher growth markets critical accounting policies sales rebates 2015 approximately 42 percent abbotts consolidated gross revenues subject various forms rebates allowances abbott recorded reductions revenues time sale rebates allowances 2015 nutritional products diabetes care segments abbott provides rebates state agencies administer special supplemental nutrition program women infants children wic wholesalers group purchasing organizations government agencies private entities rebate amounts usually based upon volume purchases using contractual statutory prices product factors used rebate calculations include identification products sold subject rebate customer government agency price terms apply estimated lag time sale payment rebate using historical trends adjusted current changes abbott estimates amount rebate paid records liability reduction gross sales abbott records sale product settlement rebate generally occurs one six months sale abbott regularly analyzes historical rebate trends makes adjustments reserves changes trends terms rebate programs rebates chargebacks charged gross sales 2015 2014 2013 amounted approximately 22 billion 21 billion 19 billion respectively 216 percent 201 percent 191 percent respectively based gross sales approximately 103 billion 103 billion 102 billion respectively subject rebate onepercentage point increase percentage rebates related gross sales would decrease net sales approximately 101 million 2015 abbott considers onepercentage point increase reasonably likely increase percentage rebates related gross sales allowances charged gross sales approximately 124 million 138 million 146 million cash discounts 2015 2014 2013 respectively 238 million 210 million 208 million returns 2015 2014 2013 respectively cash discounts known within 15 30 days sale therefore reliably estimated returns reliably estimated abbotts historical returns low sales returns terms sales terms remained relatively unchanged several periods management analyzes adequacy ending rebate accrual balances quarter domestic nutritional business management uses internal external data available estimate level inventory distribution channel management access several large customers inventory management data customers utilizes data third party measures time retail shelf sources allow management make reliable estimates inventory distribution channel except transition period change supplier wic business state inventory distribution channel vary substantially management also estimates states processing lag time based claims data addition internal processing time factor estimating accrual wic business state sale made determining factor applicable price reliably determinable estimates required amount wic sales within state abbott wic business external data sources utilized estimate participant data us department agriculture usda administers wic program participant data states internally administered market research usda making data available many years internal data includes historical redemption rates pricing data december 31 2015 abbott wic business 26 states historically adjustments prior years rebate accruals material net income abbott employs various techniques verify accuracy claims submitted possible works organizations submitting claims gain insight changes might affect rebate amounts government agency programs calculation rebate involves interpretations relevant regulations subject challenge change interpretation income taxes abbott operates numerous countries income tax returns subject audits adjustments abbott operates globally nature audit items often complex objectives government auditors result tax income one country abbott employs internal external tax professionals minimize audit adjustment amounts possible accordance accounting rules relating measurement tax contingencies order recognize uncertain tax benefit taxpayer must likely sustaining position measurement benefit calculated largest amount 50 percent likely realized upon resolution benefit application rules requires significant amount judgment us abbotts federal income tax returns 2011 settled except one item income tax returns years 2011 open abbott record deferred income taxes earnings reinvested indefinitely foreign subsidiaries pension postemployment benefits abbott offers pension benefits postemployment health care many employees abbott engages outside actuaries assist determination obligations costs programs abbott must develop longterm assumptions significant health care cost trend rates discount rates expected return plan assets discount rates used measure liabilities determined based highquality fixed income securities match duration expected retiree benefits health care cost trend rates represent abbotts expected annual rates change cost health care benefits forward projection health care costs measurement date difference assumed rates actual rates known decades significant relation obligations annual cost recorded programs low interest rates significantly increased actuarial losses plans december 31 2015 pretax net actuarial losses prior service costs credits recognized accumulated comprehensive income loss abbotts defined benefit plans medical dental plans losses 29 billion 70 million respectively actuarial losses gains amortized remaining service attribution periods employees corridor method accordance rules accounting postemployment benefits differences expected longterm return plan assets actual annual return amortized fiveyear period note 13 consolidated financial statements describes impact onepercentage point change health care cost trend rate however certainty change would limited one percentage point valuation intangible assets abbott acquired continues acquire significant intangible assets abbott records fair value transactions involving purchase sale intangible assets occur frequency companies health care field valuations usually based discounted cash flow analysis discounted cash flow model requires assumptions timing amount future net cash flows risk cost capital terminal values market participants factors significantly affect value intangible asset abbott engages independent valuation experts review abbotts critical assumptions calculations acquisitions significant intangibles abbott reviews definitelived intangible assets impairment quarter using undiscounted net cash flows approach undiscounted cash flows intangible asset less carrying value intangible asset intangible asset written fair value usually discounted cash flow amount cash flows cannot identified individual asset review applied lowest group level cash flows identifiable goodwill indefinitelived intangible assets relate inprocess research development acquired business combination reviewed impairment annually event could result impairment occurs december 31 2015 goodwill amounted 96 billion intangibles amounted 56 billion amortization expense continuing operations intangible assets amounted 601 million 2015 555 million 2014 588 million 2013 impairments goodwill 2015 2014 2013 litigation abbott accounts litigation losses accordance fasb accounting standards codification 450 contingencies asc 450 loss contingency provisions recorded probable losses managements best estimate loss best estimate cannot made minimum loss contingency amount recorded estimates often initially developed substantially earlier ultimate loss known estimates refined accounting period additional information becomes known accordingly abbott often initially unable develop best estimate loss therefore minimum amount could zero recorded information becomes known either minimum loss amount increased resulting additional loss provisions best estimate made also resulting additional loss provisions occasionally best estimate amount changed lower amount events result expectation favorable outcome previously expected abbott estimates range possible loss approximately 35 million 50 million legal proceedings environmental exposures accruals approximately 45 million recorded december 31 2015 proceedings exposures accruals represent managements best estimate probable loss defined fasb asc 450 contingencies results operations sales following table details components sales growth reportable segment last three years increases total net sales 2015 2014 reflect unit growth partially offset impact unfavorable foreign exchange price declines related vascular products sales 2015 2014 primarily reflect pricing pressure drug eluting stents coronary products result market competition us major markets impact reimbursement reductions centers medicare medicaid services abbotts diabetes care business also contributed overall 39 price decline us 2014 comparison significant product group sales follows percent changes versus prior year based unrounded numbers 1coronary devices include desbvs product portfolio structural heart guidewires balloon catheters coronary products endovascular includes vessel closure carotid stents peripheral products 2coronary devices include desbvs product portfolio structural heart guidewires balloon catheters coronary products endovascular includes vessel closure carotid stents peripheral products excluding unfavorable impact foreign exchange total established pharmaceutical products sales increased 341 percent 2015 149 percent 2014 established pharmaceutical products segment focused several key emerging markets including india russia china brazil excluding impact foreign exchange sales key emerging markets increased 324 percent 2015 110 percent 2014 excluding impact foreign exchange sales established pharmaceuticals emerging markets increased 396 percent 2015 increased 301 percent 2014 increases 2015 2014 include impact acquisitions cfr pharmaceuticals september 2014 veropharm december 2014 excluding sales acquisitions impact foreign exchange revenues increased 134 2015 79 2014 excluding unfavorable impact foreign exchange total nutritional products sales increased 55 percent 2015 50 percent 2014 abbotts international pediatric nutritional business 2015 increase sales driven growth china russia several countries latin america middle east result share gains market growth increase 2015 us pediatric nutritional sales primarily reflects higher infant formula revenue new product launches excluding unfavorable impact foreign exchange 2015 2014 increases international adult nutritional sales due primarily volume growth emerging markets continued expansion adult nutrition category internationally decrease 2015 2014 us adult nutritional sales reflects effects increased competition market dynamics retail institutional categories excluding unfavorable impact foreign exchange total diagnostic products sales increased 73 percent 2015 64 percent 2014 sales increases primarily driven share gains core laboratory markets us internationally 2015 2014 sales immunochemistry products largest category segment reflect continued execution abbotts strategy deliver integrated solutions large healthcare customers excluding unfavorable impact foreign exchange total vascular products sales grew 13 2015 virtually flat 2014 2015 growth abbotts mitraclip structural heart product endovascular business including supera peripheral stent absorb bioresorbable vascular scaffold various international markets almost entirely offset continued pricing pressures des products abbott periodically sold product rights nonstrategic products recorded related gains net sales accordance abbotts revenue recognition policies discussed note 1 consolidated financial statements related net sales significant 2015 2014 2013 expiration licenses patent protection affect future revenues operating income abbott currently significant patent license expirations next three years expected affect abbott operating earnings gross profit margins 542 percent net sales 2015 517 percent 2014 502 percent 2013 gross profit margin improvement 2015 reflects higher margins nutritional diagnostics vascular products segments us states receive price rebates manufacturers infant formula federally subsidized special supplemental nutrition program women infants children also rebate programs pharmaceutical products numerous countries rebate programs continue negative effect gross profit margins nutritional established pharmaceutical products segments research development expense 1405 billion 2015 1345 billion 2014 1371 billion 2013 represented 45 percent increase 2015 19 percent decrease 2014 2015 increase research development expenses primarily due higher spending across various businesses 2015 research development expenditures totaled 474 million diagnostics products segment 239 million vascular products segment 206 million nutritional products segment 137 million established pharmaceutical products segment selling general administrative expenses increased 39 percent 2015 25 percent 2014 versus respective prior year 2015 increase reflects impact cfr veropharm acquisitions partially offset impact cost improvement initiatives favorable impact foreign exchange 2014 increase reflects increase restructuring costs associated cost reduction initiatives deal expenses related recent acquisitions partially offset continued prudent cost management business acquisitions august 2015 abbott completed acquisition equity tendyne holdings inc tendyne abbott already approximately 225 million cash plus additional payments 150 million made upon completion certain regulatory milestones acquisition tendyne focused developing minimally invasive mitral valve replacement therapies allows abbott broaden foundation treatment mitral valve disease preliminary allocation fair value acquisition resulted nondeductible acquired inprocess research development approximately 220 million accounted indefinitelived intangible asset regulatory approval discontinuation nondeductible goodwill approximately 142 million assets approximately 13 million net deferred tax liabilities approximately 80 million contingent consideration approximately 70 million preliminary allocation fair value acquisition finalized valuation completed september 2014 abbott completed acquisition controlling interest cfr pharmaceuticals sa cfr approximately 29 billion cash 28 billion net cfr cash hand closing including assumption approximately 570 million debt total cost acquisition 34 billion acquisition cfr doubles abbotts branded generics pharmaceutical presence latin america expands presence emerging markets cfrs financial results included abbotts financial statements beginning september 26 2014 date abbott acquired control business abbott currently owns 999 outstanding ordinary shares cfr fair value noncontrolling interest acquisition date approximately 3 million acquisition funded cash equivalents shortterm investments final allocation fair value acquisition shown table acquired intangible assets consist primarily product rights currently marketed products amortized 12 16 years average 15 years goodwill primarily attributable intangible assets qualify separate recognition goodwill identifiable established pharmaceutical products segment acquired tangible assets consist primarily cash equivalents approximately 94 million trade accounts receivable approximately 180 million inventory approximately 169 million current assets approximately 51 million property equipment approximately 210 million longterm assets approximately 145 million assumed liabilities consist borrowings approximately 570 million trade accounts payable current liabilities approximately 240 million noncurrent liabilities approximately 14 million net sales cfr pharmaceuticals totaled approximately 750 million 2015 december 2014 abbott acquired control veropharm leading russian pharmaceutical company approximately 315 million excluding assumed debt plus subsequent 5 million payment related working capital adjustment acquisition abbott establishes manufacturing footprint russia obtains portfolio medicines well aligned abbotts current pharmaceutical therapeutic areas focus abbott acquired control veropharm purchase limited liability company garden hills holding company owns approximately 98 percent veropharm including assumption approximately 90 million debt noncontrolling interest fair value 5 million total value acquired business approximately 415 million final allocation fair value acquisition resulted definitelived nondeductible intangible assets approximately 100 million nondeductible goodwill approximately 140 million net deferred tax liabilities approximately 25 million nondeductible goodwill identifiable established pharmaceutical products segment additionally abbott acquired property plant equipment approximately 150 million accounts receivable approximately 45 million inventory approximately 25 million net liabilities approximately 20 million acquired intangible assets consist developed technology amortized 16 years 2015 abbott acquired remaining shares veropharm increasing ownership 100 percent december 2014 abbott completed acquisition topera inc approximately 250 million cash plus additional payments 300 million made upon completion certain regulatory sales milestones acquisition topera provides abbott foundational entry electrophysiology market final allocation fair value acquisition resulted nondeductible acquired inprocess research development approximately 60 million accounted indefinitelived intangible asset regulatory approval discontinuation nondeductible definitelived intangible assets approximately 215 million nondeductible goodwill approximately 145 million net deferred tax liabilities approximately 80 million contingent consideration approximately 90 million fair value contingent consideration determined based independent appraisal acquired intangible assets consist developed technology trademarks amortized 17 years august 2013 abbott acquired 100 percent idev technologies net debt 310 million cash acquisition idev technologies expands abbotts endovascular portfolio allocation fair value acquisition resulted nondeductible acquired inprocess research development approximately 170 million accounted indefinitelived intangible asset regulatory approval discontinuation nondeductible definitelived intangible assets approximately 66 million nondeductible goodwill approximately 112 million net deferred tax liabilities 47 million acquired intangible assets consist developed technology amortized 11 years august 2013 abbott acquired 100 percent optimedica 260 million cash plus additional payments 150 million made upon completion certain development regulatory sales milestones acquisition optimedica provides abbott immediate entry point laser assisted cataract surgery market allocation fair value acquisition resulted nondeductible definitelived intangible assets approximately 160 million nondeductible acquired inprocess research development approximately 60 million accounted indefinitelived intangible asset regulatory approval discontinuation nondeductible goodwill approximately 130 million net deferred tax liabilities 49 million contingent consideration approximately 70 million fair value contingent consideration determined based independent appraisal acquired intangible assets consist primarily developed technology amortized 18 years aggregate year acquisitions taken place beginning comparable prior annual reporting period consolidated net sales earnings would significantly different reported amounts restructurings 2015 2014 abbott management approved plans streamline operations order reduce costs improve efficiencies various abbott businesses including nutritional established pharmaceuticals vascular businesses abbott recorded employeerelated severance charges approximately 95 million 2015 164 million 2014 approximately 18 million 2015 20 million 2014 recorded cost products sold approximately 34 million 2015 53 million 2014 recorded research development approximately 43 million 2015 91 million 2014 recorded selling general administrative expense additional charges approximately 45 million 2015 39 million 2014 recorded primarily accelerated depreciation 2013 2015 abbott management approved various plans reduce costs improve efficiencies across various functional areas 2013 abbott management also approved plans streamline certain manufacturing operations order reduce costs improve efficiencies abbotts established pharmaceuticals business 2012 abbott management approved plans streamline various commercial operations order reduce costs improve efficiencies abbotts core diagnostics established pharmaceuticals nutritionals businesses abbott recorded employeerelated severance charges approximately 66 million 2015 125 million 2014 78 million 2013 approximately 9 million 2015 7 million 2014 14 million 2013 recorded cost products sold approximately 2 million 2015 6 million 2014 recorded research development approximately 55 million 2015 112 million 2014 32 million 2013 recorded selling general administrative expense remaining charge 32 million 2013 related abbotts developed market established pharmaceutical business recognized results discontinued operations additional charges approximately 4 million 2013 also recorded primarily accelerated depreciation 2013 prior years abbott management approved plans streamline global manufacturing operations reduce overall costs improve efficiencies worldwide pharmaceutical vascular core diagnostics businesses well selected domestic international commercial research development operations abbott recorded charges employee severance well impairment manufacturing facilities assets 2013 abbott recorded employee severance charges approximately 11 million classified cost products sold additional 41 million recorded 2013 relating restructurings primarily accelerated depreciation interest expense interest income 2015 interest expense increased due issuance 25 billion longterm debt year 2014 interest expense increased due higher level shortterm borrowings year 2013 interest expense decreased due lower level borrowings resulted transfer approximately 146 billion debt abbvie part separation interest income increased 2015 2014 due higher return earned shortterm investments year income expense net income expense net 2015 includes pretax gain sale portion mylan nv shares received sale developed markets branded generics pharmaceuticals business income resulting decrease fair value contingent consideration related business acquisition 2014 includes charges associated impairment certain equity investments partially offset gains sales investments 2013 includes gains sales investments net loss extinguishment debt 2014 abbott extinguished approximately 500 million longterm debt assumed part cfr pharmaceuticals acquisition incurred cost 183 million extinguish debt taxes earnings income tax rates earnings continuing operations 181 percent 2015 316 percent 2014 26 percent 2013 2015 taxes earnings continuing operations includes 71 million tax expense related gain disposal shares mylan nv stock 2015 effective tax rate includes impact rd tax credit made permanent us protecting americans tax hikes act 2015 2014 taxes earnings continuing operations include 440 million tax expense associated onetime repatriation 2014 nonus earnings partially offset 125 million tax benefits related resolution various tax positions adjustment tax uncertainties prior years 2013 taxes earnings continuing operations include 230 million tax benefit related resolution various tax positions previous years addition result american taxpayer relief act 2012 signed law january 2013 abbott recorded tax benefit taxes continuing operations approximately 103 million 2013 retroactive extension research tax credit lookthrough rules section 954c6 internal revenue code beginning 2012 exclusive discrete items tax expense favorably impacted lower tax rates tax exemptions foreign income primarily derived operations puerto rico switzerland ireland netherlands singapore abbott benefits combination favorable statutory tax rules tax rulings grants exemptions tax jurisdictions see note 14 consolidated financial statements full reconciliation effective tax rate us federal statutory rate tax expense related discontinued operations includes 667 million tax expense certain currentyear funds earned outside us designated permanently reinvested overseas abbott accrued us taxes approximately 22 billion 2014 earnings generated outside us connection repatriation earnings addition 440 million tax expense discussed repatriation resulted 82 million additional tax expense abbotts 2014 income discontinued operations abbott expects accelerate utilization deferred tax assets therefore cash taxes due us repatriation expected material discontinued operations separation abbvie inc february 27 2015 abbott completed sale developed markets branded generics pharmaceuticals business mylan inc mylan equity ownership newly formed entity mylan nv combined mylans existing business abbotts developed markets pharmaceuticals business mylan nv publicly traded historically business included abbotts established pharmaceutical products segment date closing 110 million mylan nv shares abbott received valued 577 billion abbott recorded tax gain sale business approximately 16 billion abbott retained branded generics pharmaceuticals business emerging markets close transaction abbott mylan entered transition services agreement pursuant abbott mylan providing various back office support services interim transitional basis transition services may provided 2 years charges abbott transition services agreement recorded reduction costs provide respective service applicable expense category consolidated statement earnings transitional support constitute significant continuing involvement mylans operations abbott also entered manufacturing supply agreements mylan related certain products supply term ranging 3 10 years requiring 2 year notice prior termination cash flows associated transition services manufacturing supply agreements expected significant therefore cash flows direct cash flows disposed component accounting standards codification 205 february 10 2015 abbott completed sale animal health business zoetis inc result disposition businesses current prior years operating results businesses date sale reported part discontinued operations earnings discontinued operations net taxes line consolidated statement earnings discontinued operations include allocation interest expense assuming uniform ratio consolidated debt equity abbotts historical operations january 1 2013 abbott completed separation abbvie inc abbvie formed hold abbotts researchbased proprietary pharmaceuticals business abbott received ruling internal revenue service separation qualifies taxfree distribution abbott us shareholders us federal income tax purposes small portion abbvies operations legal transfer abbvies assets net liabilities occur separation abbvie january 1 2013 due time required transfer marketing authorizations regulatory requirements countries terms separation agreement abbott abbvie subject risks entitled benefits generated operations assets majority operations transferred abbvie 2013 2014 assets liabilities presented held disposition consolidated balance sheet december 31 2015 assets liabilities held disposition consist cash trade accounts receivable 54 million inventories 43 million assets 10 million trade accounts payable accrued liabilities 373 million abbott recorded prepaid asset 266 million obligation transfer net liabilities held disposition abbvie abbott retained liabilities us federal foreign income taxes income prior separation well certain nonincome taxes attributable abbvies business abbvie generally liable taxes attributable business 2015 2014 2013 discontinued operations include favorable adjustment tax expense 4 million 166 million 193 million respectively result resolution various tax positions pertaining abbvies operations operating results abbotts developed markets branded generics pharmaceuticals animal health businesses well income tax expense related businesses transferred abbvie reported discontinued operations follows research development programs abbott currently numerous pharmaceutical medical devices diagnostic nutritional products development research development process established pharmaceuticals segment development process focuses geographic expansion continuous improvement segments existing products provide benefits patients customers established pharmaceuticals actively pursue primary research development usually begins work existing products acquisition advanced stage licensing opportunity depending upon product phases development may include • drug product development • phase bioequivalence studies compare future established pharmaceuticals brand already marketed compound active pharmaceutical ingredient api • phase ii studies test efficacy benefits small group patients • phase iii studies broaden testing wider population reflects actual medical use • phase iv postmarketing studies obtain new clinical use data existing products within approved indications specific requirements eg scope clinical trials obtaining regulatory approval vary across different countries geographic regions process may range one year bioequivalence study project 6 years complex formulations new indications geographic expansion specific countries china diagnostics segment phases research development process include • discovery focuses identification product address specific therapeutic area platform unmet clinical need • conceptfeasibility materials manufacturing processes evaluated testing may include product characterization analysis performed confirm clinical utility • development extensive testing performed demonstrate product meets specified design requirements design specifications conform user needs intended uses regulatory requirements diagnostic products vary across different countries geographic regions us fda classifies diagnostic products classes ii iii classification determines regulatory process approval diagnostics segment products three classes vast majority products categorized class ii submission separate regulatory filing required class products class ii devices typically require premarket notification fda regulatory filing known 510k submission class iii products subject fdas premarketing approval pma requirements class iii products used screen blood require submission approval biological license application bla eu diagnostic products also categorized different categories regulatory process governed european invitro diagnostic medical device directive depends upon category certain product categories require review approval independent company known notified body manufacturer affix ce mark product show compliance directive products require selfcertification process vascular segment research development process begins research specific technology evaluated feasibility commercial viability research program passes hurdle moves forward development process includes evaluation selection product design completion clinical trials test products safety efficacy validation manufacturing process demonstrate repeatability ability consistently meet predetermined specifications similar diagnostic products discussed us vascular products classified class ii iii abbotts vascular products classified class ii devices follow 510k regulatory process class iii devices subject pma process eu vascular products also categorized different classes regulatory process governed european medical device directive varies class product must bear ce mark show compliance directive products require submission design dossier appropriate regulatory authority review approval prior ce marking device products company required prepare technical file includes testing results clinical evaluations selfcertify ability apply ce mark product outside us eu regulatory requirements vary across different countries regions approval commercial launch vascular products postmarket trials may conducted either due conditional requirement regulatory market approval objective proving product superiority nutritional segment research development process generally focuses identifying developing ingredients products address nutritional needs particular populations eg infants athletes patients eg people diabetes depending upon country andor region claims regarding products efficacy made clinical studies typically must conducted us fda requires notified proposed new formulations formulation packaging changes related infant formula products prior launch infant formula product packaging change company required obtain fdas confirmation objections proposed product packaging nutrition products notification preapproval fda required unless product includes new food additive countries regulatory approval may required certain nutritional products including infant formula medical nutritional products areas focus 2016 beyond abbotts significant areas therapeutic focus include following established pharmaceuticals abbott focuses building country specific portfolios made global local pharmaceutical brands best meet needs patients country 300 branded generic development projects active one several emerging markets next several years established pharmaceuticals plans expand product portfolio key markets development launch new branded generics aim among first market new branded generic particular pharmaceutical product geographic expansion existing brands new product enhancements strategic licensing activities abbott also actively working development several key brands creon duphaston influvac depending product development activities focus new data markets formulations combinations indications vascular ongoing projects pipeline include •absorb worlds first drug eluting bioresorbable vascular scaffold bvs device treatment coronary artery disease gradually resorbed vessel wall absorb gt1 received ce approval launched second quarter 2015 abbott filed regulatory approval us japan second quarter 2015 abbott also released clinical results demonstrated similarity xience metallic drugeluting stent des one year randomized noninferiority studies abbott also actively working development future generations bvs technologies •mitraclip device treatment mitral regurgitation mr mitraclip available us europe parts asia middle east latin america patients prohibitive risk mitral valve surgery abbott continued clinical development mitraclip therapy including coapt trial prospective randomized trial united states evaluate impact mitraclip treatment expanded indication addition abbott continues work development next generation systems treatment mr •supera selfexpanding nitinol stent system acquired part acquisition idev technologies august 2013 proprietary interwoven wire technology supera designed based biomimetic principles mimic bodys natural movement supera available us europe various countries asia middle east latin america treatment blockages blood vessels due peripheral artery disease expanded size matrix approved us abbott developing superas next generation delivery system • abbott also developing future versions metallic des guide wires balloon delivery catheters armada 18 abbotts new peripheral percutaneous transluminal angioplasty balloon catheter treatment challenging cases superficial femoral artery knee categories received ce approval launched third quarter 2015 medical optics abbott developing number new products designed enhance surgical efficiency andor improve visual outcomes patients undergoing cataract lasik surgery 2015 abbott launched tecnis® monofocal 1piece intraocular lens iol tecnis itec preloaded delivery system us tecnis itec preloaded delivery system designed provide additional level safety surgical efficiency outcomes already provided tecnis® monofocal 1piece iol tecnis® multifocal low add products launched us provide surgeons ability customize treatment based patients vision needs lifestyle whitestar signature® pro phacoemulsification system removal cataracts approved launched us system includes first kind application designed ipad® mobile digital devices gives surgeons opportunity download analyze data improve surgical efficiency idesign® advanced wavescan studio system launched us china system provides highdefinition scan eye used create personalized lasik treatment plan based unique blueprint persons eyes 2016 abbott continue develop next generation equipment consumables including improvements lasik platform upgrades idesign system new eximer laser well upgrades catalys laser cataract surgery system abbott seek approval launch existing products new markets better leverage product portfolio molecular diagnostics various new molecular vitro diagnostic ivd products next generation instrument systems various stages development commercialization abbotts companion diagnostic program includes collaborative efforts multiple major pharmaceutical companies core laboratory diagnostics abbott working development nextgeneration blood screening hematology immunochemistry instrument systems well assays various areas including infectious disease cardiac care metabolics oncology automation solutions increase efficiency laboratories diabetes care 2015 abbott completed clinical outcome trial replace freestyle libre flash glucose monitoring system people type 2 diabetes system eliminates need routine finger pricks reading glucose levels sensor worn back upper arm 14 days freestyle libre system also requires finger pricks calibration 2014 abbott received ce mark europe freestyle libre system 2015 also received ce mark indication children young people diabetes ages 417 years old freestyle libre pro designed used healthcare professionals clinic setting launched patients india pma freestyle libre pro submitted us nutrition abbott focusing research development spend platforms span pediatric adult performance nutrition areas gastro intestinal health brain health mobility metabolism user experience platforms numerous new products build advances platforms currently development including clinical outcome testing expected launched coming years given diversity abbotts business intention remain broadbased healthcare company numerous sources potential future growth individual project expected material cash flows results operations next five years factors considered included research development expenses projected incurred project next year relative abbotts total research development expenses well qualitative factors marketplace perceptions impact new product abbotts overall market position delays abbotts 2015 research development activities expected material impact operations aggregate cost complete numerous projects currently development expected material total cost complete depend upon abbotts ability successfully complete project rate project advances ultimate timing completion given potential significant delays high rate failure inherent development pharmaceutical medical device diagnostic products technologies possible accurately estimate total cost complete projects currently development abbott plans manage portfolio projects achieve research development spending equal approximately 6 percent 7 percent sales year abbott regularly accumulate make management decisions based total expenses incurred particular development phase given period goodwill december 31 2015 goodwill recorded result business combinations totaled 96 billion goodwill reviewed impairment annually third quarter event could result impairment occurs using quantitative assessment determine whether likely fair value reporting unit less carrying amount income market approaches used calculate fair value reporting unit results last impairment test indicated fair value reporting unit substantially excess carrying value except medical optics unit goodwill related medical optics unit totals approximately 2 billion fair value medical optics unit exceeds carrying value approximately 15 various factors could develop result valuation future fair value medical optics unit declined carrying value thereby triggering requirement estimate implied fair value goodwill measure impairment factors include lower projected growth rate business longer regulatory approval timelines products currently development negative impact foreign currency movements well increase discount rate used quantitative assessment financial condition cash flow net cash operating activities amounted 30 billion 37 billion 33 billion 2015 2014 2013 respectively decrease net cash operating activities 2015 due large part divestiture developed market established pharmaceuticals business february 2015 well increase contributions defined benefit plans 2015 increase net cash operating activities 2014 due improvement operating results well lower cash contributions pension plans net cash operating activities 2013 reflects approximately 435 million onetime net cash outflows related separation abbvie 724 million contributions defined benefit pension plans income tax component operating cash flow 2015 2014 2013 includes 70 million 268 million 427 million respectively noncash tax benefits primarily related favorable resolution various tax positions pertaining prior years 2015 reflects noncash impact approximately 11 billion tax expense associated gain sale businesses 2013 also includes 103 million tax benefit retroactive impact us tax law changes expected realized future years 85 cash equivalents december 31 2015 considered reinvested indefinitely foreign subsidiaries abbott expect reinvestment affect liquidity capital resources funds needed operations us abbott may required accrue pay us income taxes repatriate funds abbott believes sufficient sources liquidity support assumption disclosed amount undistributed earnings december 31 2015 considered reinvested indefinitely abbott funded 579 million 2015 393 million 2014 724 million 2013 defined benefit pension plans abbott expects pension funding approximately 576 million 2016 pension plans approximately 470 million relates main domestic pension plans abbott expects annual cash flow operating activities continue exceed abbotts capital expenditures cash dividends debt capital december 31 2015 abbotts longterm debt rating standard poors corporation a2 moodys investors service result pending acquisition alere abbotts credit ratings review anticipated ratings adjusted reflect increased borrowings incurred finance acquisition abbott readily available financial resources including unused lines credit 50 billion support commercial paper borrowing arrangements expire 2019 march 2015 abbott issued 25 billion longterm debt matures 2020 2022 2025 fixed interest rates 20 percent 255 percent 295 percent respectively proceeds debt used pay shortterm borrowings abbott also entered interest rate swap contracts totaling 25 billion contracts effect changing abbotts obligation fixed interest rate variable interest rate obligation 2014 abbott redeemed approximately 500 million longterm notes assumed part acquisition cfr pharmaceuticals september 2014 board directors authorized repurchase 30 billion abbotts common shares time 2014 authorization addition 512 million unused portion previous program announced june 2013 2015 abbott repurchased 113 million shares cost 512 million unused portion 2013 authorization 362 million shares cost 17 billion program authorized 2014 total 475 million shares cost 22 billion 2014 abbott repurchased 546 million shares cost 21 billion program announced june 2013 abbott repurchased 105 million shares cost 388 million 2013 authorization 330 million shares cost 12 billion previous authorization total 435 million shares cost 16 billion abbott declared dividends 098 per share 2015 compared 090 per share 2014 9 increase dividends paid 1443 billion 2015 compared 1342 billion 2014 yearoveryear change dividends reflects impact increase dividend rate working capital increase cash equivalents 41 billion december 31 2014 50 billion december 31 2015 reflects cash generated operating activities well proceeds sale investment securities working capital 50 billion december 31 2015 31 billion december 31 2014 increase working capital 2015 due increase cash equivalents shortterm investments decrease shortterm borrowings primarily due proceeds received related recent divestiture businesses issuance longterm debt substantially abbotts trade receivables italy spain portugal greece governmental health systems collection outstanding receivables countries improved 2014 stable 2015 governmental receivables four countries accounted less 1 percent abbotts total assets 7 percent total net trade receivables december 31 2015 9 percent december 31 2014 exception greece abbott historically collected almost outstanding receivables countries abbott continues monitor credit worthiness customers located geographic areas establishes allowance trade receivable probable balance collected addition closely monitoring economic conditions budgetary fiscal developments countries abbott regularly communicates customers regarding status receivable balances including payment plans obtains positive confirmation validity receivables abbott also monitors potential periodically utilized factoring arrangements mitigate credit risk although receivables included arrangements historically material amount total outstanding receivables government funding become unavailable countries significant adverse changes reimbursement practices occur abbott may able collect entire balance venezuela operations since january 2010 venezuela designated highly inflationary economy us gaap 2014 2015 government venezuela operated multiple mechanisms exchange bolivars us dollars mechanisms included cencoex sicad simadi rates stood 63 135 approximately 200 respectively december 31 2015 abbott continued use cencoex rate 63 venezuelan bolivars us dollar report results financial position cash flows related operations venezuela since abbott continued qualify exchange rate pay import various products venezuela revenue operations venezuela represented approximately 2 abbotts total net sales pretax income totaled approximately 200 million 2015 175 million 2014 abbotts sales venezuela primarily relate nutritional established pharmaceuticals segments economic uncertainty associated venezuela increased 2015 due continued hyperinflation political uncertainty country lower oil prices among factors abbott net monetary assets subject revaluation venezuela approximately 440 million december 31 2015 assets comprised primarily cash february 17 2016 venezuelan government announced threetier exchange rate system reduced two rates official rate food medicine imports adjusted 63 10 bolivars per us dollar result new 10 bolivars per us dollar exchange rate abbotts net monetary assets venezuela subject revaluation quarter ending march 31 2016 result recognition foreign currency exchange loss period based abbotts net monetary assets subject revaluation december 31 2015 remeasuring assets rate 10 bolivars per us dollar would result foreign currency loss approximately 165 million abbott cannot certain venezuelan government make revisions official exchange rate future could result additional foreign currency losses abbott intends continue sell medically critical products country abbott cannot predict impact continued hyperinflation low oil prices new exchange rate system venezuelan economy future operating results financial position business country capital expenditures capital expenditures 11 billion 2015 2014 2013 principally upgrading expanding manufacturing research development facilities equipment various segments investments information technology laboratory instruments placed customers contractual obligations table summarizes abbotts estimated contractual obligations december 31 2015 apurchase commitments purchases made normal course business meet operational capital expenditure requirements bnet unrecognized tax benefits totaling approximately 600 million excluded table abbott unable reasonably estimate period cash settlement respective taxing authorities items see note 14 taxes earnings continuing operations details company employee benefit obligations consisting pensions postemployment benefits including medical life excluded table discussion companys pension postretirement plans including funding matters included note 13 postemployment benefits contingent obligations abbott periodically entered agreements companies ordinary course business assignment product rights resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote addition abbott periodically acquires business product rights abbott agrees pay contingent consideration based attaining certain thresholds based occurrence certain events legislative issues abbotts primary markets highly competitive subject substantial government regulations throughout world abbott expects debate continue availability method delivery payment health care products services possible predict extent abbott health care industry general might adversely affected factors future complete discussion factors contained item 1 business item 1a risk factors recently issued accounting standards january 2016 financial accounting standards board fasb issued accounting standards update asu 201601 financial instruments recognition measurement financial assets financial liabilities provides new guidance recognition measurement presentation disclosure financial assets liabilities standard becomes effective abbott beginning first quarter 2018 early adoption permitted abbott currently evaluating effect standard consolidated financial statements related disclosures november 2015 fasb issued asu 201517 balance sheet classification deferred taxes requires entities classify deferred tax assets liabilities noncurrent balance sheet standard may adopted either prospective retrospective basis standard effective fiscal years beginning december 15 2016 early adoption permitted effective december 31 2015 abbott adopted asu 201517 applied new standard retrospectively result applying asu 201517 previously reported consolidated balance sheet december 31 2014 deferred income taxes within total current assets line decreased deferred income taxes assets line increased approximately 17 billion respectively accrued liabilities within total current liabilities line decreased 65 million postemployment obligations longterm liabilities line increased 12 million reclassification deferred tax balances current noncurrent affected netting balances deferred tax asset liability various jurisdictions april 2015 fasb issued asu 201503 simplifying presentation debt issuance costs asu effective fiscal years interim periods beginning december 15 2015 requires debt issuance costs presented balance sheet direct deduction related debt liability rather asset early adoption permitted retrospective application required effective december 31 2015 abbott adopted asu 201503 consolidated balance sheet retrospectively adjusted reflect new presentation adoption asu 201503 material impact abbotts consolidated financial statements may 2014 fasb issued asu 201409 revenue contracts customers provides single comprehensive model accounting revenue contracts customers supersede existing revenue recognition guidance standard becomes effective abbott first quarter 2018 abbott currently evaluating effect standard consolidated financial statements related disclosures private securities litigation reform act 1995 caution concerning forwardlooking statements safe harbor provisions private securities litigation reform act 1995 abbott cautions investors forwardlooking statements projections made abbott including made document subject risks uncertainties may cause actual results differ materially projected economic competitive governmental technological factors may affect abbotts operations discussed item 1a risk factors item 7a item 7 managements discussion analysis financial condition results operations financial review abbotts revenues derived primarily sale broad line health care products shortterm receivable arrangements patent protection licenses technological performance features inclusion abbotts products contract pharmacy benefit manager impact products sold price controls competition rebates impact net selling prices products foreign currency translation impacts measurement net sales costs abbotts primary products prescription pharmaceuticals nutritional products diagnostic testing products vascular products sales international markets approximately 60 percent consolidated net sales 2011 abbott announced plan separate two publicly traded companies one diversified medical products researchbased pharmaceuticals accomplish separation abbott plans create new company researchbased pharmaceuticals business include abbotts proprietary pharmaceutical products segment transaction expected take form taxfree distribution abbott shareholders stock newly created researchbased pharmaceutical company expected completed end 2012 subsequent separation historical results researchbased pharmaceuticals business presented discontinued operations continued robust growth humira broad range indications acquisitions solvays pharmaceuticals business solvay pharmaceuticals piramal healthcare limiteds healthcare solutions business continued growth market penetration xience drug eluting stent franchise loss patent protection pharmaceutical products ongoing government investigation abbotts sales marketing activities related depakote challenging economic environment many countries around world impacted abbotts sales costs financial position last three years pharmaceutical research development focused therapeutic areas include immunology oncology neuroscience pain management hepatitis c hcv chronic kidney disease womens health last three years abbott acquired rights various inprocess pharmaceutical research development projects including development secondgeneration oral antioxidant inflammation modulators product treatment chronic kidney disease 2003 abbott began worldwide launch humira rheumatoid arthritis followed launches five additional indications increased humiras worldwide sales 79 billion 2011 compared 65 billion 2010 55 billion 2009 abbott forecasts low doubledigit growth worldwide humira sales 2012 abbott studying additional indications humira substantial research development selling support continues dedicated maximizing worldwide potential humira abbott expects generic competition tricor begin second half 2012 austerity measures implemented several european countries reduced healthcare spending affected pharmaceutical pricing 2010 2011 2010 healthcare reform legislation us resulted rebate changes beginning 2010 payment annual fee beginning 2011 negatively affected abbotts pharmaceutical business impact austerity measures us healthcare reform legislation expected continue february 2010 abbott acquired solvay pharmaceuticals provided abbott large complementary portfolio pharmaceutical products expanded abbotts presence key global emerging markets acquisition added approximately 31 billion abbotts 2010 total sales primarily outside us september 2010 abbott completed acquisition piramals healthcare solutions business propelling abbott market leadership indian pharmaceutical market accelerating companys growth emerging markets 2011 2010 abbott recorded approximately 345 million 710 million respectively expense related integration solvay business restructuring plan announced september 2010 streamline operations improve efficiencies reduce costs primarily certain solvay sites functions restructuring plan described 2011 abbott recorded litigation charge 15 billion related ongoing settlement discussions us governments investigation related depakote abbotts worldwide nutritional products business favorable economic development emerging markets aging population developed markets provided significant opportunities leverage strong nutritional brands introduce innovative products fourth quarter 2008 abbotts xience v product became marketleading drug eluting stent us june 2009 xience prime abbotts next generation drug eluting stent received ce mark approval launched europe august 2009 abbott received approval market xience v japan january 2010 xience v became marketleading drug eluting stent japan second quarter 2010 us launches xience nano xience prime may november 2011 respectively continued strong performance japan china international markets xience includes xience v prime nano ended 2011 marketleading drug eluting stent globally time third party distributor promus product began transitioning away product distribution agreement end 2012 2010 us government passed health care reform legislation included increase medicaid rebate rates extension rebate drugs provided medicaid managed care organizations beginning 2010 legislation also imposed annual fees pharmaceutical manufacturers began paying 2011 medical device companies begin paying 2013 well additional rebates related medicare part donut hole beginning 2011 addition 2010 onetime charge approximately 60 million reduce deferred tax assets associated retiree health care liabilities related medicare part retiree drug subsidy legislations negative impact abbotts performance grew 200 million 2010 approximately 400 million 2011 expected remain approximately 400 million 2012 abbotts short longterm debt totaled 154 billion december 31 2011 largely incurred finance acquisitions operating cash flows excess capital expenditures cash dividends partially funded acquisitions last three years december 31 2011 abbotts longterm debt rating aa standard poors corporation a1 moodys investors service 2012 abbott focus several key initiatives proprietary pharmaceutical business abbott continue maximizing market potential humira products including androgel well continuing build global presence pharmaceutical research development efforts continue focus significant portion expenditures compounds immunology oncology neuroscience pain management hcv chronic kidney disease womens health current research development projects described research development programs section established pharmaceutical business includes international sales branded generic products abbott continue focus obtaining additional product approvals across numerous countries expanding presence emerging markets vascular business abbott continue focus marketing products xience franchise obtaining regulatory review mitraclip device us increasing international mitraclip sales well clinical development absorb bioresorbable vascular scaffold bvs device rollout absorb ce mark countries abbotts segments abbott focus developing acquiring differentiated technologies higher growth segments markets critical accounting policies sales rebates approximately 54 percent abbotts consolidated gross revenues subject various forms rebates allowances abbott records reductions revenues time sale rebates allowances proprietary pharmaceutical products segment nutritional products segment abbott provides rebates pharmacy benefit management companies state agencies administer federal medicaid program insurance companies administer medicare drug plans state agencies administer special supplemental nutrition program women infants children wic wholesalers group purchasing organizations government agencies private entities rebate amounts usually based upon volume purchases using contractual statutory prices product factors used rebate calculations include identification products sold subject rebate customer government agency price terms apply estimated lag time sale payment rebate using historical trends adjusted current changes abbott estimates amount rebate paid records liability reduction gross sales abbott records sale product settlement rebate generally occurs two 24 months sale abbott regularly analyzes historical rebate trends makes adjustments reserves changes trends terms rebate programs rebates chargebacks charged gross sales 2011 2010 2009 amounted approximately 55 billion 49 billion 44 billion respectively 222 percent 231 percent 238 percent respectively based gross sales approximately 248 billion 211 billion 184 billion respectively subject rebate onepercentage point increase percentage rebates related gross sales would decrease net sales approximately 248 million 2011 abbott considers onepercentage point increase reasonably likely increase percentage rebates related gross sales allowances charged gross sales approximately 409 million 415 million 414 million cash discounts 2011 2010 2009 respectively 490 million 537 million 456 million returns 2011 2010 2009 respectively cash discounts known within 15 30 days sale therefore reliably estimated returns reliably estimated abbotts historical returns low sales returns terms sales terms remained relatively unchanged several periods management analyzes adequacy ending rebate accrual balances quarter domestic nutritional business management uses internal external data available estimate level inventory distribution channel management access several large customers inventory management data customers utilizes data third party measures time retail shelf sources allow management make reliable estimates inventory distribution channel except transition period change supplier wic business state inventory distribution channel vary substantially management also estimates states processing lag time based claims data addition internal processing time factor estimating accrual wic business state sale made determining factor applicable price reliably determinable estimates required amount wic sales within state abbott wic business external data sources utilized estimate participant data us department agriculture usda administers wic program participant data states internally administered market research usda making data available many years internal data includes historical redemption rates pricing data december 31 2011 abbott exclusive wic business 23 states domestic proprietary pharmaceutical business significant charges gross sales medicaid medicare rebates pharmacy benefit manager rebates wholesaler chargebacks order evaluate adequacy ending accrual balances management uses internal external data estimate level inventory distribution channel rebate claims processing lag time external data sources used estimate inventory distribution channel include inventory levels periodically reported wholesalers third party market data purchased abbott management estimates processing lag time based periodic sampling claims data estimate price rebate percentage systems calculations used track sales product customer estimate contractual statutory price abbotts systems calculations developed time rebates become significant abbott believes reliable following table analysis four largest rebate accruals comprise approximately 68 percent consolidated rebate provisions charged revenues 2011 remaining rebate provisions charged gross sales significant determination operating earnings dollars millions historically adjustments prior years rebate accruals material net income abbott employs various techniques verify accuracy claims submitted possible works organizations submitting claims gain insight changes might affect rebate amounts medicaid medicare government agency programs calculation rebate involves interpretations relevant regulations subject challenge change interpretation income taxes abbott operates numerous countries income tax returns subject audits adjustments abbott operates globally nature audit items often complex objectives government auditors result tax income one country abbott employs internal external tax professionals minimize audit adjustment amounts possible accordance accounting rules relating measurement tax contingencies order recognize uncertain tax benefit taxpayer must likely sustaining position measurement benefit calculated largest amount 50 percent likely realized upon resolution benefit application rules requires significant amount judgment us abbotts federal income tax returns 2008 settled except one item income tax returns years 2008 open abbott record deferred income taxes earnings reinvested indefinitely foreign subsidiaries pension postemployment benefits abbott offers pension benefits postemployment health care many employees abbott engages outside actuaries assist determination obligations costs programs abbott must develop longterm assumptions significant health care cost trend rates discount rates expected return plan assets discount rates used measure liabilities determined based highquality fixed income securities match duration expected retiree benefits health care cost trend rates represent abbotts expected annual rates change cost health care benefits forward projection health care costs measurement date difference assumed rates actual rates known decades significant relation obligations annual cost recorded programs low asset returns due poor market conditions low interest rates significantly increased actuarial losses plans december 31 2011 pretax net actuarial losses prior service costs credits recognized accumulated comprehensive income loss abbotts defined benefit plans medical dental plans losses 38 billion 237 million respectively actuarial losses gains amortized remaining service attribution periods employees corridor method accordance rules accounting postemployment benefits differences expected longterm return plan assets actual annual return amortized fiveyear period note 4 consolidated financial statements describes impact onepercentage point change health care cost trend rate however certainty change would limited one percentage point valuation intangible assets abbott acquired continues acquire significant intangible assets abbott records fair value transactions involving purchase sale intangible assets occur frequency companies health care field valuations usually based discounted cash flow analysis discounted cash flow model requires assumptions timing amount future net cash flows risk cost capital terminal values market participants factors significantly affect value intangible asset abbott engages independent valuation experts review abbotts critical assumptions calculations acquisitions significant intangibles abbott reviews definitelived intangible assets impairment quarter using undiscounted net cash flows approach undiscounted cash flows intangible asset less carrying value intangible asset intangible asset written fair value usually discounted cash flow amount cash flows cannot identified individual asset review applied lowest group level cash flows identifiable goodwill indefinitelived intangible assets relate inprocess research development acquired business combination reviewed impairment annually event could result impairment occurs december 31 2011 goodwill intangibles amounted 157 billion 100 billion respectively amortization expense intangible assets amounted 16 billion 2011 impairments goodwill 2011 2010 2009 2011 abbott recorded impairment charges 174 million certain research development assets due changes projected development regulatory timelines projects litigation abbott accounts litigation losses accordance fasb accounting standards codification 450 contingencies asc 450 loss contingency provisions recorded probable losses managements best estimate loss best estimate cannot made minimum loss contingency amount recorded estimates often initially developed substantially earlier ultimate loss known estimates refined accounting period additional information becomes known accordingly abbott often initially unable develop best estimate loss therefore minimum amount could zero recorded information becomes known either minimum loss amount increased resulting additional loss provisions best estimate made also resulting additional loss provisions occasionally best estimate amount changed lower amount events result expectation favorable outcome previously expected abbott estimates range possible loss approximately 159 billion 163 billion legal proceedings environmental exposures reserves approximately 16 billion recorded december 31 2011 proceedings exposures reserves represent managements best estimate probable loss defined fasb asc 450 contingencies results operations sales following table details components sales growth reportable segment last three years 2011 2010 total net total us total international proprietary pharmaceutical products segment established pharmaceutical products segment sales reflect acquisition solvays pharmaceuticals business february 15 2010 unit growth relatively weaker us dollar favorably impacted international sales across segments total net total international established pharmaceutical products segment sales growth 2011 also reflects acquisition piramal healthcare limiteds healthcare solution business september 2010 total net sales growth 2009 reflects unit growth acquisition advanced medical optics inc february 25 2009 partially offset negative effect relatively stronger us dollar total net total us proprietary pharmaceutical products segment sales 2009 also reflect decreased sales depakote due generic competition excluding us depakote sales total net sales increased 77 percent total us sales increased 76 percent proprietary pharmaceutical products segment sales increased 78 percent 2008 2009 comparison significant product group sales follows percent changes versus prior year based unrounded numbers nm percent change meaningful increases us proprietary product sales 2011 2010 primarily due increased sales humira acquisition solvay pharmaceuticals february 2010 partially offset decreased sales depakote zemplar us proprietary product sales 2009 impacted decreased sales depakote due generic competition partially offset increased sales humira addition lupron sales conclusion tap joint venture april 2008 us sales depakote 148 million 161 million 331 million 2011 2010 2009 respectively worldwide sales kaletra three years negatively affected market competition international proprietary product sales three years favorably impacted increased sales humira increases established pharmaceutical sales 2011 2010 primarily due acquisitions solvay pharmaceuticals piramal growth emerging markets us pediatric nutritionals sales 2011 2010 affected voluntary recall certain similacbrand powder infant formulas september 2010 subsequent recovery market share 2011 international pediatric adult nutritionals sales increases three years due primarily volume growth developing countries international proprietary pharmaceuticals international adult nutritionals immunochemistry sales 2011 2010 positively impacted effect relatively weaker us dollar negatively impacted 2009 effect relatively stronger us dollar abbott periodically sold product rights nonstrategic products recorded related gains net sales accordance abbotts revenue recognition policies discussed note 1 consolidated financial statements related net sales approximately 58 million 120 million 2010 2009 respectively significant sales 2011 expiration licenses patent protection generic competition affect future revenues operating income abbott currently significant patent license expirations next three years license agreement tricor 145 mg generic competition expected july 2012 license agreement trilipix 45 mg 135 mg generic competition may begin january 2014 except certain circumstances license may commence early july 2013 agreement relating abbotts niacin products acquired kos pharmaceuticals acquisition niaspan may become subject generic competition september 2013 androgel 1 sales expected impacted generic competition 2015 operating earnings gross profit margins 600 percent net sales 2011 583 percent 2010 571 percent 2009 increase gross profit margin 2011 due part improved margins established pharmaceutical diagnostics diabetes businesses partially offset unfavorable effect exchange profit margin ratio increase gross profit margin 2010 due part improved margins established pharmaceutical vascular diabetes diagnostics nutritional businesses favorable effect exchange gross profit margin ratio decrease gross profit margin 2009 due part negative impact lower sales depakote unfavorable effect exchange gross profit margin ratio partially offset improved margins vascular diagnostics businesses us states receive price rebates manufacturers infant formula federally subsidized special supplemental nutrition program women infants children also rebate programs pharmaceutical products rebate programs continue negative effect gross profit margins nutritional proprietary pharmaceutical established pharmaceutical products segments research development expense 4129 billion 2011 3724 billion 2010 2744 billion 2009 represented increases 109 percent 2011 357 percent 2010 20 percent 2009 excluding charges related solvay restructurings announced september 2010 research development expense increased 294 percent 2010 62 percent 2011 2010 increase exclusive effects restructuring charges reflects acquisitions solvays pharmaceuticals business february 2010 facet biotech april 2010 increase 2009 reflects favorable effect exchange rates reduced research development expense 2009 excluding effect exchange research development expenses increased 34 percent 2009 increases 2011 2010 2009 also reflect continued pipeline spending including programs vascular devices biologics neuroscience oncology hepatitis c majority research development expenditures concentrated pharmaceutical products 28 billion abbotts 2011 research development expenses related abbotts pharmaceutical products 22 billion directly allocated proprietary pharmaceutical products segment 2011 research development expenditures totaled 403 million vascular products segment 325 million diagnostics products segment 251 million established pharmaceutical products segment 165 million nutritional products segment selling general administrative expenses increased 229 percent 2011 increased 234 percent 2010 decreased 04 percent 2009 us department justice united states attorney western district virginia investigating abbotts sales marketing activities depakote 2011 abbott recorded litigation charge 15 billion related ongoing settlement discussions investigation excluding litigation charge solvayrelated restructuring integration costs selling general administrative expenses increased 67 percent 2011 excluding charges related solvay restructuring integration projects selling general administrative expenses 2010 increased 182 percent increase exclusive effects restructuring integration charges reflects acquisitions solvays pharmaceuticals business 2010 advanced medical optics inc 2009 higher provisions litigation 2010 2009 decrease reflects favorable effect exchange rates offset expenses relating acquisition advanced medical optics inc settlement litigation excluding effects charges exchange selling general administrative expenses increased 09 percent 2009 remaining increases selling general administrative expenses three year period due primarily increased selling marketing support new existing products including continued spending humira inflation 2010 impact pharmaceutical fee imposed us healthcare reform legislation restructurings 2011 prior years abbott management approved plans realign worldwide pharmaceutical vascular manufacturing operations selected domestic international commercial research development operations order reduce costs 2011 2010 2009 abbott recorded charges approximately 194 million 56 million 114 million respectively reflecting impairment manufacturing facilities assets employee severance related charges approximately 76 million 2011 classified cost products sold 69 million research development 49 million selling general administrative approximately 56 million 2010 classified cost products sold 114 million 2009 selling general administrative following summarizes activity restructurings dollars millions additional 25 million 13 million 47 million recorded 2011 2010 2009 respectively relating restructurings primarily accelerated depreciation 2010 abbott management approved restructuring plan primarily related acquisition solvays pharmaceuticals business plan streamlines operations improves efficiencies reduces costs certain solvay sites functions well certain abbott solvay commercial organizations various countries plan abbott recorded charges cost products sold research development selling general administrative approximately 99 million 152 million 272 million respectively following summarizes activity restructuring dollars millions additional 102 million 12 million recorded 2011 2010 respectively relating restructuring primarily additional employee severance accelerated depreciation 2011 2008 abbott management approved plans streamline global manufacturing operations reduce overall costs improve efficiencies abbotts core diagnostic business 2011 charge 28 million recorded cost products sold following summarizes activity restructurings dollars millions addition charges approximately 42 million 60 million 54 million recorded 2011 2010 2009 primarily accelerated depreciation product transfer costs additional charges incurred 2012 result product reregistration timelines required manufacturing regulations number countries product transition timelines interest expense interest income 2011 interest expense decreased due lower debt levels interest income decreased result lower rates 2010 interest expense increased due primarily increased debt levels 2009 interest expense decreased primarily result lower interest rates partially offset increased debt levels related acquisition advanced medical optics inc interest income decreased 2010 due lower investment balances decreased 2009 due lower interest rates change accounting principle income expense net prior january 1 2011 accounts foreign subsidiaries consolidated based fiscal year ended november 30 due time needed consolidate subsidiaries effective january 1 2011 one month lag consolidation accounts foreign subsidiaries eliminated yearend foreign subsidiaries changed december 31 abbott believes change accounting principle related elimination one month reporting lag preferable result contemporaneous reporting results foreign subsidiaries accordance applicable accounting literature change subsidiaries yearend treated change accounting principle requires retrospective application cumulative effect change increase retained earnings 289 million january 1 2009 corresponding decrease longterm liabilities impact change material results operations previously reported annual interim periods january 1 2009 thus results revised charge 137 million recorded income expense net 2011 recognize cumulative immaterial impacts 2009 2010 financial statements revised net sales operating earnings net earnings 2009 would increased 211 million 36 million 38 million respectively net sales operating earnings net earnings 2010 would decreased 21 million 195 million 175 million respectively income expense net 2011 includes 56 million fair value adjustments accretion contingent consideration related acquisition solvays pharmaceutical business income expense net 2009 includes derecognition contingent liability 797 million associated conclusion tap pharmaceutical products inc joint venture contingent liability established conclusion joint venture abbott agreed remit cash takeda certain research development events achieved development assets retained takeda 2009 research development events achieved contingent liability derecognized addition income expense net 2009 includes 287 million gain settlement reached abbott medtronic inc resolving outstanding intellectual property litigation two parties income recording certain investments fair value connection business acquisitions income expense net 2011 2010 2009 also includes ongoing contractual payments takeda associated conclusion tap joint venture taxes earnings income tax rates earnings 90 percent 2011 190 percent 2010 201 percent 2009 taxes earnings 2011 reflect effect tax rate applied litigation reserve recognition 580 million tax benefits result favorable resolution various tax positions pertaining prior years also decreased gross amount unrecognized tax benefits approximately 13 billion exclusive discrete items effective rates lower us federal statutory rate 35 percent due primarily benefit lower foreign tax rates tax exemptions reduced tax rates 229 194 164 percentage points 2011 2010 2009 respectively tax rate reductions primarily derived operations puerto rico switzerland ireland singapore abbott benefits combination favorable statutory tax rules tax rulings grants exemptions see note 5 consolidated financial statements full reconciliation effective tax rate us federal statutory rate result patient protection affordable care act health care education reconciliation act signed law 2010 abbott recorded charge approximately 60 million 2010 reduce deferred tax assets associated retiree health care liabilities related medicare part retiree drug subsidy tax rate 2009 affected higher tax rate applied derecognition contingent liability associated conclusion tap pharmaceutical products inc joint venture medtronic intellectual property litigation settlement october 2010 puerto rico enacted legislation assesses tax beginning 2011 certain products manufactured puerto rico excise tax recorded cost products sold although tax creditable us income tax purposes research development programs abbott currently numerous pharmaceutical medical nutritional products development research development process proprietary pharmaceuticals segment research development process generally begins discovery research focuses identification molecule desired effect given disease preclinical testing identified compound proves successful compound moves clinical development generally includes following phases •phase involves first human tests small number healthy volunteers assess tolerability potential dosing •phase ii tests molecules efficacy disease small group patients •phase iii tests molecule demonstrates favorable results earlier phases significantly larger patient population demonstrate efficacy safety based regulatory criteria clinical trials development phases provide data required prepare submit new drug application nda biological license application bla submission regulatory approval us food drug administration fda similar government agencies outside us specific requirements eg scope clinical trials obtaining regulatory approval vary across different countries geographic regions research development process discovery new drug launch typically takes 8 12 years even longer significant amount uncertainty inherent research development new pharmaceutical products guarantee molecule receive regulatory approval required launch new drug indication addition development new products new formulations proprietary pharmaceutical research development projects also may include phase iv trials sometimes called postmarketing studies projects clinical trials designed conducted collect additional data regarding among parameters benefits risks approved drug established pharmaceuticals segment research development process focuses geographic expansion continuous improvement segments existing products provide improved therapeutic benefits itbs patients customers established pharmaceuticals actively pursue primary research development usually begins work existing products acquisition advanced stage licensing opportunity depending upon product phases development may include •drug product development •phase bioequivalence studies compare future established pharmaceuticals brand already marketed compound active pharmaceutical ingredient api •phase ii studies test efficacy itb small group patients •phase iii studies broaden testing wider population reflects actual medical use specific requirements eg scope clinical trials obtaining regulatory approval vary across different countries geographic regions process may range one year bioequivalence study project 6 years complex formulations new indications addition development new itbs development projects may also include phase iv studies similar postmarketing studies described proprietary pharmaceuticals diagnostics segment phases research development process include •discovery focuses identification product address specific therapeutic area platform unmet clinical need •conceptfeasibility materials manufacturing processes evaluated testing may include product characterization analysis performed confirm clinical utility •development extensive testing performed demonstrate product meets specified design requirements design specifications conform user needs intended uses pharmaceutical products regulatory requirements diagnostic products vary across different countries geographic regions us fda classifies diagnostic products classes ii iii classification determines regulatory process approval diagnostics segment products three classes vast majority products categorized class ii submission separate regulatory filing required class products class ii devices typically require premarket notification fda regulatory filing known 510k submission class iii products subject fdas premarketing approval pma requirements class iii products used screen blood require submission approval bla eu diagnostic products also categorized different categories regulatory process governed european vitro diagnostic medical device directive depends upon category certain product categories require review approval independent company known notified body manufacturer affix ce mark product show compliance directive products require selfcertification process vascular segment research development process begins research specific technology evaluated feasibility commercial viability research program passes hurdle moves forward development process includes evaluation selection product design completion clinical trials test products safety efficacy validation manufacturing process demonstrate repeatability ability consistently meet predetermined specifications similar diagnostic products discussed us vascular products classified class ii iii abbotts vascular products classified class ii devices follow 510k regulatory process class iii devices subject pma process eu vascular products also categorized different classes regulatory process governed european medical device directive varies class product must bear ce mark show compliance directive products require submission design dossier appropriate regulatory authority review approval prior ce marking device products company required prepare technical file includes testing results clinical evaluations selfcertify ability apply ce mark product outside us eu regulatory requirements vary across different countries regions approval commercial launch vascular products postmarket trials may conducted either due conditional requirement regulatory market approval objective proving product superiority nutritional segment research development process generally focuses identifying developing ingredients products address nutritional needs particular populations eg infants athletes patients eg people diabetes depending upon country andor region claims regarding products efficacy made clinical studies typically must conducted product development product form change liquid powder generally necessitate clinical studies us fda requires notified proposed new formulations formulation packaging changes related infant formula products prior launch infant formula product packaging change company required obtain fdas confirmation objections proposed product packaging nutrition products notification preapproval fda required unless product includes new food additive countries regulatory approval may required certain nutritional products including infant formula medical nutritional products areas focus abbotts significant areas therapeutic focus include following proprietary pharmaceutical products immunology projects ongoing identify new mechanisms potential treat array immunemediated diseases projects include early stage work oral dmard therapies number biologic candidates abt122 abt981 dual variable domain immunoglobulins phase clinical trials potential disease modifying antiarthritic drugs additional indications humira registration submissions review including ankylosing spondylitis china registration filing submitted september 2011 pediatric crohns disease european union eu registration submitted october 2011 us submission expected mid2012 global regulatory applications ulcerative colitis submitted early 2011 phase iii trials ongoing ulcerative colitis japan uveitis us eu japan peripheral axial spondyloarthritis us eu hidradenitis suppurativa us eu approval juvenile idiopathic arthritis obtained july 2011 japan neurosciencepain abbott focused development compounds target receptors brain help regulate neurological functions address conditions alzheimers disease schizophrenia pain parkinsons disease multiple sclerosis ms efforts include four compounds directed toward treatment alzheimers disease abbott expects abt126 start phase iib studies first half 2012 abt354 enter phase iia late 2012 early 2013 abt363 complete phase late 2012 abt957 start phase first half 2012 daclizumab nextgeneration antibody ongoing phase iii clinical trials relapsing remitting ms abt652 development treatment multiple pain indications phase iib clinical trials expected start june 2012 duopa completing us phase iii program parkinsons disease registration expected submitted second half 2012 oncology abbott focused development targeted treatments inhibit tumor growth improve response common cancer therapies abbott new molecular entities development dozen types cancer including •abt888 parpinhibitor phase ii evaluation ongoing number specific tumor types •elotuzumab collaboration agreement acquired part facet biotech acquisition 2010 abbott began phase iii development elotuzumab treatment multiple myeloma partner june 2011 •abt199 nextgeneration bcl2 inhibitor currently phase development studied chronic lymphocytic leukemia cll nonhodgkins lymphoma nhl hepatitis c abbotts antiviral program focused developing treatments hepatitis c hcv development ongoing abt450 part enanta collaboration polymerase inhibitor abt333 abt267 ns5a inhibitor womens health 2010 abbott entered collaboration agreement neurocrine develop commercialize elagolix oral gonadotropinreleasing hormone gnrh antagonist treatment endometriosisrelated pain fibroids phase iii study endometriosis expected begin mid2012 phase iia study uterine fibroids initiated november 2011 chronic kidney disease 2010 abbott entered agreement reata pharmaceuticals exus rights excluding certain asian markets bardoxolone investigational treatment chronic kidney disease ckd global phase iii trial initiated june 2011 global phase iib study initiated atrasentan june 2011 new formulations abbotts existing pharmaceutical products approved including lupron 6month depot june 3month depot august us new strength creon approved us june androgel 162 approved april us work also continuing numerous earlystage programs including biologic acquired pangenetics chronic pain late 2009 cmet antibody cancer partnership pierre fabre sa programs across abbotts therapeutic areas focus established pharmaceuticals abbott currently working active itb plans 20 30 key brands depending product development activities focus new markets formulations combinations indications vascular ongoing projects pipeline include •xience xpedition nextgeneration drugeluting stent des enhanced deliverability expanded size matrix utilizes xience prime stent everolimus biocompatible coating technology incorporates new catheter technology improved deliverability submission product ce mark us approval projected occur 2012 •absorb bioresorbable vascular scaffold bvs device treatment coronary artery disease gradually resorbed vessel wall 2011 abbott released fiveyear data absorb clinical trial showed efficacy safety results consistent fouryear data 2010 abbott initiated absorb extend clinical trial enroll 1000 patients complex coronary artery disease 2011 receiving ce mark approval absorb abbott initiated randomized controlled clinical trial study device expanded population europe global trial including us geographies planned later 2012 •mitraclip device treatment mitral regurgitation abbotts mitraclip system market europe currently review approval fda amended filing fda submitted december 2011 •coronary endovascular core product projects including new coronary endovascular guide wires absolute pro omnilink elite stent iliac indication us various stages development andor undergoing regulatory approvals medical optics abbott expanding proprietary laser platforms new vision correction applications including laser refractive cataract surgery abbott also developed new diagnostic instrument laser treatment planning software designed improve visual outcomes instrument software received ce mark november 2011 launched europe second quarter 2012 pma filing us regulatory approval targeted submission second quarter 2012 pma filing ophthalmic viscoelastic us market submitted fda february 2011 currently review abbott also developing new products patients undergoing cataract surgery including synchrony intraocular lens iol designed mimic eyes natural ability change focus deliver improved vision distances advanced iols address astigmatism well presbyopia iol insertion systems improve surgeon efficiency enable implantation smaller incision sizes feature enhancements phacoemulsification systems molecular diagnostics numerous new molecular diagnostic products including oncology infectious disease assays well new instrument system currently development abbotts companion diagnostic test alk gene rearrangement test nonsmallcell lung cancer launched us 2011 currently clinical trials undergoing regulatory review numerous countries 2011 assay aid management hcvinfected patients undergoing antiviral therapy received us regulatory approval additional assays detect presence hiv virus cmv viral load well test detect hepatitis b drug resistance patients received ce mark core laboratory diagnostics abbott researching dozens novel biomarkers focusing areas infectious disease oncology cardiac neuroscience disorders also several nextgeneration instrument systems development diabetes care abbott submitted freestyle insulinx blood glucose monitoring system includes new features designed support insulinusing patient regulatory approval us june 2011 receiving ce mark system may 2011 health canada approval october 2011 abbott continuing provide rd support product launched additional markets development also continuing updated hospital blood glucose monitoring system filings approval projected submitted us europe first half 2013 abbott also developing nextgeneration monitoring system precision product platform abbott anticipates submitting filings approval various markets 2013 nutrition abbott focusing research development spend six benefit platforms span pediatric adult performance nutrition areas immunity cognition lean body mass inflammation metabolism tolerance numerous new products build advances benefit platforms currently development expected launched 2012 given diversity abbotts business intention remain broadbased healthcare company numerous sources potential future growth individual project expected material cash flows results operations next five years factors considered included research development expenses projected incurred project compound device next year relative abbotts total research development expenses well qualitative factors marketplace perceptions impact new product abbotts overall market position delays abbotts 2011 research development activities expected material impact operations aggregate cost complete numerous pharmaceutical medical device projects currently development expected material total cost complete depend upon abbotts ability successfully complete project rate project advances ultimate timing completion given potential significant delays high rate failure inherent research development new pharmaceutical medical device products technologies possible accurately estimate total cost complete projects currently development however abbott plans continue manage portfolio projects achieve research development spend equal approximately 95 percent 10 percent sales year abbott regularly accumulate make management decisions based total expenses incurred particular development phase given period generally abbott seeks obtain various forms exclusivity product development abbott obtains patent protection available significant markets andor countries product development additionally abbott also seeks obtain forms legal regulatory exclusivity would protect product upon approval forms regulatory exclusivity variety terms 3 5 7 years united states 10 years european union regulatory exclusivity granted upon approval development project certain instances regulatory exclusivity may protect product patent protection longer available period time excess patent protection availability length regulatory exclusivity based part length regulatory review process determined upon product approval possible estimate product development total period exclusivity obtained regulatory approval obtained generally upon approval products development may entitled exclusivity abbott seeks patent protection available significant markets andor countries product development united states expiration date patents filed june 8 1995 20 years filing date given patents relating pharmaceutical products often obtained early development process given amount time needed complete clinical trials development activities required regulatory approval length time product launch patent expiration may significantly less 20 years product development ultimately obtains regulatory approval drug price competition patent term restoration act 1984 commonly known hatchwaxman act permits patent holder seek patent extension commonly called patent term restoration patents products processes making product regulated federal food drug cosmetic act calculation patent extension roughly based 50 percent period time extending filing investigational new drug application submission nda plus 100 percent time period nda submission regulatory approval extension however cannot exceed 5 years remaining patent term regulatory approval cannot exceed 14 years one patent related first commercial marketing newly approved pharmaceutical product eligible patent term restoration additionally products may entitled obtain forms legal regulatory exclusivity upon approval forms regulatory exclusivity variety terms united states variable jurisdictions united states fda approves new chemical entity previously approved alone combination chemical entities product granted 5 years regulatory exclusivity fda may grant 3 years market exclusivity nda including supplementary applications application contains reports new clinical investigations previously relied upon fda grants pediatric exclusivity longest existing exclusivity patent regulatory related product would extended 6 months fda designates product orphan drug either used treat conditions afflict relatively small population reasonable expectation research development costs recovered fda may grant 7 years exclusivity regulatory exclusivity granted upon approval development project certain instances regulatory exclusivity may protect product patent protection longer available period time excess patent protection possible estimate product development total period exclusivity obtained regulatory approval obtained however given length time required complete clinical development pharmaceutical product minimum maximum periods exclusivity might achieved individual case would expected exceed 3 14 years respectively estimates consider factors difficulty recreating manufacturing process particular product proprietary knowledge may provide level additional protection generic incursion business combinations technology acquisitions related transactions september 8 2010 abbott acquired piramal healthcare limiteds healthcare solutions business leader indian branded generics market 22 billion cash plus additional payments 400 million annually 2011 2012 2013 2014 abbott recorded 16 billion liability present value additional payments acquisition date acquisition financed cash allocation fair value acquisition resulted recording 27 billion deductible acquired intangible assets 10 billion deductible goodwill acquired intangible assets consist primarily trade names customer relationships associated rights amortized average 19 years february 2010 abbott acquired solvays pharmaceuticals business solvay pharmaceuticals approximately 61 billion cash plus additional payments eur 100 million per year certain sales milestones met 2011 2012 2013 contingent consideration approximately 290 million recorded acquisition solvay pharmaceuticals provides abbott large complementary portfolio pharmaceutical products expands abbotts presence key global emerging markets abbott acquired control business february 15 2010 financial results acquired operations included financial statements beginning date net sales acquired operations 2010 approximately 31 billion pretax loss acquired operations including acquisition integration restructuring expenses 2010 approximately 395 million acquisition funded cash shortterm investments allocation fair value acquisition shown table billions dollars acquired intangible assets consist primarily product rights currently marketed products amortized 2 14 years average 11 years acquired inprocess research development projects accounted indefinite lived intangible assets regulatory approval discontinuation net tangible assets acquired consist primarily trade accounts receivable approximately 675 million inventory approximately 390 million property equipment approximately 725 million net assumed liabilities primarily trade accounts payable accrued compensation liabilities acquisition solvay pharmaceuticals taken place january 1 2010 january 1 2009 unaudited pro forma net sales net earnings diluted earnings per share 2010 2009 would 358 billion 342 billion 46 billion 52 billion 296 336 respectively pro forma information includes adjustments amortization intangible assets fair value adjustments acquisitiondate inventory well acquisition integration restructuring expenses pro forma financial information necessarily indicative results operations would transaction effected assumed date march 2010 abbott acquired starlims technologies approximately 100 million cash net cash held starlims providing abbott leading products expertise build position laboratory informatics substantial portion fair value acquisition allocated goodwill amortizable intangible assets april 2010 abbott acquired outstanding shares facet biotech corporation approximately 430 million cash net cash held facet acquisition enhances abbotts early midstage pharmaceutical pipeline including biologic multiple sclerosis compounds complement abbotts oncology program substantial portion fair value acquisition allocated acquired inprocess research development accounted indefinitelived intangible asset regulatory approval discontinuation february 2009 abbott acquired outstanding shares advanced medical optics inc amo approximately 14 billion cash net cash held amo prior acquisition abbott held small investment amo abbott acquired amo take advantage increasing demand vision care technologies due population growth demographic shifts amos premier position field abbott acquired control business february 25 2009 financial results acquired operations included financial statements beginning date allocation fair value acquisition resulted nondeductible goodwill approximately 17 billion nondeductible definitelived intangible assets approximately 900 million net tangible assets approximately 400 million addition abbott assumed 15 billion debt acquired intangible assets consist established customer relationships developed technology trade names amortized 2 30 years average 15 years addition subsequent acquisition abbott repaid substantially acquired debt amo october 2009 abbott acquired 100 percent visiogen inc 400 million cash providing abbott nextgeneration accommodating intraocular lens iol technology address presbyopia cataract patients allocation fair value acquisition resulted nondeductible acquired inprocess research development approximately 200 million accounted indefinitelived intangible asset regulatory approval discontinuation nondeductible definitelived intangible assets approximately 24 million goodwill approximately 200 million october 2009 abbott acquired evalve inc 320 million cash plus additional payment 90 million made upon completion certain regulatory milestones abbott acquired evalve obtain presence growing area nonsurgical treatment structural heart disease including previous investment evalve abbott acquired 100 percent outstanding shares evalve connection acquisition carrying amount investment revalued fair value resulting recording 28 million income reported income expense net allocation fair value acquisition resulted nondeductible definitelived intangible assets approximately 140 million nondeductible acquired inprocess research development approximately 220 million accounted indefinitelived intangible asset regulatory approval discontinuation goodwill approximately 100 million deferred income taxes approximately 110 million acquired intangible assets consist developed technology amortized 11 years january 2009 abbott acquired ibis biosciences inc ibis 175 million cash expand abbotts position molecular diagnostics infectious disease including 40 million investment ibis 2008 abbott acquired 100 percent outstanding shares ibis substantial portion fair value acquisition allocated goodwill amortizable intangible assets acquired inprocess research development accounted indefinitelived intangible asset regulatory approval discontinuation investment ibis 2008 resulted charge acquired inprocess research development connection acquisition carrying amount investment revalued fair value resulting recording 33 million income reported income expense net except acquisition solvay pharmaceuticals acquisitions taken place january 1 previous year consolidated net sales income would significantly different reported amounts 2011 abbott entered collaboration agreement joint development commercialization secondgeneration oral antioxidant inflammation modulators resulting charge acquired inprocess research development 400 million 2010 abbott entered agreement acquire licensing rights outside us excluding certain asian markets product development treatment chronic kidney disease resulting charge acquired inprocess research development 238 million 2011 certain milestones achieved charges acquired inprocess research development 188 million recorded additional payments approximately 200 million could required achievement certain development regulatory milestones addition equity interests approximately 62 million acquired 2011 2010 2011 abbott entered agreement develop commercialize treatment rheumatoid arthritis psoriasis resulting charge acquired inprocess research development 85 million additional payments totaling 395 million could required achievement certain development regulatory commercial milestones agreement 2010 abbott also entered agreement develop commercialize product treatment endometriosis resulting charge acquired inprocess research development 75 million additional payments approximately 500 million could required achievement certain development regulatory commercial milestones agreement 2009 abbott acquired global rights novel biologic treatment chronic pain 170 million resulting charge acquired inprocess research development goodwill december 31 2011 goodwill recorded result business combinations totaled 157 billion goodwill reviewed impairment annually event could result impairment occurs results last impairment test indicated fair value reporting unit substantially excess carrying value except medical optics unit fair value medical optics business exceeds carrying value extended economic pressure governmentreimbursed cataract procedures europe global lasik surgery business well longer regulatory approval timelines products currently development could result valuation future fair value medical optics unit declined carrying value thereby triggering requirement estimate implied fair value goodwill measure impairment financial condition cash flow net cash operating activities amounted 90 billion 87 billion 73 billion 2011 2010 2009 respectively trade accounts payable liabilities net cash operating activities 2011 includes noncash impact litigation reserve 15 billion income taxes payable includes 580 million tax benefits related favorable resolution various tax positions pertaining prior years substantially abbotts cash equivalents december 31 2011 2010 2009 considered reinvested indefinitely foreign subsidiaries abbott expect reinvestment affect liquidity capital resources funds needed operations us abbott would required accrue pay us income taxes repatriate funds abbott believes sufficient sources liquidity support assumption disclosed amount undistributed earnings december 31 2011 considered reinvested indefinitely abbott funded 394 million 2011 525 million 2010 862 million 2009 defined pension plans abbott expects pension funding main domestic pension plan 200 million annually abbott expects annual cash flow operating activities continue exceed abbotts capital expenditures cash dividends 2010 reductions cash equivalents due effect exchange rate changes primarily driven impact changes value us dollar compared euro nondollar denominated cash equivalents future fluctuations strength us dollar foreign currencies could substantial effect dollar value abbotts cash equivalents fluctuations expected materially impact abbotts liquidity discussed united states department justice united states attorney western district virginia investigating abbotts sales marketing activities depakote abbott recorded noncash charge 15 billion 2011 related investigation however discussions resolve potential civil criminal claims related matter ongoing concluded certainty definitive resolution ultimate resolution matter reporting period expected material impact abbotts cash flows year debt capital december 31 2011 abbotts longterm debt rating aa standard poors corporation a1 moodys investors service abbott readily available financial resources including unused lines credit 67 billion support commercial paper borrowing arrangements 30 billion facility expires october 2012 37 billion facility expires 2013 related compensating balances subject withdrawal abbott option commitment fees material october 2008 board directors authorized purchase 5 billion abbotts common shares time authorization 148 million 145 million shares purchased 2010 2009 cost approximately 800 million years shares purchased authorization 2011 abbott plans purchase shares time 2012 2011 abbott repaid 2 billion longterm notes using primarily shortterm borrowings registration statement filed securities exchange commission february 2009 abbott issued 30 billion longterm debt second quarter 2010 matures 2015 2020 2040 interest rates 27 percent 4125 percent 53 percent respectively proceeds debt used pay shortterm borrowings abbott process evaluating impact proposed separation future capitalization structure liquidity 2012 abbott expects tender portion outstanding longterm debt tender funded debt issued new pharmaceutical company february 2009 registration statement abbott issued 30 billion longterm debt first quarter 2009 matures 2019 2039 interest rates 5125 percent 60 percent respectively proceeds debt used fund acquisition advanced medical optics inc repay debt advanced medical optics inc addition abbott repaid 1 billion longterm notes due 2009 using primarily shortterm borrowings judgment entered 2009 us district court eastern district texas abbott litigation new york university centocor inc required abbott secure judgment event appeal federal circuit court unsuccessful overturning district courts decision first quarter 2010 abbott deposited 187 billion escrow agent considered assets restricted february 23 2011 federal circuit reversed district courts final judgment found centocors patent invalid april 25 2011 centocor petitioned federal circuit rehear reconsider decision june 2011 federal circuit denied centocors petition restrictions funds lifted working capital working capital 83 billion december 31 2011 51 billion december 31 2010 103 billion december 31 2009 increase working capital 2011 due primarily higher cash generated operating activities lower debt levels decrease working capital 2010 due primarily cash investments used acquire solvays pharmaceuticals business piramal healthcare limiteds healthcare solutions business significant amount abbotts trade receivables greece portugal italy spain governmental health systems given economic conditions sovereign debt issues countries time takes collect outstanding receivables increased 2011 outstanding net governmental receivables four countries totaled 173 billion 150 billion 159 billion december 31 2011 2010 2009 respectively percentage governmental receivables four countries year past due 27 percent 22 percent 23 percent december 31 2011 2010 2009 respectively exception greece abbott historically collected almost outstanding receivables countries abbott continues monitor credit worthiness customers located geographic areas establishes allowance trade receivable probable balance collected government funding become unavailable countries significant adverse changes reimbursement practices occur abbott may able collect entire balance capital expenditures capital expenditures 15 billion 2011 10 billion 2010 11 billion 2009 principally upgrading expanding manufacturing research development investments information technology administrative support facilities segments laboratory instruments placed customers contractual obligations following table summarizes abbotts estimated contractual obligations december 31 2011 dollars millions apurchase commitments purchases made normal course business meet operational capital expenditure requirements bunrecognized tax benefits totaling 19 billion excluded table abbott unable reasonably estimate period cash settlement respective taxing authorities items contingent obligations abbott periodically entered agreements ordinary course business assignment product rights companies resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote addition abbott periodically acquires business product rights abbott agrees pay contingent consideration based attaining certain thresholds based occurrence certain events recently issued accounting standards 2011 financial accounting standards board fasb issued amendment topic 270 fasbs accounting standards codification amendment requires nonowner changes stockholders equity presented either single continuous statement comprehensive income two separate consecutive statements abbott adopted amendment year ended december 31 2011 retrospectively presented nonowner changes stockholders equity two separate consecutive statements adoption amendment material impact abbotts results operations cash flows financial position legislative issues first quarter 2010 patient protection affordable care act health care education reconciliation act collectively referred herein health care reform legislation signed law us health care reform legislation included increase basic medicaid rebate rate 151 percent 231 percent extended rebate drugs provided medicaid managed care organizations medicaid rebate changes continue negative effect gross profit margin proprietary pharmaceutical products segment future years beginning 2013 health care reform legislation eliminate federal income tax deduction prescription drug expenses retirees abbott receives reimbursement medicare part retiree drug subsidy program result abbott recorded charge approximately 60 million first quarter 2010 reduce deferred tax assets associated retiree health care liabilities 2011 abbott began recording annual fee imposed health care reform legislation companies sell branded prescription drugs specified government programs amount annual fee based ratio certain abbotts sales compared total sales covered entities multiplied fixed dollar amount specified legislation year 2011 additional rebates incurred related medicare part coverage gap donut hole beginning 2013 abbott record 23 percent excise tax imposed health care reform legislation sale certain medical devices us abbotts primary markets highly competitive subject substantial government regulations throughout world abbott expects debate continue availability method delivery payment health care products services possible predict extent abbott health care industry general might adversely affected factors future complete discussion factors contained item 1 business item 1a risk factors annual report form 10k private securities litigation reform act 1995 caution concerning forwardlooking statements safe harbor provisions private securities litigation reform act 1995 abbott cautions investors forwardlooking statements projections made abbott including made document subject risks uncertainties may cause actual results differ materially projected economic competitive governmental technological factors may affect abbotts operations discussed item 1a risk factors annual report form 10k item 7a item 7 managements discussion analysis financial condition results operations incorporated herein reference managements discussion analysis financial condition results operations years 1996 1995 1994 found section captioned financial review 1996 annual report item 8 item 7 managements discussion analysis financial condition results operations incorporated herein reference managements discussion analysis financial condition results operations years 1999 1998 1997 found section captioned financial review 1999 annual report item 7a item 7 managements discussion analysis financial condition results operations financial review results operations sales following table details components sales growth segment last three years 2000 management vascular medicine franchise transferred pharmaceutical products segment hospital products segment percentage changes 1999 1998 restated reflect transfer bin 2001 management fact plus product franchise transferred diagnostic products segment ross products segment percentage changes 2000 1999 1998 reflect transfer sales new products 2000 estimated 939 million led pharmaceutical hospital diagnostic segments increases disclosed note 13 adult nutritionals three years antiinfectives 1999 primarily due unit increases decreases antiinfectives 2000 1998 due primarily unit decreases operating earnings gross profit margins sales less cost products sold including distribution expenses 546 percent net sales 2000 1999 568 percent 1998 excluding charges described note 15 relating fda consent decree gross profit margin 1999 would 558 percent gross profit margins three years affected unfavorable product mix primarily pharmaceuticals negative effect relatively stronger us dollar gross profit margins years also affected productivity improvements partially offset higher project expenses new products higher manufacturing capacity costs anticipated unit growth effects inflation competitive pricing pressures product lines us states receive price rebates manufacturers infant formula federally subsidized special supplemental food program women infants children also rebate programs pharmaceutical products rebate programs continue negative effect gross profit margins ross pharmaceutical products segments august 1999 geneva pharmaceuticals inc began shipments generic hytrin united states adversely impacted abbotts hytrin sales hytrin united states amounted 141 million 466 million 542 million 2000 1999 1998 respectively result consent decree entered us government 1999 discussed note 15 abbott prohibited manufacturing distributing certain diagnostic products abbott ensures processes lake county ill diagnostics manufacturing operations conform us food drug administrations fda quality system regulation qsr consent decree resulted charge 168 million third quarter 1999 abbott estimates 2000 sales negatively impacted approximately 250 million earnings per share negatively impacted approximately 10 cents per share terms amended consent decree abbott must ensure diagnostics manufacturing operations conformance qsr various dates january 15 2001 fda determine abbotts conformance qsr inspection abbotts facilities fda concludes operations conformance qsr date required abbott may subject additional costs research development expense 14 billion 2000 represented 98 percent net sales 2000 compared 91 percent net sales 1999 98 percent net sales 1998 increase research development expenses 2000 concentrated primarily pharmaceutical diagnostic hospital segments research development expenditures continue concentrated pharmaceutical diagnostic products selling general administrative expenses increased 13 percent 2000 net favorable effect relatively stronger us dollar 24 percent compared increases 35 percent 1999 24 percent 1998 net increases exclusive exchange impact reflect inflation additional selling marketing support primarily international pharmaceutical hospital segments addition 1999 1998 reflect litigation charges 1999 includes merger costs approximately 162 million abbotts income tap pharmaceutical products inc tap joint venture 2000 adversely affected result increase litigation reserve related us department justice investigation taps marketing sales practices lupron feasible predict outcome proceedings certainty management opinion ultimate disposition material adverse effect abbotts financial position ongoing cash flow results operations could material adverse effect abbotts cash flow results operations particular period interest income expense net interest expense decreased 2000 1999 due lower level borrowings higher level investment securities net interest expense increased 1998 due primarily higher level borrowings result business acquisitions taxes earnings effective income tax rates 270 percent 2000 280 percent 1999 1998 tax rate 2000 reduced part domestic dividend exclusion applicable increased earnings tap pharmaceutical products inc addition tax rates 1999 1998 unfavorably impacted reduction tax incentive grants puerto rico operations financial condition cash flow abbott expects annual cash flow operating activities continue approximate exceed abbotts capital expenditures cash dividends debt capital december 31 2000 abbotts bond ratings aaa standard poors corporation aa1 moodys investors service abbott readily available financial resources including unused domestic lines credit 15 billion support domestic commercial paper borrowing arrangements result proposed acquisition basfs pharmaceutical business abbotts credit ratings review expected ratings may adjusted reflect increased borrowings finance acquisition addition available lines credit support increased commercial paper borrowings increased 65 billion february 2001 registration statement filed securities exchange commission sec february 2001 abbott may issue 35 billion securities future 35 billion abbott may issue 268 million either form debt securities common shares without par value remaining 32 billion may issued form debt securities previously registration statement filed sec 1999 abbott may issued 518 million securities included 35 billion last three years abbott purchased 31765500 common shares cost 13 billion including 102 million shares 25 million shares authorized purchase abbotts board directors june 2000 working capital december 31 2000 1999 1998 working capital 31 billion 19 billion 624 million respectively capital expenditures capital expenditures 10 billion 2000 987 million 1999 994 million 1998 principally upgrading expanding manufacturing research development administrative support facilities segments laboratory instruments hospital equipment placed customers level capital expenditures expected continue increased proportion dedicated hospital international diagnostic segments legislative issues abbotts primary markets highly competitive subject substantial government regulation abbott expects debate continue federal state levels availability method delivery payment health care products services legislation enacted could effect reducing prices reducing rate price increases medical products services international operations also subject significant degree government regulation possible predict extent abbott health care industry general might adversely affected factors future complete discussion factors contained item 1 business combinations divestiture december 15 2000 abbott basf ag reached agreement abbott purchase pharmaceutical business basf subject approval government regulators purchase price 69 billion abbott estimates acquisition completed result purchase accounting charges approximately 10 billion inprocess research development 2001 result goodwill intangibles approximately 50 billion purchase financed us dollar eurobased borrowings described debt capital november 19 1999 abbott completed merger transaction perclose inc accounted poolingofinterests transaction abbott issued approximately 151 million common shares perclose shareholders percloses outstanding stock options converted options purchase approximately 29 million abbott common shares mergerrelated charges approximately 162 million included selling general administrative expenses 1999 abbotts consolidated financial statements prior periods restated include perclose significantly different previously reported amounts 1999 abbott acquired certain assets glaxo wellcome incs us anesthesia business approximately 217 million cash substantial portion purchase price allocated intangible assets amortized straightline basis 15 years 1998 abbott acquired common stock international murex technologies corporation manufacturer medical diagnostic products approximately 234 million cash substantial portion purchase price allocated goodwill amortized straightline basis 20 years acquisitions taken place january 1 previous years consolidated sales income would significantly different reported amounts january 2000 abbott sold agricultural products business sumitomo chemical co ltd resulting 139 million gain transaction sumitomo acquired research development sales marketing support operations abbotts entire line naturally occurring biopesticides plant growth regulators products agriculture public health forestry bulk active ingredient manufacturing rights retained abbott full year 1999 abbott recorded approximately 102 million sales business recently issued accounting standards june 1998 financial accounting standards board issued statement financial accounting standards 133 accounting derivative instruments hedging activities statement requires recognition fair value derivatives either assets liabilities adoption provisions statement january 1 2001 result transition credit income approximately 2 million 2001 emerging issues task force eitf issued eitf issues 0010 accounting shipping handling fees costs 0014 accounting certain sales incentives address classification shipping handling fees costs various sales incentives effective fourth quarter 2000 adoption provisions eitf issues material effect abbotts financial statements securities exchange commission sec issued staff accounting bulletin sab 101 revenue recognition financial statements amended june 26 2000 sab 101 provides sec staffs views applying generally accepted accounting principles selected revenue recognition issues effective beginning fourth quarter 2000 adoption provisions sab material effect abbotts financial statements euro conversion january 1 1999 european economic monetary union took effect introduced euro official single currency participating member countries date currency exchange rates participating countries fixed euro threeyear transition euro end 2001 legacy currencies eliminated costs required prepare euro material abbotts financial position results operations cash flows impact euro abbotts competitive position unknown private securities litigation reform act 1995 caution concerning forwardlooking statements safe harbor provisions private securities litigation reform act 1995 abbott cautions investors forwardlooking statements projections made abbott including made item 7 subject risks uncertainties may cause actual results differ materially projected economic competitive governmental technological factors may affect abbotts operations discussed exhibit 991 item 7a item 7 managements discussion analysis financial condition results operations financial review abbotts revenues derived primarily sale broad line health care products shortterm receivable arrangements patent protection licenses technological performance features inclusion abbotts products contract impact products sold price controls competition rebates impact net selling prices products foreign currency translation impacts measurement net sales costs abbotts primary products nutritional products diagnostic testing products branded generic pharmaceuticals cardiovascular neuromodulation products sales international markets comprise approximately 65 percent consolidated net sales october 3 2017 abbott acquired alere inc alere diagnostic device service provider 5100 per common share cash equated purchase price approximately 45 billion part acquisition abbott tendered aleres preferred shares total value approximately 07 billion addition approximately 30 billion aleres debt assumed subsequently repaid acquisition establishes abbott leader point care testing expands abbotts global diagnostics presence provides access new products channels geographies abbotts diagnostic products reportable segment includes results alere date acquisition january 4 2017 abbott completed acquisition st jude medical inc st jude medical global medical device manufacturer approximately 236 billion including approximately 136 billion cash approximately 10 billion abbott common shares based abbotts closing stock price acquisition date part acquisition approximately 59 billion st jude medicals debt assumed repaid refinanced abbott acquisition provides expanded opportunities future growth important part companys ongoing effort develop strong diverse portfolio devices diagnostics nutritionals branded generic pharmaceuticals combined business competes nearly every area 30 billion cardiovascular device market well neuromodulation treats chronic pain movement disorders abbotts cardiovascular neuromodulation reportable segment includes results historical vascular products segment results businesses acquired st jude medical date acquisition february 2017 abbott completed sale abbott medical optics amo vision care business johnson 4325 billion cash decision sell amo reflected abbotts proactive shaping portfolio line strategic priorities 2017 abbott recognized pretax gain 1163 billion aftertax gain 728 million related sale amo operating results amo included earnings continuing operations date sale business qualify reporting discontinued operations february 27 2015 abbott completed sale developed markets branded generics pharmaceuticals business previously included established pharmaceutical products segment mylan inc 110 million ordinary shares mylan nv newly formed entity combined mylans existing business abbotts developed markets branded generics pharmaceuticals business abbott retained branded generics pharmaceuticals business products established pharmaceutical products segment emerging markets april 2015 abbott sold 4025 million mylan nv ordinary shares 2017 abbott sold remaining 6975 million ordinary shares proceeds sale 110 million ordinary shares totaled 50 billion sales increase last three years driven primarily 2017 acquisitions st jude medical alere sales growth established pharmaceuticals diagnostics businesses 2017 acquisitions st jude medical alere partially offset sale amo contributed 265 percentage points abbotts total sales growth sales emerging markets represent approximately 40 percent total company sales increased 139 percent 2017 63 percent 2016 excluding impact foreign exchange emerging markets include countries except united states western europe japan canada australia new zealand last three years abbotts operating margin impacted several factors 2017 abbotts operating margin decreased approximately 900 basis points primarily due costs associated acquisitions including higher intangible amortization expense inventory stepup amortization integration costs partially offset operating margin improvement across various businesses 2016 2015 abbott expanded operating margin approximately 120 basis points per year primarily due margin improvement nutritional diagnostics businesses abbotts worldwide nutritional products business sales last three years positively impacted demographics aging population increasing rate chronic disease developed markets rise middle class many emerging markets well numerous new product introductions leveraged abbotts strong brands positive factors offset challenging conditions various markets last three years 2017 nutritionals business experienced growth us due abovemarket performance abbotts infant toddler brands including pediasure® pedialyte® similac® increased 2017 sales china india partially offset challenging market conditions infant formula market various emerging markets respect profitability nutritional products business manufacturing distribution process changes well cost reductions drove margin improvements across business last three years although improvements offset increased commodity costs 2017 decrease operating margins business 250 percent sales 2015 229 percent 2017 almost entirely due negative impact foreign exchange abbotts worldwide diagnostics business sales growth last three years reflected acquisition alere october 2017 well continued market penetration core laboratory business us china growth emerging markets addition point care diagnostics business experienced sales growth led continued adoption abbotts istat® handheld system worldwide diagnostic sales increased 167 percent 2017 55 percent 2016 excluding impact foreign exchange excluding impact alere acquisition well impact foreign exchange sales diagnostics products segment increased 55 percent 2017 abbott continued international rollout recently launched alinity systems core laboratory including alinity c clinical chemistry alinity immunoassay diagnostics alinity blood plasma screening fourth quarter 2017 abbott received fda approval us alinity c alinity instruments clinical chemistry immunoassay diagnostics alinity integrated family nextgeneration diagnostic systems solutions designed increase efficiency running tests less space generating test results faster minimizing human errors continuing provide quality results margin improvement continued key focus diagnostics business 2017 although improvements partially offset negative impact foreign exchange operating margins increased 252 percent sales 2015 261 percent 2017 business continued execute efficiency initiatives manufacturing supply chain functions established pharmaceutical products segment focuses sale products emerging markets sale developed markets business mylan february 27 2015 excluding impact foreign exchange established pharmaceutical sales continuing operations increased 95 percent 2017 105 percent 2016 sales increase 2017 driven doubledigit growth china various countries latin america operating margins increased 177 percent sales 2015 198 percent 2017 since beginning first quarter 2017 results abbotts cardiovascular neuromodulation products segment includes abbotts historical vascular products segment st jude medical date acquisition excluding impact foreign exchange sales cardiovascular neuromodulation products segment increased 2074 percent 2017 45 percent 2016 sales increase 2017 driven acquisition st jude medical excluding impact acquisition well impact foreign exchange sales cardiovascular neuromodulation products segment essentially unchanged 2017 versus prior year 2017 higher structural heart endovascular sales offset lower coronary stent sales comparison impact favorable 2016 resolution thirdparty royalty agreement 2016 sales growth driven doubledigit growth abbotts sales mitraclip structural heart device treatment mitral regurgitation well endovascular franchise sales growth increases partially offset pricing pressures primarily related drugeluting stents des lower market share abbotts xience des franchise certain geographies 2017 operating earnings segment increased 160 percent operating margin profile declined 380 percent sales 2015 305 percent 2017 primarily due mix business resulting acquisition st jude medical ongoing pricing pressures coronary business 2017 abbott obtained regulatory approval various products addition approvals described diagnostics business cardiovascular neuromodulation products segment abbott received us fda approvals magnetic resonance mr conditional labeling across full suite pacemaker implantable cardioverter defibrillator icd cardiac resynchronization therapy defibrillator crtd devices abbott announced ce mark received us fda clearance confirm rx insertable cardiac monitor icm first smartphonecompatible icm designed help physicians remotely identify cardiac arrhythmias abbott received us fda approval heartmate 3 system helps weak heart pump blood body advanced heart failure patients need shortterm hemodynamic support bridgetotransplant bridge myocardial recovery abbott obtained ce mark xience sierra product next generation drugeluting coronary stent system diabetes business abbott received us fda approval freestyle libre system continuous glucose monitoring system require user calibration abbotts short longterm debt totaled 279 billion 220 billion december 31 2017 2016 respectively december 31 2017 abbotts longterm debt rating bbb standard poors corporation baa3 moodys investors service moodys february 2018 moodys raised abbotts rating baa2 positive outlook abbott committed reducing debt levels following recent acquisitions st jude medical alere january 2018 abbott repaid 395 billion debt anticipates additional debt repayments throughout 2018 february 16 2018 board directors authorized additional redemption 5 billion currently outstanding longterm notes first quarter 2017 part acquisition st jude medical abbott assumed outstanding debt previously issued st jude medical abbott exchanged certain st jude medical debt obligations aggregate principal amount approximately 29 billion debt issued abbott consists 4738 million 200 senior notes due 2018 4837 million 280 senior notes due 2020 8184 million 325 senior notes due 2023 4907 million 3875 senior notes due 2025 6391 million 475 senior notes due 2043 following exchange approximately 1942 million existing st jude medical notes remain outstanding across five series existing notes coupons maturities listed significant costs associated exchange debt addition first quarter 2017 abbott assumed subsequently repaid approximately 28 billion various st jude medical debt obligations january 4 2017 part funding cash portion st jude medical acquisition abbott borrowed 20 billion 120day senior unsecured bridge term loan facility repaid first quarter 2017 abbott also issued 364day yendenominated debt 195 million outstanding december 31 2017 abbott also paid 479 million yendenominated shortterm borrowing year july 31 2017 abbott entered 5year term loan agreement allowed abbott borrow 28 billion unsecured basis acquisition alere october 3 2017 abbott borrowed 28 billion term loan agreement finance acquisition alere repay certain indebtedness abbott alere pay fees expenses connection acquisition borrowings term loan bore interest based eurodollar rate plus applicable margin based abbotts credit ratings abbott paid term loan january 5 2018 october 3 2017 abbott borrowed 17 billion lines credit proceeds borrowing used finance acquisition alere repay certain indebtedness abbott alere pay fees expenses connection acquisition 17 billion borrowing payable july 10 2019 bore interest based eurodollar rate plus applicable margin based abbotts credit ratings fourth quarter 2017 abbott paid 550 million revolving loan abbott paid remaining balance revolving loan january 5 2018 anticipation acquisition st jude medical november 2016 abbott issued 151 billion longterm debt consisting 285 billion 235 maturing 2019 285 billion 290 maturing 2021 150 billion 340 maturing 2023 300 billion 375 maturing 2026 165 billion 475 maturing 2036 325 billion 490 maturing 2046 november 2016 abbott also entered interest rate swap contracts totaling 30 billion related new debt effect changing abbotts obligation fixed interest rate variable interest rate obligation related debt instruments abbott declared dividends 1075 per share 2017 compared 1045 per share 2016 increase approximately 3 dividends paid 1849 billion 2017 compared 1539 billion 2016 yearoveryear change dividends reflects impact increase dividend rate additional shares issued finance st jude medical acquisition december 2017 abbott increased companys quarterly dividend approximately 6 0280 per share 0265 per share effective dividend paid february 2018 abbott focus integrating alere paying debt well several key initiatives focus integration create organization expands abbotts diagnostics business new products channels geographies cardiovascular neuromodulation business abbott continue build product portfolio focus obtaining product approvals across numerous countries nutritional business abbott continue build product portfolio introduction new sciencebased products expand highgrowth emerging markets implement additional margin improvement initiatives established pharmaceuticals business abbott continue focus obtaining additional product approvals across numerous countries increasing penetration emerging markets abbotts segments abbott focus developing differentiated technologies higher growth markets critical accounting policies sales rebates 2017 approximately 43 percent abbotts consolidated gross revenues subject various forms rebates allowances abbott recorded reductions revenues time sale rebates allowances 2017 nutritional products diabetes care segments abbott provides rebates state agencies administer special supplemental nutrition program women infants children wic wholesalers group purchasing organizations government agencies private entities rebate amounts usually based upon volume purchases using contractual statutory prices product factors used rebate calculations include identification products sold subject rebate customer government agency price terms apply estimated lag time sale payment rebate using historical trends adjusted current changes abbott estimates amount rebate paid records liability reduction gross sales abbott records sale product settlement rebate generally occurs one six months sale abbott regularly analyzes historical rebate trends makes adjustments reserves changes trends terms rebate programs rebates chargebacks charged gross sales 2017 2016 2015 amounted approximately 28 billion 25 billion 22 billion respectively 205 percent 229 percent 216 percent gross sales respectively based gross sales approximately 139 billion 107 billion 103 billion respectively subject rebate onepercentage point increase percentage rebates related gross sales would decrease net sales approximately 139 million 2017 abbott considers onepercentage point increase reasonably likely increase percentage rebates related gross sales allowances charged gross sales approximately 199 million 160 million 124 million cash discounts 2017 2016 2015 respectively 204 million 242 million 238 million returns 2017 2016 2015 respectively cash discounts known within 15 30 days sale therefore reliably estimated returns reliably estimated abbotts historical returns low sales returns terms sales terms remained relatively unchanged several periods management analyzes adequacy ending rebate accrual balances quarter domestic nutritional business management uses internal external data available estimate level inventory distribution channel management access several large customers inventory management data customers utilizes data third party measures time retail shelf sources allow management make reliable estimates inventory distribution channel except transition period change supplier wic business state inventory distribution channel vary substantially management also estimates states processing lag time based claims data wic business state sale made determining factor applicable price reliably determinable estimates required amount wic sales within state abbott wic business external data sources utilized estimate participant data us department agriculture usda administers wic program participant data states internally administered market research usda making data available many years internal data includes historical redemption rates pricing data december 31 2017 abbott wic business 29 states historically adjustments prior years rebate accruals material net income abbott employs various techniques verify accuracy claims submitted possible works organizations submitting claims gain insight changes might affect rebate amounts government agency programs calculation rebate involves interpretations relevant regulations subject challenge change interpretation income taxes abbott operates numerous countries income tax returns subject audits adjustments abbott operates globally nature audit items often complex objectives government auditors result tax income one country abbott employs internal external tax professionals minimize audit adjustment amounts possible accordance accounting rules relating measurement tax contingencies order recognize uncertain tax benefit taxpayer must likely sustaining position measurement benefit calculated largest amount 50 percent likely realized upon resolution benefit application rules requires significant amount judgment us abbotts federal income tax returns 2013 settled except federal income tax returns former alere consolidated group settled 2012 additional income taxes provided remaining undistributed foreign earnings subject transition tax related us tax cuts jobs act additional outside basis differences exist amounts continue indefinitely reinvested foreign operations pension postemployment benefits abbott offers pension benefits postemployment health care many employees abbott engages outside actuaries assist determination obligations costs programs abbott must develop longterm assumptions significant health care cost trend rates discount rates expected return plan assets discount rates used measure liabilities determined based highquality fixed income securities match duration expected retiree benefits health care cost trend rates represent abbotts expected annual rates change cost health care benefits forward projection health care costs measurement date difference assumed rates actual rates known years significant relation obligations annual cost recorded programs low interest rates significantly increased actuarial losses plans december 31 2017 pretax net actuarial losses prior service costs credits recognized accumulated comprehensive income loss abbotts defined benefit plans medical dental plans losses 35 billion 248 million respectively actuarial losses gains amortized remaining service attribution periods employees corridor method accordance rules accounting postemployment benefits differences expected longterm return plan assets actual annual return amortized fiveyear period note 13 consolidated financial statements describes impact onepercentage point change health care cost trend rate however certainty change would limited one percentage point valuation intangible assets abbott acquired continues acquire significant intangible assets abbott records fair value acquisition date transactions involving purchase sale intangible assets occur frequency companies health care field valuations usually based discounted cash flow analysis discounted cash flow model requires assumptions timing amount future net cash flows risk cost capital terminal values market participants factors significantly affect value intangible asset abbott engages independent valuation experts review abbotts critical assumptions calculations acquisitions significant intangibles abbott reviews definitelived intangible assets impairment quarter using undiscounted net cash flows approach undiscounted cash flows intangible asset less carrying value intangible asset intangible asset written fair value usually discounted cash flow amount cash flows cannot identified individual asset review applied lowest group level cash flows identifiable goodwill indefinitelived intangible assets relate inprocess research development acquired business combination reviewed impairment annually event could result impairment occurs december 31 2017 goodwill amounted 240 billion intangibles amounted 215 billion amortization expense continuing operations intangible assets amounted 20 billion 2017 550 million 2016 601 million 2015 significant reduction goodwill relating impairments 2017 2016 2015 litigation abbott accounts litigation losses accordance fasb accounting standards codification 450 contingencies asc 450 loss contingency provisions recorded probable losses managements best estimate loss best estimate cannot made minimum loss contingency amount recorded estimates often initially developed substantially earlier ultimate loss known estimates refined accounting period additional information becomes known accordingly abbott often initially unable develop best estimate loss therefore minimum amount could zero recorded information becomes known either minimum loss amount increased resulting additional loss provisions best estimate made also resulting additional loss provisions occasionally best estimate amount changed lower amount events result expectation favorable outcome previously expected abbott estimates range possible loss approximately 115 million 160 million legal proceedings environmental exposures accruals approximately 135 million recorded december 31 2017 proceedings exposures accruals represent managements best estimate probable loss defined fasb asc 450 contingencies results operations sales following table details components sales growth reportable segment last two years increase total net sales 2017 reflects acquisitions st jude medical alere well organic growth established pharmaceuticals diagnostics businesses increase 2016 reflects unit growth partially offset impact unfavorable foreign exchange price declines related cardiovascular neuromodulation products segment 2017 2016 primarily reflect pricing pressure drug eluting stents des result market competition us major markets comparison significant product group sales follows percent changes versus prior year based unrounded numbers nm percent change meaningful notein order compute results excluding impact exchange rates current year us dollar sales multiplied divided appropriate current year average foreign exchange rates amounts multiplied divided appropriate prior year average foreign exchange rates total established pharmaceutical products sales increased 95 percent 2017 105 percent 2016 excluding impact foreign exchange established pharmaceutical products segment focused several key emerging markets including india russia china brazil excluding impact foreign exchange total sales key emerging markets increased 119 percent 2017 133 percent 2016 excluding impact foreign exchange 2017 sales several geographies including china various countries latin america experienced doubledigit growth excluding impact foreign exchange sales established pharmaceuticals emerging markets increased 22 percent 2017 increased 20 percent 2016 2017 sales growth established pharmaceuticals emerging markets includes unfavorable impact venezuelan operations excluding venezuela effect foreign exchange sales emerging markets increased 75 percent total nutritional products sales increased 06 percent 2017 12 percent 2016 excluding unfavorable impact foreign exchange abbotts international pediatric nutritional business 2017 decrease sales driven challenging market conditions infant formula market various emerging markets partially offset growth china india 2017 growth china reflects partial recovery 2016 sales decline china 2016 decrease sales driven challenging market conditions china including impact new food safety regulations contributed oversupply product market 2016 sales decrease china partially offset strong performance several markets across latin america southeast asia increases us pediatric nutritional 2017 2016 sales primarily reflect continued abovemarket performance abbotts infant toddler brands including pediasure® pedialyte® similac® excluding unfavorable impact foreign exchange 2017 2016 increases international adult nutritional sales due primarily growth ensure® abbotts marketleading complete balanced nutrition brand well volume growth emerging markets continued expansion adult nutrition category internationally us adult nutritional revenues decreased 2017 due competitive market dynamics sales increased 2016 driven growth ensure® sales total diagnostic products sales increased 167 percent 2017 55 percent 2016 excluding impact foreign exchange sales increase 2017 included acquisition alere completed october 3 2017 excluding impact acquisition well impact foreign exchange sales diagnostics products segment increased 55 percent primarily driven share gains core laboratory markets globally well strong performance point care led continued adoption abbotts istat® handheld system 2016 sales increase primarily driven share gains core laboratory point care markets us internationally excluding effect foreign exchange total cardiovascular neuromodulation products sales grew 2074 percent 2017 45 percent 2016 sales increase 2017 primarily driven acquisition st jude medical completed january 4 2017 excluding impact acquisition well impact foreign exchange sales vascular business essentially flat 2017 versus prior year lower coronary stent sales comparison impact favorable 2016 resolution thirdparty royalty agreement offset higher structural heart endovascular sales 2016 doubledigit growth sales abbotts mitraclip structural heart device treatment mitral regurgitation partially offset lower sales des products increase endovascular business driven higher supera vessel closure sales cardiovascular neuromodulation products sales 2016 also favorably impacted resolution previously disputed third party royalty revenue related prior year excluding royalty impact worldwide sales cardiovascular neuromodulation products would increased 34 percent 2016 abbott periodically sold product rights nonstrategic products recorded related gains net sales accordance abbotts revenue recognition policies discussed note 1 consolidated financial statements related net sales significant 2017 2016 2015 expiration licenses patent protection affect future revenues operating income abbott significant patent license expirations next three years expected materially affect abbott april 2017 abbott received warning letter us food drug administration fda related manufacturing facility sylmar ca acquired abbott january 4 2017 part acquisition st jude medical facility manufactures implantable cardioverter defibrillators cardiac resynchronization therapy defibrillators monitors warning letter relates fdas observations inspection facility abbott prepared comprehensive plan corrective actions provided fda execution plan progressing operating earnings gross profit margins 477 percent net sales 2017 541 percent 2016 542 percent 2015 2017 decrease primarily reflects higher intangible amortization expense inventory stepup amortization related st jude medical alere acquisitions partially offset margin improvements various businesses 2016 unfavorable effect foreign exchange offset continued underlying margin expansion primarily diagnostics nutritional segments research development expense 2235 billion 2017 1422 billion 2016 1405 billion 2015 represented 572 percent increase 2017 12 percent increase 2016 2017 increase research development expenses primarily due acquisition st jude medical business 2016 increase research development expenses primarily due higher spending various projects impairment inprocess research development asset related nonreportable segment partially offset lower restructuring costs 2016 2017 research development expenditures totaled 526 million diagnostics products segment 967 million cardiovascular neuromodulation products segment 195 million nutritional products segment 164 million established pharmaceutical products segment selling general administrative expenses increased 366 percent 2017 decreased 17 percent 2016 versus respective prior year 2017 increase primarily due acquisition st jude medical business well incremental expenses integrate st jude medical abbotts existing vascular business partially offset impact cost improvement initiatives across various functions businesses 2016 decrease reflects favorable impact foreign exchange continued efforts reduce back office costs lower restructuring charges compared prior year business acquisitions january 4 2017 abbott completed acquisition st jude medical global medical device manufacturer approximately 236 billion including approximately 136 billion cash approximately 10 billion abbott common shares represented approximately 254 million shares abbott common stock based abbotts closing stock price acquisition date part acquisition approximately 59 billion st jude medicals debt assumed repaid refinanced abbott acquisition provides expanded opportunities future growth important part companys ongoing effort develop strong diverse portfolio devices diagnostics nutritionals branded generic pharmaceuticals combined business competes nearly every area cardiovascular device market well neuromodulation market terms agreement st jude medical common share st jude medical shareholders received 4675 cash 08708 abbott common share abbott stock price 3936 reflects closing price january 4 2017 represented value approximately 81 per st jude medical common share total purchase consideration 236 billion cash portion acquisition funded combination medium longterm debt issued november 2016 20 billion 120day senior unsecured bridge term loan facility subsequently repaid final allocation fair value st jude medical acquisition shown table goodwill primarily attributable expected synergies combining operations well intangible assets qualify separate recognition goodwill identifiable cardiovascular neuromodulation products reportable segment acquired tangible assets consist primarily trade accounts receivable approximately 11 billion inventory approximately 17 billion current assets 176 million property equipment approximately 15 billion longterm assets approximately 455 million acquired tangible liabilities consist trade accounts payable current liabilities approximately 11 billion noncurrent liabilities approximately 870 million 2016 abbott st jude medical agreed sell certain businesses terumo corporation terumo approximately 112 billion sale included st jude medical angioseal™ femoseal™ vascular closure abbotts vado® steerable sheath businesses sale closed january 20 2017 gain loss recorded consolidated statement earnings october 3 2017 abbott acquired alere inc alere diagnostic device service provider 5100 per common share cash equated purchase price approximately 45 billion part acquisition abbott tendered aleres preferred shares total value approximately 07 billion addition approximately 30 billion aleres debt assumed subsequently repaid acquisition establishes abbott leader point care testing expands abbotts global diagnostics presence provides access new products channels geographies abbott utilized combination cash hand debt fund acquisition see note 10 debt lines credit details regarding debt utilized acquisition preliminary allocation fair value alere acquisition shown table allocation fair value acquisition finalized valuation completed differences preliminary final allocation could material goodwill primarily attributable expected synergies combining operations well intangible assets qualify separate recognition goodwill identifiable diagnostic products reportable segment acquired tangible assets consist primarily trade accounts receivable approximately 430 million inventory approximately 425 million current assets 206 million property equipment approximately 540 million longterm assets 112 million acquired tangible liabilities consist trade accounts payable current liabilities approximately 625 million noncurrent liabilities approximately 160 million third quarter 2017 alere entered agreements sell triage meterpro cardiovascular toxicology business assets liabilities related btype natriuretic peptide assay business run beckman coulter analyzers quidel corporation quidel transactions quidel reflect total purchase price 400 million payable close transaction 240 million payable six annual installments beginning approximately six months close transaction contingent consideration maximum value 40 million third quarter 2017 alere entered agreement siemens diagnostics holding ii bv siemens sell subsidiary epocal inc approximately 200 million payable close transaction alere agreed divest businesses connection review federal trade commission european commission abbotts agreement acquire alere sale quidel closed october 6 2017 sale siemens closed october 31 2017 gain loss sales recorded consolidated statement earnings 2017 consolidated abbott results include 65 billion sales pretax loss approximately 13 billion related st jude medical alere acquisitions including approximately 15 billion intangible amortization 907 million inventory stepup amortization pretax loss excludes acquisition integration restructuringrelated costs acquisitions st jude medical alere occurred beginning 2016 unaudited pro forma consolidated net sales would approximately 289 billion unaudited pro forma consolidated net loss continuing operations would approximately 485 million 2016 includes amortization approximately 940 million inventory stepup 17 billion intangibles related st jude medical alere 2017 unaudited pro forma consolidated net sales would approximately 289 billion unaudited pro forma consolidated net earnings continuing operations would approximately 750 million includes 225 million intangible amortization related alere unaudited pro forma consolidated net earnings continuing operations 2017 exclude inventory stepup amortization related st jude medical alere approximately 907 million recorded 2017 included 2016 unaudited pro forma results noted unaudited pro forma information necessarily indicative consolidated results operations would realized st jude medical alere acquisitions completed beginning 2016 meant indicative future results operations combined entity experience july 17 2017 abbott commenced tender offer purchase cash 177 million outstanding shares aleres series b convertible perpetual preferred stock price 402 per share plus accrued unpaid dividends including settlement date tender offer tender offer subject satisfaction certain conditions including abbotts acquisition alere upon validly tendered properly withdrawn expiration date tender offer number shares preferred stock equaled least majority preferred stock issued outstanding expiration tender offer tender offer expired october 3 2017 conditions offer satisfied abbott accepted payment 1748 million shares preferred stock validly tendered properly withdrawn remaining shares cashed amount equal 40000 per share liquidation preference shares plus accrued unpaid dividends without interest payment shares preferred stock made fourth quarter 2017 august 2015 abbott completed acquisition equity tendyne holdings inc tendyne abbott already approximately 225 million cash plus additional payments 150 million made upon completion certain regulatory milestones acquisition tendyne focused developing minimally invasive mitral valve replacement therapies allows abbott broaden foundation treatment mitral valve disease final allocation fair value acquisition resulted nondeductible acquired inprocess research development approximately 220 million accounted indefinitelived intangible asset regulatory approval discontinuation nondeductible goodwill approximately 142 million deferred tax assets net assets approximately 18 million deferred tax liabilities approximately 85 million contingent consideration approximately 70 million goodwill identifiable cardiovascular neuromodulation products segment acquisition tendyne taken place beginning comparable prior annual reporting period consolidated net sales earnings would significantly different reported amounts restructurings 2017 abbott management approved restructuring plans part integration acquisitions st jude medical cardiovascular neuromodulation segment alere diagnostics segment order leverage economies scale reduce costs 2017 charges approximately 187 million including onetime employee termination benefits recorded approximately 5 million recorded cost products sold approximately 182 million selling general administrative expense 2014 2017 abbott management approved plans streamline operations order reduce costs improve efficiencies various abbott businesses including nutritional established pharmaceuticals vascular businesses abbott recorded employeerelated severance charges approximately 120 million 2017 33 million 2016 95 million 2015 approximately 7 million 2017 9 million 2016 18 million 2015 recorded cost products sold approximately 77 million 2017 5 million 2016 34 million 2015 recorded research development approximately 36 million 2017 19 million 2016 43 million 2015 recorded selling general administrative expense additional charges approximately 2 million 2017 2 million 2016 45 million 2015 recorded primarily accelerated depreciation interest expense interest income 2017 interest expense increased primarily due 151 billion debt issued november 2016 related financing st jude medical acquisition closed january 4 2017 2016 interest expense increased primarily due amortization bridge financing fees related financing st jude medical alere acquisitions interest expense 2016 also increased due 151 billion debt issued november 2016 2015 interest expense increased due issuance 25 billion longterm debt year income expense net income expense net 2017 includes pretax gain 1163 billion sale amo johnson 2016 includes 947 million expense adjust abbotts holding mylan nv ordinary shares due decline fair value securities considered abbott temporary 2015 includes 207 million pretax gain sale portion mylan nv ordinary shares received sale developed markets branded generics pharmaceuticals business income resulting decrease fair value contingent consideration related business acquisition taxes earnings income tax rates earnings continuing operations 842 percent 2017 248 percent 2016 181 percent 2015 tax cuts jobs act tcja enacted us december 22 2017 tcja reduces us federal corporate tax rate 35 21 requires companies pay onetime transition tax earnings certain foreign subsidiaries previously tax deferred creates new taxes certain foreign sourced earnings fourth quarter 2017 abbott recorded estimate net tax expense 146 billion impact tcja included taxes earnings continuing operations consolidated statement earnings estimate provisional includes charge approximately 289 billion transition tax partially offset net benefit approximately 142 billion remeasurement deferred tax assets liabilities net benefit approximately 10 million related certain impacts tcja onetime transition tax based abbotts total post1986 earnings profits ep previously deferred us income taxes abbott yet completed calculation total post1986 ep foreign subsidiaries tax computation also requires determination amount post1986 ep considered held cash specified assets amount may change abbott finalizes calculation post1986 foreign ep previously deferred us federal taxation finalizes amounts held cash specified assets abbott plans elect pay transition tax eight years allowed tcja given significant complexity tcja abbott continue evaluate analyze impact legislation 146 billion estimate provisional based abbotts initial analysis tcja may materially adjusted future periods due among things additional analysis performed abbott additional guidance may issued us department treasury securities exchange commission financial accounting standards board 2017 taxes earnings continuing operations also include 435 million tax expense related gain sale amo business 2016 taxes earnings continuing operations include impact net tax benefit approximately 225 million primarily result resolution various tax positions prior years partially offset unfavorable impact nondeductible foreign exchange losses related venezuela adjustment mylan nv equity investment well recognition deferred taxes associated pending sale amo 2015 taxes earnings continuing operations include 71 million tax expense related gain disposal shares mylan nv stock 2015 effective tax rate includes impact rd tax credit made permanent us protecting americans tax hikes act 2015 exclusive discrete items tax expense favorably impacted lower tax rates tax exemptions foreign income primarily derived operations puerto rico switzerland ireland netherlands costa rica singapore abbott benefits combination favorable statutory tax rules tax rulings grants exemptions tax jurisdictions see note 14 consolidated financial statements full reconciliation effective tax rate us federal statutory rate earnings discontinued operations net tax 2017 2016 reflect recognition 109 million 325 million respectively net tax benefits primarily result resolution various tax positions related prior years 2015 tax expense related discontinued operations includes 667 million tax expense certain currentyear income earned outside us designated permanently reinvested overseas discontinued operations february 27 2015 abbott completed sale developed markets branded generics pharmaceuticals business mylan inc mylan equity ownership newly formed entity mylan nv combined mylans existing business abbotts developed markets pharmaceuticals business mylan nv publicly traded historically business included abbotts established pharmaceutical products segment date closing 110 million mylan nv ordinary shares abbott received valued 577 billion abbott recorded aftertax gain sale business approximately 16 billion abbott retained branded generics pharmaceuticals business emerging markets close transaction abbott mylan entered transition services agreement pursuant abbott mylan provided various back office support services interim transitional basis 2 years certain services extended additional five ten months charges abbott transition services agreement recorded reduction costs provide respective service applicable expense category consolidated statement earnings transitional support constitute significant continuing involvement mylans operations abbott also entered manufacturing supply agreements mylan related certain products supply term ranging 3 10 years requiring 2 year notice prior termination cash flows associated transition services manufacturing supply agreements expected significant therefore cash flows direct cash flows disposed component accounting standards codification 205 february 10 2015 abbott completed sale animal health business zoetis inc first quarter 2016 abbott received additional 25 million proceeds due expiration holdback agreement associated sale business reported aftertax gain 16 million result disposition businesses prior years operating results businesses date sale reported part discontinued operations earnings discontinued operations net taxes line consolidated statement earnings discontinued operations include allocation interest expense assuming uniform ratio consolidated debt equity abbotts historical operations january 1 2013 abbott completed separation abbvie inc abbvie formed hold abbotts researchbased proprietary pharmaceuticals business abbott retained liabilities us federal foreign income taxes income prior separation well certain nonincome taxes attributable abbvies business abbvie generally liable taxes attributable business 2017 2016 2015 discontinued operations include favorable adjustment tax expense 109 million 318 million 3 million respectively result resolution various tax positions pertaining abbvies operations operating results abbotts developed markets branded generics pharmaceuticals animal health businesses well income tax benefit related businesses transferred abbvie reported discontinued operations follows assets liabilities held disposition september 2016 abbott announced entered definitive agreement sell abbott medical optics amo vision care business johnson 4325 billion cash subject customary purchase price adjustments cash debt working capital decision sell amo reflected abbotts proactive shaping portfolio line strategic priorities february 2017 abbott completed sale amo johnson recognized pretax gain 1163 billion including working capital adjustments reported income expense net line consolidated statement earnings 2017 abbott recorded aftertax gain 728 million 2017 related sale amo operating results amo date sale continued included earnings continuing operations business qualify reporting discontinued operations 2017 2016 2015 amo earnings losses taxes included abbotts consolidated earnings 18 million 30 million 64 million respectively assets liabilities amo classified held disposition abbotts consolidated balance sheet december 31 2016 discussed business acquisitions section conjunction acquisition alere abbott sold triage meterpro cardiovascular toxicology business assets liabilities related btype natriuretic peptide assay business run beckman coulter analyzers quidel legal transfer certain assets liabilities related businesses occur close sale quidel due among factors time required transfer marketing authorizations regulatory requirements various countries terms sale agreement abbott quidel subject risks entitled benefits generated operations assets liabilities presented held disposition consolidated balance sheet december 31 2017 primarily relate businesses sold quidel following summary assets liabilities held disposition december 31 2017 2016 research development programs abbott currently numerous pharmaceutical medical devices diagnostic nutritional products development research development process established pharmaceuticals segment development process focuses geographic expansion continuous improvement segments existing products provide benefits patients customers established pharmaceuticals actively pursue primary research development usually begins work existing products acquisition advanced stage licensing opportunity depending upon product phases development may include • drug product development • phase bioequivalence studies compare future established pharmaceuticals brand already marketed compound active pharmaceutical ingredient api • phase ii studies test efficacy benefits small group patients • phase iii studies broaden testing wider population reflects actual medical use • phase iv postmarketing studies obtain new clinical use data existing products within approved indications specific requirements eg scope clinical trials obtaining regulatory approval vary across different countries geographic regions process may range one year bioequivalence study project 6 years complex formulations new indications geographic expansion specific countries china diagnostics segment phases research development process include • discovery focuses identification product address specific therapeutic area platform unmet clinical need • conceptfeasibility materials manufacturing processes evaluated testing may include product characterization analysis performed confirm clinical utility • development extensive testing performed demonstrate product meets specified design requirements design specifications conform user needs intended uses regulatory requirements diagnostic products vary across different countries geographic regions us fda classifies diagnostic products classes ii iii classification determines regulatory process approval diagnostics segment products three classes vast majority products categorized class ii submission separate regulatory filing required class products class ii devices typically require premarket notification fda regulatory filing known 510k submission class iii products subject fdas premarketing approval pma requirements class iii products used screen blood require submission approval biological license application bla eu diagnostic products also categorized different categories regulatory process governed european vitro diagnostic medical device directive depends upon category certain product categories require review approval independent company known notified body manufacturer affix ce mark product show compliance directive products require selfcertification process cardiovascular neuromodulation segment research development process begins research specific technology evaluated feasibility commercial viability research program passes hurdle moves forward development process includes evaluation selection qualification product design completion applicable clinical trials test products safety efficacy validation manufacturing process demonstrate repeatability ability consistently meet predetermined specifications similar diagnostic products discussed us cardiovascular neuromodulation products classified class ii iii abbotts cardiovascular neuromodulation products classified class ii devices follow 510k regulatory process class iii devices subject pma process eu cardiovascular neuromodulation products also categorized different classes regulatory process governed european medical device directive active implantable medical device directive varies class product must bear ce mark show compliance directive products require submission design dossier appropriate regulatory authority review approval prior ce marking device products company required prepare technical file includes testing results clinical evaluations selfcertify ability apply ce mark product outside us eu regulatory requirements vary across different countries regions approval commercial launch cardiovascular neuromodulation products postmarket trials may conducted either due conditional requirement regulatory market approval objective proving product superiority second quarter 2017 eu adopted new medical devices regulation mdr vitro diagnostic regulation ivdr replace existing directives eu medical devices vitro diagnostic products mdr ivdr apply threeyear fiveyear transition period respectively impose additional regulatory requirements manufacturers products nutritional segment research development process generally focuses identifying developing ingredients products address nutritional needs particular populations eg infants adults patients eg people diabetes depending upon country andor region claims regarding products efficacy made clinical studies typically must conducted us fda requires notified proposed new formulations formulation packaging changes related infant formula products prior launch infant formula product packaging change company required obtain fdas confirmation objections proposed product packaging nutritional products notification preapproval fda required unless product includes new food additive countries regulatory approval may required certain nutritional products including infant formula medical nutritional products areas focus 2018 beyond abbotts significant areas therapeutic focus include following established pharmaceuticals abbott focuses building countryspecific portfolios made highquality medicines meet needs people emerging markets 400 development projects active one several emerging markets next several years abbott plans expand product portfolio key therapeutic areas aim among first launch new offpatent differentiated medicines addition abbott continues expand existing brands new markets implement product enhancements provide value patients acquire strategic products technology licensing activities abbott also actively working development several key brands creon duphaston duphalac influvac depending product activities focus development new data markets formulations delivery systems indications cardiovascular neuromodulation abbotts research development programs focus • cardiac rhythm management development nextgeneration rhythm management technologies including enhanced patient engagement expanded magnetic resonance mrcompatibility • heart failure continued enhancements abbotts left ventricular assist systems pulmonary artery heart failure system including enhanced connectivity userinterfaces remote patient monitoring • electrophysiology development nextgeneration technologies areas ablation diagnostic mapping visualization recording monitoring • vascular development nextgeneration technologies use coronary peripheral vascular procedures • structural heart development minimallyinvasive devices repair replacement heart valves structural heart conditions • neuromodulation development nextgeneration technologies unique wave forms enhanced patient physician engagement expanded mrcompatibility treat chronic pain movement disorders indications diabetes care develop enhancements additional indications freestyle libre continuous glucose monitoring system help patients improve ability manage diabetes core laboratory diagnostics abbott continues commercialize nextgeneration blood screening immunoassay clinical chemistry hematology systems along assays various areas including infectious disease cardiac care metabolics oncology well informatics automation solutions increase efficiency laboratories molecular diagnostics several new molecular vitro diagnostic ivd products next generation instrument system various stages development launch rapid diagnostics abbotts research development programs focus development diagnostic products cardiometabolic disease infectious disease toxicology nutritionals abbott focusing research development spend platforms span pediatric adult performance nutrition areas gastro intestinalimmunity health brain health mobility metabolism user experience platforms numerous new products build advances platforms currently development including clinical outcome testing expected launched coming years given diversity abbotts business intention remain broadbased healthcare company numerous sources potential future growth individual project expected material cash flows results operations next five years factors considered included research development expenses projected incurred project next year relative abbotts total research development expenses well qualitative factors marketplace perceptions impact new product abbotts overall market position delays abbotts 2017 research development activities expected material impact operations aggregate cost complete numerous projects currently development expected material total cost complete depend upon abbotts ability successfully complete project rate project advances ultimate timing completion given potential significant delays risk failure inherent development pharmaceutical medical device diagnostic products technologies possible accurately estimate total cost complete projects currently development abbott plans manage portfolio projects achieve research development spending competitive businesses participates spending expected approximate 75 percent total abbott sales 2018 abbott regularly accumulate make management decisions based total expenses incurred particular development phase given period goodwill december 31 2017 goodwill recorded result business combinations totaled 240 billion goodwill reviewed impairment annually third quarter event could result impairment occurs using quantitative assessment determine whether likely fair value reporting unit less carrying amount income market approaches used calculate fair value reporting unit results last impairment test indicated fair value reporting unit substantially excess carrying value financial condition cash flow net cash operating activities amounted 56 billion 32 billion 30 billion 2017 2016 2015 respectively increase net cash operating activities 2017 primarily due favorable impact improved working capital management acquisition st jude medical businesses higher segment operating earnings increase net cash operating activities 2016 reflects additional focus management working capital income tax component operating cash flow 2017 includes 2017 noncash impact 146 billion net tax expense related estimated impact us tax reform income tax component operating cash flow 2016 2015 includes 550 million 70 million respectively noncash tax benefits primarily related favorable resolution various tax positions pertaining prior years 2015 reflects noncash impact approximately 11 billion tax expense associated gain sale businesses foreign currency loss related venezuela reduced abbotts cash approximately 410 million 2016 included effect exchange rate changes cash equivalents line within consolidated statement cash flows future fluctuations strength us dollar foreign currencies expected materially impact abbotts liquidity significant portion abbotts cash equivalents december 31 2017 reinvested foreign subsidiaries abbott expect reinvestment affect liquidity capital resources due enactment tcja funds needed operations us abbott expect incur significant additional income taxes future repatriate funds abbott funded 645 million 2017 582 million 2016 579 million 2015 defined benefit pension plans abbott expects pension funding approximately 114 million 2018 pension plans abbott expects annual cash flow operating activities continue exceed abbotts capital expenditures cash dividends debt capital december 31 2017 abbotts longterm debt rating bbb standard poors corporation baa3 moodys investors service moodys february 2018 moodys raised abbotts rating baa2 positive outlook abbott expects maintain investment grade rating abbott committed reducing debt levels following recent acquisitions st jude medical alere february 16 2018 board directors authorized redemption 5 billion currently outstanding longterm notes addition 395 billion repaid january 2018 discussed abbott readily available financial resources including lines credit 50 billion expire 2019 lines credit part 2014 revolving credit agreement provides abbott ability borrow 5 billion unsecured basis prior october 3 2017 amounts previously drawn revolving credit agreement october 3 2017 connection alere acquisition abbott borrowed 17 billion lines credit borrowings due repaid july 2019 bore interest based eurodollar rate plus applicable margin based abbotts credit ratings fourth quarter 2017 abbott paid 550 million borrowings january 5 2018 abbott paid remaining balance lines credit ahead 2019 due date july 31 2017 abbott entered 5year term loan agreement allowed abbott borrow 28 billion unsecured basis acquisition alere october 3 2017 abbott borrowed 28 billion term loan agreement finance acquisition alere repay certain indebtedness abbott alere pay fees expenses connection acquisition borrowings term loan bore interest based eurodollar rate plus applicable margin based abbotts credit ratings abbott paid term loan january 5 2018 ahead 2022 due date fourth quarter 2017 conjunction acquisition alere abbott assumed subsequently repaid 30 billion aleres debt 2017 abbott also paid 479 million yendenominated shortterm borrowing year issued 364day yendenominated debt 195 million outstanding december 31 2017 first quarter 2017 part acquisition st jude medical abbott assumed outstanding debt previously issued st jude medical abbott exchanged certain st jude medical debt obligations aggregate principal amount approximately 29 billion debt issued abbott consists 4738 million 200 senior notes due 2018 4837 million 280 senior notes due 2020 8184 million 325 senior notes due 2023 4907 million 3875 senior notes due 2025 6391 million 475 senior notes due 2043 following exchange approximately 1942 million existing st jude medical notes remain outstanding across five series existing notes coupons maturities listed significant costs associated exchange debt addition first quarter 2017 abbott assumed subsequently repaid approximately 28 billion various st jude medical debt obligations november 2016 abbott issued 151 billion medium longterm debt primarily fund cash portion acquisition st jude medical abbott issued 285 billion 235 senior notes due november 22 2019 285 billion 290 senior notes due november 30 2021 150 billion 340 senior notes due november 30 2023 300 billion 375 senior notes due november 30 2026 165 billion 475 senior notes due november 30 2036 325 billion 490 senior notes due november 30 2046 november 2016 abbott also entered interest rate swap contracts totaling 30 billion related new debt swaps effect changing abbotts obligation fixed interest rate variable interest rate obligation related debt instruments april 2016 abbott obtained commitment 364day senior unsecured bridge term loan facility amount exceed 172 billion comprised 152 billion 364day bridge loan 20 billion 120day bridge loan provide financing acquisition st jude medical 152 billion component commitment terminated november 2016 abbott issued 151 billion longterm debt december 2016 abbott formalized 20 billion component entered 120day bridge term loan facility provided abbott ability borrow 20 billion unsecured basis partially fund st jude medical acquisition january 4 2017 part funding cash portion st jude medical acquisition abbott borrowed 20 billion 120day senior unsecured bridge term loan facility repaid first quarter 2017 february 2016 abbott obtained commitment 364day senior unsecured bridge term loan facility amount exceed 9 billion conjunction pending acquisition alere commitment automatically extended 90 days january 29 2017 expired april 30 2017 renewed since abbott need bridge facility finance alere acquisition fees associated bridge facilities recognized interest expense march 2015 abbott issued 25 billion longterm debt consisting 750 million 200 senior notes due march 15 2020 750 million 255 senior notes due march 15 2022 10 billion 295 senior notes due march 15 2025 proceeds debt used pay shortterm borrowings march 2015 abbott also entered interest rate swap contracts totaling 25 billion contracts effect changing abbotts obligation fixed interest rate variable interest rate obligation september 2014 board directors authorized repurchase 30 billion abbotts common shares time 2014 authorization addition 512 million unused portion previous program announced june 2013 2016 abbott repurchased 104 million shares cost 408 million program authorized 2014 2015 abbott repurchased 113 million shares cost 512 million unused portion 2013 authorization 362 million shares cost 17 billion program authorized 2014 total 475 million shares cost 22 billion april 27 2016 board directors authorized issuance sale general corporate purposes 75 million common shares would result proceeds 3 billion shares issued authorization abbott declared dividends 1075 per share 2017 compared 1045 per share 2016 increase approximately 3 dividends paid 1849 billion 2017 compared 1539 billion 2016 yearoveryear change dividends reflects impact increase dividend rate additional shares issued finance st jude medical acquisition working capital working capital 112 billion december 31 2017 201 billion december 31 2016 decrease working capital 2017 due 92 billion decrease cash equivalents approximately 136 billion 186 billion cash equivalents december 31 2016 used fund cash portion acquisition st jude medical january 4 2017 abbott monitors credit worthiness customers establishes allowance trade receivable probable balance collected addition closely monitoring economic conditions budgetary fiscal developments abbott regularly communicates customers regarding status receivable balances including payment plans obtains positive confirmation validity receivables abbott also monitors potential periodically utilized factoring arrangements mitigate credit risk although receivables included arrangements historically material amount total outstanding receivables venezuela operations since january 2010 venezuela designated highly inflationary economy us gaap 2014 2015 government venezuela operated multiple mechanisms exchange bolivars us dollars mechanisms included cencoex sicad simadi rates stood 63 135 approximately 200 respectively december 31 2015 abbott continued use cencoex rate 63 venezuelan bolivars us dollar report results financial position cash flows related operations venezuela since abbott continued qualify exchange rate pay import various products venezuela february 17 2016 venezuelan government announced threetier exchange rate system would reduced two rates renamed dipro dicom rates dipro rate official rate food medicine imports adjusted 63 10 bolivars per us dollar dicom rate floating market rate published daily venezuelan central bank end first quarter 2016 approximately 263 bolivars per us dollar result decreasing government approvals convert bolivars us dollars pay intercompany accounts well accelerating deterioration economic conditions country abbott concluded appropriate move dicom rate end first quarter 2016 result abbott recorded foreign currency exchange loss 480 million 2016 revalue net monetary assets venezuela abbott continuing use dicom rate report results operations remeasure net monetary assets venezuela end quarter december 31 2017 abbotts investment venezuelan operations significant result additional future foreign currency losses related venezuela would material capital expenditures capital expenditures 11 billion 2017 2016 2015 principally upgrading expanding manufacturing research development facilities equipment various segments investments information technology laboratory instruments placed customers contractual obligations table summarizes abbotts estimated contractual obligations december 31 2017 aamounts reported represent contractual obligations december 31 2017 january 5 2018 abbott repaid long term debt 115 billion due july 10 2019 280 billion due november 3 2022 reduces future interest obligations debt approximately 475 million term debt bpurchase commitments purchases made normal course business meet operational capital expenditure requirements cother longterm liabilities include estimated payments transition tax tcja net applicable credits dnet unrecognized tax benefits totaling approximately 835 million excluded table abbott unable reasonably estimate period cash settlement respective taxing authorities items see note 14 taxes earnings continuing operations details company employee benefit obligations consisting pensions postemployment benefits including medical life excluded table discussion companys pension postretirement plans including funding matters included note 13 postemployment benefits contingent obligations abbott periodically entered agreements companies ordinary course business assignment product rights resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote addition abbott periodically acquires business product rights abbott agrees pay contingent consideration based attaining certain thresholds based occurrence certain events legislative issues abbotts primary markets highly competitive subject substantial government regulations throughout world abbott expects debate continue availability method delivery payment health care products services possible predict extent abbott health care industry general might adversely affected factors future complete discussion factors contained item 1 business item 1a risk factors recently issued accounting standards august 2017 financial accounting standards board fasb issued accounting standards update asu 201712 targeted improvements accounting hedging activities makes changes designation measurement guidance qualifying hedging relationships presentation hedge results standard becomes effective abbott beginning first quarter 2019 early adoption permitted abbott currently evaluating effect asu 201712 consolidated financial statements march 2017 fasb issued asu 201707 compensation retirement benefits topic 715 improving presentation net periodic pension cost net periodic postretirement benefit cost changes financial statement presentation requirements pension postretirement benefit expense service cost continue reported financial statement line items current employee compensation costs asu requires components pension postretirement benefit expense presented separately service cost outside subtotal income operations standard becomes effective abbott beginning first quarter 2018 change presentation components pension cost applied retrospectively abbotts 2017 operating results approximately 160 million net pensionrelated income moved operating lines consolidated statement earnings nonoperating income october 2016 fasb issued asu 201616 income taxes topic 740 intraentity transfers assets inventory requires recognition income tax effects intercompany sales transfers assets inventory period transfer occurs standard becomes effective abbott beginning first quarter 2018 abbott expect adoption new standard material impact consolidated financial statements february 2016 fasb issued asu 201602 leases requires lessees recognize assets liabilities leases balance sheet standard becomes effective abbott beginning first quarter 2019 early adoption permitted adoption requires application new guidance periods presented abbott currently evaluating impact new guidance consolidated financial statements january 2016 fasb issued asu 201601 financial instruments recognition measurement financial assets financial liabilities provides new guidance recognition measurement presentation disclosure financial assets liabilities standard becomes effective abbott beginning first quarter 2018 abbott expect adoption new standard material impact consolidated financial statements may 2014 fasb issued asu 201409 revenue contracts customers provides single comprehensive model accounting revenue contracts customers supersede existing revenue recognition guidance standard becomes effective abbott first quarter 2018 abbotts revenues primarily comprised product sales abbott completed thorough evaluation new standard including detailed review abbotts revenue streams contracts abbott expect adoption new standard material impact consolidated financial statements abbott use modified retrospective method adopt standard private securities litigation reform act 1995 caution concerning forwardlooking statements safe harbor provisions private securities litigation reform act 1995 abbott cautions investors forwardlooking statements projections made abbott including made document subject risks uncertainties may cause actual results differ materially projected economic competitive governmental technological factors may affect abbotts operations discussed item 1a risk factors item 7a item 7 managements discussion analysis financial condition results operations financial review abbotts revenues derived primarily sale broad line health care products shortterm receivable arrangements patent protection licenses technological performance features inclusion abbotts products contract pharmacy benefit manager impact products sold price controls competition rebates impact net selling prices products foreign currency translation impacts measurement net sales costs abbotts primary products prescription pharmaceuticals nutritional products diagnostic testing products vascular products sales international markets approximately 50 percent consolidated net sales worldwide launch additional indications humira conclusion tap pharmaceutical products inc joint venture acquisitions advanced medical optics inc kos pharmaceuticals inc guidants vascular intervention endovascular solutions businesses followed launch xience v drug eluting stent loss patent protection pharmaceutical products amendment ending us synagis copromotion agreement realized gains unrealized losses boston scientific common stock impacted abbotts sales costs financial position last three years pharmaceutical research development focused therapeutic areas include immunology oncology neuroscience pain management infectious diseases 2003 abbott began worldwide launch humira rheumatoid arthritis followed launches five additional indications increased humiras worldwide sales 55 billion 2009 compared 45 billion 2008 30 billion 2007 abbott forecasts worldwide humira sales increase approximately 20 percent 2010 abbott studying additional indications humira substantial research development selling support continues dedicated maximizing worldwide potential humira december 2006 abbott acquired kos pharmaceuticals inc complemented abbotts existing franchise dyslipidemia market strengthened pharmaceutical pipeline cholesterol management abbotts trilipix nextgeneration product management triglycerides first product approved use combination statin launched 2008 increased generic competition resulted worldwide depakote sales declining 16 billion 2007 426 million 2009 us sales omnicef declining 235 million 2007 3 million 2009 worldwide sales clarithromycin declining 724 million 2007 599 million 2009 2007 abbotts nutritional products businesses reorganized worldwide business better leverage opportunities available strong nutritional brands significant efforts focused capturing opportunities particularly developing markets growth strong 2008 abbott received fda approval market xience v drug eluting stent us 2006 received european union approval xience v became marketleading drug eluting stent us fourth quarter 2008 june 2009 xience prime abbotts next generation drug eluting stent received ce mark approval launched europe august 2009 abbott received approval market xience v japan january 2010 april 2006 abbott acquired 646 million shares boston scientific connection abbotts acquisition vascular intervention endovascular solutions businesses guidant 2007 net loss charged expense investment 153 million december 31 2007 abbott held 264 million shares boston scientific common stock 2008 shares sold resulting small gain abbotts short longterm debt totaled 165 billion december 31 2009 largely incurred finance recent acquisitions operating cash flows excess capital expenditures cash dividends partially funded acquisitions last three years december 31 2009 abbotts longterm debt rating aa standard poors corporation a1 moodys investors service abbotts access shortterm financing affected credit market conditions 2008 early 2009 april 2008 abbott takeda concluded tap pharmaceutical products inc tap joint venture evenly splitting value assets joint venture taxfree exchange abbott received taps lupron business exchange abbotts 50 percent ownership tap luprons us results included pharmaceutical products segment beginning may 2008 abbott also receives payments based specified development approval commercial events achieved respect products retained takeda payments takeda based sales products retained takeda 2010 abbott focus several key initiatives pharmaceutical business abbott continue build global presence expand presence emerging markets diversify sources growth previously announced acquisition solvays pharmaceuticals business closed february 15 2010 abbott also continue maximizing market potential humira continue leverage product pipeline opportunities lipid franchise including certriad expected receive approval first half 2010 pharmaceutical research development efforts continue focus therapeutic areas noted significant portion development expenditures allocated compounds early midstage development oncology immunology hepatitis c neuroscience pain management compounds include two oncology compounds advanced clinical trials abt874 biologic psoriasis three hcv compounds human studies two compounds phase ii clinical trials alzheimers disease vascular business abbott launched xience v drugeluting stent japan receiving approval january 2010 also focus marketing xience prime europe markets well development xience prime us bioabsorbable stent business segments abbott focus developing acquiring differentiated technologies higher growth segments markets critical accounting policies sales rebates approximately 50 percent abbotts consolidated gross revenues subject various forms rebates allowances abbott records reductions revenues time sale rebates allowances pharmaceutical products segment nutritional products segment abbott provides rebates pharmacy benefit management companies state agencies administer federal medicaid program insurance companies administer medicare drug plans state agencies administer special supplemental nutrition program women infants children wic wholesalers group purchasing organizations government agencies private entities rebate amounts usually based upon volume purchases using contractual statutory prices product factors used rebate calculations include identification products sold subject rebate customer government agency price terms apply estimated lag time sale payment rebate using historical trends adjusted current changes abbott estimates amount rebate paid records liability reduction gross sales abbott records sale product settlement rebate generally occurs two 24 months sale abbott regularly analyzes historical rebate trends makes adjustments reserves changes trends terms rebate programs rebates chargebacks charged gross sales 2009 2008 2007 amounted approximately 44 billion 38 billion 32 billion respectively 238 percent 228 percent 215 percent respectively based gross sales approximately 184 billion 168 billion 150 billion respectively subject rebate onepercentage point increase percentage rebates related gross sales would decrease net sales approximately 184 million 2009 abbott considers onepercentage point increase reasonably likely increase percentage rebates related gross sales allowances charged gross sales approximately 414 million 362 million 325 million cash discounts 2009 2008 2007 respectively 456 million 439 million 269 million returns 2009 2008 2007 respectively cash discounts known within 15 30 days sale therefore reliably estimated returns reliably estimated abbotts historical returns low sales returns terms sales terms remained relatively unchanged several periods management analyzes adequacy ending rebate accrual balances quarter domestic nutritional business management uses internal external data available estimate level inventory distribution channel management access several large customers inventory management data customers utilizes data third party measures time retail shelf sources allow management make reliable estimates inventory distribution channel except transition period change supplier wic business state inventory distribution channel vary substantially management also estimates states processing lag time based claims data addition internal processing time factor estimating accrual wic business state sale made determining factor applicable price reliably determinable estimates required amount wic sales within state abbott wic business external data sources utilized estimate participant data us department agriculture usda administers wic program participant data states internally administered market research usda making data available many years internal data includes historical redemption rates pricing data december 31 2009 abbott exclusive wic business 24 states domestic pharmaceutical business significant charges gross sales medicaid medicare rebates pharmacy benefit manager rebates wholesaler chargebacks order evaluate adequacy ending accrual balances management uses internal external data estimate level inventory distribution channel rebate claims processing lag time external data sources used estimate inventory distribution channel include inventory levels periodically reported wholesalers third party market data purchased abbott management estimates processing lag time based periodic sampling claims data estimate price rebate percentage systems calculations used track sales product customer estimate contractual statutory price abbotts systems calculations developed time rebates become significant abbott believes reliable following table analysis four largest rebate accruals comprise approximately 67 percent consolidated rebate provisions charged revenues 2009 remaining rebate provisions charged gross sales significant determination operating earnings dollars millions historically adjustments prior years rebate accruals material net income 2007 adjustments made prior years rebate accruals medicaid medicare rebate accrual reduced approximately 69 million wic rebate accrual increased approximately 19 million abbott employs various techniques verify accuracy claims submitted possible works organizations submitting claims gain insight changes might affect rebate amounts medicaid medicare government agency programs calculation rebate involves interpretations relevant regulations subject challenge change interpretation income taxes abbott operates numerous countries income tax returns subject audits adjustments abbott operates globally nature audit items often complex objectives government auditors result tax income one country abbott employs internal external tax professionals minimize audit adjustment amounts possible accordance accounting rules relating measurement tax contingencies order recognize uncertain tax benefit taxpayer must likely sustaining position measurement benefit calculated largest amount 50 percent likely realized upon resolution benefit application rules requires significant amount judgment us abbotts federal income tax returns 2005 settled income tax returns years 2005 open abbott record deferred income taxes earnings reinvested indefinitely foreign subsidiaries pension postemployment benefits abbott offers pension benefits postemployment health care many employees abbott engages outside actuaries assist determination obligations costs programs abbott must develop longterm assumptions significant health care cost trend rates discount rates expected return plan assets discount rates used measure liabilities determined based highquality fixed income securities match duration expected retiree benefits health care cost trend rates represent abbotts expected annual rates change cost health care benefits forward projection health care costs measurement date difference assumed rates actual rates known decades significant relation obligations annual cost recorded programs negative asset returns 2008 due poor market conditions low interest rates significantly increased actuarial losses plans december 31 2009 pretax net actuarial losses prior service costs credits recognized accumulated comprehensive income loss abbotts defined benefit plans medical dental plans losses 27 billion 501 million respectively actuarial losses gains amortized remaining service attribution periods employees corridor method accordance rules accounting postemployment benefits differences expected longterm return plan assets actual annual return amortized fiveyear period note 5 consolidated financial statements describes impact onepercentage point change health care cost trend rate however certainty change would limited one percentage point valuation intangible assets abbott acquired continues acquire significant intangible assets abbott records fair value transactions involving purchase sale intangible assets occur frequency companies health care field valuations usually based discounted cash flow analysis discounted cash flow model requires assumptions timing amount future net cash flows risk cost capital terminal values market participants factors significantly affect value intangible asset abbott engages independent valuation experts review abbotts critical assumptions calculations acquisitions significant intangibles abbott reviews definitelived intangible assets impairment quarter using undiscounted net cash flows approach undiscounted cash flows intangible asset less carrying value intangible asset intangible asset written fair value usually discounted cash flow amount cash flows cannot identified individual asset review applied lowest group level cash flows identifiable goodwill indefinitelived intangible assets relate inprocess research development acquired business combination reviewed impairment annually event could result impairment occurs december 31 2009 goodwill intangibles amounted 132 billion 63 billion respectively amortization expense intangible assets amounted 879 million 2009 impairments goodwill 2009 2008 2007 litigation abbott accounts litigation losses accordance fasb accounting standards codification 450 contingencies asc 450 loss contingency provisions recorded probable losses managements best estimate loss best estimate cannot made minimum loss contingency amount recorded estimates often initially developed substantially earlier ultimate loss known estimates refined accounting period additional information becomes known accordingly abbott often initially unable develop best estimate loss therefore minimum amount could zero recorded information becomes known either minimum loss amount increased resulting additional loss provisions best estimate made also resulting additional loss provisions occasionally best estimate amount changed lower amount events result expectation favorable outcome previously expected except cases discussed note 8 abbott unable estimate loss abbott estimates range possible loss approximately 170 million 310 million legal proceedings environmental exposures reserves approximately 215 million recorded december 31 2009 proceedings exposures reserves represent managements best estimate probable loss defined fasb asc 450 contingencies stock compensation abbott records fair value stock options results operations since market trading employee stock options management must use fair value method certainty results fair value method would value employee stock options would traded cash fair value methods require management make several assumptions significant selection fair value model stock price volatility average life option abbott readily available grantbygrant historical activity several years option administration system uses developing assumptions abbott uses blackscholes method value stock options abbott uses historical volatility stock price implied volatility traded options develop volatility assumptions abbott uses historical grant activity combined expectations future exercise activity develop average life assumptions abbott also used historical grant data evaluate whether certain holders stock options exercised options differently holders found differentiating pattern among holders results operations sales following table details components sales growth reportable segment last three years worldwide sales growth 2009 reflects unit growth acquisition advanced medical optics inc february 25 2009 partially offset negative effect relatively stronger us dollar worldwide us pharmaceutical products segment sales also reflect decreased sales depakote due generic competition excluding us depakote sales 2009 2008 worldwide sales increased 77 percent us sales increased 76 percent pharmaceutical products segment sales increased 43 percent worldwide 2008 sales growth reflects unit growth positive effect relatively weaker us dollar worldwide 2007 sales growth reflects acquisitions guidants vascular intervention endovascular solutions businesses april 21 2006 kos pharmaceuticals inc fourth quarter 2006 sales growth 2007 nutritional products segment reflects completion us copromotion synagis 2006 excluding sales synagis 2006 nutritional products segment sales increased 113 percent 2007 comparison significant product group sales follows percent changes versus prior year based unrounded numbers decreased sales depakote due generic competition impacted us specialty product sales 2009 2008 partially offset increased sales humira addition lupron sales conclusion tap joint venture april 2008 increased sales humira depakote impacted us specialty product sales 2007 us sales humira 25 billion 22 billion 16 billion 2009 2008 2007 respectively us sales depakote 331 million 13 billion 15 billion 2009 2008 2007 respectively us primary care sales three years impacted decreased sales omnicef synthroid biaxin due generic competition partially offset 2009 2008 increased sales niaspan 2008 higher tricortrilipix franchise sales us primary care sales 2007 favorably impacted sales tricor niaspan new product acquisition kos pharmaceuticals inc fourth quarter 2006 increased sales volume humira three years favorably impacted international pharmaceuticals sales partially offset decreased sales clarithromycin 2009 2008 due generic competition international sales humira 30 billion 23 billion 14 billion 2009 2008 2007 respectively relatively stronger us dollar decreased international pharmaceutical sales 2009 86 percent relatively weaker us dollar increased international pharmaceutical sales 2008 2007 73 percent 71 percent respectively international pediatric nutritionals sales increases due primarily volume growth developing countries international adult nutritionals sales immunochemistry sales 2009 negatively impacted effect relatively stronger us dollar abbott periodically sold product rights nonstrategic products recorded related gains net sales accordance abbotts revenue recognition policies discussed note 1 consolidated financial statements related net sales 120 million 111 million 184 million 2009 2008 2007 respectively expiration licenses patent protection generic competition affect future revenues operating income abbott currently significant patent license expirations next three years operating earnings gross profit margins 571 percent net sales 2009 573 percent 2008 559 percent 2007 decrease gross profit margin 2009 due part negative impact lower sales depakote unfavorable effect exchange gross profit margin ratio partially offset improved margins vascular diagnostics businesses increase gross profit margin 2008 due part favorable product mix favorable impact foreign exchange decrease gross profit margin 2007 due part unfavorable impact 2007 completion us copromotion synagis 2006 well generic competition omnicef biaxin sales 2007 us states receive price rebates manufacturers infant formula federally subsidized special supplemental nutrition program women infants children also rebate programs pharmaceutical products rebate programs continue negative effect gross profit margins nutritional pharmaceutical products segments research development expense 2744 billion 2009 2689 billion 2008 2506 billion 2007 represented increases 20 percent 2009 73 percent 2008 111 percent 2007 increase 2009 reflects favorable effect exchange rates reduced research development expense 2009 excluding effect exchange research development expenses increased 34 percent 2009 increase 2007 affected acquisitions guidants vascular intervention endovascular solutions businesses april 2006 kos pharmaceuticals inc fourth quarter 2006 increases excluding effects exchange also reflect continued pipeline spending including programs vascular devices immunology neuroscience oncology hepatitis c pain management majority research development expenditures concentrated pharmaceutical products selling general administrative expenses decreased 04 percent 2009 compared increases 139 percent 2008 167 percent 2007 2009 decrease reflects favorable effect exchange rates offset expenses relating acquisition advanced medical optics inc settlement litigation excluding effects charges exchange selling general administrative expenses increased 09 percent 2009 2008 increase reflects settlement litigation relating tricor increased selling general administration expenses 31 percentage points 2007 increase reflects acquisitions guidants vascular intervention endovascular solutions businesses kos pharmaceuticals inc remaining increases selling general administrative expenses due primarily increased selling marketing support new existing products including continued spending humira xience v inflation conclusion tap pharmaceutical products inc joint venture sale abbotts spine business april 30 2008 abbott takeda concluded tap pharmaceutical products inc tap joint venture evenly splitting value assets joint venture abbott exchanged 50 percent equity interest tap assets liabilities employees related taps lupron business subsequent conclusion joint venture tap merged two takeda entities exchange abbotts investment tap taps lupron business resulted gain closing approximately 94 million internal revenue service issued private letter ruling transaction qualifies taxfree us income tax purposes beginning may 1 2008 abbott began recording us lupron net sales costs operating results longer records income tap joint venture taps sales lupron 182 million four months ended april 30 2008 645 million 2007 abbott also receives payments based specified development approval commercial events achieved respect products retained takeda payments takeda based sales products retained takeda recorded abbott income expense net earned exchange transaction accounted sale abbotts equity interest tap acquisition taps lupron business sale abbotts equity interest tap resulted recording net assets related lupron business primarily cash receivables inventory assets net accounts payable accrued liabilities offset credit abbotts investment tap amount approximately 280 million acquired lupron business abbott recorded intangible assets primarily lupron product rights approximately 700 million goodwill approximately 350 million deferred tax liabilities related primarily intangible assets approximately 260 million intangible assets amortized 15 years abbott also agreed remit cash takeda certain research development events achieved development assets retained takeda amounts recorded liability closing amount approximately 11 billion related deferred tax assets approximately 410 million also recorded 11 billion abbott made taxdeductible payments 83 million 200 million 2009 2008 respectively abbott make taxdeductible payment approximately 36 million 2010 2009 events occurred resulting remaining payments required remaining liability amount 797 million derecognized recorded income expense net 50 percentowned joint venture accounted equity method accounting summarized financial information tap follows results 2008 include results april 30 dollars millions fourth quarter 2008 abbott sold spine business approximately 360 million cash resulting aftertax gain approximately 147 million presented gain sale discontinued operations net taxes accompanying statement income operations financial position spine business presented discontinued operations effects would significant restructurings 2008 abbott management approved plan streamline global manufacturing operations reduce overall costs improve efficiencies abbotts core diagnostic business 2008 abbott recorded charge cost products sold approximately 129 million plan additional charges approximately 54 million 16 million recorded 2009 2008 respectively relating restructuring primarily accelerated depreciation product transfer costs additional charges incurred 2011 result product reregistration timelines required manufacturing regulations number countries product transition timelines following summarizes activity restructuring dollars millions 2009 prior years abbott management approved plans realign worldwide pharmaceutical vascular manufacturing operations selected domestic international commercial research development operations order reduce costs 2009 2008 2007 abbott recorded charges approximately 114 million 36 million 107 million respectively reflecting impairment manufacturing facilities assets employee severance related charges approximately 94 million 2007 classified cost products sold 3 million 2007 research development 114 million 36 million 10 million 2009 2008 2007 respectively selling general administrative fair value determination amount asset impairments determined primarily based discounted cash flow method additional 47 million 81 million 90 million subsequently recorded 2009 2008 2007 respectively relating restructurings primarily accelerated depreciation addition abbott implemented facilities restructuring plans 2007 related acquired operations kos pharmaceuticals inc resulted increase goodwill approximately 52 million following summarizes activity restructurings dollars millions interest expense interest income 2009 2008 interest expense decreased primarily result lower interest rates partially offset increased debt levels 2009 related acquisition advanced medical optics inc interest expense increased 2007 due primarily higher borrowings result acquisitions guidants vascular intervention endovascular solutions businesses kos pharmaceuticals inc abbotts investment boston scientific common stock note receivable interest income decreased 2009 due lower interest rates increased 2008 2007 due higher investment balances income expense net income expense net 2009 includes derecognition contingent liability 797 million associated conclusion tap pharmaceutical products inc joint venture discussed 287 million gain settlement reached abbott medtronic inc resolving outstanding intellectual property litigation two parties income recording certain investments fair value connection business acquisitions income expense net 2009 2008 also includes ongoing contractual payments takeda associated conclusion tap joint venture gain 2008 sale equity investment accounted availableforsale investment addition abbott recorded gain approximately 94 million connection dissolution tap joint venture 2008 income expense net 2007 includes 190 million fair market value loss adjustment abbotts investment boston scientific common stock realized gain 37 million sales boston scientific common stock taxes earnings income tax rates earnings continuing operations 201 percent 2009 192 percent 2008 193 percent 2007 tax rate 2009 effected higher tax rate applied derecognition contingent liability associated conclusion tap pharmaceutical products inc joint venture medtronic intellectual property litigation settlement abbott expects apply annual effective rate 16 percent 165 percent 2010 business combinations technology acquisitions related transactions january 1 2009 abbott adopted provisions sfas 141 revised 2007 business combinations codified fasb asc 805 business combinations asc 805 acquired inprocess research development accounted indefinitelived intangible asset approval discontinuation rather expense acquisition costs connection acquisition expensed rather added cost acquisition fair value contingent consideration date acquisition added cost acquisition february 2009 abbott acquired outstanding shares advanced medical optics inc amo approximately 14 billion cash net cash held amo prior acquisition abbott held small investment amo abbott acquired amo take advantage increasing demand vision care technologies due population growth demographic shifts amos premier position field abbott acquired control business february 25 2009 financial results acquired operations included financial statements beginning date acquisition financed longterm debt allocation fair value acquisition shown table dollars billions acquired intangible assets consist established customer relationships developed technology trade names amortized 2 30 years average 15 years acquired inprocess research development accounted indefinitelived intangible asset regulatory approval discontinuation net tangible assets acquired consist primarily trade accounts receivable inventory property equipment assets net assumed liabilities primarily trade accounts payable accrued compensation liabilities abbott incurred approximately 89 million acquisitionrelated expenses 2009 classified selling general administrative expense addition subsequent acquisition abbott repaid substantially acquired debt amo october 2009 abbott acquired 100 percent visiogen inc 400 million cash providing abbott nextgeneration accommodating intraocular lens iol technology address presbyopia cataract patients preliminary allocation fair value acquisition resulted nondeductible acquired inprocess research development approximately 195 million accounted indefinitelived intangible asset regulatory approval discontinuation nondeductible definitelived intangible assets approximately 33 million goodwill approximately 260 million deferred income taxes approximately 89 million acquired intangible assets consist developed technology amortized 12 years allocation fair value acquisition finalized valuation completed october 2009 abbott acquired evalve inc 320 million cash plus additional payment 90 million made upon completion certain regulatory milestones abbott acquired evalve obtain presence growing area percutaneous treatment structural heart disease including previous investment evalve abbott acquired 100 percent outstanding shares evalve connection acquisition carrying amount investment revalued fair value resulting recording 28 million income reported income expense net preliminary allocation fair value acquisition resulted nondeductible definitelived intangible assets approximately 145 million nondeductible acquired inprocess research development approximately 228 million accounted indefinitelived intangible asset regulatory approval discontinuation goodwill approximately 158 million deferred income taxes approximately 136 million acquired intangible assets consist developed technology amortized 12 years allocation fair value acquisition finalized valuation completed january 2009 abbott acquired ibis biosciences inc ibis 175 million cash expand abbotts position molecular diagnostics infectious disease including 40 million investment ibis 2008 abbott acquired 100 percent outstanding shares ibis substantial portion fair value acquisition allocated goodwill amortizable intangible assets acquired inprocess research development accounted indefinitelived intangible asset regulatory approval discontinuation investment ibis 2008 resulted charge acquired inprocess research development connection acquisition carrying amount investment revalued fair value resulting recording 33 million income reported income expense net acquisitions taken place january 1 previous year consolidated net sales income would significantly different reported amounts december 2009 abbott acquired global rights novel biologic treatment chronic pain 170 million cash resulting charge acquired inprocess research development september 2009 abbott announced agreement acquire solvays pharmaceuticals business eur 45 billion approximately 62 billion cash plus additional payments eur 300 million certain sales milestones met acquisition provide abbott large complementary portfolio pharmaceutical products significant presence key global emerging markets add approximately 500 million abbotts research development spending transaction closed february 15 2010 sales acquired business forecast approximately 29 billion 2010 allocation fair value acquisition finalized valuation completed financial condition cash flow net cash operating activities continuing operations amounted 73 billion 70 billion 52 billion 2009 2008 2007 respectively cash operating activities continuing operations 2008 compared 2007 higher due higher operating earnings decreased prepaid expenses assets increased trade accounts payable liabilities abbott funds domestic pension plans according irs funding limitations abbott funded 700 million 2009 200 million annually 2008 2007 main domestic pension plan abbott expects pension funding main domestic pension plan 200 million annually abbott expects annual cash flow operating activities continue exceed abbotts capital expenditures cash dividends debt capital december 31 2009 abbotts longterm debt rating aa standard poors corporation a1 moodys investors service abbott readily available financial resources including unused lines credit 63 billion support commercial paper borrowing arrangements 33 billion facility expires october 2010 30 billion facility expires 2012 related compensating balances subject withdrawal abbott option commitment fees material abbotts access shortterm financing affected credit market conditions 2008 early 2009 october 2008 board directors authorized purchase 5 billion abbotts common shares time authorization 145 million shares purchased 2009 cost approximately 800 million 146400 shares purchased 2008 cost approximately 8 million 2008 2007 abbott purchased approximately 190 million common shares period cost approximately 11 billion 10 billion respectively prior authorization registration statement filed securities exchange commission february 2009 abbott issued 30 billion longterm debt first quarter 2009 matures 2019 2039 interest rates 5125 percent 60 percent respectively proceeds debt used fund acquisition advanced medical optics inc repay debt advanced medical optics inc addition abbott repaid 1 billion longterm notes due 2009 using shortterm borrowings registration statement filed securities exchange commission february 2006 abbott issued 35 billion longterm debt 2007 matures 2012 2037 interest rates ranging 515 percent 615 percent proceeds debt used pay shortterm borrowings incurred partially fund acquisition kos pharmaceuticals inc acquisition solvays pharmaceuticals business february 15 2010 funded current cash shortterm investments judgment entered us district court eastern district texas abbott litigation new york university centocor inc requires abbott secure judgment event appeal federal circuit court unsuccessful overturning district courts decision abbott expects deposit approximately 18 billion escrow agent first quarter 2010 consider assets restricted working capital working capital 103 billion december 31 2009 55 billion december 31 2008 49 billion december 31 2007 increase working capital 2009 due primarily increased levels cash investments derecognition contingent liability associated conclusion tap joint venture partially offset increased debt levels capital expenditures capital expenditures 11 billion 2009 13 billion 2008 17 billion 2007 principally upgrading expanding manufacturing research development investments information technology administrative support facilities segments laboratory instruments placed customers contractual obligations following table summarizes abbotts estimated contractual obligations december 31 2009 dollars millions apurchase commitments purchases made normal course business meet operational capital expenditure requirements contingent obligations abbott periodically entered agreements ordinary course business assignment product rights companies resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote addition abbott periodically acquires business product rights abbott agrees pay contingent consideration based attaining certain thresholds based occurrence certain events connection acquisition guidants vascular intervention endovascular solutions businesses abbott paid 250 million boston scientific january 2010 upon government approval market xience v drugeluting stent japan addition abbott retained liabilities taxes income prior spinoff hospira certain potential liabilities related alleged improper pricing practices connection federal state private reimbursement certain drugs recently issued accounting standards 2009 fasb issued sfas 167 amendments fasb interpretation 46r codified fasb asc 810 consolidation fasb asc 810 provides consolidation guidance relating variable interest entities provisions effective fiscal years beginning november 15 2009 adoption provisions expected material effect results operations financial position abbott legislative issues abbotts primary markets highly competitive subject substantial government regulation throughout world abbott expects debate continue availability method delivery payment health care products services abbott believes legislation enacted could change access health care products services increase rebates reduce prices rate price increases health care products services create new fees pharmaceutical medical device industries require additional reporting disclosure possible predict extent abbott health care industry general might adversely affected factors future complete discussion factors contained item 1 business item 1a risk factors annual report form 10k private securities litigation reform act 1995 caution concerning forwardlooking statements safe harbor provisions private securities litigation reform act 1995 abbott cautions investors forwardlooking statements projections made abbott including made document subject risks uncertainties may cause actual results differ materially projected economic competitive governmental technological factors may affect abbotts operations discussed item 1a risk factors annual report form 10k item 7a item 7a quantitative qualitative disclosures market risk financial instruments risk management market price sensitive investments abbott holds availableforsale equity securities strategic technology acquisitions market value investments approximately 26 million 76 million december 31 2013 2012 respectively decrease due sale securities abbott monitors investments temporary declines market value charges impairment losses income temporary decline value occurs hypothetical 20 percent decrease share prices investments would decrease fair value december 31 2013 approximately 5 million 20 percent decrease believed reasonably possible nearterm change share prices nonpublicly traded equity securities abbott holds equity securities strategic technology acquisitions traded public stock exchanges carrying value investments approximately 67 million 137 million december 31 2013 2012 respectively decrease nonpublicly traded securities due separation abbvie january 1 2013 individual investment recorded value excess 20 million abbott monitors investments temporary declines market value charges impairment losses income temporary decline estimated value occurs interest rate sensitive financial instruments december 31 2013 2012 abbott interest rate hedge contracts totaling 15 billion 95 billion respectively manage exposure changes fair value debt 80 billion contracts related debt issued abbvie inc fourth quarter 2012 transferred abbvie part separation january 1 2013 effect hedges change fixed interest rate variable rate abbott use derivative financial instruments interest rate swaps manage exposure changes interest rates investment securities december 31 2013 abbott 25 billion domestic commercial paper outstanding average annual interest rate 013 average remaining life 34 days fair value longterm debt december 31 2013 2012 amounted 39 billion 196 billion respectively average interest rates 53 29 december 31 2013 2012 respectively maturities 2040 december 31 2013 2012 fair value current longterm investment securities amounted approximately 47 billion hypothetical 100basis point change interest rates would material effect cash flows income market values 100basis point change believed reasonably possible nearterm change rates foreign currency sensitive financial instruments certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts designated cash flow hedges variability cash flows due changes foreign currency exchange rates markedtomarket resulting gains losses reflected accumulated comprehensive income loss gains losses included cost products sold time products sold generally within next twelve months december 31 2013 2012 abbott held 137 million 16 billion respectively contracts mature following calendar year contracts totaling 10 billion transferred abbvie part separation january 1 2013 abbott enters foreign currency forward exchange contracts manage exposure foreign currency denominated intercompany loans trade payables thirdparty trade payables receivables contracts markedtomarket resulting gains losses reflected income generally offset losses gains foreign currency exposure managed december 31 2013 2012 abbott held 138 billion 182 billion respectively contracts mature next twelve months 43 billion contracts transferred abbvie part separation january 1 2013 abbott designated foreign denominated shortterm debt approximately 505 million approximately 615 million december 31 2013 2012 respectively hedge net investment foreign subsidiary accordingly changes fair value debt due changes exchange rates recorded accumulated comprehensive income loss net tax following table reflects total foreign currency forward contracts outstanding december 31 2013 2012 dollars millions item 8 item 7a quantitative qualitative disclosures market risk financial instruments risk management unaudited interest rate sensitive financial instruments 2001 abbott entered interest rate hedge contracts totaling 2450 billion manage exposure changes fair value 2450 billion longterm debt due july 2004 2006 abbott use derivative financial instruments interest rate swaps manage exposure changes interest rates investment securities december 31 2001 2000 abbott 29 billion 185 million respectively domestic commercial paper outstanding average interest rate 18 65 respectively average remaining life 14 days three days respectively fair market value longterm debt december 31 2001 2000 amounted 45 billion 13 billion respectively consisted primarily fixedrate average 55 61 respectively debt maturities 2023 december 31 2001 2000 fair market value current longterm investment securities maturing 2023 amounted 345 million 571 million respectively approximately 13 percent 10 percent investments december 31 2001 2000 respectively fixed interest rates average 74 69 respectively remaining investments variable rates hypothetical 100basis point change interest rates would material effect cash flows income market values 100basis point change reasonably possible nearterm change rates market price sensitive financial instruments abbott maintains portfolio availableforsale equity securities strategic technology acquisitions market value investments approximately 262 million 215 million respectively december 31 2001 2000 hypothetical 20 percent decrease share prices investments would decrease fair value approximately 52 million 20 percent decrease reasonably possible nearterm change share prices nonexchangetraded equity secruities abbott maintains portfolio equity securities strategic technology acquisitions traded public stock exchanges carrying value investments approximately 81 million 75 million respectively december 31 2001 2000 abbott monitors investments temporary declines estimated value charges impairment losses income temporary decline estimated value occurs foreign currency sensitive financial instruments abbott enters foreign currency forward exchange contracts manage exposure foreign currency denominated intercompany loans trade payables thirdparty trade payables receivables contracts markedtomarket resulting gains losses reflected income generally offset losses gains foreign currency exposure managed december 31 2001 2000 abbott held 31 billion 13 billion respectively contracts mature next calendar year addition certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts designated cash flow hedges variability cash flows due changes foreign exchange rates markedtomarket resulting gains losses reflected accumulated comprehensive income loss gains losses included cost sales time products sold generally end 2002 december 31 2001 abbott held 571 million contracts mature next calendar year following table reflects total foreign currency forward contracts outstanding december 31 2001 2000 item 8 item 7a quantitative qualitative disclosures market risk financial instruments risk management market price sensitive investments fair value availableforsale equity securities held abbott approximately 27 billion 38 billion december 31 2016 2015 respectively yearoveryear decrease primarily due decline share price ordinary shares mylan nv abbott received sale developed markets branded generics pharmaceuticals business continued hold december 31 2016 availableforsale equity securities subject potential changes fair value hypothetical 20 percent decrease share prices investments would decrease fair value december 31 2016 approximately 540 million abbott monitors investments temporary declines fair value charges impairment losses income temporary decline fair value occurs nonpublicly traded equity securities abbott holds equity securities strategic technology acquisitions traded public stock exchanges carrying value investments approximately 151 million 120 million december 31 2016 2015 respectively individual investment recorded value excess 35 million abbott monitors investments temporary declines market value charges impairment losses income temporary decline estimated fair value occurs interest rate sensitive financial instruments december 31 2016 2015 abbott interest rate hedge contracts totaling 55 billion 40 billion respectively manage exposure changes fair value debt effect hedges change fixed interest rate variable rate portion debt hedged abbott use derivative financial instruments interest rate swaps manage exposure changes interest rates investment securities december 31 2016 abbott 09 billion domestic commercial paper outstanding average annual interest rate 091 average remaining life 17 days fair value longterm debt december 31 2016 2015 amounted 211 billion 63 billion respectively average interest rates 38 41 december 31 2016 2015 respectively maturities 2046 december 31 2016 2015 fair value current longterm investment securities amounted approximately 31 billion 52 billion respectively hypothetical 100basis point change interest rates would material effect cash flows income fair values 100basis point change believed reasonably possible nearterm change rates foreign currency sensitive financial instruments certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts designated cash flow hedges variability cash flows due changes foreign currency exchange rates markedtomarket resulting gains losses reflected accumulated comprehensive income loss gains losses included cost products sold time products sold generally within next twelve eighteen months december 31 2016 2015 abbott held 26 billion 24 billion respectively contracts held december 31 2016 mature 2017 2018 depending upon contract contracts held december 31 2015 matured 2016 mature 2017 depending upon contract december 31 2016 107 million notional amount relates amo business expected divested first quarter 2017 abbott enters foreign currency forward exchange contracts manage exposure foreign currency denominated intercompany loans trade payables thirdparty trade payables receivables contracts markedtomarket resulting gains losses reflected income generally offset losses gains foreign currency exposure managed december 31 2016 2015 abbott held 149 billion 140 billion respectively contracts generally mature next twelve months december 31 2016 12 billion contracts relate amo business expected divested first quarter 2017 abbott designated foreign denominated shortterm debt approximately 454 million approximately 439 million december 31 2016 2015 respectively hedge net investment foreign subsidiary accordingly changes fair value debt due changes exchange rates recorded accumulated comprehensive income loss net tax following table reflects total foreign currency forward contracts outstanding december 31 2016 2015 item 8 item 7a quantitative qualitative disclosures market risk financial instruments risk management interest rate sensitive financial instruments december 31 2002 2001 abbott interest rate hedge contracts totaling 2450 billion manage exposure changes fair value 2450 billion longterm debt due july 2004 2006 abbott use derivative financial instruments interest rate swaps manage exposure changes interest rates investment securities december 31 2002 2001 abbott 16 billion 29 billion respectively domestic commercial paper outstanding average interest rate 13 18 respectively average remaining life 24 days 14 days respectively fair market value longterm debt december 31 2002 2001 amounted 46 billion 45 billion respectively consisted primarily fixedrate average 55 debt maturities 2023 december 31 2002 2001 fair market value current longterm investment securities maturing 2023 amounted 283 million 345 million respectively approximately 7 percent 13 percent investments december 31 2002 2001 respectively fixed interest rates average 85 74 respectively remaining investments variable rates hypothetical 100basis point change interest rates would material effect cash flows income market values 100basis point change reasonably possible nearterm change rates market price sensitive financial instruments abbott maintains portfolio availableforsale equity securities strategic technology acquisitions market value investments approximately 175 million 262 million respectively december 31 2002 2001 hypothetical 20 percent decrease share prices investments would decrease fair value december 31 2002 approximately 35 million 20 percent decrease reasonably possible nearterm change share prices nonpubliclytraded equity securities abbott maintains portfolio equity securities strategic technology acquisitions traded public stock exchanges carrying value investments approximately 48 million 81 million respectively december 31 2002 2001 abbott monitors investments temporary declines market value charges impairment losses income temporary decline estimated value occurs foreign currency sensitive financial instruments abbott enters foreign currency forward exchange contracts manage exposure foreign currency denominated intercompany loans trade payables thirdparty trade payables receivables contracts markedtomarket resulting gains losses reflected income generally offset losses gains foreign currency exposure managed december 31 2002 2001 abbott held 19 billion 31 billion respectively contracts mature next calendar year addition certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts designated cash flow hedges variability cash flows due changes foreign exchange rates markedtomarket resulting gains losses reflected accumulated comprehensive loss gains losses included cost sales time products sold generally within next calendar year december 31 2002 2001 abbott held 857 million 571 million respectively contracts mature next calendar year following table reflects total foreign currency forward contracts outstanding december 31 2002 2001 item 8 item 7a quantitative qualitative disclosures market risk financial instruments risk management market price sensitive investments abbott holds availableforsale equity securities strategic technology acquisitions market value investments approximately 76 million 93 million december 31 2012 2011 respectively abbott monitors investments temporary declines market value charges impairment losses income temporary decline value occurs hypothetical 20 percent decrease share prices investments would decrease fair value december 31 2012 approximately 15 million 20 percent decrease believed reasonably possible nearterm change share prices nonpublicly traded equity securities abbott holds equity securities strategic technology acquisitions traded public stock exchanges carrying value investments approximately 137 million 224 million december 31 2012 2011 respectively individual investment recorded value excess 30 million abbott monitors investments temporary declines market value charges impairment losses income temporary decline estimated value occurs interest rate sensitive financial instruments december 31 2012 2011 abbott interest rate hedge contracts totaling 95 billion 68 billion respectively manage exposure changes fair value debt effect hedges change fixed interest rate variable rate abbott use derivative financial instruments interest rate swaps manage exposure changes interest rates investment securities december 31 2012 abbott 13 billion domestic commercial paper outstanding average annual interest rate 032 average remaining life 17 days fair value longterm debt december 31 2012 2011 amounted 196 billion 151 billion respectively average interest rates 29 maturities 2042 december 31 2012 2011 fair value current longterm investment securities amounted approximately 46 billion 17 billion respectively hypothetical 100basis point change interest rates would material effect cash flows income market values 100basis point change believed reasonably possible nearterm change rates foreign currency sensitive financial instruments certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts designated cash flow hedges variability cash flows due changes foreign currency exchange rates markedtomarket resulting gains losses reflected accumulated comprehensive income loss gains losses included cost products sold time products sold generally within next twelve months december 31 2012 2011 abbott held 16 billion contracts mature following calendar year abbott enters foreign currency forward exchange contracts manage exposure foreign currency denominated intercompany loans trade payables thirdparty trade payables receivables contracts markedtomarket resulting gains losses reflected income generally offset losses gains foreign currency exposure managed december 31 2012 2011 abbott held 182 billion 157 billion respectively contracts mature next twelve months abbott designated foreign denominated shortterm debt approximately 615 million approximately 680 million december 31 2012 2011 respectively hedge net investment foreign subsidiary accordingly changes fair value debt due changes exchange rates recorded accumulated comprehensive income loss net tax following table reflects total foreign currency forward contracts outstanding december 31 2012 2011 dollars millions item 8 item 7a quantitative qualitative disclosures market risk financial instruments risk management market price sensitive investments abbott holds availableforsale equity securities strategic technology acquisitions market value investments approximately 75 million december 31 2010 2009 abbott monitors investments temporary declines market value charges impairment losses income temporary decline value occurs hypothetical 20 percent decrease share prices investments would decrease fair value december 31 2010 approximately 15 million 20 percent decrease believed reasonably possible nearterm change share prices nonpublicly traded equity securities abbott holds equity securities strategic technology acquisitions traded public stock exchanges carrying value investments approximately 165 million 78 million december 31 2010 2009 respectively except one equity investment recorded 62 million individual investment excess 18 million abbott monitors investments temporary declines market value charges impairment losses income temporary decline estimated value occurs interest rate sensitive financial instruments december 31 2010 2009 abbott interest rate hedge contracts totaling 73 billion 55 billion respectively manage exposure changes fair value debt due 2011 2020 effect hedges change fixed interest rate variable rate abbott use derivative financial instruments interest rate swaps manage exposure changes interest rates investment securities december 31 2010 abbott 26 billion domestic commercial paper outstanding average annual interest rate 027 average remaining life 24 days fair value longterm debt december 31 2010 2009 amounted 157 billion 123 billion respectively average interest rates 52 53 respectively maturities 2040 december 31 2010 2009 fair value current longterm investment securities amounted approximately 21 billion hypothetical 100basis point change interest rates would material effect cash flows income market values 100basis point change believed reasonably possible nearterm change rates foreign currency sensitive financial instruments abbott enters foreign currency forward exchange contracts manage exposure foreign currency denominated intercompany loans trade payables thirdparty trade payables receivables contracts markedtomarket resulting gains losses reflected income generally offset losses gains foreign currency exposure managed december 31 2010 2009 abbott held 108 billion 75 billion respectively contracts mature next twelve months addition certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts designated cash flow hedges variability cash flows due changes foreign currency exchange rates markedtomarket resulting gains losses reflected accumulated comprehensive income loss gains losses included cost products sold time products sold generally within next twelve months december 31 2010 2009 abbott held 13 billion 20 billion respectively contracts mature following calendar year abbott designated foreign denominated shortterm debt approximately 650 million approximately 575 million december 31 2010 2009 respectively hedge net investment foreign subsidiary accordingly changes fair value debt due changes exchange rates recorded accumulated comprehensive income loss net tax following table reflects total foreign currency forward contracts outstanding december 31 2010 2009 dollars millions item 8 item 7a quantitative qualitative disclosures market risk financial instruments risk management market price sensitive investments abbott holds availableforsale equity securities strategic technology acquisitions fair value investments approximately 9 million 26 million december 31 2014 2013 respectively decrease due sale securities abbott monitors investments temporary declines market value charges impairment losses income temporary decline value occurs hypothetical 20 percent decrease share prices investments would decrease fair value december 31 2014 approximately 1 million 20 percent decrease believed reasonably possible nearterm change share prices nonpublicly traded equity securities abbott holds equity securities strategic technology acquisitions traded public stock exchanges carrying value investments approximately 100 million 67 million december 31 2014 2013 respectively individual investment recorded value excess 25 million abbott monitors investments temporary declines market value charges impairment losses income temporary decline estimated value occurs interest rate sensitive financial instruments december 31 2014 2013 abbott interest rate hedge contracts totaling 15 billion manage exposure changes fair value debt effect hedges change fixed interest rate variable rate portion debt hedged abbott use derivative financial instruments interest rate swaps manage exposure changes interest rates investment securities december 31 2014 abbott 39 billion domestic commercial paper outstanding average annual interest rate 012 average remaining life 36 days fair value longterm debt december 31 2014 2013 amounted 41 billion 39 billion respectively average interest rates 53 december 31 2014 2013 respectively maturities 2040 december 31 2014 2013 fair value current longterm investment securities amounted approximately 626 million 47 billion respectively hypothetical 100basis point change interest rates would material effect cash flows income fair values 100basis point change believed reasonably possible nearterm change rates foreign currency sensitive financial instruments certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts designated cash flow hedges variability cash flows due changes foreign currency exchange rates markedtomarket resulting gains losses reflected accumulated comprehensive income loss gains losses included cost products sold time products sold generally within next twelve eighteen months december 31 2014 2013 abbott held 15 billion 137 million respectively contracts held december 31 2014 mature 2015 2016 depending upon contract contracts held december 31 2013 matured 2014 abbott enters foreign currency forward exchange contracts manage exposure foreign currency denominated intercompany loans trade payables thirdparty trade payables receivables contracts markedtomarket resulting gains losses reflected income generally offset losses gains foreign currency exposure managed december 31 2013 abbott held 141 billion 138 billion respectively contracts generally mature next twelve months abbott designated foreign denominated shortterm debt approximately 445 million approximately 505 million december 31 2014 2013 respectively hedge net investment foreign subsidiary accordingly changes fair value debt due changes exchange rates recorded accumulated comprehensive income loss net tax following table reflects total foreign currency forward contracts outstanding december 31 2014 2013 item 8 item 7a quantitative qualitative disclosures market risk financial instruments risk management interest rate sensitive financial instruments december 31 2004 2003 abbott interest rate hedge contracts totaling 31 billion 325 billion respectively manage exposure changes fair value debt due july 2006 march 2014 abbott use derivative financial instruments interest rate swaps manage exposure changes interest rates investment securities december 31 2004 2003 abbott 16 billion 806 million respectively domestic commercial paper outstanding average annual interest rate 22 11 respectively average remaining life 38 days 29 days respectively fair market value longterm debt december 31 2004 2003 amounted 50 billion 54 billion respectively consisted primarily fixedrate average 43 47 respectively debt maturities 2023 december 31 2004 2003 fair market value current longterm investment securities amounted 854 million 316 million respectively hypothetical 100basis point change interest rates would material effect cash flows income market values 100basis point change believed reasonably possible nearterm change rates market price sensitive financial instruments abbott maintains portfolio availableforsale equity securities strategic technology acquisitions market value investments approximately 96 million 331 million respectively december 31 2004 2003 abbott monitors investments temporary declines market value charges impairment losses income temporary decline value occurs hypothetical 20 percent decrease share prices investments would decrease fair value december 31 2004 approximately 19 million 20 percent decrease believed reasonably possible nearterm change share prices nonpublicly traded equity securities abbott maintains portfolio equity securities strategic technology acquisitions traded public stock exchanges carrying value investments approximately 30 million 50 million respectively december 31 2004 2003 individual investment excess 14 million abbott monitors investments temporary declines market value charges impairment losses income temporary decline estimated value occurs foreign currency sensitive financial instruments abbott enters foreign currency forward exchange contracts manage exposure foreign currency denominated intercompany loans trade payables thirdparty trade payables receivables contracts markedtomarket resulting gains losses reflected income generally offset losses gains foreign currency exposure managed december 31 2004 2003 abbott held 33 billion 30 billion respectively contracts mature next calendar year addition certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts designated cash flow hedges variability cash flows due changes foreign exchange rates markedtomarket resulting gains losses reflected accumulated comprehensive income loss gains losses included cost products sold time products sold generally within next calendar year december 31 2004 2003 abbott held 984 million 602 million respectively contracts mature next calendar year following table reflects total foreign currency forward contracts outstanding december 31 2004 2003 item 8 item 7a quantitative qualitative disclosures market risk financial instruments risk management market price sensitive investments fair value equity securities held abbott readily determinable fair value approximately 20 million 11 million december 31 2020 2019 respectively equity securities subject potential changes fair value hypothetical 20 percent decrease share prices investments would decrease fair value december 31 2020 approximately 4 million changes fair value securities recorded earnings fair value investments mutual funds held rabbi trust purpose paying benefits deferred compensation plan approximately 366 million 346 million december 31 2020 2019 respectively changes fair value investments well offsetting change benefit obligation recorded earnings nonpublicly traded equity securities abbott holds equity securities traded public stock exchanges carrying value investments 113 million 158 million december 31 2020 2019 respectively individual investment recorded value excess 15 million abbott measures investments cost minus impairment plus minus changes resulting observable price changes orderly transactions identical similar investment issuer interest rate sensitive financial instruments december 31 2020 2019 abbott interest rate hedge contracts totaling 29 billion manage exposure changes fair value debt effect hedges change fixed interest rate variable rate portion debt hedged abbott use derivative financial instruments interest rate swaps manage exposure changes interest rates investment securities fair value longterm debt december 31 2020 2019 amounted 228 billion 208 billion respectively average interest rates 33 december 31 2020 2019 maturities 2046 december 31 2020 2019 fair value current longterm investment securities amounted approximately 11 billion 12 billion respectively hypothetical 100basis point change interest rates would material effect cash flows income fair values foreign currency sensitive financial instruments certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts designated cash flow hedges variability cash flows due changes foreign currency exchange rates markedtomarket resulting gains losses reflected accumulated comprehensive income loss gains losses included cost products sold time products sold generally within next twelve eighteen months december 31 2020 2019 abbott held 81 billion 68 billion respectively contracts held december 31 2020 mature 2021 2022 depending upon contract contracts held december 31 2019 matured 2020 mature 2021 depending upon contract abbott enters foreign currency forward exchange contracts manage exposure foreign currency denominated intercompany loans trade payables thirdparty trade payables receivables contracts markedtomarket resulting gains losses reflected income generally offset losses gains foreign currency exposure managed december 31 2020 2019 abbott held 110 billion 91 billion respectively contracts mature next 13 months november 2019 abbott borrowed ¥598 billion 5year term loan designated yendenominated loan hedge net investment certain foreign subsidiaries proceeds equated approximately 550 million value longterm debt approximately 577 million 546 million december 31 2020 december 31 2019 respectively change value debt due changes foreign exchange rates recorded accumulated comprehensive income loss net tax following table reflects total foreign currency forward exchange contracts outstanding december 31 2020 2019 item 8 item 7a quantitative qualitative disclosures market risk incorporated herein reference section captioned financial instruments risk management 1997 annual report item 8 item 7a quantitative qualitative disclosures market risk financial instruments risk management interest rate sensitive financial instruments december 31 2003 2002 abbott interest rate hedge contracts totaling 3250 billion 2450 billion respectively manage exposure changes fair value debt due july 2004 2006 abbott use derivative financial instruments interest rate swaps manage exposure changes interest rates investment securities december 31 2003 2002 abbott 806 million 16 billion respectively domestic commercial paper outstanding average interest rate 11 13 respectively average remaining life 29 days 24 days respectively fair market value longterm debt december 31 2003 2002 amounted 54 billion 46 billion respectively consisted primarily fixedrate average 47 55 respectively debt maturities 2023 december 31 2003 2002 fair market value current longterm investment securities amounted 316 million 283 million respectively hypothetical 100basis point change interest rates would material effect cash flows income market values 100basis point change believed reasonably possible nearterm change rates market price sensitive financial instruments abbott maintains portfolio availableforsale equity securities strategic technology acquisitions market value investments approximately 331 million 175 million respectively december 31 2003 2002 abbott monitors investments temporary declines market value charges impairment losses income temporary decline estimated value occurs hypothetical 20 percent decrease share prices investments would decrease fair value december 31 2003 approximately 66 million 20 percent decrease believed reasonably possible nearterm change share prices nonpubliclytraded equity securities abbott maintains portfolio equity securities strategic technology acquisitions traded public stock exchanges carrying value investments approximately 50 million 48 million respectively december 31 2003 2002 abbott monitors investments temporary declines market value charges impairment losses income temporary decline estimated value occurs foreign currency sensitive financial instruments abbott enters foreign currency forward exchange contracts manage exposure foreign currency denominated intercompany loans trade payables thirdparty trade payables receivables contracts markedtomarket resulting gains losses reflected income generally offset losses gains foreign currency exposure managed december 31 2003 2002 abbott held 30 billion 19 billion respectively contracts mature next calendar year addition certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts designated cash flow hedges variability cash flows due changes foreign exchange rates markedtomarket resulting gains losses reflected accumulated comprehensive income loss gains losses included cost products sold time products sold generally within next calendar year december 31 2003 2002 abbott held 602 million 857 million respectively contracts mature next calendar year following table reflects total foreign currency forward contracts outstanding december 31 2003 2002 item 8 item 7a quantitative qualitative disclosures market risk financial instruments risk management interest rate sensitive financial instruments december 31 2005 2004 abbott interest rate hedge contracts totaling 31 billion manage exposure changes fair value debt due july 2006 march 2014 effect hedges change fixed interest rate variable rate abbott use derivative financial instruments interest rate swaps manage exposure changes interest rates investment securities december 31 2004 abbott 16 billion domestic commercial paper outstanding average annual interest rate 22 average remaining life 38 days fair market value longterm debt december 31 2005 2004 amounted 64 billion 50 billion respectively average interest rates 42 43 respectively maturities 2023 december 31 2005 2004 fair market value current longterm investment securities amounted 80 million 854 million respectively hypothetical 100basis point change interest rates would material effect cash flows income market values 100basis point change believed reasonably possible nearterm change rates market price sensitive financial instruments abbott maintains portfolio availableforsale equity securities strategic technology acquisitions market value investments approximately 99 million 96 million respectively december 31 2005 2004 abbott monitors investments temporary declines market value charges impairment losses income temporary decline value occurs hypothetical 20 percent decrease share prices investments would decrease fair value december 31 2005 approximately 20 million 20 percent decrease believed reasonably possible nearterm change share prices nonpublicly traded equity securities abbott maintains portfolio equity securities strategic technology acquisitions traded public stock exchanges carrying value investments approximately 17 million 30 million respectively december 31 2005 2004 individual investment excess 9 million abbott monitors investments temporary declines market value charges impairment losses income temporary decline estimated value occurs foreign currency sensitive financial instruments abbott enters foreign currency forward exchange contracts manage exposure foreign currency denominated intercompany loans trade payables thirdparty trade payables receivables contracts markedtomarket resulting gains losses reflected income generally offset losses gains foreign currency exposure managed december 31 2005 2004 abbott held 39 billion 33 billion respectively contracts mature following calendar year addition certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts designated cash flow hedges variability cash flows due changes foreign exchange rates markedtomarket resulting gains losses reflected accumulated comprehensive income loss gains losses included cost products sold time products sold generally within next calendar year december 31 2005 2004 abbott held 222 million 984 million respectively contracts mature following calendar year following table reflects total foreign currency forward contracts outstanding december 31 2005 2004 item 8 item 7a quantitative qualitative disclosures market risk financial instruments risk management market price sensitive investments fair value equity securities held abbott readily determinable fair value approximately 13 million 11 million december 31 2018 2017 respectively equity securities subject potential changes fair value hypothetical 20 percent decrease share prices investments would decrease fair value december 31 2018 approximately 3 million changes fair value securities recorded earnings fair value investments mutual funds held rabbi trust purpose paying benefits deferred compensation plan approximately 307 million 363 million december 31 2018 2017 respectively changes fair value investments recorded earnings nonpublicly traded equity securities abbott holds equity securities traded public stock exchanges carrying value investments 211 million 228 million december 31 2018 2017 respectively individual investment recorded value excess 61 million abbott measures investments cost minus impairment plus minus changes resulting observable price changes orderly transactions identical similar investment issuer interest rate sensitive financial instruments december 31 2018 2017 abbott interest rate hedge contracts totaling 29 billion 40 billion respectively manage exposure changes fair value debt effect hedges change fixed interest rate variable rate portion debt hedged abbott use derivative financial instruments interest rate swaps manage exposure changes interest rates investment securities fair value longterm debt december 31 2018 2017 amounted 199 billion 290 billion respectively average interest rates 35 36 december 31 2018 2017 respectively maturities 2046 december 31 2018 2017 fair value current longterm investment securities amounted approximately 11 billion hypothetical 100basis point change interest rates would material effect cash flows income fair values 100basis point change believed reasonably possible nearterm change rates foreign currency sensitive financial instruments certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts designated cash flow hedges variability cash flows due changes foreign currency exchange rates markedtomarket resulting gains losses reflected accumulated comprehensive income loss gains losses included cost products sold time products sold generally within next twelve eighteen months december 31 2018 2017 abbott held 51 billion 33 billion respectively contracts held december 31 2018 mature 2019 2020 depending upon contract contracts held december 31 2017 matured 2018 mature 2019 depending upon contract abbott enters foreign currency forward exchange contracts manage exposure foreign currency denominated intercompany loans trade payables thirdparty trade payables receivables contracts markedtomarket resulting gains losses reflected income generally offset losses gains foreign currency exposure managed december 31 2018 2017 abbott held 136 billion 201 billion respectively contracts mature next 24 months march 2017 abbott repaid 479 million foreign denominated shortterm debt designated hedge net investment foreign subsidiary december 31 2016 value shortterm debt 454 million changes fair value debt date repayment due changes exchange rates recorded accumulated comprehensive income loss net tax following table reflects total foreign currency forward contracts outstanding december 31 2018 2017 item 8 item 7a quantitative qualitative disclosures market risk financial instruments risk management investment boston scientific common stock note receivable december 31 2006 abbott holds 646 million shares approximately 10 billion boston scientific common stock 900 million loan whollyowned subsidiary boston scientific abbott’s cost basis shares approximately 13 billion hypothetical 20 percent decrease boston scientific’s share price would decrease value boston scientific shares approximately 205 million abbott required dispose shares october 2008 sales boston scientific’s shares limited approximately 54 million shares per month october 2007 abbott also creditor boston scientific 900 million loan due 2011 subject credit risk addition abbott holds derivative financial instrument liability relating certain gain sharing aspects investment boston scientific common stock interest derivative financial instrument asset relating loan market price sensitive investments abbott holds availableforsale equity securities strategic technology acquisitions market value investments excluding boston scientific approximately 97 million 99 million respectively december 31 2006 2005 abbott monitors investments temporary declines market value charges impairment losses income temporary decline value occurs hypothetical 20 percent decrease share prices investments would decrease fair value december 31 2006 approximately 20 million 20 percent decrease believed reasonably possible nearterm change share prices nonpublicly traded equity securities abbott holds equity securities strategic technology acquisitions traded public stock exchanges carrying value investments approximately 33 million 17 million december 31 2006 2005 respectively individual investment excess 13 million abbott monitors investments temporary declines market value charges impairment losses income temporary decline estimated value occurs interest rate sensitive financial instruments december 31 2006 2005 abbott interest rate hedge contracts totaling 15 billion manage exposure changes fair value debt due 2009 2014 effect hedges change fixed interest rate variable rate abbott use derivative financial instruments interest rate swaps manage exposure changes interest rates investment securities december 31 2006 abbott 50 billion domestic commercial paper outstanding average annual interest rate 53 average remaining life 38 days fair market value longterm debt december 31 2006 2005 amounted 71 billion 64 billion respectively average interest rates 47 42 respectively maturities 2023 december 31 2006 2005 fair market value current longterm investment securities amounted 941 million 80 million respectively hypothetical 100basis point change interest rates would material effect cash flows income market values 100basis point change believed reasonably possible nearterm change rates foreign currency sensitive financial instruments abbott enters foreign currency forward exchange contracts manage exposure foreign currency denominated intercompany loans trade payables thirdparty trade payables receivables contracts markedtomarket resulting gains losses reflected income generally offset losses gains foreign currency exposure managed december 31 2006 2005 abbott held 56 billion 39 billion respectively contracts mature next twelve months addition certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts designated cash flow hedges variability cash flows due changes foreign exchange rates markedtomarket resulting gains losses reflected accumulated comprehensive income loss gains losses included cost products sold time products sold generally within next twelve months december 31 2006 2005 abbott held 768 million 222 million respectively contracts mature following calendar year following table reflects total foreign currency forward contracts outstanding december 31 2006 2005 item 8 item 7a quantitative qualitative disclosures market risk financial instruments risk management investment boston scientific common stock note receivable december 31 2007 abbott held 264 million shares approximately 300 million boston scientific common stock 2008 shares sold resulting small gain abbott also 900 million loan due april 2011 whollyowned subsidiary boston scientific december 31 2008 2007 subject credit risk market price sensitive investments abbott holds availableforsale equity securities strategic technology acquisitions excluding boston scientific market value investments approximately 105 million 193 million respectively december 31 2008 2007 abbott monitors investments temporary declines market value charges impairment losses income temporary decline value occurs hypothetical 20 percent decrease share prices investments would decrease fair value december 31 2008 approximately 21 million 20 percent decrease believed reasonably possible nearterm change share prices nonpublicly traded equity securities abbott holds equity securities strategic technology acquisitions traded public stock exchanges carrying value investments approximately 42 million 37 million december 31 2008 2007 respectively individual investment excess 13 million abbott monitors investments temporary declines market value charges impairment losses income temporary decline estimated value occurs interest rate sensitive financial instruments december 31 2008 2007 abbott interest rate hedge contracts totaling 25 billion 15 billion respectively manage exposure changes fair value debt due 2009 2017 effect hedges change fixed interest rate variable rate abbott use derivative financial instruments interest rate swaps manage exposure changes interest rates investment securities december 31 2008 abbott 10 billion domestic commercial paper outstanding average annual interest rate 02 average remaining life 11 days fair value longterm debt december 31 2008 2007 amounted 105 billion 106 billion respectively average interest rates 52 50 respectively maturities 2037 december 31 2008 2007 fair value current longterm investment securities amounted 18 billion 896 million respectively hypothetical 100basis point change interest rates would material effect cash flows income market values 100basis point change believed reasonably possible nearterm change rates foreign currency sensitive financial instruments abbott enters foreign currency forward exchange contracts manage exposure foreign currency denominated intercompany loans trade payables thirdparty trade payables receivables contracts markedtomarket resulting gains losses reflected income generally offset losses gains foreign currency exposure managed december 31 2008 2007 abbott held 83 billion 55 billion respectively contracts mature next twelve months addition certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts designated cash flow hedges variability cash flows due changes foreign currency exchange rates markedtomarket resulting gains losses reflected accumulated comprehensive income loss gains losses included cost products sold time products sold generally within next twelve months december 31 2008 2007 abbott held 129 million 281 million respectively contracts mature following calendar year abbott designated approximately 585 million foreign denominated shortterm debt hedge net investment certain foreign subsidiaries accordingly changes fair value debt due changes exchange rates recorded accumulated comprehensive income loss following table reflects total foreign currency forward contracts outstanding december 31 2008 2007 dollars millions item 8 item 7a quantitative qualitative disclosures market risk incorporated herein reference section captioned financial instruments risk management 1998 annual report item 8 item 7a quantitative qualitative disclosures market risk financial instruments risk management market price sensitive investments fair value equity securities held abbott readily determinable fair value approximately 11 million 13 million december 31 2019 2018 respectively equity securities subject potential changes fair value hypothetical 20 percent decrease share prices investments would decrease fair value december 31 2019 approximately 2 million changes fair value securities recorded earnings fair value investments mutual funds held rabbi trust purpose paying benefits deferred compensation plan approximately 346 million 307 million december 31 2019 2018 respectively changes fair value investments well offsetting change benefit obligation recorded earnings nonpublicly traded equity securities abbott holds equity securities traded public stock exchanges carrying value investments 158 million 211 million december 31 2019 2018 respectively individual investment recorded value excess 61 million abbott measures investments cost minus impairment plus minus changes resulting observable price changes orderly transactions identical similar investment issuer interest rate sensitive financial instruments december 31 2019 2018 abbott interest rate hedge contracts totaling 29 billion manage exposure changes fair value debt effect hedges change fixed interest rate variable rate portion debt hedged abbott use derivative financial instruments interest rate swaps manage exposure changes interest rates investment securities fair value longterm debt december 31 2019 2018 amounted 208 billion 199 billion respectively average interest rates 33 35 december 31 2019 2018 respectively maturities 2046 december 31 2019 2018 fair value current longterm investment securities amounted approximately 12 billion 11 billion respectively hypothetical 100basis point change interest rates would material effect cash flows income fair values 100basis point change believed reasonably possible nearterm change rates foreign currency sensitive financial instruments certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts designated cash flow hedges variability cash flows due changes foreign currency exchange rates markedtomarket resulting gains losses reflected accumulated comprehensive income loss gains losses included cost products sold time products sold generally within next twelve eighteen months december 31 2019 2018 abbott held 68 billion 51 billion respectively contracts held december 31 2019 mature 2020 2021 depending upon contract contracts held december 31 2018 matured 2019 mature 2020 depending upon contract abbott enters foreign currency forward exchange contracts manage exposure foreign currency denominated intercompany loans trade payables thirdparty trade payables receivables contracts markedtomarket resulting gains losses reflected income generally offset losses gains foreign currency exposure managed december 31 2019 2018 abbott held 91 billion 136 billion respectively contracts mature next 13 months november 2019 abbott borrowed ¥598 billion 5year term loan designated yendenominated loan hedge net investment certain foreign subsidiaries date borrowing december 31 2019 value longterm debt decreased approximately 4 million 546 million due foreign exchange rate changes change value recorded accumulated comprehensive income loss net tax march 2017 abbott repaid 479 million yendenominated shortterm debt designated hedge net investment foreign subsidiary december 31 2016 value shortterm debt 454 million changes fair value debt date repayment due changes exchange rates recorded accumulated comprehensive income loss net tax following table reflects total foreign currency forward exchange contracts outstanding december 31 2019 2018 item 8 item 7a quantitative qualitative disclosures market risk financial instruments risk management investment boston scientific common stock note receivable december 31 2007 abbott held 264 million shares approximately 300 million boston scientific common stock subsequent year end shares sold resulting small gain december 31 2006 abbott held 646 million shares approximately 1 billion boston scientific common stock abbott also 900 million loan due april 2011 whollyowned subsidiary boston scientific december 31 2007 2006 subject credit risk market price sensitive investments abbott holds availableforsale equity securities strategic technology acquisitions excluding boston scientific market value investments approximately 193 million 97 million respectively december 31 2007 2006 abbott monitors investments temporary declines market value charges impairment losses income temporary decline value occurs hypothetical 20 percent decrease share prices investments would decrease fair value december 31 2007 approximately 39 million 20 percent decrease believed reasonably possible nearterm change share prices nonpublicly traded equity securities abbott holds equity securities strategic technology acquisitions traded public stock exchanges carrying value investments approximately 37 million 33 million december 31 2007 2006 respectively individual investment excess 13 million abbott monitors investments temporary declines market value charges impairment losses income temporary decline estimated value occurs interest rate sensitive financial instruments december 31 2007 2006 abbott interest rate hedge contracts totaling 15 billion manage exposure changes fair value debt due 2009 2014 effect hedges change fixed interest rate variable rate abbott use derivative financial instruments interest rate swaps manage exposure changes interest rates investment securities fair value longterm debt december 31 2007 2006 amounted 106 billion 71 billion respectively average interest rates 50 47 respectively maturities 2037 december 31 2007 2006 fair market value current longterm investment securities amounted 896 million 941 million respectively hypothetical 100basis point change interest rates would material effect cash flows income market values 100basis point change believed reasonably possible nearterm change rates foreign currency sensitive financial instruments abbott enters foreign currency forward exchange contracts manage exposure foreign currency denominated intercompany loans trade payables thirdparty trade payables receivables contracts markedtomarket resulting gains losses reflected income generally offset losses gains foreign currency exposure managed december 31 2007 2006 abbott held 55 billion 56 billion respectively contracts mature next twelve months addition certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts designated cash flow hedges variability cash flows due changes foreign exchange rates markedtomarket resulting gains losses reflected accumulated comprehensive income loss gains losses included cost products sold time products sold generally within next twelve months december 31 2007 2006 abbott held 281 million 768 million respectively contracts mature following calendar year abbott designated approximately 17 billion foreign denominated shortterm debt hedge net investment certain foreign subsidiaries accordingly changes fair value debt due changes exchange rates recorded accumulated comprehensive income loss following table reflects total foreign currency forward contracts outstanding december 31 2007 2006 item 8 item 7a quantitative qualitative disclosures market risk financial instruments risk management market price sensitive investments fair value availableforsale equity securities held abbott approximately 38 billion 9 million december 31 2015 2014 respectively increase due primarily shares mylan nv abbott received sale developed markets branded generics pharmaceuticals business continued hold december 31 2015 availableforsale equity securities subject potential changes fair value hypothetical 20 percent decrease share prices investments would decrease fair value december 31 2015 approximately 750 million abbott monitors investments temporary declines fair value charges impairment losses income temporary decline fair value occurs nonpublicly traded equity securities abbott holds equity securities strategic technology acquisitions traded public stock exchanges carrying value investments approximately 120 million 100 million december 31 2015 2014 respectively individual investment recorded value excess 25 million abbott monitors investments temporary declines market value charges impairment losses income temporary decline estimated fair value occurs interest rate sensitive financial instruments december 31 2015 2014 abbott interest rate hedge contracts totaling 40 billion 15 billion respectively manage exposure changes fair value debt effect hedges change fixed interest rate variable rate portion debt hedged abbott use derivative financial instruments interest rate swaps manage exposure changes interest rates investment securities december 31 2015 abbott 27 billion domestic commercial paper outstanding average annual interest rate 031 average remaining life 27 days fair value longterm debt december 31 2015 2014 amounted 63 billion 41 billion respectively average interest rates 41 53 december 31 2015 2014 respectively maturities 2040 december 31 2015 2014 fair value current longterm investment securities amounted approximately 52 billion 626 million respectively hypothetical 100basis point change interest rates would material effect cash flows income fair values 100basis point change believed reasonably possible nearterm change rates foreign currency sensitive financial instruments certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts designated cash flow hedges variability cash flows due changes foreign currency exchange rates markedtomarket resulting gains losses reflected accumulated comprehensive income loss gains losses included cost products sold time products sold generally within next twelve eighteen months december 31 2015 2014 abbott held 24 billion 15 billion respectively contracts held december 31 2015 mature 2016 2017 depending upon contract contracts held december 31 2014 matured 2015 mature 2016 depending upon contract abbott enters foreign currency forward exchange contracts manage exposure foreign currency denominated intercompany loans trade payables thirdparty trade payables receivables contracts markedtomarket resulting gains losses reflected income generally offset losses gains foreign currency exposure managed december 31 2015 2014 abbott held 140 billion 141 billion respectively contracts generally mature next twelve months abbott designated foreign denominated shortterm debt approximately 439 million approximately 445 million december 31 2015 2014 respectively hedge net investment foreign subsidiary accordingly changes fair value debt due changes exchange rates recorded accumulated comprehensive income loss net tax following table reflects total foreign currency forward contracts outstanding december 31 2015 2014 item 8 item 7a quantitative qualitative disclosures market risk financial instruments risk management market price sensitive investments abbott holds availableforsale equity securities strategic technology acquisitions market value investments approximately 93 million 75 million december 31 2011 2010 respectively abbott monitors investments temporary declines market value charges impairment losses income temporary decline value occurs hypothetical 20 percent decrease share prices investments would decrease fair value december 31 2011 approximately 18 million 20 percent decrease believed reasonably possible nearterm change share prices nonpublicly traded equity securities abbott holds equity securities strategic technology acquisitions traded public stock exchanges carrying value investments approximately 224 million 165 million december 31 2011 2010 respectively one equity investment recorded 124 million individual investment excess 18 million abbott monitors investments temporary declines market value charges impairment losses income temporary decline estimated value occurs interest rate sensitive financial instruments december 31 2011 2010 abbott interest rate hedge contracts totaling 68 billion 73 billion respectively manage exposure changes fair value debt effect hedges change fixed interest rate variable rate abbott use derivative financial instruments interest rate swaps manage exposure changes interest rates investment securities december 31 2011 abbott 450 million domestic commercial paper outstanding average annual interest rate 007 average remaining life 12 days fair value longterm debt december 31 2011 2010 amounted 151 billion 157 billion respectively average interest rates 52 maturities 2040 december 31 2011 2010 fair value current longterm investment securities amounted approximately 17 billion 21 billion respectively hypothetical 100basis point change interest rates would material effect cash flows income market values 100basis point change believed reasonably possible nearterm change rates foreign currency sensitive financial instruments certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts designated cash flow hedges variability cash flows due changes foreign currency exchange rates markedtomarket resulting gains losses reflected accumulated comprehensive income loss gains losses included cost products sold time products sold generally within next twelve months december 31 2011 2010 abbott held 16 billion 13 billion respectively contracts mature following calendar year abbott enters foreign currency forward exchange contracts manage exposure foreign currency denominated intercompany loans trade payables thirdparty trade payables receivables contracts markedtomarket resulting gains losses reflected income generally offset losses gains foreign currency exposure managed december 31 2011 2010 abbott held 157 billion 108 billion respectively contracts mature next twelve months abbott designated foreign denominated shortterm debt approximately 680 million approximately 650 million december 31 2011 2010 respectively hedge net investment foreign subsidiary accordingly changes fair value debt due changes exchange rates recorded accumulated comprehensive income loss net tax following table reflects total foreign currency forward contracts outstanding december 31 2011 2010 dollars millions item 8 item 7a quantitative qualitative disclosures market risk incorporated herein reference section captioned financial instruments risk management 1999 annual report item 8 item 7a quantitative qualitative disclosures market risk financial instruments risk management unaudited interest rate sensitive financial instruments abbott currently use derivative financial instruments interest rate swaps manage exposure changes interest rates debt instruments investment securities december 31 2000 1999 abbott 185 million 855 million respectively domestic commercial paper outstanding average interest rate 65 58 respectively average remaining life three days 13 days respectively fair market value longterm debt december 31 2000 1999 amounted 13 billion consisted primarily fixed rate average 61 debt maturities 2023 december 31 2000 1999 fair market value current longterm investment securities maturing 2023 amounted 571 million 734 million respectively approximately 10 percent 15 percent investments december 31 2000 1999 respectively fixed interest rates average 69 remaining investments variable rates hypothetical 100basis point change interest rates would material effect cash flows income market values 100basis point change reasonably possible nearterm change rates market price sensitive financial instruments abbott maintains portfolio availableforsale equity securities strategic technology acquisitions market value investments approximately 215 million 282 million respectively december 31 2000 1999 hypothetical 20 percent decrease share prices investments would decrease fair value approximately 43 million 20 percent decrease reasonably possible nearterm change share prices foreign currency sensitive financial instruments purchased us dollar call options abbotts foreign subsidiaries purchase us dollar call options hedge anticipated intercompany purchases foreign subsidiaries whose functional currency primarily european currencies japanese yen us dollar december 31 2000 contracts outstanding december 31 1999 abbott held 85 million contracts foreign currency forward exchange contracts abbott enters foreign currency forward exchange contracts manage exposure foreign currency denominated intercompany loans trade payables thirdparty trade payables receivables contracts markedtomarket resulting gains losses reflected income generally offset losses gains foreign currency exposure hedged december 31 2000 1999 abbott held 13 billion 14 billion respectively contracts mature next calendar year following table reflects contracts outstanding december 31 2000 1999 item 8 item 7a quantitative qualitative disclosures market risk financial instruments risk management market price sensitive investments fair value availableforsale equity securities held abbott approximately 11 million 27 billion december 31 2017 2016 respectively yearoveryear decrease primarily due sale remaining ordinary shares mylan nv abbott received sale developed markets branded generics pharmaceuticals business december 31 2017 abbott longer held ownership interest mylan nv availableforsale equity securities subject potential changes fair value hypothetical 20 percent decrease share prices investments would decrease fair value december 31 2017 approximately 2 million abbott monitors investments temporary declines fair value charges impairment losses income temporary decline fair value occurs abbott also holds 363 million investments mutual funds held rabbi trust purpose paying benefits deferred compensation plan investments classified trading securities nonpublicly traded equity securities abbott holds equity securities strategic technology acquisitions traded public stock exchanges carrying value investments approximately 263 million 151 million december 31 2017 2016 respectively individual investment recorded value excess 67 million abbott monitors investments temporary declines market value charges impairment losses income temporary decline estimated fair value occurs interest rate sensitive financial instruments december 31 2017 2016 abbott interest rate hedge contracts totaling 40 billion 55 billion respectively manage exposure changes fair value debt effect hedges change fixed interest rate variable rate portion debt hedged abbott use derivative financial instruments interest rate swaps manage exposure changes interest rates investment securities fair value longterm debt december 31 2017 2016 amounted 290 billion 211 billion respectively average interest rates 36 38 december 31 2017 2016 respectively maturities 2046 december 31 2017 2016 fair value current longterm investment securities amounted approximately 11 billion 31 billion respectively hypothetical 100basis point change interest rates would material effect cash flows income fair values 100basis point change believed reasonably possible nearterm change rates foreign currency sensitive financial instruments certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts designated cash flow hedges variability cash flows due changes foreign currency exchange rates markedtomarket resulting gains losses reflected accumulated comprehensive income loss gains losses included cost products sold time products sold generally within next twelve eighteen months december 31 2017 2016 abbott held 33 billion 26 billion respectively contracts held december 31 2017 mature 2018 2019 depending upon contract contracts held december 31 2016 matured 2017 mature 2018 depending upon contract december 31 2016 107 million notional amount related amo business divested first quarter 2017 abbott enters foreign currency forward exchange contracts manage exposure foreign currency denominated intercompany loans trade payables thirdparty trade payables receivables contracts markedtomarket resulting gains losses reflected income generally offset losses gains foreign currency exposure managed december 31 2017 2016 abbott held 201 billion 149 billion respectively contracts generally mature next twelve months december 31 2016 12 billion contracts related amo business divested first quarter 2017 march 2017 abbott repaid 479 million foreign denominated shortterm debt designated hedge net investment foreign subsidiary december 31 2016 2015 value shortterm debt 454 million 439 million respectively changes fair value debt date repayment due changes exchange rates recorded accumulated comprehensive income loss net tax following table reflects total foreign currency forward contracts outstanding december 31 2017 2016 item 8 item 7a quantitative qualitative disclosures market risk financial instruments risk management investment boston scientific note receivable december 31 2009 2008 abbott 900 million loan whollyowned subsidiary boston scientific payable abbott april 2011 subject credit risk market price sensitive investments abbott holds availableforsale equity securities strategic technology acquisitions market value investments approximately 75 million 105 million respectively december 31 2009 2008 abbott monitors investments temporary declines market value charges impairment losses income temporary decline value occurs hypothetical 20 percent decrease share prices investments would decrease fair value december 31 2009 approximately 15 million 20 percent decrease believed reasonably possible nearterm change share prices nonpublicly traded equity securities abbott holds equity securities strategic technology acquisitions traded public stock exchanges carrying value investments approximately 78 million 42 million december 31 2009 2008 respectively individual investment excess 18 million abbott monitors investments temporary declines market value charges impairment losses income temporary decline estimated value occurs interest rate sensitive financial instruments december 31 2009 2008 abbott interest rate hedge contracts totaling 55 billion 25 billion respectively manage exposure changes fair value debt due 2011 2019 effect hedges change fixed interest rate variable rate abbott use derivative financial instruments interest rate swaps manage exposure changes interest rates investment securities december 31 2009 abbott 29 billion domestic commercial paper outstanding average annual interest rate 01 average remaining life 22 days fair value longterm debt december 31 2009 2008 amounted 123 billion 105 billion respectively average interest rates 53 52 respectively maturities 2039 december 31 2009 2008 fair value current longterm investment securities amounted 21 billion 18 billion respectively hypothetical 100basis point change interest rates would material effect cash flows income market values 100basis point change believed reasonably possible nearterm change rates foreign currency sensitive financial instruments abbott enters foreign currency forward exchange contracts manage exposure foreign currency denominated intercompany loans trade payables thirdparty trade payables receivables contracts markedtomarket resulting gains losses reflected income generally offset losses gains foreign currency exposure managed december 31 2009 2008 abbott held 75 billion 83 billion respectively contracts mature next twelve months addition certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts designated cash flow hedges variability cash flows due changes foreign currency exchange rates markedtomarket resulting gains losses reflected accumulated comprehensive income loss gains losses included cost products sold time products sold generally within next twelve months december 31 2009 2008 abbott held 20 billion 129 million respectively contracts mature following calendar year abbott designated foreign denominated shortterm debt approximately 575 million approximately 585 million december 31 2009 2008 respectively hedge net investment certain foreign subsidiaries accordingly changes fair value debt due changes exchange rates recorded accumulated comprehensive income loss net tax following table reflects total foreign currency forward contracts outstanding december 31 2009 2008 dollars millions page left blank intentionally item 8 item 8 financial statements supplementary data page consolidated statement earnings consolidated statement comprehensive income consolidated statement cash flows consolidated balance sheet consolidated statement shareholders investment notes consolidated financial statements management report internal control financial reporting reports independent registered public accounting firm abbott laboratories subsidiaries consolidated statement earnings millions except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement comprehensive income millions accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement cash flows millions accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated balance sheet dollars millions abbott laboratories subsidiaries consolidated balance sheet dollars millions accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement shareholders investment millions except shares per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries notes consolidated financial statements note 1 summary significant accounting policies nature business abbotts principal business discovery development manufacture sale broad line health care products changes presentation due abbvie separation january 1 2013 abbott completed separation abbvie inc formed hold abbotts researchbased proprietary pharmaceuticals business historical operating results researchbased proprietary pharmaceuticals business prior separation excluded earnings continuing operations presented earnings discontinued operations line abbotts consolidated statement earnings assets liabilities cash flows researchbased proprietary pharmaceuticals business included abbotts consolidated balance sheet consolidated statements cash flows periods prior january 1 2013 see note 2 additional information basis consolidation change accounting principle consolidated financial statements include accounts parent company subsidiaries elimination intercompany transactions prior january 1 2011 accounts foreign subsidiaries consolidated based fiscal year ended november 30 due time needed consolidate subsidiaries effective january 1 2011 one month lag consolidation accounts foreign subsidiaries eliminated yearend foreign subsidiaries changed december 31 abbott believes change accounting principle related elimination one month reporting lag preferable results contemporaneous reporting results foreign subsidiaries accordance applicable accounting literature change subsidiaries yearend treated change accounting principle requires retrospective application impact change material results operations previously reported annual interim periods january 1 2009 thus results revised charge 137 million recorded 2011 recognize cumulative immaterial impacts 2009 2010 37 million recognized results discontinued operations consolidated statements cash flows 2012 2011 appropriately revised reflect acquisition contingent consideration payments related certain business acquisitions cash flow used financing activities amounts previously reflected cash flow used investing activities use estimates financial statements prepared accordance generally accepted accounting principles united states necessarily include amounts based estimates assumptions management actual results could differ amounts significant estimates include amounts sales rebates income taxes pension postemployment benefits valuation intangible assets litigation derivative financial instruments inventory accounts receivable exposures foreign currency translation statements earnings foreign subsidiaries whose functional currencies us dollar translated us dollars using average exchange rates period net assets foreign subsidiaries whose functional currencies us dollar translated us dollars using exchange rates balance sheet date us dollar effects arise translating net assets subsidiaries changing rates recorded foreign currency translation adjustment account included equity component accumulated comprehensive income loss transaction gains losses recorded earnings significant periods presented abbott laboratories subsidiaries notes consolidated financial statements continued note 1 summary significant accounting policies continued revenue recognition revenue product sales recognized upon passage title risk loss customers provisions discounts rebates sales incentives customers returns adjustments provided period related sales recorded sales incentives customers material historical data readily available reliable used estimating amount reduction gross sales revenue launch new product improved version existing product shipments excess customers normal requirements recorded conditions noted met situations management records returns reserve revenue necessary certain abbotts businesses primarily within diagnostics medical optics abbott participates selling arrangements include multiple deliverables eg instruments reagents procedures service agreements arrangements abbott recognizes revenue upon delivery product performance service allocates revenue based relative selling price deliverable based primarily vendor specific objective evidence sales product rights marketable products recorded revenue upon disposition rights revenue license product rights performance research selling activities recorded periods earned income taxes deferred income taxes provided tax effect differences tax bases assets liabilities reported amounts financial statements enacted statutory rate effect taxes paid us income taxes provided earnings foreign subsidiaries intended remitted parent company deferred income taxes provided undistributed earnings reinvested indefinitely foreign subsidiaries working capital plant equipment interest penalties income tax obligations included taxes income earnings per share unvested restricted stock contain nonforfeitable rights dividends treated participating securities included computation earnings per share twoclass method twoclass method net earnings allocated common shares participating securities earnings continuing operations allocated common shares 2013 2012 2011 2366 billion 575 million 1123 billion respectively net earnings allocated common shares 2013 2012 2011 2558 billion 5917 billion 4714 billion respectively pension postemployment benefits abbott accrues actuarially determined cost pension postemployment benefits service attribution periods employees abbott must develop longterm assumptions significant health care cost trend rates discount rates expected return plan assets differences expected longterm return plan assets actual return amortized fiveyear period actuarial losses gains amortized remaining service attribution periods employees corridor method fair value measurements assets liabilities measured using quoted prices active markets total fair value published market price per unit multiplied number units held without consideration transaction costs assets liabilities measured using significant observable inputs valued reference similar assets liabilities adjusted contract restrictions terms specific asset liability items significant portion fair value derived reference quoted prices similar assets liabilities active markets remaining assets liabilities fair value derived using fair value model discounted cash flow model blackscholes model purchased intangible assets recorded fair value fair value abbott laboratories subsidiaries notes consolidated financial statements continued note 1 summary significant accounting policies continued significant purchased intangible assets based independent appraisals abbott uses discounted cash flow model value intangible assets discounted cash flow model requires assumptions timing amount future net cash flows risk cost capital terminal values market participants intangible assets goodwill indefinitelived intangible assets reviewed impairment least quarterly annual basis respectively sharebased compensation value stock options restricted stock awards units amortized service period could shorter vesting period employee retirement eligible charge compensation expense litigation abbott accounts litigation losses accordance fasb asc 450 contingencies asc 450 loss contingency provisions recorded probable losses managements best estimate loss best estimate cannot made minimum loss contingency amount recorded legal fees recorded incurred cash equivalents investments cash equivalents consist bank time deposits us treasury bills original maturities three months less investments marketable equity securities classified availableforsale recorded fair value unrealized holding gains losses net tax included accumulated comprehensive income loss investments equity securities traded public stock exchanges recorded cost investments debt securities classified heldtomaturity management intent ability hold securities maturity reported cost net unamortized premium discount income relating securities reported interest income abbott reviews carrying value investments quarter determine whether temporary decline market value exists abbott considers factors affecting investee factors affecting industry investee operates general equity market trends abbott considers length time investments market value carrying value nearterm prospects recovery carrying value abbott determines temporary decline occurred investment written charge income expense net trade receivable valuations accounts receivable stated net realizable value allowance gross trade receivables reflects best estimate probable losses inherent receivables portfolio determined basis historical experience specific allowances known troubled accounts currently available information accounts receivable charged reasonable means collect full amount including litigation appropriate exhausted inventories stated lower cost firstin firstout basis market cost includes material conversion costs property equipment depreciation amortization provided straightline basis estimated useful lives assets following table shows estimated useful lives property equipment abbott laboratories subsidiaries notes consolidated financial statements continued note 1 summary significant accounting policies continued product liability abbott accrues product liability claims probable liability incurred amount liability reasonably estimated based existing information liabilities adjusted quarterly additional information becomes available receivables insurance recoveries product liability claims recorded assets undiscounted basis probable recovery realized product liability losses selfinsured research development costs internal research development costs expensed incurred clinical trial costs incurred third parties expensed contracted work performed contingent milestone payments due third parties research development arrangements milestone payment obligations expensed milestone results achieved acquired inprocess collaborations research development iprd initial costs rights iprd projects obtained asset acquisition expensed iprd unless project alternative future use costs include initial payments incurred prior regulatory approval connection research development collaboration agreements provide rights develop manufacture market andor sell pharmaceutical products fair value iprd projects acquired business combination capitalized accounted indefinitelived intangible assets concentration risk guarantees due nature operations abbott subject significant concentration risks relating customers products geographic locations governmental accounts italy spain greece portugal accounted 12 percent 16 percent total net trade receivables december 31 2013 2012 respectively product warranties significant abbott material exposures offbalance sheet arrangements special purpose entities activities include nonexchangetraded contracts accounted fair value abbott periodically entered agreements ordinary course business assignment product rights companies resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote abbott periodically acquires business product rights abbott agrees pay contingent consideration based attaining certain thresholds based occurrence certain events recently adopted accounting pronouncements february 2013 fasb issued standard pertaining reporting amounts reclassified accumulated comprehensive income aoci standard requires entity provide component information regarding amounts reclassified aoci line items statement operations amounts reclassified guidance effective prospectively reporting periods beginning december 15 2012 abbotts adoption guidance first quarter 2013 material impact results operations financial position note 2 separation abbvie inc november 28 2012 abbotts board directors declared special dividend distribution outstanding shares common stock abbvie inc abbvie company formed hold abbotts abbott laboratories subsidiaries notes consolidated financial statements continued note 2 separation abbvie inc continued researchbased proprietary pharmaceuticals business abbott common share held close business december 12 2012 abbott shareholders received one share abbvie stock january 1 2013 abbott received ruling internal revenue service separation qualifies taxfree distribution abbott us shareholders us federal income tax purposes historical operating results researchbased proprietary pharmaceuticals business prior separation excluded earnings continuing operations presented earnings discontinued operations line discontinued operations include results abbvies business except certain corporate overhead costs certain costs associated transition services provided abbott abbvie discontinued operations also includes costs incurred abbott separate abbvie well allocation interest assuming uniform ratio consolidated debt equity abbotts historical operations assets liabilities cash flows researchbased proprietary pharmaceuticals business included abbotts consolidated balance sheet consolidated statements cash flows periods prior january 1 2013 following summary assets liabilities transferred abbvie part separation january 1 2013 addition approximately 1 billion accumulated comprehensive losses net income taxes primarily related pension benefit plan net liabilities well foreign translation transferred abbvie 2013 operating results related discontinued operations favorable adjustment tax expense 193 million result resolution various tax positions related abbott laboratories subsidiaries notes consolidated financial statements continued note 2 separation abbvie inc continued abbvies operations prior separation summarized financial information discontinued operations 2012 2011 follows abbott abbvie entered transitional services agreements prior separation pursuant abbott abbvie providing various services interim transitional basis transition services may provided 24 months option oneyear extension recipient services provided abbott include certain information technology back office support billings abbott transitional services agreements recorded reduction costs provide respective service applicable expense category consolidated statement earnings transitional support enable abbvie establish standalone processes various activities previously provided abbott constitute significant continuing support abbvies operations small portion abbvies operations legal transfer abbvies assets net liabilities occur separation abbvie january 1 2013 due time required transfer marketing authorizations regulatory requirements countries terms separation agreement abbott abbvie subject risks entitled benefits generated operations assets majority operations transferred abbvie 2013 remainder transferring 2014 assets liabilities presented held disposition consolidated balance sheet december 31 2013 assets liabilities held disposition consist inventories 243 million trade accounts receivable 163 million current assets 32 million equipment 28 million assets 38 million trade accounts payable accrued liabilities 386 million liabilities 7 million abbotts obligation transfer net assets held disposition abbvie 111 million included accrued liabilities abbott retained liabilities us federal foreign income taxes income prior separation well certain nonincome taxes attributable abbvies business abbvie generally liable taxes attributable business connection separation abbott adjusted employee stock compensation awards separated defined benefit programs pensions postemployment medical dental benefit plans see notes 8 12 additional information note 3 supplemental financial information income expense net 2013 primarily relates gains sales equity securities loss extinguishment debt 135 billion 2012 relates early redemption 77 billion longterm notes loss consists premium paid notes write deferred financing costs totaling 183 billion partially offset gain 479 million related unwinding interest rate swaps related portion debt discussed note 1 abbott laboratories subsidiaries notes consolidated financial statements continued note 3 supplemental financial information continued income expense net 2011 includes charge 100 million recognize cumulative immaterial impacts 2009 2010 relating change year end foreign subsidiaries detail various balance sheet components follows reduction longterm investments december 31 2012 december 31 2013 due primarily separation abbvie january 1 2013 aaccrued wholesaler chargeback rebates approximately 90 millon 300 million december 31 2013 2012 respectively netted trade receivables abbotts customers invoiced higher catalog price remit abbott contract price products reduction chargeback rebates december 31 2012 december 31 2013 primarily due separation abbvie january 1 2013 b2013 2012 includes acquisition consideration payable approximately 400 million related primarily acquisition piramal healthcare limiteds healthcare solutions business c2013 includes 13 billion gross unrecognized tax benefits well 70 million acquisition consideration payable 2012 includes 14 billion gross unrecognized tax benefits well acquisition consideration payable 385 million related acquisition piramal healthcare limiteds healthcare solutions business abbott laboratories subsidiaries notes consolidated financial statements continued note 4 accumulated comprehensive income components changes accumulated comprehensive income continuing operation net income taxes follows millions areclassified amounts foreign currency translation recorded consolidated statement earnings net foreign exchange loss gain gains marketable equity securities recorded income expense gainslosses related cash flow hedges recorded cost product sold net actuarial losses prior service cost included component net periodic benefit plan cost see note 12 additional information note 5 business acquisitions august 2013 abbott acquired 100 percent idev technologies net debt 310 million cash acquisition idev technologies expands abbotts endovascular portfolio allocation fair value acquisition resulted nondeductible acquired inprocess research development approximately 170 million accounted indefinitelived intangible asset regulatory approval discontinuation nondeductible definitelived intangible assets approximately 66 million nondeductible goodwill approximately 123 million net deferred tax liabilities 56 million acquired intangible assets consist developed technology amortized 11 years abbott laboratories subsidiaries notes consolidated financial statements continued note 5 business acquisitions continued august 2013 abbott acquired 100 percent optimedica 260 million cash plus additional payments 150 million made upon completion certain development regulatory sales milestones acquisition optimedica provides abbott immediate entry point laser assisted cataract surgery market allocation fair value acquisition resulted nondeductible definitelived intangible assets approximately 160 million nondeductible acquired inprocess research development approximately 60 million accounted indefinitelived intangible asset regulatory approval discontinuation nondeductible goodwill approximately 151 million net deferred tax liabilities 70 million contingent consideration approximately 70 million fair value contingent consideration determined based independent appraisal acquired intangible assets consist primarily developed technology amortized 18 years preliminary allocations fair value acquisitions finalized valuations completed acquisitions taken place january 1 previous year consolidated net sales income would significantly different reported amounts note 6 goodwill intangible assets abbott recorded goodwill approximately 274 million 2013 related acquisitions idev technologies optimedica goodwill related idev acquisition allocated vascular products segment goodwill related optimedica allocated nonreportable segment foreign currency translation adjustments decreased goodwill 2013 2011 168 million 225 million respectively increased goodwill 2012 69 million addition connection separation abbvie january 1 2013 abbott transferred approximately 61 billion goodwill abbvie amount goodwill related reportable segments december 31 2013 29 billion established pharmaceutical products segment 286 million nutritional products segment 444 million diagnostic products segment 31 billion vascular products segment effects separation abbvie reductions goodwill relating disposal portion business reduction goodwill relating impairments gross amount amortizable intangible assets primarily product rights technology 122 billion 176 billion december 31 2013 2012 respectively accumulated amortization 68 billion 97 billion december 31 2013 2012 respectively indefinitelived intangible assets relate inprocess research development acquired business combination approximately 266 million 691 million december 31 2013 2012 respectively gross amortizable intangible assets accumulated amortization indefinitelived intangible assets 57 billion 38 billion 417 million respectively transferred abbvie part separation january 1 2013 2012 2011 abbott recorded impairment charges 69 million 125 million respectively certain research development assets due changes projected development regulatory timelines projects charges relate nonreportable segments discounted cash flow analysis used analyze fair value charges included research development expenses estimated annual amortization expense intangible assets recorded december 31 2013 approximately 711 million 2014 652 million 2015 636 million 2016 635 million 2017 505 million 2018 amortizable intangible assets amortized 2 20 years average 11 years abbott laboratories subsidiaries notes consolidated financial statements continued note 7 restructuring plans 2013 abbott management approved plan reduce costs improve efficiencies across various functional areas well plan streamline certain manufacturing operations order reduce costs improve efficiencies abbotts established pharmaceuticals business addition 2012 abbott management approved plans streamline various commercial operations order reduce costs improve efficiencies abbotts core diagnostics established pharmaceutical nutritionals businesses abbott recorded employee related severance charges approximately 78 million 2013 167 million 2012 additional charges approximately 4 million 2013 22 million 2012 also recorded primarily asset impairments approximately 35 million 2013 70 million 2012 recorded cost products sold approximately 47 million 2013 119 million selling general administrative expense 2012 significant cash payments made 2012 relating 2012 actions following summarizes activity restructurings millions 2013 prior years abbott management approved plans realign worldwide pharmaceutical vascular manufacturing operations selected domestic international commercial research development operations order reduce costs 2013 abbott recorded employee severance charges approximately 11 million 2011 abbott recorded charges approximately 194 million reflecting impairment manufacturing facilities assets employee severance related charges approximately 11 million 2013 18 million 2011 classified cost products sold remaining 2011 charge 176 million related businesses transferred abbvie recognized results discontinued operations following summarizes activity restructurings millions additional 41 million 110 million 25 million recorded 2013 2012 2011 respectively relating restructurings primarily accelerated depreciation 2012 2010 abbott management approved restructuring plans primarily related acquisition solvays pharmaceuticals business plans streamline operations improve efficiencies reduce costs certain solvay sites functions well certain abbott solvay commercial abbott laboratories subsidiaries notes consolidated financial statements continued note 7 restructuring plans continued organizations various countries 2012 abbott recorded charge approximately 150 million employee severance contractual obligations primarily related exit research development facility charges related businesses transferred abbvie recognized results discontinued operations accrued restructuring reserves 115 million december 31 2012 related actions transferred abbvie january 1 2013 part separation remaining accruals reported abbotts balance sheet december 31 2013 2011 2008 abbott management approved plans streamline global manufacturing operations reduce overall costs improve efficiencies abbotts core diagnostic business 2011 charge 28 million recorded cost products sold following summarizes activity restructurings millions addition charges approximately 16 million 42 million recorded 2012 2011 primarily accelerated depreciation product transfer costs note 8 incentive stock program 2009 incentive stock program authorizes granting nonqualified stock options restricted stock awards restricted stock units performance awards foreign benefits sharebased awards stock options replacement stock options restricted stock awards units comprise majority benefits granted currently outstanding program prior program 2013 abbott granted 4733378 stock options 918819 replacement stock options 848674 restricted stock awards 6412867 restricted stock units program purchase price shares option must least equal fair market value common stock date grant maximum term option 10 years options generally vest equally three years restricted stock awards generally vest 3 5 years restricted stock awards vest 5 years onethird award vests one year upon abbott reaching minimum return equity target restricted stock units vest three years upon vesting recipient receives one share abbott stock vested restricted stock unit aggregate fair market value restricted stock awards units recognized expense service period restricted stock awards settlement vested restricted stock units issued treasury shares abbott generally issues new shares exercises stock options abbott policy purchasing shares relating sharebased programs abbott laboratories subsidiaries notes consolidated financial statements continued note 8 incentive stock program continued connection separation abbvie january 1 2013 abbott modified outstanding equity awards granted incentive stock programs employees awards generally modified immediately following separation awardees held number awards abbott stock equal number awards abbvie stock exercise price outstanding abbott options adjusted exercise price abbvie options granted modification established intention generally preserving value awards immediately prior separation modification result additional compensation expense december 31 2013 approximately 130 million shares reserved future grants subsequent yearend reserve reduced approximately 22 million shares stock options restricted stock awards units granted board directors number restricted stock awards units outstanding weightedaverage grantdate fair value december 31 2013 january 1 2013 14385221 3013 15728503 2551 respectively number restricted stock awards units weightedaverage grantdate fair value granted vested lapsed 2013 7261541 3492 7821999 2536 782824 2934 respectively fair market value restricted stock awards units vested 2013 2012 2011 274 million 385 million 237 million respectively athe amount options outstanding weighted average exercise price revised reflect impact abbvie separation aggregate intrinsic value options outstanding exercisable december 31 2013 525 million 487 million respectively total intrinsic value options exercised 2013 2012 2011 120 million 528 million 94 million respectively total unrecognized compensation cost related sharebased compensation plans december 31 2013 amounted approximately 153 million expected recognized next three years total noncash compensation expense charged income continuing operations 2013 2012 2011 sharebased plans totaled approximately 262 million 284 million 256 million respectively tax benefit recognized approximately 84 million 87 million 71 million respectively compensation cost capitalized part inventory significant abbott laboratories subsidiaries notes consolidated financial statements continued note 8 incentive stock program continued fair value option granted 2013 2012 2011 577 680 623 respectively fair value option grant estimated using blackscholes optionpricing model following assumptions riskfree interest rate based rates available time grant zerocoupon us government issues remaining term equal options expected life average life option based historical projected exercise lapsing data expected volatility based implied volatilities traded options abbotts stock historical volatility abbotts stock expected life option dividend yield based options exercise price annual dividend rate time grant note 9 debt lines credit following summary longterm debt december 31 millions 1these notes issued abbvie inc november 2012 separation abbvie january 1 2013 abbott longer obligations related debt 2012 abbott redeemed 77 billion outstanding notes abbott incurred cost 135 billion extinguish debt net gains unwinding interest rate swaps related debt 2012 abbvie inc wholly owned subsidiary abbott issued 147 billion longterm debt maturities abbott laboratories subsidiaries notes consolidated financial statements continued note 9 debt lines credit continued ranging 3 30 years debt issued abbvie inc guaranteed abbott guarantee expiring abbvie inc separated abbott january 1 2013 principal payments required longterm debt outstanding december 31 2013 9 million 2014 10 million 2015 3 million 2016 1 million 2017 1 million 2018 33 billion 2019 thereafter december 31 2013 abbotts longterm debt rating standard poors corporation a1 moodys investors service abbott readily available financial resources including unused lines credit 50 billion support commercial paper borrowing arrangements expire 2017 abbotts weightedaverage interest rate shortterm borrowings 02 december 31 2013 04 december 31 2012 2011 note 10 financial instruments derivatives fair value measures certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts totaling 137 million december 31 2013 16 billion december 31 2012 designated cash flow hedges variability cash flows due changes foreign exchange rates recorded fair value contracts totaling 10 billion transferred abbvie part separation january 1 2013 accumulated gains losses december 31 2013 included cost products sold time products sold generally next twelve months amount hedge ineffectiveness significant 2013 2012 2011 abbott enters foreign currency forward exchange contracts manage currency exposures foreign currency denominated thirdparty trade payables receivables intercompany loans trade accounts payable receivable payable denominated currency functional currency entity intercompany loans contracts require abbott sell buy foreign currencies primarily european currencies japanese yen exchange primarily us dollars european currencies intercompany trade payables receivables currency exposures primarily us dollar european currencies japanese yen december 31 2013 2012 2011 abbott held 138 billion 182 billion 157 billion respectively foreign currency forward exchange contracts totaling 43 billion transferred abbvie part separation january 1 2013 abbott designated foreign denominated shortterm debt hedge net investment foreign subsidiary approximately 505 million 615 million 680 million december 31 2013 2012 2011 respectively accordingly changes fair value debt due changes exchange rates recorded accumulated comprehensive income loss net tax abbott party interest rate hedge contracts totaling 15 billion 95 billion 68 billion december 31 2013 2012 2011 respectively manage exposure changes fair value fixedrate debt 80 billion contracts outstanding december 31 2012 related debt issued abbvie inc fourth quarter 2012 transferred abbvie part separation january 1 2013 contracts designated fair value hedges variability fair value fixedrate debt due changes longterm benchmark interest rates effect hedge change fixedrate interest obligation variable rate portion debt abbott records abbott laboratories subsidiaries notes consolidated financial statements continued note 10 financial instruments derivatives fair value measures continued contracts fair value adjusts carrying amount fixedrate debt offsetting amount hedge ineffectiveness recorded income 2013 2012 2011 hedges gross unrealized holding gains availableforsale equity securities totaled 22 million 51 million 64 million december 31 2013 2012 2011 respectively following table summarizes amounts location certain derivative financial instruments december 31 following table summarizes activity foreign currency forward exchange contracts designated cash flow hedges debt designated hedge net investment foreign subsidiary amounts location income expense gain loss reclassified income certain derivative financial instruments amount hedge ineffectiveness significant 2013 2012 2011 hedges interest rate swaps designated fair value hedges variability fair value fixedrate debt due changes longterm benchmark interest rates hedged debt marked market offsetting effect marking interest rate swaps market carrying values fair values certain financial instruments december 31 shown table carrying values financial instruments approximate estimated fair values abbott laboratories subsidiaries notes consolidated financial statements continued note 10 financial instruments derivatives fair value measures continued counterparties financial instruments consist select major international financial institutions abbott expect losses nonperformance counterparties abbott laboratories subsidiaries notes consolidated financial statements continued note 10 financial instruments derivatives fair value measures continued following table summarizes bases used measure certain assets liabilities fair value recurring basis balance sheet fair value debt determined based face value debt adjusted fair value interest rate swaps based discounted cash flow analysis using significant observable inputs fair value contingent consideration determined based independent appraisal adjusted time value money exchange changes fair value note 11 litigation environmental matters abbott identified potentially responsible party investigation cleanup costs number locations united states puerto rico federal state remediation laws investigating potential contamination number companyowned locations abbott recorded estimated cleanup cost site management believes abbott probable loss exposure individual site cleanup exposure expected exceed 4 million aggregate cleanup exposure expected exceed 15 million abbott laboratories subsidiaries notes consolidated financial statements continued note 11 litigation environmental matters continued abbott involved various claims legal proceedings abbott estimates range possible loss legal proceedings environmental exposures approximately 70 million 90 million recorded accrual balance december 31 2013 proceedings exposures approximately 80 million accrual represents managements best estimate probable loss defined fasb asc 450 contingencies within next year legal proceedings may occur may result change estimated loss accrued abbott feasible predict outcome proceedings exposures certainty management believes ultimate disposition material adverse effect abbotts financial position cash flows results operations abbott laboratories subsidiaries notes consolidated financial statements continued note 12 postemployment benefits retirement plans consist defined benefit defined contribution medical dental plans information abbotts major defined benefit plans postemployment medical dental benefit plans follows connection separation abbvie january 1 2013 abbott transferred abbvie accumulated comprehensive losses net income taxes approximately 14 billion projected benefit obligations nonus defined benefit plans 20 billion 31 billion december 31 abbott laboratories subsidiaries notes consolidated financial statements continued note 12 postemployment benefits continued 2012 respectively accumulated benefit obligations defined benefit plans 55 billion 96 billion december 31 2013 2012 respectively plans accumulated benefit obligations exceeded plan assets december 31 2013 2012 aggregate accumulated benefit obligations projected benefit obligations aggregate plan assets follows 2011 776 million assets liabilities plan sponsored abbott healthcare bv dutch subsidiary abbott laboratories irrevocably transferred dutch insurance company full settlement plan assets used purchase annuity contract fulfill plans obligations components net periodic benefit cost follows comprehensive income loss respective year includes amortization actuarial losses prior service costs credits noted previous table comprehensive income loss respective year also includes net actuarial gains prior service credits 995 million defined benefit plans 201 million medical dental plans 2013 net actuarial losses 12 billion defined benefit plans net actuarial losses 134 million medical dental plans 2012 net actuarial losses 11 billion defined benefit plans net actuarial gains 66 million medical dental plans 2011 actuarial losses 2012 2011 related businesses transferred abbvie part separation 167 million 19 million respectively prior service costs significant pretax amount actuarial losses prior service cost credits included accumulated comprehensive income loss december 31 2013 expected recognized net periodic benefit cost 2014 102 million 2 million expense respectively defined benefit pension plans 17 million expense 37 million income respectively medical dental plans abbott laboratories subsidiaries notes consolidated financial statements continued note 12 postemployment benefits continued weighted average assumptions used determine benefit obligations defined benefit plans medical dental plans follows weighted average assumptions used determine net cost defined benefit plans medical dental plans follows assumed health care cost trend rates medical dental plans december 31 follows discount rates used measure liabilities determined based highquality fixed income securities match duration expected retiree benefits health care cost trend rates represent abbotts expected annual rates change cost health care benefits forward projection health care costs measurement date onepercentage point increasedecrease assumed health care cost trend rate would increasedecrease accumulated postemployment benefit obligations december 31 2013 177 million 146 million total service interest cost components net postemployment health care cost year ended approximately 18 million14 million abbott laboratories subsidiaries notes consolidated financial statements continued note 12 postemployment benefits continued following table summarizes bases used measure defined benefit medical dental plan assets fair value prior year amounts revised conform current years asset classifications aa mix index funds track sp 500 60 percent 2013 50 percent 2012 separate actively managed equity accounts benchmarked russell 1000 40 percent 2013 50 percent 2012 abbott laboratories subsidiaries notes consolidated financial statements continued note 12 postemployment benefits continued ba mix index funds 70 percent 2013 75 percent 2012 separate actively managed equity accounts 30 percent 2013 25 percent 2012 track benchmarked sp 400 midcap index cprimarily separate actively managed pooled investment accounts benchmarked msci emerging market indices dindex funds actively managed 50 percent 2013 2012 separate actively managed accounts 50 percent 2013 2012 eindex funds actively managed 40 percent 2013 20 percent 2012 separate actively managed accounts 60 percent 2013 80 percent 2012 fprimarily united kingdom japan irish governmentissued bonds gprimarily mortgage backed securities hprimarily funds invested managers global mandate flexibility allocate capital broadly across wide range asset classes strategies including limited equities fixed income commodities interest rate futures currencies securities outperform agreed upon benchmark specific return volatility targets iprimarily investments liquid commodity future contracts private energy funds jprimarily cash equivalents equities valued using quoted prices valued published market prices equities common collective trust registered investment company valued using significant observable inputs valued net asset value nav provided fund administrator nav based value underlying assets owned fund minus liabilities fixed income securities valued using significant observable inputs valued prices obtained independent financial service industryrecognized vendors absolute return funds commodities valued nav provided fund administrator private energy funds valued nav provided partnership onequarter lag adjusted known cash flows significant events reporting date following table summarizes change value assets measured using significant unobservable inputs abbott laboratories subsidiaries notes consolidated financial statements continued note 12 postemployment benefits continued investment mix equity securities fixed income asset allocation strategies based upon achieving desired return balancing higher return volatile equity securities lower return less volatile fixed income securities investment allocations made across range markets industry sectors capitalization sizes case fixed income securities maturities credit quality plans directly hold securities abbott known significant concentrations risk plans assets abbotts medical dental plans assets invested similar mix pension plan assets actual asset allocation percentages year end consistent companys targeted asset allocation percentages plans expected return assets shown based managements expectations longterm average rates return achieved underlying investment portfolios establishing assumption management considers historical expected returns asset classes plans invested well current economic capital market conditions abbott funds domestic pension plans according irs funding limitations international pension plans funded according similar regulations abbott funded 724 million 2013 379 million 2012 defined pension plans abbott expects contribute approximately 400 million pension plans 2014 approximately 300 million relates main domestic pension plan total benefit payments expected paid participants includes payments funded company assets well paid plans follows abbott laboratories subsidiaries notes consolidated financial statements continued note 12 postemployment benefits continued abbott stock retirement plan principal defined contribution plan abbotts contributions plan 86 million 2013 150 million 2012 151 million 2011 contribution amounts 2012 2011 include amounts associated businesses transferred abbvie note 13 taxes earnings continuing operations taxes earnings continuing operations reflect annual effective rates including charges interest penalties deferred income taxes reflect tax consequences future years differences tax bases assets liabilities financial reporting amounts 2013 taxes earnings continuing operations reflect recognition 234 million tax benefits result favorable resolution various tax positions pertaining prior years earnings discontinued operations 2013 include recognition 193 million tax benefits result resolution various tax positions related abbvies operations prior separation addition result american taxpayer relief act 2012 signed law january 2013 abbott recognized tax benefit tax provision related continuing operations approximately 103 million retroactive extension research tax credit lookthrough rules section 954c6 internal revenue code beginning 2012 1515 billion domestic loss taxes 2012 includes 129 billion net loss early extinguishment debt us income taxes provided earnings foreign subsidiaries intended remitted parent company abbott record deferred income taxes earnings reinvested indefinitely foreign subsidiaries undistributed earnings reinvested indefinitely foreign subsidiaries working capital plant equipment aggregated 240 billion december 31 2013 practicable determine amount deferred income taxes provided earnings us abbotts federal income tax returns 2010 settled except three items income tax returns years 2010 open numerous income tax jurisdictions tax returns yet settled none individually significant reserves interest penalties significant earnings continuing operations taxes related provisions taxes earnings continuing operations follows abbott laboratories subsidiaries notes consolidated financial statements continued note 13 taxes earnings continuing operations continued differences effective income tax rate us statutory tax rate follows abbott laboratories subsidiaries notes consolidated financial statements continued note 13 taxes earnings continuing operations continued tax effect differences give rise deferred tax assets liabilities follows abbott incurred losses foreign jurisdiction realization future economic benefit remote benefit reflected deferred tax asset valuation allowances recorded deferred tax assets significant following table summarizes gross amounts unrecognized tax benefits without regard reduction tax liabilities additions deferred tax assets liabilities unrecognized tax benefits settled total amount unrecognized tax benefits recognized would impact effective tax rate approximately 17 billion abbott believes reasonably possible recorded amount gross unrecognized tax benefits may decrease 350 million 425 million including cash adjustments within next twelve months result concluding various domestic international tax matters abbott laboratories subsidiaries notes consolidated financial statements continued note 14 segment geographic area information abbotts principal business discovery development manufacture sale broad line health care products abbotts products generally sold directly retailers wholesalers hospitals health care facilities laboratories physicians offices government agencies throughout world result separation abbvie abbott longer proprietary pharmaceutical products segment business removed 2012 2011 historical information presented abbotts reportable segments follows established pharmaceutical products international sales broad line branded generic pharmaceutical products nutritional products worldwide sales broad line adult pediatric nutritional products diagnostic products worldwide sales diagnostic systems tests blood banks hospitals commercial laboratories alternatecare testing sites segment reporting purposes core laboratories diagnostics molecular diagnostics point care ibis diagnostic divisions aggregated reported diagnostic products segment vascular products worldwide sales coronary endovascular structural heart vessel closure medical device products nonreportable segments include diabetes care medical optics segments abbotts underlying accounting records maintained legal entity basis government public reporting requirements segment disclosures performance basis consistent internal management reporting cost corporate functions cost certain employee benefits charged segments predetermined rates approximate cost remaining costs allocated segments addition effective january 1 2013 intangible asset amortization allocated operating segments intangible assets goodwill included measure segments assets segment information 2012 2011 adjusted exclude intangible asset amortization operating earnings intangible assets goodwill total segment asset information following segment information prepared accordance abbott laboratories subsidiaries notes consolidated financial statements continued note 14 segment geographic area information continued internal accounting policies abbott described presented accordance generally accepted accounting principles applied consolidated financial statements anet sales operating earnings unfavorably affected relatively stronger us dollar 2013 2012 favorably affected relatively weaker us dollar 2011 abbott laboratories subsidiaries notes consolidated financial statements continued note 14 segment geographic area information continued bother net includes charges cost reduction initiatives approximately 350 million 2013 430 million 2012 charges 240 million 2011 cost reduction initiatives integration cin 2012 2011 reported amounts include assets associated businesses transferred abbvie part separation abbott laboratories subsidiaries notes consolidated financial statements continued note 14 segment geographic area information continued dsales country based country sold product eamounts reported 2012 2011 include assets associated businesses transferred abbvie part separation abbott laboratories subsidiaries notes consolidated financial statements continued note 15 quarterly results unaudited millions except per share data athe sum four quarters earnings per share 2013 2012 may add full year earnings per share amount due rounding andor use quartertodate weighted average shares calculate earnings per share amount respective quarter bthe 2012 market prices per share reflect historical share prices adjusted reflect separation abbvie management report internal control financial reporting management abbott laboratories responsible establishing maintaining adequate internal control financial reporting abbotts internal control system designed provide reasonable assurance companys management board directors regarding preparation fair presentation published financial statements internal control systems matter well designed inherent limitations therefore even systems determined effective provide reasonable assurance respect financial statement preparation presentation abbotts management assessed effectiveness companys internal control financial reporting december 31 2013 making assessment used criteria set forth internal control integrated framework 1992 issued committee sponsoring organizations treadway commission based assessment believe december 31 2013 companys internal control financial reporting effective based criteria abbotts independent registered public accounting firm issued audit report assessment effectiveness companys internal control financial reporting report appears page 86 miles white chairman board chief executive officer thomas c freyman executive vice president finance chief financial officer robert e funck vice president controller february 21 report independent registered public accounting firm board directors shareholders abbott laboratories audited accompanying consolidated balance sheets abbott laboratories subsidiaries company december 31 2013 2012 related consolidated statements earnings comprehensive income shareholders investment cash flows three years period ended december 31 2013 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position company december 31 2013 2012 results operations cash flows three years period ended december 31 2013 conformity accounting principles generally accepted united states america discussed note 2 consolidated financial statements january 1 2013 company distributed outstanding shares abbvie inc encompasses companys researchbased pharmaceuticals business companys shareholders also discussed note 1 2011 company changed year end foreign subsidiaries november 30 fiscal year end december 31 calendar year end also audited accordance standards public company accounting oversight board united states companys internal control financial reporting december 31 2013 based criteria established internal control integrated framework 1992 issued committee sponsoring organizations treadway commission report dated february 21 2014 expressed unqualified opinion companys internal control financial reporting deloitte touche llp chicago illinois february 21 2014 report independent registered public accounting firm board directors shareholders abbott laboratories audited internal control financial reporting abbott laboratories subsidiaries company december 31 2013 based criteria established internal control integrated framework 1992 issued committee sponsoring organizations treadway commission coso criteria companys management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management report internal control financial reporting responsibility express opinion companys internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion companys internal control financial reporting process designed supervision companys principal executive principal financial officers persons performing similar functions effected companys board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting including possibility collusion improper management override controls material misstatements due error fraud may prevented detected timely basis also projections evaluation effectiveness internal control financial reporting future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion company maintained material respects effective internal control financial reporting december 31 2013 based criteria established internal control integrated framework 1992 issued committee sponsoring organizations treadway commission also audited accordance standards public company accounting oversight board united states consolidated financial statements company year ended december 31 2013 report dated february 21 2014 expressed unqualified opinion financial statements includes explanatory paragraph regarding distribution shares abbvie inc companys shareholders companys change year end foreign subsidiaries deloitte touche llp chicago illinois february 21 2014 item 9 item 8 financial statements supplementary data incorporated herein reference portions 1994 annual report captioned consolidated balance sheet consolidated statement earnings consolidated statement cash flows consolidated statement shareholders investment notes consolidated financial statements report independent public accountants contains related report arthur andersen llp dated january 13 1995 data relating quarterly results found note 8 item 9 item 8 financial statements supplementary data abbott laboratories subsidiaries consolidated statement earnings comprehensive income dollars shares thousands except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement cash flows dollars thousands accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated balance sheet dollars thousands accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated balance sheet dollars thousands abbott laboratories subsidiaries consolidated statement shareholders investment dollars thousands except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries notes consolidated financial statements note 1 summary significant accounting policies nature business concentration risk abbotts principal business discovery development manufacture sale broad line health care products services due nature operations abbott subject significant concentration risks relating customers products geographic locations abbott material exposures offbalance sheet arrangements including special purpose entities activities include nonexchangetraded contracts accounted fair value basis consolidation consolidated financial statements include accounts parent company subsidiaries elimination intercompany transactions accounts foreign subsidiaries consolidated november 30 due time needed consolidate subsidiaries events occurred related foreign subsidiaries december 2001 2000 1999 materially affected financial position results operations use estimates financial statements prepared accordance generally accepted accounting principles necessarily include amounts based estimates assumptions management actual results could differ amounts significant estimates include amounts litigation income taxes sales rebates inventory accounts receivable exposures cash equivalents investment securities cash equivalents consist time deposits certificates deposit original maturities three months less investments marketable equity securities classified availableforsale recorded fair value unrealized holding gains losses net tax included accumulated comprehensive income loss impairment losses charged income temporary declines fair value equity securities investments debt securities classified heldtomaturity management intent ability hold securities maturity reported cost net unamortized premium discount income relating securities reported component interest income inventories stated lower cost firstin firstout basis market cost includes material conversion costs longlived assets depreciation amortization provided straightline basis estimated useful lives assets following table shows estimated useful lives property equipment intangible assets primarily purchased intangible assets goodwill resulting business acquisitions amortized straightline basis 10 40 years average 24 years accumulated amortization december 31 2001 2000 1999 728 million 334 million 228 million respectively longlived assets reviewed impairment whenever events changes circumstances indicate carrying amount may recoverable based projected undiscounted cash flows associated affected assets fair value less carrying amount asset loss recognized difference fair value determined based market quotes available based valuation techniques product liability provisions made portions probable losses covered product liability insurance translation adjustments foreign operations highly inflationary economies translation gains losses included net foreign exchange gain loss remaining foreign operations translation adjustments included component accumulated comprehensive income loss revenue recognition revenue product sales recognized upon passage title customers provisions discounts rebates customers returns adjustments provided period related sales recorded sales product rights recorded revenue upon disposition rights revenue license product rights performance research selling activities recorded periods earned research development internal research development costs expensed incurred thirdparty research development costs expensed contracted work performed milestone results achieved note 2 supplemental financial information dollars thousands note 3 taxes earnings dollars thousands deferred income taxes reflect tax consequences future years temporary differences tax bases assets liabilities financial reporting amounts us income taxes provided earnings foreign subsidiaries operating puerto rico tax incentive grants intended remitted parent company undistributed earnings reinvested indefinitely foreign subsidiaries working capital plant equipment aggregated 4681735 december 31 2001 deferred income taxes provided earnings would approximately 1019447 earnings taxes related provisions taxes earnings follows differences effective income tax rate us statutory tax rate follows december 31 2001 2000 1999 total deferred tax assets 2412064 1458707 1364867 respectively total deferred tax liabilities 913614 463406 441404 respectively valuation allowances deferred tax assets significant temporary differences give rise deferred tax assets liabilities follows note 4 investment securities dollars thousands following summary investment securities december 31 investment securities listed 323974 590678 742610 held december 31 2001 2000 1999 respectively subsidiaries operating puerto rico tax incentive grants expiring 2015 2020 addition subsidiaries held cash equivalents 0 85925 11900 december 31 2001 2000 1999 respectively note 5 postemployment benefits dollars thousands retirement plans consist defined benefit defined contribution medical dental plans information abbotts major defined benefit plans postemployment medical dental benefit plans follows projected benefit obligations certain foreign defined benefit plans plan assets 276000 65000 64000 december 31 2001 2000 1999 respectively assumptions used major benefit plans december 31 include seven percent annual rate increase per capita cost covered health care benefits assumed 2002 rate assumed decrease gradually five percent 2006 onepercentage point increasedecrease assumed health care cost trend rate would increasedecrease accumulated postemployment benefit obligations december 31 2001 170941103550 total service interest cost components net postemployment health care cost year ended approximately 1933412046 abbott stock retirement plan principal defined contribution plan abbotts contributions plan 97000 2001 86000 2000 76000 1999 abbott provides certain postemployment benefits primarily salary continuation plans qualifying domestic employees accrues related cost service lives employees note 6 financial instruments derivatives january 1 2001 abbott adopted provisions statement financial accounting standards 133 accounting derivative instruments hedging activities january 1 2001 derivative instruments recognized either assets liabilities fair value resulting transition credit income approximately 20 million included net foreign exchange gain loss condensed consolidated statement earnings 2001 certain abbott foreign subsidiaries entered foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts totaling 571 million december 31 2001 designated cash flow hedges variability cash flows due changes foreign exchange rates 2001 abbott recorded contracts fair value resulting 114 million credit accumulated comprehensive income loss hedge ineffectiveness recorded income 2001 accumulated gains losses included cost products sold time products sold generally end 2002 2001 abbott entered interest rate hedge contracts totaling 2450 billion manage exposure changes fair value 2450 billion fixedrate debt due july 2004 2006 contracts designated fair value hedges variability fair value fixedrate debt due changes longterm benchmark interest rates december 31 2001 abbott recorded contracts fair value adjusted carrying amount fixedrate debt offsetting amount hedge ineffectiveness recorded income 2001 abbott designated japanese yen denominated liability hedge foreign currency exposure abbotts net investment certain japanese operations whose functional currency japanese yen accordingly changes liability due fluctuations foreign exchange rates charged credited accumulated comprehensive income loss 2001 approximately 669000 credited accumulated comprehensive income loss abbott enters foreign currency forward exchange contracts manage currency exposures intercompany loans trade accounts payable receivable payable denominated currency functional currency entity contracts also used foreign currency denominated thirdparty trade payables receivables intercompany loans contracts require abbott sell foreign currencies primarily european currencies japanese yen exchange primarily us dollars european currencies intercompany trade payables receivables currency exposures primarily us dollar european currencies japanese yen contracts recorded fair value resulting gains losses reflected income net foreign exchange gain loss december 31 2001 2000 1999 abbott held 31 billion 13 billion 14 billion respectively foreign currency exchange contracts gross unrealized holding gains losses current longterm heldtomaturity investment securities totaled 20 million 172 million respectively december 31 2001 13 million 214 million respectively december 31 2000 11 million 299 million respectively december 31 1999 gross unrealized holding gains losses availableforsale equity securities totaled 570 million 18 million respectively december 31 2001 803 million 340 million respectively december 31 2000 493 million 47 million respectively december 31 1999 carrying values fair values certain financial instruments december 31 shown table carrying values financial instruments approximate estimated fair values fair value quoted market price instrument held quoted market price similar instrument counterparties financial instruments consist select major international financial institutions abbott expect losses nonperformance counterparties note 7 incentive stock program 1996 incentive stock program authorizes granting stock options replacement stock options stock appreciation rights limited stock appreciation rights restricted stock awards performance units foreign qualified benefits stock options replacement stock options limited stock appreciation rights restricted stock awards foreign qualified benefits granted currently outstanding program prior programs purchase price shares option must least equal fair market value common stock date grant maximum term option 10 years options granted 2001 2000 1999 vest equally three years except replacement options generally vest six months upon change control abbott outstanding stock options become fully exercisable terms conditions restricted stock awards deemed satisfied january 1 2002 409 million shares reserved future grants 1996 program subsequent year end board directors granted approximately 217 million stock options reserve abbott measures compensation cost using intrinsic valuebased method accounting compensation cost determined using fair market valuebased accounting method pro forma net income earnings per share eps amounts would follows weighted average fair value option granted 2001 2000 1999 1331 1060 1226 respectively purposes fair market value disclosures fair market value option grant estimated using blackscholes option pricing model following assumptions note 8 debt lines credit dollars thousands following summary longterm debt december 31 principal payments required longterm debt outstanding december 31 2001 2379 2002 202157 2003 1672200 2004 151243 2005 1852737 2006 december 31 2001 abbott 3000000 unused domestic lines credit support domestic commercial paper borrowing arrangements related compensating balances subject withdrawal abbott option commitment fees material abbotts weighted average interest rate shortterm borrowings 19 59 57 december 31 2001 2000 1999 respectively note 9 equity method investments dollars millions abbotts 50 percent owned joint venture tap pharmaceutical products inc tap accounted equity method accounting abbotts share taps income 334 481 390 2001 2000 1999 respectively investment tap 392 491 521 december 31 2001 2000 1999 respectively dividends received tap 433 511 237 2001 2000 1999 respectively addition abbott performs certain administrative selling manufacturing services tap negotiated rates approximate fair market value services performed summarized financial information tap follows undistributed earnings investments accounted equity method amounted 368 december 31 2001 note 10 quarterly results unaudited dollars millions except per share data afirstquarter 2001 included pretax charge acquired inprocess research development 1015 related acquisition pharmaceutical business basf note 11 stock purchase rights common shares outstanding subject stock purchase rights exercisable certain conditions entitle holder purchase common shares prices specified rights agreement rights exercisable december 31 2001 note 12 business combinations divestiture march 2 2001 abbott acquired cash pharmaceutical business basf includes global operations knoll pharmaceuticals approximately 72 billion acquisition financed primarily short longterm borrowings acquisition accounted purchase method accounting allocation acquisition cost follows billions dollars acquisition cost allocated intangible assets goodwill acquired inprocess research development net tangible assets based independent appraisal fair values date acquisition product rights currently marketed products amortized straightline basis 10 16 years average 13 years goodwill amortized 2001 straightline basis 20 years acquired inprocess research development charged expense 2001 net tangible assets acquired consist primarily property equipment approximately 630 million trade accounts receivable approximately 402 million inventories approximately 275 million net assumed liabilities primarily trade accounts payable liabilities prior date acquisition abbott began plan integration restructuring business 2001 abbott formally approved several restructuring plans continuing assess formulate restructuring plans specific business activities certain costs implementing formally approved plans included reported amount goodwill abbott expects additional restructuring plans finalized formally approved increase amount reported goodwill addition integration acquired operations result charges recorded earnings periods integration plans finalized following unaudited pro forma financial information reflects consolidated results operations abbott acquisition pharmaceutical business basf taken place january 1 2000 pro forma information includes primarily adjustments acquired inprocess research development amortization product rights currently marketed products interest expense estimated acquisition debt amortization goodwill pro forma financial information necessarily indicative results operations would transaction effected assumed date november 2001 abbott acquired cash outstanding common stock vysis inc leading genomic disease management company cash acquisition cost approximately 362 million 162 million allocated developed technology amortized 15 years 143 million charged earnings 2001 acquired inprocess research development remaining acquisition cost allocated net tangible assets goodwill acquisition taken place january 1 previous year consolidated sales income would significantly different reported amounts 2000 abbott sold agricultural products business sumitomo chemical co ltd resulting 138 million gain note 13 restructuring plans millions dollars 2001 abbott began implementing restructuring plans related operations acquired pharmaceutical business basf addition abbott announced 2001 closing one manufacturing operations relocating production abbott facilities following summarizes restructuring activity 2070 total restructuring charges 1555 recorded goodwill associated acquisition pharmaceutical business basf amount expensed approximately 358 classified cost products sold 133 selling general administrative 24 research development employeerelated costs primarily severance pay relocation former basf employees outplacement services approved restructuring plans cover 2393 employees approximately 1200 severed year end employee groups covered restructuring plans include manufacturing research development sales administrativerelated functions note 14 segment geographic area information dollars millions revenue segments abbotts principal business discovery development manufacture sale broad line health care products services abbotts products generally sold directly retailers wholesalers hospitals health care facilities laboratories physicians offices government agencies throughout world abbotts reportable segments follows pharmaceutical products us sales broad line pharmaceuticals diagnostic products worldwide sales diagnostic systems blood banks hospitals consumers commercial laboratories alternatecare testing sites hospital products us sales intravenous irrigation fluids related administration equipment drugs drugdelivery systems anesthetics critical care products medical specialty products hospitals alternatecare sites ross products us sales broad line adult pediatric nutritional products pediatric pharmaceuticals consumer products international nonus sales abbotts pharmaceutical hospital nutritional products sold international manufactured domestic segments international manufacturing locations abbotts underlying accounting records maintained legal entity basis government public reporting requirements segment disclosures performance basis consistent internal management reporting intersegment transfers inventory recorded standard cost measure segment operating earnings cost corporate functions cost certain employee benefits sold segments predetermined rates approximate cost remaining costs allocated revenue segments following segment information prepared accordance internal accounting policies abbott described presented accordance generally accepted accounting principles applied consolidated financial statements anet sales operating earnings favorably impacted acquisition pharmaceutical business basf 2001 bnet sales operating earnings unfavorably affected relatively stronger us dollar year presented c2001 includes certain onetime charges related acquisition pharmaceutical business basf d2001 includes amortization restructuring charges relating acquisition pharmaceutical business basf e2001 includes intangible assets related acquisitions pharmaceutical business basf vysis inc fsales country based country sold product service g2001 includes certain intangible assets related acquisition pharmaceutical business basf classes products contributed least 10 percent consolidated net sales least one last three years note 15 litigation environmental matters abbott involved various claims legal proceedings including number antitrust suits investigations connection pricing prescription pharmaceuticals suits investigations allege various pharmaceutical manufacturers conspired fix prices prescription pharmaceuticals andor discriminate pricing retail pharmacies providing discounts mailorder pharmacies institutional pharmacies hmos violation state federal antitrust laws suits brought behalf individuals retail pharmacies name abbott certain pharmaceutical manufacturers pharmaceutical wholesalers least one mailorder pharmacy company defendants cases seek treble damages civil penalties injunctive relief abbott filed response complaints denying substantive allegations several lawsuits pending connection sales hytrin suits allege abbott violated state federal antitrust laws cases unfair competition laws signing patent settlement agreements geneva pharmaceuticals inc zenith laboratories inc agreements related pending patent infringement lawsuits abbott two companies suits also allege abbott violated various state federal laws filing frivolous patent infringement lawsuits protect hytrin generic competition cases seek treble damages civil penalties relief abbott filed intends file response complaints denying substantive allegations abbott identified potentially responsible party investigation cleanup costs number locations united states puerto rico federal state remediation laws investigating potential contamination number companyowned locations within next year legal proceedings may occur may result change estimated reserves recorded abbott feasible predict outcome pending claims proceedings investigations remediation activities certainty management opinion ultimate disposition material adverse effect abbotts financial position cash flows results operations note 16 tap pharmaceutical products inc 2001 tap pharmaceutical products inc tap entered agreement united states department justice settle matters relating investigation involving taps marketing prostate cancer drug lupron primarily early mid 1990s 2001 abbotts income tap joint venture reduced charge 274 million relating taps settlement investigation tap abbott named defendants several lawsuits alleging violations various state federal laws connection taps marketing pricing lupron abbott intends file response lawsuits denying substantive allegations within next year legal proceedings may occur may result change estimated reserves recorded tap abbott feasible predict outcome pending claims proceedings investigations remediation activities certainty management opinion ultimate disposition material adverse effect abbotts financial position cash flows results operations note 17 us food drug administration consent decree november 1999 abbott reached agreement us government consent decree entered settle issues involving abbotts diagnostics manufacturing operations lake county ill decree amended december 2000 requires abbott ensure diagnostics manufacturing processes lake county conform us food drug administrations fda quality system regulation qsr decree allows continued manufacture distribution medically necessary diagnostic products made lake county however abbott prohibited manufacturing distributing certain diagnostic products abbott ensures processes lake county diagnostics manufacturing operations conform qsr decree allows abbott export diagnostic products components sale distribution outside united states meet export requirements federal food drug cosmetic act terms amended consent decree abbott must ensure diagnostics manufacturing operations conformance qsr various dates january 15 2001 fda determine abbotts conformance qsr inspection abbotts facilities fourth quarter 2001 first quarter 2002 fda concludes operations conformance qsr abbott may subject additional costs abbott laboratories subsidiaries report independent public accountants shareholders abbott laboratories audited accompanying consolidated balance sheet abbott laboratories illinois corporation subsidiaries december 31 2001 2000 1999 related consolidated statement earnings comprehensive income shareholders investment cash flows years ended financial statements responsibility abbotts management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position abbott laboratories subsidiaries december 31 2001 2000 1999 results operations cash flows years ended conformity accounting principles generally accepted united states chicago illinois january 15 2002 arthur andersen llp management report financial statements management prepared responsible abbotts consolidated financial statements related notes prepared accordance generally accepted accounting principles necessarily include amounts based judgments estimates management financial information annual report consistent consolidated financial statements abbott maintains internal accounting control systems related policies procedures designed provide reasonable assurance assets safeguarded transactions executed accordance managements authorization properly recorded accounting records may relied upon preparation consolidated financial statements financial information design monitoring revision internal accounting control systems involve among things managements judgment respect relative cost expected benefits specific control measures abbott also maintains internal auditing function evaluates formally reports adequacy effectiveness internal accounting controls policies procedures abbotts consolidated financial statements audited independent public accountants expressed opinion respect fairness statements miles white chairman board chief executive officer thomas c freyman senior vice president finance chief financial officer greg w linder vice president controller item 9 item 8 financial statements supplementary data page consolidated statement earnings consolidated statement comprehensive income consolidated statement cash flows consolidated balance sheet consolidated statement shareholders investment notes consolidated financial statements management report internal control financial reporting report independent registered public accounting firm report independent registered public accounting firm abbott laboratories subsidiaries consolidated statement earnings millions except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement comprehensive income millions accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement cash flows millions accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated balance sheet dollars millions abbott laboratories subsidiaries consolidated balance sheet dollars millions accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement shareholders investment millions except shares per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries notes consolidated financial statements note 1 summary significant accounting policies nature business abbotts principal business discovery development manufacture sale broad line health care products changes presentation september 2016 abbott announced entered agreement sell abbott medical optics amo vision care business johnson transaction expected close first quarter 2017 subject customary closing conditions including regulatory approvals operating results amo reported part continuing operations amo qualify reporting discontinued operation assets liabilities amo reported held disposition abbotts consolidated balance sheet december 31 2016 february 27 2015 abbott completed sale developed markets branded generics pharmaceuticals business mylan inc mylan equity ownership newly formed entity combined mylans existing business abbotts developed markets pharmaceuticals business february 10 2015 abbott completed sale animal health business zoetis inc historical operating results two businesses date sale excluded earnings continuing operations presented earnings discontinued operations line abbotts consolidated statement earnings cash flows businesses included abbotts consolidated statement cash flows date disposition see note 2 discontinued operations additional information basis consolidation consolidated financial statements include accounts parent company subsidiaries elimination intercompany transactions use estimates consolidated financial statements prepared accordance generally accepted accounting principles united states necessarily include amounts based estimates assumptions management actual results could differ amounts significant estimates include amounts sales rebates income taxes pension postemployment benefits including certain asset values based significant unobservable inputs valuation intangible assets litigation derivative financial instruments inventory accounts receivable exposures foreign currency translation statements earnings foreign subsidiaries whose functional currencies us dollar translated us dollars using average exchange rates period net assets foreign subsidiaries whose functional currencies us dollar translated us dollars using exchange rates balance sheet date us dollar effects arise translating net assets subsidiaries changing rates recorded foreign currency translation adjustment account included equity component accumulated comprehensive income loss transaction gains losses recorded net foreign exchange gain loss line consolidated statement earnings revenue recognition revenue product sales recognized upon passage title risk loss customers provisions discounts rebates sales incentives customers returns adjustments provided period related sales recorded sales incentives customers material historical data readily available reliable used estimating amount reduction gross sales revenue launch new product improved version existing product shipments excess customers normal requirements recorded conditions noted met situations management records returns reserve revenue necessary certain abbotts businesses primarily within diagnostics medical optics abbott participates selling arrangements include multiple deliverables abbott laboratories subsidiaries notes consolidated financial statements continued note 1 summary significant accounting policies continued eg instruments reagents procedures service agreements arrangements abbott recognizes revenue upon delivery product performance service allocates revenue based relative selling price deliverable based primarily vendor specific objective evidence sales product rights marketable products recorded revenue upon disposition rights revenue license product rights performance research selling activities recorded periods earned may 2014 financial accounting standards board fasb issued accounting standards update asu 201409 revenue contracts customers provides single comprehensive model accounting revenue contracts customers supersede existing revenue recognition guidance standard becomes effective abbott first quarter 2018 abbott continuing evaluate effect standard consolidated financial statements related disclosures including areas variable consideration new disclosure requirements abbott continue monitor additional modifications clarifications interpretations undertaken fasb may impact abbotts current conclusions abbott currently expecting use modified retrospective method adopt standard income taxes deferred income taxes provided tax effect differences tax bases assets liabilities reported amounts financial statements enacted statutory rate effect taxes paid us income taxes provided earnings foreign subsidiaries intended remitted parent company deferred income taxes provided undistributed earnings reinvested indefinitely foreign subsidiaries interest penalties income tax obligations included taxes income earnings per share unvested restricted stock units awards contain nonforfeitable rights dividends treated participating securities included computation earnings per share twoclass method twoclass method net earnings allocated common shares participating securities earnings continuing operations allocated common shares 2016 2015 2014 1057 billion 2595 billion 1713 billion respectively net earnings allocated common shares 2016 2015 2014 1393 billion 4403 billion 2273 billion respectively pension postemployment benefits abbott accrues actuarially determined cost pension postemployment benefits service attribution periods employees abbott must develop longterm assumptions significant health care cost trend rates discount rates expected return plan assets differences expected longterm return plan assets actual return amortized fiveyear period actuarial losses gains amortized remaining service attribution periods employees corridor method fair value measurements assets liabilities measured using quoted prices active markets total fair value published market price per unit multiplied number units held without consideration transaction costs assets liabilities measured using significant observable inputs valued reference similar assets liabilities adjusted contract restrictions terms specific asset liability items significant portion fair value derived reference quoted prices similar assets liabilities active markets remaining assets liabilities fair value derived using fair value model discounted cash flow model blackscholes model purchased intangible assets recorded fair value fair value abbott laboratories subsidiaries notes consolidated financial statements continued note 1 summary significant accounting policies continued significant purchased intangible assets based independent appraisals abbott uses discounted cash flow model value intangible assets discounted cash flow model requires assumptions timing amount future net cash flows risk cost capital terminal values market participants intangible assets reviewed impairment quarterly basis goodwill indefinitelived intangible assets tested impairment least annually sharebased compensation fair value stock options restricted stock awards units amortized requisite service period could shorter vesting period employee retirement eligible charge compensation expense litigation abbott accounts litigation losses accordance fasb asc 450 contingencies asc 450 loss contingency provisions recorded probable losses managements best estimate loss best estimate cannot made minimum loss contingency amount recorded legal fees recorded incurred cash equivalents investments cash equivalents consist bank time deposits us government securities money market funds us treasury bills original maturities three months less investment publicly traded company carrying value approximately 58 million accounted equity method accounting investments marketable equity securities classified availableforsale recorded fair value unrealized holding gains losses net tax included accumulated comprehensive income loss investments equity securities traded public stock exchanges recorded cost investments debt securities classified heldtomaturity management intent ability hold securities maturity reported cost net unamortized premium discount income relating securities reported interest income abbott reviews carrying value investments quarter determine whether temporary decline fair value exists abbott considers factors affecting investee factors affecting industry investee operates general equity market trends abbott considers length time investments fair value carrying value nearterm prospects recovery carrying value abbott determines temporary decline occurred investment written charge income expense net trade receivable valuations accounts receivable stated net realizable value allowance gross trade receivables reflects best estimate probable losses inherent receivables portfolio determined basis historical experience specific allowances known troubled accounts currently available information accounts receivable charged reasonable means collect full amount including litigation appropriate exhausted inventories stated lower cost firstin firstout basis market cost includes material conversion costs property equipment depreciation amortization provided straightline basis estimated useful lives assets following table shows estimated useful lives property equipment abbott laboratories subsidiaries notes consolidated financial statements continued note 1 summary significant accounting policies continued product liability abbott accrues product liability claims probable liability incurred amount liability reasonably estimated based existing information liabilities adjusted quarterly additional information becomes available receivables insurance recoveries product liability claims recorded assets undiscounted basis probable recovery realized product liability losses selfinsured research development costs internal research development costs expensed incurred clinical trial costs incurred third parties expensed contracted work performed contingent milestone payments due third parties research development arrangements milestone payment obligations expensed milestone results achieved acquired inprocess collaborations research development iprd initial costs rights iprd projects obtained asset acquisition expensed iprd unless project alternative future use costs include initial payments incurred prior regulatory approval connection research development collaboration agreements provide rights develop manufacture market andor sell pharmaceutical products fair value iprd projects acquired business combination capitalized accounted indefinitelived intangible assets completed amortized remaining useful life collaborations significant concentration risk guarantees due nature operations abbott subject significant concentration risks relating customers products geographic locations governmental accounts italy spain greece portugal accounted 6 percent 7 percent total net trade receivables december 31 2016 2015 respectively product warranties significant abbott material exposures offbalance sheet arrangements special purpose entities activities include nonexchangetraded contracts accounted fair value abbott periodically entered agreements ordinary course business assignment product rights companies resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote abbott periodically acquires business product rights abbott agrees pay contingent consideration based attaining certain thresholds based occurrence certain events note 2 discontinued operations february 27 2015 abbott completed sale developed markets branded generics pharmaceuticals business mylan inc mylan 110 million shares approximately 22 newly formed entity mylan nv combined mylans existing business abbotts developed markets branded generics pharmaceuticals business mylan nv publicly traded historically business included abbotts established pharmaceutical products segment abbott retained branded generics pharmaceuticals business emerging markets date closing 110 million mylan nv shares abbott received valued 577 billion abbott recorded aftertax gain sale business approximately 16 billion shareholder agreement mylan nv includes voting abbott laboratories subsidiaries notes consolidated financial statements continued note 2 discontinued operations continued restrictions prevent abbott exercising significant influence operating financial policies mylan nv close transaction abbott mylan entered transition services agreement pursuant abbott mylan providing various back office support services interim transitional basis transition services may provided 2 years certain services extended additional five ten months charges abbott transition services agreement recorded reduction costs provide respective service applicable expense category consolidated statement earnings transition support constitute significant continuing involvement mylans operations abbott also entered manufacturing supply agreements mylan related certain products supply term ranging 3 10 years requiring 2 year notice prior termination cash flows associated transition services manufacturing supply agreements expected significant therefore cash flows direct cash flows disposed component accounting standards codification 205 april 2015 abbott sold 4025 million 110 million ordinary shares mylan nv received sale developed markets branded generics pharmaceuticals business mylan abbott recorded pretax gain 207 million 229 billion net proceeds sale shares gain recognized income expense line 2015 consolidated statement earnings result sale abbotts ownership interest mylan nv decreased approximately 14 february 10 2015 abbott completed sale animal health business zoetis inc abbott received cash proceeds 230 million reported tax gain sale approximately 130 million first quarter 2016 abbott received additional 25 million proceeds due expiration holdback agreement associated sale business reported aftertax gain 16 million result disposition businesses operating results businesses date sale reported part discontinued operations earnings discontinued operations net taxes line consolidated statement earnings discontinued operations include allocation interest expense assuming uniform ratio consolidated debt equity abbotts historical operations january 1 2013 abbott completed separation abbvie inc abbvie formed hold abbotts researchbased proprietary pharmaceuticals business small portion abbvies operations legal transfer abbvies assets net liabilities occur separation abbvie january 1 2013 due time required transfer marketing authorizations regulatory requirements countries terms separation agreement abbott abbvie subject risks entitled benefits generated operations assets majority operations transferred abbvie 2013 2014 assets liabilities presented held disposition consolidated balance sheet december 31 2015 abbott retained liabilities us federal foreign income taxes income prior separation well certain nonincome taxes attributable abbvies business abbvie generally liable taxes attributable business abbott laboratories subsidiaries notes consolidated financial statements continued note 2 discontinued operations continued operating results abbotts developed markets branded generics pharmaceuticals animal health businesses well income tax benefit related businesses transferred abbvie reported discontinued operations follows net earnings discontinued operations include income tax benefits 325 million 2016 52 million 2015 58 million 2014 2016 includes 318 million tax benefits result resolution various tax positions related abbvies operations years prior separation 2015 includes 48 million tax benefits related resolution various tax positions related prior years 2014 includes 166 million tax benefits result resolution various tax positions related abbvies operations years prior separation sale developed markets branded generics pharmaceuticals animal health business 2015 resulted recognition pretax gain 2840 billion tax expense 1088 billion tax gain 1752 billion 2015 tax provision included 667 million tax expense certain prior year funds earned outside us related developed markets branded generics pharmaceuticals businesses designated permanently reinvested overseas note 3 assets liabilities held disposition september 2016 abbott announced entered definitive agreement sell amo vision care business johnson 4325 billion cash subject customary purchase price adjustments cash debt working capital decision sell amo reflects abbotts proactive shaping portfolio line strategic priorities transaction expected close first quarter 2017 subject customary closing conditions including regulatory approvals operating results amo included continuing operations qualify reporting discontinued operations year ended december 31 2016 2015 amos earnings taxes 30 million 64 million respectively result pending sale amo assets liabilities business meet criteria qualify held disposition december 31 2016 abbott laboratories subsidiaries notes consolidated financial statements continued note 3 assets liabilities held disposition continued assets liabilities held disposition december 31 2016 relate amo assets liabilities held disposition december 31 2015 relate abbvie business following summary assets liabilities held disposition note 4 supplemental financial information income expense net 2016 includes expense 947 million adjust abbotts holding mylan nv ordinary shares due decline fair value securities considered abbott temporary income expense net 2015 primarily relates 207 million gain sale portion abbotts position mylan nv stock 79 million income resulting decrease fair value contingent consideration related business acquisition april 2015 abbott sold 4025 million 110 million ordinary shares mylan nv received sale developed markets branded generics pharmaceuticals business mylan abbott received 229 billion net proceeds sale shares result sale abbotts ownership interest mylan nv decreased approximately 22 approximately 14 income expense net 2014 primarily relates impairment charges related nonpublically traded equity securities partially offset gains sales equity securities loss extinguishment debt 18 million 2014 relates early redemption approximately 500 million longterm notes abbott laboratories subsidiaries notes consolidated financial statements continued note 4 supplemental financial information continued detail various balance sheet components follows longterm investments equity securities december 31 2016 2015 include 697 million ordinary shares mylan nv carrying value 2661 billion 3771 billion respectively aaccrued wholesaler chargeback rebates 214 million 170 million december 31 2016 2015 respectively netted trade receivables abbotts customers invoiced higher catalog price remit abbott contract price products b2016 includes approximately 560 million net unrecognized tax benefits well approximately 130 million acquisition consideration payable 2015 includes approximately 600 million net unrecognized tax benefits well approximately 148 million acquisition consideration payable since january 2010 venezuela designated highly inflationary economy us gaap 2014 2015 government venezuela operated multiple mechanisms exchange bolivars us dollars mechanisms included cencoex sicad simadi rates stood 63 135 approximately 200 respectively december 31 2015 abbott continued use cencoex rate 63 venezuelan bolivars us dollar report results financial position cash flows related operations venezuela since abbott continued qualify exchange rate pay import various products venezuela abbott laboratories subsidiaries notes consolidated financial statements continued note 4 supplemental financial information continued february 17 2016 venezuelan government announced threetier exchange rate system would reduced two rates renamed dipro dicom rates dipro rate official rate food medicine imports adjusted 63 10 bolivars per us dollar dicom rate floating market rate published daily venezuelan central bank end first quarter 2016 approximately 263 bolivars per us dollar result decreasing government approvals convert bolivars us dollars pay intercompany accounts well accelerating deterioration economic conditions country abbott concluded appropriate move dicom rate end first quarter 2016 result abbott recorded foreign currency exchange loss 480 million 2016 revalue net monetary assets venezuela abbott continuing use dicom rate report results operations remeasure net monetary assets venezuela end quarter december 31 2016 abbotts venezuelan operations represented approximately 01 abbotts consolidated assets additional foreign currency losses related venezuela expected material note 5 accumulated comprehensive income components changes accumulated comprehensive income continuing operations net income taxes follows millions areclassified amounts foreign currency translation adjustments recorded consolidated statement earnings net foreign exchange loss gain gains losses marketable equity securities recorded income expense gainslosses related cash flow hedges recorded cost product sold net actuarial losses prior service cost included component net periodic benefit plan cost see note 13 additional information abbott laboratories subsidiaries notes consolidated financial statements continued note 6 business acquisitions january 4 2017 abbott completed acquisition st jude medical inc st jude medical global medical device manufacturer approximately 236 billion including approximately 136 billion cash approximately 10 billion abbott common shares represented approximately 254 million shares abbott common stock based abbotts closing stock price acquisition date part acquisition approximately 58 billion st jude medicals debt assumed refinanced abbott transaction provides expanded opportunities future growth important part companys ongoing effort develop strong diverse portfolio devices diagnostics nutritionals branded generic pharmaceuticals combined company compete nearly every area cardiovascular market well neuromodulation market acquisition st jude medical completed december 31 2016 abbotts consolidated financial statements include financial condition operating results st jude medical periods presented herein terms agreement st jude medical common share st jude medical shareholders received 4675 cash 08708 abbott common share abbott stock price 3936 reflects closing price january 4 2017 represented value approximately 81 per st jude medical common share total purchase consideration 236 billion cash portion acquisition funded combination medium longterm debt issued november 2016 20 billion 120day senior unsecured bridge term loan facility see note 10 debt lines credit details regarding financing arrangements preliminary allocation fair value st jude medical acquisition shown table allocation fair value acquisition finalized valuation completed differences preliminary final allocation could material acquisition st jude medical occurred beginning 2016 unaudited pro forma consolidated net sales would approximately 268 billion unaudited pro forma consolidated net earnings would 157 million includes amortization approximately 700 million inventory stepup unaudited pro forma information necessarily indicative consolidated results operations would realized st jude medical acquisition completed beginning 2016 meant indicative future results operations combined entity experience 2016 abbott st jude medical agreed sell certain products terumo corporation approximately 112 billion sale includes st jude medical angioseal™ femoseal™ vascular closure products abbotts vado® steerable sheath sale closed january 20 2017 january 30 2016 abbott entered definitive agreement acquire alere inc diagnostic device service provider 5600 per common share cash acquisition subject satisfaction customary closing conditions including accuracy aleres representations warranties subject abbott laboratories subsidiaries notes consolidated financial statements continued note 6 business acquisitions continued certain materiality qualifications compliance material respects aleres covenants receipt applicable regulatory approvals due number adverse developments occurred respect alere since date agreement abbott filed complaint delaware court chancery seeking terminate acquisition agreement basis alere experienced material adverse effect acquisition agreement materially breached certain covenants august 2015 abbott completed acquisition equity tendyne holdings inc tendyne abbott already approximately 225 million cash plus additional payments 150 million made upon completion certain regulatory milestones acquisition tendyne focused developing minimally invasive mitral valve replacement therapies allows abbott broaden foundation treatment mitral valve disease final allocation fair value acquisition resulted nondeductible acquired inprocess research development approximately 220 million accounted indefinitelived intangible asset regulatory approval discontinuation nondeductible goodwill approximately 142 million deferred tax assets net assets approximately 18 million deferred tax liabilities approximately 85 million contingent consideration approximately 70 million goodwill identifiable vascular products segment september 2014 abbott completed acquisition controlling interest cfr pharmaceuticals sa cfr approximately 29 billion cash 28 billion net cfr cash hand closing including assumption approximately 570 million debt total cost acquisition 34 billion acquisition cfr doubles abbotts branded generics pharmaceutical presence latin america expands presence emerging markets cfrs financial results included abbotts financial statements beginning september 26 2014 date abbott acquired control business abbott currently owns 100 cfr fair value noncontrolling interest acquisition date approximately 3 million acquisition funded cash equivalents shortterm investments final allocation fair value acquisition shown table acquired intangible assets consist primarily product rights currently marketed products amortized 12 16 years weighted average 15 years goodwill primarily attributable intangible assets qualify separate recognition goodwill identifiable established pharmaceutical products segment acquired tangible assets consist primarily cash equivalents approximately 94 million trade accounts receivable approximately 180 million inventory approximately 169 million current assets approximately 51 million property equipment approximately 210 million longterm assets approximately 145 million assumed liabilities consist borrowings approximately 570 million trade accounts payable current liabilities approximately 240 million noncurrent liabilities approximately 14 million net sales cfr pharmaceuticals totaled approximately 750 million 2015 abbott laboratories subsidiaries notes consolidated financial statements continued note 6 business acquisitions continued december 2014 abbott acquired control veropharm leading russian pharmaceutical company approximately 315 million excluding assumed debt plus subsequent 5 million payment related working capital adjustment acquisition abbott establishes manufacturing footprint russia obtains portfolio medicines well aligned abbotts current pharmaceutical therapeutic areas focus abbott acquired control veropharm purchase limited liability company garden hills holding company owns approximately 98 percent veropharm including assumption approximately 90 million debt noncontrolling interest fair value 5 million total value acquired business approximately 415 million final allocation fair value acquisition resulted definitelived nondeductible intangible assets approximately 100 million nondeductible goodwill approximately 140 million net deferred tax liabilities approximately 25 million nondeductible goodwill identifiable established pharmaceutical products segment additionally abbott acquired property plant equipment approximately 150 million accounts receivable approximately 45 million inventory approximately 25 million net liabilities approximately 20 million acquired intangible assets consist developed technology amortized 16 years 2015 abbott acquired remaining shares veropharm increasing ownership 100 percent december 2014 abbott completed acquisition topera inc approximately 250 million cash plus additional payments 300 million made upon completion certain regulatory sales milestones acquisition topera provides abbott foundational entry electrophysiology market final allocation fair value acquisition resulted nondeductible acquired inprocess research development approximately 60 million accounted indefinitelived intangible asset regulatory approval discontinuation nondeductible definitelived intangible assets approximately 215 million nondeductible goodwill approximately 145 million net deferred tax liabilities approximately 80 million contingent consideration approximately 90 million fair value contingent consideration determined based independent appraisal acquired intangible assets consist developed technology trademarks amortized 17 years except st jude medical acquisition aggregate year acquisitions taken place beginning comparable prior annual reporting period consolidated net sales earnings would significantly different reported amounts note 7 goodwill intangible assets total amount goodwill reported 7683 billion december 31 2016 9638 billion december 31 2015 amount reported december 31 2016 excludes goodwill reported noncurrent assets held disposition 2016 approximately 20 billion goodwill reclassified noncurrent assets held disposition due pending sale amo recent business acquisitions increased goodwill approximately 79 million 2016 foreign currency translation decreased goodwill 66 million 2016 decreased goodwill 454 million 2015 abbott recorded goodwill approximately 142 million related tendyne acquisition purchase price allocation adjustments associated recent acquisitions decreased goodwill approximately 117 million amount goodwill related reportable segments december 31 2016 30 billion established pharmaceutical products segment 286 million nutritional products segment 452 million diagnostic products segment 30 billion vascular products segment 2016 reduction goodwill relating impairments abbott laboratories subsidiaries notes consolidated financial statements continued note 7 goodwill intangible assets continued gross amount amortizable intangible assets primarily product rights technology 104 billion 108 billion december 31 2016 2015 respectively accumulated amortization 62 billion 57 billion december 31 2016 2015 respectively december 31 2016 amounts exclude approximately 529 million net intangible assets related amo included noncurrent assets held disposition due pending sale amo 2016 intangible assets increased approximately 104 million related recent business acquisitions 2015 acquisition tendyne increased intangible assets approximately 220 million indefinitelived intangible assets relate inprocess research development acquired business combination approximately 349 million 419 million december 31 2016 2015 respectively 2016 abbott recorded impairment 59 million inprocess research development project related nonreportable segment foreign currency translation increased intangible assets 6 million 2016 decreased intangible assets 251 million 2015 estimated annual amortization expense intangible assets recorded december 31 2016 approximately 490 million 2017 440 million 2018 410 million 2019 410 million 2020 360 million 2021 amortizable intangible assets amortized 2 20 years average 10 years amounts include amortization expense associated intangible assets acquired part st jude medical acquisition closed january 4 2017 note 8 restructuring plans 2016 2015 2014 abbott management approved plans streamline operations order reduce costs improve efficiencies various abbott businesses including nutritional established pharmaceuticals vascular businesses abbott recorded employee related severance charges approximately 33 million 2016 95 million 2015 164 million 2014 approximately 9 million 2016 18 million 2015 20 million 2014 recorded cost products sold approximately 5 million 2016 34 million 2015 53 million 2014 recorded research development approximately 19 million 2016 43 million 2015 91 million 2014 recorded selling general administrative expense additional charges approximately 2 million 2016 45 million 2015 39 million 2014 recorded primarily accelerated depreciation following summarizes activity restructurings abbott laboratories subsidiaries notes consolidated financial statements continued note 8 restructuring plans continued 2013 2015 abbott management approved various plans reduce costs improve efficiencies across various functional areas 2013 abbott management also approved plans streamline certain manufacturing operations order reduce costs improve efficiencies abbotts established pharmaceuticals business 2012 abbott management approved plans streamline various commercial operations order reduce costs improve efficiencies abbotts core diagnostics established pharmaceuticals nutritionals businesses abbott recorded employee related severance charges approximately 18 million 2016 66 million 2015 125 million 2014 approximately 4 million 2016 9 million 2015 7 million 2014 recorded cost products sold approximately 2 million 2015 6 million 2014 recorded research development approximately 14 million 2016 55 million 2015 112 million 2014 recorded selling general administrative expense following summarizes activity related restructurings note 9 incentive stock program 2009 incentive stock program authorizes granting nonqualified stock options restricted stock awards restricted stock units performance awards foreign benefits sharebased awards stock options restricted stock awards units comprise majority benefits granted currently outstanding program prior program 2016 abbott granted 7782634 stock options 776510 restricted stock awards 7593701 restricted stock units program purchase price shares option must least equal fair market value common stock date grant maximum term option 10 years options generally vest equally three years restricted stock awards generally vest 3 5 years restricted stock awards vest 5 years onethird award vests one year upon abbott reaching minimum return equity target restricted stock units vest three years upon vesting recipient receives one share abbott stock vested restricted stock unit aggregate fair market value restricted stock awards units recognized expense requisite service period may shorter vesting period employee retirement eligible restricted stock awards abbott laboratories subsidiaries notes consolidated financial statements continued note 9 incentive stock program continued settlement vested restricted stock units issued treasury shares abbott generally issues new shares exercises stock options policy abbott purchase shares relating sharebased programs december 31 2016 approximately 57 million shares reserved future grants number restricted stock awards units outstanding weightedaverage grantdate fair value december 31 2016 december 31 2015 13705511 4103 11855327 4254 respectively number restricted stock awards units weightedaverage grantdate fair value granted vested lapsed 2016 8370211 3857 5842478 4050 677549 4163 respectively fair market value restricted stock awards units vested 2016 2015 2014 225 million 312 million 281 million respectively aggregate intrinsic value options outstanding exercisable december 31 2016 203 million total intrinsic value options exercised 2016 2015 2014 98 million 167 million 152 million respectively total unrecognized compensation cost related sharebased compensation plans december 31 2016 amounted approximately 197 million expected recognized next three years total noncash stock compensation expense charged income continuing operations 2016 2015 2014 sharebased plans totaled approximately 310 million 291 million 239 million respectively tax benefit recognized approximately 100 million 98 million 79 million respectively stock compensation cost capitalized part inventory significant fair value option granted 2016 2015 2014 438 667 639 respectively fair value option grant estimated using blackscholes optionpricing model following assumptions riskfree interest rate based rates available time grant zerocoupon us government issues remaining term equal options expected life average life option based historical projected exercise lapsing data expected volatility based implied abbott laboratories subsidiaries notes consolidated financial statements continued note 9 incentive stock program continued volatilities traded options abbotts stock historical volatility abbotts stock expected life option dividend yield based options exercise price annual dividend rate time grant note 10 debt lines credit following summary longterm debt december 31 millions november 2016 abbott issued 151 billion medium longterm debt primarily fund cash portion acquisition st jude medical abbott issued 285 billion 235 senior notes due november 22 2019 285 billion 290 senior notes due november 30 2021 150 billion 340 senior notes due november 30 2023 300 billion 375 senior notes due november 30 2026 165 billion 475 senior notes due november 30 2036 325 billion 490 senior notes due november 30 2046 november 2016 abbott also entered interest rate swap contracts totaling 30 billion related new debt effect changing abbotts obligation fixed interest rate variable interest rate obligation related debt instruments march 2015 abbott issued 25 billion longterm debt consisting 750 million 200 senior notes due march 15 2020 750 million 255 senior notes due march 15 2022 10 billion 295 senior notes due march 15 2025 proceeds debt used pay shortterm borrowings abbott also entered interest rate swap contracts totaling 25 billion contracts effect changing abbotts obligation fixed interest rate variable interest rate obligation abbott laboratories subsidiaries notes consolidated financial statements continued note 10 debt lines credit continued 2014 abbott extinguished approximately 500 million longterm debt assumed part cfr pharmaceuticals acquisition incurred cost 183 million extinguish debt principal payments required longterm debt outstanding december 31 2016 3 million 2017 2 million 2018 38 billion 2019 13 billion 2020 29 billion 2021 129 billion 2022 thereafter december 31 2016 abbotts longterm debt rating standard poors corporation a2 moodys investors service conjunction completion st jude medical acquisition january 4 2017 ratings adjusted bbb standard poors corporation baa3 moodys investors service abbott readily available financial resources including unused lines credit 50 billion expire 2019 support commercial paper borrowing arrangements abbotts weightedaverage interest rate shortterm borrowings 06 december 31 2016 02 december 31 2015 2014 april 2016 abbott obtained commitment 364day senior unsecured bridge term loan facility amount exceed 172 billion comprised 152 billion 364day bridge loan 20 billion 120day bridge loan provide financing acquisition st jude medical 152 billion component commitment terminated november 2016 abbott issued 151 billion longterm debt december 2016 abbott formalized 20 billion component entered 120day bridge term loan facility provided abbott ability borrow 20 billion unsecured basis partially fund st jude medical acquisition january 4 2017 abbott borrowed 20 billion facility 12 billion repaid january 31 2017 february 2016 abbott obtained commitment 364day senior unsecured bridge term loan facility amount exceed 9 billion conjunction pending acquisition alere commitment automatically extended 90 days january 29 2017 fees associated bridge facilities recognized interest expense note 11 financial instruments derivatives fair value measures certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts notional amounts totaling 26 billion december 31 2016 24 billion december 31 2015 designated cash flow hedges variability cash flows due changes foreign exchange rates recorded fair value december 31 2016 107 million notional amount relates amo business expected divested first quarter 2017 accumulated gains losses december 31 2016 included cost products sold time products sold generally next twelve eighteen months amount hedge ineffectiveness significant 2016 2015 2014 abbott enters foreign currency forward exchange contracts manage currency exposures foreign currency denominated thirdparty trade payables receivables intercompany loans trade accounts payable receivable payable denominated currency functional currency entity intercompany loans contracts require abbott sell buy foreign currencies primarily european currencies japanese yen exchange primarily us dollars european currencies intercompany trade payables receivables currency abbott laboratories subsidiaries notes consolidated financial statements continued note 11 financial instruments derivatives fair value measures continued exposures primarily us dollar european currencies japanese yen december 31 2016 2015 2014 abbott held notional amounts 149 billion 140 billion 141 billion respectively foreign currency forward exchange contracts december 31 2016 12 billion contracts relate amo business expected divested first quarter 2017 abbott designated foreign denominated shortterm debt hedge net investment foreign subsidiary approximately 454 million 439 million 445 million december 31 2016 2015 2014 respectively accordingly changes fair value debt due changes exchange rates recorded accumulated comprehensive income loss net tax abbott party interest rate hedge contracts totaling notional amounts 55 billion december 31 2016 40 billion december 31 2015 15 billion december 31 2014 manage exposure changes fair value fixedrate debt contracts designated fair value hedges variability fair value fixedrate debt due changes longterm benchmark interest rates effect hedge change fixedrate interest obligation variable rate portion debt abbott records contracts fair value adjusts carrying amount fixedrate debt offsetting amount hedge ineffectiveness recorded income 2016 2015 2014 hedges december 2016 abbott unwound approximately 15 billion interest rate swaps relating 4125 note due 2020 5125 note due 2019 part unwinding abbott received approximately 55 million cash included cash flow financing activities section consolidated statement cash flows gross unrealized holding gains losses availableforsale equity securities totaled 10 million 171 million 3 million december 31 2016 2015 2014 respectively following table summarizes amounts location certain derivative financial instruments december 31 following table summarizes activity foreign currency forward exchange contracts designated cash flow hedges debt designated hedge net investment foreign subsidiary certain derivative financial instruments well amounts location income expense abbott laboratories subsidiaries notes consolidated financial statements continued note 11 financial instruments derivatives fair value measures continued gain loss reclassified income amount hedge ineffectiveness significant 2016 2015 2014 hedges gains 8 million losses 77 million 122 million recognized 2016 2015 2014 respectively related foreign currency forward exchange contracts designated hedges amounts reported consolidated statement earnings net foreign exchange gain loss line interest rate swaps designated fair value hedges variability fair value fixedrate debt due changes longterm benchmark interest rates hedged debt marked market offsetting effect marking interest rate swaps market carrying values fair values certain financial instruments december 31 shown table carrying values financial instruments approximate estimated fair values counterparties financial instruments consist select major international financial institutions abbott expect losses nonperformance counterparties abbott laboratories subsidiaries notes consolidated financial statements continued note 11 financial instruments derivatives fair value measures continued following table summarizes bases used measure certain assets liabilities fair value recurring basis balance sheet equity securities principally comprised mylan nv ordinary shares fair value mylan nv equity securities determined based value publiclytraded ordinary shares fair value foreign currency forward exchange contracts determined using market approach utilizes values comparable derivative instruments fair value debt determined based face value debt adjusted fair value interest rate swaps based discounted cash flow analysis using significant observable inputs fair value contingent consideration determined based independent appraisals adjusted time value money changes fair value primarily resulting changes regulatory timelines contingent consideration results three acquisitions maximum amount estimated due approximately 450 million dependent upon attaining certain sales thresholds based occurrence certain events regulatory approvals abbott laboratories subsidiaries notes consolidated financial statements continued note 12 litigation environmental matters abbott identified potentially responsible party investigation cleanup costs number locations united states puerto rico federal state remediation laws investigating potential contamination number companyowned locations abbott recorded estimated cleanup cost site management believes abbott probable loss exposure individual site cleanup exposure expected exceed 4 million aggregate cleanup exposure expected exceed 10 million abbott involved various claims legal proceedings abbott estimates range possible loss legal proceedings environmental exposures approximately 35 million 45 million recorded accrual balance december 31 2016 proceedings exposures approximately 40 million accrual represents managements best estimate probable loss defined fasb asc 450 contingencies within next year legal proceedings may occur may result change estimated loss accrued abbott feasible predict outcome proceedings exposures certainty management believes ultimate disposition material adverse effect abbotts financial position cash flows results operations abbott laboratories subsidiaries notes consolidated financial statements continued note 13 postemployment benefits retirement plans consist defined benefit defined contribution medical dental plans information abbotts major defined benefit plans postemployment medical dental benefit plans follows projected benefit obligations nonus defined benefit plans 25 billion 21 billion december 31 2016 2015 respectively accumulated benefit obligations defined benefit plans 74 billion 69 billion december 31 2016 2015 respectively abbott laboratories subsidiaries notes consolidated financial statements continued note 13 postemployment benefits continued plans accumulated benefit obligations exceeded plan assets december 31 2016 2015 aggregate accumulated benefit obligations projected benefit obligations aggregate plan assets follows components net periodic benefit cost follows comprehensive income loss respective year includes amortization actuarial losses prior service costs credits noted previous table comprehensive income loss respective year also includes net actuarial losses 571 million defined benefit plans 20 million medical dental plans 2016 net actuarial gains 37 million defined benefit plans 116 million medical dental plans 2015 net actuarial losses net prior service credits 16 billion defined benefit plans 57 million medical dental plans 2014 pretax amount actuarial losses prior service cost credits included accumulated comprehensive income loss december 31 2016 expected recognized net periodic benefit cost 2017 167 million 1 million expense respectively defined benefit pension plans 24 million expense 45 million income respectively medical dental plans weighted average assumptions used determine benefit obligations defined benefit plans medical dental plans follows abbott laboratories subsidiaries notes consolidated financial statements continued note 13 postemployment benefits continued weighted average assumptions used determine net cost defined benefit plans medical dental plans follows assumed health care cost trend rates medical dental plans december 31 follows discount rates used measure liabilities determined based highquality fixed income securities match duration expected retiree benefits health care cost trend rates represent abbotts expected annual rates change cost health care benefits forward projections health care costs measurement date onepercentage point increasedecrease assumed health care cost trend rate would increasedecrease accumulated postemployment benefit obligations december 31 2016 156 million 137 million total service interest cost components net postemployment health care cost year ended approximately 12 million10 million 2016 abbott adopted asu 201507 fair value measurement topic 820 disclosures investments certain entities calculate net asset value per share equivalent new standard removes requirement categorize investments measured net asset value nav per share using practical expedient allowed asc 820 fair value hierarchy abbott applied standard retrospective basis revised form content fair value measurement disclosures related assets associated defined benefit medical dental plans abbott laboratories subsidiaries notes consolidated financial statements continued note 13 postemployment benefits continued following table summarizes basis used measure defined benefit medical dental plan assets fair value aa mix index funds actively managed equity accounts benchmarked various large cap indices ba mix index funds actively managed equity accounts benchmarked various mid cap indices ca mix index funds actively managed pooled investment funds benchmarked various nonus equity indices developed emerging markets abbott laboratories subsidiaries notes consolidated financial statements continued note 13 postemployment benefits continued da mix index funds actively managed accounts benchmarked various us government bond indices ea mix index funds actively managed accounts benchmarked various corporate bond indices fprimarily united kingdom japan netherlands irish governmentissued bonds gprimarily mortgage backed securities actively managed diversified fixed income vehicle benchmarked onemonth libor euribor hprimarily funds invested managers global mandate flexibility allocate capital broadly across wide range asset classes strategies including limited equities fixed income commodities interest rate futures currencies securities outperform agreed upon benchmark specific return volatility targets iprimarily investments liquid commodity future contracts private energy funds jprimarily investments private funds private equity private credit private real estate kin accordance asu 201507 investments measured fair value using nav practical expedient classified fair value hierarchy fair value amounts presented table intended permit reconciliation fair value hierarchy amounts presented consolidated balance sheet equities valued using quoted prices valued published market prices equities common collective trust registered investment company valued using significant observable inputs valued nav provided fund administrator nav based value underlying assets owned fund minus liabilities majority funds investments may redeemed per month required 2 30 day notice period remaining funds daily redemption investment allowed fixed income securities valued using significant observable inputs valued prices obtained independent financial service industryrecognized vendors abbott unfunded commitments related fixed income funds december 31 2016 2015 majority funds investments may redeemed monthly required 2 14 day notice period remaining funds investments may generally redeemed daily absolute return funds commodities valued nav provided fund administrator private funds valued nav provided fund onequarter lag adjusted known cash flows significant events reporting date abbott unfunded commitments related absolute return funds december 31 2016 2015 investments funds may generally redeemed monthly quarterly required notice periods ranging 5 45 days approximately 100 million absolute return funds redemptions subject 25 gate commodities investments private energy funds cannot redeemed funds make distributions liquidation estimate liquidation period fund ranges 2017 2022 abbotts unfunded commitments funds december 31 2016 2015 significant investments private funds excluding private energy funds cannot redeemed funds make distributions liquidation estimate liquidation period fund ranges 2017 2026 abbotts unfunded commitment funds 337 million 198 million december 31 2016 2015 respectively abbott laboratories subsidiaries notes consolidated financial statements continued note 13 postemployment benefits continued investment mix equity securities fixed income asset allocation strategies based upon achieving desired return well balancing higher return volatile equity securities lower return less volatile fixed income securities investment allocations made across range markets industry sectors capitalization sizes case fixed income securities maturities credit quality plans directly hold securities abbott known significant concentrations risk plans assets abbotts medical dental plans assets invested similar mix pension plan assets actual asset allocation percentages year end consistent companys targeted asset allocation percentages plans expected return assets shown based managements expectations longterm average rates return achieved underlying investment portfolios establishing assumption management considers historical expected returns asset classes plans invested well current economic capital market conditions abbott funds domestic pension plans according irs funding limitations international pension plans funded according similar regulations abbott funded 582 million 2016 579 million 2015 defined pension plans abbott expects contribute approximately 364 million pension plans 2017 approximately 270 million relates main domestic pension plan total benefit payments expected paid participants includes payments funded company assets well paid plans follows abbott stock retirement plan principal defined contribution plan abbotts contributions plan 83 million 2016 81 million 2015 85 million 2014 note 14 taxes earnings continuing operations taxes earnings continuing operations reflect annual effective rates including charges interest penalties deferred income taxes reflect tax consequences future years differences tax bases assets liabilities financial reporting amounts 2016 taxes earnings continuing operations include impact net tax benefit approximately 225 million primarily result resolution various tax positions prior years partially offset unfavorable impact nondeductible foreign exchange losses related venezuela adjustment mylan nv equity investment well recognition deferred taxes associated pending sale amo 2015 taxes earnings continuing operations include tax cost 71 million related disposal shares mylan nv stock 2014 taxes earnings continuing operations reflect recognition 440 million tax expense associated onetime abbott laboratories subsidiaries notes consolidated financial statements continued note 14 taxes earnings continuing operations continued repatriation 2014 nonus earnings partially offset favorable resolution various tax positions adjustments tax uncertainties pertaining prior years us income taxes provided earnings foreign subsidiaries intended remitted parent company abbott record deferred income taxes earnings reinvested indefinitely foreign subsidiaries undistributed earnings reinvested indefinitely foreign subsidiaries aggregated 24 billion december 31 2016 practicable determine amount deferred income taxes provided earnings us abbotts federal income tax returns 2013 settled numerous income tax jurisdictions tax returns yet settled none individually significant reserves interest penalties significant earnings continuing operations taxes related provisions taxes earnings continuing operations follows abbott laboratories subsidiaries notes consolidated financial statements continued note 14 taxes earnings continuing operations continued differences effective income tax rate us statutory tax rate follows impact foreign operations primarily derived operations puerto rico switzerland ireland singapore netherlands 2014 benefit offset tax expense accrued result abbotts onetime repatriation current year foreign earnings 2015 effective tax rate includes impact rd tax credit made permanent us protecting americans tax hikes act 2015 tax effect differences give rise deferred tax assets liabilities follows abbott laboratories subsidiaries notes consolidated financial statements continued note 14 taxes earnings continuing operations continued abbott incurred losses foreign jurisdiction realization future economic benefit remote benefit reflected deferred tax asset following table summarizes gross amounts unrecognized tax benefits without regard reduction tax liabilities additions deferred tax assets liabilities unrecognized tax benefits settled total amount unrecognized tax benefits recognized would impact effective tax rate approximately 925 million abbott believes reasonably possible recorded amount gross unrecognized tax benefits may decrease within range 100 million 250 million including cash adjustments within next twelve months result concluding various domestic international tax matters note 15 segment geographic area information abbotts principal business discovery development manufacture sale broad line health care products abbotts products generally sold directly retailers wholesalers hospitals health care facilities laboratories physicians offices government agencies throughout world abbotts reportable segments follows established pharmaceutical products international sales broad line branded generic pharmaceutical products nutritional products worldwide sales broad line adult pediatric nutritional products diagnostic products worldwide sales diagnostic systems tests blood banks hospitals commercial laboratories alternatecare testing sites segment reporting purposes core laboratories diagnostics molecular diagnostics point care ibis diagnostic divisions aggregated reported diagnostic products segment vascular products worldwide sales coronary endovascular structural heart vessel closure medical device products segment reporting purposes vascular electrophysiology products divisions aggregated reported vascular products segment nonreportable segments include diabetes care medical optics segments abbotts underlying accounting records maintained legal entity basis government public reporting requirements segment disclosures performance basis consistent internal management reporting cost corporate functions cost certain employee benefits charged segments predetermined rates approximate cost remaining costs abbott laboratories subsidiaries notes consolidated financial statements continued note 15 segment geographic area information continued allocated segments addition intangible asset amortization allocated operating segments intangible assets goodwill included measure segments assets following segment information prepared accordance internal accounting policies abbott described presented accordance generally accepted accounting principles applied consolidated financial statements anet sales operating earnings unfavorably affected relatively stronger us dollar 2016 2015 2014 bother net includes 947 million adjustment mylan equity investment 480 million foreign currency exchange loss related operations venezuela 2016 charges restructuring actions cost reduction initiatives approximately 155 million 2016 310 million 2015 435 million 2014 2015 includes 207 million pretax gain sale portion mylan nv shares abbott laboratories subsidiaries notes consolidated financial statements continued note 15 segment geographic area information continued cother 2014 includes depreciation related discontinued operations dgoodwill intangible assets related amo included line 2016 goodwill intangible assets related developed markets established pharmaceuticals animal health included line 2014 abbott laboratories subsidiaries notes consolidated financial statements continued note 15 segment geographic area information continued esales country based country sold product longlived assets geographic basis primarily include property plant equipment excludes goodwill intangible assets deferred tax assets financial instruments december 31 2016 2015 longlived assets totaled 66 billion 64 billion respectively united states assets totaled 31 billion years longlived asset balances associated countries material individual country basis either two years note 16 subsequent event january 4 2017 abbott completed acquisition st jude medical inc transaction establishes abbott leader medical device market provides expanded opportunities future growth see note 6 consolidated financial statements additional information regarding acquisition abbott laboratories subsidiaries notes consolidated financial statements continued note 17 quarterly results unaudited athe sum four quarters earnings per share 2016 2015 may add full year earnings per share amount due rounding andor use quartertodate weighted average shares calculate earnings per share amount respective quarter management report internal control financial reporting management abbott laboratories responsible establishing maintaining adequate internal control financial reporting abbotts internal control system designed provide reasonable assurance companys management board directors regarding preparation fair presentation published financial statements internal control systems matter well designed inherent limitations therefore even systems determined effective provide reasonable assurance respect financial statement preparation presentation abbotts management assessed effectiveness companys internal control financial reporting december 31 2016 making assessment used criteria set forth internal control integrated framework 2013 issued committee sponsoring organizations treadway commission based assessment believe december 31 2016 companys internal control financial reporting effective based criteria abbotts independent registered public accounting firm issued audit report assessment effectiveness companys internal control financial reporting report appears page 93 miles white chairman board chief executive officer brian b yoor senior vice president finance chief financial officer robert e funck vice president controller february 17 report independent registered public accounting firm board directors shareholders abbott laboratories audited accompanying consolidated balance sheets abbott laboratories subsidiaries december 31 2016 2015 related consolidated statements earnings comprehensive income shareholders investment cash flows three years period ended december 31 2016 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position abbott laboratories subsidiaries december 31 2016 2015 consolidated results operations cash flows three years period ended december 31 2016 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states abbott laboratories subsidiaries internal control financial reporting december 31 2016 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission 2013 framework report dated february 17 2017 expressed unqualified opinion thereon ernst young llp chicago illinois february 17 2017 report independent registered public accounting firm board directors shareholders abbott laboratories audited abbott laboratories subsidiaries internal control financial reporting december 31 2016 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission 2013 framework coso criteria abbott laboratories subsidiaries management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management report internal control financial reporting responsibility express opinion companys internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion companys internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion abbott laboratories subsidiaries maintained material respects effective internal control financial reporting december 31 2016 based coso criteria also audited accordance standards public company accounting oversight board united states consolidated balance sheets abbott laboratories subsidiaries december 31 2016 2015 related consolidated statements earnings comprehensive income shareholders investment cash flows three years period ended december 31 2016 abbott laboratories subsidiaries report dated february 17 2017 expressed unqualified opinion thereon ernst young llp chicago illinois february 17 2017 item 9 item 8 financial statements supplementary data incorporated herein reference portions 1995 annual report captioned consolidated balance sheet consolidated statement earnings consolidated statement cash flows consolidated statement shareholders investment notes consolidated financial statements report independent public accountants contains related report arthur andersen llp dated january 15 1996 data relating quarterly results found note 8 item 9 item 8 financial statements supplementary data abbott laboratories subsidiaries consolidated statement earnings comprehensive income dollars shares thousands except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement cash flows dollars thousands accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated balance sheet dollars thousands abbott laboratories subsidiaries consolidated balance sheet dollars thousands accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement shareholders investment dollars thousands except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries notes consolidated financial statements note 1 summary significant accounting policies nature business concentration risk abbotts principal business discovery development manufacture sale broad line health care products due nature operations abbott subject significant concentration risks relating customers products geographic locations except three wholesalers accounted 22 percent 19 percent 15 percent trade accounts receivable december 31 2002 2001 2000 respectively abbott material exposures offbalance sheet arrangements special purpose entities activities include nonexchangetraded contracts accounted fair value abbott periodically entered agreements ordinary course business assignment product rights companies resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote product warranties significant basis consolidation consolidated financial statements include accounts parent company subsidiaries elimination intercompany transactions accounts foreign subsidiaries consolidated november 30 due time needed consolidate subsidiaries events occurred related foreign subsidiaries december 2002 2001 2000 materially affected financial position results operations use estimates financial statements prepared accordance generally accepted accounting principles necessarily include amounts based estimates assumptions management actual results could differ amounts significant estimates include amounts litigation income taxes sales rebates valuation intangibles inventory accounts receivable exposures pension postemployment benefits litigation abbott accounts litigation losses accordance statement financial accounting standards sfas 5 accounting contingencies sfas 5 loss contingency provisions recorded probable losses managements best estimate loss best estimate cannot made minimum loss contingency amount recorded sales rebates provisions rebates customers provided period related sales recorded historical data readily available reliable used estimating amount reduction gross sales income taxes deferred income taxes provided tax effect temporary differences tax bases assets liabilities reported amounts financial statements enacted statutory rate effect taxes paid us income taxes provided earnings foreign subsidiaries operating puerto rico tax incentive grants intended remitted parent company deferred income taxes provided undistributed earnings reinvested indefinitely foreign subsidiaries working capital plant equipment loss contingency provisions recorded estimated amount audit settlements pension postemployment benefits abbott accrues actuarially determined cost pension postemployment benefits service attribution periods employees assistance outside actuaries abbott must develop longterm assumptions significant health care costs trend rate discount rate expected return plan assets differences expected return plan assets actual return amortized fiveyear period valuation intangible assets purchased intangible assets recorded fair value generally based independent appraisals time acquisition abbott uses discounted cash flow model value intangible assets assessment impairment requires assumptions timing amount future cash flows risk cost capital terminal values intangible assets goodwill reviewed impairment least quarterly annual basis respectively cash equivalents investment securities cash equivalents consist time deposits certificates deposit original maturities three months less investments marketable equity securities classified availableforsale recorded fair value unrealized holding gains losses net tax included accumulated comprehensive loss losses charged income temporary declines fair value equity securities investments debt securities classified heldtomaturity management intent ability hold securities maturity reported cost net unamortized premium discount income relating securities reported component interest income inventories stated lower cost firstin firstout basis market cost includes material conversion costs property equipment depreciation amortization provided straightline basis estimated useful lives assets following table shows estimated useful lives property equipment product liability provisions made portions probable losses covered product liability insurance translation adjustments foreign operations highly inflationary economies translation gains losses included net foreign exchange gain loss remaining foreign operations translation adjustments included component accumulated comprehensive loss revenue recognition revenue product sales recognized upon passage title risk loss customers product delivered common carrier shipment domestic customers provisions discounts rebates sales incentives customers returns adjustments provided period related sales recorded sales product rights recorded revenue upon disposition rights sales incentives customers generally material revenue license product rights performance research selling activities recorded periods earned research development costs internal research development costs expensed incurred thirdparty research development costs expensed contracted work performed milestone payments due third parties research development arrangements milestone payment obligations expensed milestone results achieved stockbased compensation abbott measures compensation cost using intrinsic valuebased method accounting stock options replacement stock options granted employees reclassifications certain minor reclassifications additional disclosures made prioryear financial statements conform currentyear presentation note 2 supplemental financial information dollars thousands athe payable tap related service agreement recorded accounts payable balance 666422 554156 486522 december 31 2002 2001 2000 respectively bwholesaler chargeback rebates 81017 72586 74869 december 31 2002 2001 2000 respectively netted trade receivables note 3 investment securities dollars thousands following summary investment securities december 31 investment securities listed 247998 323974 590678 held december 31 2002 2001 2000 respectively subsidiaries operating puerto rico tax incentive grants expiring 2015 2020 addition subsidiaries held cash equivalents 85925 december 31 2000 abbott reviews carrying value investments equity securities quarter determine whether temporary decline market value exists abbott considers factors affecting investee factors affecting industry investee operates general equity market trends abbott considers length time investments market value carrying value nearterm prospects recovery carrying value abbott determines temporary decline occurred investment written charge income expense net note 4 financial instruments derivatives january 1 2001 abbott adopted provisions statement financial accounting standards 133 accounting derivative instruments hedging activities january 1 2001 derivative instruments recognized either assets liabilities fair value resulting transition credit income approximately 20 million 2001 included net foreign exchange gain loss 2002 2001 certain abbott foreign subsidiaries entered foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts totaling 857 million 571 million december 31 2002 2001 designated cash flow hedges variability cash flows due changes foreign exchange rates abbott records contracts fair value resulting 288 million charge 114 million credit accumulated comprehensive loss 2002 2001 respectively hedge ineffectiveness recorded income 2002 2001 accumulated gains losses december 31 2002 included cost products sold time products sold generally end 2003 2001 abbott entered interest rate hedge contracts totaling 2450 billion manage exposure changes fair value 2450 billion fixedrate debt due july 2004 2006 contracts designated fair value hedges variability fair value fixedrate debt due changes longterm benchmark interest rates effect hedge change fixedrate interest obligation variable rate portion debt december 31 2002 2001 abbott recorded contracts fair value adjusted carrying amount fixedrate debt offsetting amount hedge ineffectiveness recorded income 2002 2001 abbott enters foreign currency forward exchange contracts manage currency exposures foreign currency denominated thirdparty trade payables receivables intercompany loans trade accounts payable receivable payable denominated currency functional currency entity intercompany loans contracts require abbott sell foreign currencies primarily european currencies japanese yen exchange primarily us dollars european currencies intercompany trade payables receivables currency exposures primarily us dollar european currencies japanese yen contracts recorded fair value resulting gains losses reflected income net foreign exchange gain loss december 31 2002 2001 2000 abbott held 19 billion 31 billion 13 billion respectively foreign currency exchange contracts gross unrealized holding gains losses current longterm heldtomaturity investment securities totaled 15 million 85 million respectively december 31 2002 20 million 172 million respectively december 31 2001 13 million 214 million respectively december 31 2000 gross unrealized holding gains losses availableforsale equity securities totaled 244 million 92 million respectively december 31 2002 570 million 18 million respectively december 31 2001 803 million 340 million respectively december 31 2000 carrying values fair values certain financial instruments december 31 shown table carrying values financial instruments approximate estimated fair values fair value quoted market price instrument held quoted market price similar instrument counterparties financial instruments consist select major international financial institutions abbott expect losses nonperformance counterparties note 5 postemployment benefits dollars thousands retirement plans consist defined benefit defined contribution medical dental plans information abbotts major defined benefit plans postemployment medical dental benefit plans follows projected benefit obligations certain foreign defined benefit plans plan assets 284000 276000 65000 december 31 2002 2001 2000 respectively addition 2002 abbott recorded minimum pension liability adjustments 342874 accumulated benefit obligations certain domestic international defined benefit plans exceeded market value plans assets resulted charge accumulated comprehensive loss 203182 net taxes plans accumulated benefit obligations exceeded plan assets aggregate accumulated benefit obligations 2382700 aggregate plan assets 1980600 discount rate used determining accumulated benefit obligations 675 onepercentage point reduction discount rate would result increase minimum pension liability adjustments approximately 368268 abbott funds domestic pension plans according irs funding limitations 2002 106000 funded main domestic pension plan assumptions used major domestic benefit plans december 31 include nine percent annual rate increase per capita cost covered health care benefits assumed 2002 rate assumed decrease gradually five percent 2007 onepercentage point increasedecrease assumed health care cost trend rate would increasedecrease accumulated postemployment benefit obligations december 31 2002 197084135156 total service interest cost components net postemployment health care cost year ended approximately 2298118375 abbott stock retirement plan principal defined contribution plan abbotts contributions plan 109000 2002 97000 2001 86000 2000 abbott provides certain postemployment benefits primarily salary continuation plans qualifying domestic employees accrues related cost service lives employees note 6 taxes earnings dollars thousands deferred income taxes reflect tax consequences future years temporary differences tax bases assets liabilities financial reporting amounts us income taxes provided earnings foreign subsidiaries operating puerto rico tax incentive grants intended remitted parent company undistributed earnings reinvested indefinitely foreign subsidiaries working capital plant equipment aggregated 4304400 december 31 2002 deferred income taxes provided earnings would approximately 1092300 abbotts us income tax returns 1992 prior years audited internal revenue service closed internal revenue service audits years 1993 1995 currently process earnings taxes related provisions taxes earnings follows differences effective income tax rate us statutory tax rate follows december 31 2002 2001 2000 total deferred tax assets 2375526 2412064 1458707 respectively total deferred tax liabilities 904822 913614 463406 respectively valuation allowances deferred tax assets significant temporary differences give rise deferred tax assets liabilities follows note 7 segment geographic area information dollars millions revenue segments abbotts principal business discovery development manufacture sale broad line health care products abbotts products generally sold directly retailers wholesalers hospitals health care facilities laboratories physicians offices government agencies throughout world abbotts reportable segments follows pharmaceutical products us sales broad line pharmaceuticals diagnostic products worldwide sales diagnostic systems blood banks hospitals consumers commercial laboratories alternatecare testing sites hospital products us sales intravenous irrigation fluids related administration equipment drugs drugdelivery systems anesthetics critical care products medical specialty products hospitals alternatecare sites ross products us sales broad line adult pediatric nutritional products pediatric pharmaceuticals consumer products international nonus sales abbotts pharmaceutical hospital nutritional products sold international manufactured domestic segments international manufacturing locations abbotts underlying accounting records maintained legal entity basis government public reporting requirements segment disclosures performance basis consistent internal management reporting intersegment transfers inventory recorded standard cost measure segment operating earnings cost corporate functions cost certain employee benefits sold reportable segments predetermined rates approximate cost remaining costs allocated reportable segments intangible assets related amortization business acquisitions allocated segments following segment information prepared accordance internal accounting policies abbott described presented accordance generally accepted accounting principles applied consolidated financial statements anet sales operating earnings favorably impacted 2002 2001 acquisition pharmaceutical business basf 2001 bnet sales operating earnings unfavorably affected relatively stronger us dollar year presented c2001 includes certain integration charges related acquisition pharmaceutical business basf d2002 2001 include amortization restructuring charges relating acquisition pharmaceutical business basf 2002 includes charges restructuring plans fda consent decree temporary declines market value equity securities e2002 2001 include intangible assets related acquisitions pharmaceutical business basf vysis inc fsales country based country sold product g2002 2001 longterm assets include certain intangible assets related acquisition pharmaceutical business basf note 8 litigation environmental matters abbott involved various claims legal proceedings including number antitrust suits investigations connection pricing prescription pharmaceuticals suits investigations allege various pharmaceutical manufacturers conspired fix prices prescription pharmaceuticals andor discriminate pricing retail pharmacies providing discounts mailorder pharmacies institutional pharmacies hmos violation state federal antitrust laws suits brought behalf individuals retail pharmacies name abbott certain pharmaceutical manufacturers pharmaceutical wholesalers defendants cases seek treble damages civil penalties injunctive relief abbott filed response complaints denying substantive allegations several lawsuits pending connection sales hytrin suits allege abbott violated state federal antitrust laws cases unfair competition laws signing patent settlement agreements geneva pharmaceuticals inc zenith laboratories inc agreements related pending patent infringement lawsuits abbott two companies suits also allege abbott violated various state federal laws filing frivolous patent infringement lawsuits protect hytrin generic competition cases seek treble damages civil penalties relief abbott filed intends file response complaints denying substantive allegations us attorneys office southern district illinois conducting industrywide investigation enteral nutritional business including abbotts ross division abbott cooperating investigation responding subpoenas issued investigation civil criminal nature feasible predict outcome investigation certainty adverse outcome investigation could material adverse effect abbotts cash flows results operations given year material adverse effect abbotts financial position abbott identified potentially responsible party investigation cleanup costs number locations united states puerto rico federal state remediation laws investigating potential contamination number companyowned locations abbott recorded estimated cleanup cost site management believes abbott probable loss exposure individual site cleanup exposure expected exceed 3 million aggregate cleanup exposure expected exceed 20 million within next year legal proceedings may occur may result change estimated reserves recorded abbott unable estimate reasonably probable range loss claims investigations discussed note 9 except enteral nutritional investigation abbott recorded reserves approximately 150 million legal proceedings environmental exposure including discussed note 9 reserves represent managements best estimate probable loss defined statement financial accounting standards 5 accounting contingencies feasible predict outcome proceedings certainty management believes ultimate disposition result loss materially different amount recorded material adverse effect abbotts financial position cash flows results operations except noted respect enteral nutritional investigation note 9 tap pharmaceutical products inc 2001 tap pharmaceutical products inc tap entered agreement us government settle matters relating investigation involving taps marketing prostate cancer drug lupron 2001 abbotts income tap joint venture reduced charge 274 million relating investigation tap abbott named defendants several lawsuits alleging violations various state federal laws connection taps marketing pricing lupron abbott intends file response lawsuits denying substantive allegations within next year legal proceedings may occur may result change estimated reserves recorded tap abbott feasible predict outcome pending claims proceedings investigations certainty management opinion ultimate disposition material adverse effect abbotts financial position cash flows results operations note 10 restructuring plans dollars millions october 2002 abbott announced restructuring plans align abbotts global manufacturing operations scientific focus achieve greater operating efficiencies diagnostics international segments 2002 abbott recorded pretax charge earnings 174 reflecting impairment manufacturing facilities assets employee severance charges approximately 83 classified cost products sold 5 research development 86 selling general administrative restructuring plans result elimination 2600 positions offset part addition 500 positions approximately 1400 employees left abbott december 31 2002 employee groups covered restructuring plans include manufacturing research development sales administrativerelated functions following summarizes restructuring activity 2001 2002 abbott implemented restructuring plans related operations acquired pharmaceutical business basf addition abbott announced 2001 closing one manufacturing operations relocating production abbott facilities following summarizes restructuring activity 2002 59 restructuring charge recorded goodwill associated acquisition pharmaceutical business basf 2001 total 207 restructuring charges 156 recorded goodwill associated acquisition pharmaceutical business basf amount expensed approximately 36 classified cost products sold 2 research development 13 selling general administrative employeerelated costs primarily severance pay relocation former basf employees outplacement services approved restructuring plans cover approximately 2400 employees approximately 2000 left abbott december 31 2002 employee groups covered restructuring plan include manufacturing research development sales administrativerelated functions note 11 incentive stock program 1996 incentive stock program authorizes granting stock options replacement stock options stock appreciation rights limited stock appreciation rights restricted stock awards performance units foreign qualified benefits stock options replacement stock options restricted stock awards comprise majority benefits granted currently outstanding program prior programs 2002 abbott granted 22576126 stock options 2112635 replacement stock options 1410235 restricted stock awards program purchase price shares option must least equal fair market value common stock date grant maximum term option 10 years options granted 2002 2001 2000 vest equally three years except replacement options generally vest six months employee tenders mature shares abbott upon exercise stock option replacement stock option granted equal amount shares tendered replacement options granted current market price term expires date underlying option grant upon change control abbott outstanding stock options become fully exercisable terms conditions restricted stock awards deemed satisfied january 1 2003 413 million shares reserved future grants 1996 program subsequent yearend board directors granted approximately 229 million stock options reserve abbott measures compensation cost using intrinsic valuebased method accounting stock options replacement options granted employees compensation cost determined using fair market valuebased accounting method pro forma net income billions earnings per share eps amounts would follows weighted average fair value option granted 2002 2001 2000 1647 1331 1060 respectively purposes fair market value disclosures fair market value option grant estimated using blackscholes option pricing model following assumptions note 12 us food drug administration consent decree november 1999 abbott reached agreement us government consent decree entered settle issues involving abbotts diagnostics manufacturing operations lake county ill decree amended december 2000 requires abbott ensure diagnostics manufacturing processes lake county conform us food drug administrations fda quality system regulation qsr decree allows continued manufacture distribution medically necessary diagnostic products made lake county however abbott prohibited manufacturing distributing certain diagnostics products abbott ensures processes lake county diagnostics manufacturing operations conform qsr decree allows abbott export diagnostic products components sale distribution outside united states meet export requirements federal food drug cosmetic act terms amended consent decree abbott ensure diagnostics manufacturing operations conformance qsr january 15 2001 fda performed inspection abbotts lake county ill diagnostics manufacturing operations fourth quarter 2001 first quarter 2002 determine whether operations conformity qsr may 2002 operations found conformity accordingly abbott required make additional payments government continue efforts achieve full compliance pretax charge 129 million related matter recorded 2002 fda determine abbotts conformance qsr reinspection abbotts facilities fda concludes operations conformance qsr abbott may continue subject additional costs loss revenue note 13 debt lines credit dollars thousands following summary longterm debt december 31 principal payments required longterm debt outstanding december 31 2002 221111 2003 1652797 2004 152023 2005 1852673 2006 486 2007 455797 thereafter december 31 2002 abbott 3000000 unused lines credit support commercial paper borrowing arrangements related compensating balances subject withdrawal abbott option commitment fees material addition abbott yen denominated credit facility expires march 2003 borrowings facility approximately 280000 december 31 2002 abbotts weighted average interest rate shortterm borrowings 11 19 59 december 31 2002 2001 2000 respectively note 14 business combinations technology acquisition second quarter 2002 abbott acquired cardiovascular stent business biocompatibles international plc certain cardiovascular stent technology rights medtronic inc addition abbott acquired additional 288 percent issued common shares hokuriku seiyaku co ltd resulting abbott owning substantially common shares hokuriku seiyaku co ltd aggregate cash purchase price 586 million strategic business technology acquisitions resulted pretax charge acquired inprocess research development approximately 108 million intangible assets approximately 145 million nontax deductible goodwill approximately 257 million acquired intangible assets primarily product technology amortized 4 13 years average approximately 8 years acquisitions taken place january 1 previous year consolidated sales income would significantly different reported amounts march 2 2001 abbott acquired cash pharmaceutical business basf included global operations knoll pharmaceuticals approximately 72 billion acquisition financed primarily short longterm borrowings acquisition accounted purchase method accounting allocation acquisition cost follows billions dollars acquisition cost allocated intangible assets goodwill acquired inprocess research development net tangible assets based independent appraisal fair values product rights marketed products amortized straightline basis 10 16 years average 13 years goodwill amortized 2001 straightline basis 20 years acquired inprocess research development charged expense 2001 net tangible assets acquired consist primarily property equipment approximately 630 million trade accounts receivable approximately 402 million inventories approximately 275 million net assumed liabilities primarily trade accounts payable liabilities prior date acquisition abbott began plan integration restructuring business 2001 2002 abbott formally approved several restructuring plans certain costs implementing formally approved plans included reported amount goodwill following unaudited pro forma financial information reflects consolidated results operations abbott acquisition pharmaceutical business basf taken place january 1 2000 pro forma information includes primarily adjustments acquired inprocess research development amortization product rights marketed products interest expense estimated acquisition debt amortization goodwill pro forma financial information necessarily indicative results operations would transaction effected assumed date 2001 abbott acquired cash outstanding common stock vysis inc leading genomic disease management company cash acquisition cost approximately 362 million 162 million allocated developed technology amortized 15 years 143 million charged earnings 2001 acquired inprocess research development remaining acquisition cost allocated net tangible assets goodwill acquisition taken place january 1 previous year consolidated sales income would significantly different reported amounts note 15 goodwill intangible assets dollars millions except per share amounts effective adoption sfas 142 goodwill intangible assets january 1 2002 goodwill longer subject amortization estimated useful life goodwill subject least annual assessment impairment applying fairvaluebased test abbott completed initial assessment goodwill impairment second quarter 2002 annual assessment third quarter 2002 resulted impairment charges abbott assesses goodwill impairment third quarter year 2002 abbott recorded goodwill 59 relating restructuring charges associated acquisition pharmaceutical business basf 257 relating acquisitions biocompatibles international plc hokuriku seiyaku co ltd translation foreign currency denominated goodwill reductions goodwill 2002 relating impairments disposal portion business following transitional pro forma financial information reflects net income diluted earnings per share goodwill certain intangibles subject amortization twelve months ended december 31 2001 2000 gross amount accumulated amortization amortizable intangible assets december 31 follows estimated annual amortization expense intangible assets 346 2003 345 2004 341 2005 335 2006 331 2007 intangible assets amortized straightline basis 5 20 years average 13 years net amount intangible assets indefinite lives primarily registered tradenames subject amortization 148 december 31 2002 2001 135 december 31 2000 note 16 equity method investments dollars millions abbotts 50 percent owned joint venture tap pharmaceutical products inc tap accounted equity method accounting investment tap 370 392 491 december 31 2002 2001 2000 respectively dividends received tap 695 433 511 2002 2001 2000 respectively abbotts income tap joint venture recognized net consolidating adjustments addition abbott performs certain administrative selling manufacturing services tap negotiated rates approximate fair market value services performed summarized financial information tap follows undistributed earnings investments accounted equity method amounted 339 december 31 2002 note 17 stock purchase rights common shares outstanding subject stock purchase rights exercisable person group acquires ten percent abbott common shares announces tender exchange offer would result ownership ten percent abbott common shares following acquisition ten percent abbotts common shares holders rights acquiring person group may purchase abbott common shares half price event merger acquisition abbott holders rights acquiring person group may purchase shares acquiring entity half price rights exercisable december 31 2002 note 18 quarterly results unaudited dollars millions except per share data afirstquarter 2001 included pretax charge acquired inprocess research development 1015 related acquisition pharmaceutical business basf reports independent public accountants board directors shareholders abbott laboratories audited accompanying consolidated balance sheet abbott laboratories subsidiaries company december 31 2002 related consolidated statements earnings comprehensive income shareholders investment cash flows year ended consolidated financial statements responsibility companys management responsibility express opinion financial statements based audit consolidated financial statements company years ended december 31 2001 2000 prior addition transitional disclosures discussed note 15 audited auditors ceased operations auditors expressed report dated january 15 2002 unqualified opinion statements conducted audit accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion consolidated financial statements present fairly material respects financial position abbott laboratories subsidiaries december 31 2002 results operations cash flows year ended conformity accounting principles generally accepted united states america discussed note 15 effective january 1 2002 company changed method accounting goodwill intangible assets upon adoption statement financial accounting standards sfas 142 goodwill intangible assets discussed consolidated financial statements company years ended december 31 2001 2000 audited auditors ceased operations described note 15 consolidated financial statements revised include transitional disclosures required sfas 142 goodwill intangible assets audited transitional disclosures note 15 opinion transitional disclosures 2001 2000 note 15 appropriate however engaged audit review apply procedures 2001 2000 consolidated financial statements company respect disclosures accordingly express opinion form assurance 2001 2000 consolidated financial statements taken whole deloitte touche llp chicago illinois january 15 2003 shareholders abbott laboratories audited accompanying consolidated balance sheet abbott laboratories illinois corporation subsidiaries december 31 2001 2000 1999 related consolidated statement earnings comprehensive income shareholders investment cash flows years ended financial statements responsibility abbotts management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position abbott laboratories subsidiaries december 31 2001 2000 1999 results operations cash flows years ended conformity accounting principles generally accepted united states arthur andersen llp 1 chicago illinois january 15 2002 1this report copy previously issued report covering 2001 2000 1999 predecessor auditors reissued report management report financial statements management prepared responsible abbotts consolidated financial statements related notes prepared accordance generally accepted accounting principles necessarily include amounts based judgments estimates management financial information annual report consistent consolidated financial statements abbott maintains internal accounting control systems related policies procedures designed provide reasonable assurance assets safeguarded transactions executed accordance managements authorization properly recorded accounting records may relied upon preparation consolidated financial statements financial information design monitoring revision internal accounting control systems involve among things managements judgment respect relative cost expected benefits specific control measures abbott also maintains internal auditing function evaluates formally reports adequacy effectiveness internal accounting controls policies procedures abbotts consolidated financial statements audited independent public accountants expressed opinions respect fairness statements miles white chairman board chief executive officer thomas c freyman senior vice president finance chief financial officer greg w linder vice president controller tap pharmaceutical products inc consolidated statements income comprehensive income thousands see notes consolidated financial statements tap pharmaceutical products inc consolidated statements cash flows thousands see notes consolidated financial statements tap pharmaceutical products inc consolidated balance sheets thousands except share amounts see notes consolidated financial statements tap pharmaceutical products inc consolidated statements shareholders equity years ended december 31 2002 2001 2000 thousands except share amounts see notes consolidated financial statements tap pharmaceutical products inc notes consolidated financial statements years ended december 31 2002 2001 unaudited 2000 unaudited dollars thousands note 1 description business tap pharmaceutical products inc subsidiaries tap delaware corporation owned equally abbott laboratories abbott illinois corporation takeda america holdings inc whollyowned subsidiary takeda chemical industries ltd japanese corporation collectively takeda tap headquartered lake forest illinois approximately 3000 employees agreement abbott takeda tap develops markets sells human pharmaceutical products united states puerto rico canada tap operates one business segment sales primarily united states taps two primary products prevacid lupron principal indications prevacid lansoprazole proton pump inhibitor shortterm treatment duodenal ulcers gastric ulcers erosive esophagitis lupron leuprolide acetate luteinizing hormonereleasing hormone lhrh analog lupron depot sustained release form lupron used principally palliative treatment advanced prostate cancer endometriosis central precocious puberty preoperative treatment patients anemia caused uterine fibroids patents related lansoprazole leuprolide acetate material operation taps business original united states compound patent covering lansoprazole licensed tap takeda original united states compound patent covering leuprolide acetate licensed tap third party taps products generally sold directly physicians retailers wholesalers health care facilities government agencies cases distributed abbottowned distribution centers primary marketing efforts directed toward securing prescription taps brand products physicians managed care purchasers example health maintenance organizations pharmacy benefit managers increasingly important customers taps products supplied owners principally takeda alternative sources supply readily available disruption supply products could adversely impact operating results tap sales taps two main products years ended december 31 2002 2001 2000 follows financial instruments potentially subject tap concentrations credit risk consist primarily accounts receivable tap sells primarily wholesale distributors majority taps accounts receivable derived sales wholesale distributors three wholesale distributors accounted 10 taps gross sales 2002 2001 2000 follows tap material exposures offbalance sheet arrangements special purpose entities activities include nontraded contracts accounted fair value note 2 summary significant accounting policies basis presentation consolidated financial statements include accounts tap subsidiaries intercompany accounts transactions eliminated use estimates preparation financial statements conformity accounting principles generally accepted united states america requires estimates assumptions management actual results could differ estimates significant estimates include amounts litigation income taxes sales rebates inventory reserves accounts receivable allowances cash equivalents cash equivalents include time deposits certificates deposit commercial paper money market funds shortterm investments governmental agency debt securities original maturities three months less investment securities investments debt securities classified heldtomaturity management intent ability hold securities maturity reported cost net unamortized premium discount inventories stated lower cost firstin firstout basis market cost includes material packaging costs inventories consist following december 31 property equipment property equipment recorded cost less accumulated depreciation provided using straightline method estimated useful lives assets estimated useful lives property equipment follows computer software either purchased developed use tap capitalized amortized useful life three five years longlived assets reviewed impairment whenever events changes circumstances indicate carrying value may recoverable based projected undiscounted cash flows associated affected assets fair value less carrying value asset loss recognized difference fair value determined based market quotes available based valuation techniques intangible asset intangible asset consists purchased patent license cost 136134 less accumulated amortization 116212 102930 unaudited december 31 2002 2001 respectively patent license amortized straightline remaining life patent annual amortization expense recognized 13282 2002 2001 unaudited 2000 unaudited estimated future annual amortization expense years ending december 31 2003 2004 13282 6640 respectively revenue recognition revenue product sales recognized delivered customer time title risk loss passes customer estimated provisions rebates sales incentives customers doubtful accounts cash discounts product returns adjustments provided period related sale rebates sales incentives recorded accrued rebates balance sheets reserves doubtful accounts cash discounts product returns customer chargebacks recorded reductions related accounts receivable historical data readily available reliable used estimating amount reduction gross sales research development internal research development costs expensed incurred thirdparty research development costs expensed contracted work performed milestone payments due third parties research development arrangements milestone payment obligations expensed milestone results achieved advertising promotion expense advertising promotion costs expensed selling general administrative expenses incurred total advertising promotion expense incurred 341562 268816 unaudited 433212 unaudited years ended december 31 2002 2001 2000 respectively income taxes deferred income taxes recognized tax consequences temporary differences applying statutory tax rates applicable future years differences financial statement carrying amount tax basis existing assets liabilities new accounting pronouncement august 2001 financial accounting standards board issued statement financial accounting standards sfas 144 accounting impairment disposal longlived assets sfas 144 establishes single accounting model based framework established sfas 121 accounting impairment longlived assets longlived assets disposed longlived assets disposed sale resolves implementation issues related sfas 121 additionally sfas 144 modifies procedures used define discontinued operations tap adopted sfas 144 january 1 2002 adoption sfas 144 impact taps financial position operating results liquidity note 3 property equipment property equipment consists following december 31 tap leases certain administrative regional sales offices equipment noncancelable operating leases expire various dates 2008 lease expense totaled 12541 13729 unaudited 12013 unaudited years ended december 31 2002 2001 2000 respectively future minimum lease payments noncancelable operating leases december 31 2002 consist following note 4 foreign currency contracts effective january 1 2001 tap adopted sfas 133 accounting derivative instruments hedging activities amended sfas nos 137 138 statement requires entity recognize derivatives either assets liabilities balance sheet measure instruments fair value transition adjustment related adoption sfas 133 material tap enters foreign currency forward contracts purchases yen call options hedge purchases inventories fixed yendenominated prices forward contracts require tap purchase yen exchange us dollars predetermined exchange rates yen call options allow tap right purchase yen exchange us dollars predetermined strike prices forward option contracts designated cash flow hedges variability cash flows due changes exchange rates tap trade financial instruments objective earning financial gains exchange rate fluctuations alone trade currencies commodities underlying exposures effectiveness forward contracts based changes forward rates effectiveness call options based solely changes fair value effective portion changes value forward options contracts recorded accumulated comprehensive income loss subsequently recognized earnings period hedged forecasted transactions affect earnings cash flow hedge ineffectiveness reported earnings current period december 31 2002 2001 tap outstanding foreign exchange forward contracts notional values 430774 334917 unaudited respectively fair values 16761 14852 unaudited respectively tap also outstanding option contracts december 31 2002 2001 notional values 213628 277746 unaudited respectively fair values 10226 3890 unaudited respectively fair value contracts recorded assets liabilities net accumulated gain foreign currency contracts december 31 2002 12406 net taxes 7444 recorded accumulated comprehensive income loss expected reclassified earnings 2003 inventories sold 2002 2001 unaudited cash flow hedge ineffectiveness material foreign currency forward option contracts outstanding december 31 2002 mature 2003 note 5 investments financial instruments following summary investment securities december 31 carrying value cash equivalents shortterm investments approximates fair value due shortterm maturity investments fair value longterm investments debt obligations december 31 2002 55072 restricted funds represent funds shortterm money market account approximates fair value restricted funds deposit relate equity swap investment arrangement tap third party see note 7 details restricted investments note 6 employee benefit plans tap employees participate various abbott employee benefit plans including abbott laboratories annuity retirement plan abbott laboratories stock retirement plan abbott laboratories incentive stock program see note 7 details tap billed share costs plans taps share employer contribution abbott laboratories annuity retirement plan allocated based taps proportionate share total compensation expense participants plan 2002 tap made contributions 8392 plan contributions made 2001 unaudited 2000 unaudited taps proportionate contribution abbott laboratories stock retirement plan based participating employee contributions compensation taps contributions 2002 2001 2000 9824 7341 unaudited 4500 unaudited respectively tap provides health welfare benefits employees tap pharmaceutical products inc healthcare plan healthcare plan contributions made accordance healthcare plans funding policy tap records estimate liability incurred reported claims tap provides certain medical life insurance benefits qualifying retirees tap pharmaceutical products inc retiree medical plan retiree plan following provides reconciliation postemployment benefit obligation funded status retiree plan components periodic postemployment benefit cost follows discount rates determining obligations interest cost 2002 2001 2000 675 725 unaudited 750 unaudited respectively 900 annual rate increase per capita cost covered health care benefits assumed 2003 rate assumed decrease gradually 500 2007 onepercentage point increase decrease assumed health care trend rate would increase decrease accumulated postemployment benefit obligation december 31 2002 approximately 4662 3043 respectively total service interest cost components periodic postemployment benefit cost year ended approximately 917 724 respectively note 7 incentive stock program certain key employees tap granted options purchase abbott common stock 1996 abbott incentive stock program prior plans stock options replacement stock options granted tap employees currently outstanding prior plans purchase price shares option must least equal fair market value abbott common stock date grant maximum term option 10 years options granted vest equally three years except replacement options generally vest six months life equal remaining life replaced option upon change control abbott outstanding stock options become fully exercisable option exercises transacted abbott tap liable excess fair market value option shares granted tap employees employed tap option price time exercise reimburses abbott cost options exercised annually december 31 2002 2001 tap recorded liability exercised options 6466 9541 unaudited payable abbott respectively tap also recorded liability difference fair value strike price vested unexercised options 8978 55984 unaudited december 31 2002 2001 respectively total income expense related abbott incentive stock program 41619 33161 unaudited 27536 unaudited recorded selling general administrative expense years ended december 31 2002 2001 2000 respectively due impact significant fluctuations market price abbott common stock amount recorded compensation expense options issued abbott incentive stock program tap entered isda master agreement master agreement dated september 29 2000 allows tap enter equity swap transactions hedge market price exposure equity swap transaction guarantees return equal actual return specified number shares abbott common stock effectively acts hedge abbott incentive stock program time tap enters equity swap transactions master agreement transaction term three years requires quarterly cash settlement resulting gains losses realized recorded statements income transaction requires upfront fee 025 share covered transaction well ongoing quarterly interest payments based equity notional amount fair value abbott common stock shares swapped transaction date swap rate libor plus 100 basis points equity swap transaction recorded fair value fair value equity swaps 560 7699 unaudited december 31 2002 2001 respectively recorded assets liabilities balance sheets years ended december 31 2002 2001 2000 tap recorded selling general administrative expenses 57057 29722 unaudited 7255 unaudited respectively loss gain related equity swap investments master agreement tap required keep deposit money market account collateral funds equal fair value abbott common stock shares swapped transaction date swap funds invested shortterm money markets recorded cost plus interest reinvested account total funds deposit december 31 2002 2001 210648 207016 unaudited respectively included longterm investments balance sheets note 8 income taxes taps federal income tax liabilities years beginning january 1 1998 forward subject final determination internal revenue service irs currently reviewing taps 1998 federal income tax return management opinion based information presently available income tax reserves adequate cover amounts may ultimately payable extent amounts previously deducted differ actual amounts determined deductible taps net earnings future periods could materially affected deferred income taxes reflect tax consequences future years temporary differences tax bases asset liabilities financial reporting amounts provision income taxes include following components differences effective tax rate us statutory tax rate follows temporary differences give rise deferred tax assets liabilities follows note 9 litigation related matters 2001 tap entered agreement us government settle matters relating investigation involving taps marketing prostate cancer drug lupron tap recorded provisions 660 million unaudited 215 million unaudited 2001 2000 respectively related matters december 2001 tap paid 875 million unaudited plus interest settle matter additionally tap along shareholders involved various claims legal proceedings including number class action lawsuits alleging violations various state federal laws connection taps marketing pricing lupron tap filed response lawsuits denying substantive allegations tap named one several defendants lawsuit filed oakwood laboratories llc oakwood university kentucky research foundation ukrf lawsuit alleges lupron infringes patent owned ukrf licensed oakwood plaintiffs seek injunction damages tap filed response denying substantive allegations within next year legal proceedings may occur may result change estimated reserves recorded tap feasible predict outcome claims proceedings certainty management opinion ultimate disposition material adverse effect taps financial position could material adverse effect taps cash flows results operations note 10 relatedparty transactions various agreements exist among tap abbott takeda amounts due payable abbott takeda respectively netted balance sheets captions payable abbott payable takeda tap pays abbott services related copromotion agreement packaging warehousing research development administrative functions amounts incurred services totaled 236836 222940 unaudited 349787 unaudited years ended december 31 2002 2001 2000 respectively copromotion agreement abbott promotes prevacid abbott acts agent tap take title ownership taps products addition abbott purchased international markets taps products 60899 57482 unaudited 42157 unaudited years ended december 31 2002 2001 2000 respectively tap purchases lupron depot prevacid unpackaged finished goods inventories takeda purchases contracted fixed yendenominated prices actual cost us dollars paid takeda purchases inventories years ended december 31 2002 2001 2000 totaled 646076 662343 unaudited 664574 unaudited respectively tap royalty agreements takeda sales lupron depot prevacid years ended december 31 2002 2001 2000 tap recorded royalty expense 216774 202901 unaudited 188484 unaudited respectively report independent public accountants board directors shareholders tap pharmaceutical products inc audited accompanying consolidated balance sheet tap pharmaceutical products inc subsidiaries tap december 31 2002 related consolidated statements income comprehensive income shareholders equity cash flows year ended financial statements responsibility taps management responsibility express opinion financial statements based audit accompanying consolidated balance sheet december 31 2001 related consolidated statements income comprehensive income shareholders equity cash flows years ended december 31 2001 2000 audited us accordingly express opinion conducted audit accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion financial statements present fairly material respects financial position tap december 31 2002 results operations cash flows year ended conformity accounting principles generally accepted united states america deloitte touche llp chicago illinois january 15 2003 item 9 item 8 financial statements supplementary data page consolidated statement earnings consolidated statement comprehensive income consolidated statement cash flows consolidated balance sheet consolidated statement shareholders investment notes consolidated financial statements management report internal control financial reporting reports independent registered public accounting firm abbott laboratories subsidiaries consolidated statement earnings dollars shares thousands except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement comprehensive income dollars thousands accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement cash flows dollars thousands accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated balance sheet dollars thousands abbott laboratories subsidiaries consolidated balance sheet dollars thousands accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement shareholders investment dollars thousands except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries notes consolidated financial statements note 1 summary significant accounting policies nature business abbotts principal business discovery development manufacture sale broad line health care products october 2011 abbott announced plan separate two publicly traded companies one diversified medical products researchbased pharmaceuticals accomplish separation abbott created new company abbvie inc researchbased pharmaceuticals business consists primarily abbotts proprietary pharmaceutical products segment january 1 2013 abbott distributed outstanding shares abbvie inc abbotts shareholders result distribution abbvie independent company trading symbol abbv beginning first quarter 2013 historical results researchbased pharmaceuticals business reflected abbotts consolidated financial statements discontinued operations concentration risk guarantees due nature operations abbott subject significant concentration risks relating customers products geographic locations except three us wholesalers accounted 23 percent trade receivables december 31 2012 2010 22 percent trade receivables december 31 2011 addition governmental accounts italy spain greece portugal accounted 16 percent 23 percent 21 percent total net trade receivables december 31 2012 2011 2010 respectively product warranties significant abbott material exposures offbalance sheet arrangements special purpose entities activities include nonexchangetraded contracts accounted fair value abbott periodically entered agreements ordinary course business assignment product rights companies resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote abbott periodically acquires business product rights abbott agrees pay contingent consideration based attaining certain thresholds based occurrence certain events basis consolidation change accounting principle prior january 1 2011 accounts foreign subsidiaries consolidated based fiscal year ended november 30 due time needed consolidate subsidiaries effective january 1 2011 one month lag consolidation accounts foreign subsidiaries eliminated yearend foreign subsidiaries changed december 31 abbott believes change accounting principle related elimination one month reporting lag preferable results contemporaneous reporting results foreign subsidiaries accordance applicable accounting literature change subsidiaries yearend treated change accounting principle requires retrospective application cumulative effect change increase retained earnings 289 million january 1 2009 corresponding decrease longterm liabilities impact change material results operations previously reported annual interim periods january 1 2009 thus results revised charge 137 million recorded income expense net 2011 recognize cumulative immaterial impacts 2009 2010 financial statements revised net sales operating earnings net earnings 2010 would decreased 21 million 195 million 175 million respectively use estimates financial statements prepared accordance generally accepted accounting principles united states necessarily include amounts based estimates assumptions management actual results could differ amounts significant estimates abbott laboratories subsidiaries notes consolidated financial statements continued note 1 summary significant accounting policies continued include amounts sales rebates income taxes pension postemployment benefits valuation intangible assets litigation derivative financial instruments inventory accounts receivable exposures revenue recognition revenue product sales recognized upon passage title risk loss customers provisions discounts rebates sales incentives customers returns adjustments provided period related sales recorded sales incentives customers material historical data readily available reliable used estimating amount reduction gross sales revenue launch new product improved version existing product shipments excess customers normal requirements recorded conditions noted met situations management records returns reserve revenue necessary certain abbotts businesses primarily within diagnostics medical optics abbott participates selling arrangements include multiple deliverables eg instruments reagents procedures service agreements arrangements abbott recognizes revenue upon delivery product performance service allocates revenue based relative selling price deliverable based primarily vendor specific objective evidence sales product rights marketable products recorded revenue upon disposition rights revenue license product rights performance research selling activities recorded periods earned income taxes deferred income taxes provided tax effect differences tax bases assets liabilities reported amounts financial statements enacted statutory rate effect taxes paid us income taxes provided earnings foreign subsidiaries intended remitted parent company deferred income taxes provided undistributed earnings reinvested indefinitely foreign subsidiaries working capital plant equipment interest penalties income tax obligations included taxes income earnings per share unvested restricted stock contain nonforfeitable rights dividends treated participating securities included computation earnings per share twoclass method twoclass method net earnings allocated common shares participating securities net earnings allocated common shares 2012 2011 2010 5917 billion 4714 billion 4613 billion respectively pension postemployment benefits abbott accrues actuarially determined cost pension postemployment benefits service attribution periods employees abbott must develop longterm assumptions significant health care cost trend rates discount rates expected return plan assets differences expected longterm return plan assets actual return amortized fiveyear period actuarial losses gains amortized remaining service attribution periods employees corridor method fair value measurements assets liabilities measured using quoted prices active markets total fair value published market price per unit multiplied number units held without consideration transaction costs assets liabilities measured using significant observable inputs valued reference similar assets liabilities adjusted contract restrictions terms specific asset liability items significant portion fair value derived reference quoted prices similar assets liabilities active markets remaining assets liabilities fair value derived using fair value model discounted cash flow abbott laboratories subsidiaries notes consolidated financial statements continued note 1 summary significant accounting policies continued model blackscholes model purchased intangible assets recorded fair value fair value significant purchased intangible assets based independent appraisals abbott uses discounted cash flow model value intangible assets discounted cash flow model requires assumptions timing amount future net cash flows risk cost capital terminal values market participants intangible assets goodwill indefinitelived intangible assets reviewed impairment least quarterly annual basis respectively sharebased compensation value stock options restricted stock awards units amortized service period could shorter vesting period employee retirement eligible charge compensation expense litigation abbott accounts litigation losses accordance fasb asc 450 contingencies asc 450 loss contingency provisions recorded probable losses managements best estimate loss best estimate cannot made minimum loss contingency amount recorded legal fees recorded incurred cash equivalents investments cash equivalents consist bank time deposits us treasury bills original maturities three months less investments marketable equity securities certain investments debt securities classified availableforsale recorded fair value unrealized holding gains losses net tax included accumulated comprehensive income loss investments equity securities traded public stock exchanges recorded cost investments debt securities classified heldtomaturity management intent ability hold securities maturity reported cost net unamortized premium discount income relating securities reported interest income abbott reviews carrying value investments quarter determine whether temporary decline market value exists abbott considers factors affecting investee factors affecting industry investee operates general equity market trends abbott considers length time investments market value carrying value nearterm prospects recovery carrying value abbott determines temporary decline occurred investment written charge income expense net trade receivable valuations accounts receivable stated net realizable value allowance gross trade receivables reflects best estimate probable losses inherent receivables portfolio determined basis historical experience specific allowances known troubled accounts currently available information accounts receivable charged reasonable means collect full amount including litigation appropriate exhausted inventories stated lower cost firstin firstout basis market cost includes material conversion costs abbott laboratories subsidiaries notes consolidated financial statements continued note 1 summary significant accounting policies continued property equipment depreciation amortization provided straightline basis estimated useful lives assets following table shows estimated useful lives property equipment product liability abbott accrues product liability claims undiscounted basis probable liability incurred amount liability reasonably estimated based existing information liabilities adjusted quarterly additional information becomes available receivables insurance recoveries product liability claims recorded assets undiscounted basis probable recovery realized product liability losses selfinsured research development costs internal research development costs expensed incurred clinical trial costs incurred third parties expensed contracted work performed contingent milestone payments due third parties research development arrangements milestone payment obligations expensed milestone results achieved acquired inprocess collaborations research development iprd initial costs rights iprd projects obtained asset acquisition expensed iprd unless project alternative future use costs include initial payments incurred prior regulatory approval connection research development collaboration agreements provide rights develop manufacture market andor sell pharmaceutical products fair value iprd projects acquired business combination capitalized accounted indefinitelived intangible assets note 2 supplemental financial information loss extinguishment debt 135 billion relates early redemption 77 billion longterm notes loss consists premium paid notes write deferred financing costs totaling 183 billion partially offset gain 479 million related unwinding interest rate swaps related portion debt income expense net 2012 includes income approximately 60 million resolution contractual agreement loss approximately 62 million impairment certain equity securities discussed note 1 income expense net 2011 includes charge 137 million recognize cumulative immaterial impacts 2009 2010 relating change year end foreign subsidiaries addition abbott laboratories subsidiaries notes consolidated financial statements continued note 2 supplemental financial information continued income expense net 2011 includes 56 million fair value adjustments accretion contingent consideration related acquisition solvays pharmaceutical business income expense net 2012 2011 2010 also includes ongoing contractual payments takeda associated conclusion tap joint venture aaccrued wholesaler chargeback rebates 300 239 216 december 31 2012 2011 2010 respectively netted trade receivables abbotts customers invoiced higher catalog price remit abbott contract price products 2011 balances revised reflect reclassification certain amounts accrued rebates b2011 includes 1509 related previously disclosed government investigation 400 acquired inprocess research development 2012 2011 2010 includes acquisition consideration payable 400 related acquisition piramal healthcare limiteds healthcare solutions business c2012 2011 2010 includes acquisition consideration payable 385 770 1150 respectively related acquisition piramal healthcare limiteds healthcare solutions business judgment entered us district court eastern district texas abbott litigation new york university centocor inc required abbott secure judgment event appeal federal circuit court unsuccessful overturning district courts decision first quarter 2010 abbott deposited 187 billion escrow agent considered assets restricted february 23 2011 federal circuit reversed district courts final judgment found centocors patent invalid april 25 2011 centocor petitioned federal circuit rehear reconsider decision june 2011 federal circuit denied centocors petition restrictions funds lifted abbott laboratories subsidiaries notes consolidated financial statements continued note 3 financial instruments derivatives fair value measures certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts totaling 16 billion december 31 2012 2011 13 billion december 31 2010 designated cash flow hedges variability cash flows due changes foreign exchange rates recorded fair value accumulated gains losses december 31 2012 included cost products sold time products sold generally next twelve months amount hedge ineffectiveness significant 2012 2011 2010 abbott enters foreign currency forward exchange contracts manage currency exposures foreign currency denominated thirdparty trade payables receivables intercompany loans trade accounts payable receivable payable denominated currency functional currency entity intercompany loans contracts require abbott sell buy foreign currencies primarily european currencies japanese yen exchange primarily us dollars european currencies intercompany trade payables receivables currency exposures primarily us dollar european currencies japanese yen december 31 2012 2011 2010 abbott held 182 billion 157 billion 108 billion respectively foreign currency forward exchange contracts abbott designated foreign denominated shortterm debt hedge net investment foreign subsidiary approximately 615 million 680 million 650 million december 31 2012 2011 2010 respectively accordingly changes fair value debt due changes exchange rates recorded accumulated comprehensive income loss net tax abbott party interest rate hedge contracts totaling 95 billion 68 billion 73 billion december 31 2012 2011 2010 respectively manage exposure changes fair value fixedrate debt contracts designated fair value hedges variability fair value fixedrate debt due changes longterm benchmark interest rates effect hedge change fixedrate interest obligation variable rate portion debt abbott records contracts fair value adjusts carrying amount fixedrate debt offsetting amount hedge ineffectiveness recorded income 2012 2011 2010 hedges gross unrealized holding gains availableforsale equity securities totaled 51 million 64 million 40 million december 31 2012 2011 2010 respectively abbott laboratories subsidiaries notes consolidated financial statements continued note 3 financial instruments derivatives fair value measures continued following table summarizes amounts location certain derivative financial instruments december 31 following table summarizes activity foreign currency forward exchange contracts designated cash flow hedges debt designated hedge net investment foreign subsidiary amounts location income expense gain loss reclassified income certain derivative financial instruments amount hedge ineffectiveness significant 2012 2011 2010 hedges interest rate swaps designated fair value hedges variability fair value fixedrate debt due changes longterm benchmark interest rates hedged debt marked market offsetting effect marking interest rate swaps market carrying values fair values certain financial instruments december 31 shown table carrying values financial instruments approximate estimated fair abbott laboratories subsidiaries notes consolidated financial statements continued note 3 financial instruments derivatives fair value measures continued values counterparties financial instruments consist select major international financial institutions abbott expect losses nonperformance counterparties abbott laboratories subsidiaries notes consolidated financial statements continued note 3 financial instruments derivatives fair value measures continued following table summarizes bases used measure certain assets liabilities fair value recurring basis balance sheet fair value debt determined based face value debt adjusted fair value interest rate swaps based discounted cash flow analysis fair value contingent consideration determined based independent appraisal adjusted time value money exchange changes fair value abbott laboratories subsidiaries notes consolidated financial statements continued note 4 postemployment benefits retirement plans consist defined benefit defined contribution medical dental plans information abbotts major defined benefit plans postemployment medical dental benefit plans follows dollars millions projected benefit obligations nonus defined benefit plans 31 billion 23 billion 30 billion december 31 2012 2011 2010 respectively accumulated benefit obligations defined benefit plans 94 billion 77 billion 75 billion december 31 2012 2011 2010 respectively plans accumulated benefit obligations exceeded plan assets december 31 2012 2011 2010 aggregate accumulated benefit obligations 79 billion 67 billion 20 billion respectively projected benefit obligations 93 billion 79 billion 22 billion respectively aggregate plan assets 62 billion 58 billion 11 billion respectively connection separation abbvie abbott january 1 2013 abbott transfer certain liabilities assets defined benefit pension plans medical dental plans abbott laboratories subsidiaries notes consolidated financial statements continued note 4 postemployment benefits continued estimated amount accumulated benefit obligations projected benefit obligations fair value assets deferred gains losses assumed abbvie 39 billion 45 billion 31 billion 19 billion respectively defined benefit plans estimated amount accumulated benefit obligations deferred gains losses assumed abbvie 501 million 114 million respectively medical dental plans 2011 776 million assets liabilities plan sponsored abbott healthcare bv dutch subsidiary abbott laboratories irrevocably transferred dutch insurance company full settlement plan assets used purchase annuity contract fulfill plans obligations comprehensive income loss 2012 includes amortization actuarial losses prior service cost 235 million 4 million respectively net actuarial losses 12 billion defined benefit plans amortization actuarial losses prior service credits 34 million 42 million respectively net actuarial losses 134 million medical dental plans comprehensive income loss 2011 includes amortization actuarial losses prior service cost 163 million 4 million respectively net actuarial losses 11 billion defined benefit plans amortization actuarial losses prior service credits 38 million 42 million respectively net actuarial gains 66 million medical dental plans comprehensive income loss 2010 includes amortization actuarial losses prior service cost 136 million 4 million respectively net actuarial losses 305 million defined benefit plans amortization actuarial losses prior service credits 38 million 22 million respectively net actuarial gains 177 million medical dental plans pretax amount actuarial losses prior service cost credits included accumulated comprehensive income loss december 31 2012 expected recognized net periodic benefit cost 2013 175 million 5 million respectively defined benefit pension plans 25 million 23 million respectively medical dental plans weighted average assumptions used determine benefit obligations defined benefit plans medical dental plans follows abbott laboratories subsidiaries notes consolidated financial statements continued note 4 postemployment benefits continued weighted average assumptions used determine net cost defined benefit plans medical dental plans follows assumed health care cost trend rates medical dental plans december 31 follows discount rates used measure liabilities determined based highquality fixed income securities match duration expected retiree benefits health care cost trend rates represent abbotts expected annual rates change cost health care benefits forward projection health care costs measurement date onepercentage point increasedecrease assumed health care cost trend rate would increasedecrease accumulated postemployment benefit obligations december 31 2012 274 million 222 million total service interest cost components net postemployment health care cost year ended approximately 24 million 19 million abbott laboratories subsidiaries notes consolidated financial statements continued note 4 postemployment benefits continued following table summarizes bases used measure defined benefit plans assets fair value aa mix index funds track sp 500 50 percent 2012 45 percent 2011 2010 separate actively managed equity accounts benchmarked russell 1000 50 percent 2012 55 percent 2011 2010 abbott laboratories subsidiaries notes consolidated financial statements continued note 4 postemployment benefits continued ba mix index funds 75 percent separate actively managed equity accounts 25 percent track benchmarked sp 400 midcap index cprimarily separate actively managed pooled investment accounts benchmarked msci emerging market indices dindex funds actively managed 50 percent 2012 45 percent 2011 2010 separate actively managed accounts 50 percent 2012 55 percent 2011 2010 eindex funds actively managed 20 percent 2012 40 percent 2011 15 percent 2010 separate actively managed accounts 80 percent 2012 60 percent 2011 85 percent 2010 fprimarily united kingdom japan irish governmentissued bonds gprimarily mortgage backed securities hprimarily funds invested managers global mandate flexibility allocate capital broadly across wide range asset classes strategies including limited equities fixed income commodities interest rate futures currencies securities outperform agreed upon benchmark specific return volatility targets iprimarily investments liquid commodity future contracts private energy funds jprimarily cash equivalents equities valued using quoted prices valued published market prices equities common collective trust registered investment company valued using significant observable inputs valued net asset value nav provided fund administrator nav based value underlying assets owned fund minus liabilities fixed income securities valued using significant observable inputs valued prices obtained independent financial service industryrecognized vendors absolute return funds commodities valued nav provided fund administrator private energy funds valued nav provided partnership onequarter lag adjusted known cash flows significant events reporting date following table summarizes change value assets measured using significant unobservable inputs investment mix equity securities fixed income asset allocation strategies based upon achieving desired return balancing higher return volatile equity securities lower return less volatile fixed income securities investment allocations made across range markets industry abbott laboratories subsidiaries notes consolidated financial statements continued note 4 postemployment benefits continued sectors capitalization sizes case fixed income securities maturities credit quality plans directly hold securities abbott known significant concentrations risk plans assets abbotts medical dental plans assets invested similar mix pension plan assets plans expected return assets shown based managements expectations longterm average rates return achieved underlying investment portfolios establishing assumption management considers historical expected returns asset classes plans invested well current economic capital market conditions abbott funds domestic pension plans according irs funding limitations international pension plans funded according similar regulations abbott funded 379 million 2012 394 million 2011 525 million 2010 defined pension plans abbott expects pension funding main domestic pension plan 170 million 2013 projected decrease reflects separation abbvie abbott transfer certain assets liabilities abbvie total benefit payments expected paid participants giving effect separation abbvie abbott includes payments funded company assets well paid plans follows dollars millions abbott stock retirement plan principal defined contribution plan abbotts contributions plan 150 million 2012 151 million 2011 147 million 2010 abbott provides certain postemployment benefits primarily salary continuation plans qualifying domestic employees accrues related cost service lives employees note 5 taxes earnings taxes earnings reflect annual effective rates including charges interest penalties deferred income taxes reflect tax consequences future years differences tax bases assets liabilities financial reporting amounts 620 million domestic loss taxes 2012 includes abbotts 135 billion net loss early extinguishment debt approximately 395 million separation related expenses us income taxes provided earnings foreign subsidiaries intended remitted parent company abbott record deferred income taxes earnings reinvested indefinitely foreign subsidiaries undistributed earnings reinvested indefinitely foreign subsidiaries working capital plant equipment aggregated 400 billion december 31 2012 practicable determine amount deferred income taxes provided earnings us abbotts federal income tax returns 2009 settled except one item income tax returns years 2009 open numerous income tax jurisdictions tax returns yet settled none individually significant reserves interest penalties significant abbott laboratories subsidiaries notes consolidated financial statements continued note 5 taxes earnings continued earnings taxes related provisions taxes earnings follows dollars millions differences effective income tax rate us statutory tax rate follows december 31 2012 2011 2010 total deferred tax assets 74 billion 63 billion 61 billion respectively total deferred tax liabilities 26 billion 29 billion 30 billion respectively abbott incurred losses foreign jurisdiction realization future economic benefit remote benefit reflected deferred tax asset valuation allowances abbott laboratories subsidiaries notes consolidated financial statements continued note 5 taxes earnings continued recorded deferred tax assets significant tax effect differences give rise deferred tax assets liabilities follows dollars millions following table summarizes gross amounts unrecognized tax benefits without regard reduction tax liabilities additions deferred tax assets liabilities unrecognized tax benefits settled dollars millions total amount unrecognized tax benefits recognized would impact effective tax rate approximately 20 billion abbott believes reasonably possible recorded amount gross unrecognized tax benefits may decrease 550 million 650 million including cash adjustments within next twelve months result concluding various domestic international tax matters note 6 segment geographic area information abbotts principal business discovery development manufacture sale broad line health care products abbotts products generally sold directly retailers wholesalers hospitals health care facilities laboratories physicians offices government agencies throughout world effective january 1 2012 certain international operations transferred established pharmaceutical products segment proprietary pharmaceutical products segment information adjusted reflect reorganization abbotts reportable segments follows proprietary pharmaceutical products worldwide sales broad line proprietary pharmaceutical products abbott laboratories subsidiaries notes consolidated financial statements continued note 6 segment geographic area information continued established pharmaceutical products international sales broad line branded generic pharmaceutical products nutritional products worldwide sales broad line adult pediatric nutritional products diagnostic products worldwide sales diagnostic systems tests blood banks hospitals commercial laboratories alternatecare testing sites segment reporting purposes core laboratories diagnostics molecular diagnostics point care ibis diagnostic divisions aggregated reported diagnostic products segment vascular products worldwide sales coronary endovascular structural heart vessel closure medical device products nonreportable segments include diabetes care medical optics segments abbotts underlying accounting records maintained legal entity basis government public reporting requirements segment disclosures performance basis consistent internal management reporting intersegment transfers inventory recorded standard cost measure segment operating earnings cost corporate functions cost certain employee benefits charged segments predetermined rates approximate cost remaining costs allocated segments acquisitions prior 2006 substantially intangible assets related amortization allocated segments addition intangible assets related amortization allocated established pharmaceutical products segment following segment information prepared accordance internal accounting policies abbott described presented accordance generally accepted accounting principles applied consolidated financial statements dollars millions anet sales operating earnings unfavorably affected relatively stronger us dollar 2012 favorably affected relatively weaker us dollar 2011 2010 abbott laboratories subsidiaries notes consolidated financial statements continued note 6 segment geographic area information continued badditions longterm assets 2010 established pharmaceutical products segment include goodwill 2797 cother net 2011 includes charge 1509 related previously disclosed government investigation net 2012 2011 2010 includes charges 1309 402 881 respectively separation related costs 2012 cost reduction initiatives integration abbott laboratories subsidiaries notes consolidated financial statements continued note 6 segment geographic area information continued dsales country based country sold product note 7 litigation environmental matters abbott identified potentially responsible party investigation cleanup costs number locations united states puerto rico federal state remediation laws investigating potential contamination number companyowned locations abbott recorded estimated cleanup cost site management believes abbott probable loss exposure individual site cleanup exposure expected exceed 4 million aggregate cleanup exposure expected exceed 15 million number patent disputes third parties claim abbotts products infringe patents february 21 2012 united states supreme court denied centocor incs new york universitys petition review february 2011 federal circuit court appeals decision reversing 167 billion judgment favor centocor new york university patent claimed abbotts humira infringed decision concludes case united states department justice united states attorney western district virginia various state attorneys general investigated abbotts sales marketing activities depakote government sought determine whether activities violated civil andor criminal laws including federal false claims act food drug cosmetic act antikickback statute connection medicare andor medicaid reimbursement third parties state attorneys general offices sought determine whether activities violated various state laws including state consumer fraudprotection statutes abbott recorded charges 15 billion third quarter 2011 100 million first quarter 2012 related civil criminal claims arising matter may 2012 abbott reached resolution depakoterelated federal claims medicaidrelated claims 49 states district columbia consumer protection claims 45 states district columbia 2012 abbott paid approximately 16 billion settlement payments material abbotts cash flows 2012 abbott laboratories subsidiaries notes consolidated financial statements continued note 7 litigation environmental matters continued abbott estimates range possible loss legal proceedings environmental exposures approximately 70 million 100 million recorded accrual balance december 31 2012 proceedings exposures approximately 80 million accrual represents managements best estimate probable loss defined fasb asc 450 contingencies within next year legal proceedings may occur may result change estimated loss accrued abbott feasible predict outcome proceedings exposures certainty management believes ultimate disposition material adverse effect abbotts financial position cash flows results operations note 8 incentive stock program 2009 incentive stock program authorizes granting nonqualified stock options replacement stock options restricted stock awards restricted stock units performance awards foreign benefits sharebased awards stock options replacement stock options restricted stock awards units comprise majority benefits granted currently outstanding program prior program 2012 abbott granted 1931213 stock options 2124743 replacement stock options 1134062 restricted stock awards 7056609 restricted stock units program purchase price shares option must least equal fair market value common stock date grant maximum term option 10 years options vest equally three years except replacement options vest six months options granted january 1 2005 included replacement feature except options outstanding replacement feature options granted december 31 2004 include replacement feature employee tenders mature shares abbott upon exercise stock option replacement stock option may granted equal amount shares tendered replacement options granted current market price term expires date underlying option grant upon change control abbott outstanding stock options become fully exercisable terms conditions restricted stock awards units deemed satisfied restricted stock awards generally vest 3 5 years restricted stock awards vest 5 years onethird award vests one year upon abbott reaching minimum return equity target restricted stock units vest three years upon vesting recipient receives one share abbott stock vested restricted stock unit aggregate fair market value restricted stock awards units recognized expense service period restricted stock awards settlement vested restricted stock units issued treasury shares abbott generally issues new shares exercises stock options abbott policy purchasing shares relating sharebased programs december 31 2012 approximately 155 million shares reserved future grants subsequent yearend reserve reduced approximately 25 million shares stock options restricted stock awards units granted board directors connection separation abbvie abbott january 1 2013 abbott employees including employees transferring abbvie holding stock options restricted stock awards units december 31 2012 generally received one abbvie stock option abbott stock option held one abbvie restricted stock award unit abbott award unit held abbott stock options exercise price abbott option adjusted reflect effect separation per share data presented adjusted reflect adjustment per share amounts abbott laboratories subsidiaries notes consolidated financial statements continued note 8 incentive stock program continued number restricted stock awards units outstanding weightedaverage grantdate fair value december 31 2011 december 31 2012 14698595 5029 15506416 5317 respectively number restricted stock awards units weightedaverage grantdate fair value granted vested lapsed 2012 8190671 5674 6774145 5132 608705 5232 respectively fair market value restricted stock awards units vested 2012 2011 2010 385 million 237 million 203 million respectively aggregate intrinsic value options outstanding exercisable december 31 2012 679 million 633 million respectively total intrinsic value options exercised 2012 2011 2010 528 million 94 million 77 million respectively total unrecognized compensation cost related sharebased compensation plans december 31 2012 amounted approximately 174 million giving effect separation abbvie abbott expected recognized next three years total noncash compensation expense charged income 2012 2011 2010 sharebased plans totaled approximately 433 million 383 million 385 million respectively tax benefit recognized approximately 132 million 116 million 119 million respectively compensation cost capitalized part inventory significant fair value option granted 2012 2011 2010 680 623 924 respectively fair value option grant estimated using blackscholes optionpricing model following assumptions riskfree interest rate based rates available time grant zerocoupon us government issues remaining term equal options expected life average life option based historical projected exercise lapsing data expected volatility based implied volatilities traded options abbotts stock historical volatility abbotts stock expected life option dividend yield based options exercise price annual dividend rate time grant abbott laboratories subsidiaries notes consolidated financial statements continued note 9 debt lines credit following summary longterm debt december 31 dollars millions 1these notes issued abbvie inc november 2012 separation abbvie january 1 2013 abbott longer obligations related debt 2012 abbott redeemed 77 billion outstanding notes abbott incurred cost 135 billion extinguish debt net gains unwinding interest rate swaps related debt 2012 abbvie inc wholly owned subsidiary abbott issued 147 billion longterm debt maturities ranging 3 30 years debt issued abbvie inc guaranteed abbott guarantee expiring abbvie inc separated abbott january 1 2013 separation abbvie abbott january 1 2013 principal payments required longterm debt outstanding retained abbott 309 million 2013 33 billion 2019 thereafter december 31 2012 abbotts longterm debt rating standard poors corporation a1 moodys investors service third quarter 2012 abbott replaced unused lines credit 30 billion 37 billion expire october 2012 2013 respectively two fiveyear credit facilities totaling 70 billion support commercial paper borrowing arrangements one credit facilities totaling 20 billion support abbvie commercial paper borrowings separation expired abbott separation abbvie abbott january 1 2013 abbotts weightedaverage interest rate shortterm borrowings 04 december 31 2012 2011 2010 abbott laboratories subsidiaries notes consolidated financial statements continued note 10 business combinations technology acquisitions related transactions september 8 2010 abbott acquired piramal healthcare limiteds healthcare solutions business leader indian branded generics market 22 billion cash plus additional payments 400 million annually 2011 2012 2013 2014 abbott recorded 16 billion liability present value additional payments acquisition date acquisition financed cash allocation fair value acquisition resulted recording 27 billion deductible acquired intangible assets 10 billion deductible goodwill acquired intangible assets consist primarily trade names customer relationships associated rights amortized average 19 years february 2010 abbott acquired solvays pharmaceuticals business solvay pharmaceuticals approximately 61 billion cash plus additional payments eur 100 million per year certain sales milestones met 2011 2012 2013 contingent consideration approximately 290 million recorded acquisition solvay pharmaceuticals provided abbott large complementary portfolio pharmaceutical products expands abbotts presence key global emerging markets abbott acquired control business february 15 2010 financial results acquired operations included financial statements beginning date net sales acquired operations 2010 approximately 31 billion pretax loss acquired operations including acquisition integration restructuring expenses 2010 approximately 395 million acquisition funded cash shortterm investments allocation fair value acquisition resulted recording 22 billion nondeductible goodwill 41 billion nondeductible intangible assets 500 million nondeductible acquired inprocess research development assets net tangible assets 700 million deferred income taxes 11 billion acquired intangible assets consist primarily product rights currently marketed products amortized 2 14 years average 11 years acquired inprocess research development projects accounted indefinite lived intangible assets regulatory approval discontinuation net tangible assets acquired consist primarily trade accounts receivable approximately 675 million inventory approximately 390 million property equipment approximately 725 million net assumed liabilities primarily trade accounts payable accrued compensation liabilities acquisition solvay pharmaceuticals taken place january 1 2010 unaudited pro forma net sales net earnings diluted earnings per share 2010 would 358 billion 46 billion 296 respectively pro forma information includes adjustments amortization intangible assets fair value adjustments acquisitiondate inventory well acquisition integration restructuring expenses pro forma financial information necessarily indicative results operations would transaction effected assumed date march 2010 abbott acquired starlims technologies approximately 100 million cash net cash held starlims providing abbott leading products expertise build position laboratory informatics substantial portion fair value acquisition allocated goodwill amortizable intangible assets april 2010 abbott acquired outstanding shares facet biotech corporation approximately 430 million cash net cash held facet acquisition enhanced abbotts early midstage pharmaceutical pipeline including biologic multiple sclerosis compounds complement abbotts oncology program substantial portion fair value acquisition allocated acquired inprocess research development accounted indefinitelived intangible asset regulatory approval discontinuation abbott laboratories subsidiaries notes consolidated financial statements continued note 10 business combinations technology acquisitions related transactions continued except acquisition solvay pharmaceuticals acquisitions taken place january 1 previous year consolidated net sales income would significantly different reported amounts abbotts proprietary pharmaceutical products segment entered various collaboration research development agreements 2012 abbott acquired ap214 drug development prevention acute kidney injury associated major cardiac surgery patients increased risk result transaction abbott recorded charge acquired inprocess collaborations research development 110 million addition 2012 abbott entered global collaboration develop commercialize oral nextgeneration jak1 inhibitor phase ii development potential treat multiple autoimmune diseases result transaction abbott recorded charge acquired inprocess collaborations research development 150 million additional payments approximately 12 billion could required achievement certain development regulatory commercial milestones agreement another collaboration abbott granted rights 2012 utilize three antibodydrug conjugate compounds abbott recorded charge acquired inprocess collaborations research development 28 million additional payments approximately 220 million licensed compound could required achievement certain development regulatory commercial milestones agreement connection acquisition solvay pharmaceuticals achievement certain sales milestone resulted payment approximately 134 million first quarter 2012 liability previously established 2010 2011 abbott entered series transactions reata pharmaceuticals included 1 collaboration agreement joint development commercialization second generation oral antioxidant inflammation modulators resulting charge acquired inprocess collaborations research development 400 million 2011 2 agreement acquire licensing rights outside us excluding certain asian markets bardoxolone methyl product development treatment chronic kidney disease resulting charge acquired inprocess collaborations research development 238 million 2010 3 acquisition equity interests reata 62 million 2011 2010 2011 certain milestones achieved development treatment chronic kidney disease charges acquired inprocess collaborations research development 188 million recorded first quarter 2012 50 million research development expense recorded related achievement clinical development milestone license agreement license agreement requires additional payments 150 million certain development regulatory milestones associated chronic kidney disease compound achieved october 17 2012 reata informed abbott discontinuing phase iii clinical study bardoxolone methyl chronic kidney disease reata abbott closely examine data study determine whether appropriate path forward development bardoxolone methyl chronic kidney disease indications fourth quarter 2012 abbott recorded charge approximately 50 million impairment equity investment reata 2011 abbott entered agreement biotest ag develop commercialize treatment rheumatoid arthritis psoriasis resulting charge acquired inprocess collaborations research development 85 million additional payments totaling 395 million based projected regulatory approval timelines could required achievement certain development regulatory commercial milestones agreement 2010 abbott entered abbott laboratories subsidiaries notes consolidated financial statements continued note 10 business combinations technology acquisitions related transactions continued agreement neurocrine biosciences develop commercialize product treatment endometriosis resulting charge acquired inprocess collaborations research development 75 million additional payments approximately 500 million could required achievement certain development regulatory commercial milestones agreement note 11 goodwill intangible assets abbott recorded goodwill approximately 34 billion 2010 related acquisitions solvays pharmaceuticals business piramal healthcare limiteds healthcare solutions business facet biotech starlims technologies goodwill related solvay piramal facet acquisitions allocated pharmaceutical products segments addition 2010 abbott paid 250 million boston scientific result approval market xience v drugeluting stent japan resulting increase goodwill vascular products segment foreign currency translation adjustments increased decreased goodwill 2012 2011 2010 69 million 225 million 879 million respectively amount goodwill related reportable segments december 31 2012 63 billion proprietary pharmaceutical products segment 30 billion established pharmaceutical products segment 209 million nutritional products segment 385 million diagnostic products segment 27 billion vascular products segment significant reductions goodwill relating impairments disposal portion business gross amount amortizable intangible assets primarily product rights technology 176 billion 175 billion 173 billion december 31 2012 2011 2010 respectively accumulated amortization 97 billion 83 billion 65 billion december 31 2012 2011 2010 respectively indefinitelived intangible assets relate inprocess research development acquired business combination approximately 691 million 814 million 14 billion december 31 2012 2011 2010 respectively 2012 2011 abbott recorded impairment charges 82 million 174 million respectively certain research development assets due changes projected development regulatory timelines projects 2012 charge relates nonreportable segment 2011 125 million related nonreportable segment 49 million related category abbotts segment reporting discounted cash flow analysis used analyze fair value charges included research development expenses estimated annual amortization expense intangible assets recorded december 31 2012 adjusted separation abbvie abbott approximately 800 million 2013 675 million 2014 590 million 2015 605 million 2016 565 million 2017 intangible asset amortization included cost products sold consolidated statement earnings amortizable intangible assets amortized 2 30 years average 11 years note 12 restructuring plans 2012 abbott management approved plans streamline various commercial operations order reduce costs improve efficiencies abbotts core diagnostics established pharmaceutical nutritionals businesses abbott recorded employee related severance charges approximately 167 million 2012 additional charges approximately 22 million also recorded 2012 primarily asset impairments approximately 70 million recorded cost products sold approximately 119 million selling general administrative expense december 31 2012 significant cash payments made relating actions abbott laboratories subsidiaries notes consolidated financial statements continued note 12 restructuring plans continued 2011 prior years abbott management approved plans realign worldwide pharmaceutical vascular manufacturing operations selected domestic international commercial research development operations order reduce costs 2011 2010 abbott recorded charges approximately 194 million 56 million respectively reflecting impairment manufacturing facilities assets employee severance related charges approximately 76 million 2011 classified cost products sold 69 million research development 49 million selling general administrative approximately 56 million 2010 classified cost products sold following summarizes activity restructurings dollars millions additional 110 million 25 million 13 million recorded 2012 2011 2010 respectively relating restructurings primarily accelerated depreciation 2012 2010 abbott management approved restructuring plans primarily related acquisition solvays pharmaceuticals business plans streamline operations improve efficiencies reduce costs certain solvay sites functions well certain abbott solvay commercial organizations various countries 2012 abbott recorded charge approximately 150 million employee severance contractual obligations primarily related exit research development facility approximately 142 million recorded research development 8 million selling general administrative 2010 abbott recorded charges cost products sold research development selling general administrative approximately 99 million 152 million 272 million respectively following summarizes activity restructurings dollars millions abbott laboratories subsidiaries notes consolidated financial statements continued note 12 restructuring plans continued additional 38 million 102 million 12 million recorded 2012 2011 2010 respectively relating restructurings primarily additional employee severance accelerated depreciation 2011 2008 abbott management approved plans streamline global manufacturing operations reduce overall costs improve efficiencies abbotts core diagnostic business 2011 charge 28 million recorded cost products sold following summarizes activity restructurings dollars millions addition charges approximately 16 million 42 million 60 million recorded 2012 2011 2010 primarily accelerated depreciation product transfer costs abbott laboratories subsidiaries notes consolidated financial statements continued note 13 quarterly results unaudited dollars millions except per share data athe sum quarters basic earnings per share 2011 2010 diluted earnings per share 2012 2011 add full year earnings per share amounts due rounding management report internal control financial reporting management abbott laboratories responsible establishing maintaining adequate internal control financial reporting abbotts internal control system designed provide reasonable assurance companys management board directors regarding preparation fair presentation published financial statements internal control systems matter well designed inherent limitations therefore even systems determined effective provide reasonable assurance respect financial statement preparation presentation abbotts management assessed effectiveness companys internal control financial reporting december 31 2012 making assessment used criteria set forth internal control integrated framework issued committee sponsoring organizations treadway commission based assessment believe december 31 2012 companys internal control financial reporting effective based criteria abbotts independent registered public accounting firm issued audit report assessment effectiveness companys internal control financial reporting report appears page 89 miles white chairman board chief executive officer thomas c freyman executive vice president finance chief financial officer greg w linder vice president controller february 15 reports independent registered public accounting firm board directors shareholders abbott laboratories audited accompanying consolidated balance sheets abbott laboratories subsidiaries company december 31 2012 2011 2010 related consolidated statements earnings comprehensive income shareholders investment cash flows years ended financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance auditing standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position company december 31 2012 2011 2010 results operations cash flows years ended conformity accounting principles generally accepted united states america discussed note 1 consolidated financial statements january 1 2013 company distributed outstanding shares abbvie inc encompasses companys researchbased pharmaceuticals business companys shareholders also discussed note 1 2011 company changed year end foreign subsidiaries november 30 fiscal year end december 31 calendar year end also audited accordance standards public company accounting oversight board united states companys internal control financial reporting december 31 2012 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission report dated february 15 2013 expressed unqualified opinion companys internal control financial reporting deloitte touche llp chicago illinois february 15 2013 board directors shareholders abbott laboratories audited internal control financial reporting abbott laboratories subsidiaries company december 31 2012 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission companys management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management report internal control financial reporting responsibility express opinion companys internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion companys internal control financial reporting process designed supervision companys principal executive principal financial officers persons performing similar functions effected companys board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting including possibility collusion improper management override controls material misstatements due error fraud may prevented detected timely basis also projections evaluation effectiveness internal control financial reporting future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion company maintained material respects effective internal control financial reporting december 31 2012 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission also audited accordance standards public company accounting oversight board united states consolidated financial statements company year ended december 31 2012 report dated february 15 2013 expresses unqualified opinion financial statements includes explanatory paragraph regarding distribution shares abbvie inc companys shareholders companys change year end foreign subsidiaries deloitte touche llp chicago illinois february 15 2013 item 9 item 8 financial statements supplementary data page consolidated statement earnings consolidated statement cash flows consolidated balance sheet consolidated statement shareholders investment notes consolidated financial statements management report internal control financial reporting reports independent registered public accounting firm abbott laboratories subsidiaries consolidated statement earnings dollars shares thousands except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement cash flows dollars thousands accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated balance sheet dollars thousands abbott laboratories subsidiaries consolidated balance sheet dollars thousands accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement shareholders investment dollars thousands except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries notes consolidated financial statements note 1 summary significant accounting policies nature business abbotts principal business discovery development manufacture sale broad line health care products concentration risk guarantees due nature operations abbott subject significant concentration risks relating customers products geographic locations except three us wholesalers accounted 23 percent trade receivables december 31 2010 2009 27 percent trade receivables december 31 2008 product warranties significant abbott material exposures offbalance sheet arrangements special purpose entities activities include nonexchangetraded contracts accounted fair value abbott periodically entered agreements ordinary course business assignment product rights companies resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote abbott periodically acquires business product rights abbott agrees pay contingent consideration based attaining certain thresholds based occurrence certain events basis consolidation consolidated financial statements include accounts parent company subsidiaries elimination intercompany transactions accounts foreign subsidiaries consolidated november 30 due time needed consolidate subsidiaries december 2009 foreign subsidiary acquired certain technology accounted acquired inprocess research development transaction recorded 2009 due significance amount events occurred related foreign subsidiaries december 2010 2009 2008 materially affected financial position results operations cash flows effective january 1 2009 abbott adopted sfas 160 noncontrolling interests consolidated financial statements amendment arb 51 codified fasb asc 810 consolidation accordingly noncontrolling interests subsidiaries presented component total equity december 31 2010 2009 2008 use estimates financial statements prepared accordance generally accepted accounting principles united states necessarily include amounts based estimates assumptions management actual results could differ amounts significant estimates include amounts sales rebates income taxes pension postemployment benefits valuation intangible assets litigation sharebased compensation derivative financial instruments inventory accounts receivable exposures revenue recognition revenue product sales recognized upon passage title risk loss customers provisions discounts rebates sales incentives customers returns adjustments provided period related sales recorded sales incentives customers material historical data readily available reliable used estimating amount reduction gross sales revenue launch new product improved version existing product shipments excess customers normal requirements recorded conditions noted met situations management records returns reserve revenue necessary sales product rights marketable products recorded abbott laboratories subsidiaries notes consolidated financial statements continued note 1 summary significant accounting policies continued revenue upon disposition rights revenue license product rights performance research selling activities recorded periods earned income taxes deferred income taxes provided tax effect differences tax bases assets liabilities reported amounts financial statements enacted statutory rate effect taxes paid us income taxes provided earnings foreign subsidiaries intended remitted parent company deferred income taxes provided undistributed earnings reinvested indefinitely foreign subsidiaries working capital plant equipment interest penalties income tax obligations included taxes income earnings per share effective january 1 2009 abbott adopted fsp eitf 0361 determining whether instruments granted sharebased payment transactions participating securities codified fasb asc 260 earnings per share requires unvested restricted stock units awards contain nonforfeitable rights dividends treated participating securities included computation earnings per share twoclass method twoclass method net earnings allocated common shares participating securities net earnings allocated common shares 2010 2009 4613 billion 5733 billion respectively net earnings allocated common shares 2008 significantly different net earnings pension postemployment benefits abbott accrues actuarially determined cost pension postemployment benefits service attribution periods employees abbott must develop longterm assumptions significant health care cost trend rates discount rates expected return plan assets differences expected longterm return plan assets actual return amortized fiveyear period actuarial losses gains amortized remaining service attribution periods employees corridor method fair value measurements assets liabilities measured using quoted prices active markets total fair value published market price per unit multiplied number units held without consideration transaction costs assets liabilities measured using significant observable inputs valued reference similar assets liabilities adjusted contract restrictions terms specific asset liability items significant portion fair value derived reference quoted prices similar assets liabilities active markets remaining assets liabilities fair value derived using fair value model discounted cash flow model blackscholes model purchased intangible assets recorded fair value fair value significant purchased intangible assets based independent appraisals abbott uses discounted cash flow model value intangible assets discounted cash flow model requires assumptions timing amount future net cash flows risk cost capital terminal values market participants intangible assets goodwill indefinitelived intangible assets reviewed impairment least quarterly annual basis respectively sharebased compensation value stock options restricted stock awards units amortized service period could shorter vesting period employee retirement eligible charge compensation expense litigation abbott accounts litigation losses accordance fasb asc 450 contingencies asc 450 loss contingency provisions recorded probable losses abbott laboratories subsidiaries notes consolidated financial statements continued note 1 summary significant accounting policies continued managements best estimate loss best estimate cannot made minimum loss contingency amount recorded cash equivalents investments cash equivalents consist time deposits certificates deposit original maturities three months less investments marketable equity securities classified availableforsale recorded fair value unrealized holding gains losses net tax included accumulated comprehensive income loss investments equity securities traded public stock exchanges recorded cost investments debt securities classified heldtomaturity management intent ability hold securities maturity reported cost net unamortized premium discount income relating securities reported interest income abbott reviews carrying value investments quarter determine whether temporary decline market value exists abbott considers factors affecting investee factors affecting industry investee operates general equity market trends abbott considers length time investments market value carrying value nearterm prospects recovery carrying value abbott determines temporary decline occurred investment written charge income expense net trade receivable valuations accounts receivable stated net realizable value allowance gross trade receivables reflects best estimate probable losses inherent receivables portfolio determined basis historical experience specific allowances known troubled accounts currently available information inventories stated lower cost firstin firstout basis market cost includes material conversion costs property equipment depreciation amortization provided straightline basis estimated useful lives assets following table shows estimated useful lives property equipment product liability abbott accrues product liability claims undiscounted basis probable liability incurred amount liability reasonably estimated based existing information liabilities adjusted quarterly additional information becomes available receivables insurance recoveries product liability claims recorded assets undiscounted basis probable recovery realized prior 2009 abbott carried thirdparty insurance coverage amounts reflect historical loss experience include coverage sizable losses beginning 2009 product liability losses selfinsured research development costs internal research development costs expensed incurred clinical trial costs incurred third parties expensed contracted work performed contingent milestone payments due third parties research development arrangements milestone payment obligations expensed milestone results achieved abbott laboratories subsidiaries notes consolidated financial statements continued note 2 supplemental financial information judgment entered us district court eastern district texas abbott litigation new york university centocor inc requires abbott secure judgment event appeal federal circuit court unsuccessful overturning district courts decision 2010 abbott deposited 187 billion escrow agent considers assets restricted income expense net 2009 includes derecognition contingent liability 797 million associated conclusion tap pharmaceutical products inc joint venture discussed note 11 287 million gain settlement reached abbott medtronic inc resolving outstanding intellectual property litigation two parties income recording certain investments fair value connection business acquisitions income expense net 2010 2009 2008 also includes ongoing contractual payments takeda associated conclusion tap joint venture gain 2008 sale equity investment accounted availableforsale investment addition abbott recorded gain approximately 94 million connection dissolution tap joint venture 2008 aaccrued wholesaler chargeback rebates 216 217 210 december 31 2010 2009 2008 respectively netted trade receivables abbotts customers invoiced higher catalog price remit abbott contract price products abbott laboratories subsidiaries notes consolidated financial statements continued note 2 supplemental financial information continued b2010 includes acquisition consideration payable 400 related acquisition piramal healthcare limiteds healthcare solutions business c2010 includes acquisition consideration payable 1150 related acquisition piramal healthcare limiteds healthcare solutions business abbott laboratories subsidiaries notes consolidated financial statements continued note 2 supplemental financial information continued acquired lupron business 2008 discussed note 11 abbott recorded intangible assets primarily lupron product rights approximately 700 million goodwill approximately 350 million deferred tax liabilities related intangible assets approximately 260 million abbott also recorded liability approximately 11 billion relating agreement remit cash takeda certain research development events achieved development assets retained takeda related deferred tax assets approximately 410 million also recorded sale abbotts equity interest tap resulted recording net assets related lupron business primarily cash receivables inventory assets net accounts payable accrued liabilities offset credit abbotts investment tap amount approximately 280 million note 3 financial instruments derivatives fair value measures certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts totaling 13 billion 20 billion 129 million december 31 2010 2009 2008 respectively designated cash flow hedges variability cash flows due changes foreign exchange rates recorded fair value accumulated gains losses december 31 2010 included cost products sold time products sold generally next twelve months amount hedge ineffectiveness significant 2010 2009 2008 abbott enters foreign currency forward exchange contracts manage currency exposures foreign currency denominated thirdparty trade payables receivables intercompany loans trade accounts payable receivable payable denominated currency functional currency entity intercompany loans contracts require abbott sell buy foreign currencies primarily european currencies japanese yen exchange primarily us dollars european currencies intercompany trade payables receivables currency exposures primarily us dollar european currencies japanese yen december 31 2010 2009 2008 abbott held 108 billion 75 billion 83 billion respectively foreign currency forward exchange contracts abbott designated foreign denominated shortterm debt hedge net investment foreign subsidiary approximately 650 million 575 million 585 million december 31 2010 2009 2008 respectively accordingly changes fair value debt due changes exchange rates recorded accumulated comprehensive income loss net tax abbott party interest rate hedge contracts totaling 73 billion 55 billion 25 billion december 31 2010 2009 2008 respectively manage exposure changes fair value fixedrate debt due 2011 2020 contracts designated fair value hedges variability fair value fixedrate debt due changes longterm benchmark interest rates effect hedge change fixedrate interest obligation variable rate portion debt abbott records contracts fair value adjusts carrying amount fixedrate debt offsetting amount hedge ineffectiveness recorded income 2010 2009 2008 hedges gross unrealized holding gains losses availableforsale equity securities totaled 40 million 1 million respectively december 31 2010 42 million 3 million respectively december 31 2009 55 million 23 million respectively december 31 2008 abbott laboratories subsidiaries notes consolidated financial statements continued note 3 financial instruments derivatives fair value measures continued following table summarizes amounts location certain derivative financial instruments december 31 following table summarizes activity foreign currency forward exchange contracts designated cash flow hedges debt designated hedge net investment foreign subsidiary amounts location income expense gain loss reclassified income certain derivative financial instruments amount hedge ineffectiveness significant 2010 2009 2008 hedges interest rate swaps designated fair value hedges variability fair value fixedrate debt due changes longterm benchmark interest rates hedged debt marked market offsetting effect marking interest rate swaps market carrying values fair values certain financial instruments december 31 shown table carrying values financial instruments approximate estimated fair abbott laboratories subsidiaries notes consolidated financial statements continued note 3 financial instruments derivatives fair value measures continued values counterparties financial instruments consist select major international financial institutions abbott expect losses nonperformance counterparties abbott laboratories subsidiaries notes consolidated financial statements continued note 3 financial instruments derivatives fair value measures continued following table summarizes bases used measure certain assets liabilities fair value recurring basis balance sheet fair value debt determined based face value debt adjusted fair value interest rate swaps based discounted cash flow analysis fair value contingent consideration determined based independent appraisal adjusted time value money abbott laboratories subsidiaries notes consolidated financial statements continued note 4 postemployment benefits retirement plans consist defined benefit defined contribution medical dental plans information abbotts major defined benefit plans postemployment medical dental benefit plans follows dollars millions projected benefit obligations nonus defined benefit plans 30 billion 20 billion 13 billion december 31 2010 2009 2008 respectively accumulated benefit obligations defined benefit plans 75 billion 58 billion 47 billion december 31 2010 2009 2008 respectively plans accumulated benefit obligations exceeded plan assets december 31 2010 2009 2008 aggregate accumulated benefit obligations 20 billion 15 billion abbott laboratories subsidiaries notes consolidated financial statements continued note 4 postemployment benefits continued 42 billion respectively projected benefit obligations 22 billion 18 billion 48 billion respectively aggregate plan assets 11 billion 780 million 33 billion respectively comprehensive income loss 2010 includes amortization actuarial losses prior service cost 136 million 4 million respectively net actuarial losses 305 million defined benefit plans amortization actuarial losses prior service credits 38 million 22 million respectively net actuarial gains 177 million medical dental plans comprehensive income loss 2009 includes amortization actuarial losses prior service cost 52 million 4 million respectively net actuarial losses 197 million defined benefit plans amortization actuarial losses prior service credits 30 million 22 million respectively net actuarial losses 128 million medical dental plans comprehensive income loss 2008 includes amortization actuarial losses prior service cost 34 million 4 million respectively net actuarial losses 16 billion defined benefit plans amortization actuarial losses prior service credits 29 million 21 million respectively net actuarial gains 19 million medical dental plans pretax amount actuarial losses prior service cost credits included accumulated comprehensive income loss december 31 2010 expected recognized net periodic benefit cost 2011 174 million 4 million respectively defined benefit pension plans 43 million 41 million respectively medical dental plans weighted average assumptions used determine benefit obligations defined benefit plans medical dental plans follows weighted average assumptions used determine net cost defined benefit plans medical dental plans follows abbott laboratories subsidiaries notes consolidated financial statements continued note 4 postemployment benefits continued assumed health care cost trend rates medical dental plans december 31 follows discount rates used measure liabilities determined based highquality fixed income securities match duration expected retiree benefits health care cost trend rates represent abbotts expected annual rates change cost health care benefits forward projection health care costs measurement date onepercentage point increasedecrease assumed health care cost trend rate would increasedecrease accumulated postemployment benefit obligations december 31 2010 240 million 194 million total service interest cost components net postemployment health care cost year ended approximately 30 million 23 million abbott laboratories subsidiaries notes consolidated financial statements continued note 4 postemployment benefits continued following table summarizes bases used measure defined benefit plans assets fair value aa mix index funds track sp 500 45 percent 2010 40 percent 2009 separate actively managed equity accounts benchmarked russell 1000 55 percent 2010 60 percent 2009 ba mix index funds 75 percent separate actively managed equity accounts 25 percent track benchmarked sp 400 midcap index cprimarily separate actively managed pooled investment accounts benchmarked msci emerging market indices abbott laboratories subsidiaries notes consolidated financial statements continued note 4 postemployment benefits continued dindex funds actively managed 45 percent 2010 75 percent 2009 separate actively managed accounts 55 percent 2010 25 percent 2009 eindex funds actively managed 15 percent 2010 75 percent 2009 separate actively managed accounts 85 percent 2010 25 percent 2009 fprimarily united kingdom japan irish governmentissued bonds gprimarily mortgage backed securities hprimarily funds invested managers global mandate flexibility allocate capital broadly across wide range asset classes strategies including limited equities fixed income commodities interest rate futures currencies securities outperform agreed upon benchmark specific return volatility targets iprimarily investments liquid commodity future contracts jprimarily cash equivalents equities valued using quoted prices valued published market prices equities common collective trust registered investment company valued using significant observable inputs valued net asset value nav provided fund administrator nav based value underlying assets owned fund minus liabilities fixed income securities valued using significant observable inputs valued prices obtained independent financial service industryrecognized vendors absolute return funds commodities valued nav provided fund administrator following table summarizes change value assets measured using significant unobservable inputs dollars millions investment mix equity securities fixed income asset allocation strategies based upon achieving desired return balancing higher return volatile equity securities lower return less volatile fixed income securities investment allocations made across range markets industry sectors capitalization sizes case fixed income securities maturities credit quality plans directly hold securities abbott known significant concentrations risk plans assets abbotts medical dental plans assets invested similar mix pension plan assets plans expected return assets shown based managements expectations longterm average rates return achieved underlying investment portfolios establishing abbott laboratories subsidiaries notes consolidated financial statements continued note 4 postemployment benefits continued assumption management considers historical expected returns asset classes plans invested well current economic capital market conditions abbott funds domestic pension plans according irs funding limitations international pension plans funded according similar regulations abbott funded 525 million 2010 862 million 2009 285 million 2008 defined pension plans abbott expects pension funding main domestic pension plan 200 million annually total benefit payments expected paid participants includes payments funded company assets well paid plans follows dollars millions abbott stock retirement plan principal defined contribution plan abbotts contributions plan 147 million 2010 137 million 2009 129 million 2008 abbott provides certain postemployment benefits primarily salary continuation plans qualifying domestic employees accrues related cost service lives employees note 5 taxes earnings taxes earnings continuing operations reflect annual effective rates including charges interest penalties deferred income taxes reflect tax consequences future years differences tax bases assets liabilities financial reporting amounts us income taxes provided earnings foreign subsidiaries intended remitted parent company abbott record deferred income taxes earnings reinvested indefinitely foreign subsidiaries undistributed earnings reinvested indefinitely foreign subsidiaries working capital plant equipment aggregated 268 billion december 31 2010 practicable determine amount deferred income taxes provided earnings us abbotts federal income tax returns 2005 settled income tax returns years 2005 open numerous income tax jurisdictions tax returns yet settled none individually significant reserves interest penalties significant abbott laboratories subsidiaries notes consolidated financial statements continued note 5 taxes earnings continued earnings continuing operations taxes related provisions taxes earnings continuing operations follows dollars millions differences effective income tax rate us statutory tax rate follows december 31 2010 2009 2008 total deferred tax assets 61 billion 44 billion 54 billion respectively total deferred tax liabilities 30 billion 18 billion 14 billion respectively abbott incurred losses foreign jurisdiction realization future economic benefit remote benefit reflected deferred tax asset valuation allowances abbott laboratories subsidiaries notes consolidated financial statements continued note 5 taxes earnings continued recorded deferred tax assets significant tax effect differences give rise deferred tax assets liabilities follows dollars millions following table summarizes gross amounts unrecognized tax benefits without regard reduction tax liabilities additions deferred tax assets liabilities unrecognized tax benefits settled dollars millions total amount unrecognized tax benefits recognized would impact effective tax rate approximately 25 billion although reasonably possible change balance unrecognized tax benefits may occur within next twelve months time possible estimate range change due uncertainty potential outcomes note 6 segment geographic area information abbotts principal business discovery development manufacture sale broad line health care products abbotts products generally sold directly retailers wholesalers hospitals abbott laboratories subsidiaries notes consolidated financial statements continued note 6 segment geographic area information continued health care facilities laboratories physicians offices government agencies throughout world abbotts reportable segments follows pharmaceutical products worldwide sales broad line pharmaceuticals segment reporting purposes four pharmaceutical divisions aggregated reported pharmaceutical products segment nutritional products worldwide sales broad line adult pediatric nutritional products diagnostic products worldwide sales diagnostic systems tests blood banks hospitals commercial laboratories alternatecare testing sites segment reporting purposes three diagnostic divisions aggregated reported diagnostic products segment vascular products worldwide sales coronary endovascular vessel closure products abbotts underlying accounting records maintained legal entity basis government public reporting requirements segment disclosures performance basis consistent internal management reporting intersegment transfers inventory recorded standard cost measure segment operating earnings cost corporate functions cost certain employee benefits charged segments predetermined rates approximate cost remaining costs allocated segments acquisitions prior 2006 substantially intangible assets related amortization allocated segments following segment information prepared accordance internal accounting policies abbott described presented accordance generally accepted accounting principles applied consolidated financial statements dollars millions anet sales operating earnings favorably affected relatively weaker us dollar 2010 2008 2009 unfavorably affected relatively stronger us dollar badditions longterm assets 2010 pharmaceutical products segment include goodwill 3249 intangibles 7261 additions longterm assets 2010 2009 vascular products segment include goodwill 310 158 respectively intangibles 129 373 abbott laboratories subsidiaries notes consolidated financial statements continued note 6 segment geographic area information continued respectively additions longterm assets 2008 pharmaceutical products segment includes acquired intangible assets 700 vascular products segment includes goodwill 321 cother net 2010 includes charges 881 integration restructuring costs associated acquisitions solvay piramal 189 impairment intangible asset related sibutramine net 2009 includes derecognition contingent liability 797 established connection conclusion tap joint venture 287 gain patent litigation settlement abbott laboratories subsidiaries notes consolidated financial statements continued note 6 segment geographic area information continued dsales country based country sold product note 7 litigation environmental matters abbott identified potentially responsible party investigation cleanup costs number locations united states puerto rico federal state remediation laws investigating potential contamination number companyowned locations abbott recorded estimated cleanup cost site management believes abbott probable loss exposure individual site cleanup exposure expected exceed 3 million aggregate cleanup exposure expected exceed 15 million number patent disputes third parties claim abbotts products infringe patents april 2007 new york university nyu centocor inc filed lawsuit eastern district texas asserting humira infringes patent coowned nyu centocor exclusively licensed centocor june 2009 jury found abbott willfully infringed patent awarded nyu centocor approximately 167 billion past compensatory damages october 2009 district court overturned jurys finding abbotts infringement willful denied abbotts request overturn jurys verdict validity infringement damages december 2009 district court issued final judgment awarded plaintiffs additional 175 million prejudgment interest abbott appealed jurys verdict abbott confident merits case believes prevail appeal result reserves recorded case within next year legal proceedings may occur may result change estimated reserves recorded abbott legal proceedings environmental exposures abbott estimates range possible loss approximately 75 million 115 million recorded reserve balance december 31 2010 proceedings exposures approximately 95 million reserves represent managements best estimate probable loss defined fasb asc 450 contingencies abbott laboratories subsidiaries notes consolidated financial statements continued note 7 litigation environmental matters continued feasible predict outcome proceedings exposures certainty management believes ultimate disposition material adverse effect abbotts financial position cash flows results operations except patent case discussed second paragraph footnote resolution could material cash flows results operations 2009 abbott medtronic inc reached settlement resolving outstanding intellectual property litigation two parties terms settlement medtronic paid abbott 400 million settlement also includes mutual agreement pursue additional litigation current future vascular products subject specific conditions time limits connection settlement abbott recognized gain 287 million included income expense net remaining amounts recognized royalty income earned note 8 incentive stock program 2009 incentive stock program authorizes granting nonqualified stock options replacement stock options restricted stock awards restricted stock units performance awards foreign benefits sharebased awards stock options replacement stock options restricted stock awards units comprise majority benefits granted currently outstanding program prior program 2010 abbott granted 1597276 stock options 589970 replacement stock options 1850892 restricted stock awards 6099307 restricted stock units program purchase price shares option must least equal fair market value common stock date grant maximum term option 10 years options vest equally three years except replacement options vest six months options granted january 1 2005 included replacement feature except options outstanding replacement feature options granted december 31 2004 include replacement feature employee tenders mature shares abbott upon exercise stock option replacement stock option may granted equal amount shares tendered replacement options granted current market price term expires date underlying option grant upon change control abbott outstanding stock options become fully exercisable terms conditions restricted stock awards units deemed satisfied restricted stock awards generally vest 3 5 years restricted stock awards vest 5 years onethird award vests one year upon abbott reaching minimum return equity target restricted stock units vest three years upon vesting recipient receives one share abbott stock vested restricted stock unit aggregate fair market value restricted stock awards units recognized expense service period restricted stock awards settlement vested restricted stock units issued treasury shares abbott generally issues new shares exercises stock options abbott policy purchasing shares relating sharebased programs december 31 2010 approximately 200 million shares reserved future grants subsequent yearend reserve reduced approximately 24 million shares stock options restricted stock awards units granted board directors number restricted stock awards units outstanding weightedaverage grantdate fair value december 31 2009 december 31 2010 8703247 5364 12449413 5402 respectively number restricted stock awards units weightedaverage grantdate fair value granted vested lapsed 2010 7950199 5415 3781223 5350 abbott laboratories subsidiaries notes consolidated financial statements continued note 8 incentive stock program continued 422810 5343 respectively fair market value restricted stock awards units vested 2010 2009 2008 203 million 81 million 76 million respectively aggregate intrinsic value options outstanding exercisable december 31 2010 194 million 193 million respectively total intrinsic value options exercised 2010 2009 2008 77 million 129 million 314 million respectively total unrecognized compensation cost related sharebased compensation plans december 31 2010 amounted approximately 270 million expected recognized next three years total noncash compensation expense charged income 2010 2009 2008 sharebased plans totaled approximately 385 million 365 million 350 million respectively tax benefit recognized approximately 119 million 118 million 117 million respectively compensation cost capitalized part inventory significant fair value option granted 2010 2009 2008 924 928 1142 respectively fair value option grant estimated using blackscholes optionpricing model following assumptions riskfree interest rate based rates available time grant zerocoupon us government issues remaining term equal options expected life average life option based historical projected exercise lapsing data expected volatility based implied volatilities traded options abbotts stock historical volatility abbotts stock expected life option dividend yield based options exercise price annual dividend rate time grant abbott laboratories subsidiaries notes consolidated financial statements continued note 9 debt lines credit following summary longterm debt december 31 dollars millions principal payments required longterm debt outstanding december 31 2010 20 billion 2011 10 billion 2012 301 million 2013 500 million 2014 750 million 2015 98 billion thereafter december 31 2010 abbotts longterm debt rating aa standard poors corporation a1 moodys investors service abbott readily available financial resources including unused lines credit 67 billion support commercial paper borrowing arrangements 30 billion facility expires october 2012 37 billion facility expires 2013 related compensating balances subject withdrawal abbott option commitment fees material abbotts weightedaverage interest rate shortterm borrowings 04 december 31 2010 02 december 31 2009 05 december 31 2008 note 10 business combinations technology acquisitions related transactions january 1 2009 abbott adopted provisions sfas 141 revised 2007 business combinations codified fasb asc 805 business combinations asc 805 acquired inprocess research development accounted indefinitelived intangible asset approval discontinuation rather expense acquisition costs connection acquisition expensed rather added cost acquisition fair value contingent consideration date acquisition added cost acquisition abbott laboratories subsidiaries notes consolidated financial statements note 10 business combinations technology acquisitions related transactions continued september 8 2010 abbott acquired piramal healthcare limiteds healthcare solutions business leader indian branded generics market 22 billion cash plus additional payments 400 million annually 2011 2012 2013 2014 abbott recorded 16 billion liability present value additional payments acquisition date acquisition financed current cash preliminary allocation fair value acquisition resulted recording 27 billion deductible acquired intangible assets 10 billion deductible goodwill acquired intangible assets consist primarily trade names customer relationships associated rights amortized average 19 years allocation fair value acquisition finalized valuation completed february 2010 abbott acquired solvays pharmaceuticals business solvay pharmaceuticals approximately 61 billion cash plus additional payments eur 100 million per year certain sales milestones met 2011 2012 2013 contingent consideration approximately 290 million recorded based preliminary valuation acquisition solvay pharmaceuticals provides abbott large complementary portfolio pharmaceutical products expands abbotts presence key global emerging markets abbott acquired control business february 15 2010 financial results acquired operations included financial statements beginning date net sales acquired operations 2010 approximately 31 billion pretax loss acquired operations including acquisition integration restructuring expenses 2010 approximately 395 million acquisition funded current cash shortterm investments preliminary allocation fair value acquisition shown table billions dollars allocation fair value acquisition finalized valuation completed acquired intangible assets consist primarily product rights currently marketed products amortized 2 14 years average 11 years acquired inprocess research development accounted indefinite lived intangible assets regulatory approval discontinuation net tangible assets acquired consist primarily trade accounts receivable approximately 675 million inventory approximately 390 million property equipment approximately 725 million net assumed liabilities primarily trade accounts payable accrued compensation liabilities following unaudited pro forma financial information reflects consolidated results operations abbott acquisition solvay pharmaceuticals taken place january 1 2010 january 1 2009 pro forma information includes adjustments amortization intangible assets fair value adjustments acquisitiondate inventory well acquisition integration restructuring expenses pro forma financial information necessarily indicative results abbott laboratories subsidiaries notes consolidated financial statements continued note 10 business combinations technology acquisitions related transactions continued operations would transaction effected assumed date billions dollars except per share amounts march 2010 abbott acquired starlims technologies approximately 100 million cash net cash held starlims providing abbott leading products expertise build position laboratory informatics substantial portion fair value acquisition allocated goodwill amortizable intangible assets allocation fair value acquisition finalized valuation completed april 2010 abbott acquired outstanding shares facet biotech corporation approximately 430 million cash net cash held facet acquisition enhances abbotts early midstage pharmaceutical pipeline including biologic multiple sclerosis compounds complement abbotts oncology program substantial portion fair value acquisition allocated acquired inprocess research development accounted indefinitelived intangible asset regulatory approval discontinuation february 2009 abbott acquired outstanding shares advanced medical optics inc amo approximately 14 billion cash net cash held amo prior acquisition abbott held small investment amo abbott acquired amo take advantage increasing demand vision care technologies due population growth demographic shifts amos premier position field abbott acquired control business february 25 2009 financial results acquired operations included financial statements beginning date acquisition financed longterm debt allocation fair value acquisition shown table dollars billions acquired intangible assets consist established customer relationships developed technology trade names amortized 2 30 years average 15 years acquired inprocess research development accounted indefinitelived intangible asset regulatory approval discontinuation net tangible assets acquired consist primarily trade accounts receivable inventory property equipment assets net assumed liabilities primarily trade accounts payable accrued compensation liabilities addition subsequent acquisition abbott repaid substantially acquired debt amo abbott laboratories subsidiaries notes consolidated financial statements continued note 10 business combinations technology acquisitions related transactions continued october 2009 abbott acquired 100 percent visiogen inc 400 million cash providing abbott nextgeneration accommodating intraocular lens iol technology address presbyopia cataract patients allocation fair value acquisition resulted nondeductible acquired inprocess research development approximately 200 million accounted indefinitelived intangible asset regulatory approval discontinuation nondeductible definitelived intangible assets approximately 24 million goodwill approximately 200 million october 2009 abbott acquired evalve inc 320 million cash plus additional payment 90 million made upon completion certain regulatory milestones abbott acquired evalve obtain presence growing area nonsurgical treatment structural heart disease including previous investment evalve abbott acquired 100 percent outstanding shares evalve connection acquisition carrying amount investment revalued fair value resulting recording 28 million income reported income expense net allocation fair value acquisition resulted nondeductible definitelived intangible assets approximately 140 million nondeductible acquired inprocess research development approximately 220 million accounted indefinitelived intangible asset regulatory approval discontinuation goodwill approximately 100 million deferred income taxes approximately 110 million acquired intangible assets consist developed technology amortized 11 years january 2009 abbott acquired ibis biosciences inc ibis 175 million cash expand abbotts position molecular diagnostics infectious disease including 40 million investment ibis 2008 abbott acquired 100 percent outstanding shares ibis substantial portion fair value acquisition allocated goodwill amortizable intangible assets acquired inprocess research development accounted indefinitelived intangible asset regulatory approval discontinuation investment ibis 2008 resulted charge acquired inprocess research development connection acquisition carrying amount investment revalued fair value resulting recording 33 million income reported income expense net except acquisition solvay pharmaceuticals acquisitions taken place january 1 previous year consolidated net sales income would significantly different reported amounts 2010 abbott entered agreement acquire licensing rights outside us excluding certain asian markets product development treatment chronic kidney disease resulting charge acquired inprocess research development 238 million addition abbott acquired equity interest approximately 62 million additional equity interest additional milestone payments could required upon achievement certain development regulatory milestones 2010 abbott also entered agreement develop commercialize product treatment endometriosis resulting charge acquired inprocess research development 75 million additional payments approximately 500 million could required achievement certain development regulatory commercial milestones 2009 abbott acquired global rights novel biologic treatment chronic pain 170 million cash resulting charge acquired inprocess research development abbott laboratories subsidiaries notes consolidated financial statements continued note 11 conclusion tap pharmaceutical products inc joint venture sale abbotts spine business april 30 2008 abbott takeda concluded tap pharmaceutical products inc tap joint venture evenly splitting value assets joint venture abbott exchanged 50 percent equity interest tap assets liabilities employees related taps lupron business subsequent conclusion joint venture tap merged two takeda entities exchange abbotts investment tap taps lupron business resulted gain closing approximately 94 million internal revenue service issued private letter ruling transaction qualifies taxfree us income tax purposes beginning may 1 2008 abbott began recording us lupron net sales costs operating results longer records income tap joint venture taps sales lupron 182 million four months ended april 30 2008 abbott also receives payments based specified development approval commercial events achieved respect products retained takeda payments takeda based sales products retained takeda recorded abbott income expense net specified event achieved applicable sales made exchange transaction accounted sale abbotts equity interest tap acquisition taps lupron business sale abbotts equity interest tap resulted recording net assets related lupron business primarily cash receivables inventory assets net accounts payable accrued liabilities offset credit abbotts investment tap amount approximately 280 million acquired lupron business abbott recorded intangible assets primarily lupron product rights approximately 700 million goodwill approximately 350 million deferred tax liabilities related primarily intangible assets approximately 260 million intangible assets amortized 15 years abbott agreed remit cash takeda certain research development events achieved development assets retained takeda amounts recorded liability closing amount approximately 11 billion related deferred tax assets approximately 410 million also recorded 11 billion abbott made taxdeductible payments 36 million 83 million 200 million 2010 2009 2008 2009 events occurred resulting remaining payments required remaining liability amount 797 million derecognized recorded income expense net 2008 abbott sold spine business approximately 360 million cash resulting aftertax gain approximately 147 million presented gain sale discontinued operations net taxes accompanying statement income operations financial position spine business presented discontinued operations effects would significant note 12 goodwill intangible assets abbott recorded goodwill approximately 34 billion 2010 related acquisitions solvays pharmaceuticals business piramal healthcare limiteds healthcare solutions business facet biotech starlims technologies goodwill related solvay piramal facet acquisitions allocated pharmaceutical products segment addition 2010 abbott paid 250 million boston scientific result approval market xience v drugeluting stent japan resulting increase goodwill vascular products segment abbott recorded goodwill approximately 22 billion 2009 related acquisitions advanced medical optics inc ibis biosciences inc visiogen inc evalve inc goodwill approximately 120 million related ibis acquisition allocated abbott laboratories subsidiaries notes consolidated financial statements continued note 12 goodwill intangible assets continued diagnostic products segment goodwill approximately 160 million related evalve acquisition allocated vascular products segment connection dissolution tap pharmaceutical products inc tap joint venture 2008 abbott recorded approximately 350 million goodwill related pharmaceutical products segment 2008 abbott paid 250 million boston scientific result fdas approval market xience v drugeluting stent us resulting increase goodwill vascular products segment foreign currency translation adjustments decreased increased goodwill 2010 2009 2008 879 million 997 million 677 million respectively amount goodwill related reportable segments december 31 2010 94 billion pharmaceutical products segment 208 million nutritional products segment 383 million diagnostic products segment 26 billion vascular products segment goodwill reduced approximately 64 million connection sale abbotts spine business 2008 significant reductions goodwill relating impairments disposal portion business gross amount amortizable intangible assets primarily product rights technology 173 billion 108 billion 94 billion december 31 2010 2009 2008 respectively accumulated amortization 65 billion 51 billion 42 billion december 31 2010 2009 2008 respectively indefinitelived intangible assets relate inprocess research development acquired business combination approximately 14 billion 610 million december 31 2010 2009 respectively estimated annual amortization expense intangible assets recorded december 31 2010 approximately 16 billion 2011 13 billion 2012 11 billion 2013 895 million 2014 790 million 2015 amortizable intangible assets amortized 2 30 years average 12 years note 13 restructuring plans 2010 abbott management approved restructuring plan primarily related acquisition solvays pharmaceuticals business plan streamlines operations improves efficiencies reduces costs certain solvay sites functions well certain abbott solvay commercial organizations various countries action plans identified expected implemented within next two years plan result pretax charges approximately 810 million 970 million life plan charges include employeerelated costs approximately 650 million accelerated depreciation asset writedowns approximately 105 million related exit costs approximately 215 million mainly related discontinuation certain research development programs product transfers plan abbott recorded charges cost products sold research development selling general administrative approximately 99 million 152 million 272 million respectively additional charges 12 million subsequently recorded primarily accelerated depreciation following summarizes activity restructuring dollars millions 2010 prior years abbott management approved plans realign worldwide pharmaceutical vascular manufacturing operations selected domestic international commercial research abbott laboratories subsidiaries notes consolidated financial statements continued note 13 restructuring plans continued development operations order reduce costs 2010 2009 2008 abbott recorded charges approximately 56 million 114 million 36 million respectively reflecting impairment manufacturing facilities assets employee severance related charges approximately 56 million 2010 classified cost products sold 114 million 36 million 2009 2008 respectively classified selling general administrative additional 13 million 47 million 81 million subsequently recorded 2010 2009 2008 respectively relating restructurings primarily accelerated depreciation following summarizes activity restructurings dollars millions 2008 abbott management approved plan streamline global manufacturing operations reduce overall costs improve efficiencies abbotts core diagnostic business 2008 abbott recorded charge cost products sold approximately 129 million plan additional charges approximately 60 million 54 million 16 million recorded 2010 2009 2008 respectively relating restructuring primarily accelerated depreciation product transfer costs additional charges incurred 2011 result product reregistration timelines required manufacturing regulations number countries product transition timelines following summarizes activity restructuring dollars millions note 14 subsequent event january 2011 abbott management approved restructuring plan streamline manufacturing commercial operations improve efficiencies reduce costs pharmaceutical business plan result pretax charges approximately 295 million next several years based timing events including product transfers approximately 165 million charges forecast occur 2011 140 million projected first quarter 2011 abbott laboratories subsidiaries notes consolidated financial statements continued note 15 quarterly results unaudited dollars millions except per share data athe sum quarters basic earnings per share 2010 2009 diluted earnings per share 2009 add full year earnings per share amounts due rounding management report internal control financial reporting management abbott laboratories responsible establishing maintaining adequate internal control financial reporting abbotts internal control system designed provide reasonable assurance companys management board directors regarding preparation fair presentation published financial statements internal control systems matter well designed inherent limitations therefore even systems determined effective provide reasonable assurance respect financial statement preparation presentation abbotts management assessed effectiveness companys internal control financial reporting december 31 2010 making assessment used criteria set forth internal control integrated framework issued committee sponsoring organizations treadway commission allowed sec guidance management excluded assessment 2010 acquisitions solvays pharmaceuticals business piramal healthcare limiteds healthcare solutions business accounted approximately 20 percent consolidated total assets 9 percent consolidated net sales year ended december 31 2010 based assessment believe december 31 2010 companys internal control financial reporting effective based criteria abbotts independent registered public accounting firm issued audit report assessment effectiveness companys internal control financial reporting report appears page 87 miles white chairman board chief executive officer thomas c freyman executive vice president finance chief financial officer greg w linder vice president controller february 18 reports independent registered public accounting firm board directors shareholders abbott laboratories audited accompanying consolidated balance sheets abbott laboratories subsidiaries company december 31 2010 2009 2008 related consolidated statements earnings shareholders investment cash flows years ended financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position company december 31 2010 2009 2008 results operations cash flows years ended conformity accounting principles generally accepted united states america discussed note 10 consolidated financial statements company adopted provisions new accounting standard relating business combinations 2009 also audited accordance standards public company accounting oversight board united states companys internal control financial reporting december 31 2010 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission report dated february 18 2011 expressed unqualified opinion companys internal control financial reporting deloitte touche llp chicago illinois february 18 2011 board directors shareholders abbott laboratories audited internal control financial reporting abbott laboratories subsidiaries company december 31 2010 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission described management report internal control financial reporting management excluded assessment 2010 acquisitions solvays pharmaceuticals business piramal healthcare limiteds healthcare solutions business accounted approximately 20 percent consolidated total assets 9 percent consolidated net sales year ended december 31 2010 accordingly audit include internal control financial reporting solvays pharmaceuticals business piramal healthcare limiteds healthcare solutions business companys management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management report internal control financial reporting responsibility express opinion companys internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion companys internal control financial reporting process designed supervision companys principal executive principal financial officers persons performing similar functions effected companys board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting including possibility collusion improper management override controls material misstatements due error fraud may prevented detected timely basis also projections evaluation effectiveness internal control financial reporting future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion company maintained material respects effective internal control financial reporting december 31 2010 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission also audited accordance standards public company accounting oversight board united states consolidated financial statements company year ended december 31 2010 report dated february 18 2011 expresses unqualified opinion financial statements includes explanatory paragraph regarding companys adoption new accounting standard 2009 deloitte touche llp chicago illinois february 18 2011 item 9 item 8 financial statements supplementary data page consolidated statement earnings consolidated statement comprehensive income consolidated statement cash flows consolidated balance sheet consolidated statement shareholders investment notes consolidated financial statements management report internal control financial reporting report independent registered public accounting firm report independent registered public accounting firm report independent registered public accounting firm abbott laboratories subsidiaries consolidated statement earnings millions except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement comprehensive income millions accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement cash flows millions accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated balance sheet dollars millions abbott laboratories subsidiaries consolidated balance sheet dollars millions accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement shareholders investment millions except shares per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries notes consolidated financial statements note 1 summary significant accounting policies nature business abbotts principal business discovery development manufacture sale broad line health care products changes presentation january 1 2013 abbott completed separation abbvie inc formed hold abbotts researchbased proprietary pharmaceuticals business historical operating results researchbased proprietary pharmaceuticals business prior separation excluded earnings continuing operations presented earnings discontinued operations line abbotts consolidated statement earnings assets liabilities cash flows researchbased proprietary pharmaceuticals business included abbotts consolidated balance sheet consolidated statements cash flows periods prior january 1 2013 see note 2 additional information july 2014 abbott announced sell developed markets branded generics pharmaceuticals business mylan inc mylan equity ownership newly formed entity combine mylans existing business abbotts developed markets pharmaceuticals business publicly traded sale business closed february 27 2015 november 2014 abbott entered agreement sell animal health business zoetis inc sale business closed february 10 2015 historical operating results businesses excluded earnings continuing operations presented earnings discontinued operations line abbotts consolidated statement earnings assets liabilities businesses reported held sale abbotts consolidated balance sheet december 31 2014 cash flows businesses included consolidated statements cash flows periods presented see note 3 discontinued operations additional information basis consolidation consolidated financial statements include accounts parent company subsidiaries elimination intercompany transactions use estimates financial statements prepared accordance generally accepted accounting principles united states necessarily include amounts based estimates assumptions management actual results could differ amounts significant estimates include amounts sales rebates income taxes pension postemployment benefits including certain asset values based significant unobservable inputs valuation intangible assets litigation derivative financial instruments inventory accounts receivable exposures foreign currency translation statements earnings foreign subsidiaries whose functional currencies us dollar translated us dollars using average exchange rates period net assets foreign subsidiaries whose functional currencies us dollar translated us dollars using exchange rates balance sheet date us dollar effects arise translating net assets subsidiaries changing rates recorded foreign currency translation adjustment account included equity component accumulated comprehensive income loss transaction gains losses recorded earnings significant periods presented revenue recognition revenue product sales recognized upon passage title risk loss customers provisions discounts rebates sales incentives customers returns adjustments provided period related sales recorded sales incentives customers material historical data readily available reliable used estimating amount reduction gross sales revenue launch new product improved abbott laboratories subsidiaries notes consolidated financial statements continued note 1 summary significant accounting policies continued version existing product shipments excess customers normal requirements recorded conditions noted met situations management records returns reserve revenue necessary certain abbotts businesses primarily within diagnostics medical optics abbott participates selling arrangements include multiple deliverables eg instruments reagents procedures service agreements arrangements abbott recognizes revenue upon delivery product performance service allocates revenue based relative selling price deliverable based primarily vendor specific objective evidence sales product rights marketable products recorded revenue upon disposition rights revenue license product rights performance research selling activities recorded periods earned may 2014 financial accounting standards board issued accounting standards update 201409 revenue contracts customers provides single comprehensive model accounting revenue contracts customers supersede existing revenue recognition guidance early adoption permitted standard becomes effective abbott first quarter 2017 abbott currently evaluating effect standard consolidated financial statements related disclosures income taxes deferred income taxes provided tax effect differences tax bases assets liabilities reported amounts financial statements enacted statutory rate effect taxes paid us income taxes provided earnings foreign subsidiaries intended remitted parent company deferred income taxes provided undistributed earnings reinvested indefinitely foreign subsidiaries working capital plant equipment interest penalties income tax obligations included taxes income earnings per share unvested restricted stock contain nonforfeitable rights dividends treated participating securities included computation earnings per share twoclass method twoclass method net earnings allocated common shares participating securities earnings continuing operations allocated common shares 2014 2013 2012 1713 billion 1979 billion 236 million respectively net earnings allocated common shares 2014 2013 2012 2273 billion 2558 billion 5917 billion respectively pension postemployment benefits abbott accrues actuarially determined cost pension postemployment benefits service attribution periods employees abbott must develop longterm assumptions significant health care cost trend rates discount rates expected return plan assets differences expected longterm return plan assets actual return amortized fiveyear period actuarial losses gains amortized remaining service attribution periods employees corridor method fair value measurements assets liabilities measured using quoted prices active markets total fair value published market price per unit multiplied number units held without consideration transaction costs assets liabilities measured using significant observable inputs valued reference similar assets liabilities adjusted contract restrictions terms specific asset liability items significant portion fair value derived reference quoted prices similar assets liabilities active markets remaining assets liabilities fair value derived using fair value model discounted cash flow abbott laboratories subsidiaries notes consolidated financial statements continued note 1 summary significant accounting policies continued model blackscholes model purchased intangible assets recorded fair value fair value significant purchased intangible assets based independent appraisals abbott uses discounted cash flow model value intangible assets discounted cash flow model requires assumptions timing amount future net cash flows risk cost capital terminal values market participants intangible assets goodwill indefinitelived intangible assets reviewed impairment least quarterly annual basis respectively sharebased compensation value stock options restricted stock awards units amortized requisite service period could shorter vesting period employee retirement eligible charge compensation expense litigation abbott accounts litigation losses accordance fasb asc 450 contingencies asc 450 loss contingency provisions recorded probable losses managements best estimate loss best estimate cannot made minimum loss contingency amount recorded legal fees recorded incurred cash equivalents investments cash equivalents consist bank time deposits us treasury bills original maturities three months less investments two publicly traded companies carrying value approximately 95 million accounted equity method accounting investments marketable equity securities classified availableforsale recorded fair value unrealized holding gains losses net tax included accumulated comprehensive income loss investments equity securities traded public stock exchanges recorded cost investments debt securities classified heldtomaturity management intent ability hold securities maturity reported cost net unamortized premium discount income relating securities reported interest income abbott reviews carrying value investments quarter determine whether temporary decline fair value exists abbott considers factors affecting investee factors affecting industry investee operates general equity market trends abbott considers length time investments fair value carrying value nearterm prospects recovery carrying value abbott determines temporary decline occurred investment written charge income expense net trade receivable valuations accounts receivable stated net realizable value allowance gross trade receivables reflects best estimate probable losses inherent receivables portfolio determined basis historical experience specific allowances known troubled accounts currently available information accounts receivable charged reasonable means collect full amount including litigation appropriate exhausted inventories stated lower cost firstin firstout basis market cost includes material conversion costs abbott laboratories subsidiaries notes consolidated financial statements continued note 1 summary significant accounting policies continued property equipment depreciation amortization provided straightline basis estimated useful lives assets following table shows estimated useful lives property equipment product liability abbott accrues product liability claims probable liability incurred amount liability reasonably estimated based existing information liabilities adjusted quarterly additional information becomes available receivables insurance recoveries product liability claims recorded assets undiscounted basis probable recovery realized product liability losses selfinsured research development costs internal research development costs expensed incurred clinical trial costs incurred third parties expensed contracted work performed contingent milestone payments due third parties research development arrangements milestone payment obligations expensed milestone results achieved acquired inprocess collaborations research development iprd initial costs rights iprd projects obtained asset acquisition expensed iprd unless project alternative future use costs include initial payments incurred prior regulatory approval connection research development collaboration agreements provide rights develop manufacture market andor sell pharmaceutical products fair value iprd projects acquired business combination capitalized accounted indefinitelived intangible assets completed amortized remaining useful life collaborations significant continuing operations concentration risk guarantees due nature operations abbott subject significant concentration risks relating customers products geographic locations governmental accounts italy spain greece portugal accounted 9 percent 12 percent total net trade receivables december 31 2014 2013 respectively product warranties significant abbott material exposures offbalance sheet arrangements special purpose entities activities include nonexchangetraded contracts accounted fair value abbott periodically entered agreements ordinary course business assignment product rights companies resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote abbott periodically acquires business product rights abbott agrees pay contingent consideration based attaining certain thresholds based occurrence certain events abbott laboratories subsidiaries notes consolidated financial statements continued note 2 separation abbvie inc january 1 2013 abbott completed separation abbvie inc abbvie formed hold abbotts researchbased proprietary pharmaceuticals business abbott abbvie entered transitional services agreements prior separation pursuant abbott abbvie providing interim transitional basis various services transition services may provided 24 months option oneyear extension recipient services provided abbott include certain information technology back office support billings abbott transitional services agreements recorded reduction costs provide respective service applicable expense category consolidated statement earnings transitional support enable abbvie establish standalone processes various activities previously provided abbott constitute significant continuing support abbvies operations small portion abbvies operations legal transfer abbvies assets net liabilities occur separation abbvie january 1 2013 due time required transfer marketing authorizations regulatory requirements countries terms separation agreement abbott abbvie subject risks entitled benefits generated operations assets majority operations transferred abbvie 2013 2014 remainder expected transferred 2015 assets liabilities presented held disposition consolidated balance sheet december 31 2014 assets liabilities held disposition consist trade accounts receivable 79 million inventories 45 million equipment 3 million assets 30 million trade accounts payable accrued liabilities 277 million abbotts obligation transfer net liabilities held disposition abbvie 120 million included prepaid assets abbott retained liabilities us federal foreign income taxes income prior separation well certain nonincome taxes attributable abbvies business abbvie generally liable taxes attributable business earnings discontinued operations include recognition 166 million 193 million net tax benefits 2014 2013 respectively primarily result resolution various tax positions related abbvies operations years prior separation note 3 discontinued operations july 2014 abbott announced sell developed markets branded generics pharmaceuticals business mylan inc mylan 110 million shares newly formed entity combine mylans existing business abbotts developed markets branded generics pharmaceuticals business publicly traded historically business included abbotts established pharmaceutical products segment abbott retain branded generics pharmaceuticals business emerging markets close transaction abbott mylan entered transitional services agreements pursuant abbott mylan provide various back office support services interim transitional basis transition services may provided 2 years charges abbott transitional services agreements recorded reduction costs provide respective service applicable expense category consolidated statement earnings transitional support constitute significant continuing support mylans operations abbott also entered manufacturing supply agreements mylan related certain products supply term ranging 3 10 years requiring 2 year notice prior termination cash flows abbott laboratories subsidiaries notes consolidated financial statements continued note 3 discontinued operations continued associated transitional service manufacturing supply agreements expected significant transaction closed february 27 2015 november 2014 abbott entered agreement sell animal health business zoetis inc transaction closed february 10 2015 result disposition businesses separation abbvie current prior year operating results businesses reported part discontinued operations earnings discontinued operations net tax line consolidated statement earnings discontinued operations include allocation interest expense assuming uniform ratio consolidated debt equity abbotts historical operations operating results abbotts developed markets branded generics pharmaceuticals animal health abbvie businesses reported discontinued operations follows income tax expense benefit included discontinued operations totaled 58 million 2014 108 million 2013 757 million 2012 assets operations held disposition liabilities assumed disposition related businesses noted well abbvie assets liabilities discussed note 2 classified held disposition consolidated balance sheet december 31 2014 prior period balance sheets adjusted business designated held sale cash flows associated developed markets branded generics pharmaceuticals businesses included abbott laboratories subsidiaries notes consolidated financial statements continued note 3 discontinued operations continued abbotts consolidated statement cash flows date disposition following summary assets liabilities held disposition note 4 supplemental financial information income expense net 2014 primarily relates impairment charges related nonpublically traded equity securities partially offset gains sales equity securities loss extinguishment debt 18 million 2014 135 billion 2012 relates early redemption approximately 500 million 77 billion longterm notes respectively loss 2012 consists premium paid notes write deferred financing costs totaling 183 billion partially offset gain 479 million related unwinding interest rate swaps related portion debt detail various balance sheet components follows abbott laboratories subsidiaries notes consolidated financial statements continued note 4 supplemental financial information continued increase longterm investments december 31 2013 december 31 2014 due primarily acquisition cfr pharmaceuticals 2014 aaccrued wholesaler chargeback rebates 50 million 90 million december 31 2014 2013 respectively netted trade receivables abbotts customers invoiced higher catalog price remit abbott contract price products b2013 includes acquisition consideration payable approximately 400 million related primarily acquisition piramal healthcare limiteds healthcare solutions business c2014 includes 13 billion gross unrecognized tax benefits well approximately 220 million acquisition consideration payable 2013 includes 13 billion gross unrecognized tax benefits well 70 million acquisition consideration payable since january 2010 venezuela designated highly inflationary economy us gaap 2014 government venezuela operated multiple mechanisms exchange bolivars us dollars 2014 abbott continued use official rate 63 venezuelan bolivars us dollar report results financial position cash flows related operations venezuela since abbott continued qualify exchange rate pay import various products venezuela abbott cannot predict whether devaluation venezuelan bolivar whether continue able exchange bolivars 63 rate december 31 2014 abbott net monetary assets subject revaluation venezuela approximately 240 million 2014 revenue operations venezuela represented approximately 2 abbotts total net sales abbott laboratories subsidiaries notes consolidated financial statements continued note 5 accumulated comprehensive income components changes accumulated comprehensive income continuing operations net income taxes follows millions areclassified amounts foreign currency translation recorded consolidated statement earnings net foreign exchange loss gain gains marketable equity securities recorded income expense gainslosses related cash flow hedges recorded cost product sold net actuarial losses prior service cost included component net periodic benefit plan cost see note 13 additional information note 6 business acquisitions september 2014 abbott completed acquisition controlling interest cfr pharmaceuticals sa cfr approximately 29 billion cash 28 billion net cfr cash hand closing including assumption approximately 570 million debt total cost acquisition 34 billion acquisition cfr doubles abbotts branded generics pharmaceutical presence latin america expands presence emerging markets cfrs financial results included abbotts financial statements beginning september 26 2014 date abbott acquired control business impact acquired operations abbotts operating results significant 2014 abbott owns 999 outstanding ordinary shares cfr fair value noncontrolling interest acquisition date approximately 3 million acquisition funded cash equivalents shortterm investments preliminary allocation fair abbott laboratories subsidiaries notes consolidated financial statements continued note 6 business acquisitions continued value acquisition shown table allocation fair value acquisition finalized valuation completed acquired intangible assets consist primarily product rights currently marketed products amortized 12 16 years average 15 years goodwill primarily attributable intangible assets qualify separate recognition goodwill identifiable established pharmaceutical products segment acquired tangible assets consist primarily cash equivalents approximately 94 million trade accounts receivable approximately 179 million inventory approximately 177 million current assets approximately 51 million property equipment approximately 214 million longterm assets approximately 138 million assumed liabilities consist borrowings approximately 570 million trade accounts payable current liabilities approximately 192 million noncurrent liabilities approximately 15 million annualized net sales cfr pharmaceuticals expected total approximately 800 million acquisition cfr pharmaceuticals taken place january 1 2013 consolidated net sales earnings abbott would significantly different reported amounts december 2014 abbott acquired control veropharm leading russian pharmaceutical company approximately 315 million excluding assumed debt acquisition abbott establishes manufacturing footprint russia obtains portfolio medicines well aligned abbotts current pharmaceutical therapeutic areas focus abbott acquired control veropharm purchase limited liability company garden hills holding company owns approximately 98 percent veropharm including assumption approximately 90 million debt minority interest fair value 5 million total value acquired business approximately 410 million preliminary allocation fair value acquisition resulted definitelived nondeductible intangible assets approximately 120 million nondeductible goodwill approximately 60 million net deferred tax liabilities approximately 35 million nondeductible goodwill identifiable established pharmaceutical products segment additionally abbott acquired property plant equipment approximately 185 million accounts receivable approximately 45 million inventory approximately 25 million assets approximately 10 million acquired intangible assets consist developed technology amortized 16 years december 2014 abbott completed acquisition topera inc approximately 250 million cash plus additional payments 300 million made upon completion certain regulatory sales milestones acquisition topera provides abbott foundational entry electrophysiology market allocation fair value acquisition resulted nondeductible acquired inprocess research development approximately 20 million accounted indefinitelived abbott laboratories subsidiaries notes consolidated financial statements continued note 6 business acquisitions continued intangible asset regulatory approval discontinuation nondeductible definitelived intangibles assets approximately 325 million nondeductible goodwill approximately 190 million net deferred tax liabilities approximately 120 million contingent consideration approximately 165 million fair value contingent consideration determined based independent appraisal acquired intangible assets consist developed technology trademarks amortized 16 years preliminary allocations fair value acquisitions finalized valuations completed aggregate acquisitions taken place january 1 2013 consolidated net sales earnings would significantly different reported amounts august 2013 abbott acquired 100 percent idev technologies net debt 310 million cash acquisition idev technologies expands abbotts endovascular portfolio final allocation fair value acquisition resulted nondeductible acquired inprocess research development approximately 170 million accounted indefinitelived intangible asset regulatory approval discontinuation nondeductible definitelived intangible assets approximately 66 million nondeductible goodwill approximately 112 million net deferred tax liabilities 47 million acquired intangible assets consist developed technology amortized 11 years august 2013 abbott acquired 100 percent optimedica 260 million cash plus additional payments 150 million made upon completion certain development regulatory sales milestones acquisition optimedica provides abbott immediate entry point laser assisted cataract surgery market final allocation fair value acquisition resulted nondeductible definitelived intangible assets approximately 160 million nondeductible acquired inprocess research development approximately 60 million accounted indefinitelived intangible asset regulatory approval discontinuation nondeductible goodwill approximately 130 million net deferred tax liabilities 49 million contingent consideration approximately 70 million fair value contingent consideration determined based independent appraisal acquired intangible assets consist primarily developed technology amortized 18 years note 7 goodwill intangible assets 2014 abbott recorded goodwill approximately 18 billion related acquisitions cfr pharmaceuticals veropharm topera recognized purchase price allocation adjustments associated recent acquisitions decreased goodwill approximately 30 million approximately 950 million goodwill moved noncurrent assets held disposition due planned disposition developed markets branded generics pharmaceuticals business goodwill related acquisitions cfr veropharm allocated established pharmaceuticals segment abbott recorded goodwill approximately 274 million 2013 related acquisitions idev technologies optimedica goodwill related idev acquisition allocated vascular products segment goodwill related optimedica allocated nonreportable segment foreign currency translation adjustments decreased goodwill 2014 2013 566 million 168 million respectively increased goodwill 2012 69 million addition connection separation abbvie january 1 2013 abbott transferred approximately 61 billion goodwill abbvie amount goodwill related reportable segments december 31 2014 33 billion abbott laboratories subsidiaries notes consolidated financial statements continued note 7 goodwill intangible assets continued established pharmaceutical products segment 286 million nutritional products segment 445 million diagnostic products segment 29 billion vascular products segment effects separation abbvie reductions goodwill relating disposal portion business reduction goodwill relating impairments gross amount amortizable intangible assets primarily product rights technology 110 billion 122 billion december 31 2014 2013 respectively accumulated amortization 49 billion 68 billion december 31 2014 2013 respectively indefinitelived intangible assets relate inprocess research development acquired business combination approximately 134 million 265 million december 31 2014 2013 respectively 2014 acquisition cfr pharmaceuticals increased intangible assets approximately 18 billion approximately 804 million net intangible assets related developed markets branded generics pharmaceuticals businesses reclassified noncurrent assets held disposition due planned disposition business gross amortizable intangible assets accumulated amortization indefinitelived intangible assets 57 billion 38 billion 417 million respectively transferred abbvie part separation january 1 2013 2012 abbott recorded impairment charge 69 million certain research development assets due changes projected development regulatory timelines projects charges relate nonreportable segments discounted cash flow analysis used analyze fair value charges included research development expenses estimated annual amortization expense intangible assets recorded december 31 2014 approximately 696 million 2015 676 million 2016 657 million 2017 557 million 2018 484 million 2019 amortizable intangible assets amortized 2 20 years average 12 years note 8 restructuring plans 2014 abbott management approved plans streamline operations order reduce costs improve efficiencies various abbott businesses including nutritional established pharmaceuticals businesses abbott recorded employee related severance charges approximately 164 million 2014 approximately 20 million recognized cost products sold 53 million recognized research development approximately 91 million recognized selling general administrative expense additional charges approximately 39 million 2014 also recorded primarily accelerated depreciation following summarizes activity restructurings millions 2014 2013 abbott management approved plans reduce costs improve efficiencies across various functional areas well plan streamline certain manufacturing operations order reduce costs improve efficiencies abbotts established pharmaceuticals business addition 2012 abbott management approved plans streamline various commercial operations order reduce costs improve efficiencies abbotts core diagnostics established pharmaceutical nutritionals businesses abbott recorded employee related severance charges approximately 125 million 2014 78 million 2013 167 million 2012 approximately 7 million 2014 14 million 2013 abbott laboratories subsidiaries notes consolidated financial statements continued note 8 restructuring plans continued 48 million 2012 recognized cost products sold 6 million recognized research development 2014 approximately 112 million 2014 32 million 2013 48 million 2012 recognized selling general administrative expense remaining charges 32 million 2013 71 million 2012 related abbotts developed market established pharmaceutical business recognized results discontinued operations additional charges approximately 4 million 2013 22 million 2012 also recorded primarily accelerated depreciation following summarizes activity restructurings millions 2013 prior years abbott management approved plans realign worldwide pharmaceutical vascular manufacturing operations selected domestic international commercial research development operations order reduce costs 2013 abbott recorded employee severance charges approximately 11 million 2011 abbott recorded charges reflecting impairment manufacturing facilities assets employee severance related charges approximately 11 million 2013 classified cost products sold additional 41 million 110 million recorded 2013 2012 respectively relating restructurings primarily accelerated depreciation following summarizes activity restructurings millions 2012 2010 abbott management approved restructuring plans primarily related acquisition solvays pharmaceuticals business plans streamline operations improve efficiencies reduce costs certain solvay sites functions well certain abbott solvay commercial organizations various countries 2012 abbott recorded charge approximately 150 million employee severance contractual obligations primarily related exit research development facility charges related businesses transferred abbvie recognized results discontinued operations accrued restructuring reserves 115 million abbott laboratories subsidiaries notes consolidated financial statements continued note 8 restructuring plans continued december 31 2012 related actions transferred abbvie january 1 2013 part separation remaining accruals reported abbotts balance sheet december 31 2013 2011 2008 abbott management approved plans streamline global manufacturing operations reduce overall costs improve efficiencies abbotts core diagnostic business recorded charges severance related costs addition charges approximately 16 million recorded 2012 primarily accelerated depreciation product transfer costs following summarizes activity restructurings millions note 9 incentive stock program 2009 incentive stock program authorizes granting nonqualified stock options restricted stock awards restricted stock units performance awards foreign benefits sharebased awards stock options restricted stock awards units comprise majority benefits granted currently outstanding program prior program 2014 abbott granted 3905076 stock options 584354 restricted stock awards 5434799 restricted stock units program purchase price shares option must least equal fair market value common stock date grant maximum term option 10 years options generally vest equally three years restricted stock awards generally vest 3 5 years restricted stock awards vest 5 years onethird award vests one year upon abbott reaching minimum return equity target restricted stock units vest three years upon vesting recipient receives one share abbott stock vested restricted stock unit aggregate fair market value restricted stock awards units recognized expense requisite service period restricted stock awards settlement vested restricted stock units issued treasury shares abbott generally issues new shares exercises stock options policy abbott purchase shares relating sharebased programs connection separation abbvie january 1 2013 abbott modified outstanding equity awards granted incentive stock programs employees awards generally modified immediately following separation awardees held number awards abbott stock equal number awards abbvie stock exercise price outstanding abbott options adjusted exercise price abbvie options granted modification established intention generally preserving value awards immediately prior separation modification result additional compensation expense abbott laboratories subsidiaries notes consolidated financial statements continued note 9 incentive stock program continued december 31 2014 approximately 110 million shares reserved future grants number restricted stock awards units outstanding weightedaverage grantdate fair value december 31 2014 december 31 2013 12671328 3548 14385221 3013 respectively number restricted stock awards units weightedaverage grantdate fair value granted vested lapsed 2014 6235730 3920 7204498 2813 745125 3431 respectively fair market value restricted stock awards units vested 2014 2013 2012 281 million 274 million 385 million respectively aggregate intrinsic value options outstanding exercisable december 31 2014 634 million 570 million respectively total intrinsic value options exercised 2014 2013 2012 152 million 120 million 528 million respectively total unrecognized compensation cost related sharebased compensation plans december 31 2014 amounted approximately 150 million expected recognized next three years total noncash stock compensation expense charged income continuing operations 2014 2013 2012 sharebased plans totaled approximately 239 million 254 million 278 million respectively tax benefit recognized approximately 79 million 82 million 85 million respectively stock compensation cost capitalized part inventory significant fair value option granted 2014 2013 2012 639 577 680 respectively fair value option grant estimated using blackscholes optionpricing model following assumptions riskfree interest rate based rates available time grant zerocoupon us government issues remaining term equal options expected life average life option based historical projected exercise lapsing data expected volatility based implied volatilities traded options abbotts stock historical volatility abbotts stock expected life option dividend yield based options exercise price annual dividend rate time grant abbott laboratories subsidiaries notes consolidated financial statements continued note 10 debt lines credit following summary longterm debt december 31 millions 2014 abbott extinguished approximately 500 million longterm debt assumed part cfr pharmaceuticals acquisition incurred cost 183 million extinguish debt 2012 abbott redeemed 77 billion outstanding notes abbott incurred cost 135 billion extinguish debt net gains unwinding interest rate swaps related debt 2012 abbvie inc wholly owned subsidiary abbott issued 147 billion longterm debt maturities ranging 3 30 years debt issued abbvie inc guaranteed abbott guarantee expiring abbvie inc separated abbott january 1 2013 principal payments required longterm debt outstanding december 31 2014 55 million 2015 8 million 2016 11 million 2017 2 million 2018 10 billion 2019 24 billion 2020 thereafter december 31 2014 abbotts longterm debt rating standard poors corporation a1 moodys investors service abbott readily available financial resources including unused lines credit 50 billion support commercial paper borrowing arrangements expire 2019 abbotts weightedaverage interest rate shortterm borrowings 02 december 31 2014 2013 04 december 31 2012 note 11 financial instruments derivatives fair value measures certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts totaling 15 billion december 31 2014 137 million december 31 2013 designated cash flow hedges variability cash flows due changes foreign exchange rates recorded fair value contracts totaling 10 billion transferred abbvie part separation january 1 2013 accumulated gains losses december 31 2014 included cost products sold time products sold generally next twelve eighteen months amount hedge ineffectiveness significant 2014 2013 2012 abbott enters foreign currency forward exchange contracts manage currency exposures foreign currency denominated thirdparty trade payables receivables intercompany loans abbott laboratories subsidiaries notes consolidated financial statements continued note 11 financial instruments derivatives fair value measures continued trade accounts payable receivable payable denominated currency functional currency entity intercompany loans contracts require abbott sell buy foreign currencies primarily european currencies japanese yen exchange primarily us dollars european currencies intercompany trade payables receivables currency exposures primarily us dollar european currencies japanese yen december 31 2014 2013 2012 abbott held 141 billion 138 billion 182 billion respectively foreign currency forward exchange contracts totaling 43 billion transferred abbvie part separation january 1 2013 abbott designated foreign denominated shortterm debt hedge net investment foreign subsidiary approximately 445 million 505 million 615 million december 31 2014 2013 2012 respectively accordingly changes fair value debt due changes exchange rates recorded accumulated comprehensive income loss net tax abbott party interest rate hedge contracts totaling 15 billion december 31 2014 december 31 2013 95 billion december 31 2012 manage exposure changes fair value fixedrate debt 80 billion contracts outstanding december 31 2012 related debt issued abbvie inc fourth quarter 2012 transferred abbvie part separation january 1 2013 contracts designated fair value hedges variability fair value fixedrate debt due changes longterm benchmark interest rates effect hedge change fixedrate interest obligation variable rate portion debt abbott records contracts fair value adjusts carrying amount fixedrate debt offsetting amount hedge ineffectiveness recorded income 2014 2013 2012 hedges gross unrealized holding gains losses availableforsale equity securities totaled 3 million 22 million 51 million december 31 2014 2013 2012 respectively following table summarizes amounts location certain derivative financial instruments december 31 abbott laboratories subsidiaries notes consolidated financial statements continued note 11 financial instruments derivatives fair value measures continued following table summarizes activity foreign currency forward exchange contracts designated cash flow hedges debt designated hedge net investment foreign subsidiary amounts location income expense gain loss reclassified income certain derivative financial instruments amount hedge ineffectiveness significant 2014 2013 2012 hedges interest rate swaps designated fair value hedges variability fair value fixedrate debt due changes longterm benchmark interest rates hedged debt marked market offsetting effect marking interest rate swaps market carrying values fair values certain financial instruments december 31 shown table carrying values financial instruments approximate estimated fair values counterparties financial instruments consist select major international financial institutions abbott expect losses nonperformance counterparties abbott laboratories subsidiaries notes consolidated financial statements continued note 11 financial instruments derivatives fair value measures continued following table summarizes bases used measure certain assets liabilities fair value recurring basis balance sheet fair value debt determined based face value debt adjusted fair value interest rate swaps based discounted cash flow analysis using significant observable inputs fair value contingent consideration determined based independent appraisals adjusted time value money exchange changes fair value contingent consideration results two acquisitions maximum amount due 450 million dependent upon attaining certain sales thresholds based occurrence certain events regulatory approvals increase contingent consideration current year due recent acquisition partially offset payment contingent consideration note 12 litigation environmental matters abbott identified potentially responsible party investigation cleanup costs number locations united states puerto rico federal state remediation laws abbott laboratories subsidiaries notes consolidated financial statements continued note 12 litigation environmental matters continued investigating potential contamination number companyowned locations abbott recorded estimated cleanup cost site management believes abbott probable loss exposure individual site cleanup exposure expected exceed 4 million aggregate cleanup exposure expected exceed 15 million abbott involved various claims legal proceedings abbott estimates range possible loss legal proceedings environmental exposures approximately 70 million 85 million recorded accrual balance december 31 2014 proceedings exposures approximately 80 million accrual represents managements best estimate probable loss defined fasb asc 450 contingencies within next year legal proceedings may occur may result change estimated loss accrued abbott feasible predict outcome proceedings exposures certainty management believes ultimate disposition material adverse effect abbotts financial position cash flows results operations abbott laboratories subsidiaries notes consolidated financial statements continued note 13 postemployment benefits retirement plans consist defined benefit defined contribution medical dental plans information abbotts major defined benefit plans postemployment medical dental benefit plans follows connection separation abbvie january 1 2013 abbott transferred abbvie accumulated comprehensive income loss net income taxes approximately 14 billion projected benefit obligations nonus defined benefit plans 25 billion 20 billion december 31 2014 2013 respectively accumulated benefit obligations defined benefit plans 73 billion 55 billion december 31 2014 2013 respectively abbott laboratories subsidiaries notes consolidated financial statements continued note 13 postemployment benefits continued plans accumulated benefit obligations exceeded plan assets december 31 2014 2013 aggregate accumulated benefit obligations projected benefit obligations aggregate plan assets follows components net periodic benefit cost follows comprehensive income loss respective year includes amortization actuarial losses prior service costs credits noted previous table comprehensive income loss respective year also includes net actuarial gains prior service credits 16 billion defined benefit plans 57 million medical dental plans 2014 net actuarial gains prior service credits 995 million defined benefit plans 201 million medical dental plans 2013 net actuarial losses 12 billion defined benefit plans net actuarial losses 134 million medical dental plans 2012 actuarial loss 2012 related businesses transferred abbvie part separation 167 million prior service costs significant pretax amount actuarial losses prior service cost credits included accumulated comprehensive income loss december 31 2014 expected recognized net periodic benefit cost 2015 191 million nil expense respectively defined benefit pension plans 33 million expense 49 million income respectively medical dental plans weighted average assumptions used determine benefit obligations defined benefit plans medical dental plans follows abbott laboratories subsidiaries notes consolidated financial statements continued note 13 postemployment benefits continued weighted average assumptions used determine net cost defined benefit plans medical dental plans follows assumed health care cost trend rates medical dental plans december 31 follows discount rates used measure liabilities determined based highquality fixed income securities match duration expected retiree benefits health care cost trend rate represent abbotts expected annual rates change cost health care benefits forward projection health care costs measurement date onepercentage point increasedecrease assumed health care cost trend rate would increasedecrease accumulated postemployment benefit obligations december 31 2014 208 million168 million total service interest cost components net postemployment health care cost year ended approximately 16 million12 million abbott laboratories subsidiaries notes consolidated financial statements continued note 13 postemployment benefits continued following table summarizes bases used measure defined benefit medical dental plan assets fair value aa mix index funds track sp 500 50 percent 2014 60 percent 2013 separate actively managed equity accounts benchmarked russell 1000 50 percent 2014 40 percent 2013 ba mix index funds 70 percent 2014 2013 separate actively managed equity accounts 30 percent 2014 2013 track benchmarked sp 400 midcap index abbott laboratories subsidiaries notes consolidated financial statements continued note 13 postemployment benefits continued ca mix index funds 20 percent 2014 0 percent 2013 separate actively managed pooled investment funds 80 percent 2014 100 percent 2013 track benchmarked msci eafe msci emerging market indices da mix index funds track barclays us govt aggregate 65 percent 2014 50 percent 2013 separate actively managed accounts 35 percent 2014 50 percent 2013 benchmarked barclays us long govtcorp index barclays global aggregate ea mix index funds track barclays us govt aggregate 15 percent 2014 40 percent 2013 separate actively managed accounts 85 percent 2014 60 percent 2013 benchmarked barclays us long govtcorp index barclays global aggregate fprimarily united kingdom japan netherlands irish governmentissued bonds gprimarily mortgage backed securities 40 percent 2014 100 percent 2013 actively managed diversified fixed income vehicle benchmarked onemonth libor euribor 60 percent 2014 0 percent 2013 hprimarily funds invested managers global mandate flexibility allocate capital broadly across wide range asset classes strategies including limited equities fixed income commodities interest rate futures currencies securities outperform agreed upon benchmark specific return volatility targets iprimarily investments liquid commodity future contracts private energy funds jprimarily cash equivalents 75 percent 2014 100 percent 2013 investment real estate funds 25 percent 2014 0 percent 2013 equities valued using quoted prices valued published market prices equities common collective trust registered investment company valued using significant observable inputs valued net asset value nav provided fund administrator nav based value underlying assets owned fund minus liabilities fixed income securities valued using significant observable inputs valued prices obtained independent financial service industryrecognized vendors absolute return funds commodities valued nav provided fund administrator private energy funds valued nav provided partnership onequarter lag adjusted known cash flows significant events reporting date abbott laboratories subsidiaries notes consolidated financial statements continued note 13 postemployment benefits continued following table summarizes change value assets measured using significant unobservable inputs investment mix equity securities fixed income asset allocation strategies based upon achieving desired return balancing higher return volatile equity securities lower return less volatile fixed income securities investment allocations made across range markets industry sectors capitalization sizes case fixed income securities maturities credit quality plans directly hold securities abbott known significant concentrations risk plans assets abbotts medical dental plans assets invested similar mix pension plan assets actual asset allocation percentages year end consistent companys targeted asset allocation percentages plans expected return assets shown based managements expectations longterm average rates return achieved underlying investment portfolios establishing assumption management considers historical expected returns asset classes plans invested well current economic capital market conditions abbott funds domestic pension plans according irs funding limitations international pension plans funded according similar regulations abbott funded 393 million 2014 724 million 2013 defined pension plans abbott expects contribute approximately 585 million pension plans 2015 approximately 470 million relates main domestic pension plan total benefit payments expected paid participants includes payments funded company assets well paid plans follows abbott laboratories subsidiaries notes consolidated financial statements continued note 13 postemployment benefits continued abbott stock retirement plan principal defined contribution plan abbotts contributions plan 85 million 2014 86 million 2013 150 million 2012 contribution amount 2012 included amounts associated businesses transferred abbvie note 14 taxes earnings continuing operations taxes earnings continuing operations reflect annual effective rates including charges interest penalties deferred income taxes reflect tax consequences future years differences tax bases assets liabilities financial reporting amounts 2014 taxes earnings continuing operations reflect recognition 440 million tax expense associated onetime repatriation 2014 nonus earnings partially offset favorable resolution various tax positions adjustments tax uncertainties pertaining prior years earnings discontinued operations 2014 include recognition 166 million tax benefits result resolution various tax positions related abbvies operations prior separation 2013 taxes earnings continuing operations reflect recognition 230 million tax benefits result favorable resolution various tax positions pertaining prior years earnings discontinued operations 2013 include recognition 193 million tax benefits result resolution various tax positions related abbvies operations prior separation addition result american taxpayer relief act 2012 signed law january 2013 abbott recognized tax benefit tax provision related continuing operations approximately 103 million retroactive extension research tax credit lookthrough rules section 954c6 internal revenue code beginning 2012 158 billion domestic loss taxes 2012 includes 129 billion net loss early extinguishment debt us income taxes provided earnings foreign subsidiaries intended remitted parent company abbott record deferred income taxes earnings reinvested indefinitely foreign subsidiaries undistributed earnings reinvested indefinitely foreign subsidiaries working capital plant equipment aggregated 230 billion december 31 2014 practicable determine amount deferred income taxes provided earnings us abbotts federal income tax returns 2011 settled except four items income tax returns years 2011 open numerous income tax jurisdictions tax returns yet settled none individually significant reserves interest penalties significant earnings continuing operations taxes related provisions taxes earnings continuing operations follows abbott laboratories subsidiaries notes consolidated financial statements continued note 14 taxes earnings continuing operations continued differences effective income tax rate us statutory tax rate follows impact foreign operations primarily derived operations puerto rico switzerland ireland singapore netherlands 2014 benefit offset tax expense accrued result abbotts onetime repatriation current year foreign earnings abbott laboratories subsidiaries notes consolidated financial statements continued note 14 taxes earnings continuing operations continued tax effect differences give rise deferred tax assets liabilities follows abbott incurred losses foreign jurisdiction realization future economic benefit remote benefit reflected deferred tax asset valuation allowances recorded deferred tax assets significant following table summarizes gross amounts unrecognized tax benefits without regard reduction tax liabilities additions deferred tax assets liabilities unrecognized tax benefits settled total amount unrecognized tax benefits recognized would impact effective tax rate approximately 13 billion abbott believes reasonably possible recorded amount gross unrecognized tax benefits may decrease 525 million 635 million including cash adjustments within next twelve months result concluding various domestic international tax matters abbott laboratories subsidiaries notes consolidated financial statements continued note 15 segment geographic area information abbotts principal business discovery development manufacture sale broad line health care products abbotts products generally sold directly retailers wholesalers hospitals health care facilities laboratories physicians offices government agencies throughout world result separation abbvie abbott longer proprietary pharmaceutical products segment business removed 2012 historical information presented july 2014 abbott announced sell developed markets branded generics pharmaceuticals business mylan business previously included established pharmaceutical products segment information including prior period amounts adjusted reflect classification developed markets branded generics pharmaceuticals business part discontinued operations consolidated statement earnings abbotts reportable segments follows established pharmaceutical products international sales broad line branded generic pharmaceutical products nutritional products worldwide sales broad line adult pediatric nutritional products diagnostic products worldwide sales diagnostic systems tests blood banks hospitals commercial laboratories alternatecare testing sites segment reporting purposes core laboratories diagnostics molecular diagnostics point care ibis diagnostic divisions aggregated reported diagnostic products segment vascular products worldwide sales coronary endovascular structural heart vessel closure medical device products nonreportable segments include diabetes care medical optics segments abbotts underlying accounting records maintained legal entity basis government public reporting requirements segment disclosures performance basis consistent internal management reporting cost corporate functions cost certain employee benefits charged segments predetermined rates approximate cost remaining costs allocated segments addition intangible asset amortization allocated operating segments intangible assets goodwill included measure segments assets following segment information prepared accordance internal accounting policies abbott laboratories subsidiaries notes consolidated financial statements continued note 15 segment geographic area information continued described presented accordance generally accepted accounting principles applied consolidated financial statements anet sales operating earnings unfavorably affected relatively stronger us dollar 2014 2013 2012 bother net includes charges cost reduction initiatives approximately 290 million 2014 350 million 2013 charges 430 million 2012 camounts include depreciation related discontinued operations abbott laboratories subsidiaries notes consolidated financial statements continued note 15 segment geographic area information continued din 2012 reported amounts include assets associated businesses transferred abbvie part separation eincludes amounts related developed markets established pharmaceuticals animal health fsales country based country sold product gamounts reported 2012 include assets associated businesses transferred abbvie part separation abbott laboratories subsidiaries notes consolidated financial statements continued note 16 quarterly results unaudited millions except per share data athe sum four quarters earnings per share 2014 2013 may add full year earnings per share amount due rounding andor use quartertodate weighted average shares calculate earnings per share amount respective quarter management report internal control financial reporting management abbott laboratories responsible establishing maintaining adequate internal control financial reporting abbotts internal control system designed provide reasonable assurance companys management board directors regarding preparation fair presentation published financial statements internal control systems matter well designed inherent limitations therefore even systems determined effective provide reasonable assurance respect financial statement preparation presentation abbotts management assessed effectiveness companys internal control financial reporting december 31 2014 making assessment used criteria set forth internal control integrated framework 2013 issued committee sponsoring organizations treadway commission allowed sec guidance management excluded assessment september 2014 acquisition controlling interest cfr pharmaceuticals sa accounted approximately 10 abbotts total assets 1 abbotts total net sales continuing operations year ended december 31 2014 based assessment believe december 31 2014 companys internal control financial reporting effective based criteria abbotts independent registered public accounting firm issued audit report assessment effectiveness companys internal control financial reporting report appears page 88 miles white chairman board chief executive officer thomas c freyman executive vice president finance chief financial officer robert e funck vice president controller february 27 report independent registered public accounting firm board directors shareholders abbott laboratories audited accompanying consolidated balance sheet abbott laboratories subsidiaries december 31 2014 related consolidated statements earnings comprehensive income shareholders investment cash flows year ended december 31 2014 financial statements responsibility companys management responsibility express opinion financial statements based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audit provides reasonable basis opinion financial statements referred present fairly material respects consolidated financial position abbott laboratories subsidiaries december 31 2014 consolidated results operations cash flows year ended december 31 2014 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states abbott laboratories subsidiaries internal control financial reporting december 31 2014 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission 2013 framework report dated february 27 2015 expressed unqualified opinion thereon ernst young llp chicago illinois february 27 2015 report independent registered public accounting firm board directors shareholders abbott laboratories audited abbott laboratories subsidiaries internal control financial reporting december 31 2014 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission 2013 framework coso criteria abbott laboratories subsidiaries management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management report internal control financial reporting responsibility express opinion companys internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion companys internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate indicated accompanying management report internal control financial reporting managements assessment conclusion effectiveness internal control financial reporting include internal controls acquired cfr pharmaceuticals sa business included 2014 consolidated financial statements abbott laboratories subsidiaries constituted approximately 10 consolidated total assets december 31 2014 1 consolidated net sales year ended audit internal control financial reporting abbott laboratories subsidiaries also include evaluation internal control financial reporting cfr pharmaceuticals sa opinion abbott laboratories subsidiaries maintained material respects effective internal control financial reporting december 31 2014 based coso criteria also audited accordance standards public company accounting oversight board united states consolidated balance sheet abbott laboratories subsidiaries december 31 2014 related consolidated statements earnings comprehensive income shareholders investment cash flows year ended december 31 2014 abbott laboratories subsidiaries report dated february 27 2015 expressed unqualified opinion thereon ernst young llp chicago illinois february 27 2015 report independent registered public accounting firm board directors shareholders abbott laboratories audited accompanying consolidated balance sheet abbott laboratories subsidiaries company december 31 2013 related consolidated statements earnings comprehensive income shareholders investment cash flows two years period ended december 31 2013 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position company december 31 2013 results operations cash flows two years period ended december 31 2013 conformity accounting principles generally accepted united states america discussed note 3 consolidated financial statements accompanying 2013 2012 financial statements retrospectively adjusted reflect developed markets branded generics pharmaceuticals animal health businesses discontinued operations addition discussed note 2 consolidated financial statements january 1 2013 company distributed outstanding shares abbvie inc encompasses companys researchbased pharmaceuticals business companys shareholders deloitte touche llp chicago illinois february 21 2014 february 27 2015 note 3 item 9 item 8 financial statements supplementary data incorporated herein reference portions 1993 annual report captioned consolidated balance sheet consolidated statement income consolidated statement cash flows consolidated statement shareholders investment notes consolidated financial statements report independent public accountants contains related report arthur andersen co dated january 14 1994 data relating quarterly interim results found note 8 item 9 item 8 financial statements supplementary data abbott laboratories subsidiaries consolidated statement earnings dollars shares thousands except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement cash flows dollars thousands accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated balance sheet dollars thousands accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement shareholders investment dollars thousands except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries notes consolidated financial statements note 1 summary significant accounting policies nature business abbotts principal business discovery development manufacture sale broad line health care products concentration risk guarantees due nature operations abbott subject significant concentration risks relating customers products geographic locations except three us wholesalers accounted 20 percent trade receivables december 31 2004 2003 22 percent trade receivables december 31 2002 product warranties significant abbott material exposures offbalance sheet arrangements special purpose entities activities include nonexchangetraded contracts accounted fair value abbott periodically entered agreements ordinary course business assignment product rights companies resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote addition abbott periodically acquires small companies abbott agrees pay contingent consideration based attaining certain thresholds basis consolidation consolidated financial statements include accounts parent company subsidiaries elimination intercompany transactions accounts foreign subsidiaries consolidated november 30 due time needed consolidate subsidiaries events occurred related foreign subsidiaries december 2004 2003 2002 materially affected financial position results operations use estimates financial statements prepared accordance generally accepted accounting principles united states necessarily include amounts based estimates assumptions management actual results could differ amounts significant estimates include amounts sales rebates income taxes pension postemployment benefits valuation intangibles litigation stock compensation inventory accounts receivable exposures revenue recognition revenue product sales recognized upon passage title risk loss customers product delivered common carrier shipment domestic customers provisions discounts rebates sales incentives customers returns adjustments provided period related sales recorded sales incentives customers material historical data readily available reliable used estimating amount reduction gross sales revenue launch new product improved version existing product shipments excess customers normal requirements recorded conditions noted met situations management records returns reserve revenue necessary sales product rights marketable products recorded revenue upon disposition rights revenue license product rights performance research selling activities recorded periods earned income taxes deferred income taxes provided tax effect temporary differences tax bases assets liabilities reported amounts financial statements enacted statutory rate effect taxes paid us income taxes provided earnings foreign subsidiaries operating puerto rico tax incentive grants intended remitted parent company except dividends remitted american jobs creation act 2004 deferred income taxes provided undistributed earnings reinvested indefinitely foreign subsidiaries working capital plant equipment loss contingency provisions recorded estimated amount audit settlements provisions statement financial accounting standards sfas 5 accounting contingencies pension postemployment benefits abbott accrues actuarially determined cost pension postemployment benefits service attribution periods employees assistance outside actuaries abbott must develop longterm assumptions significant health care costs trend rate discount rate expected return plan assets differences expected longterm return plan assets actual annual return amortized fiveyear period unrecognized actuarial losses gains amortized remaining service attribution periods employees corridor method valuation intangible assets purchased intangible assets recorded fair value fair value significant purchased intangible assets based independent appraisals abbott uses discounted cash flow model value intangible assets discounted cash flow model requires assumptions timing amount future net cash inflows risk cost capital terminal values intangible assets goodwill reviewed impairment least quarterly annual basis respectively stockbased compensation abbott measures compensation cost using intrinsic valuebased method accounting stock options replacement stock options granted employees december 2004 financial accounting standards board issued revised sfas 123 share based payment requires fair value recorded results operations beginning later july 1 2005 restricted stock awards amortized vesting period charge compensation expense litigation abbott accounts litigation losses accordance sfas 5 sfas 5 loss contingency provisions recorded probable losses managements best estimate loss best estimate cannot made minimum loss contingency amount recorded cash equivalents investment securities cash equivalents consist time deposits certificates deposit original maturities three months less investments marketable equity securities classified availableforsale recorded fair value unrealized holding gains losses net tax included accumulated comprehensive income loss investments equity securities traded public stock exchanges recorded cost abbott monitors equity investments temporary declines fair value charges impairment losses income temporary decline estimated value occurs investments debt securities classified heldtomaturity management intent ability hold securities maturity reported cost net unamortized premium discount income relating securities reported component interest income inventories stated lower cost firstin firstout basis market cost includes material conversion costs property equipment depreciation amortization provided straightline basis estimated useful lives assets following table shows estimated useful lives property equipment product liability provisions made probable losses covered product liability insurance abbott carries thirdparty insurance coverage amounts reflect historical loss experience include coverage catastrophic losses translation adjustments foreign operations highly inflationary economies translation gains losses included net foreign exchange gain loss remaining foreign operations translation adjustments included component accumulated comprehensive income loss research development costs internal research development costs expensed incurred clinical trial costs incurred third parties expensed contracted work performed contingent milestone payments due third parties research development arrangements milestone payment obligations expensed milestone results achieved reclassifications income cash flows hospira direct transaction costs spinoff presented discontinued operations consolidated statement earnings statement cash flows prior years balance sheets adjusted reflect effect spinoff addition prepaid expenses receivables trade accounts payable related taps trade accounts receivable december 31 2003 2002 reclassified conform december 31 2004 classification note 2 supplemental financial information dollars thousands aaccrued wholesaler chargeback rebates 72634 81292 81017 december 31 2004 2003 2002 respectively netted trade receivables accrued wholesaler chargeback rebates netted trade receivables abbotts customers invoiced higher catalog price remit abbott contract price products note 3 investment securities dollars thousands following summary investment securities december 31 abbott reviews carrying value investments equity securities quarter determine whether temporary decline market value exists abbott considers factors affecting investee factors affecting industry investee operates general equity market trends abbott considers length time investments market value carrying value nearterm prospects recovery carrying value abbott determines temporary decline occurred investment written charge income expense net income expense net 2002 includes charge 193862 temporary decline market value certain equity securities gross unrealized holding gains losses current longterm heldtomaturity investment securities totaled 1200 900 respectively december 31 2004 1400 2200 respectively december 31 2003 1500 8500 respectively december 31 2002 gross unrealized holding gains losses availableforsale equity securities totaled 30800 1100 respectively december 31 2004 162700 4000 respectively december 31 2003 24400 9200 respectively december 31 2002 note 4 financial instruments derivatives certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts totaling 984 million 602 million 857 million december 31 2004 2003 2002 respectively designated cash flow hedges variability cash flows due changes foreign exchange rates abbott records contracts fair value resulting charges 400 million 288 million accumulated comprehensive income loss 2004 2002 respectively 36 million credit accumulated comprehensive income loss 2003 hedge ineffectiveness recorded income 2004 2003 2002 accumulated gains losses december 31 2004 included cost products sold time products sold generally end 2005 abbott enters foreign currency forward exchange contracts manage currency exposures foreign currency denominated thirdparty trade payables receivables intercompany loans trade accounts payable receivable payable denominated currency functional currency entity intercompany loans contracts require abbott sell buy foreign currencies primarily european currencies japanese yen exchange primarily us dollars european currencies intercompany trade payables receivables currency exposures primarily us dollar european currencies japanese yen contracts recorded fair value resulting gains losses reflected income net foreign exchange gain loss december 31 2004 2003 2002 abbott held 33 billion 30 billion 19 billion respectively foreign currency forward exchange contracts abbott party interest rate hedge contracts totaling 31 billion manage exposure changes fair value 31 billion fixedrate debt due july 2006 march 2014 contracts designated fair value hedges variability fair value fixedrate debt due changes longterm benchmark interest rates effect hedge change fixedrate interest obligation variable rate portion debt abbott records contracts fair value adjusts carrying amount fixedrate debt offsetting amount hedge ineffectiveness recorded income 2004 2003 2002 carrying values fair values certain financial instruments december 31 shown table carrying values financial instruments approximate estimated fair values fair value quoted market price instrument held quoted market price similar instrument counter parties financial instruments consist select major international financial institutions abbott expect losses nonperformance counter parties note 5 postemployment benefits dollars thousands retirement plans consist defined benefit defined contribution medical dental plans information abbotts major defined benefit plans postemployment medical dental benefit plans follows accumulated benefit obligations defined benefit plans approximately 3954000 3762000 3037000 december 31 2004 2003 2002 respectively 2004 2003 2002 abbott recorded minimum pension liability adjustments 120475 155134 342874 respectively accumulated benefit obligations certain defined benefit plans exceeded market value plans assets resulted charges accumulated comprehensive income loss 75947 2004 99155 2003 203182 2002 net taxes result spinoff april 30 2004 abbott transferred hospira minimum pension liability adjustment charge accumulated comprehensive income loss net income taxes 41051 23181 respectively plans accumulated benefit obligations exceeded plan assets december 31 2004 2003 2002 aggregate accumulated benefit obligations 3053000 3033000 2383000 respectively projected benefit obligations 3738000 3824000 3053000 respectively aggregate plan assets 2909000 2567000 1981000 respectively weighted average discount rate used december 31 2004 determining accumulated benefit obligations defined benefit plans whose accumulated benefit obligations excess plan assets 57 percent onepercentage point reduction discount rate december 31 2004 would result increase minimum pension liability adjustments increase charge accumulated comprehensive income loss approximately 779000 507000 respectively weighted average assumptions used determine benefit obligations defined benefit plans medical dental plans december 31 measurement date plans follows weighted average assumptions used determine net cost defined benefit plans medical dental plans follows assumed health care cost trend rates medical dental plans december 31 follows onepercentage point increasedecrease assumed health care cost trend rate would increasedecrease accumulated postemployment benefit obligations december 31 2004 179052134289 total service interest cost components net postemployment health care cost year ended approximately 2013515907 2004 abbott reflected requirements financial accounting standards board staff position 1062 accounting disclosure requirements related medicare prescription drug improvement modernization act 2003 result projected benefit obligations related benefits attributed past service reduced approximately 210000 net cost recognized 2004 reduced approximately 33000 weighted average asset allocation abbotts us defined benefit plans asset category shown table abbotts international defined benefit plans similar equity content investment mix equity securities fixed income securities based upon achieving desired return balancing higher return volatile equity securities lower return less volatile fixed income securities abbotts domestic defined benefit plans invested diversified portfolios publicmarket equity fixed income securities investment allocations made across range markets industry sectors capitalization sizes case fixed income securities maturities credit quality plans hold securities abbott abbotts international defined benefit plans invested corresponding manner variance portfolio structure around local practices plans expected return assets shown based managements expectations longterm average rates return achieved underlying investment portfolios establishing assumption management considers historical expected returns asset classes plans invested well current economic capital market conditions abbott funds domestic pension plans according irs funding limitations 2004 2003 2002 482000 200000 106000 respectively funded main domestic pension plan international pension plans funded according similar regulations january 2005 641000 contributed main domestic defined benefit plan addition abbott transferred approximately 45000 hospira 2004 accordance employee benefit agreement governing assumption hospira certain defined benefit plan assets liabilities total benefit payments expected paid participants includes payments funded company assets medical dental benefits well paid plans follows abbott stock retirement plan principal defined contribution plan abbotts contributions plan 97000 2004 90000 2003 85000 2002 abbott provides certain postemployment benefits primarily salary continuation plans qualifying domestic employees accrues related cost service lives employees note 6 taxes earnings dollars thousands deferred income taxes reflect tax consequences future years temporary differences tax bases assets liabilities financial reporting amounts us income taxes provided earnings foreign subsidiaries operating puerto rico tax incentive grants intended remitted parent company except dividends remitted american jobs creation act 2004 abbott record deferred income taxes earnings reinvested indefinitely foreign subsidiaries undistributed earnings reinvested indefinitely foreign subsidiaries working capital plant equipment aggregated 7896000 december 31 2004 practicable determine amount deferred income taxes provided earnings abbott recorded reserves income tax loss contingencies accordance sfas 5 maximum possible loss excess recorded reserves material united states abbotts federal income tax returns years 1993 1995 process settled amounts approximate recorded reserves years 1996 2000 settled income tax returns years 2000 open earnings continuing operations taxes related provisions taxes earnings continuing operations follows differences effective income tax rate us statutory tax rate follows december 31 2004 2003 2002 total deferred tax assets 2171782 2505502 2375526 respectively total deferred tax liabilities 1349972 1075209 904822 respectively valuation allowances deferred tax assets significant temporary differences give rise deferred tax assets liabilities follows october 22 2004 president united states signed american jobs creation act 2004 among provisions act provision allows exclusion income portion remittances earnings foreign subsidiaries us shareholders december 31 2005 portion earnings available remittance earnings designated reinvested indefinitely foreign operations disclosed abbotts 2002 financial statements abbott would approximately 4200000 earnings available remittance estimated tax 340000 entire amount remitted current language legislation act continues subject interpretation rulemaking estimated expense could affected activity january 13 2005 us treasury irs issued initial guidance covering act financial accounting staff position 1092 requires companies recognize tax liability remittance earnings act period management concludes would remit earnings december 31 2004 management decided remit earnings act february 2005 abbott concluded would remit approximately 600000 2005 foreign earnings previously reinvested indefinitely accordance provisions act abbott continuing evaluate whether remit portion remaining 3600000 available remittance act expects decide later year additional income tax expense required 600000 remittance would approximately 60000 recorded first quarter 2005 note 7 segment geographic area information dollars millions revenue segments abbotts principal business discovery development manufacture sale broad line health care products abbotts products generally sold directly retailers wholesalers hospitals health care facilities laboratories physicians offices government agencies throughout world effective january 1 2004 abbotts segments reorganized reflect shift certain hospital pharmaceutical products hospital products segment pharmaceutical products segment separation vascular spinal product businesses separate segments april 30 2004 abbott spun core hospital products business included hospital products segment reorganization january 1 2004 portion international segment addition january 1 2004 diagnostic products segment reorganized four separate divisions segment reporting purposes divisions aggregated reported diagnostic products segment information adjusted reflect reorganizations spinoff abbotts core hospital products business abbotts reportable segments follows pharmaceutical products us sales broad line pharmaceuticals diagnostic products worldwide sales diagnostic systems tests blood banks hospitals consumers commercial laboratories alternatecare testing sites ross products us sales broad line adult pediatric nutritional products pediatric pharmaceuticals consumer products international nonus sales abbotts pharmaceutical nutritional products sold international manufactured domestic international manufacturing locations abbotts underlying accounting records maintained legal entity basis government public reporting requirements segment disclosures performance basis consistent internal management reporting intersegment transfers inventory recorded standard cost measure segment operating earnings cost corporate functions cost certain employee benefits sold segments predetermined rates approximate cost remaining costs allocated segments substantially intangible assets related amortization business acquisitions allocated segments following segment information prepared accordance internal accounting policies abbott described presented accordance generally accepted accounting principles applied consolidated financial statements anet sales operating earnings 2004 2003 favorably affected relatively weaker us dollar unfavorably affected 2002 relatively stronger us dollar bother net 2004 includes acquisition related charges primarily related therasense acquisition 2003 includes charges 622 settlement ross enteral nutritional investigation 88 impairments assets 2002 includes charges 173 restructuring plans 116 fda consent decree 194 temporary declines market value equity securities csales country based country sold product note 8 litigation environmental matters several lawsuits pending connection sales hytrin suits allege abbott violated state federal antitrust laws cases unfair competition laws signing patent settlement agreements geneva pharmaceuticals inc zenith laboratories inc 1998 agreements related pending patent infringement lawsuits abbott two companies suits also allege abbott violated various state federal laws filing frivolous patent infringement lawsuits protect hytrin generic competition cases seek treble damages civil penalties relief abbott filed intends file response complaints denying substantive allegations abbott identified potentially responsible party investigation cleanup costs number locations united states puerto rico federal state remediation laws investigating potential contamination number companyowned locations abbott recorded estimated cleanup cost site management believes abbott probable loss exposure individual site cleanup exposure expected exceed 3 million aggregate cleanup exposure expected exceed 20 million within next year legal proceedings may occur may result change estimated reserves recorded abbott legal proceedings environmental exposures discussed note 9 abbott estimates range possible loss approximately 150 million 210 million abbott recorded reserves approximately 155 million december 31 2004 proceedings exposures reserves represent managements best estimate probable loss except one recorded minimum defined statement financial accounting standards 5 accounting contingencies feasible predict outcome proceedings exposures certainty management believes ultimate disposition material adverse effect abbotts financial position cash flows results operations note 9 tap pharmaceutical products inc tap pharmaceutical products inc tap abbott named defendants several lawsuits alleging violations various state federal laws connection taps marketing pricing lupron 2004 tap reached agreement plaintiffs settle allegations dismiss abbott tap cases settlement subject final court approval abbott reversed reserve recorded matter tap recorded expected settlement amount abbotts portion taps settlement included reserve amounts range note 8 within next year legal proceedings may occur may result change estimated reserves recorded tap feasible predict outcome pending claims proceedings investigations certainty management opinion ultimate disposition material adverse effect abbotts financial position cash flows results operations note 10 spinoff hospira april 12 2004 abbotts board directors declared special dividend distribution outstanding shares common stock hospira inc every 10 abbott common shares held close business april 22 2004 abbott shareholders received one share hospira common stock april 30 2004 shares hospiras common stock distributed abbott shareholders prorata basis abbott received ruling internal revenue service spinoff qualifies taxfree distribution abbott us shareholders us federal income tax purposes cash generally taxable recipient paid lieu fractional shares hospira included operations relating manufacture sale hospital products including specialty injectable pharmaceuticals medication delivery systems critical care devices injectable pharmaceutical contract manufacturing hospira included abbotts hospital products segment segments reorganization january 1 2004 portions abbotts international segment income cash flows hospira direct transaction costs spinoff presented discontinued operations consolidated statement earnings statement cash flows prior years balance sheets adjusted reflect effect spinoff legal transfer certain operations assets net liabilities outside united states expected occur 2005 2006 approximately half operations expected transferred hospira 2005 remaining operations transferring first half 2006 operations assets used conduct hospiras international business hospira subject risks entitled benefits generated operations assets liabilities presented held sale consolidated balance sheet december 31 2004 assets liabilities held sale consist primarily inventories trade accounts receivable equipment trade accounts payable salaries accruals april 2004 abbott borrowed hospira assumed 700 million debt proceeds retained abbott reduce shortterm borrowings hospira solely responsible repayment principal payment interest debt abbott retained liabilities taxes income prior spinoff postemployment medical dental benefits hospiras us retired employees us retirement eligible employees certain potential liabilities related alleged improper pricing practices connection federal state private reimbursement certain drugs defined benefit retirement plan liabilities plan assets hospiras retired employees connection spinoff abbotts defined benefit medical dental employee stock option programs adjusted see footnotes 5 11 details summarized financial information discontinued operations follows financial information includes operations hospira april 30 2004 date spinoff consequence results full year 2004 include four months operations hospira results discontinued operations also include direct transaction costs approximately 36 million 12 million 2004 2003 respectively following summary assets liabilities transferred hospira april 30 2004 note 11 incentive stock program 1996 incentive stock program authorizes granting stock options replacement stock options stock appreciation rights limited stock appreciation rights restricted stock awards restricted stock units performance units foreign qualified benefits stock options replacement stock options restricted stock awards comprise majority benefits granted currently outstanding program prior programs 2004 abbott granted 22314545 stock options 3302646 replacement stock options 605496 restricted stock awards program purchase price shares option must least equal fair market value common stock date grant maximum term option 10 years options granted 2004 2003 2002 vest equally three years except replacement options vest six months employee tenders mature shares abbott upon exercise stock option replacement stock option granted equal amount shares tendered replacement options granted current market price term expires date underlying option grant upon change control abbott outstanding stock options become fully exercisable terms conditions restricted stock awards deemed satisfied hospira optionees eligible retire spinoff date retired abbott purposes outstanding options approximately 48 million abbott options held hospira optionees eligible retire cancelled replaced hospira pro forma compensation expense 2004 reflects cancellation options abbott options adjusted effects spinoff intrinsic value options resulting issuance additional 82 million abbott options january 1 2005 approximately 44 million shares reserved future grants 1996 program subsequent yearend board directors granted approximately 22 million stock options reserve abbott measures compensation cost using intrinsic valuebased method accounting stock options replacement options granted employees compensation cost determined using fair valuebased accounting method pro forma net income billions earnings per share eps amounts would follows weighted average fair value option granted 2004 2003 2002 1179 873 1647 respectively purposes fair value disclosures fair value option grant estimated using blackscholes optionpricing model following assumptions december 2004 financial accounting standards board fasb issued revised statement financial accounting standards sfas 123 share based payment revised sfas 123 requires fair value stock options recorded results operations beginning later july 1 2005 stock compensation expense prior rules would reduced reported diluted earnings per share 12 cents 2004 upon adoption revised standard prior awards charged expense prior rules awards adoption charged expense revised rules abbott determined effect new standard earnings however expense new standard could somewhat higher effect adopting new rules reported diluted earnings per share dependent number options granted future terms awards fair values therefore effect diluted earnings per share could change abbott expects adopt revised rules july 1 2005 determined whether would adopt prospectively retrospectively january 1 2005 note 12 debt lines credit dollars thousands following summary longterm debt december 31 principal payments required longterm debt outstanding december 31 2004 156034 2005 1855604 2006 101104 2007 888913 2008 500926 2009 1445078 thereafter december 31 2004 abbott 3000000 unused lines credit support commercial paper borrowing arrangements related compensating balances subject withdrawal abbott option commitment fees material abbotts weighted average interest rate shortterm borrowings 22 december 31 2004 11 december 31 2003 2002 note 13 business combinations technology acquisitions 2004 abbott paid approximately 23 billion strategic business technology acquisitions follows fourth quarter 2004 abbott acquired eas nutritional company portfolio nationally recognized brands approximately 320 million cash spine next manufacturer orthopedic spinal implant devices approximately 58 million cash plus additional milestone payments 23 million upon achievement future targets fourth quarter acquisitions resulted charge 47 million acquired inprocess research development intangible assets approximately 152 million nontax deductible goodwill approximately 191 million deferred income taxes approximately 60 million acquired intangible assets primarily trade names amortized 5 20 years average approximately 18 years second quarter 2004 abbott acquired therasense inc leader development manufacturing marketing blood glucose selfmonitoring systems approximately 12 billion cash second quarter 2004 abbott also acquired certain product technologies approximately 352 million second quarter acquisitions resulted charge 164 million acquired inprocess research development intangible assets approximately 912 million nontax deductible goodwill approximately 623 million deferred income taxes approximately 241 million acquired intangible assets primarily product technology amortized 9 17 years average approximately 13 years first quarter 2004 abbott acquired istat corporation manufacturer pointofcare diagnostic products blood analysis approximately 394 million cash acquisition resulted charge approximately 60 million acquired inprocess research development intangible assets approximately 263 million nontax deductible goodwill approximately 109 million deferred income taxes approximately 105 million acquired intangible assets primarily product technology amortized 7 18 years average approximately 17 years 2003 abbott paid approximately 459 million strategic business technology acquisitions follows abbott acquired zoneperfect nutrition company marketer healthy nutritious products active people approximately 160 million cash integrated vascular systems inc developer novel vessel closure technology approximately 65 million cash spinal concepts inc marketer spinal fixation products used treatment spinal disorders diseases injuries approximately 166 million cash plus additional milestone payments 40 million agreed upon targets met abbott also acquired assets jomed nvs coronary peripheral interventional business approximately 68 million cash acquisitions resulted charge approximately 100 million acquired inprocess research development intangible assets approximately 222 million nontax deductible goodwill approximately 182 million acquired intangible assets primarily product technology amortized 9 25 years average approximately 16 years 2002 abbott acquired cardiovascular stent business biocompatibles international plc certain cardiovascular stent technology rights medtronic inc addition abbott acquired additional 288 percent issued common shares hokuriku seiyaku co ltd resulting abbott owning substantially common shares hokuriku seiyaku co ltd aggregate cash purchase price 586 million strategic business technology acquisitions resulted charge acquired inprocess research development approximately 108 million intangible assets approximately 145 million nontax deductible goodwill approximately 257 million acquired intangible assets primarily product technology amortized 4 13 years average approximately 8 years acquisitions taken place january 1 previous year consolidated sales income would significantly different reported amounts note 14 goodwill intangible assets dollars millions abbott recorded goodwill approximately 923 182 316 2004 2003 2002 respectively related acquisitions foreign currency translation adjustments increased goodwill 2004 2003 2002 approximately 394 522 251 respectively connection spinoff hospira 2004 abbott transferred approximately 81 goodwill hospira reductions goodwill relating impairments disposal portion business gross amount amortizable intangible assets primarily product rights technology 6622 4841 4504 december 31 2004 2003 2002 respectively accumulated amortization 1468 899 733 december 31 2004 2003 2002 respectively net amount intangible assets indefinite lives primarily registered trade names subject amortization significant estimated annual amortization expense intangible assets 477 2005 2006 462 2007 442 2008 436 2009 intangible assets amortized primarily straightline basis 4 25 years average 14 years note 15 equity method investments dollars millions abbotts 50 percentowned joint venture tap pharmaceutical products inc tap accounted equity method accounting investment tap 76 340 370 december 31 2004 2003 2002 respectively dividends received tap 638 606 695 2004 2003 2002 respectively abbott performs certain administrative manufacturing services tap negotiated rates approximate fair market value summarized financial information tap follows undistributed earnings investments accounted equity method amounted approximately 53 december 31 2004 note 16 stock purchase rights common shares outstanding subject stock purchase rights exercisable person group acquires ten percent abbott common shares announces tender exchange offer would result ownership ten percent abbott common shares following acquisition ten percent abbotts common shares holders rights acquiring person group may purchase abbott common shares half price event merger acquisition abbott holders rights acquiring person group may purchase shares acquiring entity half price rights exercisable december 31 2004 note 17 quarterly results unaudited dollars millions except per share data athe sum first quarter second quarter third quarter fourth quarter basic diluted earnings per share 2004 add full year earnings per share amounts due rounding bsecond quarter 2003 included pretax charge 622 settlement ross enteral nutritional investigation management report internal control financial reporting management abbott laboratories responsible establishing maintaining adequate internal control financial reporting abbotts internal control system designed provide reasonable assurance companys management board directors regarding preparation fair presentation published financial statements internal control systems matter well designed inherent limitations therefore even systems determined effective provide reasonable assurance respect financial statement preparation presentation abbotts management assessed effectiveness companys internal control financial reporting december 31 2004 making assessment used criteria set forth internal control integrated framework issued committee sponsoring organizations treadway commission based assessment believe december 31 2004 companys internal control financial reporting effective based criteria abbotts independent registered public accounting firm issued audit report assessment companys internal control financial reporting report appears page 70 miles white chairman board chief executive officer thomas c freyman executive vice president finance chief financial officer greg w linder vice president controller february 18 reports independent registered public accounting firm board directors shareholders abbott laboratories audited accompanying consolidated balance sheets abbott laboratories subsidiaries company december 31 2004 2003 2002 related consolidated statements earnings shareholders investment cash flows years ended consolidated financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position abbott laboratories subsidiaries december 31 2004 2003 2002 results operations cash flows years ended conformity accounting principles generally accepted united states america also audited accordance standards public company accounting oversight board united states effectiveness companys internal control financial reporting december 31 2004 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission report dated february 18 2005 expressed unqualified opinion managements assessment effectiveness companys internal control financial reporting unqualified opinion effectiveness companys internal control financial reporting deloitte touche llp chicago illinois february 18 2005 board directors shareholders abbott laboratories audited managements assessment included accompanying management report internal control financial reporting dated february 18 2005 abbott laboratories subsidiaries company maintained effective internal control financial reporting december 31 2004 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission companys management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinion managements assessment opinion effectiveness companys internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting evaluating managements assessment testing evaluating design operating effectiveness internal control performing procedures considered necessary circumstances believe audit provides reasonable basis opinions companys internal control financial reporting process designed supervision companys principal executive principal financial officers persons performing similar functions effected companys board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting including possibility collusion improper management override controls material misstatements due error fraud may prevented detected timely basis also projections evaluation effectiveness internal control financial reporting future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion managements assessment company maintained effective internal control financial reporting december 31 2004 fairly stated material respects based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission also opinion company maintained material respects effective internal control financial reporting december 31 2004 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission also audited accordance standards public company accounting oversight board united states consolidated financial statements year ended december 31 2004 company report dated february 18 2005 expressed unqualified opinion financial statements deloitte touche llp chicago illinois february 18 2005 tap pharmaceutical products inc consolidated statements income comprehensive income dollars thousands see notes consolidated financial statements tap pharmaceutical products inc consolidated statements cash flows dollars thousands see notes consolidated financial statements tap pharmaceutical products inc consolidated balance sheets thousands except share amount see notes consolidated financial statements tap pharmaceutical products inc consolidated statements shareholders equity years ended december 31 2004 2003 2002 dollars thousands except share amounts see notes consolidated financial statements tap pharmaceutical products inc notes consolidated financial statements years ended december 31 2004 2003 2002 dollars thousands note 1 description business tap pharmaceutical products inc subsidiaries tap delaware corporation owned equally abbott laboratories abbott illinois corporation takeda america holdings inc whollyowned subsidiary takeda pharmaceutical company ltd japanese corporation collectively takeda tap headquartered lake forest illinois approximately 3200 employees agreement abbott takeda tap develops markets sells human pharmaceutical products united states puerto rico canada tap operates one business segment sales primarily united states taps primary products prevacid lupron principal indications prevacid lansoprazole proton pump inhibitor shortterm treatment duodenal ulcers gastric ulcers erosive esophagitis lupron leuprolide acetate luteinizing hormonereleasing hormone lhrh analog lupron depot sustained release form lupron used principally palliative treatment advanced prostate cancer endometriosis central precocious puberty preoperative treatment patients anemia caused uterine fibroids patents related lansoprazole lupron depot material operation taps business original united states compound patent covering lansoprazole licensed tap takeda original united states patents covering lupron depot formulations licensed tap takeda taps products generally sold directly physicians retailers wholesalers health care facilities government agencies cases distributed abbottowned distribution centers primary marketing efforts directed toward securing prescription taps brand products physicians managed care purchasers example health maintenance organizations pharmacy benefit managers increasingly important customers taps products supplied owners principally takeda disruption supply products could adversely impact operating results tap sales taps primary products 2004 2003 2002 follows financial instruments potentially subject tap concentrations credit risk consist primarily accounts receivable tap sells primarily wholesale distributors majority taps accounts receivable derived sales wholesale distributors three us wholesale distributors accounted 10 taps gross sales 2004 2003 2002 follows tap material exposures offbalance sheet arrangements special purpose entities activities include nonexchangetraded contracts accounted fair value except equity swap agreements hedge market price exposure employee stock options described note 7 note 2 summary significant accounting policies basis presentation consolidated financial statements include accounts tap subsidiaries intercompany accounts transactions eliminated use estimates preparation financial statements conformity accounting principles generally accepted united states america requires estimates assumptions management actual results could differ estimates significant estimates include amounts litigation income taxes sales rebates inventory reserves accounts receivable allowances cash equivalents cash equivalents include time deposits certificates deposit commercial paper money market funds shortterm investments governmental agency debt securities original maturities three months less contractually convertible cash three months less investment securities investments debt securities classified heldtomaturity management intent ability hold securities maturity reported cost net unamortized premium discount investments marketable equity securities classified availableforsale recorded fair value unrealized holding gains losses net tax included accumulated comprehensive loss income inventories stated lower cost firstin firstout basis market cost includes material packaging costs inventories consist following december 31 property equipment property equipment recorded cost less accumulated depreciation provided using straightline method estimated useful lives assets estimated useful lives property equipment follows longlived assets reviewed impairment whenever events changes circumstances indicate carrying value may recoverable based projected undiscounted cash flows associated affected assets fair value less carrying value asset loss recognized difference fair value determined based market quotes available based valuation techniques revenue recognition revenue product sales recognized upon passage title risk loss customers product delivered common carrier provisions estimated rebates sales incentives customers doubtful accounts cash discounts product returns customer chargebacks provided period related sale rebates sales incentives recorded accrued rebates balance sheets reserves doubtful accounts cash discounts product returns customer chargebacks recorded reductions accounts receivable historical data readily available reliable used estimating amount reduction gross sales research development internal research development costs expensed incurred clinical trial costs incurred third parties expensed contracted work performed milestone payments due third parties research development arrangements milestone payment obligations expensed milestone results achieved advertising promotion expense advertising promotion costs expensed selling general administrative expenses incurred total advertising promotion expense incurred 227882 344141 341562 2004 2003 2002 respectively income taxes deferred income taxes recognized tax consequences temporary differences applying statutory tax rates applicable future years differences financial statement carrying amount tax basis assets liabilities reclassifications certain reclassifications made prioryear financial statements conform currentyear presentation note 3 property equipment lease obligations property equipment consists following december 31 tap leases certain administrative regional sales offices equipment automobiles noncancelable leases expire various dates 2010 lease expense totaled 4990 5220 12541 2004 2003 2002 respectively future minimum lease payments noncancelable leases december 31 2004 consist following note 4 foreign currency contracts tap enters foreign currency forward contracts purchases yen call options hedge purchases inventories fixed yendenominated prices forward contracts require tap purchase yen exchange us dollars predetermined exchange rates yen call options give tap right purchase yen exchange us dollars predetermined strike prices forward option contracts designated cash flow hedges variability cash flows due changes exchange rates tap trade financial instruments objective earning financial gains exchange rate fluctuations alone trade currencies commodities underlying exposures effectiveness forward contracts based changes forward rates effectiveness call options based solely changes fair value effective portion changes value forward option contracts recorded accumulated comprehensive loss income subsequently recognized earnings period hedged forecasted transactions affect earnings cash flow hedge ineffectiveness reported earnings current period foreign exchange forward contracts outstanding december 31 2004 december 31 2003 tap outstanding foreign exchange forward contracts notional values 39840 fair values 921 fair value contracts recorded assets 2004 2003 2002 cash flow hedge ineffectiveness material note 5 investments following summary investment securities december 31 carrying value cash equivalents shortterm investments approximates fair value due shortterm maturity investments fair value longterm investments debt obligations 74111 74978 december 31 2004 2003 respectively note 6 employee benefit plans tap employees participate various abbott employee benefit plans including abbott laboratories annuity retirement plan abbott laboratories stock retirement plan abbott laboratories incentive stock program see note 7 details tap billed share costs plans taps share employer contribution abbott laboratories annuity retirement plan allocated based taps proportionate share total compensation expense participants plan tap made contributions 2004 2003 2002 43088 16520 8392 respectively plan taps contribution abbott laboratories stock retirement plan based participating employee contributions taps contributions 2004 2003 2002 11563 11251 9824 respectively tap provides health welfare benefits employees tap pharmaceutical products inc healthcare plan healthcare plan contributions made accordance healthcare plans funding policy tap records estimate liability incurred reported claims tap provides certain medical life insurance benefits qualifying retirees tap pharmaceutical products inc retiree medical plan retiree plan following provides reconciliation postemployment benefit obligations funded status retiree plan components net cost follows discount rates used determine benefit obligations medical dental plans december 31 measurement date plan 58 percent 60 percent december 31 2004 2003 respectively discount rates used determine net cost medical dental plans 2004 2003 2002 60 percent 675 percent 725 percent respectively assumed health care cost trend rates medical dental plans december 31 follows onepercentage point increase decrease assumed health care trend rate would increase decrease accumulated postemployment benefit obligations december 31 2004 approximately 6081and 4440 respectively total service interest cost components net postemployment benefit cost year ended approximately 1143 901 respectively total benefit payments expected paid participants company assets postemployment medical dental benefits follows december 8 2003 president united states signed medicare prescription drug improvement modernization act 2003 among provisions act provision granting subsidy sponsors retirement medical plans prescription drug coverage benefit least actuarially equivalent medicare part benefit 2004 tap reflected requirements financial accounting standards board staff position 1062 accounting disclosure requirements related medicare prescription drug improvement modernization act 2003 result projected benefit obligations related benefits attributed past service reduced approximately 4300 net cost recognized 2004 reduced approximately 1100 note 7 incentive stock program certain employees tap granted options purchase abbott common stock 1996 abbott incentive stock program prior plans stock options replacement stock options granted tap employees currently outstanding prior plans purchase price shares option must least equal fair market value abbott common stock date grant maximum term option 10 years options granted vest equally three years except replacement options generally vest six months life equal remaining life replaced option upon change control abbott outstanding stock options become fully exercisable option exercises transacted abbott tap liable excess fair market value option shares granted tap employees employed tap option price time exercise reimburses abbott cost options exercised annually december 31 2004 2003 tap recorded derivative liability options granted adoption eitf 0208 42390 21711 respectively changes fair value options recorded selling general administrative expense fair value determined using blackscholes optionpricing model december 31 2004 2003 tap recorded liability exercised options 4199 2816 respectively payable abbott tap also recorded liability options issued adoption eitf 0208 difference fair value strike price vested yet unexercised options 19402 15834 december 31 2004 2003 respectively total expense income related abbott incentive stock program 26493 25350 41619 recorded selling general administrative expense 2004 2003 2002 respectively due impact significant fluctuations market price abbott common stock amount recorded compensation expense options issued abbott incentive stock program tap entered isda master agreement master agreement dated september 29 2000 allows tap enter equity swap transactions hedge market price exposure equity swap transaction guarantees return equal actual return specified number shares abbott common stock effectively acts hedge abbott incentive stock program time tap enters equity swap transactions master agreement transaction term one three years requires quarterly cash settlement resulting gains losses realized recorded statements income transaction requires ongoing quarterly interest payments based equity notional amount fair value abbott common stock shares swapped transaction date swap rate libor plus 114 basis points 100 basis points transactions prior october 2003 equity swap transaction recorded fair value fair value equity swaps 19559 16255 december 31 2004 2003 respectively recorded prepaid expenses assets balance sheets 2004 2003 2002 tap recorded selling general administrative expenses 19085 28600 57057 respectively gain loss related equity swap investments december 2004 financial accounting standards board issued revised statement financial accounting standards 123 share based payment effect adopting new rules reported income dependent number options granted future fair value options note 8 income taxes taps us income tax liabilities years 1999 forward subject final determination internal revenue service irs challeged deductibility item taps 2001 tax return management believes deduction proper expects ultimate resolution material impact taps financial position cash flows results operations extent amounts previously deducted differ materially actual amounts determined deductible taps financial position cash flows results operations future periods could materially affected deferred income taxes reflect tax consequences future years temporary differences tax bases assets liabilities financial reporting amounts provision income taxes includes following components differences effective tax rate us statutory tax rate follows temporary differences give rise deferred tax assets liabilities follows note 9 litigation related matters tap along shareholders named defendants several lawsuits alleging violations various state federal laws connection taps marketing pricing lupron 2004 tap reached agreement plaintiffs settle allegations 150000 dismiss tap takeda abbott cases recorded charge 125000 selling general administrative expense 2004 certain individuals may opt settlement pursue individual claims settlement amount deposited escrow 2004 settlement subject notice final court approval within next year legal proceedings may occur may result change estimated reserves recorded tap feasible predict outcome pending claims proceedings investigations certainty management opinion ultimate disposition material adverse effect taps financial position cash flows results operations note 10 relatedparty transactions various agreements exist among tap abbott takeda amounts due payable abbott takeda respectively netted balance sheets captions payable abbott payable takeda tap pays abbott services related packaging warehousing research development administrative functions residual royalty copromotion agreement amounts incurred services totaled 142676 312309 236836 2004 2003 2002 respectively copromotion agreement abbott promoted prevacid june 30 2003 abbott acted agent tap take title ownership taps products addition abbott purchased international markets taps products 73934 69691 60899 2004 2003 2002 respectively tap purchases lupron depot prevacid unpackaged finished goods inventories takeda purchases contracted fixed yendenominated prices actual cost us dollars paid takeda purchases inventories 2004 2003 2002 totaled 714712 733757 646076 respectively tap royalty agreements takeda sales lupron depot prevacid 2004 2003 2002 tap recorded royalty expense 179256 216341 216774 respectively report independent registered public accounting firm board directors stockholders tap pharmaceutical products inc audited accompanying consolidated balance sheets tap pharmaceutical products inc subsidiaries tap december 31 2004 2003 related consolidated statements income stockholders equity cash flows three years period ended december 31 2004 financial statements responsibility taps management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness taps internal control financial reporting accordingly express opinion audit also includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position tap pharmaceutical products inc subsidiaries december 31 2004 2003 results operations cash flows three years period ended december 31 2004 conformity accounting principles generally accepted united states america deloitte touche llp chicago illinois february 16 2005 item 9 item 8 financial statements supplementary data page consolidated statement earnings consolidated statement comprehensive income consolidated statement cash flows consolidated balance sheet consolidated statement shareholders’ investment notes consolidated financial statements management report internal control financial reporting report independent registered public accounting firm report independent registered public accounting firm abbott laboratories subsidiaries consolidated statement earnings millions except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement comprehensive income millions accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement cash flows millions accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated balance sheet dollars millions abbott laboratories subsidiaries consolidated balance sheet dollars millions accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement shareholders’ investment millions except shares per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries notes consolidated financial statements note 1 summary significant accounting policies nature business abbott’s principal business discovery development manufacture sale broad line health care products basis consolidation consolidated financial statements include accounts parent company subsidiaries elimination intercompany transactions use estimates consolidated financial statements prepared accordance generally accepted accounting principles united states necessarily include amounts based estimates assumptions management actual results could differ amounts significant estimates include amounts sales rebates income taxes pension postemployment benefits valuation intangible assets litigation derivative financial instruments inventory accounts receivable exposures foreign currency translation statements earnings foreign subsidiaries whose functional currencies us dollar translated us dollars using average exchange rates period net assets foreign subsidiaries whose functional currencies us dollar translated us dollars using exchange rates balance sheet date us dollar effects arise translating net assets subsidiaries changing rates recorded foreign currency translation adjustment account included equity component accumulated comprehensive income loss transaction gains losses recorded net foreign exchange gain loss line consolidated statement earnings revenue recognition revenue product sales recognized upon transfer control generally upon shipment delivery depending delivery terms set forth customer contract provisions discounts rebates sales incentives customers returns adjustments provided period related sales recorded sales incentives customers material historical data readily available reliable used estimating amount reduction gross sales revenue launch new product improved version existing product shipments excess customer’s normal requirements recorded conditions noted met situations management records returns reserve revenue necessary certain abbott’s businesses primarily within diagnostics abbott participates selling arrangements include multiple performance obligations eg instruments reagents procedures service agreements total transaction price contract allocated performance obligation amount based estimated relative standalone selling prices promised goods services underlying performance obligation sales product rights marketable products recorded revenue upon disposition rights income taxes deferred income taxes provided tax effect differences tax bases assets liabilities reported amounts financial statements enacted statutory rate effect taxes paid additional income taxes provided remaining undistributed foreign earnings subject transition tax related us tax cuts jobs act tcja additional outside basis differences exist amounts continue indefinitely reinvested foreign operations effective fiscal years beginning december 31 2017 tcja subjects taxpayers tax global intangible lowtaxed income gilti earned certain foreign subsidiaries abbott treats gilti tax period expense provides tax year tax incurred interest penalties income tax obligations included taxes earnings per share unvested restricted stock units awards contain nonforfeitable rights dividends treated participating securities included computation earnings per share twoclass method twoclass method net earnings allocated common shares participating securities earnings continuing operations allocated common shares 2020 2019 2018 4449 billion 3666 billion 2320 billion respectively net earnings allocated common shares 2020 2019 2018 4473 billion 3666 billion 2353 billion respectively abbott laboratories subsidiaries notes consolidated financial statements continued note 1 summary significant accounting policies continued pension postemployment benefits abbott accrues actuarially determined cost pension postemployment benefits service attribution periods employees abbott must develop longterm assumptions significant health care cost trend rates discount rates expected return plan assets differences expected longterm return plan assets actual return amortized fiveyear period actuarial losses gains amortized remaining service attribution periods employees corridor method fair value measurements assets liabilities measured using quoted prices active markets total fair value published market price per unit multiplied number units held without consideration transaction costs assets liabilities measured using significant observable inputs valued reference similar assets liabilities adjusted contract restrictions terms specific asset liability items significant portion fair value derived reference quoted prices similar assets liabilities active markets remaining assets liabilities fair value derived using fair value model discounted cash flow model blackscholes model purchased intangible assets recorded fair value fair value significant purchased intangible assets based independent appraisals abbott uses discounted cash flow model value intangible assets discounted cash flow model requires assumptions timing amount future net cash flows risk cost capital terminal values market participants intangible assets reviewed impairment quarterly basis goodwill indefinitelived intangible assets tested impairment least annually sharebased compensation fair value stock options restricted stock awards units amortized requisite service period could shorter vesting period employee retirement eligible charge compensation expense litigation abbott accounts litigation losses accordance financial accounting standards board fasb accounting standards codification asc 450 “contingencies” asc 450 loss contingency provisions recorded probable losses management’s best estimate loss best estimate cannot made minimum loss contingency amount recorded legal fees recorded incurred cash equivalents investments cash equivalents consist bank time deposits us government securities money market funds us treasury bills original maturities three months less abbott holds certain investments carrying value 277 million accounted equity method accounting investments held rabbi trust investments publicly traded equity securities recorded fair value changes fair value recorded earnings investments equity securities traded public stock exchanges recorded cost minus impairment plus minus changes resulting observable price changes orderly transactions identical similar investments issuer investments debt securities classified heldtomaturity management intent ability hold securities maturity reported cost net unamortized premium discount income relating securities reported interest income trade receivable valuations accounts receivable stated net amount expected collected allowance doubtful accounts reflects current estimate credit losses expected incurred life accounts receivable abbott considers various factors establishing monitoring adjusting allowance doubtful accounts including aging accounts aging trends historical level chargeoffs specific exposures related particular customers abbott also monitors risk factors forwardlooking information country risk determining credit limits customers establishing adequate allowances accounts receivable charged reasonable means collect full amount including litigation appropriate exhausted inventories stated lower cost firstin firstout basis net realizable value cost includes material conversion costs abbott laboratories subsidiaries notes consolidated financial statements continued note 1 summary significant accounting policies continued property equipment depreciation amortization provided straightline basis estimated useful lives assets following table shows estimated useful lives property equipment product liability abbott accrues product liability claims probable liability incurred amount liability reasonably estimated based existing information liabilities adjusted quarterly additional information becomes available product liability losses selfinsured research development costs internal research development costs expensed incurred clinical trial costs incurred third parties expensed contracted work performed contingent milestone payments due third parties research development arrangements milestone payment obligations expensed milestone results achieved acquired inprocess collaborations research development iprd initial costs rights iprd projects obtained asset acquisition expensed iprd unless project alternative future use costs include initial payments incurred prior regulatory approval connection research development collaboration agreements provide rights develop manufacture market andor sell pharmaceutical medical device products fair value iprd projects acquired business combination capitalized accounted indefinitelived intangible assets completed amortized remaining useful life collaborations significant concentration risk guarantees due nature operations abbott subject significant concentration risks relating customers products geographic locations product warranties significant abbott material exposures offbalance sheet arrangements special purpose entities activities include nonexchangetraded contracts accounted fair value abbott periodically acquires business product rights abbott agrees pay contingent consideration based attaining certain thresholds based occurrence certain events note 2 new accounting standards recently adopted accounting standards february 2018 fasb issued accounting standards update asu 201802 reclassification certain tax effects accumulated comprehensive income allows companies reclassify stranded tax effects resulting 2017 tax cuts jobs act accumulated comprehensive income loss retained earnings employed business abbott adopted new standard beginning fourth quarter 2018 result adoption new standard approximately 337 million stranded tax effects reclassified accumulated comprehensive income loss earnings employed business abbott laboratories subsidiaries notes consolidated financial statements continued note 2 new accounting standards continued october 2016 fasb issued asu 201616 income taxes topic 740 intraentity transfers assets inventory requires recognition income tax effects intercompany sales transfers assets inventory period transfer occurs abbott adopted standard january 1 2018 using modified retrospective approach recorded cumulative catchup adjustment earnings employed business consolidated balance sheet significant june 2016 fasb issued asu 201613 financial instruments credit losses changes methodology used measure credit losses certain financial instruments financial assets including trade receivables new methodology requires recognition allowance reflects current estimate credit losses expected incurred life financial asset abbott adopted standard january 1 2020 recorded cumulative adjustment significant earnings employed business consolidated balance sheet recent accounting standards yet adopted december 2019 fasb issued asu 201912 income taxes topic 740 simplifying accounting income taxes among things eliminates certain exceptions current rules regarding approach intraperiod tax allocations methodology calculating income taxes interim period clarifies accounting transactions result stepup tax basis goodwill standard becomes effective abbott first quarter 2021 adoption new standard material impact abbott’s consolidated financial statements note 3 revenue abbott’s revenues derived primarily sale broad line health care products shortterm receivable arrangements patent protection licenses technological performance features inclusion abbott’s products contract impact products sold price controls competition rebates impact net selling prices products foreign currency translation impacts measurement net sales costs abbotts products generally sold directly retailers wholesalers distributors hospitals health care facilities laboratories physicians offices government agencies throughout world abbott four reportable segments established pharmaceutical products diagnostic products nutritional products medical devices abbott laboratories subsidiaries notes consolidated financial statements continued note 3 revenue continued following tables provide detail sales category abbott recognizes revenue product sales upon transfer control generally upon shipment delivery depending delivery terms set forth customer contract maintenance agreements provide service beyond abbott’s standard warranty service agreements revenue recognized ratably contract term timebased measure progress appropriately reflects transfer services customer payment terms abbott customers vary type customer country sale products services offered term invoicing payment due date significant abbott laboratories subsidiaries notes consolidated financial statements continued note 3 revenue continued management exercises judgment estimating variable consideration provisions discounts rebates sales incentives customers returns adjustments provided period related sales recorded sales incentives customers material historical data readily available reliable used estimating amount reduction gross sales abbott provides rebates government agencies wholesalers group purchasing organizations private entities rebate amounts usually based upon volume purchases using contractual statutory prices product factors used rebate calculations include identification products sold subject rebate customer government agency price terms apply estimated lag time sale payment rebate using historical trends adjusted current changes abbott estimates amount rebate paid records liability reduction gross sales abbott records sale product settlement rebate generally occurs one six months sale abbott regularly analyzes historical rebate trends makes adjustments reserves changes trends terms rebate programs historically adjustments prior years rebate accruals material net income allowances charged gross sales include cash discounts returns significant cash discounts known within 15 30 days sale therefore reliably estimated returns reliably estimated abbotts historical returns low sales return terms sales terms remained relatively unchanged several periods product warranties also significant abbott also applies judgment determining timing revenue recognition related contracts include multiple performance obligations total transaction price contract allocated performance obligation amount based estimated relative standalone selling prices promised goods services underlying performance obligation goods services observable standalone selling prices available abbott uses expected cost plus margin approach estimate standalone selling price performance obligation remaining performance obligations december 31 2020 estimated revenue expected recognized future related performance obligations unsatisfied partially unsatisfied approximately 38 billion diagnostic products segment approximately 430 million medical devices segment abbott expects recognize revenue approximately 60 percent remaining performance obligations next 24 months approximately 17 percent subsequent 12 months remainder thereafter performance obligations primarily reflect future sale reagentsconsumables contracts minimum purchase obligations extended warranty service obligations related previously sold equipment remote monitoring services related previously implanted devices abbott applied practical expedient described asc 606105014 included remaining performance obligations related contracts original expected durations one year less amounts assets recognized costs obtain contract customer abbott applied practical expedient asc 34040254 records expense incremental costs obtaining contracts customers period occurrence amortization period asset abbott otherwise would recognized one year less upfront commission fees paid sales personnel result obtaining renewing contracts customers incremental obtaining contract abbott capitalizes amounts contract costs capitalized commission fees amortized based contract duration assets relate ranges two ten years amounts december 31 2020 2019 significant abbott laboratories subsidiaries notes consolidated financial statements continued note 3 revenue continued additionally cost transmitters provided customers use abbott’s remote monitoring service respect certain medical devices capitalized contract costs capitalized transmitter costs amortized based timing transfer services assets relate typically ranges eight ten years amounts december 31 2020 2019 significant contract assets liabilities abbott discloses trade receivables separately consolidated balance sheet net amount expected collected contract assets primarily relate abbott’s conditional right consideration work completed billed reporting date contract assets beginning end period well changes balance significant contract liabilities primarily relate payments received customers advance performance contract abbott’s contract liabilities arise primarily medical devices reportable segment payment received upfront various multiperiod extended service arrangements changes contract liabilities period follows note 4 discontinued operations business dispositions net earnings discontinued operations include income tax benefits 24 million 2020 39 million 2018 2020 tax benefits primarily relate resolution various tax positions related abbott’s developed markets branded generic pharmaceuticals business sold mylan inc mylan 2015 tax positions relate years prior sale mylan 2018 tax benefits primarily relate resolution various tax positions related operations abbvie inc abbvie years prior separation abbott completed separation abbvie formed hold abbott’s researchbased proprietary pharmaceuticals business january 2013 abbott retained liabilities us federal foreign income taxes income prior separation note 5 supplemental financial information income expense net 2020 2019 2018 includes approximately 205 million 225 million 160 million income respectively related nonservice cost components net periodic benefit costs associated pension postretirement medical plans abbott laboratories subsidiaries notes consolidated financial statements continued note 5 supplemental financial information continued following summarizes activity 2020 related allowance doubtful accounts december 31 2020 allowance doubtful accounts reflects current estimate credit losses expected incurred life accounts receivable abbott considers various factors establishing monitoring adjusting allowance doubtful accounts including aging accounts aging trends historical level chargeoffs specific exposures related particular customers abbott also monitors risk factors forwardlooking information country risk determining credit limits customers establishing adequate allowances detail various balance sheet components follows abbott’s longterm investments december 31 2020 declined versus balance december 31 2019 due primarily investment impairments totaling approximately 115 million recorded income expense net within consolidated statement earnings partially offset approximately 35 million additional investments 2020 abbott’s equity securities december 31 2020 december 31 2019 include 366 million 346 million respectively investments mutual funds held rabbi trust acquired part st jude medical inc st jude medical business acquisition investments specifically designated available purpose paying benefits deferred compensation plan available general corporate purposes subject creditor claims event insolvency abbott also holds certain investments december 31 2020 carrying value 277 million accounted equity method accounting equity investments carrying value 113 million readily determinable fair value 113 million carrying value net approximately 60 million impairment investment 2020 abbott previously recorded unrealized gain approximately 50 million 2018 abbott laboratories subsidiaries notes consolidated financial statements continued note 5 supplemental financial information continued 2019 conjunction acquisition cephea valve technologies inc abbott acquired research development rd asset valued 102 million immediately expensed 102 million expense recorded rd line abbotts consolidated statement earnings aaccrued wholesaler chargeback rebates 178 million 175 million december 31 2020 2019 respectively netted trade receivables abbott’s customers invoiced higher catalog price remit abbott contract price products bincludes approximately 740 million 580 million net unrecognized tax benefits 2020 2019 respectively abbott laboratories subsidiaries notes consolidated financial statements continued note 6 accumulated comprehensive income loss components changes accumulated comprehensive income loss continuing operations net income taxes follows aincome loss amounts reclassified accumulated comprehensive income related cash flow hedges recorded cost products sold net actuarial losses prior service cost included component net periodic benefit cost see note 14 additional information note 7 goodwill intangible assets total amount goodwill reported 237 billion december 31 2020 232 billion december 31 2019 foreign currency translation adjustments increased goodwill approximately 550 million 2020 decreased goodwill 103 million 2019 amount goodwill related reportable segments december 31 2020 30 billion established pharmaceutical products segment 286 million nutritional products segment 38 billion diagnostic products segment 166 billion medical devices segment reduction goodwill relating impairments 2020 2019 gross amount amortizable intangible assets primarily product rights technology 278 billion 276 billion december 31 2020 2019 respectively accumulated amortization 142 billion 119 billion december 31 2020 2019 respectively foreign currency translation adjustments increased intangible assets approximately 67 million 2020 decreased intangible assets 71 million 2019 2020 asset impairments related medical devices segment decreased intangible assets 148 million impairment recorded cost products sold excluding amortization intangible assets line abbott’s consolidated statement earnings estimated annual amortization expense intangible assets recorded december 31 2020 approximately 20 billion 2021 20 billion 2022 19 billion 2023 19 billion 2024 19 billion 2025 amortizable intangible assets amortized 2 20 years abbott laboratories subsidiaries notes consolidated financial statements continued note 7 goodwill intangible assets continued indefinitelived intangible assets relate iprd acquired business combination approximately 12 billion 13 billion december 31 2020 2019 respectively decrease due iprd intangible asset related medical devices segment became amortizable 2020 55 million impairment iprd intangible asset related medical devices segment recorded research development line abbott’s consolidated statement earnings 2020 note 8 restructuring plans 2017 2020 abbott management approved restructuring plans part integration acquisitions st jude medical devices segment alere inc alere diagnostic products segment order leverage economies scale reduce costs december 31 2017 accrued balance associated actions 68 million 2018 2020 abbott recorded employee related severance charges totaling approximately 137 million comprised 13 million 2020 72 million 2019 52 million 2018 approximately 30 million recorded cost products sold approximately 15 million recorded research development approximately 92 million recorded selling general administrative expense last three years december 31 2020 accrued liabilities remaining consolidated balance sheet related actions total 25 million primarily represent severance obligations 2016 2020 abbott management approved plans streamline operations order reduce costs improve efficiencies various abbott businesses including nutritional established pharmaceuticals vascular businesses abbott recorded employee related severance charges approximately 36 million 2020 66 million 2019 28 million 2018 approximately 6 million 2020 16 million 2019 10 million 2018 recorded cost products sold approximately 2 million 2020 28 million 2019 2 million 2018 recorded research development approximately 28 million 2020 22 million 2019 16 million 2018 recorded selling general administrative expense following summarizes activity restructurings note 9 incentive stock program 2017 incentive stock program authorizes granting nonqualified stock options restricted stock awards restricted stock units performance awards foreign benefits sharebased awards stock options restricted stock awards units comprise majority benefits granted currently outstanding program prior program 2020 abbott granted 4015420 stock options 569961 restricted stock awards 5239575 restricted stock units program abbott laboratories subsidiaries notes consolidated financial statements continued note 9 incentive stock program continued abbott’s stock incentive programs purchase price shares option must least equal fair market value common stock date grant maximum term option 10 years options generally vest equally three years restricted stock awards generally vest 3 years onethird award vesting one year upon abbott reaching minimum return equity target restricted stock units vest three years upon vesting recipient receives one share abbott stock vested restricted stock unit aggregate fair market value options restricted stock awards units recognized expense requisite service period may shorter vesting period employee retirement eligible forfeitures estimated time grant restricted stock awards settlement vested restricted stock units issued treasury shares abbott generally issues new shares exercises stock options policy abbott purchase shares relating sharebased programs april 2017 abbott’s shareholders authorized 2017 incentive stock program maximum 170 million shares available issuance december 31 2020 approximately 113 million shares remained available future issuance following table summarizes stock option activity year ended december 31 2020 outstanding stock options december 31 2020 following table summarizes restricted stock awards units activity year ended december 31 2020 fair market value restricted stock awards units vested 2020 2019 2018 631 million 588 million 458 million respectively total intrinsic value options exercised 2020 2019 2018 279 million 315 million 249 million respectively total unrecognized compensation cost related sharebased compensation plans december 31 2020 amounted approximately 407 million expected recognized next three years abbott laboratories subsidiaries notes consolidated financial statements continued note 9 incentive stock program continued total noncash stock compensation expense charged income continuing operations 2020 2019 2018 sharebased plans totaled approximately 546 million 519 million 477 million respectively tax benefit recognized approximately 200 million 197 million 185 million respectively stock compensation cost capitalized part inventory significant table summarizes fair value option granted 2020 2019 2018 assumptions included blackscholes optionpricing model used estimate fair value riskfree interest rate based rates available time grant zerocoupon us government issues remaining term equal option’s expected life average life option based historical projected exercise lapsing data expected volatility based implied volatilities traded options abbott’s stock historical volatility abbott’s stock expected life option dividend yield based option’s exercise price annual dividend rate time grant abbott laboratories subsidiaries notes consolidated financial statements continued note 10 debt lines credit following summary longterm debt december 31 june 24 2020 abbott completed issuance 13 billion aggregate principal amount senior notes consisting 650 million 115 notes due 2028 650 million 140 notes due 2030 september 28 2020 abbott repaid €1140 billion outstanding principal amount 000 notes due 2020 upon maturity repayment equated approximately 13 billion abbott readily available financial resources including unused lines credit support commercial paper borrowing arrangements provide abbott ability borrow 5 billion unsecured basis lines credit part five year credit agreement revolving credit agreement abbott entered november 12 2020 time abbott also terminated 2018 revolving credit agreement outstanding borrowings 2018 revolving credit agreement time termination borrowings revolving credit agreement mature payable november 12 2025 borrowings revolving credit agreement bear interest abbott’s option based either base rate eurodollar rate plus applicable margin based abbott’s credit ratings abbott laboratories subsidiaries notes consolidated financial statements continued note 10 debt lines credit continued 2019 abbott’s longterm borrowings debt issuance included following ●on november 19 2019 abbott’s wholly owned subsidiary abbott ireland financing dac completed offering €1180 billion longterm debt consisting €590 million 010 notes due 2024 €590 million 0375 notes due 2027 proceeds equated approximately 13 billion notes guaranteed abbott ●on november 21 2019 abbott borrowed ¥598 billion 5year term loan designated yendenominated loan hedge net investment certain foreign subsidiaries term loan bears interest tibor plus fixed spread interest rate reset quarterly proceeds equated approximately 550 million 2019 abbott’s repayment longterm debt included following ●0500 billion outstanding principal amount 280 notes due 2020 redeemed february 24 2019 ●2850 billion principal amount 29 notes due 2021 redeemed december 19 2019 abbott incurred charge 63 million related early repayment debt 280 notes redeemed board directors’ 2018 bond redemption authorization discussed 29 notes redeemed bond redemption authorization approved board directors september 2019 early redemption 5 billion outstanding longterm notes 2019 bond redemption authorization superseded board’s 2018 authorization 215 billion 5 billion authorization remans available december 31 2020 january 5 2018 abbott repaid 28 billion 5year term loan agreement 115 billion borrowings lines credit february 16 2018 board directors authorized early redemption 5 billion outstanding longterm notes 2018 redemptions authorization include following ●0947 billion principal amount 5125 notes due 2019 redeemed march 22 2018 ●1055 billion 2850 billion principal amount 235 notes due 2019 redeemed march 22 2018 ●1300 billion 1795 billion outstanding principal amount 235 notes due 2019 redeemed june 22 2018 ●0495 billion outstanding principal amount 235 notes due 2019 redeemed september 28 2018 abbott incurred net charge 14 million related march 22 2018 early repayment debt september 17 2018 abbott repaid upon maturity 500 million aggregate principal amount outstanding 200 senior notes due 2018 september 27 2018 abbott’s wholly owned subsidiary abbott ireland financing dac completed euro debt offering €3420 billion longterm debt consisting €1140 billion noninterest bearing senior notes due 2020 99727 par value €1140 billion 0875 senior notes due 2023 99912 par value €1140 billion 150 senior notes due 2026 99723 par value proceeds equated approximately 4 billion notes guaranteed abbott laboratories subsidiaries notes consolidated financial statements continued note 10 debt lines credit continued october 28 2018 abbott redeemed approximately 4 billion debt included 750 million principal amount 200 notes due 2020 597 million principal amount 4125 notes due 2020 900 million principal amount 325 notes due 2023 450 million principal amount 34 notes due 2023 1300 billion principal amount 375 notes due 2026 amounts addition 5 billion authorization 2018 discussed conjunction redemption abbott unwound approximately 11 billion interest rate swaps relating 340 note due 2023 375 note due 2026 abbott incurred net charge 153 million related early repayment debt unwinding related interest rate swaps principal payments required longterm debt outstanding december 31 2020 7 million 2021 753 million 2022 24 billion 2023 13 billion 2024 15 billion 2025 125 billion 2026 thereafter december 31 2020 abbott’s longterm debt rating standard poor’s corporation a3 moody’s abbott’s weightedaverage interest rate shortterm borrowings 04at december 31 2020 2019 2018 note 11 leases abbott lessee abbott entered operating leases lessee office space manufacturing facilities rd laboratories warehouses vehicles equipment finance leases significant abbott’s operating leases generally remaining lease terms 1 10 years leases include options extend beyond original lease term generally 10 years include options terminate early options included determination lease liability reasonably certain option exercised asset classes abbott elected practical expedient allowed fasb asc 842 “leases” account lease component eg right use office space associated nonlease components eg maintenance services single lease component abbott also elected shortterm lease accounting policy asset classes therefore abbott recognizing lease liability right use rou asset lease commencement date lease term 12 months less include option purchase underlying asset abbott reasonably certain exercise abbott’s leases typically provide implicit rate interest rate used determine present value payments lease typically reflects abbott’s incremental borrowing rate based information available lease commencement date abbott’s incremental borrowing rates january 1 2019 used operating leases commenced prior january 1 2019 asc 842 adopted abbott laboratories subsidiaries notes consolidated financial statements continued note 11 leases continued following table provides information related abbott’s operating leases aincludes shortterm lease expense variable lease costs immaterial years ended december 31 2020 2019 future minimum lease payments noncancellable operating leases december 31 2020 follows following table summarizes amounts location operating lease rou assets lease liabilities abbott laboratories subsidiaries notes consolidated financial statements continued note 11 leases continued leases abbott lessor certain assets primarily diagnostics instruments leased customers contractual arrangements typically include operating salestype lease well performance obligations reagents consumables salestype leases significant contract terms vary customer may include options terminate contract options extend contract instruments provided operating lease arrangements portion entire lease revenue may variable subject subsequent nonlease component eg reagent sales allocation revenue lease nonlease components based standalone selling prices operating lease revenue represented less 3 percent abbott’s total net sales years ended december 31 2020 2019 assets related operating leases reported within net property equipment consolidated balance sheet original cost net book value assets 33 billion 14 billion respectively december 31 2020 28 billion 12 billion respectively december 31 2019 note 12 financial instruments derivatives fair value measures certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates primarily anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts gross notional amounts totaling 81 billion december 31 2020 68 billion december 31 2019 designated cash flow hedges variability cash flows due changes foreign exchange rates recorded fair value accumulated gains losses december 31 2020 included cost products sold time products sold generally next twelve eighteen months abbott enters foreign currency forward exchange contracts manage currency exposures foreign currency denominated thirdparty trade payables receivables intercompany loans trade accounts payable receivable payable denominated currency functional currency entity intercompany loans contracts require abbott sell buy foreign currencies primarily european currencies exchange primarily us dollars european currencies intercompany trade payables receivables currency exposures primarily us dollar european currencies december 31 2020 2019 abbott held gross notional amounts 110 billion 91 billion respectively foreign currency forward exchange contracts november 2019 abbott borrowed ¥598 billion 5year term loan designated yendenominated loan hedge net investment certain foreign subsidiaries proceeds equated approximately 550 million value longterm debt approximately 577 million 546 million december 31 2020 december 31 2019 respectively change value debt due changes foreign exchange rates recorded accumulated comprehensive income loss net tax abbott party interest rate hedge contracts totaling approximately 29 billion december 31 2020 2019 manage exposure changes fair value fixedrate debt contracts designated fair value hedges variability fair value fixedrate debt due changes longterm benchmark interest rates effect hedge change fixedrate interest obligation variable rate portion debt abbott records contracts fair value adjusts carrying amount fixedrate debt offsetting amount october 2018 abbott unwound approximately 11 billion interest rate swaps relating 340 note due 2023 375 note due 2026 part unwinding abbott paid approximately 90 million cash included financing activities section consolidated statement cash flows 2018 abbott laboratories subsidiaries notes consolidated financial statements continued note 12 financial instruments derivatives fair value measures continued following table summarizes amounts location certain derivative financial instruments december 31 following table summarizes activity foreign currency forward exchange contracts designated cash flow hedges debt designated hedge net investment foreign subsidiary certain derivative financial instruments well amounts location income expense gain loss reclassified income loss 171 million gain 75 million loss 100 million recognized 2020 2019 2018 respectively related foreign currency forward exchange contracts designated hedges amounts reported consolidated statement earnings net foreign exchange gain loss line interest rate swaps designated fair value hedges variability fair value fixedrate debt due changes longterm benchmark interest rates hedged debt marked market offsetting effect marking interest rate swaps market abbott laboratories subsidiaries notes consolidated financial statements continued note 12 financial instruments derivatives fair value measures continued carrying values fair values certain financial instruments december 31 shown table carrying values financial instruments approximate estimated fair values counterparties financial instruments consist select major international financial institutions abbott expect losses nonperformance counterparties fair value debt determined based significant observable inputs including current interest rates abbott laboratories subsidiaries notes consolidated financial statements continued note 12 financial instruments derivatives fair value measures continued following table summarizes bases used measure certain assets liabilities fair value recurring basis balance sheet fair value foreign currency forward exchange contracts determined using market approach utilizes values comparable derivative instruments fair value debt determined based face value debt adjusted fair value interest rate swaps based discounted cash flow analysis using significant observable inputs contingent consideration relates businesses acquired abbott fair value contingent consideration determined based independent appraisal adjusted time value money changes fair value maximum amount certain contingent consideration determinable based percent certain sales excluding contingent consideration maximum amount estimated due approximately 200 million dependent upon attaining certain sales thresholds based occurrence certain events regulatory approvals abbott laboratories subsidiaries notes consolidated financial statements continued note 13 litigation environmental matters abbott identified potentially responsible party investigation cleanup costs number locations united states puerto rico federal state remediation laws investigating potential contamination number companyowned locations abbott recorded estimated cleanup cost site management believes abbott probable loss exposure individual site cleanup exposure expected exceed 4 million aggregate cleanup exposure expected exceed 10 million abbott involved various claims legal proceedings abbott estimates range possible loss legal proceedings environmental exposures approximately 90 million 120 million recorded accrual balance december 31 2020 proceedings exposures approximately 105 million accrual represents management’s best estimate probable loss defined fasb asc 450 “contingencies” within next year legal proceedings may occur may result change estimated loss accrued abbott feasible predict outcome proceedings exposures certainty management believes ultimate disposition material adverse effect abbott’s financial position cash flows results operations note 14 postemployment benefits retirement plans consist defined benefit defined contribution medical dental plans information abbott’s major defined benefit plans postemployment medical dental benefit plans follows abbott laboratories subsidiaries notes consolidated financial statements continued note 14 postemployment benefits continued 13 billion 19 billion defined benefit plan losses 2020 2019 respectively increased projected benefit obligations years primarily reflect yearoveryear decline discount rates used measure obligations projected benefit obligations nonus defined benefit plans 41 billion 33 billion december 31 2020 2019 respectively accumulated benefit obligations defined benefit plans 119 billion 102 billion december 31 2020 2019 respectively plans projected benefit obligations exceeded plan assets december 31 2020 2019 projected benefit obligations aggregate plan assets follows plans accumulated benefit obligations exceeded plan assets december 31 2020 2019 aggregate accumulated benefit obligations projected benefit obligations aggregate plan assets follows components net periodic benefit cost follows comprehensive income loss respective year includes amortization actuarial losses prior service costs credits noted previous table comprehensive income loss respective year also includes net actuarial losses 611 million defined benefit plans gain 23 million medical dental plans 2020 net actuarial losses 944 million defined benefit plans loss 190 million medical dental plans 2019 net actuarial losses 86 million defined benefit plans gain 53 million medical dental plans 2018 net actuarial losses 2020 2019 primarily due yearoveryear decline discount rates partially offset impact actual asset returns excess expected returns period abbott laboratories subsidiaries notes consolidated financial statements continued note 14 postemployment benefits continued weighted average assumptions used determine benefit obligations defined benefit plans medical dental plans follows weighted average assumptions used determine net cost defined benefit plans medical dental plans follows assumed health care cost trend rates medical dental plans december 31 follows discount rates used measure liabilities determined based highquality fixed income securities match duration expected retiree benefits health care cost trend rates represent abbott’s expected annual rates change cost health care benefits forward projections health care costs measurement date abbott laboratories subsidiaries notes consolidated financial statements continued note 14 postemployment benefits continued following table summarizes bases used measure defined benefit medical dental plan assets fair value aa mix index funds actively managed equity accounts benchmarked various large cap indices ba mix index funds actively managed equity accounts benchmarked various mid small cap indices ca mix index funds actively managed pooled investment funds benchmarked various nonus equity indices developed emerging markets da mix index funds actively managed accounts benchmarked various us government bond indices ea mix index funds actively managed accounts benchmarked various corporate bond indices fprimarily united kingdom japan eurozone government bonds gprimarily asset backed securities actively managed diversified fixed income vehicle benchmarked onemonth libor euribor hprimarily funds invested managers global mandate flexibility allocate capital broadly across wide range asset classes strategies including limited equities fixed income commodities interest rate futures currencies securities outperform agreed upon benchmark specific return volatility targets abbott laboratories subsidiaries notes consolidated financial statements continued note 14 postemployment benefits continued iprimarily investments private funds private equity private credit private real estate private energy funds jinvestments measured fair value using net asset value nav practical expedient classified fair value hierarchy fair value amounts presented table intended permit reconciliation fair value hierarchy amounts presented consolidated balance sheet equities valued using quoted prices valued published market prices equities common collective trust registered investment company valued nav provided fund administrator nav based value underlying assets owned fund minus liabilities approximately half funds investments may redeemed per month required 7 30 day notice period remaining funds daily redemption investment allowed fixed income securities valued using significant observable inputs valued prices obtained independent financial service industry recognized vendors abbott unfunded commitments related fixed income funds december 31 2020 2019 fixed income securities common collective trust registered investment company valued nav provided fund administrator majority funds investments may redeemed either weekly monthly required 2 14 day notice period remaining funds investments may generally redeemed daily absolute return funds valued nav provided fund administrator private funds valued nav provided fund onequarter lag adjusted known cash flows significant events reporting date abbott unfunded commitments related absolute return funds december 31 2020 2019 investments funds may generally redeemed monthly quarterly required notice periods ranging 5 90 days approximately 245 million 110 million absolute return funds redemptions subject 33 percent gate 25 percent gate respectively 60 million subject lock 2022 investments private funds cannot redeemed funds make distributions liquidation estimate liquidation period fund ranges 2021 2030 abbott’s unfunded commitment funds 523 million 579 million december 31 2020 2019 respectively investment mix equity securities fixed income asset allocation strategies based upon achieving desired return well balancing higher return volatile equity securities lower return less volatile fixed income securities investment allocations made across range markets industry sectors capitalization sizes case fixed income securities maturities credit quality plans directly hold securities abbott known significant concentrations risk plans’ assets abbott’s medical dental plans’ assets invested similar mix pension plan assets actual asset allocation percentages year end consistent company’s targeted asset allocation percentages plans’ expected return assets shown based management’s expectations longterm average rates return achieved underlying investment portfolios establishing assumption management considers historical expected returns asset classes plans invested well current economic capital market conditions abbott funds domestic pension plans according irs funding limitations international pension plans funded according similar regulations abbott funded 400 million 2020 382 million 2019 defined pension plans abbott expects contribute approximately 410 million pension plans 2021 abbott laboratories subsidiaries notes consolidated financial statements continued note 14 postemployment benefits continued total benefit payments expected paid participants includes payments funded company assets well paid plans follows abbott stock retirement plan principal defined contribution plan abbott’s contributions plan 164 million 2020 158 million 2019 146 million 2018 contributions include amounts related participants st jude medical retirement plan terminated january 2018 note 15 taxes earnings continuing operations taxes earnings continuing operations reflect annual effective rates including charges interest penalties deferred income taxes reflect tax consequences future years differences tax bases assets liabilities financial reporting amounts 2020 taxes earnings continuing operations include recognition approximately 170 million tax benefits associated impairment certain assets approximately 140 million net tax benefits result resolution various tax positions related prior years approximately 100 million excess tax benefits associated sharebased compensation 2020 taxes earnings continuing operations also include 26 million increase transition tax associated 2017 tcja 26 million increase transition tax liability result resolution various tax positions related prior years adjustment increased cumulative net tax expense related tcja 153 billion onetime transition tax based abbott’s total post1986 earnings profits ep previously deferred us income taxes tax computation also requires determination amount post1986 ep considered held cash specified assets december 31 2020 remaining balance abbott’s transition tax obligation approximately 805 million paid next six years allowed tcja 2019 taxes earnings continuing operations included 86 million reduction transition tax 68 million tax expense resulting tax legislation enacted fourth quarter 2019 india 86 million reduction transition tax liability result issuance final transition tax regulations us department treasury 2019 2018 taxes earnings continuing operations included 98 million net tax expense related settlement abbott’s 20142016 federal income tax audit us partial settlement former st jude medical consolidated group’s 2014 2015 federal income tax returns us audit settlements various countries 2018 abbott also recorded 130 million additional tax expense related tcja 130 million reflected 120 million increase transition tax 289 billion 301 billion 10 million reduction net benefit related remeasurement deferred tax assets liabilities undistributed foreign earnings remain indefinitely reinvested foreign operations determining amount unrecognized deferred tax liability related remaining undistributed foreign earnings subject transition tax additional outside basis difference foreign entities practicable us abbott’s federal income tax returns 2016 settled numerous income tax jurisdictions tax returns yet settled none individually significant reserves interest penalties significant abbott laboratories subsidiaries notes consolidated financial statements continued note 15 taxes earnings continuing operations continued earnings continuing operations taxes related provisions taxes earnings continuing operations follows differences effective income tax rate us statutory tax rate follows impact foreign operations primarily derived operations puerto rico switzerland ireland netherlands costa rica singapore malta abbott laboratories subsidiaries notes consolidated financial statements continued note 15 taxes earnings continuing operations continued tax effect differences give rise deferred tax assets liabilities follows abbott incurred losses foreign jurisdiction realization future economic benefit remote benefit reflected deferred tax asset following table summarizes gross amounts unrecognized tax benefits without regard reduction tax liabilities additions deferred tax assets liabilities unrecognized tax benefits settled total amount unrecognized tax benefits recognized would impact effective tax rate approximately 108 billion abbott believes reasonably possible recorded amount gross unrecognized tax benefits may decrease within range 70 million 430 million including cash adjustments within next twelve months result concluding various domestic international tax matters abbott laboratories subsidiaries notes consolidated financial statements continued note 16 segment geographic area information abbott’s principal business discovery development manufacture sale broad line health care products abbott’s products generally sold directly retailers wholesalers hospitals health care facilities laboratories physicians’ offices government agencies throughout world abbott’s reportable segments follows established pharmaceutical productsinternational sales broad line branded generic pharmaceutical products nutritional productsworldwide sales broad line adult pediatric nutritional products diagnostic productsworldwide sales diagnostic systems tests blood banks hospitals commercial laboratories alternatecare testing sites segment reporting purposes core laboratories diagnostics rapid diagnostics molecular diagnostics point care divisions aggregated reported diagnostic products segment medical devices worldwide sales rhythm management electrophysiology heart failure vascular structural heart neuromodulation diabetes care products segment reporting purposes cardiac rhythm management electrophysiology heart failure vascular neuromodulation structural heart diabetes care divisions aggregated reported medical devices segment abbotts underlying accounting records maintained legal entity basis government public reporting requirements segment disclosures performance basis consistent internal management reporting cost corporate functions cost certain employee benefits charged segments predetermined rates approximate cost remaining costs allocated segments addition intangible asset amortization allocated operating segments intangible assets goodwill included measure segment’s assets following segment information prepared accordance internal accounting policies abbott described presented accordance generally accepted accounting principles applied consolidated financial statements anet sales operating earnings unfavorably affected impact foreign exchange 2020 2019 2018 abbott laboratories subsidiaries notes consolidated financial statements continued note 16 segment geographic area information continued bother net includes integration costs associated acquisition st jude medical alere restructuring charges 2020 2019 2018 net 2020 also includes costs related asset impairments partially offset income settlement litigation net 2018 also includes inventory stepup amortization associated acquisition alere charges restructuring actions cost reduction initiatives approximately 125 million 2020 215 million 2019 153 million 2018 abbott laboratories subsidiaries notes consolidated financial statements continued note 16 segment geographic area information continued csales country based country sold product longlived assets geographic basis primarily include property equipment excludes goodwill intangible assets deferred tax assets financial instruments december 31 2020 2019 longlived assets totaled 117 billion 102 billion respectively united states assets totaled 61 billion 51 billion respectively longlived asset balances associated countries material individual country basis either two years management report internal control financial reporting management abbott laboratories responsible establishing maintaining adequate internal control financial reporting abbott’s internal control system designed provide reasonable assurance company’s management board directors regarding preparation fair presentation published financial statements internal control systems matter well designed inherent limitations therefore even systems determined effective provide reasonable assurance respect financial statement preparation presentation abbott’s management assessed effectiveness company’s internal control financial reporting december 31 2020 making assessment used criteria set forth internal control integrated framework 2013 issued committee sponsoring organizations treadway commission based assessment believe december 31 2020 company’s internal control financial reporting effective based criteria abbott’s independent registered public accounting firm issued audit report assessment effectiveness company’s internal control financial reporting report appears page 84 robert b ford president chief executive officer robert e funck jr executive vice president finance chief financial officer philip p boudreau vice president finance controller february 19 2021 report independent registered public accounting firm shareholders board directors abbott laboratories opinion financial statements audited accompanying consolidated balance sheets abbott laboratories subsidiaries company december 31 2020 2019 related consolidated statements earnings comprehensive income shareholders’ investment cash flows three years period ended december 31 2020 related notes collectively referred “consolidated financial statements” opinion consolidated financial statements present fairly material respects financial position company december 31 2020 2019 results operations cash flows three years period ended december 31 2020 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states pcaob company’s internal control financial reporting december 31 2020 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission 2013 framework report dated february 19 2021 expressed unqualified opinion thereon basis opinion financial statements responsibility company’s management responsibility express opinion company’s financial statements based audits public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement whether due error fraud audits included performing procedures assess risks material misstatement financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation financial statements believe audits provide reasonable basis opinion critical audit matters critical audit matter communicated matter arising current period audit financial statements communicated required communicated audit committee 1 relates accounts disclosures material financial statements 2 involved especially challenging subjective complex judgments communication critical audit matter alter way opinion consolidated financial statements taken whole communicating critical audit matter providing separate opinion critical audit matter accounts disclosures relates income taxes unrecognized tax benefits description matter described note 15 consolidated financial statements unrecognized tax benefits approximately 12 billion december 31 2020 unrecognized tax benefits assessed management quarterly identification measurement frequently indicators suggesting change unrecognized tax benefits assessing tax positions involves judgement including interpreting tax laws multiple jurisdictions assumptions relevant measurement unrecognized tax benefit including estimated amount tax liability may incurred tax position sustained upon inspection tax authority judgements assumptions significantly affect unrecognized tax benefits addressed matter audit obtained understanding evaluated design tested operating effectiveness controls company’s identification measurement unrecognized tax benefits well process assessment events may indicate change unrecognized tax benefits warranted example tested controls management’s review completeness identified unrecognized tax benefits well controls management’s review significant assumptions used within measurement unrecognized tax benefits support tax professionals among audit procedures performed evaluated reasonableness management’s judgement respect interpretation tax laws multiple jurisdictions reading evaluating management’s documentation including relevant accounting policies considering tax law including statutes regulations case law affected management’s judgments tested completeness management’s assessment identification unrecognized tax benefits possible outcomes related including evaluation technical merits unrecognized tax benefits also tested support valuation specialists appropriateness consistency management’s methods significant assumptions associated measurement unrecognized tax benefits including assessing estimated amount tax liability may incurred tax position sustained upon inspection tax authority ernst young llp served company’s auditor since 2013 chicago illinois february 19 2021 report independent registered public accounting firm shareholders board directors abbott laboratories opinion internal control financial reporting audited abbott laboratories subsidiaries’ internal control financial reporting december 31 2020 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission 2013 framework coso criteria opinion abbott laboratories subsidiaries company maintained material respects effective internal control financial reporting december 31 2020 based coso criteria also audited accordance standards public company accounting oversight board united states pcaob consolidated balance sheets company december 31 2020 2019 related consolidated statements earnings comprehensive income shareholders investment cash flows three years period ended december 31 2020 related notes report dated february 19 2021 expressed unqualified opinion thereon basis opinion company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management report internal control financial reporting responsibility express opinion company’s internal control financial reporting based audit public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audit accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate ernst young llp chicago illinois february 19 2021 item 9 item 8 financial statements supplementary data incorporated herein reference portions 1997 annual report captioned consolidated statement earnings consolidated statement cash flows consolidated balance sheet consolidated statement shareholders investment notes consolidated financial statements report independent public accountants contains related report arthur andersen llp dated january 15 1998 except respect matter discussed note 12 date february 13 1998 data relating quarterly results found note 9 item 9 item 8 financial statements supplementary data abbott laboratories subsidiaries consolidated statement earnings comprehensive income dollars shares thousands except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement cash flows dollars thousands accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated balance sheet dollars thousands abbott laboratories subsidiaries consolidated balance sheet dollars thousands accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement shareholders investment dollars thousands except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries notes consolidated financial statements note 1 summary significant accounting policies nature business abbotts principal business discovery development manufacture sale broad line health care products concentration risk guarantees due nature operations abbott subject significant concentration risks relating customers products geographic locations except three wholesalers accounted 20 percent 22 percent 19 percent trade receivables december 31 2003 2002 2001 respectively abbott material exposures offbalance sheet arrangements special purpose entities activities include nonexchangetraded contracts accounted fair value abbott periodically entered agreements ordinary course business assignment product rights companies resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote addition abbott periodically acquires small companies abbott agrees pay contingent consideration based attaining certain thresholds product warranties significant basis consolidation consolidated financial statements include accounts parent company subsidiaries elimination intercompany transactions accounts foreign subsidiaries consolidated november 30 due time needed consolidate subsidiaries events occurred related foreign subsidiaries december 2003 2002 2001 materially affected financial position results operations use estimates financial statements prepared accordance generally accepted accounting principles necessarily include amounts based estimates assumptions management actual results could differ amounts significant estimates include amounts litigation income taxes sales rebates valuation intangibles inventory accounts receivable exposures pension postemployment benefits litigation abbott accounts litigation losses accordance statement financial accounting standards sfas 5 accounting contingencies sfas 5 loss contingency provisions recorded probable losses managements best estimate loss best estimate cannot made minimum loss contingency amount recorded sales rebates provisions rebates customers provided period related sales recorded historical data readily available reliable used estimating amount reduction gross sales income taxes deferred income taxes provided tax effect temporary differences tax bases assets liabilities reported amounts financial statements enacted statutory rate effect taxes paid us income taxes provided earnings foreign subsidiaries operating puerto rico tax incentive grants intended remitted parent company deferred income taxes provided undistributed earnings reinvested indefinitely foreign subsidiaries working capital plant equipment loss contingency provisions recorded estimated amount audit settlements pension postemployment benefits abbott accrues actuarially determined cost pension postemployment benefits service attribution periods employees assistance outside actuaries abbott must develop longterm assumptions significant health care costs trend rate discount rate expected return plan assets differences expected longterm return plan assets actual annual return amortized fiveyear period valuation intangible assets purchased intangible assets recorded fair value fair value significant purchased intangible assets based independent appraisals abbott uses discounted cash flow model value intangible assets discounted cash flow model requires assumptions timing amount future net cash inflows risk cost capital terminal values intangible assets goodwill reviewed impairment least quarterly annual basis respectively cash equivalents investment securities cash equivalents consist time deposits certificates deposit original maturities three months less investments marketable equity securities classified availableforsale recorded fair value unrealized holding gains losses net tax included accumulated comprehensive income loss investments equity securities traded public stock exchanges recorded cost abbott monitors equity investments temporary declines fair value charges impairment losses income temporary decline estimated value occurs investments debt securities classified heldtomaturity management intent ability hold securities maturity reported cost net unamortized premium discount income relating securities reported component interest income inventories stated lower cost firstin firstout basis market cost includes material conversion costs property equipment depreciation amortization provided straightline basis estimated useful lives assets following table shows estimated useful lives property equipment product liability provisions made portions probable losses covered product liability insurance translation adjustments foreign operations highly inflationary economies translation gains losses included net foreign exchange gain loss remaining foreign operations translation adjustments included component accumulated comprehensive income loss revenue recognition revenue product sales recognized upon passage title risk loss customers product delivered common carrier shipment domestic customers provisions discounts rebates sales incentives customers returns adjustments provided period related sales recorded sales product rights marketable products recorded revenue upon disposition rights sales incentives customers material revenue license product rights performance research selling activities recorded periods earned research development costs internal research development costs expensed incurred clinical trial costs incurred third parties expensed contracted work performed contingent milestone payments due third parties research development arrangements milestone payment obligations expensed milestone results achieved stockbased compensation abbott measures compensation cost using intrinsic valuebased method accounting stock options replacement stock options granted employees restricted stock awards amortized vesting period charge compensation expense note 2 supplemental financial information dollars thousands athe payable tap related service agreement recorded accounts payable 691095 666422 554156 december 31 2003 2002 2001 respectively baccrued wholesaler chargeback rebates 81292 81017 72586 december 31 2003 2002 2001 respectively netted trade receivables accrued wholesaler chargeback rebates netted trade receivables abbotts customers invoiced higher catalog price remit abbott contract price products note 3 investment securities dollars thousands following summary investment securities december 31 investment securities listed 15575 247998 323974 held december 31 2003 2002 2001 respectively subsidiaries operating puerto rico tax incentive grants expiring 2015 2020 abbott reviews carrying value investments equity securities quarter determine whether temporary decline market value exists abbott considers factors affecting investee factors affecting industry investee operates general equity market trends abbott considers length time investments market value carrying value nearterm prospects recovery carrying value abbott determines temporary decline occurred investment written charge income expense net gross unrealized holding gains losses current longterm heldtomaturity investment securities totaled 1400 2200 respectively december 31 2003 1500 8500 respectively december 31 2002 2000 17200 respectively december 31 2001 gross unrealized holding gains losses availableforsale equity securities totaled 162700 4000 respectively december 31 2003 24400 9200 respectively december 31 2002 57000 1800 respectively december 31 2001 current longterm heldtomaturity securities availableforsale equity securities adjusted cost basis investments market value less one year december 31 2003 note 4 financial instruments derivatives certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts totaling 602 million 857 million 571 million december 31 2003 2002 2001 designated cash flow hedges variability cash flows due changes foreign exchange rates abbott records contracts fair value resulting credits 36 million 114 million accumulated comprehensive income loss 2003 2001 respectively 288 million charge accumulated comprehensive income loss 2002 hedge ineffectiveness recorded income 2003 2002 2001 accumulated gains losses december 31 2003 included cost products sold time products sold generally end 2004 abbott party interest rate hedge contracts totaling 325 billion manage exposure changes fair value 325 billion fixedrate debt due july 2004 2006 contracts designated fair value hedges variability fair value fixedrate debt due changes longterm benchmark interest rates effect hedge change fixedrate interest obligation variable rate portion debt abbott records contracts fair value adjusts carrying amount fixedrate debt offsetting amount hedge ineffectiveness recorded income 2003 2002 2001 abbott enters foreign currency forward exchange contracts manage currency exposures foreign currency denominated thirdparty trade payables receivables intercompany loans trade accounts payable receivable payable denominated currency functional currency entity intercompany loans contracts require abbott sell foreign currencies primarily european currencies japanese yen exchange primarily us dollars european currencies intercompany trade payables receivables currency exposures primarily us dollar european currencies japanese yen contracts recorded fair value resulting gains losses reflected income net foreign exchange gain loss december 31 2003 2002 2001 abbott held 30 billion 19 billion 31 billion respectively foreign currency exchange contracts carrying values fair values certain financial instruments december 31 shown table carrying values financial instruments approximate estimated fair values fair value quoted market price instrument held quoted market price similar instrument counter parties financial instruments consist select major international financial institutions abbott expect losses nonperformance counter parties note 5 postemployment benefits dollars thousands retirement plans consist defined benefit defined contribution medical dental plans information abbotts major defined benefit plans postemployment medical dental benefit plans follows accumulated benefit obligations defined benefit plans approximately 3762000 3037000 2565000 december 31 2003 2002 2001 respectively 2003 2002 abbott recorded minimum pension liability adjustments 155134 342874 respectively accumulated benefit obligations certain domestic international defined benefit plans exceeded market value plans assets resulted charges accumulated comprehensive income loss 99155 2003 203182 2002 net taxes plans accumulated benefit obligations exceeded plan assets december 31 2003 2002 aggregate accumulated benefit obligations 3033000 2383000 respectively projected benefit obligations 3824000 3053000 respectively aggregate plan assets 2567000 1981000 respectively weighted average discount rate used december 31 2003 determining accumulated benefit obligations defined benefit plans whose accumulated benefit obligations excess plan assets 59 percent onepercentage point reduction discount rate december 31 2003 would result increase minimum pension liability adjustments increase charge accumulated comprehensive income loss approximately 780000 500000 respectively weighted average assumptions used determine benefit obligations defined benefit plans medical dental plans december 31 measurement date plans follows weighted average assumptions used determine net cost defined benefit plans medical dental plans 2003 2002 2001 follows assumed health care cost trend rates medical dental plans december 31 follows onepercentage point increasedecrease assumed health care cost trend rate would increasedecrease accumulated postemployment benefit obligations december 31 2003 189955142466 total service interest cost components net postemployment health care cost year ended approximately 2283718041 december 8 2003 president united states signed medicare prescription drug improvement modernization act 2003 among provisions act provision granting subsidy sponsors retirement medical plans prescription drug coverage benefit least actuarially equivalent medicare part benefit financial accounting standards board issued final rules specifying sponsors account subsidy abbott estimated expected favorable impact legislation retiree medical obligations costs therefore reflected effect legislation financial statements final rules issued financial accounting standards board could require companies including abbott retroactively change amounts included accompanying consolidated financial statements weighted average asset allocation abbotts us defined benefit plans asset category follows investment mix equity securities fixed income securities based upon achieving desired return balancing higher return volatile equity securities lower return less volatile fixed income securities abbotts domestic defined benefit plans invested diversified portfolios publicmarket equity fixed income securities investment allocations made across range markets industry sectors capitalization sizes case fixed income securities maturities credit quality plans hold securities abbott plans expected return assets shown based managements expectations longterm average rates return achieved underlying investment portfolios establishing assumption management considers historical expected returns asset classes plans invested well current economic capital market conditions abbott funds domestic pension plans according irs funding limitations 2003 2002 200000 106000 respectively funded main domestic pension plan abbott expects contribute 250 million 300 million main domestic defined benefit plan 2004 abbott stock retirement plan principal defined contribution plan abbotts contributions plan 115000 2003 109000 2002 97000 2001 abbott provides certain postemployment benefits primarily salary continuation plans qualifying domestic employees accrues related cost service lives employees note 6 taxes earnings dollars thousands deferred income taxes reflect tax consequences future years temporary differences tax bases assets liabilities financial reporting amounts us income taxes provided earnings foreign subsidiaries operating puerto rico tax incentive grants intended remitted parent company undistributed earnings reinvested indefinitely foreign subsidiaries working capital plant equipment aggregated 5194000 december 31 2003 practicable determine amount deferred income taxes provided earnings abbotts us income tax returns 1992 prior years audited internal revenue service closed us abbotts income tax returns years 1992 open earnings taxes related provisions taxes earnings follows differences effective income tax rate us statutory tax rate follows december 31 2003 2002 2001 total deferred tax assets 2505502 2375526 2412064 respectively total deferred tax liabilities 1075209 904822 913614 respectively valuation allowances deferred tax assets significant temporary differences give rise deferred tax assets liabilities follows note 7 segment geographic area information dollars millions revenue segments abbotts principal business discovery development manufacture sale broad line health care products abbotts products generally sold directly retailers wholesalers hospitals health care facilities laboratories physicians offices government agencies throughout world abbotts reportable segments follows pharmaceutical products us sales broad line pharmaceuticals diagnostic products worldwide sales diagnostic systems tests blood banks hospitals consumers commercial laboratories alternatecare testing sites hospital products us sales intravenous irrigation fluids related administration equipment drugs drugdelivery systems anesthetics critical care products medical specialty products hospitals alternatecare sites ross products us sales broad line adult pediatric nutritional products pediatric pharmaceuticals consumer products international nonus sales abbotts pharmaceutical hospital nutritional products sold international manufactured domestic segments international manufacturing locations abbotts underlying accounting records maintained legal entity basis government public reporting requirements segment disclosures performance basis consistent internal management reporting intersegment transfers inventory recorded standard cost measure segment operating earnings cost corporate functions cost certain employee benefits sold segments predetermined rates approximate cost remaining costs allocated segments intangible assets related amortization business acquisitions allocated segments following segment information prepared accordance internal accounting policies abbott described presented accordance generally accepted accounting principles applied consolidated financial statements anet sales operating earnings favorably impacted 2002 2001 acquisition pharmaceutical business basf 2001 bnet sales operating earnings 2003 favorably affected relatively weaker us dollar unfavorably affected 2002 2001 relatively stronger us dollar cother expenses net 2003 includes charges 622 settlement ross enteral nutritional investigation 88 impairments assets 2002 includes charges 174 restructuring plans 116 fda consent decree 211 temporary declines market value equity securities dsales country based country sold product note 8 litigation environmental matters abbott involved various claims legal proceedings including number antitrust suits investigations connection pricing prescription pharmaceuticals suits investigations allege various pharmaceutical manufacturers conspired fix prices prescription pharmaceuticals andor discriminate pricing retail pharmacies providing discounts mailorder pharmacies institutional pharmacies hmos violation state federal antitrust laws suits brought behalf retail pharmacies name certain pharmaceutical manufacturers including abbott defendants cases seek treble damages civil penalties injunctive relief abbott filed response complaints denying substantive allegations us attorneys office southern district illinois conducting industrywide investigation enteral nutritional business investigation civil criminal nature 2003 abbott reached settlement us attorney resolving outstanding allegations government paid settlement amount 614 million classified selling general administration expense additional costs related settlement 8 million classified cost products sold several lawsuits pending connection sales hytrin suits allege abbott violated state federal antitrust laws cases unfair competition laws signing patent settlement agreements geneva pharmaceuticals inc zenith laboratories inc 1998 agreements related pending patent infringement lawsuits abbott two companies suits also allege abbott violated various state federal laws filing frivolous patent infringement lawsuits protect hytrin generic competition cases seek treble damages civil penalties relief abbott filed intends file response complaints denying substantive allegations abbott identified potentially responsible party investigation cleanup costs number locations united states puerto rico federal state remediation laws investigating potential contamination number companyowned locations abbott recorded estimated cleanup cost site management believes abbott probable loss exposure individual site cleanup exposure expected exceed 3 million aggregate cleanup exposure expected exceed 20 million within next year legal proceedings may occur may result change estimated reserves recorded abbott legal proceedings environmental exposures discussed note 9 abbott estimates range possible loss approximately 125 million 200 million abbott recorded reserves approximately 140 million proceedings exposures reserves represent managements best estimate probable loss defined statement financial accounting standards 5 accounting contingencies feasible predict outcome proceedings exposures certainty management believes ultimate disposition material adverse effect abbotts financial position cash flows results operations note 9 tap pharmaceutical products inc tap pharmaceutical products inc tap abbott named defendants several lawsuits alleging violations various state federal laws connection taps marketing pricing lupron abbott filed intends file response lawsuits denying substantive allegations 2001 tap entered agreement us government settle matters relating investigation involving taps marketing prostate cancer drug lupron 2001 abbotts income tap joint venture reduced charge 274 million relating investigation within next year legal proceedings may occur may result change estimated reserves recorded tap abbott feasible predict outcome pending claims proceedings investigations certainty management opinion ultimate disposition material adverse effect abbotts financial position cash flows results operations note 10 restructuring plans asset impairments dollars millions october 2002 abbott announced restructuring plans align abbotts global manufacturing operations scientific focus achieve greater operating efficiencies diagnostic products international segments recorded pretax charge 174 reflecting impairment manufacturing facilities assets employee severance charges approximately 83 classified cost products sold 5 research development 86 selling general administrative restructuring plans resulted elimination approximately 2100 net positions employee groups covered restructuring plans included manufacturing research development sales administrativerelated functions following summarizes restructuring activity accrued balance december 31 2003 relates primarily employee severance obligations local laws must paid time 2001 2002 abbott implemented restructuring plans related operations acquired pharmaceutical business basf addition abbott announced 2001 closing one abbotts manufacturing operations relocating production abbott facilities following summarizes restructuring activity 2002 59 restructuring charge recorded goodwill associated acquisition pharmaceutical business basf 2001 total 207 restructuring charges 156 recorded goodwill associated acquisition pharmaceutical business basf amount expensed approximately 36 classified cost products sold 2 research development 13 selling general administrative employeerelated costs primarily severance pay relocation former basf employees outplacement services restructuring plans resulted elimination approximately 2400 positions employee groups covered restructuring plans included manufacturing research development sales administrativerelated functions accrued balance december 31 2003 relates primarily employee severance obligations local laws must paid time 2003 abbott recorded charge cost products sold approximately 88 million impairment assets expenses result lower sales forecast abbokinase note 11 incentive stock program 1996 incentive stock program authorizes granting stock options replacement stock options stock appreciation rights limited stock appreciation rights restricted stock awards performance units foreign qualified benefits stock options replacement stock options restricted stock awards comprise majority benefits granted currently outstanding program prior programs 2003 abbott granted 24619775 stock options 2845210 replacement stock options 147153 restricted stock awards program purchase price shares option must least equal fair market value common stock date grant maximum term option 10 years options granted 2003 2002 2001 vest equally three years except replacement options vest six months employee tenders mature shares abbott upon exercise stock option replacement stock option granted equal amount shares tendered replacement options granted current market price term expires date underlying option grant upon change control abbott outstanding stock options become fully exercisable terms conditions restricted stock awards deemed satisfied expected spinoff hospira discussed note 18 change control plan january 1 2004 418 million shares reserved future grants 1996 program subsequent yearend board directors granted approximately 203 million stock options reserve abbott measures compensation cost using intrinsic valuebased method accounting stock options replacement options granted employees compensation cost determined using fair valuebased accounting method pro forma net income billions earnings per share eps amounts would follows weighted average fair value option granted 2003 2002 2001 873 1647 1331 respectively purposes fair value disclosures fair value option grant estimated using blackscholes optionpricing model following assumptions note 12 us food drug administration consent decree terms 1999 consent decree us government abbott prohibited manufacturing certain diagnostic products sale us lake county ill manufacturing facilities found substantial conformity food drug administrations fda quality system regulation december 2003 fda found facilities substantial conformity abbott start process manufacturing impacted products sale us connection consent decree abbott recorded remediation costs payments government including pretax charge 129 million 2002 note 13 debt lines credit dollars thousands following summary longterm debt december 31 principal payments required longterm debt outstanding december 31 2003 1656772 2004 154587 2005 1854275 2006 91994 2007 858189 2008 417053 thereafter december 31 2003 abbott 3000000 unused lines credit support commercial paper borrowing arrangements related compensating balances subject withdrawal abbott option commitment fees material abbotts weighted average interest rate shortterm borrowings 11 december 31 2003 2002 19 december 31 2001 note 14 business combinations technology acquisitions 2003 abbott acquired zoneperfect nutrition company marketer healthy nutritious products active people approximately 160 million cash integrated vascular systems inc developer novel vessel closure technology approximately 65 million cash spinal concepts inc marketer spinal fixation products used treatment spinal disorders diseases injuries approximately 166 million cash plus additional milestone payments 40 million agreed upon targets met 2003 abbott also acquired assets jomed nvs coronary peripheral interventional business approximately 68 million cash acquisitions resulted charge approximately 100 million acquired inprocess research development intangible assets approximately 222 million nontax deductible goodwill approximately 182 million acquired intangible assets primarily product technology amortized 9 25 years average approximately 16 years acquisitions taken place january 1 previous year consolidated sales income would significantly different reported amounts 2002 abbott acquired cardiovascular stent business biocompatibles international plc certain cardiovascular stent technology rights medtronic inc addition abbott acquired additional 288 percent issued common shares hokuriku seiyaku co ltd resulting abbott owning substantially common shares hokuriku seiyaku co ltd aggregate cash purchase price 586 million strategic business technology acquisitions resulted pretax charge acquired inprocess research development approximately 108 million intangible assets approximately 145 million nontax deductible goodwill approximately 257 million acquired intangible assets primarily product technology amortized 4 13 years average approximately 8 years acquisitions taken place january 1 previous year consolidated sales income would significantly different reported amounts march 2 2001 abbott acquired cash pharmaceutical business basf included global operations knoll pharmaceuticals approximately 72 billion acquisition financed primarily short longterm borrowings accounted purchase method accounting acquisition cost allocated intangible assets 35 billion goodwill 24 billion acquired inprocess research development 12 billion net tangible assets 01 billion based independent appraisal fair values product rights marketed products amortized straightline basis 10 16 years average 13 years goodwill amortized 2001 straightline basis 20 years acquired inprocess research development charged expense 2001 net tangible assets acquired consist primarily property equipment approximately 630 million trade accounts receivable approximately 402 million inventories approximately 275 million net assumed liabilities primarily trade accounts payable liabilities prior date acquisition abbott began plan integration restructuring business 2001 2002 abbott formally approved several restructuring plans certain costs implementing formally approved plans included goodwill acquisition taken place january 1 2000 pro forma consolidated sales would 167 billion pro forma net income would 23 billion pro forma diluted earnings per share would 146 2001 abbott acquired cash outstanding common stock vysis inc leading genomic disease management company cash acquisition cost approximately 362 million 162 million allocated developed technology amortized 15 years 143 million charged earnings 2001 acquired inprocess research development remaining acquisition cost allocated net tangible assets goodwill acquisition taken place january 1 previous year consolidated sales income would significantly different reported amounts note 15 goodwill intangible assets dollars millions except per share amounts effective adoption sfas 142 goodwill intangible assets january 1 2002 goodwill longer subject amortization estimated useful life goodwill subject least annual assessment impairment applying fairvaluebased test abbott assesses goodwill impairment third quarter year goodwill certain intangible assets subject amortization 2001 transitional pro forma net income would higher approximately 106 transitional pro forma diluted earnings per share would higher 007 abbott recorded goodwill 182 316 2003 2002 respectively related acquisitions foreign currency translation adjustments increased goodwill 2003 2002 approximately 522 251 respectively reductions goodwill 2003 relating impairments disposal portion business gross amount amortizable intangible assets primarily product rights technology 4841 4504 4359 december 31 2003 2002 2001 respectively accumulated amortization 899 733 390 december 31 2003 2002 2001 respectively net amount intangible assets indefinite lives primarily registered trade names subject amortization 148 december 31 2003 2002 2001 estimated annual amortization expense intangible assets 374 2004 367 2005 364 2006 351 2007 328 2008 intangible assets amortized straightline basis 4 25 years average 14 years note 16 equity method investments dollars millions abbotts 50 percentowned joint venture tap pharmaceutical products inc tap accounted equity method accounting investment tap 340 370 392 december 31 2003 2002 2001 respectively dividends received tap 606 695 433 2003 2002 2001 respectively abbotts income tap joint venture recognized net consolidating adjustments abbott performs certain administrative selling manufacturing services tap negotiated rates approximate fair market value summarized financial information tap follows undistributed earnings investments accounted equity method amounted 315 december 31 2003 note 17 stock purchase rights common shares outstanding subject stock purchase rights exercisable person group acquires ten percent abbott common shares announces tender exchange offer would result ownership ten percent abbott common shares following acquisition ten percent abbotts common shares holders rights acquiring person group may purchase abbott common shares half price event merger acquisition abbott holders rights acquiring person group may purchase shares acquiring entity half price rights exercisable december 31 2003 note 18 spinoff abbotts core hospital products business august 2003 abbott announced plan create separate publicly traded company existing core hospital products business new company hospira inc include operations relating manufacture sale hospital products including specialty injectable pharmaceuticals medication delivery systems critical care devices injectable pharmaceutical contract manufacturing hospira expected spun abbott first half 2004 pending final approval distribution abbotts board directors include abbotts hospital products segment portions abbotts international segment shares hospiras common stock distributed abbott shareholders taxfree distribution prorata basis abbott received ruling internal revenue service spinoff qualifies taxfree distribution hospira borrow assume approximately 750 million debt proceeds retained abbott pay domestic commercial paper borrowings hospira filed preliminary form 10 securities exchange commission includes 2002 unaudited pro forma annual net sales approximately 24 billion unaudited pro forma annual earnings income taxes approximately 350 million annual net cash flow operating investing activities approximately 340 million subsequent spinoff financial results hospira presented discontinued operations abbotts financial statements note 19 quarterly results unaudited dollars millions except per share data afirstquarter 2001 included pretax charge acquired inprocess research development 1015 related acquisition pharmaceutical business basf bsecondquarter 2003 included pretax charge 622 settlement ross enteral nutritional investigation reports independent public accountants board directors shareholders abbott laboratories audited accompanying consolidated balance sheets abbott laboratories subsidiaries company december 31 2003 2002 related consolidated statements earnings comprehensive income shareholders investment cash flows years ended consolidated financial statements responsibility companys management responsibility express opinion financial statements based audits consolidated financial statements company year ended december 31 2001 prior addition certain 2001 disclosures discussed note 5 note 15 audited auditors ceased operations auditors expressed report dated january 15 2002 unqualified opinion statements conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position abbott laboratories subsidiaries december 31 2003 2002 results operations cash flows years ended conformity accounting principles generally accepted united states america discussed note 15 effective january 1 2002 company changed method accounting goodwill intangible assets upon adoption statement financial accounting standards sfas 142 goodwill intangible assets discussed consolidated financial statements company year ended december 31 2001 audited auditors ceased operations consolidated financial statements revised include disclosures required sfas 132 employers disclosures pensions postretirement benefits revised 2003 audited certain 2001 disclosures note 5 described note 15 consolidated financial statements also revised include transitional disclosures required sfas 142 goodwill intangible assets audited transitional disclosures note 15 opinion additional 2001 disclosures note 5 transitional disclosures 2001 note 15 appropriate however engaged audit review apply procedures 2001 consolidated financial statements company respect disclosures accordingly express opinion form assurance 2001 consolidated financial statements taken whole deloitte touche llp chicago illinois february 11 2004 shareholders abbott laboratories audited accompanying consolidated balance sheet abbott laboratories illinois corporation subsidiaries december 31 2001 2000 1999 related consolidated statement earnings comprehensive income shareholders investment cash flows years ended financial statements responsibility abbotts management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements referred present fairly material respects financial position abbott laboratories subsidiaries december 31 2001 2000 1999 results operations cash flows years ended conformity accounting principles generally accepted united states arthur andersen llp 1 chicago illinois january 15 2002 1this report copy previously issued report covering 2001 2000 1999 predecessor auditors reissued report management report financial statements management prepared responsible abbotts consolidated financial statements related notes prepared accordance generally accepted accounting principles necessarily include amounts based judgments estimates management financial information annual report consistent consolidated financial statements abbott maintains internal accounting control systems related policies procedures designed provide reasonable assurance assets safeguarded transactions executed accordance managements authorization properly recorded accounting records may relied upon preparation consolidated financial statements financial information design monitoring revision internal accounting control systems involve among things managements judgment respect relative cost expected benefits specific control measures abbott also maintains internal auditing function evaluates formally reports adequacy effectiveness internal accounting controls policies procedures abbotts consolidated financial statements audited independent public accountants expressed opinions respect fairness statements miles white chairman board chief executive officer thomas c freyman executive vice president finance chief financial officer greg w linder vice president controller tap pharmaceutical products inc consolidated statements income comprehensive income dollars thousands see notes consolidated financial statements tap pharmaceutical products inc consolidated statements cash flows dollars thousands see notes consolidated financial statements tap pharmaceutical products inc consolidated balance sheets thousands except share amounts see notes consolidated financial statements tap pharmaceutical products inc consolidated statements shareholders equity years ended december 31 2003 2002 2001 dollars thousands except share amounts see notes consolidated financial statements tap pharmaceutical products inc notes consolidated financial statements years ended december 31 2003 2002 2001 unaudited dollars thousands note 1 description business tap pharmaceutical products inc subsidiaries tap delaware corporation owned equally abbott laboratories abbott illinois corporation takeda america holdings inc whollyowned subsidiary takeda chemical industries ltd japanese corporation collectively takeda tap headquartered lake forest illinois approximately 3200 employees agreement abbott takeda tap develops markets sells human pharmaceutical products united states puerto rico canada tap operates one business segment sales primarily united states taps primary products prevacid lupron principal indications prevacid lansoprazole proton pump inhibitor shortterm treatment duodenal ulcers gastric ulcers erosive esophagitis lupron leuprolide acetate luteinizing hormonereleasing hormone lhrh analog lupron depot sustained release form lupron used principally palliative treatment advanced prostate cancer endometriosis central precocious puberty preoperative treatment patients anemia caused uterine fibroids patents related lansoprazole lupron depot material operation taps business original united states compound patent covering lansoprazole licensed tap takeda original united states patents covering lupron depot formulations licensed tap takeda taps products generally sold directly physicians retailers wholesalers health care facilities government agencies cases distributed abbottowned distribution centers primary marketing efforts directed toward securing prescription taps brand products physicians managed care purchasers example health maintenance organizations pharmacy benefit managers increasingly important customers taps products supplied owners principally takeda disruption supply products could adversely impact operating results tap sales taps primary products 2003 2002 2001 follows financial instruments potentially subject tap concentrations credit risk consist primarily accounts receivable tap sells primarily wholesale distributors majority taps accounts receivable derived sales wholesale distributors three wholesale distributors accounted 10 taps gross sales 2003 2002 2001 follows tap material exposures offbalance sheet arrangements special purpose entities activities include nonexchangetraded contracts accounted fair value note 2 summary significant accounting policies basis presentation consolidated financial statements include accounts tap subsidiaries intercompany accounts transactions eliminated use estimates preparation financial statements conformity accounting principles generally accepted united states america requires estimates assumptions management actual results could differ estimates significant estimates include amounts litigation income taxes sales rebates inventory reserves accounts receivable allowances cash equivalents cash equivalents include time deposits certificates deposit commercial paper money market funds shortterm investments governmental agency debt securities original maturities three months less contractually convertible cash three months less investment securities investments debt securities classified heldtomaturity management intent ability hold securities maturity reported cost net unamortized premium discount investments marketable equity securities classified availableforsale recorded fair value unrealized holding gains losses net tax included accumulated comprehensive income inventories stated lower cost firstin firstout basis market cost includes material packaging costs inventories consist following december 31 property equipment property equipment recorded cost less accumulated depreciation provided using straightline method estimated useful lives assets estimated useful lives property equipment follows computer software either purchased developed use tap capitalized amortized useful life three ten years longlived assets reviewed impairment whenever events changes circumstances indicate carrying value may recoverable based projected undiscounted cash flows associated affected assets fair value less carrying value asset loss recognized difference fair value determined based market quotes available based valuation techniques intangible asset intangible asset consists purchased patent license cost 136134 less accumulated amortization 129494 116212 december 31 2003 2002 respectively patent license amortized straightline remaining life patent annual amortization expense recognized 13282 2003 2002 2001 unaudited intangible asset fully amortized 2004 revenue recognition revenue product sales recognized upon passage title risk loss customers product delivered common carrier provisions estimated rebates sales incentives customers doubtful accounts cash discounts product returns customer chargebacks provided period related sale rebates sales incentives recorded accrued rebates balance sheets reserves doubtful accounts cash discounts product returns customer chargebacks recorded reductions accounts receivable historical data readily available reliable used estimating amount reduction gross sales research development internal research development costs expensed incurred clinical trial costs incurred third parties expensed contracted work performed milestone payments due third parties research development arrangements milestone payment obligations expensed milestone results achieved advertising promotion expense advertising promotion costs expensed selling general administrative expenses incurred total advertising promotion expense incurred 344141 341562 268816 unaudited 2003 2002 2001 respectively income taxes deferred income taxes recognized tax consequences temporary differences applying statutory tax rates applicable future years differences financial statement carrying amount tax basis existing assets liabilities reclassifications certain minor reclassifications additional disclosures made prioryear financial statements conform currentyear presentation note 3 property equipment lease obligations property equipment consists following december 31 tap leases certain administrative regional sales offices equipment automobiles noncancelable leases expire various dates 2008 lease expense totaled 5220 12541 13729 unaudited 2003 2002 2001 respectively future minimum lease payments noncancelable leases december 31 2003 consist following note 4 foreign currency contracts tap enters foreign currency forward contracts purchases yen call options hedge purchases inventories fixed yendenominated prices forward contracts require tap purchase yen exchange us dollars predetermined exchange rates yen call options give tap right purchase yen exchange us dollars predetermined strike prices forward option contracts designated cash flow hedges variability cash flows due changes exchange rates tap trade financial instruments objective earning financial gains exchange rate fluctuations alone trade currencies commodities underlying exposures effectiveness forward contracts based changes forward rates effectiveness call options based solely changes fair value effective portion changes value forward option contracts recorded accumulated comprehensive income subsequently recognized earnings period hedged forecasted transactions affect earnings cash flow hedge ineffectiveness reported earnings current period december 31 2003 2002 tap outstanding foreign exchange forward contracts notional values 39840 430774 respectively fair values 921 16761 respectively tap also outstanding option contracts december 31 2002 notional value 213628 fair value 10226 fair value contracts recorded assets net accumulated gain foreign currency contracts 2505 net taxes 1503 december 31 2003 recorded accumulated comprehensive income reclassified earnings 2004 inventories sold 2003 2002 cash flow hedge ineffectiveness material foreign currency forward contracts outstanding december 31 2003 mature 2004 note 5 investments following summary investment securities december 31 carrying value cash equivalents shortterm investments approximates fair value due shortterm maturity investments fair value longterm investments debt obligations december 31 2003 74978 restricted funds represent funds shortterm money market account approximates fair value see note 7 details note 6 employee benefit plans tap employees participate various abbott employee benefit plans including abbott laboratories annuity retirement plan abbott laboratories stock retirement plan abbott laboratories incentive stock program see note 7 details tap billed share costs plans taps share employer contribution abbott laboratories annuity retirement plan allocated based taps proportionate share total compensation expense participants plan tap made contributions 2003 2002 16520 8392 respectively plan taps contribution abbott laboratories stock retirement plan based participating employee contributions compensation taps contributions 2003 2002 2001 11251 9824 7341 unaudited respectively tap provides health welfare benefits employees tap pharmaceutical products inc healthcare plan healthcare plan contributions made accordance healthcare plans funding policy tap records estimate liability incurred reported claims tap provides certain medical life insurance benefits qualifying retirees tap pharmaceutical products inc retiree medical plan retiree plan following provides reconciliation postemployment benefit obligations funded status retiree plan components net cost follows assumptions used determine benefit obligations medical dental plans december 31 measurement date plan follows assumptions used determine net cost medical dental plans 2003 2002 2001 follows assumed health care cost trend rates medical dental plans december 31 follows onepercentage point increase decrease assumed health care trend rate would increase decrease accumulated postemployment benefit obligations december 31 2003 approximately 5312 3825 respectively total service interest cost components net postemployment benefit cost year ended approximately 973 769 respectively december 8 2003 president united states signed medicare prescription drug improvement modernization act 2003 among provisions act provision granting subsidy sponsors retirement medical plans prescription drug coverage benefit least actuarially equivalent medicare part benefit financial accounting standards board fasb issued final rules specifying sponsors account subsidy tap estimated expected favorable impact legislation retiree medical obligations costs therefore reflected effect legislation financial statements final rules issued fasb could require companies including tap retroactively change amounts included consolidated financial statements note 7 incentive stock program certain key employees tap granted options purchase abbott common stock 1996 abbott incentive stock program prior plans stock options replacement stock options granted tap employees currently outstanding prior plans purchase price shares option must least equal fair market value abbott common stock date grant maximum term option 10 years options granted vest equally three years except replacement options generally vest six months life equal remaining life replaced option upon change control abbott outstanding stock options become fully exercisable option exercises transacted abbott tap liable excess fair market value option shares granted tap employees employed tap option price time exercise reimburses abbott cost options exercised annually march 2002 emerging issues task force eitf reached consensus eitf issue 0208 accounting options granted employees unrestricted publicly traded shares unrelated entity eitf 0208 requires options issued employees shares another company accounted derivatives sfas 133 accounting derivative instruments hedging activities accordingly tap records fair value stock options issued adoption eitf 0208 using blackscholes optionpricing model following assumptions december 31 2003 december 31 2003 tap recorded derivative liability options granted adoption eitf 0208 21711 changes fair value options recorded selling general administrative expense december 31 2003 2002 tap recorded liability exercised options 2816 6466 payable abbott respectively tap also recorded liability options issued adoption eitf 0208 difference fair value strike price vested yet unexercised options 15834 8978 december 31 2003 2002 respectively total expense income related abbott incentive stock program 25350 41619 33161 unaudited recorded selling general administrative expense 2003 2002 2001 respectively due impact significant fluctuations market price abbott common stock amount recorded compensation expense options issued abbott incentive stock program tap entered isda master agreement master agreement dated september 29 2000 allows tap enter equity swap transactions hedge market price exposure equity swap transaction guarantees return equal actual return specified number shares abbott common stock effectively acts hedge abbott incentive stock program time tap enters equity swap transactions master agreement transaction term three years requires quarterly cash settlement resulting gains losses realized recorded statements income transaction requires ongoing quarterly interest payments based equity notional amount fair value abbott common stock shares swapped transaction date swap rate libor plus 114 basis points 100 basis points transactions prior october 2003 equity swap transaction recorded fair value fair value equity swaps 16255 560 december 31 2003 2002 respectively recorded assets liabilities balance sheets 2003 2002 2001 tap recorded selling general administrative expenses 28600 57057 29722 unaudited respectively gain loss related equity swap investments prior october 2003 master agreement tap required keep deposit money market account collateral funds equal fair value abbott common stock shares swapped transaction date swap october 2003 tap longer required maintain collateral requirement keep deposit cash totaling 212417 lifted part decollateralization agreement total funds deposit december 31 2002 210648 included longterm investments balance sheet note 8 income taxes taps us income tax liabilities years beginning january 1 1998 forward subject final determination internal revenue service irs currently reviewing taps 1998 us income tax return management opinion based information presently available income tax reserves adequate cover amounts may ultimately payable extent amounts previously deducted differ actual amounts determined deductible taps net earnings future periods could materially affected deferred income taxes reflect tax consequences future years temporary differences tax bases assets liabilities financial reporting amounts provision income taxes includes following components differences effective tax rate us statutory tax rate follows temporary differences give rise deferred tax assets liabilities follows note 9 litigation related matters tap along shareholders involved various claims legal proceedings including number class action lawsuits alleging violations various state federal laws connection taps marketing pricing lupron tap filed response lawsuits denying substantive allegations 2001 tap entered agreement us government settle matters relating investigation involving taps marketing prostate cancer drug lupron tap recorded provision 660000 unaudited 2001 related matter december 2001 tap paid 875000 unaudited plus interest settle matter within next year legal proceedings may occur may result change estimated reserves recorded tap feasible predict outcome claims proceedings certainty management opinion ultimate disposition material adverse effect taps financial position could material adverse effect taps cash flows results operations note 10 relatedparty transactions various agreements exist among tap abbott takeda amounts due payable abbott takeda respectively netted balance sheets captions payable abbott payable takeda tap pays abbott services related copromotion agreement packaging warehousing research development administrative functions amounts incurred services totaled 312309 236836 222940 unaudited 2003 2002 2001 respectively copromotion agreement abbott promoted prevacid june 30 2003 abbott acts agent tap take title ownership taps products addition abbott purchased international markets taps products 69691 60899 57482 unaudited 2003 2002 2001 respectively tap purchases lupron depot prevacid unpackaged finished goods inventories takeda purchases contracted fixed yendenominated prices actual cost us dollars paid takeda purchases inventories 2003 2002 2001 totaled 733757 646076 662343 unaudited respectively tap royalty agreements takeda sales lupron depot prevacid 2003 2002 2001 tap recorded royalty expense 216341 216774 202901 unaudited respectively report independent public accountants board directors shareholders tap pharmaceutical products inc audited accompanying consolidated balance sheets tap pharmaceutical products inc subsidiaries tap december 31 2003 2002 related consolidated statements income comprehensive income shareholders equity cash flows years ended financial statements responsibility taps management responsibility express opinion financial statements based audits accompanying consolidated statements income comprehensive income shareholders equity cash flows year ended december 31 2001 audited us accordingly express opinion conducted audits accordance auditing standards generally accepted united states america standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position tap pharmaceutical products inc subsidiaries december 31 2003 2002 results operations cash flows years ended conformity accounting principles generally accepted united states america deloitte touche llp chicago illinois february 6 2004 item 9 item 8 financial statements supplementary data abbott laboratories subsidiaries consolidated statement earnings dollars shares thousands except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement cash flows dollars thousands accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated balance sheet dollars thousands accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement shareholders investment dollars thousands except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries notes consolidated financial statements note 1 summary significant accounting policies nature business abbotts principal business discovery development manufacture sale broad line health care products concentration risk guarantees due nature operations abbott subject significant concentration risks relating customers products geographic locations except three us wholesalers accounted 24 percent trade receivables december 31 2005 20 percent trade receivables december 31 2004 2003 product warranties significant abbott material exposures offbalance sheet arrangements special purpose entities activities include nonexchangetraded contracts accounted fair value abbott periodically entered agreements ordinary course business assignment product rights companies resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote abbott periodically acquires small companies abbott agrees pay contingent consideration based attaining certain thresholds connection spinoff hospira abbott retained liabilities taxes income prior spinoff certain potential liabilities related alleged improper pricing practices connection federal state private reimbursement certain drugs basis consolidation consolidated financial statements include accounts parent company subsidiaries elimination intercompany transactions accounts foreign subsidiaries consolidated november 30 due time needed consolidate subsidiaries december 2005 certain foreign subsidiaries borrowed approximately 14 billion borrowings related interest expense reflected december 31 2005 consolidated balance sheet 2005 consolidated statement earnings events occurred related foreign subsidiaries december 2005 2004 2003 materially affected financial position results operations cash flows use estimates financial statements prepared accordance generally accepted accounting principles united states necessarily include amounts based estimates assumptions management actual results could differ amounts significant estimates include amounts sales rebates income taxes pension postemployment benefits valuation intangibles litigation stock compensation inventory accounts receivable exposures revenue recognition revenue product sales recognized upon passage title risk loss customers product delivered common carrier shipment domestic customers provisions discounts rebates sales incentives customers returns adjustments provided period related sales recorded sales incentives customers material historical data readily available reliable used estimating amount reduction gross sales revenue launch new product improved version existing product shipments excess customers normal requirements recorded conditions noted met situations management records returns reserve revenue necessary sales product rights marketable products recorded revenue upon disposition rights revenue license product rights performance research selling activities recorded periods earned income taxes deferred income taxes provided tax effect differences tax bases assets liabilities reported amounts financial statements enacted statutory rate effect taxes paid us income taxes provided earnings foreign subsidiaries intended remitted parent company except taxes dividends remitted american jobs creation act 2004 deferred income taxes provided undistributed earnings reinvested indefinitely foreign subsidiaries working capital plant equipment loss contingency provisions recorded estimated amount audit settlements provisions statement financial accounting standards sfas 5 accounting contingencies pension postemployment benefits abbott accrues actuarially determined cost pension postemployment benefits service attribution periods employees assistance outside actuaries abbott must develop longterm assumptions significant health care costs trend rate discount rate expected return plan assets differences expected longterm return plan assets actual annual return amortized fiveyear period unrecognized actuarial losses gains amortized remaining service attribution periods employees corridor method valuation intangible assets purchased intangible assets recorded fair value fair value significant purchased intangible assets based independent appraisals abbott uses discounted cash flow model value intangible assets discounted cash flow model requires assumptions timing amount future net cash inflows risk cost capital terminal values intangible assets goodwill reviewed impairment least quarterly annual basis respectively stockbased compensation december 31 2005 abbott measured compensation cost using intrinsic valuebased method accounting stock options replacement stock options granted employees restricted stock awards units amortized vesting period charge compensation expense 2006 abbott adopt sfas 123 revised 2004 sharebased payment requires fair value stock options recorded results operations litigation abbott accounts litigation losses accordance sfas 5 sfas 5 loss contingency provisions recorded probable losses managements best estimate loss best estimate cannot made minimum loss contingency amount recorded cash equivalents investment securities cash equivalents consist time deposits certificates deposit original maturities three months less investments marketable equity securities classified availableforsale recorded fair value unrealized holding gains losses net tax included accumulated comprehensive income loss investments equity securities traded public stock exchanges recorded cost abbott monitors equity investments temporary declines fair value charges impairment losses income temporary decline estimated value occurs investments debt securities classified heldtomaturity management intent ability hold securities maturity reported cost net unamortized premium discount income relating securities reported component interest income abbott reviews carrying value investments equity securities quarter determine whether temporary decline market value exists abbott considers factors affecting investee factors affecting industry investee operates general equity market trends abbott considers length time investments market value carrying value nearterm prospects recovery carrying value abbott determines temporary decline occurred investment written charge income expense net inventories stated lower cost firstin firstout basis market cost includes material conversion costs property equipment depreciation amortization provided straightline basis estimated useful lives assets following table shows estimated useful lives property equipment product liability abbott accrues product liability claims undiscounted basis probable liability incurred amount liability reasonably estimated based existing information liabilities adjusted quarterly additional information becomes available receivables insurance recoveries product liability claims recorded assets undiscounted basis probable recovery realized abbott carries thirdparty insurance coverage amounts reflect historical loss experience include coverage catastrophic losses translation adjustments foreign operations highly inflationary economies translation gains losses included net foreign exchange gain loss remaining foreign operations translation adjustments included accumulated comprehensive income loss research development costs internal research development costs expensed incurred clinical trial costs incurred third parties expensed contracted work performed contingent milestone payments due third parties research development arrangements milestone payment obligations expensed milestone results achieved reclassification operating cash flows investing cash flows discontinued operations reclassified separately 2004 2003 consolidated statement cash flows note 2 supplemental financial information dollars thousands aaccrued wholesaler chargeback rebates 83551 72634 81292 december 31 2005 2004 2003 respectively netted trade receivables accrued wholesaler chargeback rebates netted trade receivables abbotts customers invoiced higher catalog price remit abbott contract price products note 3 financial instruments derivatives certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts totaling 222 million 984 million 602 million december 31 2005 2004 2003 respectively designated cash flow hedges variability cash flows due changes foreign exchange rates abbott records contracts fair value resulting credits 386 million 36 million accumulated comprehensive income loss 2005 2003 respectively 400 million charge accumulated comprehensive income loss 2004 hedge ineffectiveness recorded income 2005 2004 2003 accumulated gains losses december 31 2005 included cost products sold time products sold generally end 2006 abbott enters foreign currency forward exchange contracts manage currency exposures foreign currency denominated thirdparty trade payables receivables intercompany loans trade accounts payable receivable payable denominated currency functional currency entity intercompany loans contracts require abbott sell buy foreign currencies primarily european currencies japanese yen exchange primarily us dollars european currencies intercompany trade payables receivables currency exposures primarily us dollar european currencies japanese yen contracts recorded fair value resulting gains losses reflected income net foreign exchange gain loss december 31 2005 2004 2003 abbott held 39 billion 33 billion 30 billion respectively foreign currency forward exchange contracts abbott party interest rate hedge contracts totaling 31 billion manage exposure changes fair value 31 billion fixedrate debt due july 2006 march 2014 contracts designated fair value hedges variability fair value fixedrate debt due changes longterm benchmark interest rates effect hedge change fixedrate interest obligation variable rate portion debt abbott records contracts fair value adjusts carrying amount fixedrate debt offsetting amount hedge ineffectiveness recorded income 2005 2004 2003 gross unrealized holding gains losses thousands current longterm heldtomaturity investment securities totaled 300 400 respectively december 31 2005 1200 900 respectively december 31 2004 1400 2200 respectively december 31 2003 gross unrealized holding gains losses availableforsale equity securities totaled 17700 3500 respectively december 31 2005 30800 1100 respectively december 31 2004 162700 4000 respectively december 31 2003 carrying values fair values certain financial instruments december 31 shown table carrying values financial instruments approximate estimated fair values fair value quoted market price instrument held quoted market price similar instrument counter parties financial instruments consist select major international financial institutions abbott expect losses nonperformance counter parties note 4 postemployment benefits dollars thousands retirement plans consist defined benefit defined contribution medical dental plans information abbotts major defined benefit plans postemployment medical dental benefit plans follows projected benefit obligations nonus defined benefit plans 1148000 1132000 950000 december 31 2005 2004 2003 respectively accumulated benefit obligations defined benefit plans 4158000 3954000 3762000 december 31 2005 2004 2003 respectively 2005 abbott reversed previously recorded minimum pension liability adjustments 562429 assets certain defined benefit plans excess accumulated benefit obligations due primarily plan contributions 2005 resulted credit accumulated comprehensive income loss 346172 net taxes 2004 2003 abbott recorded minimum pension liability adjustments 120475 155134 respectively accumulated benefit obligations certain defined benefit plans exceeded market value plans assets resulted charges accumulated comprehensive income loss 75947 99155 2004 2003 respectively net taxes plans accumulated benefit obligations exceeded plan assets december 31 2005 2004 2003 aggregate accumulated benefit obligations 465000 3053000 3033000 respectively projected benefit obligations 508000 3738000 3824000 respectively aggregate plan assets 5000 2909000 2567000 respectively weighted average assumptions used determine benefit obligations defined benefit plans medical dental plans december 31 measurement date plans follows weighted average assumptions used determine net cost defined benefit plans medical dental plans follows assumed health care cost trend rates medical dental plans december 31 follows discount rate used measure liabilities december 31 2005 determined based highquality fixed income investments match duration expected retiree benefits prior december 31 2005 discount rate determined reference composite corporate aa bond index health care cost trend rate represents abbotts expected annual rates change cost health care benefits forward projection health care costs measurement date onepercentage point increasedecrease assumed health care cost trend rate would increasedecrease accumulated postemployment benefit obligations december 31 2005 201320161383 total service interest cost components net postemployment health care cost year ended approximately 1920715025 2004 abbott reflected requirements financial accounting standards board staff position 1062 accounting disclosure requirements related medicare prescription drug improvement modernization act 2003 result projected benefit obligations related benefits attributed past service reduced approximately 210000 net cost recognized 2004 reduced approximately 33000 weighted average asset allocation abbotts us defined benefit plans asset category shown table abbotts international defined benefit plans similar equity content investment mix equity securities fixed income securities based upon achieving desired return balancing higher return volatile equity securities lower return less volatile fixed income securities abbotts domestic defined benefit plans invested diversified portfolios publicmarket equity fixed income securities investment allocations made across range markets industry sectors capitalization sizes case fixed income securities maturities credit quality plans hold securities abbott abbotts international defined benefit plans invested corresponding manner variance portfolio structure around local practices plans expected return assets shown based managements expectations longterm average rates return achieved underlying investment portfolios establishing assumption management considers historical expected returns asset classes plans invested well current economic capital market conditions abbott funds domestic pension plans according irs funding limitations 2005 2004 2003 641000 482000 200000 respectively funded main domestic pension plan international pension plans funded according similar regulations total benefit payments expected paid participants includes payments funded company assets medical dental benefits well paid plans follows abbott stock retirement plan principal defined contribution plan abbotts contributions plan 100000 2005 97000 2004 90000 2003 abbott provides certain postemployment benefits primarily salary continuation plans qualifying domestic employees accrues related cost service lives employees note 5 taxes earnings dollars thousands deferred income taxes reflect tax consequences future years differences tax bases assets liabilities financial reporting amounts us income taxes provided earnings foreign subsidiaries intended remitted parent company except taxes dividends remitted american jobs creation act 2004 abbott record deferred income taxes earnings reinvested indefinitely foreign subsidiaries undistributed earnings reinvested indefinitely foreign subsidiaries working capital plant equipment aggregated 5797000 december 31 2005 practicable determine amount deferred income taxes provided earnings abbott recorded reserves income tax loss contingencies accordance sfas 5 maximum possible loss excess recorded reserves material us abbotts federal income tax returns 2000 settled income tax returns years 2000 open earnings continuing operations taxes related provisions taxes earnings continuing operations follows differences effective income tax rate us statutory tax rate follows december 31 2005 2004 2003 total deferred tax assets 2040906 2171782 2505502 respectively total deferred tax liabilities 1355181 1349972 1075209 respectively valuation allowances deferred tax assets significant tax effect differences give rise deferred tax assets liabilities follows among provisions american jobs creation act 2004 provision allows exclusion income portion remittances earnings foreign subsidiaries us shareholders december 31 2005 abbott remitted accordance provisions act approximately 4300000 foreign earnings previously reinvested indefinitely additional income tax expense recorded remittance approximately 245000 note 6 segment geographic area information dollars millions revenue segments abbotts principal business discovery development manufacture sale broad line health care products abbotts products generally sold directly retailers wholesalers hospitals health care facilities laboratories physicians offices government agencies throughout world april 30 2004 abbott spun core hospital products business included hospital products segment reorganization january 1 2004 portion international segment reporting purposes four diagnostic testing divisions aggregated reported diagnostic products segment abbotts reportable segments follows pharmaceutical products us sales broad line pharmaceuticals diagnostic products worldwide sales diagnostic systems tests blood banks hospitals consumers commercial laboratories alternatecare testing sites ross products primarily us sales broad line adult pediatric nutritional products pediatric pharmaceuticals consumer products international nonus sales abbotts pharmaceutical nutritional products abbotts underlying accounting records maintained legal entity basis government public reporting requirements segment disclosures performance basis consistent internal management reporting intersegment transfers inventory recorded standard cost measure segment operating earnings cost corporate functions cost certain employee benefits sold segments predetermined rates approximate cost remaining costs allocated segments substantially intangible assets related amortization business acquisitions allocated segments following segment information prepared accordance internal accounting policies abbott described presented accordance generally accepted accounting principles applied consolidated financial statements anet sales operating earnings years presented favorably affected relatively weaker us dollar bnet sales operating earnings ross segment 2005 include 70 revised agreement us promotion synagis cother net 2005 includes 256 restructuring impairment charges discussed note 16 increase bad debt reserve 58 associated unfavorable court ruling net 2004 includes acquisitionrelated charges primarily related therasense acquisition 2003 includes charges 622 settlement ross enteral nutritional investigation 88 impairments assets dsales country based country sold product note 7 litigation environmental matters december 31 2004 several lawsuits pending connection sales hytrin suits alleged abbott violated state federal antitrust laws cases unfair competition laws signing patent settlement agreements geneva pharmaceuticals inc zenith laboratories inc 1998 agreements related pending patent infringement lawsuits abbott two companies 2005 court approved settlements majority plaintiffs aggregate amount 90 million previously reserved claims remaining plaintiffs material reserved abbott identified potentially responsible party investigation cleanup costs number locations united states puerto rico federal state remediation laws investigating potential contamination number companyowned locations abbott recorded estimated cleanup cost site management believes abbott probable loss exposure individual site cleanup exposure expected exceed 3 million aggregate cleanup exposure expected exceed 20 million within next year legal proceedings may occur may result change estimated reserves recorded abbott legal proceedings environmental exposures including discussed note 8 abbott estimates range possible loss approximately 15 million 60 million reserves approximately 35 million recorded december 31 2005 proceedings exposures reserves represent managements best estimate probable loss defined statement financial accounting standards 5 accounting contingencies feasible predict outcome proceedings exposures certainty management believes ultimate disposition material adverse effect abbotts financial position cash flows results operations note 8 tap pharmaceutical products inc december 31 2004 tap pharmaceutical products inc tap abbott named defendants several lawsuits alleging violations various state federal laws connection taps marketing pricing lupron 2005 settlements including courtapproved class settlement reached majority plaintiffs aggregate amount approximately 160 million previously reserved claims remaining plaintiffs material reserved tap abbotts portion taps remaining reserve included reserve amounts range note 7 within next year legal proceedings may occur may result change estimated reserves recorded tap feasible predict outcome pending claims proceedings investigations certainty management opinion ultimate disposition material adverse effect abbotts financial position cash flows results operations note 9 spinoff hospira april 12 2004 abbotts board directors declared special dividend distribution outstanding shares common stock hospira inc payable april 30 2004 hospira included operations relating manufacture sale hospital products including specialty injectable pharmaceuticals medication delivery systems critical care devices injectable pharmaceutical contract manufacturing hospira included abbotts hospital products segment segments reorganization january 1 2004 portions abbotts international segment income cash flows hospira direct transaction costs spinoff presented discontinued operations consolidated statement earnings statement cash flows prior years balance sheets adjusted reflect effect spinoff legal transfer certain remaining operations assets net liabilities outside united states expected occur first half 2006 operations assets used conduct hospiras international business hospira subject risks entitled benefits generated operations assets liabilities presented held sale consolidated balance sheets december 31 2005 2004 assets liabilities held sale consist primarily inventories trade accounts receivable equipment trade accounts payable salaries accruals abbott retained liabilities taxes income prior spinoff defined benefit postemployment medical dental plan obligations assets spinoff hospiras us retired employees us retirement eligible employees certain potential liabilities related alleged improper pricing practices prior spinoff connection federal state private reimbursement certain drugs summarized financial information discontinued operations follows financial information includes operations hospira april 30 2004 date spinoff consequence results full year 2004 include four months operations hospira results discontinued operations also include direct transaction costs approximately 36 million 12 million 2004 2003 respectively following summary assets liabilities transferred hospira april 30 2004 note 10 incentive stock program 1996 incentive stock program authorizes granting stock options replacement stock options stock appreciation rights limited stock appreciation rights restricted stock awards restricted stock units performance units foreign qualified benefits stock options replacement stock options restricted stock awards comprise majority benefits granted currently outstanding program prior programs 2005 abbott granted 21499002 stock options 4190704 replacement stock options 588821 restricted stock awards 42379 restricted stock units program purchase price shares option must least equal fair market value common stock date grant maximum term option 10 years options granted 2005 2004 2003 vest equally three years except replacement options vest six months employee tenders mature shares abbott upon exercise stock option replacement stock option granted equal amount shares tendered replacement options granted current market price term expires date underlying option grant except replacement options granted december 31 2004 replacement option feature upon change control abbott outstanding stock options become fully exercisable terms conditions restricted stock awards deemed satisfied hospira optionees eligible retire spinoff date retired abbott purposes outstanding options pro forma compensation expense 2004 reflects cancellation remaining options abbott options adjusted effects spinoff intrinsic value options resulted issuance additional 82 million abbott options january 1 2006 approximately 47 million shares reserved future grants 1996 program subsequent yearend board directors granted approximately 25 million stock options restricted stock awards units reserve number restricted stock awards units outstanding weightedaverage grantdate fair value january 1 2005 december 31 2005 2093100 5092 2381800 5009 respectively number restricted stock awards units weightedaverage grantdate fair value granted vested lapsed 2005 610200 4614 262501 4901 58999 4350 respectively fair value restricted stock awards units vested 2005 2004 2003 12949000 16469000 12712000 respectively aggregate intrinsic value options outstanding exercisable december 31 2005 241000000 197000000 respectively total unrecognized compensation cost related stockbased compensation plans december 31 2005 amounted 201000000 expected recognized next three years december 31 2005 abbott measured compensation cost using intrinsic valuebased method accounting stock options replacement options granted employees compensation cost determined using fair valuebased accounting method pro forma net income billions earnings per share eps amounts would follows weighted average fair value option granted 2005 2004 2003 1217 1179 873 respectively purposes fair value disclosures fair value option grant estimated using blackscholes optionpricing model following assumptions 2006 abbott adopt statement financial accounting standards 123 revised 2004 sharebased payment requires fair value recorded results operations stock compensation expense prior rules would reduced reported diluted earnings per share 014 2005 upon adoption revised standard prior awards charged expense prior rules awards adoption charged expense revised rules based upon valuation stock options granted 2006 annual grant comprise majority grant activity year abbott estimates impact 2006 change stock compensation expense diluted earnings per share approximately 015 includes 014 per diluted share impact expensing fair value stock options effect adopting new rules reported diluted earnings per share dependent number options granted future terms awards fair values therefore effect diluted earnings per share could change note 11 debt lines credit dollars thousands following summary longterm debt december 31 principal payments required longterm debt outstanding december 31 2005 1855323 2006 88986 2007 2667698 2008 501199 2009 126530 2010 1263710 thereafter december 31 2005 abbott 3000000 unused lines credit support commercial paper borrowing arrangements related compensating balances subject withdrawal abbott option commitment fees material abbotts weighted average interest rate shortterm borrowings primarily japanese borrowings december 31 2005 13 december 31 2005 22 december 31 2004 11 december 31 2003 note 12 business combinations technology acquisitions 2005 abbott acquired remaining interest small medical products company previously accounted equity method accounting less 50 percent equity interest small medical products company aggregate cash purchase price approximately 25 million acquisition accounting resulted recording nontax deductible goodwill approximately 69 million intangible assets approximately 22 million charge approximately 17 million acquired inprocess research development 2005 abbott acquired additional rights related humira approximately 270 million amortized 13 years 2004 abbott paid approximately 23 billion strategic business technology acquisitions follows abbott acquired therasense inc leader development manufacturing marketing blood glucose selfmonitoring systems approximately 12 billion cash istat corporation manufacturer pointofcare diagnostic products blood analysis approximately 394 million cash eas nutritional company portfolio nationally recognized brands approximately 320 million cash spine next manufacturer orthopedic spinal implant devices approximately 58 million cash plus additional milestone payments 23 million upon achievement future targets abbott also acquired certain product technologies approximately 352 million acquisitions resulted charge 271 million acquired inprocess research development intangible assets approximately 13 billion nontax deductible goodwill approximately 923 million deferred income taxes approximately 406 million acquired intangible assets primarily trade names amortized 5 20 years average approximately 14 years 2003 abbott paid approximately 459 million strategic business technology acquisitions follows abbott acquired zoneperfect nutrition company marketer healthy nutritious products active people approximately 160 million cash integrated vascular systems inc developer novel vessel closure technology approximately 65 million cash spinal concepts inc marketer spinal fixation products used treatment spinal disorders diseases injuries approximately 166 million cash plus additional milestone payments 40 million agreed upon targets met abbott also acquired assets jomed nvs coronary peripheral interventional business approximately 68 million cash acquisitions resulted charge approximately 100 million acquired inprocess research development intangible assets approximately 222 million nontax deductible goodwill approximately 182 million acquired intangible assets primarily product technology amortized 9 25 years average approximately 16 years acquisitions taken place january 1 previous year consolidated sales income would significantly different reported amounts early 2006 abbott agreed acquire guidants vascular intervention endovascular solutions businesses 41 billion connection boston scientifics acquisition guidant abbott would also pay 250 million upon government approvals market guidants drugeluting stent us japan addition abbott agreed provide boston scientific 900 million 4 percent loan acquire 14 billion boston scientific common stock directly boston scientific contingent upon closing guidant acquisition expected completed first half 2006 note 13 goodwill intangible assets dollars millions abbott recorded goodwill 69 923 182 2005 2004 2003 respectively related acquisitions foreign currency translation adjustments decreased increased goodwill 2005 2004 2003 535 394 522 respectively connection spinoff hospira 2004 abbott transferred 81 goodwill hospira reductions goodwill relating impairments disposal portion business gross amount amortizable intangible assets primarily product rights technology 6776 6622 4841 december 31 2005 2004 2003 respectively accumulated amortization 2053 1468 899 december 31 2005 2004 2003 respectively intangible assets indefinite lives significant estimated annual amortization expense intangible assets 486 2006 475 2007 460 2008 459 2009 461 2010 intangible assets amortized primarily straightline basis 4 25 years average 13 years note 14 equity method investments dollars millions abbotts 50 percentowned joint venture tap pharmaceutical products inc tap accounted equity method accounting investment tap 167 76 340 december 31 2005 2004 2003 respectively dividends received tap 343 638 606 2005 2004 2003 respectively abbott performs certain administrative manufacturing services tap negotiated rates approximate fair market value summarized financial information tap follows undistributed earnings investments accounted equity method amounted approximately 151 december 31 2005 note 15 stock purchase rights common shares outstanding subject stock purchase rights exercisable person group acquires ten percent abbott common shares announces tender exchange offer would result ownership ten percent abbott common shares following acquisition ten percent abbotts common shares holders rights acquiring person group may purchase abbott common shares half price event merger acquisition abbott holders rights acquiring person group may purchase shares acquiring entity half price rights exercisable december 31 2005 note 16 restructuring plans dollars millions 2005 abbott management approved plans realign global manufacturing operations selected domestic international commercial operations 2005 abbott recorded pretax charges earnings approximately 256 reflecting impairment manufacturing facilities assets employee severance related charges approximately 174 classified cost products sold 10 research development 72 selling general administrative additional 14 subsequently recorded 2005 relating restructurings primarily accelerated depreciation result product reregistration timelines required manufacturing regulations number countries manufacturing related realignments expected continue 2007 following summarizes restructuring activity global pharmaceutical manufacturing operations restructuring following summarizes restructuring activity restructurings individually material abbott expects incur additional 150 future periods restructuring plans primarily accelerated depreciation plant equipment dispositions note 17 quarterly results unaudited dollars millions except per share data athe sum quarters basic diluted earnings per share 2004 add full year earnings per share amounts due rounding bsecond quarter 2003 included pretax charge 622 settlement litigation cthird quarter 2005 includes pretax restructuring charges 201 management report internal control financial reporting management abbott laboratories responsible establishing maintaining adequate internal control financial reporting abbotts internal control system designed provide reasonable assurance companys management board directors regarding preparation fair presentation published financial statements internal control systems matter well designed inherent limitations therefore even systems determined effective provide reasonable assurance respect financial statement preparation presentation abbotts management assessed effectiveness companys internal control financial reporting december 31 2005 making assessment used criteria set forth internal control integrated framework issued committee sponsoring organizations treadway commission based assessment believe december 31 2005 companys internal control financial reporting effective based criteria abbotts independent registered public accounting firm issued audit report assessment companys internal control financial reporting report appears page 75 miles white chairman board chief executive officer thomas c freyman executive vice president finance chief financial officer greg w linder vice president controller february 17 report independent registered public accounting firm board directors shareholders abbott laboratories audited accompanying consolidated balance sheets abbott laboratories subsidiaries company december 31 2005 2004 2003 related consolidated statements earnings shareholders investment cash flows years ended consolidated financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position abbott laboratories subsidiaries december 31 2005 2004 2003 results operations cash flows years ended conformity accounting principles generally accepted united states america also audited accordance standards public company accounting oversight board united states effectiveness companys internal control financial reporting december 31 2005 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission report dated february 17 2006 expressed unqualified opinion managements assessment effectiveness companys internal control financial reporting unqualified opinion effectiveness companys internal control financial reporting deloitte touche llp chicago illinois february 17 2006 report independent registered public accounting firm board directors shareholders abbott laboratories audited managements assessment included accompanying management report internal control financial reporting dated february 17 2006 abbott laboratories subsidiaries company maintained effective internal control financial reporting december 31 2005 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission companys management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinion managements assessment opinion effectiveness companys internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting evaluating managements assessment testing evaluating design operating effectiveness internal control performing procedures considered necessary circumstances believe audit provides reasonable basis opinions companys internal control financial reporting process designed supervision companys principal executive principal financial officers persons performing similar functions effected companys board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting including possibility collusion improper management override controls material misstatements due error fraud may prevented detected timely basis also projections evaluation effectiveness internal control financial reporting future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion managements assessment company maintained effective internal control financial reporting december 31 2005 fairly stated material respects based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission also opinion company maintained material respects effective internal control financial reporting december 31 2005 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission also audited accordance standards public company accounting oversight board united states consolidated financial statements year ended december 31 2005 company report dated february 17 2006 expressed unqualified opinion financial statements deloitte touche llp chicago illinois february 17 2006 tap pharmaceutical products inc consolidated statements income comprehensive income dollars thousands see notes consolidated financial statements tap pharmaceutical products inc consolidated statements cash flows dollars thousands see notes consolidated financial statements tap pharmaceutical products inc consolidated balance sheets thousands except share amount see notes consolidated financial statements tap pharmaceutical products inc consolidated statements shareholders equity years ended december 31 2005 2004 2003 dollars thousands except share amounts see notes consolidated financial statements tap pharmaceutical products inc notes consolidated financial statements years ended december 31 2005 2004 2003 dollars thousands note 1 description business tap pharmaceutical products inc subsidiaries tap delaware corporation owned equally abbott laboratories abbott illinois corporation takeda america holdings inc whollyowned subsidiary takeda pharmaceutical company ltd japanese corporation collectively takeda tap headquartered lake forest illinois approximately 3100 employees agreement abbott takeda tap develops markets sells human pharmaceutical products united states puerto rico canada tap operates one business segment sales primarily united states taps primary products prevacid lupron principal indications prevacid lansoprazole proton pump inhibitor shortterm treatment duodenal ulcers gastric ulcers erosive esophagitis lupron leuprolide acetate luteinizing hormonereleasing hormone lhrh analog lupron depot sustained release form lupron used principally palliative treatment advanced prostate cancer endometriosis central precocious puberty preoperative treatment patients anemia caused uterine fibroids patents related lansoprazole lupron depot material operation taps business original united states compound patent covering lansoprazole licensed tap takeda original united states patents covering lupron depot formulations licensed tap takeda taps products generally sold directly physicians retailers wholesalers health care facilities government agencies cases distributed abbottowned distribution centers primary marketing efforts directed toward securing prescription taps brand products physicians managed care purchasers example health maintenance organizations pharmacy benefit managers increasingly important customers taps products supplied owners principally takeda disruption supply products could adversely impact operating results tap sales taps primary products follows financial instruments potentially subject tap concentrations credit risk consist primarily accounts receivable tap sells primarily wholesale distributors majority taps accounts receivable derived sales wholesale distributors three us wholesale distributors accounted 10 taps gross sales follows 2005 tap licensed prevacid trademark certain patents technical information third party overthecounter sale prevacid united states consideration license includes upfront milestone payments addition royalties future overthecounter sales prevacid tap material exposures offbalance sheet arrangements special purpose entities activities include nonexchangetraded contracts accounted fair value except equity swap agreements hedge market price exposure employee stock options described note 6 note 2 summary significant accounting policies basis presentation consolidated financial statements include accounts tap subsidiaries intercompany accounts transactions eliminated use estimates preparation financial statements conformity accounting principles generally accepted united states america requires estimates assumptions management actual results could differ estimates significant estimates include amounts litigation income taxes sales rebates inventory reserves accounts receivable allowances cash equivalents cash equivalents include time deposits certificates deposit commercial paper money market funds shortterm investments governmental agency debt securities original maturities three months less contractually convertible cash three months less investment securities investments debt securities classified heldtomaturity management intent ability hold securities maturity reported cost net unamortized premium discount investments marketable equity securities classified availableforsale recorded fair value unrealized holding gains losses net tax included accumulated comprehensive loss inventories stated lower cost firstin firstout basis market cost includes material packaging costs inventories consist following december 31 property equipment property equipment recorded cost less accumulated depreciation provided using straightline method estimated useful lives assets estimated useful lives property equipment follows longlived assets reviewed impairment whenever events changes circumstances indicate carrying value may recoverable based projected undiscounted cash flows associated affected assets fair value less carrying value asset loss recognized difference fair value determined based market quotes available based valuation techniques revenue recognition revenue product sales recognized upon passage title risk loss customers product delivered common carrier revenue license product rights recorded periods earned provisions estimated rebates sales incentives customers doubtful accounts cash discounts product returns customer chargebacks provided period related sale rebates sales incentives recorded accrued rebates balance sheets reserves doubtful accounts cash discounts product returns customer chargebacks recorded reductions accounts receivable historical data readily available reliable used estimating amount reduction gross sales research development internal research development costs expensed incurred clinical trial costs incurred third parties expensed contracted work performed milestone payments due third parties research development arrangements milestone payment obligations expensed milestone results achieved advertising promotion expense advertising promotion costs expensed selling general administrative expenses incurred total advertising promotion expense incurred 203375 227882 344141 2005 2004 2003 respectively income taxes deferred income taxes recognized tax consequences temporary differences applying statutory tax rates applicable future years differences financial statement carrying amount tax basis assets liabilities reclassifications investments auction rate securities december 31 2003 237750 reclassified cash equivalents shortterm investments maturities greater 90 days reclassification increased investing activities 2004 decreased investing activities 2003 reflected accompanying consolidated statements cash flows addition certain reclassifications made prior year financial statements conform currentyear presentation note 3 property equipment lease obligations property equipment consists following december 31 tap leases certain administrative regional sales offices equipment automobiles noncancelable leases expire various dates 2011 lease expense totaled 5153 4990 5220 2005 2004 2003 respectively future minimum lease payments noncancelable operating capital leases december 31 2005 consist following note 4 financial instruments derivatives tap enters foreign currency forward contracts purchases yen call options hedge purchases inventories fixed yendenominated prices forward contracts require tap purchase yen exchange us dollars predetermined exchange rates yen call options give tap right purchase yen exchange us dollars predetermined strike prices forward option contracts designated cash flow hedges variability cash flows due changes exchange rates tap trade financial instruments objective earning financial gains exchange rate fluctuations alone trade currencies commodities underlying exposures effectiveness forward contracts based changes forward rates effectiveness call options based solely changes fair value effective portion changes value forward option contracts recorded accumulated comprehensive loss subsequently recognized earnings period hedged forecasted transactions affect earnings cash flow hedge ineffectiveness reported earnings current period december 31 2005 tap outstanding foreign exchange forward contracts notional values 392096 fair values 18638 foreign currency contracts outstanding december 31 2004 fair value contracts recorded accounts payable liabilities december 31 2005 2004 2003 cash flow hedge ineffectiveness material carrying value cash equivalents shortterm investments approximates fair value due shortterm maturity investments fair value longterm investments debt obligations 74111 december 31 2004 note 5 employee benefit plans tap employees participate various abbott employee benefit plans including abbott laboratories annuity retirement plan abbott laboratories stock retirement plan abbott laboratories incentive stock program see note 6 details tap billed share costs plans taps share employer contribution abbott laboratories annuity retirement plan allocated based taps proportionate share total compensation expense participants plan tap made contributions 2005 2004 2003 16000 43088 16520 respectively plan taps contribution abbott laboratories stock retirement plan based participating employee contributions taps contributions 2005 2004 2003 12619 11563 11251 respectively tap provides health welfare benefits employees tap pharmaceutical products inc healthcare plan healthcare plan contributions made accordance healthcare plans funding policy tap provides certain medical life insurance benefits qualifying retirees tap pharmaceutical products inc retiree medical plan retiree plan following provides reconciliation postemployment benefit obligations funded status retiree plan components net cost follows discount rates used determine benefit obligations medical dental plans december 31 measurement date plan 575 percent 58 percent 2005 2004 respectively discount rates used determine net cost medical dental plans 2005 2004 2003 58 percent 60 percent 675 percent respectively assumed health care cost trend rates medical dental plans december 31 follows onepercentage point increase decrease assumed health care trend rate would increase decrease accumulated postemployment benefit obligations december 31 2005 approximately 7012 5255 respectively total service interest cost components net postemployment benefit cost year ended approximately 1123 827 respectively total benefit payments expected paid participants company assets postemployment medical dental benefits follows note 6 incentive stock program certain employees tap granted options purchase abbott common stock 1996 abbott incentive stock program prior plans stock options replacement stock options granted tap employees currently outstanding prior plans purchase price shares option must least equal fair market value abbott common stock date grant maximum term option 10 years options granted vest equally three years except replacement options generally vest six months life equal remaining life replaced option upon change control abbott outstanding stock options become fully exercisable option exercises transacted abbott tap liable excess fair market value option shares granted tap employees employed tap option price time exercise reimburses abbott cost options exercised annually december 31 2005 2004 tap recorded derivative liability options granted adoption eitf 0208 37982 42390 respectively changes fair value options recorded selling general administrative expense fair value determined using blackscholes optionpricing model december 31 2005 2004 tap recorded liability exercised options 7119 4199 respectively payable abbott tap also recorded liability options issued adoption eitf 0208 difference market value strike price vested yet unexercised options 5009 19402 december 31 2005 2004 respectively total expense income related abbott incentive stock program 12553 26493 25350 recorded selling general administrative expense 2005 2004 2003 respectively due impact significant fluctuations market price abbott common stock amount recorded compensation expense options issued abbott incentive stock program tap entered isda master agreement master agreement dated september 29 2000 allows tap enter equity swap transactions hedge market price exposure equity swap transaction guarantees return equal actual return specified number shares abbott common stock effectively acts hedge abbott incentive stock program time tap enters equity swap transactions master agreement transaction term one three years requires quarterly cash settlement resulting gains losses realized recorded statements income transaction requires ongoing quarterly interest payments based equity notional amount fair value abbott common stock shares swapped transaction date swap rate libor plus 114 basis points 100 basis points transactions prior october 2003 equity swap transaction recorded fair value fair value equity swaps 212 19559 december 31 2005 2004 respectively recorded prepaid expenses assets balance sheets 2005 2004 2003 tap recorded selling general administrative expenses 27945 19085 28600 respectively loss gain related equity swap investments december 2004 financial accounting standards board issued statement financial accounting standards 123 revised 2004 share based payment effect adopting new rules reported income dependent number options granted future fair value options note 7 income taxes loss contingency provisions recorded estimated amount audit settlements provisions statement financial accounting standards 5 accounting contingencies taps us income tax liabilities years 1999 forward subject final determination internal revenue service irs challenged deductibility item taps 2001 tax return management believes deduction proper expects ultimate resolution material impact taps financial position cash flows results operations extent amounts previously deducted differ materially actual amounts determined deductible taps net earnings future periods could materially affected deferred income taxes reflect tax consequences future years temporary differences tax bases assets liabilities financial reporting amounts provision income taxes includes following components differences effective tax rate us statutory tax rate follows temporary differences give rise deferred tax assets liabilities follows note 8 litigation related matters tap along shareholders named defendants several lawsuits alleging violations various state federal laws connection taps marketing pricing lupron 2004 tap reached agreement plaintiffs settle allegations 150000 dismiss tap takeda abbott cases recorded charge 125000 selling general administrative expense however certain insurance companies opted lupron settlement pursue claims separately certain individuals opted settlement 2005 tap recorded additional charge 12300 settlement received court approval claims remaining plaintiffs material reserved tap within next year legal proceedings may occur may result change estimated reserves recorded tap feasible predict outcome pending claims proceedings investigations certainty management opinion ultimate disposition material adverse effect taps financial position cash flows results operations note 9 relatedparty transactions various agreements exist among tap abbott takeda amounts due payable abbott takeda respectively netted balance sheets captions payable abbott payable takeda tap pays abbott services related packaging warehousing research development administrative functions 2004 2003 residual royalty copromotion agreement amounts incurred services totaled 59969 142676 312309 2005 2004 2003 respectively copromotion agreement abbott promoted prevacid june 30 2003 abbott acted agent tap take title ownership taps products addition abbott purchased international markets taps products 75295 73934 69691 2005 2004 2003 respectively tap purchases lupron depot prevacid unpackaged finished goods inventories takeda purchases contracted fixed yendenominated prices actual cost us dollars paid takeda purchases inventories 2005 2004 2003 totaled 753096 714712 733757 respectively tap royalty agreements takeda sales lupron depot prevacid 2005 2004 2003 tap recorded royalty expense 173878 179256 216341 respectively report independent registered public accounting firm board directors stockholders tap pharmaceutical products inc audited accompanying consolidated balance sheets tap pharmaceutical products inc subsidiaries tap december 31 2005 2004 related consolidated statements income stockholders equity cash flows three years period ended december 31 2005 financial statements responsibility taps management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement company required engaged perform audit internal control financial reporting audits include consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness taps internal control financial reporting accordingly express opinion audit also includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position tap pharmaceutical products inc subsidiaries december 31 2005 2004 results operations cash flows three years period ended december 31 2005 conformity accounting principles generally accepted united states america deloitte touche llp chicago illinois february 3 2006 item 9 item 8 financial statements supplementary data page consolidated statement earnings consolidated statement comprehensive income consolidated statement cash flows consolidated balance sheet consolidated statement shareholders investment notes consolidated financial statements management report internal control financial reporting report independent registered public accounting firm report independent registered public accounting firm abbott laboratories subsidiaries consolidated statement earnings millions except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement comprehensive income millions accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement cash flows millions accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated balance sheet dollars millions abbott laboratories subsidiaries consolidated balance sheet dollars millions accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement shareholders investment millions except shares per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries notes consolidated financial statements note 1 summary significant accounting policies nature business abbotts principal business discovery development manufacture sale broad line health care products basis consolidation consolidated financial statements include accounts parent company subsidiaries elimination intercompany transactions use estimates consolidated financial statements prepared accordance generally accepted accounting principles united states necessarily include amounts based estimates assumptions management actual results could differ amounts significant estimates include amounts sales rebates income taxes pension postemployment benefits including certain asset values based significant unobservable inputs valuation intangible assets litigation derivative financial instruments inventory accounts receivable exposures foreign currency translation statements earnings foreign subsidiaries whose functional currencies us dollar translated us dollars using average exchange rates period net assets foreign subsidiaries whose functional currencies us dollar translated us dollars using exchange rates balance sheet date us dollar effects arise translating net assets subsidiaries changing rates recorded foreign currency translation adjustment account included equity component accumulated comprehensive income loss transaction gains losses recorded net foreign exchange gain loss line consolidated statement earnings revenue recognition revenue product sales recognized upon transfer control generally upon shipment delivery depending delivery terms set forth customer contract provisions discounts rebates sales incentives customers returns adjustments provided period related sales recorded sales incentives customers material historical data readily available reliable used estimating amount reduction gross sales revenue launch new product improved version existing product shipments excess customers normal requirements recorded conditions noted met situations management records returns reserve revenue necessary certain abbotts businesses primarily within diagnostics abbott participates selling arrangements include multiple performance obligations eg instruments reagents procedures service agreements total transaction price contract allocated performance obligation amount based estimated relative standalone selling prices promised goods services underlying performance obligation sales product rights marketable products recorded revenue upon disposition rights income taxes deferred income taxes provided tax effect differences tax bases assets liabilities reported amounts financial statements enacted statutory rate effect taxes paid additional income taxes provided remaining undistributed foreign earnings subject transition tax related us tax cuts jobs act additional outside basis differences exist amounts continue indefinitely reinvested foreign operations interest penalties income tax obligations included taxes earnings per share unvested restricted stock units awards contain nonforfeitable rights dividends treated participating securities included computation earnings per share twoclass method twoclass method net earnings allocated abbott laboratories subsidiaries notes consolidated financial statements continued note 1 summary significant accounting policies continued common shares participating securities earnings continuing operations allocated common shares 2018 2017 2016 2320 billion 346 million 1057 billion respectively net earnings allocated common shares 2018 2017 2016 2353 billion 468 million 1393 billion respectively pension postemployment benefits abbott accrues actuarially determined cost pension postemployment benefits service attribution periods employees abbott must develop longterm assumptions significant health care cost trend rates discount rates expected return plan assets differences expected longterm return plan assets actual return amortized fiveyear period actuarial losses gains amortized remaining service attribution periods employees corridor method fair value measurements assets liabilities measured using quoted prices active markets total fair value published market price per unit multiplied number units held without consideration transaction costs assets liabilities measured using significant observable inputs valued reference similar assets liabilities adjusted contract restrictions terms specific asset liability items significant portion fair value derived reference quoted prices similar assets liabilities active markets remaining assets liabilities fair value derived using fair value model discounted cash flow model blackscholes model purchased intangible assets recorded fair value fair value significant purchased intangible assets based independent appraisals abbott uses discounted cash flow model value intangible assets discounted cash flow model requires assumptions timing amount future net cash flows risk cost capital terminal values market participants intangible assets reviewed impairment quarterly basis goodwill indefinitelived intangible assets tested impairment least annually sharebased compensation fair value stock options restricted stock awards units amortized requisite service period could shorter vesting period employee retirement eligible charge compensation expense march 2016 financial accounting standards board fasb issued accounting standards update asu 201609 improvements employee sharebased payment accounting asu 201609 modifies several aspects accounting sharebased payment transactions including accounting income taxes classification statement cash flows abbott adopted standard first quarter 2017 following changes made presentation abbotts financial statements • excess tax benefits tax deficiencies recognized income tax benefit expense applicable previously abbott recorded benefits shareholders investment tax benefit recorded abbotts consolidated statement earnings 2018 2017 90 million 120 million respectively standard permit retrospective presentation benefit prior years • tax benefit deficiency required classified operating activity statement cash flows previously required classified within financing activities abbott adopted standard prospective basis revised classification excess tax benefit 2016 consolidated statement cash flows abbott laboratories subsidiaries notes consolidated financial statements continued note 1 summary significant accounting policies continued litigation abbott accounts litigation losses accordance fasb asc 450 contingencies asc 450 loss contingency provisions recorded probable losses managements best estimate loss best estimate cannot made minimum loss contingency amount recorded legal fees recorded incurred cash equivalents investments cash equivalents consist bank time deposits us government securities money market funds us treasury bills original maturities three months less abbott holds certain investments carrying value approximately 325 million accounted equity method accounting investments held rabbi trust investments publicly traded equity securities recorded fair value changes fair value recorded earnings investments equity securities traded public stock exchanges recorded cost minus impairment plus minus changes resulting observable price changes orderly transactions identical similar investments issuer investments debt securities classified heldtomaturity management intent ability hold securities maturity reported cost net unamortized premium discount income relating securities reported interest income trade receivable valuations accounts receivable stated net realizable value allowance gross trade receivables reflects best estimate probable losses inherent receivables portfolio determined basis historical experience specific allowances known troubled accounts currently available information accounts receivable charged reasonable means collect full amount including litigation appropriate exhausted inventories stated lower cost firstin firstout basis net realizable value cost includes material conversion costs property equipment depreciation amortization provided straightline basis estimated useful lives assets following table shows estimated useful lives property equipment product liability abbott accrues product liability claims probable liability incurred amount liability reasonably estimated based existing information liabilities adjusted quarterly additional information becomes available receivables insurance recoveries product liability claims recorded assets undiscounted basis probable recovery realized product liability losses selfinsured research development costs internal research development costs expensed incurred clinical trial costs incurred third parties expensed contracted work performed contingent milestone payments due third parties research development arrangements milestone payment obligations expensed milestone results achieved acquired inprocess collaborations research development iprd initial costs rights iprd projects obtained asset acquisition expensed abbott laboratories subsidiaries notes consolidated financial statements continued note 1 summary significant accounting policies continued iprd unless project alternative future use costs include initial payments incurred prior regulatory approval connection research development collaboration agreements provide rights develop manufacture market andor sell pharmaceutical products fair value iprd projects acquired business combination capitalized accounted indefinitelived intangible assets completed amortized remaining useful life collaborations significant concentration risk guarantees due nature operations abbott subject significant concentration risks relating customers products geographic locations product warranties significant abbott material exposures offbalance sheet arrangements special purpose entities activities include nonexchangetraded contracts accounted fair value abbott periodically entered agreements ordinary course business assignment product rights companies resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote abbott periodically acquires business product rights abbott agrees pay contingent consideration based attaining certain thresholds based occurrence certain events note 2 new accounting standards recently adopted accounting standards february 2018 fasb issued asu 201802 reclassification certain tax effects accumulated comprehensive income allows companies reclassify stranded tax effects resulting 2017 tax cuts jobs act accumulated comprehensive income loss retained earnings employed business abbott adopted new standard beginning fourth quarter 2018 result adoption new standard approximately 337 million stranded tax effects reclassified accumulated comprehensive income loss earnings employed business august 2017 fasb issued asu 201712 targeted improvements accounting hedging activities makes changes designation measurement guidance qualifying hedging relationships presentation hedge results standard would become effective abbott beginning first quarter 2019 early adoption permitted abbott elected early adopt asu 201712 fourth quarter 2018 impact adopting standard significant abbotts consolidated balance sheet consolidated statement earnings march 2017 fasb issued asu 201707 compensation retirement benefits topic 715 improving presentation net periodic pension cost net periodic postretirement benefit cost changes financial statement presentation requirements pension postretirement benefit expense service cost continues reported financial statement line items current employee compensation costs asu requires components pension postretirement benefit expense presented separately service cost outside subtotal income operations standard adopted abbott beginning first quarter 2018 change presentation components pension cost per year applied retrospectively abbott laboratories subsidiaries notes consolidated financial statements continued note 2 new accounting standards continued result approximately 160 million net pensionrelated income per year moved operating lines consolidated statement earnings nonoperating income 2017 2016 november 2016 fasb issued asu 201618 statement cash flows restricted cash requires restricted cash included cash equivalents reconciling beginning endofperiod total amounts shown statement cash flows abbott adopted standard beginning first quarter 2018 applied guidance retrospectively periods presented abbott restricted cash balances periods presented except 75 million restricted cash acquired part alere inc alere acquisition october 2017 restrictions cash eliminated prior end 2017 october 2016 fasb issued asu 201616 income taxes topic 740 intraentity transfers assets inventory requires recognition income tax effects intercompany sales transfers assets inventory period transfer occurs abbott adopted standard january 1 2018 using modified retrospective approach recorded cumulative catchup adjustment earnings employed business consolidated balance sheet significant august 2016 fasb issued asu 201615 statement cash flows classification certain cash receipts cash payments clarifies companies present classify certain cash receipts cash payments statement cash flows asu became effective abbott first quarter 2018 material impact companys consolidated statement cash flows january 2016 fasb issued asu 201601 financial instruments recognition measurement financial assets financial liabilities provides new guidance recognition measurement presentation disclosure financial assets liabilities abbott adopted standard january 1 2018 new standard changes fair value equity investments readily determinable fair values recorded income expense net within consolidated statement earnings previously fair value changes recorded comprehensive income abbott elected measurement alternative allowed asu 201601 equity investments without readily determinable fair values investments measured cost less impairment plus minus changes resulting observable price changes orderly transactions identical similar investment issuer changes measurement investments recorded income expense net within consolidated statement earnings part adoption cumulativeeffect adjustment earnings employed business consolidated balance sheet net unrealized losses equity investments recorded accumulated comprehensive income loss december 31 2017 significant may 2014 fasb issued asu 201409 revenue contracts customers provides single comprehensive model accounting revenue contracts customers supersedes nearly previously existing revenue recognition guidance core principle asu entity recognize revenue transfers promised goods services customers amount reflects consideration entity expects entitled exchange goods services abbott adopted new standard january 1 2018 using modified retrospective approach method entities recognize cumulative effect applying new standard date initial application restatement comparative periods presented cumulative effect applying new standard resulted increase earnings employed business abbott laboratories subsidiaries notes consolidated financial statements continued note 2 new accounting standards continued consolidated balance sheet 23 million recorded january 1 2018 new standard applied contracts completed january 1 2018 impact adopting asu 201409 significant individual financial statement line items consolidated balance sheet consolidated statement earnings recent accounting standards yet adopted february 2016 fasb issued asu 201602 leases requires lessees recognize assets liabilities leases balance sheet standard becomes effective abbott beginning first quarter 2019 abbott completed detailed review leases abbott use modified retrospective approach package practical expedients allows abbott carry forward historical lease classification leases existing entered beginning period adoption account lease nonlease components single lease component lessee arrangements abbott expect new lease accounting standard material impact amounts reported consolidated statement earnings result adopting asu 201602 abbott expects record approximately 800 million 900 million right use assets lease liabilities operating leases consolidated balance sheet note 3 revenue abbotts revenues derived primarily sale broad line health care products shortterm receivable arrangements patent protection licenses technological performance features inclusion abbotts products contract impact products sold price controls competition rebates impact net selling prices products foreign currency translation impacts measurement net sales costs abbotts products generally sold directly retailers wholesalers distributors hospitals health care facilities laboratories physicians offices government agencies throughout world abbott four reportable segments established pharmaceutical products diagnostic products nutritional products cardiovascular neuromodulation products diabetes care nonreportable segment included following table abbott laboratories subsidiaries notes consolidated financial statements continued note 3 revenue continued following tables provide detail sales category abbott recognizes revenue product sales upon transfer control generally upon shipment delivery depending delivery terms set forth customer contract maintenance agreements provide service beyond abbotts standard warranty service agreements revenue recognized ratably contract term timebased measure progress appropriately reflects transfer services customer payment terms abbott customers vary type customer country sale products services offered term invoicing payment due date significant management exercises judgment estimating variable consideration provisions discounts rebates sales incentives customers returns adjustments provided period related sales recorded sales incentives customers material historical data readily available reliable used estimating amount reduction gross sales abbott laboratories subsidiaries notes consolidated financial statements continued note 3 revenue continued provides rebates government agencies wholesalers group purchasing organizations private entities rebate amounts usually based upon volume purchases using contractual statutory prices product factors used rebate calculations include identification products sold subject rebate customer government agency price terms apply estimated lag time sale payment rebate using historical trends adjusted current changes abbott estimates amount rebate paid records liability reduction gross sales abbott records sale product settlement rebate generally occurs one six months sale abbott regularly analyzes historical rebate trends makes adjustments reserves changes trends terms rebate programs historically adjustments prior years rebate accruals material net income allowances charged gross sales include cash discounts returns significant cash discounts known within 15 30 days sale therefore reliably estimated returns reliably estimated abbotts historical returns low sales return terms sales terms remained relatively unchanged several periods product warranties also significant abbott also applies judgment determining timing revenue recognition related contracts include multiple performance obligations total transaction price contract allocated performance obligation amount based estimated relative standalone selling prices promised goods services underlying performance obligation goods services observable standalone selling prices available abbott uses expected cost plus margin approach estimate standalone selling price performance obligation remaining performance obligations december 31 2018 estimated revenue expected recognized future related performance obligations unsatisfied partially unsatisfied approximately 29 billion diagnostic products segment approximately 410 million cardiovascular neuromodulation products segment abbott expects recognize revenue approximately 60 percent remaining performance obligations next 24 months approximately 16 percent subsequent 12 months remainder thereafter performance obligations primarily reflect future sale reagentsconsumables contracts minimum purchase obligations extended warranty service obligations related previously sold equipment remote monitoring services related previously implanted devices abbott applied practical expedient described accounting standards codification asc 606105014 included remaining performance obligations related contracts original expected durations one year less amounts assets recognized costs obtain contract customer abbott applied practical expedient asc 34040254 records expense incremental costs obtaining contracts customers period occurrence amortization period asset abbott otherwise would recognized one year less upfront commission fees paid sales personnel result obtaining renewing contracts customers incremental abbott laboratories subsidiaries notes consolidated financial statements continued note 3 revenue continued obtaining contract abbott capitalizes amounts contract costs capitalized commission fees amortized based contract duration assets relate ranges two ten years amounts december 31 2018 significant additionally cost transmitters provided customers use abbotts remote monitoring service respect certain medical devices capitalized contract costs capitalized transmitter costs amortized based timing transfer services assets relate typically ranges eight ten years amounts december 31 2018 significant contract assets liabilities abbott discloses trade receivables separately consolidated balance sheet net realizable value contract assets primarily relate abbotts conditional right consideration work completed billed reporting date contract assets beginning end period well changes balance significant contract liabilities primarily relate payments received customers advance performance contract abbotts contract liabilities arise primarily cardiovascular neuromodulation reportable segment payment received upfront various multiperiod extended service arrangements changes contract liabilities period follows note 4 discontinued operations assets held disposition february 27 2015 abbott completed sale developed markets branded generics pharmaceuticals business mylan inc mylan 110 million ordinary shares approximately 22 percent newly formed entity mylan nv combined mylans existing business abbotts developed markets branded generics pharmaceuticals business april 2015 abbott sold 4025 million 110 million ordinary shares mylan nv received sale developed markets branded generics pharmaceuticals business mylan 2015 abbott recorded pretax gain 207 million 229 billion net proceeds sale shares 2017 abbott sold 6975 million ordinary shares mylan nv received 2704 billion proceeds abbott recorded 45 million gain sale ordinary shares 2017 recognized income expense net line consolidated statement earnings abbott longer ownership interest mylan nv february 10 2015 abbott completed sale animal health business zoetis inc abbott received cash proceeds 230 million reported tax gain sale approximately 130 million first quarter 2016 abbott received additional 25 million proceeds due expiration holdback agreement associated sale business reported aftertax gain 16 million abbott laboratories subsidiaries notes consolidated financial statements continued note 4 discontinued operations assets held disposition continued result disposition businesses operating results businesses date sale reported part discontinued operations earnings discontinued operations net taxes line consolidated statement earnings january 1 2013 abbott completed separation abbvie inc abbvie formed hold abbotts researchbased proprietary pharmaceuticals business abbott retained liabilities us federal foreign income taxes income prior separation well certain nonincome taxes attributable abbvies business abbvie generally liable taxes attributable business net earnings discontinued operations include income tax benefits 39 million 2018 109 million 2017 325 million 2016 tax benefits primarily relate resolution various tax positions related abbvies operations years prior separation september 2016 abbott announced entered definitive agreement sell abbott medical optics amo vision care business johnson 4325 billion cash subject customary purchase price adjustments cash debt working capital decision sell amo reflected abbotts proactive shaping portfolio line strategic priorities february 2017 abbott completed sale amo johnson recognized pretax gain 1163 billion including working capital adjustments reported income expense net line consolidated statement earnings 2017 abbott recorded aftertax gain 728 million 2017 related sale amo operating results amo date sale continued included earnings continuing operations business qualify reporting discontinued operations 2017 2016 amo earnings losses taxes included abbotts consolidated earnings 18 million 30 million respectively discussed note 7 business acquisitions conjunction acquisition alere abbott sold triage meterpro cardiovascular toxicology business assets liabilities related btype natriuretic peptide assay business run beckman coulter analyzers quidel corporation quidel legal transfer certain assets related businesses occur close sale quidel due among factors time required transfer marketing authorizations regulatory requirements various countries terms sale agreement abbott quidel subject risks entitled benefits generated operations assets presented held disposition consolidated balance sheet december 31 2018 2017 primarily relate businesses sold quidel abbott laboratories subsidiaries notes consolidated financial statements continued note 4 discontinued operations assets held disposition continued following summary assets held disposition december 31 2018 2017 note 5 supplemental financial information income expense net 2018 2017 2016 includes approximately 160 million income related nonservice cost components net periodic benefit costs associated pension postretirement medical plans amounts reported income expense result adoption new accounting standard recognizing pension cost income expense net 2017 includes pretax gain 1163 billion related sale amo johnson see note 4 discontinued operations assets held disposition discussion sale 2017 abbott sold 6975 million ordinary shares mylan nv received 2704 billion proceeds recorded 45 million pretax gain related sale ordinary shares income expense net 2016 includes expense 947 million adjust abbotts holding mylan nv ordinary shares due decline fair value securities considered abbott temporary detail various balance sheet components follows abbotts equity securities december 31 2018 december 31 2017 include 307 million 363 million respectively investments mutual funds held rabbi trust acquired part st jude medical inc st jude medical business acquisition investments specifically designated available purpose paying benefits deferred compensation plan available general corporate purposes subject creditor claims event insolvency abbott also holds certain investments december 31 2018 carrying value approximately 325 million accounted equity method accounting equity investments carrying value 211 million readily determinable fair value 211 million abbott laboratories subsidiaries notes consolidated financial statements continued note 5 supplemental financial information continued carrying value includes unrealized gain approximately 50 million investment gain recorded second quarter 2018 relates observable price change similar investment issuer aaccrued wholesaler chargeback rebates 197 million 178 million december 31 2018 2017 respectively netted trade receivables abbotts customers invoiced higher catalog price remit abbott contract price products b2018 includes approximately 465 million net unrecognized tax benefits well approximately 65 million acquisition consideration payable 2017 includes approximately 835 million net unrecognized tax benefits well approximately 100 million acquisition consideration payable since january 2010 venezuela designated highly inflationary economy us gaap february 17 2016 venezuelan government announced threetier exchange rate system would reduced two rates renamed dipro dicom rates dipro official rate food medicine imports adjusted 63 10 bolivars per us dollar dicom rate floating market rate published daily venezuelan central bank end first quarter 2016 approximately 263 bolivars per us dollar result decreasing government approvals convert bolivars us dollars pay intercompany accounts well accelerating deterioration economic conditions country abbott concluded appropriate move dicom rate end first quarter 2016 result abbott recorded foreign currency exchange loss 480 million 2016 revalue net monetary assets venezuela revaluation abbotts investment venezuelan operations significant abbott laboratories subsidiaries notes consolidated financial statements continued note 6 accumulated comprehensive income loss components changes accumulated comprehensive income loss continuing operations net income taxes follows millions areclassified amounts foreign currency translation adjustments recorded consolidated statement earnings net foreign exchange gain loss gains losses marketable equity securities recorded income expense gainslosses related cash flow hedges recorded cost products sold net actuarial losses prior service cost included component net periodic benefit cost see note 14 additional information note 7 business acquisitions january 4 2017 abbott completed acquisition st jude medical global medical device manufacturer approximately 236 billion including approximately 136 billion cash approximately 10 billion abbott common shares represented approximately 254 million shares abbott common stock based abbotts closing stock price acquisition date part acquisition approximately 59 billion st jude medicals debt assumed repaid refinanced abbott acquisition provides expanded opportunities future growth important part companys ongoing effort develop strong diverse portfolio devices diagnostics nutritionals branded generic pharmaceuticals combined business competes nearly every area cardiovascular device market well neuromodulation market abbott laboratories subsidiaries notes consolidated financial statements continued note 7 business acquisitions continued terms agreement st jude medical common share st jude medical shareholders received 4675 cash 08708 abbott common share abbott stock price 3936 reflects closing price january 4 2017 represented value approximately 81 per st jude medical common share total purchase consideration 236 billion cash portion acquisition funded combination medium longterm debt issued november 2016 20 billion 120day senior unsecured bridge term loan facility subsequently repaid final allocation fair value st jude medical acquisition shown table goodwill primarily attributable expected synergies combining operations well intangible assets qualify separate recognition goodwill identifiable cardiovascular neuromodulation products reportable segment acquired tangible assets consist primarily trade accounts receivable approximately 11 billion inventory approximately 17 billion current assets 176 million property equipment approximately 15 billion longterm assets approximately 455 million acquired tangible liabilities consist trade accounts payable current liabilities approximately 11 billion noncurrent liabilities approximately 870 million 2016 abbott st jude medical agreed sell certain businesses terumo corporation terumo approximately 112 billion sale included st jude medical angioseal™ femoseal™ vascular closure abbotts vado® steerable sheath businesses sale closed january 20 2017 gain loss recorded consolidated statement earnings october 3 2017 abbott acquired alere diagnostic device service provider 5100 per common share cash equated purchase price approximately 45 billion part acquisition abbott tendered aleres preferred shares total value approximately 07 billion addition approximately 30 billion aleres debt assumed subsequently repaid acquisition establishes abbott leader point care testing expands abbotts global diagnostics presence provides access new products channels geographies abbott utilized combination cash hand debt fund acquisition see note 11 debt lines credit details regarding debt utilized acquisition abbott laboratories subsidiaries notes consolidated financial statements continued note 7 business acquisitions continued final allocation fair value alere acquisition shown table goodwill primarily attributable expected synergies combining operations well intangible assets qualify separate recognition goodwill identifiable diagnostic products reportable segment approximate value acquired tangible assets 430 million trade accounts receivable 425 million inventory 225 million current assets 540 million property equipment 210 million longterm assets approximate value acquired tangible liabilities 675 million trade accounts payable current liabilities 145 million noncurrent liabilities third quarter 2017 alere entered agreements sell triage meterpro cardiovascular toxicology business assets liabilities related btype natriuretic peptide assay business run beckman coulter analyzers quidel transactions quidel reflect total purchase price 400 million payable close transaction 240 million payable six annual installments beginning approximately six months close transaction contingent consideration maximum value 40 million third quarter 2017 alere entered agreement siemens diagnostics holding ii bv siemens sell subsidiary epocal inc approximately 200 million payable close transaction alere agreed divest businesses connection review federal trade commission european commission abbotts agreement acquire alere sale quidel closed october 6 2017 sale siemens closed october 31 2017 gain loss sales recorded consolidated statement earnings 2017 consolidated abbott results include 65 billion sales pretax loss approximately 13 billion related st jude medical alere acquisitions including approximately 15 billion intangible amortization 907 million inventory stepup amortization pretax loss excludes acquisition integration restructuringrelated costs acquisitions st jude medical alere occurred beginning 2016 unaudited pro forma consolidated net sales would approximately 289 billion unaudited pro forma consolidated net loss continuing operations would approximately 485 million 2016 includes amortization approximately 940 million inventory stepup 17 billion intangibles related st jude medical alere 2017 unaudited pro forma consolidated net sales would approximately 289 billion unaudited pro forma consolidated net earnings continuing operations would approximately 750 million includes 225 million intangible amortization related alere unaudited pro forma consolidated net earnings continuing operations 2017 exclude inventory stepup amortization related st jude medical alere approximately 907 million recorded 2017 included 2016 unaudited pro abbott laboratories subsidiaries notes consolidated financial statements continued note 7 business acquisitions continued forma results noted unaudited pro forma information necessarily indicative consolidated results operations would realized st jude medical alere acquisitions completed beginning 2016 meant indicative future results operations combined entity experience july 17 2017 abbott commenced tender offer purchase cash 177 million outstanding shares aleres series b convertible perpetual preferred stock price 402 per share plus accrued unpaid dividends including settlement date tender offer tender offer subject satisfaction certain conditions including abbotts acquisition alere upon validly tendered properly withdrawn expiration date tender offer number shares preferred stock equaled least majority preferred stock issued outstanding expiration tender offer tender offer expired october 3 2017 conditions offer satisfied abbott accepted payment 1748 million shares preferred stock validly tendered properly withdrawn remaining shares cashed amount equal 40000 per share liquidation preference shares plus accrued unpaid dividends without interest payment shares preferred stock made fourth quarter 2017 note 8 goodwill intangible assets total amount goodwill reported 233 billion december 31 2018 240 billion december 31 2017 amounts reported december 31 2018 2017 exclude goodwill reported noncurrent assets held disposition 2018 foreign currency translation adjustments decreased goodwill approximately 440 million purchase price accounting adjustments associated alere acquisition decreased goodwill 326 million 2018 goodwill increased 172 billion 2017 due completion st jude medical alere acquisitions partially offset decrease 15 billion due sale certain businesses terumo quidel siemens foreign currency translation increased goodwill 653 million 2017 amount goodwill related reportable segments december 31 2018 30 billion established pharmaceutical products segment 286 million nutritional products segment 37 billion diagnostic products segment 153 billion cardiovascular neuromodulation products segment 2018 2017 significant reductions goodwill relating impairments gross amount amortizable intangible assets primarily product rights technology 257 billion 256 billion december 31 2018 2017 respectively accumulated amortization 104 billion 81 billion december 31 2018 2017 respectively 2018 purchase price allocation adjustments increased intangible assets 280 million foreign currency translation adjustments decreased intangible assets 281 million 2017 gross amount amortizable intangible assets increased approximately 145 billion due completion st jude medical alere acquisitions partially offset decrease 210 million due sale certain businesses quidel siemens indefinitelived intangible assets relate inprocess research development acquired business combination approximately 36 billion 39 billion december 31 2018 2017 respectively decrease indefinitelived intangible assets 2018 primarily relates purchase price allocation adjustments associated alere acquisition 2017 inprocess research development increased 45 billion due completion st jude medical alere acquisitions portion became amortizable year 2017 abbott also recorded 53 million impairment abbott laboratories subsidiaries notes consolidated financial statements continued note 8 goodwill intangible assets continued inprocess research development project related cardiovascular neuromodulation products segment estimated annual amortization expense intangible assets recorded december 31 2018 approximately 20 billion 2019 22 billion 2020 21 billion 2021 20 billion 2022 20 billion 2023 amortizable intangible assets amortized 2 20 years weighted average 12 years note 9 restructuring plans 2017 2018 abbott management approved restructuring plans part integration acquisitions st jude medical cardiovascular neuromodulation products segment alere diagnostic products segment order leverage economies scale reduce costs abbott recorded employee related severance charges approximately 52 million 2018 187 million 2017 approximately 5 million 2018 2017 recorded cost products sold approximately 10 million 2018 recorded research development approximately 37 million 2018 182 million 2017 recorded selling general administrative expense abbott also assumed restructuring liabilities approximately 23 million part st jude medical alere acquisitions following summarizes activity related actions status related accruals 2016 2018 abbott management approved plans streamline operations order reduce costs improve efficiencies various abbott businesses including nutritional established pharmaceuticals vascular businesses abbott recorded employee related severance charges approximately 28 million 2018 120 million 2017 32 million 2016 approximately 10 million 2018 7 million 2017 9 million 2016 recorded cost products sold approximately 2 million 2018 77 million 2017 5 million 2016 recorded research development approximately 16 million 2018 36 million 2017 18 million 2016 recorded selling general administrative expense additional charges approximately 2 million 2017 2016 recorded primarily accelerated depreciation abbott laboratories subsidiaries notes consolidated financial statements continued note 9 restructuring plans continued following summarizes activity restructurings note 10 incentive stock program 2017 incentive stock program authorizes granting nonqualified stock options restricted stock awards restricted stock units performance awards foreign benefits sharebased awards stock options restricted stock awards units comprise majority benefits granted currently outstanding program prior program 2018 abbott granted 5760221 stock options 871331 restricted stock awards 8093546 restricted stock units program abbotts stock incentive programs purchase price shares option must least equal fair market value common stock date grant maximum term option 10 years options generally vest equally three years restricted stock awards generally vest 3 years onethird award vesting one year upon abbott reaching minimum return equity target restricted stock units vest three years upon vesting recipient receives one share abbott stock vested restricted stock unit aggregate fair market value restricted stock awards units recognized expense requisite service period may shorter vesting period employee retirement eligible forfeitures estimated time grant restricted stock awards settlement vested restricted stock units issued treasury shares abbott generally issues new shares exercises stock options policy abbott purchase shares relating sharebased programs april 2017 abbotts shareholders authorized 2017 incentive stock program maximum 170 million shares available issuance december 31 2018 approximately 144 million shares remained available future issuance connection completion st jude medical acquisition first quarter 2017 unvested st jude medical stock options restricted stock units assumed abbott converted abbott options restricted stock units applicable substantially equivalent value accordance merger agreement number shares underlying converted options 7364571 weighted average exercise price 3050 number restricted stock units converted 2324500 weighted average grant date fair value 3769 abbott laboratories subsidiaries notes consolidated financial statements continued note 10 incentive stock program continued number restricted stock awards units outstanding weightedaverage grantdate fair value december 31 2018 december 31 2017 15952602 5211 15518719 4282 respectively number restricted stock awards units weightedaverage grantdate fair value granted vested lapsed 2018 8964877 6010 7522375 4285 1008619 4927 respectively fair market value restricted stock awards units vested 2018 2017 2016 458 million 348 million 225 million respectively aggregate intrinsic value options outstanding exercisable december 31 2018 996 million 743 million respectively total intrinsic value options exercised 2018 2017 2016 249 million 233 million 98 million respectively total unrecognized compensation cost related sharebased compensation plans december 31 2018 amounted approximately 364 million expected recognized next three years total noncash stock compensation expense charged income continuing operations 2018 2017 2016 sharebased plans totaled approximately 477 million 406 million 310 million respectively tax benefit recognized approximately 185 million 242 million 100 million respectively decrease tax benefit 2018 primarily relates tax cuts jobs act tcja reduces us federal corporate tax rate 35 21 increase 2017 tax benefit primarily relates 120 million tax benefit recorded income adoption asu 201609 stock compensation cost capitalized part inventory significant fair value option granted 2018 2017 2016 1093 654 438 respectively fair value option grant estimated using blackscholes optionpricing model following assumptions riskfree interest rate based rates available time grant zerocoupon us government issues remaining term equal options expected life average life option based historical projected exercise lapsing data expected volatility based implied volatilities traded options abbotts stock historical volatility abbotts stock expected life option dividend yield based options exercise price annual dividend rate time grant abbott laboratories subsidiaries notes consolidated financial statements continued note 11 debt lines credit following summary longterm debt december 31 millions february 16 2018 board directors authorized early redemption 5 billion outstanding longterm notes redemptions authorization include following • 0947 billion principal amount 5125 notes due 2019 redeemed march 22 2018 • 1055 billion 2850 billion principal amount 235 notes due 2019 redeemed march 22 2018 • 1300 billion 1795 billion outstanding principal amount 235 notes due 2019 redeemed june 22 2018 • 0495 billion outstanding principal amount 235 notes due 2019 redeemed september 28 2018 abbott laboratories subsidiaries notes consolidated financial statements continued note 11 debt lines credit continued january 25 2019 abbott gave notice holders 280 notes due 2020 redeem 500 million outstanding principal amount notes february 24 2019 redemption 280 notes approximately 700 million 5 billion debt redemption authorization noted remain available abbott incurred net charge 14 million related march 22 2018 early repayment debt september 17 2018 abbott repaid upon maturity 500 million aggregate principal amount outstanding 200 senior notes due 2018 september 27 2018 abbotts wholly owned subsidiary abbott ireland financing dac completed euro debt offering €3420 billion longterm debt consisting €1140 billion noninterest bearing senior notes due 2020 99727 par value €1140 billion 0875 senior notes due 2023 99912 par value €1140 billion 150 senior notes due 2026 99723 par value proceeds equated approximately 4 billion notes guaranteed abbott october 28 2018 abbott redeemed approximately 4 billion debt included 750 million principal amount 200 notes due 2020 597 million principal amount 4125 notes due 2020 900 million principal amount 325 notes due 2023 450 million principal amount 34 notes due 2023 1300 billion principal amount 375 notes due 2026 amounts addition 5 billion authorization discussed conjunction redemption abbott unwound approximately 11 billion interest rate swaps relating 340 note due 2023 375 note due 2026 abbott incurred net charge 153 million related early repayment debt unwinding related interest rate swaps november 30 2018 abbott entered five year credit agreement revolving credit agreement terminated 2014 revolving credit agreement outstanding borrowings 2014 revolving credit agreement time termination revolving credit agreement provides abbott ability borrow 5 billion unsecured basis borrowings revolving credit agreement mature payable november 30 2023 borrowings revolving credit agreement bear interest abbotts option based either base rate eurodollar rate plus applicable margin based abbotts credit ratings first quarter 2017 part acquisition st jude medical abbotts longterm debt increased due assumption outstanding debt previously issued st jude medical abbott exchanged certain st jude medical debt obligations aggregate principal amount approximately 29 billion debt issued abbott consists following exchange approximately 1942 million existing st jude medical notes remained outstanding across five series existing notes coupons maturities listed significant costs associated exchange debt addition abbott laboratories subsidiaries notes consolidated financial statements continued note 11 debt lines credit continued first quarter 2017 abbott assumed subsequently repaid approximately 28 billion various st jude medical debt obligations january 4 2017 part funding cash portion st jude medical acquisition abbott borrowed 20 billion 120day senior unsecured bridge term loan facility repaid first quarter 2017 abbott issued 364day yendenominated debt 199 million 195 million outstanding december 31 2018 2017 respectively 2017 abbott also paid 479 million yendenominated shortterm borrowing year july 31 2017 abbott entered 5year term loan agreement allowed abbott borrow 28 billion unsecured basis acquisition alere october 3 2017 abbott borrowed 28 billion term loan agreement finance acquisition alere repay certain indebtedness abbott alere pay fees expenses connection acquisition borrowings term loan bore interest based eurodollar rate plus applicable margin based abbotts credit ratings abbott paid term loan january 5 2018 october 3 2017 abbott borrowed 17 billion lines credit proceeds borrowing used finance acquisition alere repay certain indebtedness abbott alere pay fees expenses connection acquisition lines credit part 2014 revolving credit agreement provided abbott ability borrow 5 billion unsecured basis advances revolving credit agreement including 17 billion borrowing october 2017 scheduled mature payable july 10 2019 17 billion borrowing bore interest based eurodollar rate plus applicable margin based abbotts credit ratings prior october 3 2017 amounts previously drawn revolving credit agreement fourth quarter 2017 abbott paid 550 million revolving loan abbott paid remaining balance revolving loan january 5 2018 fourth quarter 2017 conjunction acquisition alere abbott assumed subsequently repaid 30 billion aleres debt november 2016 abbott issued 151 billion medium longterm debt primarily fund cash portion acquisition st jude medical abbott issued 285 billion 235 senior notes due november 22 2019 285 billion 290 senior notes due november 30 2021 150 billion 340 senior notes due november 30 2023 300 billion 375 senior notes due november 30 2026 165 billion 475 senior notes due november 30 2036 325 billion 490 senior notes due november 30 2046 november 2016 abbott also entered interest rate swap contracts totaling 30 billion related new debt effect changing abbotts obligation fixed interest rate variable interest rate obligation related debt instruments february 2016 abbott obtained commitment 364day senior unsecured bridge term loan facility amount exceed 9 billion conjunction pending acquisition alere commitment automatically extended 90 days january 29 2017 expired april 30 2017 renewed since abbott need bridge facility finance alere acquisition fees associated bridge facilities recognized interest expense abbott laboratories subsidiaries notes consolidated financial statements continued note 11 debt lines credit continued principal payments required longterm debt outstanding december 31 2018 7 million 2019 18 billion 2020 29 billion 2021 750 million 2022 23 billion 2023 118 billion 2024 thereafter december 31 2018 abbotts longterm debt rating bbb standard poors corporation baa1 moodys abbott readily available financial resources including lines credit 50 billion expire 2023 support commercial paper borrowing arrangements abbotts weightedaverage interest rate shortterm borrowings 04 december 31 2018 03 december 31 2017 06 december 31 2016 note 12 financial instruments derivatives fair value measures certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts gross notional amounts totaling 51 billion december 31 2018 33 billion december 31 2017 designated cash flow hedges variability cash flows due changes foreign exchange rates recorded fair value accumulated gains losses december 31 2018 included cost products sold time products sold generally next twelve eighteen months abbott enters foreign currency forward exchange contracts manage currency exposures foreign currency denominated thirdparty trade payables receivables intercompany loans trade accounts payable receivable payable denominated currency functional currency entity intercompany loans contracts require abbott sell buy foreign currencies primarily european currencies exchange primarily us dollars european currencies intercompany trade payables receivables currency exposures primarily us dollar european currencies december 31 2018 2017 2016 abbott held gross notional amounts 136 billion 201 billion 149 billion respectively foreign currency forward exchange contracts march 2017 abbott repaid 479 million foreign denominated shortterm debt designated hedge net investment foreign subsidiary december 31 2016 value shortterm debt 454 million changes fair value debt date repayment due changes exchange rates recorded accumulated comprehensive income loss net tax abbott party interest rate hedge contracts totaling approximately 29 billion december 31 2018 40 billion december 31 2017 55 billion december 31 2016 manage exposure changes fair value fixedrate debt contracts designated fair value hedges variability fair value fixedrate debt due changes longterm benchmark interest rates effect hedge change fixedrate interest obligation variable rate portion debt abbott records contracts fair value adjusts carrying amount fixedrate debt offsetting amount october 2018 abbott unwound approximately 11 billion interest rate swaps relating 340 note due 2023 375 note due 2026 part unwinding abbott paid approximately 90 million cash included financing activities section consolidated statement cash flows 2018 abbott laboratories subsidiaries notes consolidated financial statements continued note 12 financial instruments derivatives fair value measures continued second quarter 2017 abbott unwound approximately 15 billion interest rate swaps relating 200 note due 2020 255 note due 2022 proceeds received significant december 2016 abbott unwound approximately 15 billion interest rate swaps relating 4125 note due 2020 5125 note due 2019 part unwinding abbott received approximately 55 million cash included financing activities section consolidated statement cash flows 2016 following table summarizes amounts location certain derivative financial instruments december 31 following table summarizes activity foreign currency forward exchange contracts designated cash flow hedges debt designated hedge net investment foreign subsidiary certain derivative financial instruments well amounts location income expense gain loss reclassified income losses 100 million 64 million gains 8 million recognized 2018 2017 2016 respectively related foreign currency forward exchange contracts designated hedges amounts reported consolidated statement earnings net foreign exchange gain loss line interest rate swaps designated fair value hedges variability fair value fixedrate debt due changes longterm benchmark interest rates hedged debt marked market offsetting effect marking interest rate swaps market carrying values fair values certain financial instruments december 31 shown table carrying values financial instruments approximate estimated fair values abbott laboratories subsidiaries notes consolidated financial statements continued note 12 financial instruments derivatives fair value measures continued counterparties financial instruments consist select major international financial institutions abbott expect losses nonperformance counterparties following table summarizes bases used measure certain assets liabilities fair value recurring basis balance sheet fair value foreign currency forward exchange contracts determined using market approach utilizes values comparable derivative instruments fair value debt determined based abbott laboratories subsidiaries notes consolidated financial statements continued note 12 financial instruments derivatives fair value measures continued face value debt adjusted fair value interest rate swaps based discounted cash flow analysis using significant observable inputs contingent consideration relates businesses acquired abbott fair value contingent consideration determined based independent appraisals time business acquisition adjusted time value money changes fair value maximum amount certain contingent consideration determinable based percent certain sales excluding contingent consideration maximum amount estimated due approximately 480 million dependent upon attaining certain sales thresholds based occurrence certain events regulatory approvals note 13 litigation environmental matters abbott identified potentially responsible party investigation cleanup costs number locations united states puerto rico federal state remediation laws investigating potential contamination number companyowned locations abbott recorded estimated cleanup cost site management believes abbott probable loss exposure individual site cleanup exposure expected exceed 4 million aggregate cleanup exposure expected exceed 10 million abbott involved various claims legal proceedings abbott estimates range possible loss legal proceedings environmental exposures approximately 125 million 165 million recorded accrual balance december 31 2018 proceedings exposures approximately 145 million accrual represents managements best estimate probable loss defined fasb asc 450 contingencies within next year legal proceedings may occur may result change estimated loss accrued abbott feasible predict outcome proceedings exposures certainty management believes ultimate disposition material adverse effect abbotts financial position cash flows results operations abbott laboratories subsidiaries notes consolidated financial statements continued note 14 postemployment benefits retirement plans consist defined benefit defined contribution medical dental plans information abbotts major defined benefit plans postemployment medical dental benefit plans follows projected benefit obligations nonus defined benefit plans 27 billion 30 billion december 31 2018 2017 respectively accumulated benefit obligations defined benefit plans 83 billion 89 billion december 31 2018 2017 respectively abbott laboratories subsidiaries notes consolidated financial statements continued note 14 postemployment benefits continued plans accumulated benefit obligations exceeded plan assets december 31 2018 2017 aggregate accumulated benefit obligations projected benefit obligations aggregate plan assets follows components net periodic benefit cost follows 2017 abbott recognized 10 million curtailment gain related sale amo comprehensive income loss respective year includes amortization actuarial losses prior service costs credits noted previous table comprehensive income loss respective year also includes net actuarial losses 86 million defined benefit plans gain 53 million medical dental plans 2018 net actuarial losses 247 million defined benefit plans 97 million medical dental plans 2017 net actuarial losses 571 million defined benefit plans 20 million medical dental plans 2016 pretax amount actuarial losses prior service cost credits included accumulated comprehensive income loss december 31 2018 expected recognized net periodic benefit cost 2019 130 million 1 million expense respectively defined benefit pension plans 24 million expense 32 million income respectively medical dental plans weighted average assumptions used determine benefit obligations defined benefit plans medical dental plans follows abbott laboratories subsidiaries notes consolidated financial statements continued note 14 postemployment benefits continued weighted average assumptions used determine net cost defined benefit plans medical dental plans follows assumed health care cost trend rates medical dental plans december 31 follows discount rates used measure liabilities determined based highquality fixed income securities match duration expected retiree benefits health care cost trend rates represent abbotts expected annual rates change cost health care benefits forward projections health care costs measurement date onepercentage point increasedecrease assumed health care cost trend rate would increasedecrease accumulated postemployment benefit obligations december 31 2018 157 million 131 million total service interest cost components net postemployment health care cost year ended approximately 12 million10 million abbott laboratories subsidiaries notes consolidated financial statements continued note 14 postemployment benefits continued following table summarizes basis used measure defined benefit medical dental plan assets fair value aa mix index funds actively managed equity accounts benchmarked various large cap indices ba mix index funds actively managed equity accounts benchmarked various mid small cap indices abbott laboratories subsidiaries notes consolidated financial statements continued note 14 postemployment benefits continued ca mix index funds actively managed pooled investment funds benchmarked various nonus equity indices developed emerging markets da mix index funds actively managed accounts benchmarked various us government bond indices ea mix index funds actively managed accounts benchmarked various corporate bond indices fprimarily united kingdom japan irish governmentissued bonds 2017 included netherlands bonds gprimarily asset backed securities actively managed diversified fixed income vehicle benchmarked onemonth libor euribor hprimarily funds invested managers global mandate flexibility allocate capital broadly across wide range asset classes strategies including limited equities fixed income commodities interest rate futures currencies securities outperform agreed upon benchmark specific return volatility targets iprimarily investments liquid commodity future contracts private energy funds jprimarily investments private funds private equity private credit private real estate kin accordance asu 201507 investments measured fair value using nav practical expedient classified fair value hierarchy fair value amounts presented table intended permit reconciliation fair value hierarchy amounts presented consolidated balance sheet equities valued using quoted prices valued published market prices equities common collective trust registered investment company valued using significant observable inputs valued net asset value nav provided fund administrator nav based value underlying assets owned fund minus liabilities approximately half funds investments may redeemed per month required 7 30 day notice period remaining funds daily redemption investment allowed fixed income securities valued using significant observable inputs valued prices obtained independent financial service industry recognized vendors abbott unfunded commitments related fixed income funds december 31 2018 2017 majority funds investments may redeemed either weekly monthly required 2 14 day notice period remaining funds investments may generally redeemed daily absolute return funds commodities valued nav provided fund administrator private funds valued nav provided fund onequarter lag adjusted known cash flows significant events reporting date abbott unfunded commitments related absolute return funds december 31 2018 2017 investments funds may generally redeemed monthly quarterly required notice periods ranging 5 45 days approximately 100 million absolute return funds redemptions subject 25 percent gate commodities investments private energy funds cannot redeemed funds make distributions liquidation estimate liquidation period fund ranges 2019 2022 abbotts unfunded commitments funds december 31 2018 2017 abbott laboratories subsidiaries notes consolidated financial statements continued note 14 postemployment benefits continued significant investments private funds excluding private energy funds cannot redeemed funds make distributions liquidation estimate liquidation period fund ranges 2019 2028 abbotts unfunded commitment funds 518 million 489 million december 31 2018 2017 respectively investment mix equity securities fixed income asset allocation strategies based upon achieving desired return well balancing higher return volatile equity securities lower return less volatile fixed income securities investment allocations made across range markets industry sectors capitalization sizes case fixed income securities maturities credit quality plans directly hold securities abbott known significant concentrations risk plans assets abbotts medical dental plans assets invested similar mix pension plan assets actual asset allocation percentages year end consistent companys targeted asset allocation percentages plans expected return assets shown based managements expectations longterm average rates return achieved underlying investment portfolios establishing assumption management considers historical expected returns asset classes plans invested well current economic capital market conditions abbott funds domestic pension plans according irs funding limitations international pension plans funded according similar regulations abbott funded 114 million 2018 645 million 2017 defined pension plans abbott expects contribute approximately 380 million pension plans 2019 total benefit payments expected paid participants includes payments funded company assets well paid plans follows abbott stock retirement plan principal defined contribution plan abbotts contributions plan 146 million 2018 79 million 2017 83 million 2016 2018 contributions include amounts related participants st jude medical retirement plan terminated january 2018 note 15 taxes earnings continuing operations taxes earnings continuing operations reflect annual effective rates including charges interest penalties deferred income taxes reflect tax consequences future years differences tax bases assets liabilities financial reporting amounts tax cuts jobs act tcja enacted us december 22 2017 tcja reduces us federal corporate tax rate 35 21 requires companies pay onetime transition tax abbott laboratories subsidiaries notes consolidated financial statements continued note 15 taxes earnings continuing operations continued earnings certain foreign subsidiaries previously tax deferred creates new taxes certain foreign sourced earnings december 31 2018 abbott completed accounting enactment date income tax effects tcja additional regulations issued us department treasury december 31 2018 result change judgment effect regulations accounted period regulations finalized effective fiscal years beginning december 31 2017 tcja subjects taxpayers tax global intangible lowtaxed income gilti earned certain foreign subsidiaries january 2018 fasb staff provided guidance entity may make accounting policy election either recognize deferred taxes related items give rise gilti future years provide tax expense related gilti year tax incurred abbott elected treat gilti tax period expense provide tax year tax incurred fourth quarter 2017 abbott recorded estimate net tax expense 146 billion impact tcja included taxes earnings continuing operations consolidated statement earnings estimate provisional included charge approximately 289 billion transition tax partially offset net benefit approximately 142 billion remeasurement deferred tax assets liabilities net benefit approximately 10 million related certain impacts tcja 2018 abbott recorded 130 million additional tax expense increased final tax expense related tcja 159 billion 130 million additional tax expense reflects 120 million increase transition tax 289 billion 301 billion 10 million reduction net benefit related remeasurement deferred tax assets liabilities onetime transition tax based abbotts total post1986 earnings profits ep previously deferred us income taxes tax computation also requires determination amount post1986 ep considered held cash specified assets december 31 2018 remaining balance abbotts transition tax obligation approximately 158 billion paid next eight years allowed tcja 2018 taxes earnings continuing operations includes 98 million net tax expense related settlement abbotts 20142016 federal income tax audit us partial settlement former st jude medical consolidated groups 2014 2015 federal income tax returns us audit settlements various countries 2017 taxes earnings continuing operations included 435 million tax expense related gain sale amo business 2016 taxes earnings continuing operations included impact net tax benefit approximately 225 million primarily result resolution various tax positions prior years partially offset unfavorable impact nondeductible foreign exchange losses related venezuela adjustment mylan nv equity investment well recognition deferred taxes associated pending sale amo undistributed foreign earnings remain indefinitely reinvested foreign operations determining amount unrecognized deferred tax liability related remaining undistributed foreign earnings subject transition tax additional outside basis difference foreign entities practicable us abbotts federal income tax returns 2016 settled except federal income tax returns former alere consolidated group settled 2014 former st jude medical consolidated group settled 2013 numerous income tax jurisdictions tax returns yet settled none individually significant reserves interest penalties significant abbott laboratories subsidiaries notes consolidated financial statements continued note 15 taxes earnings continuing operations continued earnings continuing operations taxes related provisions taxes earnings continuing operations follows differences effective income tax rate us statutory tax rate follows impact foreign operations primarily derived operations puerto rico switzerland ireland netherlands costa rica singapore abbott laboratories subsidiaries notes consolidated financial statements continued note 15 taxes earnings continuing operations continued tax effect differences give rise deferred tax assets liabilities follows abbott incurred losses foreign jurisdiction realization future economic benefit remote benefit reflected deferred tax asset following table summarizes gross amounts unrecognized tax benefits without regard reduction tax liabilities additions deferred tax assets liabilities unrecognized tax benefits settled total amount unrecognized tax benefits recognized would impact effective tax rate approximately 102 billion abbott believes reasonably possible recorded amount gross unrecognized tax benefits may decrease within range 125 million 350 million including cash adjustments within next twelve months result concluding various domestic international tax matters abbott laboratories subsidiaries notes consolidated financial statements continued note 16 segment geographic area information abbotts principal business discovery development manufacture sale broad line health care products abbotts products generally sold directly retailers wholesalers hospitals health care facilities laboratories physicians offices government agencies throughout world january 4 2017 abbott completed acquisition st jude medical beginning first quarter 2017 abbotts cardiovascular neuromodulation business includes results historical vascular products segment results businesses acquired st jude medical date acquisition october 3 2017 abbott completed acquisition alere beginning fourth quarter 2017 abbotts diagnostic products reportable segment includes results alere date acquisition abbotts reportable segments follows established pharmaceutical products international sales broad line branded generic pharmaceutical products nutritional products worldwide sales broad line adult pediatric nutritional products diagnostic products worldwide sales diagnostic systems tests blood banks hospitals commercial laboratories alternatecare testing sites segment reporting purposes core laboratories diagnostics rapid diagnostics molecular diagnostics point care divisions aggregated reported diagnostic products segment rapid diagnostics business acquired alere cardiovascular neuromodulation products worldwide sales rhythm management electrophysiology heart failure vascular structural heart neuromodulation products segment reporting purposes cardiac arrhythmias heart failure vascular neuromodulation structural heart divisions aggregated reported cardiovascular neuromodulation segment nonreportable segments include amo date sale diabetes care abbotts underlying accounting records maintained legal entity basis government public reporting requirements segment disclosures performance basis consistent internal management reporting cost corporate functions cost certain employee benefits charged segments predetermined rates approximate cost remaining costs allocated segments addition intangible asset amortization allocated operating segments intangible assets goodwill included measure segments assets abbott laboratories subsidiaries notes consolidated financial statements continued note 16 segment geographic area information continued following segment information prepared accordance internal accounting policies abbott described presented accordance generally accepted accounting principles applied consolidated financial statements anet sales unfavorably affected relatively stronger us dollar 2018 2016 operating earnings unfavorably affected impact foreign exchange 2018 2017 2016 bother net includes inventory stepup amortization integration costs associated acquisition st jude medical alere restructuring charges 2018 2017 net includes inventory stepup amortization integration costs associated acquisition st jude medical alere restructuring charges partially offset gain sale amo business 2016 net includes 947 million adjustment mylan equity investment 480 million foreign currency exchange loss related operations venezuela charges restructuring actions cost reduction initiatives approximately 153 million 2018 384 million 2017 167 million 2016 abbott laboratories subsidiaries notes consolidated financial statements continued note 16 segment geographic area information continued camounts exclude property plant equipment acquired business acquisitions dgoodwill intangible assets related amo included line 2016 esales country based country sold product longlived assets geographic basis primarily include property plant equipment excludes goodwill intangible assets deferred tax assets financial instruments december 31 2018 2017 longlived assets totaled 87 billion 89 billion respectively united states assets totaled 43 billion 45 billion respectively longlived asset balances associated countries material individual country basis either two years abbott laboratories subsidiaries notes consolidated financial statements continued note 17 quarterly results unaudited athe sum four quarters earnings per share 2018 2017 may add full year earnings per share amount due rounding andor use quartertodate weighted average shares calculate earnings per share amount respective quarter management report internal control financial reporting management abbott laboratories responsible establishing maintaining adequate internal control financial reporting abbotts internal control system designed provide reasonable assurance companys management board directors regarding preparation fair presentation published financial statements internal control systems matter well designed inherent limitations therefore even systems determined effective provide reasonable assurance respect financial statement preparation presentation abbotts management assessed effectiveness companys internal control financial reporting december 31 2018 making assessment used criteria set forth internal control integrated framework 2013 issued committee sponsoring organizations treadway commission based assessment believe december 31 2018 companys internal control financial reporting effective based criteria abbotts independent registered public accounting firm issued audit report assessment effectiveness companys internal control financial reporting report appears page 97 miles white chairman board chief executive officer brian b yoor executive vice president finance chief financial officer robert e funck senior vice president finance controller february 22 2019 report independent registered public accounting firm shareholders board directors abbott laboratories opinion financial statements audited accompanying consolidated balance sheets abbott laboratories subsidiaries company december 31 2018 2017 related consolidated statements earnings comprehensive income shareholders investment cash flows three years period ended december 31 2018 related notes collectively referred consolidated financial statements opinion consolidated financial statements present fairly material respects financial position company december 31 2018 2017 results operations cash flows three years period ended december 31 2018 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states pcaob companys internal control financial reporting december 31 2018 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission 2013 framework report dated february 22 2019 expressed unqualified opinion thereon basis opinion financial statements responsibility companys management responsibility express opinion companys financial statements based audits public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement whether due error fraud audits included performing procedures assess risks material misstatement financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation financial statements believe audits provide reasonable basis opinion ernst young llp served companys auditor since 2013 chicago illinois february 22 2019 report independent registered public accounting firm shareholders board directors abbott laboratories opinion internal control financial reporting audited abbott laboratories subsidiaries internal control financial reporting december 31 2018 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission 2013 framework coso criteria opinion abbott laboratories subsidiaries company maintained material respects effective internal control financial reporting december 31 2018 based coso criteria also audited accordance standards public company accounting oversight board united states pcaob consolidated balance sheets company december 31 2018 2017 related consolidated statements earnings comprehensive income shareholders investment cash flows three years period ended december 31 2018 related notes company report dated february 22 2019 expressed unqualified opinion thereon basis opinion companys management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management report internal control financial reporting responsibility express opinion companys internal control financial reporting based audit public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audit accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion definition limitations internal control financial reporting companys internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate ernst young llp chicago illinois february 22 2019 item 9 item 8 financial statements supplementary data page abbott laboratories financial statements consolidated statement earnings consolidated statement cash flows consolidated balance sheet consolidated statement shareholders’ investment notes consolidated financial statements management report internal control financial reporting reports independent registered public accounting firm tap pharmaceutical products inc financial statements consolidated statements income comprehensive income consolidated statements cash flows consolidated balance sheets consolidated statements shareholders’ equity notes consolidated financial statements report independent registered public accounting firm abbott laboratories subsidiaries consolidated statement earnings dollars shares thousands except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement cash flows dollars thousands accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated balance sheet dollars thousands abbott laboratories subsidiaries consolidated balance sheet dollars thousands accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement shareholders’ investment dollars thousands except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries notes consolidated financial statements note 1 summary significant accounting policies nature business abbott’s principal business discovery development manufacture sale broad line health care products concentration risk guarantees due nature operations abbott subject significant concentration risks relating customers products geographic locations except three us wholesalers accounted 23 percent 24 percent 20 percent trade receivables december 31 2006 2005 2004 respectively product warranties significant abbott material exposures offbalance sheet arrangements special purpose entities activities include nonexchangetraded contracts accounted fair value except derivative financial instruments related investment boston scientific common stock loan abbott periodically entered agreements ordinary course business assignment product rights companies resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote abbott periodically acquires small companies product rights abbott agrees pay contingent consideration based attaining certain thresholds connection spinoff hospira abbott retained liabilities taxes income prior spinoff certain potential liabilities related alleged improper pricing practices connection federal state private reimbursement certain drugs basis consolidation consolidated financial statements include accounts parent company subsidiaries elimination intercompany transactions accounts foreign subsidiaries consolidated november 30 due time needed consolidate subsidiaries december 2005 certain foreign subsidiaries borrowed approximately 14 billion borrowings related interest expense reflected december 31 2005 consolidated balance sheet 2005 consolidated statement earnings events occurred related foreign subsidiaries december 2006 2005 2004 materially affected financial position results operations cash flows use estimates financial statements prepared accordance generally accepted accounting principles united states necessarily include amounts based estimates assumptions management actual results could differ amounts significant estimates include amounts sales rebates income taxes pension postemployment benefits valuation intangible assets litigation sharebased compensation derivative financial instruments inventory accounts receivable exposures revenue recognition revenue product sales recognized upon passage title risk loss customers provisions discounts rebates sales incentives customers returns adjustments provided period related sales recorded sales incentives customers material historical data readily available reliable used estimating amount reduction gross sales revenue launch new product improved version existing product shipments excess customer’s normal requirements recorded conditions noted met situations management records returns reserve revenue necessary sales product rights marketable products recorded revenue upon disposition rights revenue license product rights performance research selling activities recorded periods earned note 1 summary significant accounting policies continued income taxes deferred income taxes provided tax effect differences tax bases assets liabilities reported amounts financial statements enacted statutory rate effect taxes paid us income taxes provided earnings foreign subsidiaries intended remitted parent company except taxes dividends remitted american jobs creation act 2004 deferred income taxes provided undistributed earnings reinvested indefinitely foreign subsidiaries working capital plant equipment loss contingency provisions recorded estimated amount audit settlements provisions statement financial accounting standards sfas 5 “accounting contingencies” pension postemployment benefits abbott accrues actuarially determined cost pension postemployment benefits service attribution periods employees abbott must develop longterm assumptions significant health care costs trend rate discount rate expected return plan assets differences expected longterm return plan assets actual return amortized fiveyear period actuarial losses gains amortized remaining service attribution periods employees corridor method december 31 2006 abbott adopted provisions sfas 158 “employers’ accounting defined benefit pension postretirement plans” new statement requires immediate recognition deferrals balance sheet corresponding charge accumulated comprehensive income loss adoption statement december 31 2006 resulted decrease abbott’s shareholders’ equity approximately 13 billion valuation intangible assets purchased intangible assets recorded fair value fair value significant purchased intangible assets based independent appraisals abbott uses discounted cash flow model value intangible assets discounted cash flow model requires assumptions timing amount future net cash inflows risk cost capital terminal values intangible assets goodwill reviewed impairment least quarterly annual basis respectively sharebased compensation december 31 2005 abbott measured compensation cost using intrinsic valuebased method accounting stock options replacement stock options granted employees restricted stock awards units amortized vesting period charge compensation expense 2006 abbott adopted sfas 123 revised 2004 “sharebased payment” requires fair value stock options recorded results operations litigation abbott accounts litigation losses accordance sfas 5 sfas 5 loss contingency provisions recorded probable losses management’s best estimate loss best estimate cannot made minimum loss contingency amount recorded cash equivalents investments cash equivalents consist time deposits certificates deposit original maturities three months less investments marketable equity securities classified availableforsale recorded fair value unrealized holding gains losses net tax included accumulated comprehensive income loss investments equity securities traded public stock exchanges recorded cost abbott monitors equity investments temporary declines fair value charges impairment losses income temporary decline estimated value occurs investments debt securities classified heldtomaturity management intent ability hold securities maturity reported cost net unamortized premium discount income relating securities reported component interest income note 1 summary significant accounting policies continued abbott reviews carrying value investments equity securities quarter determine whether temporary decline market value exists abbott considers factors affecting investee factors affecting industry investee operates general equity market trends abbott considers length time investment’s market value carrying value nearterm prospects recovery carrying value abbott determines temporary decline occurred investment written charge income expense net inventories stated lower cost firstin firstout basis market cost includes material conversion costs property equipment depreciation amortization provided straightline basis estimated useful lives assets following table shows estimated useful lives property equipment product liability abbott accrues product liability claims undiscounted basis probable liability incurred amount liability reasonably estimated based existing information liabilities adjusted quarterly additional information becomes available receivables insurance recoveries product liability claims recorded assets undiscounted basis probable recovery realized abbott carries thirdparty insurance coverage amounts reflect historical loss experience include coverage catastrophic losses research development costs internal research development costs expensed incurred clinical trial costs incurred third parties expensed contracted work performed contingent milestone payments due third parties research development arrangements milestone payment obligations expensed milestone results achieved note 2 supplemental financial information dollars thousands cost basis boston scientific shares accounted availableforsale securities december 31 2006 1326000 fair value availableforsale shares 1023000 note 2 supplemental financial information dollars thousands continued december 31 2006 resulting charge 182000 accumulated comprehensive income loss net income tax benefits 121000 decline fair value boston scientific shares noted considered management temporary shares owned abbott relatively short period time abbott ability intent hold shares period time allow decline value reverse accrued wholesaler chargeback rebates 122729 83551 72634 december 31 2006 2005 2004 respectively netted trade receivables accrued wholesaler chargeback rebates netted trade receivables abbott’s customers invoiced higher catalog price remit abbott contract price products note 2 supplemental financial information dollars thousands continued increase income expense net 2006 primarily due fairvalue gain adjustments certain derivative financial instruments related investment boston scientific common stock december 31 2006 abbott adopted provisions sfas 158 “employers’ accounting defined benefit pension postretirement plans” adoption statement resulted decrease abbott’s shareholders’ equity 1257568 net taxes approximately 733000 note 3 financial instruments derivatives certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts totaling 768 million 222 million 984 million december 31 2006 2005 2004 respectively designated cash flow hedges variability cash flows due changes foreign exchange rates abbott records contracts fair value resulting credits 159 million 386 million accumulated comprehensive income loss 2006 2005 respectively charge 400 million 2004 ineffectiveness recorded 2006 2005 2004 significant accumulated gains losses december 31 2006 included cost products sold time products sold generally next twelve months note 3 financial instruments derivatives continued abbott enters foreign currency forward exchange contracts manage currency exposures foreign currency denominated thirdparty trade payables receivables intercompany loans trade accounts payable receivable payable denominated currency functional currency entity intercompany loans contracts require abbott sell buy foreign currencies primarily european currencies japanese yen exchange primarily us dollars european currencies intercompany trade payables receivables currency exposures primarily us dollar european currencies japanese yen contracts recorded fair value resulting gains losses reflected income net foreign exchange gain loss december 31 2006 2005 2004 abbott held 56 billion 39 billion 33 billion respectively foreign currency forward exchange contracts abbott party interest rate hedge contracts totaling 15 billion manage exposure changes fair value 15 billion fixedrate debt due 2009 2014 contracts designated fair value hedges variability fair value fixedrate debt due changes longterm benchmark interest rates effect hedge change fixedrate interest obligation variable rate portion debt abbott records contracts fair value adjusts carrying amount fixedrate debt offsetting amount hedge ineffectiveness recorded income 2006 2005 2004 connection acquisition common shares boston scientific boston scientific entitled certain aftertax gains upon abbott’s sale common shares addition boston scientific agreed reimburse abbott certain borrowing costs debt incurred acquire boston scientific shares gross unrealized holding gains losses availableforsale equity securities totaled 21100000 304000000 respectively december 31 2006 17700000 3500000 respectively december 31 2005 30800000 1100000 respectively december 31 2004 note 3 financial instruments derivatives continued carrying values fair values certain financial instruments december 31 shown table carrying values financial instruments approximate estimated fair values fair value quoted market price instrument held quoted market price similar instrument counter parties financial instruments consist select major international financial institutions abbott expect losses nonperformance counter parties note 4 postemployment benefits dollars thousands retirement plans consist defined benefit defined contribution medical dental plans information abbott’s major defined benefit plans postemployment medical dental benefit plans follows note 4 postemployment benefits dollars thousands continued pretax amount actuarial losses prior service cost credits included accumulated comprehensive income loss december 31 2006 expected recognized net periodic benefit cost 2007 80900 3300 respectively defined benefit pension plans 48500 21500 respectively medical dental plans december 31 2006 abbott adopted provisions sfas 158 “employers’ accounting defined benefit pension postretirement plans” provisions standard require immediate recognition deferrals balance sheet corresponding charge accumulated comprehensive income loss following table summarizes significant changes balance sheet line items adoption provisions standard projected benefit obligations nonus defined benefit plans 1483000 1148000 1132000 december 31 2006 2005 2004 respectively accumulated benefit obligations defined benefit plans 4738000 4158000 3954000 december 31 2006 2005 2004 respectively plans accumulated benefit obligations exceeded plan assets december 31 2006 2005 2004 aggregate accumulated benefit obligations 544000 465000 3053000 respectively projected benefit obligations 592000 508000 3738000 respectively aggregate plan assets 22000 5000 2909000 respectively note 4 postemployment benefits dollars thousands continued weighted average assumptions used determine benefit obligations defined benefit plans medical dental plans december 31 measurement date plans follows weighted average assumptions used determine net cost defined benefit plans medical dental plans follows assumed health care cost trend rates medical dental plans december 31 follows discount rate used measure liabilities december 31 2006 2005 determined based highquality fixed income securities match duration expected retiree benefits prior december 31 2005 discount rate determined reference composite corporate aa bond index health care cost trend rate represents abbott’s expected annual rates change cost health care benefits forward projection health care costs measurement date onepercentage point increasedecrease assumed health care cost trend rate would increasedecrease accumulated postemployment benefit obligations december 31 2006 245400196800 total service interest cost components net postemployment health care cost year ended approximately 2620020400 2004 abbott reflected requirements financial accounting standards board staff position 1062 “accounting disclosure requirements related medicare prescription drug improvement modernization act 2003” result projected benefit obligations related benefits attributed past service reduced approximately 210000 net cost recognized 2004 reduced approximately 33000 weighted average asset allocation abbott’s us defined benefit plans medical dental plans asset category shown table abbott’s international defined benefit plans similar equity content note 4 postemployment benefits dollars thousands continued investment mix equity securities fixed income securities based upon achieving desired return balancing higher return volatile equity securities lower return less volatile fixed income securities abbott’s domestic plans invested diversified portfolios publicmarket equity fixed income securities investment allocations made across range markets industry sectors capitalization sizes case fixed income securities maturities credit quality plans directly hold securities abbott’s international defined benefit plans invested corresponding manner variance portfolio structure around local practices plans’ expected return assets shown based management’s expectations longterm average rates return achieved underlying investment portfolios establishing assumption management considers historical expected returns asset classes plans invested well current economic capital market conditions abbott funds domestic pension plans according irs funding limitations 2006 2005 2004 200000 641000 482000 respectively funded main domestic pension plan international pension plans funded according similar regulations abbott expects pension funding main domestic pension plan 200 million annually total benefit payments expected paid participants includes payments funded company assets well paid plans follows abbott stock retirement plan principal defined contribution plan abbott’s contributions plan 102000 2006 100000 2005 97000 2004 abbott provides certain postemployment benefits primarily salary continuation plans qualifying domestic employees accrues related cost service lives employees note 5 taxes earnings dollars thousands deferred income taxes reflect tax consequences future years differences tax bases assets liabilities financial reporting amounts us income taxes provided earnings foreign subsidiaries intended remitted parent company except taxes dividends remitted american jobs creation act 2004 abbott record deferred income taxes earnings reinvested indefinitely foreign subsidiaries undistributed earnings reinvested indefinitely foreign subsidiaries working capital plant equipment aggregated 7319000 december 31 2006 practicable determine amount deferred income taxes provided earnings abbott recorded reserves income tax loss contingencies accordance sfas 5 maximum possible loss excess recorded reserves material us abbott’s federal income tax returns 2003 settled income tax returns years 2003 open earnings continuing operations taxes related provisions taxes earnings continuing operations follows note 5 taxes earnings dollars thousands continued differences effective income tax rate us statutory tax rate follows december 31 2006 2005 2004 total deferred tax assets 3172933 2040906 2171782 respectively total deferred tax liabilities 1136964 1355181 1349972 respectively valuation allowances deferred tax assets significant tax effect differences give rise deferred tax assets liabilities follows among provisions american jobs creation act 2004 provision allows exclusion income portion remittances earnings foreign subsidiaries us shareholders december 31 2005 abbott remitted accordance provisions act approximately 4300000 foreign earnings previously reinvested indefinitely additional income tax expense recorded remittance approximately 245000 note 6 segment geographic area information dollars millions revenue segments abbott’s principal business discovery development manufacture sale broad line health care products abbott’s products generally sold directly retailers wholesalers hospitals health care facilities laboratories physicians’ offices government agencies throughout world effective acquisition guidant’s vascular intervention endovascular solutions businesses april 21 2006 abbott’s base vascular business guidant’s vascular intervention note 6 segment geographic area information dollars millions continued endovascular solutions businesses reported vascular products segment effective january 1 2006 abbott’s segments reorganized reflect shift nutritional products abbott’s international division newly formed division abbott nutrition international segment reporting purposes abbott’s ross products division abbott nutrition international division aggregated reported nutritional products segment us international pharmaceutical products divisions aggregated reported pharmaceutical products segment information adjusted reflect acquisition reorganizations abbott’s reportable segments follows pharmaceutical products worldwide sales broad line pharmaceuticals segment reporting purposes two pharmaceutical divisions aggregated reported pharmaceutical products segment diagnostic products worldwide sales diagnostic systems tests blood banks hospitals consumers commercial laboratories alternatecare testing sites segment reporting purposes four diagnostic divisions aggregated reported diagnostic products segment nutritional products worldwide sales broad line adult pediatric nutritional products segment reporting purposes two nutritional products divisions aggregated reported nutritional products segment vascular products worldwide sales coronary endovascular vessel closure products abbott’s underlying accounting records maintained legal entity basis government public reporting requirements segment disclosures performance basis consistent internal management reporting intersegment transfers inventory recorded standard cost measure segment operating earnings cost corporate functions cost certain employee benefits charged segments predetermined rates approximate cost remaining costs allocated segments acquisitions prior 2006 substantially intangible assets related amortization allocated segments following segment information prepared accordance internal accounting policies abbott described presented accordance generally accepted accounting principles applied consolidated financial statements net sales operating earnings 2006 unfavorably affected relatively stronger us dollar 2005 2004 favorably affected relatively weaker us dollar b decrease pharmaceutical product segment sales 2006 due primarily effects amendment boehringer ingelheim distribution agreement c additions longterm assets pharmaceutical products segment includes goodwill intangible assets acquired 2006 1590 821 respectively vascular products segment includes goodwill intangible assets acquired 2006 1688 1195 respectively note 6 segment geographic area information dollars millions continued corporate functions benefit plans costs 2006 includes philanthropic contribution 70 abbott fund e approximately 40 45 percent annual cost sharebased awards typically recognized first quarter due timing granting sharebased awards f net 2006 includes 281 restructuring plans discussed note 14 220 acquisition integration related costs primarily associated acquisition guidant’s vascular intervention endovascular solutions businesses income 91 fair value adjustments certain derivative financial instruments related investment boston scientific common stock note receivable net 2005 includes 266 restructuring impairment charges discussed note 14 g sales country based country sold product note 7 litigation environmental matters abbott identified potentially responsible party investigation cleanup costs number locations united states puerto rico federal state remediation laws investigating potential contamination number companyowned locations abbott recorded estimated cleanup cost site management believes abbott probable loss exposure individual site cleanup exposure expected exceed 3 million aggregate cleanup exposure expected exceed 15 million two patent disputes third parties claim abbott’s products infringe patents first dispute abbott recorded findings binding arbitration paid amount january 2007 second dispute abbott assumed part guidant acquisition reserves equal expected resolution recorded several civil actions pending brought individuals entities allege generally abbott numerous pharmaceutical companies reported false misleading pricing information relating average wholesale price certain pharmaceutical products connection federal state private reimbursement civil actions also brought abbott cases members pharmaceutical industry state attorneys general seeking recover alleged damages behalf state medicaid programs may 2006 abbott notified us department justice intervened civil whistleblower lawsuit alleging abbott inflated prices medicaid medicare reimbursable drugs outcome investigations litigation could include imposition fines penalties abbott unable estimate amount possible loss reserves recorded exposures many products involved cases hospira products hospira abbott’s former hospital products business spun abbott’s shareholders 2004 abbott retained liability losses result cases investigations extent losses relate sale hospira’s products prior spinoff hospira relate allegations made pending future cases investigations allegations existing date spinoff within next year legal proceedings may occur may result change estimated reserves recorded abbott legal proceedings environmental exposures excluding cases investigations discussed third paragraph footnote excluding binding arbitration award discussed second paragraph abbott estimates range possible loss approximately 165 million 295 million recorded reserve balance december 31 2006 proceedings exposures approximately 200 million reserves represent management’s best estimate probable loss defined statement financial accounting standards 5 “accounting contingencies” feasible predict outcome proceedings exposures certainty management believes ultimate disposition material adverse effect abbott’s financial position cash flows results operations except cases investigations discussed third paragraph footnote resolution could material cash flows results operations quarter note 8 spinoff hospira 2004 abbott’s board directors declared special dividend distribution outstanding shares common stock hospira inc payable april 30 2004 hospira included operations relating manufacture sale hospital products including specialty injectable pharmaceuticals medication delivery systems critical care devices injectable pharmaceutical contract manufacturing hospira included abbott’s hospital products segment’s reorganization january 1 2004 portions former international segment income cash flows note 8 spinoff hospira continued hospira direct transaction costs spinoff presented discontinued operations consolidated statement earnings statement cash flows abbott retained liabilities taxes income prior spinoff defined benefit postemployment medical dental plan obligations assets spinoff hospira’s us retired employees us retirement eligible employees certain potential liabilities related alleged improper pricing practices prior spinoff connection federal state private reimbursement certain drugs note 9 incentive stock program 1996 incentive stock program authorizes granting stock options replacement stock options stock appreciation rights limited stock appreciation rights restricted stock awards restricted stock units performance units foreign qualified benefits stock options replacement stock options restricted stock awards units comprise majority benefits granted currently outstanding program prior programs 2006 abbott granted 25657134 stock options 3961376 replacement stock options 1088911 net forfeitures 100000 restricted stock awards 949397 net forfeitures 27600 restricted stock units programs purchase price shares option must least equal fair market value common stock date grant maximum term option 10 years options vest equally three years except replacement options vest six months options granted january 1 2005 included replacement feature employee tenders mature shares abbott upon exercise stock option replacement stock option granted equal amount shares tendered replacement options granted current market price term expires date underlying option grant upon change control abbott outstanding stock options become fully exercisable terms conditions restricted stock awards units deemed satisfied restricted stock awards granted 2006 5 year term onethird award vesting one year upon abbott reaching minimum return equity target restricted stock units granted 2006 vest three years upon vesting recipient receives one share abbott stock vested restricted stock unit aggregate fair market value restricted stock awards units recognized expense vesting period restricted stock awards settlement vested restricted stock units issued treasury shares abbott issued new shares exercises stock options abbott policy purchasing shares relating sharebased programs january 1 2007 approximately 49 million shares reserved future grants 1996 program subsequent yearend board directors granted approximately 20 million stock options restricted stock awards units reserve note 9 incentive stock program continued number restricted stock awards units outstanding weightedaverage grantdate fair value december 31 2005 december 31 2006 2381800 5009 3830728 4531 respectively number restricted stock awards units weightedaverage grantdate fair value granted vested lapsed 2006 2165908 4399 573019 4874 143961 4393 respectively fair value restricted stock awards units vested 2006 2005 2004 32226000 12949000 16469000 respectively aggregate intrinsic value options outstanding exercisable december 31 2006 816 million 622 million respectively total intrinsic value options exercised 2006 2005 2004 205 million 189 million 133 million respectively total unrecognized compensation cost related sharebased compensation plans december 31 2006 amounted approximately 235 million expected recognized next three years january 1 2006 abbott adopted provisions statement financial accounting standards 123 revised 2004 “sharebased payment” requires fair value sharebased awards recorded results operations abbott used modified prospective method adoption method prior years’ financial results include impact recording stock options using fair value revised standard awards issued 2005 remainder unrecognized cost grants issued prior 2006 charged expense total noncash compensation expense charged income 2006 sharebased plans totaled approximately 330 million tax benefit recognized approximately 78 million approximately 40 45 percent annual net cost sharebased awards typically recognized first quarter due timing granting sharebased awards compensation cost capitalized part inventory significant december 31 2005 abbott measured compensation cost using intrinsic valuebased method accounting stock options replacement options granted employees compensation cost determined using fair valuebased accounting method 2005 2004 pro forma net income billions earnings per share eps amounts would follows note 9 incentive stock program continued weighted average fair value option granted 2006 2005 2004 1172 1217 1179 respectively fair value option grant estimated using blackscholes optionpricing model following assumptions riskfree interest rate based rates available time grant zerocoupon us government issues remaining term equal option’s expected life average life option granted 2006 based historical projected exercise lapsing data prior 2006 average life option granted based historical experience expected volatility 2006 option grants based implied volatilities traded options abbott’s stock historical volatility abbott’s stock expected life option expected volatility options granted prior 2006 based historical volatility period prior option grant equal option’s expected life dividend yield based option’s exercise price annual dividend rate time grant note 10 debt lines credit dollars thousands following summary longterm debt december 31 note 10 debt lines credit dollars thousands continued principal payments required longterm debt outstanding december 31 2006 95276 2007 1098353 2008 1093792 2009 130342 2010 2000355 2011 2771336 thereafter december 31 2006 abbott 7000000 unused lines credit including 4000000 shortterm facility supports commercial paper borrowing arrangements lines credit shortterm facility expire 2010 related compensating balances subject withdrawal abbott option commitment fees material abbott’s weighted average interest rate shortterm borrowings 50 december 31 2006 13 december 31 2005 22 december 31 2004 note 11 business combinations technology acquisitions related transactions december 2006 abbott acquired kos pharmaceuticals inc cash approximately 38 billion net cash held kos pharmaceuticals expand abbott’s presence lipid management market provide several onmarket latestage pipeline products kos pharmaceuticals inc specialty pharmaceutical company develops markets proprietary medications treatment chronic cardiovascular metabolic respiratory diseases business acquired december 13 2006 financial results acquired operations included financial statements beginning date acquisition financed primarily shortterm debt preliminary allocation acquisition cost shown table millions dollars acquired intangible assets amortized 1 15 years nondeductible acquired inprocess research development charged income 2006 net tangible assets acquired consist primarily trade accounts receivable inventories property equipment net assumed liabilities primarily accrued salaries wages liabilities note 11 business combinations technology acquisitions related transactions continued order expand abbott’s presence growing vascular market abbott acquired guidant’s vascular intervention endovascular solutions businesses approximately 41 billion cash connection boston scientific’s acquisition guidant businesses acquired april 21 2006 financial results acquired operations included financial statements beginning date addition abbott also pay boston scientific 250 million upon government approvals market xience v drugeluting stent us japan 250 million payment result recording additional goodwill preliminary allocation acquisition cost shown table millions dollars valuation intellectual property including intangible assets acquired inprocess research development substantially complete valuations assets liabilities preliminary allocation finalized certain information regarding assets liabilities known acquired intangible assets amortized 3 15 years average approximately 10 years tax deductible acquired inprocess research development charged income 2006 net tangible assets acquired consist primarily property equipment approximately 530 million trade accounts receivable approximately 250 million inventories approximately 120 million net assumed liabilities primarily trade accounts payable litigation reserves liabilities order facilitate boston scientific’s acquisition guidant abbott also acquired 646 million shares boston scientific common stock directly boston scientific loaned 900 million whollyowned subsidiary boston scientific abbott required dispose shares october 2008 sales shares limited approximately 54 million shares per month october 2007 amount recorded upon acquisition shares includes discount market based appraisal reflect value restrictions sale date acquisition half shares recorded available sale accordance sfas 115 remainder cost method accordance apb 18 december 31 2006 shares recorded available sale accordance sfas 115 loan due april 2011 guaranteed boston scientific bears favorable effective interest rate 4 percent reflected valuation note receivable connection acquisition shares boston scientific entitled certain aftertax gains upon abbott’s sale shares abbott would retain gains sale boston scientific shares sales price 2383 boston scientific would receive aftertax gains sale shares portion sales price excess 2383 lower 2600 boston scientific would receive onehalf aftertax gain portion sales price excess 2599 based appraisal abbott recorded approximately 114 million gainsharing derivative financial instrument liability addition boston scientific agreed reimburse abbott certain borrowing costs debt incurred acquire boston scientific shares abbott incurs first 10 million interest cost debt incurred acquire shares boston scientific reimburse abbott next 60 million interest cost reimbursement incremental interest cost form additional common stock boston scientific payable 18 months acquisition abbott recorded approximately 55 million interest derivative financial instrument asset effect recording shares loan boston scientific derivative financial instruments fair value date acquisition resulted recording additional goodwill approximately 204 million financial note 11 business combinations technology acquisitions related transactions continued assets liability acquired boston scientific valued recorded acquisition follows millions dollars 2005 abbott acquired remaining interest small medical products company previously accounted equity method accounting less 50 percent equity interest small medical products company aggregate cash purchase price approximately 25 million acquisition accounting resulted recording nontax deductible goodwill approximately 69 million intangible assets approximately 22 million charge approximately 17 million acquired inprocess research development 2005 abbott acquired additional rights related humira approximately 270 million amortized 13 years 2004 abbott acquired therasense inc leader development manufacturing marketing blood glucose selfmonitoring systems approximately 12 billion cash istat corporation manufacturer pointofcare diagnostic products blood analysis approximately 394 million cash eas nutritional company portfolio nationally recognized brands approximately 320 million cash spine next manufacturer orthopedic spinal implant devices approximately 58 million cash plus additional milestone payments 23 million upon achievement future targets abbott also acquired certain product technologies approximately 352 million acquisitions resulted charge 271 million acquired inprocess research development intangible assets approximately 13 billion nontax deductible goodwill approximately 923 million deferred income taxes approximately 406 million acquired intangible assets primarily trade names amortized 5 20 years average approximately 14 years acquisitions taken place january 1 previous year consolidated net sales income would significantly different reported amounts note 12 goodwill intangible assets dollars millions abbott recorded goodwill 3721 69 923 2006 2005 2004 respectively related acquisitions including acquired goodwill allocated pharmaceutical products segment 1590 goodwill allocated vascular products segment 1688 foreign currency translation adjustments increased decreased goodwill 2006 2005 2004 509 535 394 respectively amount goodwill related reportable segments december 31 2006 5223 pharmaceutical products segment 1440 diagnostics products segment 353 nutritional products segment 1939 vascular products segment connection spinoff hospira 2004 abbott transferred 81 goodwill hospira reductions goodwill relating impairments disposal portion business gross amount amortizable intangible assets primarily product rights technology 8988 6776 6622 december 31 2006 2005 2004 respectively accumulated amortization 2602 2053 1468 december 31 2006 2005 2004 respectively intangible assets indefinite lives significant estimated annual amortization expense intangible assets 748 2007 708 2008 2009 2010 690 2011 intangible assets amortized 1 25 years average 11 years note 13 equity method investments dollars millions abbott’s 50 percentowned joint venture tap pharmaceutical products inc tap accounted equity method accounting investment tap 162 167 76 december 31 2006 2005 2004 respectively dividends received tap 487 343 638 2006 2005 2004 respectively abbott performs certain administrative manufacturing services tap negotiated rates approximate fair market value summarized financial information tap follows undistributed earnings investments accounted equity method amounted approximately 140 december 31 2006 note 14 restructuring plans dollars millions 2006 2005 abbott management approved plans realign worldwide pharmaceutical manufacturing operations selected domestic international commercial research development operations order reduce costs 2006 2005 abbott recorded pretax charges earnings approximately 210 256 respectively reflecting impairment manufacturing facilities assets employee severance related charges approximately 181 174 respectively classified cost products sold 29 10 respectively research development 72 2005 selling general administrative fair value determination amount asset impairments determined primarily based discounted cash flow method additional 70 14 subsequently recorded 2006 2005 respectively relating restructurings primarily accelerated depreciation result product reregistration timelines required manufacturing regulations number countries manufacturing related realignments expected continue 2007 following summarizes activity restructurings note 14 restructuring plans dollars millions continued abbott expects incur additional 128 future periods restructuring plans primarily accelerated depreciation note 15 subsequent event january 18 2007 abbott announced agreed sell core laboratory diagnostics business including abbott point care ge 813 billion cash last decade laboratory diagnostics market changed considerably innovation business increasingly driven automation system integration host skills abbott believes ge better offer sale expected close first half 2007 subject customary closing conditions including regulatory approvals net sales businesses approximately 27 billion 2006 carrying amount assets liabilities included sale estimated approximately 26 billion comprised trade receivables approximately 750 million inventories approximately 650 million current assets approximately 100 million net property plant equipment approximately 13 billion intangible assets goodwill approximately 500 million current liabilities approximately 550 million longterm liabilities approximately 150 million abbott estimates tax expense approximately 20 billion recorded gain note 16 quarterly results unaudited dollars millions except per share data sum quarters’ basic diluted earnings per share 2006 2004 add full year earnings per share amounts due rounding b second quarter 2006 includes pretax charge 493 acquired inprocess collaborations research development c third quarter 2006 includes pretax charge 214 acquired inprocess research development 2005 includes pretax restructuring charges 201 fourth quarter 2006 includes pretax charge 1307 acquired inprocess collaborations research development management report internal control financial reporting management abbott laboratories responsible establishing maintaining adequate internal control financial reporting abbott’s internal control system designed provide reasonable assurance company’s management board directors regarding preparation fair presentation published financial statements internal control systems matter well designed inherent limitations therefore even systems determined effective provide reasonable assurance respect financial statement preparation presentation abbott’s management assessed effectiveness company’s internal control financial reporting december 31 2006 making assessment used criteria set forth internal control integrated framework issued committee sponsoring organizations treadway commission allowed sec guidance management excluded assessment 2006 acquisitions guidant businesses kos pharmaceuticals accounted approximately 20 percent consolidated total assets approximately 3 percent consolidated net sales based assessment believe december 31 2006 company’s internal control financial reporting effective based criteria abbott’s independent registered public accounting firm issued audit report assessment company’s internal control financial reporting report appears page 77 miles white chairman board chief executive officer thomas c freyman executive vice president finance chief financial officer greg w linder vice president controller february 15 2007 report independent registered public accounting firm board directors shareholders abbott laboratories audited accompanying consolidated balance sheets abbott laboratories subsidiaries company december 31 2006 2005 2004 related consolidated statements earnings shareholders’ investment cash flows years ended financial statements responsibility company’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position abbott laboratories subsidiaries december 31 2006 2005 2004 results operations cash flows years ended conformity accounting principles generally accepted united states america discussed notes 1 4 9 consolidated financial statements company changed method accounting pension post employment benefits sharebased payments adopt statement financial accounting standards “sfas” 158 employers’ accounting defined benefit pension postretirement plans sfas 123r sharebased payment also audited accordance standards public company accounting oversight board united states effectiveness company’s internal control financial reporting december 31 2006 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission report dated february 15 2007 expressed unqualified opinion management’s assessment effectiveness company’s internal control financial reporting unqualified opinion effectiveness company’s internal control financial reporting deloitte touche llp chicago illinois february 15 2007 report independent registered public accounting firm board directors shareholders abbott laboratories audited management’s assessment included accompanying management report internal control financial reporting dated february 15 2007 management’s report abbott laboratories subsidiaries company maintained effective internal control financial reporting december 31 2006 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission described management’s report management excluded assessment internal control financial reporting 2006 acquisitions guidant businesses guidant kos pharmaceuticals kos accounted approximately 20 percent consolidated total assets approximately 3 percent consolidated net sales accordingly audit include internal control financial reporting guidant kos company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting responsibility express opinion management’s assessment opinion effectiveness company’s internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting evaluating management’s assessment testing evaluating design operating effectiveness internal control performing procedures considered necessary circumstances believe audit provides reasonable basis opinions company’s internal control financial reporting process designed supervision company’s principal executive principal financial officers persons performing similar functions effected company’s board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting including possibility collusion improper management override controls material misstatements due error fraud may prevented detected timely basis also projections evaluation effectiveness internal control financial reporting future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion management’s assessment company maintained effective internal control financial reporting december 31 2006 fairly stated material respects based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission also opinion company maintained material respects effective internal control financial reporting december 31 2006 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission also audited accordance standards public company accounting oversight board united states consolidated financial statements company year ended december 31 2006 report dated february 15 2007 expressed unqualified opinion financial statements included explanatory paragraph regarding company’s adoption statement financial accounting standards “sfas” 158 employers’ accounting defined benefit pension postretirement plans sfas 123r sharebased payment 2006 deloitte touche llp chicago illinois february 15 2007 tap pharmaceutical products inc consolidated statements income comprehensive income dollars thousands see notes consolidated financial statements tap pharmaceutical products inc consolidated statements cash flows dollars thousands see notes consolidated financial statements tap pharmaceutical products inc consolidated balance sheets thousands except share amount see notes consolidated financial statements tap pharmaceutical products inc consolidated statements shareholders’ equity years ended december 31 2006 2005 2004 dollars thousands except share amounts see notes consolidated financial statements tap pharmaceutical products inc notes consolidated financial statements years ended december 31 2006 2005 2004 dollars thousands note 1 description business tap pharmaceutical products inc subsidiaries tap delaware corporation owned equally abbott laboratories abbott illinois corporation takeda america holdings inc whollyowned subsidiary takeda pharmaceutical company ltd japanese corporation collectively takeda tap headquartered lake forest illinois approximately 3000 employees agreement abbott takeda tap develops markets sells human pharmaceutical products united states puerto rico canada tap operates one business segment sales primarily united states tap’s primary products prevacid lupron principal indications prevacid lansoprazole proton pump inhibitor shortterm treatment duodenal ulcers gastric ulcers erosive esophagitis lupron leuprolide acetate luteinizing hormonereleasing hormone lhrh analog lupron depot sustained release form lupron used principally palliative treatment advanced prostate cancer endometriosis central precocious puberty preoperative treatment patients anemia caused uterine fibroids patents related lansoprazole lupron depot material operation tap’s business original united states compound patent covering lansoprazole licensed tap takeda original united states patents covering lupron depot formulations licensed tap takeda tap’s products generally sold directly physicians retailers wholesalers health care facilities government agencies cases distributed abbottowned distribution centers primary marketing efforts directed toward securing prescription tap’s brand products physicians managed care purchasers example health maintenance organizations pharmacy benefit managers increasingly important customers tap’s products supplied owners principally takeda disruption supply products could adversely impact operating results tap sales tap’s primary products follows 2006 2005 tap recognized revenue milestone payments related 2005 license prevacid trademark certain patents technical information third party overthecounter sale prevacid united states financial instruments potentially subject tap concentrations credit risk consist primarily accounts receivable tap sells primarily wholesale distributors majority tap’s accounts receivable derived sales wholesale distributors three us wholesale distributors accounted 10 tap’s gross sales follows note 1 description business continued tap material exposures offbalance sheet arrangements special purpose entities activities include nonexchangetraded contracts accounted fair value except equity swap agreements hedge market price exposure employee stock options described note 6 note 2 summary significant accounting policies basis presentation consolidated financial statements include accounts tap subsidiaries intercompany accounts transactions eliminated use estimates preparation financial statements conformity accounting principles generally accepted united states america requires estimates assumptions management actual results could differ estimates significant estimates include amounts income taxes sales rebates inventory reserves accounts receivable allowances cash equivalents cash equivalents include time deposits certificates deposit commercial paper money market funds shortterm investments governmental agency debt securities original maturities three months less contractually convertible cash three months less investment securities investments marketable debt equity securities classified availableforsale recorded fair value unrealized holding gains losses net tax included accumulated comprehensive loss income inventories stated lower cost firstin firstout basis market cost includes material packaging costs inventories consist following december 31 property equipment property equipment recorded cost less accumulated depreciation provided using straightline method estimated useful lives assets estimated useful lives property equipment follows longlived assets reviewed impairment whenever events changes circumstances indicate carrying value may recoverable based projected undiscounted cash flows associated affected assets fair value less carrying value asset loss recognized difference fair value determined based market quotes available based valuation techniques revenue recognition revenue product sales recognized upon passage title risk loss customers product delivered common carrier revenue license product rights recorded periods earned provisions estimated rebates sales incentives customers doubtful accounts cash discounts product returns customer chargebacks provided period related sale rebates sales incentives recorded accrued rebates note 2 summary significant accounting policies continued balance sheets reserves doubtful accounts cash discounts product returns customer chargebacks recorded reductions accounts receivable historical data readily available reliable used estimating amount reduction gross sales research development internal research development costs expensed incurred clinical trial costs incurred third parties expensed contracted work performed milestone payments due third parties research development arrangements milestone payment obligations expensed milestone results achieved advertising promotion expense advertising promotion costs expensed selling general administrative expenses incurred total advertising promotion expense incurred 186052 203375 227882 2006 2005 2004 respectively income taxes deferred income taxes recognized tax consequences temporary differences applying statutory tax rates applicable future years differences financial statement carrying amount tax basis assets liabilities reclassifications certain reclassifications made prior year financial statements conform currentyear presentation note 3 property equipment lease obligations property equipment consists following december 31 tap leases certain administrative regional sales offices equipment automobiles noncancelable leases expire various dates 2011 future minimum lease payments noncancelable operating capital leases december 31 2006 consist following note 4 financial instruments derivatives tap enters foreign currency forward contracts hedge purchases inventories fixed yendenominated prices forward contracts require tap purchase yen exchange us dollars note 4 financial instruments derivatives continued predetermined exchange rates designated cash flow hedges variability cash flows due changes exchange rates tap trade financial instruments objective earning financial gains exchange rate fluctuations alone trade currencies commodities underlying exposures effectiveness forward contracts based changes forward rates effective portion changes value forward contracts recorded accumulated comprehensive loss subsequently recognized earnings period hedged forecasted transactions affect earnings cash flow hedge ineffectiveness reported earnings current period tap outstanding foreign exchange forward contracts notional values 176509 392086 fair values 2049 18638 december 31 2006 2005 respectively fair value contracts recorded accrued liabilities december 31 2006 2005 2006 2005 2004 cash flow hedge ineffectiveness material carrying value cash equivalents shortterm investments approximates fair value due shortterm maturity investments note 5 employee benefit plans tap employees participate various abbott employee benefit plans including abbott laboratories annuity retirement plan abbott laboratories stock retirement plan abbott laboratories incentive stock program see note 6 details tap billed share costs plans tap’s share employer contribution abbott laboratories annuity retirement plan generally allocated based tap’s proportionate share total compensation expense participants plan tap made contributions plan 16000 2006 2005 43000 2004 tap’s contribution abbott laboratories stock retirement plan based participating employee contributions tap’s contributions 2006 2005 2004 12989 12619 11563 respectively tap provides health welfare benefits employees tap pharmaceutical products inc healthcare plan contributions plan made accordance tap’s funding policy tap provides certain medical life insurance benefits qualifying retirees tap pharmaceutical products inc retiree medical plan following provides reconciliation postemployment benefit obligations funded status plan note 5 employee benefit plans continued components net cost follows discount rates used determine benefit obligations medical dental plans december 31 measurement date plan 590 percent 2006 575 percent 2005 discount rates used determine net cost medical dental plans 575 percent 2006 58 percent 2005 60 percent 2004 assumed health care cost trend rates medical dental plans december 31 follows onepercentage point increase decrease assumed health care trend rate would increase decrease accumulated postemployment benefit obligations december 31 2006 approximately 9206 6902 respectively total service interest cost components net postemployment benefit cost year ended approximately 1496 1097 respectively total benefit payments expected paid participants company assets postemployment medical dental benefits follows september 2006 fasb issued statement financial accounting standards sfas 158 “employers’ accounting defined benefit pension postretirement plans” new statement requires immediate recognition deferrals balance sheet corresponding charge accumulated comprehensive loss income tap required adopt accounting provisions statement december 31 2007 note 6 incentive stock program certain employees tap granted options purchase abbott common stock 1996 abbott incentive stock program prior plans stock options replacement stock options granted tap employees currently outstanding prior plans purchase price shares option must least equal fair market value abbott common stock date grant maximum term option 10 years options granted vest equally three years except note 6 incentive stock program continued replacement options generally vest six months life equal remaining life replaced option addition beginning 2006 certain employees tap granted restricted stock units abbott stock restricted stock units granted 2006 vest three years upon vesting recipient receives one share abbott stock vested restricted stock unit upon change control abbott outstanding stock options restricted stock units become fully exercisable option exercises restricted stock vesting transacted abbott tap liable excess fair market value option shares granted tap employees employed tap option price time exercise fair market value abbott stock time vesting restricted stock units reimburses abbott annually cost options exercised restricted stock units vested year tap accounted stock options issued abbott incentive stock program accordance eitf 0208 2005 2004 respectively january 1 2006 tap adopted provisions statement financial accounting standards no123 revised 2004 “sharebased payment” using modified prospective method adoption provisions statement effect tap’s financial statements tap’s derivative liability options granted 66231 37982 december 31 2006 2005 respectively changes fair value options recorded selling general administrative expense weighted average fair value option granted 2006 2005 2004 967 1293 955 respectively fair value option granted estimated using blackscholes optionpricing model following assumptions fair value option december 31 estimated using blackscholes optionpricing model following assumptions riskfree interest rate based rates available time grant us government treasury strips remaining term equal option’s expected life average life option granted 2006 based historical projected exercise lapsing data prior 2006 average life option granted based historical experience expected volatility based historical volatility period prior option grant equal option’s expected life dividend yield based option’s exercise price annual dividend rate time grant note 6 incentive stock program continued number restricted stock units outstanding weightedaverage grantdate fair value december 31 2006 25400 4433 number restricted stock units weightedaverage grantdate fair value granted lapsed 2006 36700 4428 respectively 11300 4416 respectively following summarizes stock option activity 2006 aggregate intrinsic value options outstanding exercisable december 31 2006 41100 29400 respectively total intrinsic value options exercised 8500 2006 2005 5000 2004 total unrecognized compensation cost related sharebased compensation plans december 31 2006 amounted approximately 9200 expected recognized next three years december 31 2006 2005 tap recorded liability exercised options 7567 7119 respectively payable abbott tap also recorded liability options issued adoption eitf 0208 difference market value strike price vested yet unexercised options 15761 5009 december 31 2006 2005 respectively total expense income related abbott incentive stock program 49489 12553 26493 recorded selling general administrative expense 2006 2005 2004 respectively amount income taxes benefit realized stock options exercised 2006 2005 2004 amounted 2236 2407 1366 respectively due impact significant fluctuations market price abbott common stock amount recorded compensation expense options issued abbott incentive stock program tap entered isda master agreement master agreement dated september 29 2000 allows tap enter equity swap transactions hedge market price exposure equity swap transaction guarantees return equal actual return specified number shares abbott common stock effectively acts hedge abbott incentive stock program time tap enters equity swap transactions master agreement transaction term one three years requires quarterly cash settlement resulting gains losses realized recorded statements income transaction requires ongoing quarterly interest payments based equity notional amount fair value abbott common stock shares swapped transaction date swap rate libor plus 114 basis points 100 basis points transactions prior october 2003 equity swap transaction recorded fair value fair value equity swaps 811 212 december 31 2006 2005 respectively recorded prepaid expenses assets balance sheets 2006 2005 2004 tap recorded selling general administrative expenses 47554 27945 19085 respectively gain loss related equity swap investments note 7 income taxes loss contingency provisions recorded estimated amount audit settlements provisions statement financial accounting standards 5 “accounting contingencies” tap’s us income tax liabilities years 1999 forward subject final determination internal revenue service irs challenged deductibility item tap’s 2001 tax return management believes deduction proper expects ultimate resolution material impact tap’s financial position cash flows results operations deferred income taxes reflect tax consequences future years temporary differences tax bases assets liabilities financial reporting amounts provision income taxes includes following components differences effective tax rate us statutory tax rate follows temporary differences give rise deferred tax assets liabilities follows july 2006 fasb issued interpretation 48 “accounting uncertainty income taxes” interpretation requires recorded tax benefit must likely sustained upon examination tax authorities based upon technical merits amount benefit recorded largest amount benefit greater 50 percent likely realized upon ultimate settlement note 7 income taxes continued upon adoption adjustment recorded directly beginning retained earnings interpretation effective tap beginning later january 1 2007 tap yet adopted provisions interpretation adoption interpretation expected material effect tap’s january 1 2007 balance sheet 2007 provision income taxes note 8 litigation related matters tap along shareholders named defendants several lawsuits alleging violations various state federal laws connection tap’s marketing pricing lupron 2004 tap reached agreement plaintiffs settle allegations 150000 dismiss tap takeda abbott cases recorded charge 125000 selling general administrative expense plaintiffs opted lupron settlement pursue claims separately 2005 tap recorded additional charge 12300 settlement received court approval claims remaining plaintiffs material reserved tap within next year legal proceedings may occur may result change estimated reserves recorded tap feasible predict outcome pending claims proceedings investigations certainty management opinion ultimate disposition material adverse effect tap’s financial position cash flows results operations note 9 relatedparty transactions various agreements exist among tap abbott takeda amounts due payable abbott takeda respectively netted balance sheets captions receivable abbott payable abbott payable takeda tap purchases lupron depot prevacid unpackaged finished goods inventories takeda purchases contracted fixed yendenominated prices actual cost us dollars paid takeda purchases inventories 2006 2005 2004 totaled 609436 753096 714712 respectively tap royalty agreements takeda sales lupron depot prevacid 2006 2005 2004 tap recorded royalty expense 179770 173878 179256 respectively tap pays abbott services related packaging warehousing research development administrative functions 2004 residual royalty copromotion agreement amounts incurred services totaled 60425 59969 142676 2006 2005 2004 respectively addition abbott purchased international markets tap’s products 84515 75295 73934 2006 2005 2004 respectively note 10 subsequent event february 16 2007 tap received total 148000 qlt usa inc sanofisynthelabo inc resolve litigation relating alleged infringement lupron depot patent tap recorded receipt settlement amount income first quarter 2007 report independent registered public accounting firm board directors stockholders tap pharmaceutical products inc audited accompanying consolidated balance sheets tap pharmaceutical products inc subsidiaries tap company december 31 2006 2005 related consolidated statements income stockholders’ equity cash flows three years period ended december 31 2006 financial statements responsibility tap’s management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement company required engaged perform audit internal control financial reporting audits included consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness tap’s internal control financial reporting accordingly express opinion audit also includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position tap pharmaceutical products inc subsidiaries december 31 2006 2005 results operations cash flows three years period ended december 31 2006 conformity accounting principles generally accepted united states america deloitte touche llp chicago illinois february 1 2007 february 16 2007 note 10 item 9 item 8 financial statements supplementary data abbott laboratories subsidiaries consolidated statement earnings dollars shares thousands except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement cash flows dollars thousands accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated balance sheet dollars thousands abbott laboratories subsidiaries consolidated balance sheet dollars thousands accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement shareholders investment dollars thousands except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries notes consolidated financial statements note 1 summary significant accounting policies nature business abbotts principal business discovery development manufacture sale broad line health care products concentration risk guarantees due nature operations abbott subject significant concentration risks relating customers products geographic locations except three us wholesalers accounted 27 percent 25 percent 23 percent trade receivables december 31 2008 2007 2006 respectively product warranties significant abbott material exposures offbalance sheet arrangements special purpose entities activities include nonexchangetraded contracts accounted fair value abbott periodically entered agreements ordinary course business assignment product rights companies resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote abbott periodically acquires business product rights abbott agrees pay contingent consideration based attaining certain thresholds based occurrence certain events connection spinoff hospira inc abbott retained liabilities taxes income prior spinoff certain potential liabilities related alleged improper pricing practices connection federal state private reimbursement certain drugs basis consolidation consolidated financial statements include accounts parent company subsidiaries elimination intercompany transactions accounts foreign subsidiaries consolidated november 30 due time needed consolidate subsidiaries events occurred related foreign subsidiaries december 2008 2007 2006 materially affected financial position results operations cash flows use estimates financial statements prepared accordance generally accepted accounting principles united states necessarily include amounts based estimates assumptions management actual results could differ amounts significant estimates include amounts sales rebates income taxes pension postemployment benefits valuation intangible assets litigation sharebased compensation derivative financial instruments inventory accounts receivable exposures revenue recognition revenue product sales recognized upon passage title risk loss customers provisions discounts rebates sales incentives customers returns adjustments provided period related sales recorded sales incentives customers material historical data readily available reliable used estimating amount reduction gross sales revenue launch new product improved version existing product shipments excess customers normal requirements recorded conditions noted met situations management records returns reserve revenue necessary sales product rights marketable products recorded revenue upon disposition rights revenue license product rights performance research selling activities recorded periods earned income taxes january 1 2007 abbott adopted provisions fasb interpretation 48 accounting uncertainty income taxes interpretation order recognize uncertain tax benefit taxpayer must likely sustaining position measurement benefit calculated largest amount 50 percent likely note 1 summary significant accounting policies continued realized upon resolution benefit deferred income taxes provided tax effect differences tax bases assets liabilities reported amounts financial statements enacted statutory rate effect taxes paid us income taxes provided earnings foreign subsidiaries intended remitted parent company deferred income taxes provided undistributed earnings reinvested indefinitely foreign subsidiaries working capital plant equipment interest penalties income tax obligations included taxes income pension postemployment benefits abbott accrues actuarially determined cost pension postemployment benefits service attribution periods employees abbott must develop longterm assumptions significant health care cost trend rates discount rates expected return plan assets differences expected longterm return plan assets actual return amortized fiveyear period actuarial losses gains amortized remaining service attribution periods employees corridor method december 31 2006 abbott adopted provisions sfas 158 employers accounting defined benefit pension postretirement plans statement requires recognition deferrals balance sheet corresponding charge accumulated comprehensive income loss adoption statement december 31 2006 resulted decrease abbotts shareholders equity approximately 13 billion fair value measurements january 1 2007 abbott adopted sfas 157 fair value measurements adoption provisions standard material effect abbotts financial position assets liabilities measured using quoted prices active markets total fair value published market price per unit multiplied number units held without consideration transaction costs assets liabilities measured using significant observable inputs valued reference similar assets liabilities adjusted contract restrictions terms specific asset liability items significant portion fair value derived reference quoted prices similar assets liabilities active markets remaining assets liabilities fair value derived using fair value model discounted cash flow model blackscholes model purchased intangible assets recorded fair value fair value significant purchased intangible assets based independent appraisals abbott uses discounted cash flow model value intangible assets discounted cash flow model requires assumptions timing amount future net cash flows risk cost capital terminal values market participants intangible assets goodwill reviewed impairment least quarterly annual basis respectively sharebased compensation value stock options restricted stock awards units amortized service period could shorter vesting period employee retirement eligible charge compensation expense litigation abbott accounts litigation losses accordance sfas 5 sfas 5 loss contingency provisions recorded probable losses managements best estimate loss best estimate cannot made minimum loss contingency amount recorded cash equivalents investments cash equivalents consist time deposits certificates deposit original maturities three months less except abbotts investment common stock boston scientific investments marketable equity securities classified availableforsale recorded fair value unrealized holding gains losses net tax included accumulated comprehensive income loss beginning january 1 2007 investment common stock boston scientific accounted trading security changes fair value recorded income investments equity securities traded public stock note 1 summary significant accounting policies continued exchanges recorded cost investments debt securities classified heldtomaturity management intent ability hold securities maturity reported cost net unamortized premium discount income relating securities reported interest income abbott reviews carrying value investments quarter determine whether temporary decline market value exists abbott considers factors affecting investee factors affecting industry investee operates general equity market trends abbott considers length time investments market value carrying value nearterm prospects recovery carrying value abbott determines temporary decline occurred investment written charge income expense net inventories stated lower cost firstin firstout basis market cost includes material conversion costs property equipment depreciation amortization provided straightline basis estimated useful lives assets following table shows estimated useful lives property equipment product liability abbott accrues product liability claims undiscounted basis probable liability incurred amount liability reasonably estimated based existing information liabilities adjusted quarterly additional information becomes available receivables insurance recoveries product liability claims recorded assets undiscounted basis probable recovery realized abbott carried thirdparty insurance coverage amounts reflect historical loss experience include coverage sizable losses subsequent 2008 product liability losses selfinsured research development costs internal research development costs expensed incurred clinical trial costs incurred third parties expensed contracted work performed contingent milestone payments due third parties research development arrangements milestone payment obligations expensed milestone results achieved note 2 supplemental financial information 2007 financial accounting standards board issued statement financial accounting standards 159 fair value option financial assets financial liabilities sfas 159 allows companies measure specific financial assets liabilities fair value debt equity investments fair value option investment boston scientific common stock applied effective january 1 2007 abbott applied fair value option investment boston scientific stock sfas 159 unlike equity investments boston scientific stock strategic investment abbott required dispose stock later october 2008 abbott subject limitation amount shares may sell one month october 2007 abbott reacquire boston scientific shares sold accordingly since adoption realized gains losses expected near future fair value option better represented nearterm expected earnings impact sales stock fair value option cumulative unrealized gains losses equity investment previously accounted availableforsale security recorded cumulative effect adjustment retained earnings date adoption standard pretax tax adjustment earnings employed business upon adoption 297 million 189 million respectively fair value carrying amount investment adoption approximately 10 billion pretax tax adjustment accumulated comprehensive income loss 303 million 182 million respectively effect adoption deferred income taxes significant described footnote 3 abbott recorded gain approximately 94 million connection dissolution tap pharmaceutical products inc joint venture 2008 included income expense net income expense net 2008 also includes gain approximately 52 million sale equity investment accounted availableforsale investment remainder income expense net 2008 relates primarily contractual payments based specified development approval commercial events achieved respect products retained takeda payments takeda based sales products retained takeda income expense net 2007 includes 190 million fair market value loss adjustment abbotts investment boston scientific common stock realized gain 37 million sales boston scientific common stock income expense net 2007 2006 includes fair value gain adjustments note 2 supplemental financial information continued 28 million 91 million respectively certain derivative financial instruments included investment boston scientific common stock aaccrued wholesaler chargeback rebates 210 157 123 december 31 2008 2007 2006 respectively netted trade receivables abbotts customers invoiced higher catalog price remit abbott contract price products note 2 supplemental financial information continued december 31 2006 abbott adopted provisions sfas 158 employers accounting defined benefit pension postretirement plans adoption statement resulted decrease abbotts shareholders equity 13 billion net taxes approximately 733 million acquired lupron business 2008 discussed footnote 3 abbott recorded intangible assets primarily lupron product rights approximately 700 million goodwill approximately 350 million deferred tax liabilities related intangible assets approximately 260 million abbott also recorded liability approximately 11 billion relating agreement remit cash takeda certain research development events achieved development assets retained takeda related deferred tax assets approximately 410 million also recorded resulting aftertax liability approximately 700 million sale abbotts equity interest tap resulted recording net assets related lupron business primarily cash receivables inventory assets net accounts payable accrued liabilities offset credit abbotts investment tap amount approximately 280 million note 3 conclusion tap pharmaceutical products inc joint venture sale abbotts spine business april 30 2008 abbott takeda concluded tap pharmaceutical products inc tap joint venture evenly splitting value assets joint venture abbott exchanged 50 percent equity interest tap assets liabilities employees related taps lupron business subsequent conclusion joint venture tap merged two takeda entities exchange abbotts investment tap taps lupron business resulted gain closing approximately 94 million internal revenue service issued private letter ruling transaction qualifies taxfree us income tax purposes beginning may 1 2008 abbott began recording us lupron net sales costs operating results longer records income tap joint venture taps sales lupron 182 million four months ended april 30 2008 645 million 662 million 2007 2006 respectively abbott also receives payments based specified development approval commercial events achieved respect products retained takeda payments takeda based sales products retained takeda recorded abbott income expense net earned payments subject tax expected approximate 14 billion fiveyear period beginning may 1 2008 exchange transaction accounted sale abbotts equity interest tap acquisition taps lupron business sfas 141 business combinations sale abbotts equity interest tap resulted recording net assets related lupron business primarily cash receivables inventory assets net accounts payable accrued liabilities offset credit abbotts investment tap amount approximately 280 million acquired lupron business abbott recorded intangible assets primarily lupron product rights approximately 700 million goodwill approximately 350 million deferred tax liabilities related primarily intangible assets approximately 260 million intangible assets amortized 15 years abbott also agreed remit cash takeda certain research development events note 3 conclusion tap pharmaceutical products inc joint venture sale abbotts spine business continued achieved development assets retained takeda amounts recorded liability closing amount approximately 11 billion related deferred tax assets approximately 410 million also recorded resulting aftertax liability approximately 700 million 11 billion abbott made taxdeductible payment 200 million 2008 abbott make taxdeductible payment approximately 120 million 2009 remaining payments required liability would reduced gain would recorded 50 percentowned joint venture accounted equity method accounting summarized financial information tap follows results 2008 include results april 30 dollars millions fourth quarter 2008 abbott sold spine business approximately 360 million cash resulting aftertax gain approximately 147 million presented gain sale discontinued operations net taxes accompanying statement income operations financial position spine business presented discontinued operations effects would significant note 4 financial instruments derivatives fair value measures certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts totaling 129 million 281 million 768 million december 31 2008 2007 2006 respectively designated cash flow hedges variability cash flows due changes foreign exchange rates abbott records contracts fair value resulting charges 2 million 12 million 2008 2007 respectively credit 16 million accumulated comprehensive income loss 2006 ineffectiveness recorded 2008 2007 2006 significant accumulated gains losses december 31 2008 included cost products sold time products sold generally next twelve months abbott enters foreign currency forward exchange contracts manage currency exposures foreign currency denominated thirdparty trade payables receivables intercompany loans trade accounts payable receivable payable denominated currency functional currency entity intercompany loans contracts require abbott sell buy foreign currencies primarily european currencies japanese yen exchange primarily us dollars european currencies intercompany trade payables receivables currency exposures primarily us dollar european currencies japanese yen contracts recorded fair value resulting gains losses reflected income net foreign exchange gain loss december 31 2008 2007 2006 abbott held 83 billion 55 billion 56 billion respectively foreign currency forward exchange contracts abbott designated foreign denominated shortterm debt hedge net investment certain foreign subsidiaries approximately 585 million approximately 17 billion note 4 financial instruments derivatives fair value measures continued december 31 2008 2007 respectively accordingly changes fair value debt due changes exchange rates recorded accumulated comprehensive income loss net tax resulting charges 134 million 72 million accumulated comprehensive income loss 2008 2007 respectively abbott party interest rate hedge contracts totaling 25 billion december 31 2008 15 billion december 31 2007 2006 manage exposure changes fair value 25 billion 15 billion respectively fixedrate debt due 2009 2017 contracts designated fair value hedges variability fair value fixedrate debt due changes longterm benchmark interest rates effect hedge change fixedrate interest obligation variable rate portion debt abbott records contracts fair value adjusts carrying amount fixedrate debt offsetting amount hedge ineffectiveness recorded income 2008 2007 2006 gross unrealized holding gains losses availableforsale equity securities totaled 55 million 23 million respectively december 31 2008 108 million 3 million respectively december 31 2007 21 million 304 million respectively december 31 2006 carrying values fair values certain financial instruments december 31 shown table carrying values financial instruments approximate estimated fair values counter parties financial instruments consist select major international financial institutions abbott expect losses nonperformance counter parties note 4 financial instruments derivatives fair value measures continued following table summarizes bases used measure certain assets liabilities fair value recurring basis balance sheet dollars millions connection conclusion tap pharmaceutical products inc joint venture abbott recorded derivative financial assets liabilities related stock options previously granted taps employees amounts assets liabilities calculated using blackscholes optionpricing model intrinsic value options april 30 2008 december 31 2008 assets liabilities decreased approximately 29 million effect changes assets liabilities substantially offset addition abbott received investments 2008 valued using significant unobservable inputs recorded value investments change significantly 2007 adjustments record derivative financial instrument liability whose value derived using significant unobservable inputs resulted credit income expense net amount 25 million value derivative financial instrument liability zero december 31 2007 note 5 postemployment benefits retirement plans consist defined benefit defined contribution medical dental plans information abbotts major defined benefit plans postemployment medical dental benefit plans follows dollars millions projected benefit obligations nonus defined benefit plans 13 billion 18 billion 15 billion december 31 2008 2007 2006 respectively accumulated benefit obligations defined benefit plans 47 billion 49 billion 47 billion december 31 2008 2007 2006 respectively plans accumulated benefit obligations exceeded plan assets december 31 2008 2007 2006 aggregate accumulated benefit obligations 42 billion 697 million 544 million respectively projected benefit obligations 48 billion 770 million note 5 postemployment benefits continued 592 million respectively aggregate plan assets 33 billion 84 million 22 million respectively comprehensive income loss 2008 includes amortization actuarial losses prior service cost 34 million 4 million respectively net actuarial losses 16 billion defined benefit plans amortization actuarial losses prior service credits 29 million 21 million respectively net actuarial gains 19 million medical dental plans comprehensive income loss 2007 includes amortization actuarial losses prior service cost 81 million 4 million respectively net actuarial gains 341 million defined benefit plans amortization actuarial losses prior service credits 55 million 22 million respectively net actuarial gains 96 million medical dental plans pretax amount actuarial losses prior service cost credits included accumulated comprehensive income loss december 31 2008 expected recognized net periodic benefit cost 2009 61 million 4 million respectively defined benefit pension plans 32 million 22 million respectively medical dental plans weighted average assumptions used determine benefit obligations defined benefit plans medical dental plans follows weighted average assumptions used determine net cost defined benefit plans medical dental plans follows assumed health care cost trend rates medical dental plans december 31 follows note 5 postemployment benefits continued discount rates used measure liabilities determined based highquality fixed income securities match duration expected retiree benefits health care cost trend rates represent abbotts expected annual rates change cost health care benefits forward projection health care costs measurement date onepercentage point increasedecrease assumed health care cost trend rate would increasedecrease accumulated postemployment benefit obligations december 31 2008 193 million157 million total service interest cost components net postemployment health care cost year ended approximately 23 million18 million approximately 58 percent abbotts us defined benefit plans medical dental plans assets invested equity securities 30 percent fixed income securities remainder securities consist investment partnerships employ diverse investment strategies across wide variety asset classes financial instruments investment mix equity securities fixed income securities based upon achieving desired return balancing higher return volatile equity securities lower return less volatile fixed income securities abbotts domestic plans invested diversified portfolios publicmarket equity fixedincome securities investment allocations made across range markets industry sectors capitalization sizes case fixed income securities maturities credit quality plans directly hold securities abbott abbotts international defined benefit plans invested approximately 70 percent equities 30 percent fixed income securities plans expected return assets shown based managements expectations longterm average rates return achieved underlying investment portfolios establishing assumption management considers historical expected returns asset classes plans invested well current economic capital market conditions abbott funds domestic pension plans according irs funding limitations 2008 2007 2006 200 million funded main domestic pension plan international pension plans funded according similar regulations abbott expects pension funding main domestic pension plan 700 million 2009 200 million annually thereafter total benefit payments expected paid participants includes payments funded company assets well paid plans follows dollars millions abbott stock retirement plan principal defined contribution plan abbotts contributions plan 129 million 2008 119 million 2007 102 million 2006 abbott provides certain postemployment benefits primarily salary continuation plans qualifying domestic employees accrues related cost service lives employees note 6 taxes earnings taxes earnings continuing operations reflect annual effective rates including charges interest penalties deferred income taxes reflect tax consequences future years differences tax bases assets liabilities financial reporting amounts us income taxes provided earnings foreign subsidiaries intended remitted parent company abbott record deferred income taxes earnings reinvested indefinitely foreign subsidiaries undistributed earnings reinvested indefinitely foreign subsidiaries working capital plant equipment aggregated 149 billion december 31 2008 practicable determine amount deferred income taxes provided earnings us abbotts federal income tax returns 2005 settled income tax returns years 2005 open numerous income tax jurisdictions tax returns yet settled none individually significant reserves interest penalties significant earnings continuing operations taxes related provisions taxes earnings continuing operations follows dollars millions differences effective income tax rate us statutory tax rate follows note 6 taxes earnings continued december 31 2008 2007 2006 total deferred tax assets 54 billion 36 billion 32 billion respectively total deferred tax liabilities 14 billion 14 billion 11 billion respectively valuation allowances deferred tax assets significant tax effect differences give rise deferred tax assets liabilities follows dollars millions january 1 2007 abbott adopted provisions fasb interpretation 48 accounting uncertainty income taxes interpretation order recognize uncertain tax benefit taxpayer must likely sustaining position measurement benefit calculated largest amount 50 percent likely realized upon resolution benefit adoption interpretation material impact abbotts financial position following table summarizes gross amounts unrecognized tax benefits without regard reduction tax liabilities additions deferred tax assets liabilities unrecognized tax benefits settled dollars millions total amount unrecognized tax benefits recognized would affect effective tax rate approximately 14 billion abbott believes reasonably possible unrecognized tax benefits settled within next twelve months result concluding various tax matters abbott expects range decrease recorded amounts unrecognized tax benefits primarily result cash adjustments range 400 million 650 million arising conclusion tax matters note 7 segment geographic area information abbotts principal business discovery development manufacture sale broad line health care products abbotts products generally sold directly retailers wholesalers hospitals health care facilities laboratories physicians offices government agencies throughout world abbotts reportable segments follows pharmaceutical products worldwide sales broad line pharmaceuticals segment reporting purposes two pharmaceutical divisions aggregated reported pharmaceutical products segment nutritional products worldwide sales broad line adult pediatric nutritional products diagnostic products worldwide sales diagnostic systems tests blood banks hospitals commercial laboratories alternatecare testing sites segment reporting purposes three diagnostic divisions aggregated reported diagnostic products segment vascular products worldwide sales coronary endovascular vessel closure products abbotts underlying accounting records maintained legal entity basis government public reporting requirements segment disclosures performance basis consistent internal management reporting intersegment transfers inventory recorded standard cost measure segment operating earnings cost corporate functions cost certain employee benefits charged segments predetermined rates approximate cost remaining costs allocated segments acquisitions prior 2006 substantially intangible assets related amortization allocated segments following segment information prepared accordance internal accounting policies abbott described presented accordance generally accepted accounting principles applied consolidated financial statements dollars millions anet sales operating earnings 2008 2007 favorably affected relatively weaker us dollar unfavorably affected relatively stronger us dollar 2006 badditions longterm assets pharmaceutical products segment includes acquired intangible assets 700 2008 821 2006 goodwill 1590 2006 vascular products segment includes goodwill 321 1688 2008 2006 respectively acquired intangible assets 1195 2006 note 7 segment geographic area information continued cthe decrease nutritional products segment operating earnings 2007 primarily due completion us copromotion synagis 2006 dthe increase sharebased compensation 2007 partially due granting replacement stock options result increase market value abbott common stock eother net 2007 includes 197 restructuring plans 256 acquisition integration related costs primarily associated acquisitions guidants vascular intervention endovascular solutions businesses kos pharmaceuticals inc 190 fair market value loss adjustment abbotts investment boston scientific common stock note 7 segment geographic area information continued f sales country based country sold product note 8 litigation environmental matters abbott identified potentially responsible party investigation cleanup costs number locations united states puerto rico federal state remediation laws investigating potential contamination number companyowned locations abbott recorded estimated cleanup cost site management believes abbott probable loss exposure individual site cleanup exposure expected exceed 3 million aggregate cleanup exposure expected exceed 15 million number patent disputes third parties claim abbotts products infringe patents one disputes filed april 2007 abbott unable estimate range possible loss reserve recorded abbotts acquisition kos pharmaceuticals inc resulted assumption various cases investigations abbott recorded reserves related several cases investigations several civil actions pending brought individuals entities allege generally abbott numerous pharmaceutical companies reported false misleading pricing information relating average wholesale price certain pharmaceutical products connection federal state private reimbursement civil actions also brought abbott cases members pharmaceutical industry state attorneys general seeking recover alleged damages behalf state medicaid programs may 2006 abbott notified us department justice intervened civil whistleblower lawsuit alleging abbott inflated prices medicaid medicare reimbursable drugs abbott settled cases recorded reserves estimated losses cases however abbott unable estimate range amount possible loss majority cases loss reserves recorded many products involved cases hospira products hospira abbotts former hospital products business spun abbotts shareholders 2004 abbott retained liability losses result cases investigations extent losses relate sale hospiras products prior spinoff hospira relate allegations made pending future cases investigations allegations existing date spinoff note 8 litigation environmental matters continued several civil actions pending brought state attorneys general private entities alleging antitrust unfair competition claims connection sales tricor abbott licenses tricor third party licensor also named defendant fourth quarter 2008 settlements reached cases except state attorneys general indirect purchasers however abbott unable estimate range loss reserves recorded remaining tricor cases several civil actions pending brought private payers others alleging antitrust claims connection pricing norvir within next year legal proceedings may occur may result change estimated reserves recorded abbott legal proceedings environmental exposures except noted abbott estimates range possible loss approximately 255 million 495 million recorded reserve balance december 31 2008 proceedings exposures approximately 325 million reserve range amounts include 135 million settled amounts paid 2009 reserves represent managements best estimate probable loss defined statement financial accounting standards 5 accounting contingencies feasible predict outcome proceedings exposures certainty management believes ultimate disposition material adverse effect abbotts financial position cash flows results operations except cases investigations discussed third paragraph patent case discussed second paragraph footnote resolution could material cash flows results operations quarter note 9 incentive stock program 1996 incentive stock program authorizes granting stock options replacement stock options stock appreciation rights limited stock appreciation rights restricted stock awards restricted stock units performance units foreign qualified benefits stock options replacement stock options restricted stock awards units comprise majority benefits granted currently outstanding program 2008 abbott granted 20544577 stock options 4425398 replacement stock options 829491 restricted stock awards 567624 restricted stock units program purchase price shares option must least equal fair market value common stock date grant maximum term option 10 years options vest equally three years except replacement options vest six months options granted january 1 2005 included replacement feature except options outstanding replacement feature options granted december 31 2004 include replacement feature employee tenders mature shares abbott upon exercise stock option replacement stock option may granted equal amount shares tendered replacement options granted current market price term expires date underlying option grant upon change control abbott outstanding stock options become fully exercisable terms conditions restricted stock awards units deemed satisfied restricted stock awards granted generally vest 3 5 years restricted stock awards vest 5 years onethird award vests one year upon abbott reaching minimum return equity target restricted stock units vest three years upon vesting recipient receives one share abbott stock vested restricted stock unit aggregate fair market value restricted stock awards units recognized expense service period restricted stock awards settlement vested restricted stock units issued treasury shares abbott issues new shares exercises stock options abbott policy purchasing shares relating sharebased programs january 1 2009 approximately 56 million shares reserved future grants 1996 program subsequent yearend board directors granted approximately 8 million stock options restricted stock awards units reserve note 9 incentive stock program continued number restricted stock awards units outstanding weightedaverage grantdate fair value december 31 2007 december 31 2008 3740341 4904 3574445 5221 respectively number restricted stock awards units weightedaverage grantdate fair value granted vested lapsed 2008 1444465 5553 1389085 4709 221276 5115 respectively fair market value restricted stock awards units vested 2008 2007 2006 76 million 114 million 32 million respectively aggregate intrinsic value options outstanding exercisable december 31 2008 632 million 559 million respectively total intrinsic value options exercised 2008 2007 2006 314 million 613 million 205 million respectively total unrecognized compensation cost related sharebased compensation plans december 31 2008 amounted approximately 220 million expected recognized next three years total noncash compensation expense charged income 2008 2007 2006 sharebased plans totaled approximately 350 million 430 million 330 million respectively tax benefit recognized approximately 117 million 142 million 78 million respectively compensation cost capitalized part inventory significant fair value option granted 2008 2007 2006 1142 1288 1172 respectively fair value option grant estimated using blackscholes optionpricing model following assumptions riskfree interest rate based rates available time grant zerocoupon us government issues remaining term equal options expected life average life option based historical projected exercise lapsing data expected volatility based implied volatilities traded options abbotts stock historical volatility abbotts stock expected life option dividend yield based options exercise price annual dividend rate time grant note 10 debt lines credit following summary longterm debt december 31 dollars millions principal payments required longterm debt outstanding december 31 2008 10 billion 2009 160 million 2010 20 billion 2011 10 billion 2012 265 million 2013 51 billion thereafter december 31 2008 abbotts longterm debt rating aa standard poors corporation a1 moodys investors service abbott readily available financial resources including unused lines credit 53 billion support commercial paper borrowing arrangements 23 billion facility expires december 2009 30 billion facility expires 2012 related compensating balances subject withdrawal abbott option commitment fees material abbotts access shortterm financing affected recent credit market conditions abbotts weightedaverage interest rate shortterm borrowings 05 december 31 2008 37 december 31 2007 50 december 31 2006 note 11 business combinations technology acquisitions related transactions december 2006 abbott acquired kos pharmaceuticals inc cash approximately 38 billion net cash held kos pharmaceuticals inc expand abbotts presence lipid management market provide several onmarket latestage pipeline products kos pharmaceuticals inc specialty pharmaceutical company developed marketed proprietary medications treatment chronic cardiovascular metabolic respiratory diseases business acquired december 13 2006 financial results acquired operations included financial statements beginning date acquisition financed primarily shortterm debt allocation purchase price resulted charge 13 billion acquired inprocess research development intangible assets 821 million goodwill primarily nondeductible 16 billion net liabilities primarily deferred income taxes recorded acquisition 331 million acquired intangible assets amortized 4 15 years nondeductible acquired inprocess research development charged income 2006 note 11 business combinations technology acquisitions related transactions continued order expand abbotts presence growing vascular market abbott acquired guidants vascular intervention endovascular solutions businesses april 21 2006 approximately 41 billion cash connection boston scientifics acquisition guidant addition abbott agreed pay boston scientific 250 million upon government approvals market xience v drugeluting stent us japan 2008 fda approved marketing xience v abbott paid boston scientific 250 million resulting recording additional goodwill government approval japan anticipated late 2009 early 2010 also result recording additional goodwill allocation purchase price resulted charge 665 million acquired inprocess research development intangible assets 12 billion goodwill primarily deductible 17 billion tangible net assets 580 million acquired intangible assets amortized 4 15 years deductible acquired inprocess research development charged income 2006 net tangible assets acquired consist primarily property equipment approximately 530 million trade accounts receivable approximately 250 million inventories approximately 120 million net assumed liabilities primarily trade accounts payable litigation reserves liabilities acquisitions taken place january 1 previous year consolidated net sales income would significantly different reported amounts order facilitate boston scientifics acquisition guidant abbott also acquired 646 million shares boston scientific common stock directly boston scientific loaned 900 million whollyowned subsidiary boston scientific common stock valued 13 billion note receivable valued 829 million acquisition date connection acquisition shares boston scientific entitled certain aftertax gains upon abbotts sale shares addition boston scientific agreed reimburse abbott certain borrowing costs debt incurred acquire boston scientific shares abbott recorded net derivative financial instruments liability 59 million gainsharing derivative financial instrument liability interest derivative financial instrument asset effect recording shares loan boston scientific derivative financial instruments fair value date acquisition resulted recording additional goodwill approximately 204 million changes fair value derivative financial instruments net recorded income expense net note 12 goodwill intangible assets 2008 abbott paid 250 million boston scientific result fdas approval market xience v drugeluting stent us resulting increase goodwill vascular products segment addition conclusion tap pharmaceuticals products inc joint venture resulted recording 350 million goodwill related pharmaceutical products segment abbott recorded goodwill 53 million 37 billion 2007 2006 respectively related acquisitions goodwill adjustments recorded 2007 allocated pharmaceutical products segment amounted 194 million goodwill allocated vascular products segment amounted 141 million acquired goodwill allocated pharmaceutical products segment amounted 16 billion 2006 goodwill allocated vascular products segment amounted 17 billion 2006 foreign currency translation adjustments decreased increased goodwill 2008 2007 2006 677 million 627 million 509 million respectively amount goodwill related reportable segments december 31 2008 60 billion pharmaceutical products segment 206 million nutritional products segment 268 million diagnostic products segment 22 billion vascular products segment goodwill reduced approximately 64 million connection sale abbotts spine business 2008 reductions goodwill relating impairments disposal portion business note 12 goodwill intangible assets continued gross amount amortizable intangible assets primarily product rights technology 94 billion 90 billion 90 billion december 31 2008 2007 2006 respectively accumulated amortization 42 billion 33 billion 26 billion december 31 2008 2007 2006 respectively estimated annual amortization expense intangible assets approximately 780 million 2009 770 million 2010 760 million 2011 750 million 2012 720 million 2013 intangible assets amortized 4 25 years average 11 years note 13 restructuring plans 2008 abbott management approved plan streamline global manufacturing operations reduce overall costs improve efficiencies abbotts core diagnostic business plan result pretax charges approximately 370 million next several years charges include employeerelated costs approximately 110 million accelerated depreciation approximately 75 million related exit costs approximately 185 million mainly related product transfers 2008 abbott recorded charge cost products sold approximately 129 million plan additional charges approximately 16 million recorded 2008 relating restructuring primarily accelerated depreciation remainder charges occur 2011 result product reregistration timelines required manufacturing regulations number countries product transition timelines following summarizes activity restructuring dollars millions 2008 2007 2006 abbott management approved plans realign worldwide pharmaceutical vascular manufacturing operations selected domestic international commercial research development operations order reduce costs 2008 2007 2006 abbott recorded charges approximately 36 million 107 million 210 million respectively reflecting impairment manufacturing facilities assets employee severance related charges approximately 94 million 181 million 2007 2006 respectively classified cost products sold 3 million 29 million 2007 2006 respectively research development 36 million 10 million 2008 2007 respectively selling general administrative fair value determination amount asset impairments determined primarily based discounted cash flow method additional 81 million 90 million 70 million subsequently recorded 2008 2007 2006 respectively relating restructurings primarily accelerated depreciation addition abbott implemented facilities restructuring plans 2007 related acquired operations kos pharmaceuticals inc resulted increase goodwill approximately 52 million abbott expects incur additional 21 million future periods restructuring plans primarily note 13 restructuring plans continued accelerated depreciation following summarizes activity restructurings dollars millions note 14 subsequent event business combination january 2009 abbott announced agreement acquire advanced medical optics inc amo marketer ophthalmic surgical technology devices well eye care solutions approximately 28 billion cash debt take advantage increasing demand vision care technologies due population growth demographic shifts transaction expected close first quarter 2009 amos sales 1 billion per year note 15 quarterly results unaudited dollars millions except per share data athe sum quarters basic earnings per share 2007 2006 add full year earnings per share amount due rounding bthe sum quarters diluted earnings per share 2006 add full year earnings per share amount due rounding csecond quarter 2006 includes pretax charge 493 acquired inprocess collaborations research development dfourth quarter 2006 includes pretax charge 1307 acquired inprocess collaborations research development management report internal control financial reporting management abbott laboratories responsible establishing maintaining adequate internal control financial reporting abbotts internal control system designed provide reasonable assurance companys management board directors regarding preparation fair presentation published financial statements internal control systems matter well designed inherent limitations therefore even systems determined effective provide reasonable assurance respect financial statement preparation presentation abbotts management assessed effectiveness companys internal control financial reporting december 31 2008 making assessment used criteria set forth internal control integrated framework issued committee sponsoring organizations treadway commission based assessment believe december 31 2008 companys internal control financial reporting effective based criteria abbotts independent registered public accounting firm issued audit report assessment effectiveness companys internal control financial reporting report appears page 75 miles white chairman board chief executive officer thomas c freyman executive vice president finance chief financial officer greg w linder vice president controller february 19 report independent registered public accounting firm board directors shareholders abbott laboratories audited accompanying consolidated balance sheets abbott laboratories subsidiaries company december 31 2008 2007 2006 related consolidated statements earnings shareholders investment cash flows years ended financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position company december 31 2008 2007 2006 results operations cash flows years ended conformity accounting principles generally accepted united states america discussed notes 1 2 4 consolidated financial statements company changed method accounting fair value measurements adopt statement financial accounting standards sfas 157 fair value measurements adopted fair value option sfas 159 fair value option financial assets financial liabilities certain investments 2007 company changed method accounting pension post employment benefits adopt sfas 158 employers accounting defined benefit pension postretirement plans 2006 also audited accordance standards public company accounting oversight board united states companys internal control financial reporting december 31 2008 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated february 19 2009 expressed unqualified opinion companys internal control financial reporting deloitte touche llp chicago illinois february 19 2009 report independent registered public accounting firm board directors shareholders abbott laboratories audited internal control financial reporting abbott laboratories subsidiaries company december 31 2008 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission companys management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management report internal control financial reporting responsibility express opinion companys internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion companys internal control financial reporting process designed supervision companys principal executive principal financial officers persons performing similar functions effected companys board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting including possibility collusion improper management override controls material misstatements due error fraud may prevented detected timely basis also projections evaluation effectiveness internal control financial reporting future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion company maintained material respects effective internal control financial reporting december 31 2008 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission also audited accordance standards public company accounting oversight board united states consolidated financial statements company year ended december 31 2008 report dated february 19 2009 expressed unqualified opinion financial statements deloitte touche llp chicago illinois february 19 2009 tap pharmaceutical products inc subsidiaries consolidated statements income comprehensive income dollars thousands see notes consolidated financial statements tap pharmaceutical products inc subsidiaries consolidated statements cash flows dollars thousands see notes consolidated financial statements tap pharmaceutical products inc subsidiaries consolidated balance sheets thousands except share amount see notes consolidated financial statements tap pharmaceutical products inc subsidiaries consolidated statements shareholders equity four months ended april 30 2008 years ended december 31 2007 2006 dollars thousands except share amounts see notes consolidated financial statements tap pharmaceutical products inc subsidiaries notes consolidated financial statements four months ended april 30 2008 years ended december 31 2007 2006 dollars thousands note 1 dissolution tap joint venture abbott laboratories abbott takeda pharmaceutical company ltd japanese corporation takeda ended tap pharmaceutical products inc subsidiaries tap joint venture close business april 30 2008 evenly splitting value assets liabilities joint venture internal revenue service issued private letter ruling transaction qualifies taxfree us income tax purposes terms agreement abbott receives rights lupron business including commercial organization supporting franchise receive payments based taps current certain future products takeda receives rights product prevacid remaining tap commercial support organizations rights taps products development terms agreement tap contribute lake products inc lake products assets related primarily lupron specified pharmaceutical products including prevacid certain assets tap personnel primarily associated lupron lake products assume certain related liabilities closing abbott exchange 50 percent ownership interest tap 100 percent ownership lake products become whollyowned subsidiary abbott effective may 1 2008 tap became whollyowned subsidiary takeda america holdings inc subsequently takeda merged tap two takeda entities financial statements include adjustments might result outcome dissolution note 2 description business tap delaware corporation owned equally abbott illinois corporation takeda america holdings inc wholly owned subsidiary takeda tap headquartered lake forest illinois approximately 2900 employees agreement abbott takeda tap develops markets sells human pharmaceutical products united states puerto rico canada tap operates one business segment sales primarily united states discussed note 1 note 11 abbott takeda dissolved tap joint venture close business april 30 2008 taps primary products prevacid lupron principal indications prevacid lansoprazole proton pump inhibitor shortterm treatment duodenal ulcers gastric ulcers erosive esophagitis lupron leuprolide acetate luteinizing hormonereleasing hormone lhrh analog lupron depot sustained release form lupron used principally palliative treatment advanced prostate cancer endometriosis central precocious puberty preoperative treatment patients anemia caused uterine fibroids patents related lansoprazole lupron depot material operation taps business original united states compound patent covering lansoprazole licensed tap takeda original united states patents covering lupron depot formulations licensed tap takeda taps products generally sold directly physicians retailers wholesalers health care facilities government agencies cases distributed abbottowned distribution centers primary marketing efforts directed toward securing prescription taps brand products note 2 description business continued physicians managed care purchasers example health maintenance organizations pharmacy benefit managers increasingly important customers taps products supplied owners principally takeda disruption supply products could adversely impact operating results tap sales taps primary products follows 2007 tap received total 147925 resolve litigation relating alleged infringement lupron depot patent 2006 tap recognized revenue milestone payments related 2005 license prevacid trademark certain patents technical information third party overthecounter sale prevacid united states accounts receivable potentially subject tap concentrations credit risk tap sells primarily wholesale distributors majority taps accounts receivable derived sales wholesale distributors three us wholesale distributors accounted 10 taps gross sales follows tap material exposures offbalance sheet arrangements special purpose entities activities include nonexchangetraded contracts accounted fair value except equity swap agreements hedge market price exposure employee stock options described note 7 note 3 summary significant accounting policies basis presentation consolidated financial statements include accounts tap subsidiaries intercompany accounts transactions eliminated use estimates preparation financial statements conformity accounting principles generally accepted united states america requires estimates assumptions management actual results could differ estimates significant estimates include amounts income taxes sales rebates postemployment benefits litigation sharebased compensation derivative financial instruments inventory reserves accounts receivable allowances cash equivalents cash equivalents include time deposits certificates deposit commercial paper money market funds shortterm investments governmental agency debt securities original maturities three months less contractually convertible cash three months less certain money market funds classified investments april 30 2008 due liquidity issues described note 5 investment securities investments debt equity securities classified availableforsale recorded fair value unrealized holding gains losses net tax included accumulated comprehensive income tap monitors equity investments temporary declines fair value charges impairment losses income temporary note 3 summary significant accounting policies continued decline estimated value occurs income relating debt securities reported interest income certain debt securities classified longterm investments april 30 2008 due liquidity issues inventories stated lower cost firstin firstout basis market cost includes material packaging costs inventories consist following property equipment property equipment recorded cost less accumulated depreciation provided using straightline method estimated useful lives assets estimated useful lives property equipment follows longlived assets reviewed impairment whenever events changes circumstances indicate carrying value may recoverable based projected undiscounted cash flows associated affected assets fair value less carrying value asset loss recognized difference fair value determined based market quotes available based valuation techniques revenue recognition revenue product sales recognized upon passage title risk loss customers product delivered common carrier revenue license product rights recorded periods earned provisions estimated rebates sales incentives customers doubtful accounts cash discounts product returns customer chargebacks provided period related sales recorded rebates sales incentives recorded accrued rebates balance sheets reserves doubtful accounts cash discounts product returns customer chargebacks recorded reductions accounts receivable historical data readily available reliable used estimating amount reduction gross sales research development internal research development costs expensed incurred clinical trial costs incurred third parties expensed contracted work performed milestone payments due third parties research development arrangements milestone payment obligations expensed milestone results achieved advertising promotion expense advertising promotion costs expensed selling general administrative expenses incurred total advertising promotion expense incurred 38735 126482 186052 four months ended april 2008 years ended 2007 2006 respectively income taxes deferred income taxes recognized tax consequences temporary differences applying statutory tax rates applicable future years differences financial statement carrying amount tax basis assets liabilities recent accounting pronouncements january 1 2008 tap adopted financial accounting standards board fasb statement 157 fair value measurements fasb statement note 3 summary significant accounting policies continued 159 fair value option financial assets financial liabilities including amendment fasb statement 115 standards provide guidance using fair value measure assets liabilities effect adoption standards summarized note 5 note 4 property equipment lease obligations property equipment consists following tap leases certain administrative regional sales offices equipment automobiles noncancelable leases expire various dates 2013 operating lease expense totaled 1810 four months ended april 30 2008 4939 4688 years ended december 31 2007 2006 respectively future minimum lease payments noncancelable operating capital leases april 30 2008 consist following note 5 financial instruments derivatives fair value measures tap enters foreign currency forward contracts hedge purchases inventories fixed yendenominated prices forward contracts require tap purchase yen exchange us dollars predetermined exchange rates designated cash flow hedges variability cash flows due changes exchange rates tap trade financial instruments objective earning financial gains exchange rate fluctuations alone trade currencies commodities underlying exposures effective portion changes value forward contracts recorded accumulated comprehensive income subsequently recognized earnings period hedged forecasted transactions affect earnings cash flow hedge ineffectiveness reported earnings current period tap outstanding foreign exchange forward contracts april 30 2008 tap outstanding foreign exchange forward contracts notional value 16349 fair value 131 note 5 financial instruments derivatives fair value measures continued december 31 2007 fair value adjustments contracts recorded prepaid expenses december 31 2007 2008 2007 2006 cash flow hedge ineffectiveness material following table summarizes bases used measure certain assets fair value recurring basis balance sheet following table summarizes activity 2008 relating fair value measurements using significant unobservable inputs auctions auction rate certificates failed since february 2008 resulting market illiquidity interest adjusted maximum contractual rates accordingly certificates reclassified longterm assets certificates paying interest maximum contractual rate market value longer approximates par value consequently fair value certificates estimated using broker valuation model unrealized loss recorded comprehensive income prior 2008 strategic cash portfolio fixed asset valuation amortized cost fund provided daily liquidity due unprecedented conditions short term credit markets fund closed new subscription redemption requests changed fluctuating asset valuation market value underlying securities valued daily basis independent third party total value divided total number shares outstanding determine daily net asset value nav fair value fund estimated using month ending nav loss recorded earnings temporary declines estimated value note 6 employee benefit plans tap employees participate various abbott employee benefit plans including abbott laboratories annuity retirement plan abbott laboratories stock retirement plan abbott laboratories incentive stock program see note 7 details tap billed share costs plans taps share employer contribution abbott laboratories annuity retirement plan generally allocated based taps proportionate share total compensation expense participants plan tap made contributions plan 16000 2007 2006 taps contribution abbott laboratories stock retirement plan based participating employee contributions taps contributions four months ended april 30 2008 years ended december 31 2007 2006 4958 14093 12989 respectively tap provides health welfare benefits employees tap pharmaceutical products inc healthcare plan contributions plan made accordance taps funding policy tap provides certain medical life insurance benefits qualifying retirees tap pharmaceutical products inc retiree medical plan following provides reconciliation postemployment benefit obligations funded status plan discount rates used determine benefit obligations medical dental plans 684 percent 665 percent 590 percent 2008 2007 2006 respectively discount rates used determine net cost medical dental plans 665 percent 590 percent 575 percent 2008 2007 2006 respectively note 6 employee benefit plans continued assumed health care cost trend rates medical dental plans follows onepercentage point increase decrease assumed health care trend rate would increase decrease accumulated postemployment benefit obligations april 30 2008 approximately 6809 5236 respectively total service interest cost components net postemployment benefit cost four months ended approximately 416 315 respectively total benefit payments expected paid participants company assets postemployment medical dental benefits follows note 7 incentive stock program certain employees tap granted options purchase abbott common stock 1996 abbott incentive stock program stock options replacement stock options granted tap employees currently outstanding program purchase price shares option must least equal fair market value abbott common stock date grant maximum term option 10 years options granted vest equally three years except replacement options generally vest six months life equal remaining life replaced option addition certain employees tap granted restricted stock units abbott stock restricted stock units granted vest three years upon vesting recipient receives one share abbott stock vested restricted stock unit upon change control abbott outstanding stock options restricted stock units become fully exercisable option exercises restricted stock vesting transacted abbott tap liable excess market value option shares granted tap employees employed tap option price time exercise market value abbott stock time vesting restricted stock units reimburses abbott annually cost options exercised restricted stock units vested year taps liability options restricted stock units granted 71136 92108 april 30 2008 december 31 2007 respectively changes fair value options recorded selling general administrative expense weighted average fair value option granted 2008 2007 note 7 incentive stock program continued 2006 1165 1402 1183 respectively fair value option grant date estimated using blackscholes optionpricing model following assumptions fair value option april 30 2008 december 31 2007 2006 estimated using blackscholes optionpricing model following assumptions riskfree interest rate based rates available measurement date us government treasury strips remaining term equal options expected life expected life option granted 2008 2007 2006 based historical projected exercise lapsing data prior 2006 expected life option granted based historical experience expected volatility based historical volatility period prior measurement date equal options expected life dividend yield based options exercise price annual dividend rate time grant following summarizes stock option activity 2008 aggregate intrinsic value options outstanding exercisable april 30 2008 43240 39940 respectively total intrinsic value options exercised 3281 33705 8500 2008 2007 2006 respectively total unrecognized compensation cost related sharebased compensation plans april 30 2008 amounted approximately 9624 expected recognized next three years april 30 2008 december 31 2007 tap recorded liability exercised options 266 25990 respectively payable abbott tap also recorded liability options issued adoption emerging issues task force issue 208 accounting options granted employees unrestricted publicly traded shares unrelated entity difference market value strike price vested yet unexercised options 11926 20838 april 30 2008 note 7 incentive stock program continued december 31 2007 respectively total expense income related abbott incentive stock program 21825 59549 49489 recorded selling general administrative expense 2008 2007 2006 respectively amount income tax benefit realized stock options exercised 2008 2007 2006 amounted 1327 7654 2236 respectively number restricted stock units outstanding weightedaverage grant date fair value april 30 2008 december 31 2007 26588 4966 43791 4917 respectively restricted stock units granted four months ended april 30 2008 number restricted stock units weightedaverage grantdate fair value vested four months ending april 30 2008 17203 4842 respectively restricted stock units lapsed four months ending april 30 2008 fair value restricted stock units vested first four months ending april 30 2008 956 due significant impact fluctuations market price abbott common stock amount recorded compensation expense options issued abbott incentive stock program tap entered isda master agreement master agreement dated september 29 2000 allows tap enter equity swap transactions hedge market price exposure equity swap transaction guarantees return equal actual return specified number shares abbott common stock effectively acts hedge abbott incentive stock program time tap enters equity swap transactions master agreement transaction term one three years requires quarterly cash settlement resulting gains losses realized recorded statements income transaction requires ongoing quarterly interest payments based equity notional amount fair value abbott common stock shares swapped transaction date swap rate libor plus 114 basis points 100 basis points transactions prior october 2003 agreement ended april 2 2008 equity swap transaction recorded fair value fair value equity swaps 10593 december 31 2007 recorded accrued liabilities balance sheet december 31 2007 2008 2007 2006 tap recorded selling general administrative expenses 6855 39674 47554 respectively gain loss related equity swap investments note 8 income taxes earnings reflect estimated annual effective rates including charges interest penalties deferred income taxes reflect tax consequences future years differences tax bases assets liabilities financial reporting amounts taps us income tax liabilities years 2001 2006 subject final determination internal revenue service irs challenged deductibility item taps 2001 tax return management believes deduction proper expects ultimate resolution material impact taps financial position results operations numerous income tax jurisdictions tax returns yet settled none individually significant note 8 income taxes continued provision income taxes includes following components differences effective tax rate us statutory tax rate follows april 30 2008 december 31 2007 total deferred tax assets 124764 147566 respectively total deferred tax liabilities 7082 9686 respectively tax effect differences give rise deferred tax assets liabilities follows january 1 2007 tap adopted provisions fasb interpretation 48 accounting uncertainty income taxes interpretation fasb statement 109 interpretation order recognize uncertain tax benefit taxpayer must likely sustaining position measurement benefit calculated largest amount 50 percent likely realized upon resolution benefit adoption interpretation note 8 income taxes continued material impact taps financial position following summarizes activity unrecognized tax benefits total amount unrecognized tax benefits recognized would affect effective tax rate approximately 53000 due inherent uncertainties tax audits tap unable estimate range reasonably possible change unrecognized tax benefits within next twelve months reserves interest penalties significant note 9 litigation related matters several civil actions pending brought individuals entities allege generally tap numerous pharmaceutical companies reported false misleading pricing information relating average wholesale price certain pharmaceutical products connection federal state private reimbursement civil actions also brought tap members pharmaceutical industry state attorneys general seeking recover alleged damages behalf state medicaid programs outcome investigations litigation could include imposition fines penalties tap unable estimate amount possible loss reserves recorded exposures within next year legal proceedings may occur may result change estimated reserves recorded tap feasible predict outcome pending claims proceedings investigations certainty management opinion except noted paragraph ultimate disposition material adverse effect taps financial position cash flows results operations note 10 relatedparty transactions various agreements exist among tap abbott takeda subsidiaries amounts due payable abbott takeda subsidiaries reflected balance sheets captions receivable abbott receivable takeda subsidiaries payable abbott payable takeda subsidiaries tap purchases lupron prevacid unpackaged finished goods inventories takeda subsidiaries purchases contracted fixed yendenominated prices amount paid takeda subsidiaries purchases inventories four months ending april 30 2008 years ended december 31 2007 2006 totaled 209205 488160 609436 respectively tap royalty agreements takeda subsidiaries sales lupron prevacid four months ending april 30 2008 years ended december 31 2007 2006 tap recorded royalty expense 48042 163572 179770 respectively beginning 2007 tap copromotes certain takeda subsidiaries products tap recognized copromotion revenue relating agreement 21748 four months ending april 30 2008 79422 year ended december 31 2007 note 10 relatedparty transactions continued tap pays abbott services related packaging warehousing research development administrative functions amounts incurred services totaled 17488 53967 60425 four months ending april 30 2008 years ended december 31 2007 2006 respectively addition abbott purchased international markets taps products 34695 93437 84515 four months ending april 30 2008 years ended december 31 2007 2006 respectively note 11 subsequent event subsequent april 30 2008 estimate exposure relating item dispute irs 2001 tax return see note 8 increased 22000 result negotiations irs terms tax sharing agreement takeda abbott amount split evenly two shareholders upon final settlement irs report independent registered public accounting firm board directors shareholders tap pharmaceutical products inc audited accompanying consolidated balance sheets tap pharmaceutical products inc subsidiaries company april 30 2008 december 31 2007 related consolidated statements income comprehensive income shareholders equity cash flows four months ended april 30 2008 years ended december 31 2007 2006 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement company required engaged perform audit internal control financial reporting audits included consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness companys internal control financial reporting accordingly express opinion audit also includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position tap pharmaceutical products inc subsidiaries april 30 2008 december 31 2007 results operations cash flows four months ended april 30 2008 years ended december 31 2007 2006 conformity accounting principles generally accepted united states america described note 1 tap joint venture dissolved close business april 30 2008 part dissolution abbott laboratories receives rights lupron business takeda pharmaceutical company ltd receives rights prevacid business tap businesses continue management either abbott takeda effective may 1 2008 tap became wholly owned subsidiary takeda america holdings inc subsequently takeda merged tap two takeda entities financial statements include adjustments might result outcome dissolution deloitte touche llp chicago illinois august 27 2008 item 9 item 8 financial statements supplementary data incorporated herein reference portions 1998 annual report captioned consolidated statement earnings consolidated statement cash flows consolidated balance sheet consolidated statement shareholders investment notes consolidated financial statements report independent public accountants contains related report arthur andersen llp dated january 14 1999 data relating quarterly results found note 11 item 9 item 8 financial statements supplementary data abbott laboratories subsidiaries consolidated statement earnings millions except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement comprehensive income millions accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement cash flows millions accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated balance sheet dollars millions abbott laboratories subsidiaries consolidated balance sheet dollars millions accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement shareholders’ investment millions except shares per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries notes consolidated financial statements note 1 summary significant accounting policies nature business abbott’s principal business discovery development manufacture sale broad line health care products basis consolidation consolidated financial statements include accounts parent company subsidiaries elimination intercompany transactions use estimates consolidated financial statements prepared accordance generally accepted accounting principles united states necessarily include amounts based estimates assumptions management actual results could differ amounts significant estimates include amounts sales rebates income taxes pension postemployment benefits valuation intangible assets litigation derivative financial instruments inventory accounts receivable exposures foreign currency translation statements earnings foreign subsidiaries whose functional currencies us dollar translated us dollars using average exchange rates period net assets foreign subsidiaries whose functional currencies us dollar translated us dollars using exchange rates balance sheet date us dollar effects arise translating net assets subsidiaries changing rates recorded foreign currency translation adjustment account included equity component accumulated comprehensive income loss transaction gains losses recorded net foreign exchange gain loss line consolidated statement earnings revenue recognition revenue product sales recognized upon transfer control generally upon shipment delivery depending delivery terms set forth customer contract provisions discounts rebates sales incentives customers returns adjustments provided period related sales recorded sales incentives customers material historical data readily available reliable used estimating amount reduction gross sales revenue launch new product improved version existing product shipments excess customer’s normal requirements recorded conditions noted met situations management records returns reserve revenue necessary certain abbott’s businesses primarily within diagnostics abbott participates selling arrangements include multiple performance obligations eg instruments reagents procedures service agreements total transaction price contract allocated performance obligation amount based estimated relative standalone selling prices promised goods services underlying performance obligation sales product rights marketable products recorded revenue upon disposition rights income taxes deferred income taxes provided tax effect differences tax bases assets liabilities reported amounts financial statements enacted statutory rate effect taxes paid additional income taxes provided remaining undistributed foreign earnings subject transition tax related us tax cuts jobs act additional outside basis differences exist amounts continue indefinitely reinvested foreign operations interest penalties income tax obligations included taxes earnings per share unvested restricted stock units awards contain nonforfeitable rights dividends treated participating securities included computation earnings per share twoclass method twoclass method net earnings allocated common shares participating securities earnings continuing operations allocated common shares 2019 2018 2017 3666 billion 2320 billion 346 million respectively net earnings allocated common shares 2019 2018 2017 3666 billion 2353 billion 468 million respectively abbott laboratories subsidiaries notes consolidated financial statements continued note 1 summary significant accounting policies continued pension postemployment benefits abbott accrues actuarially determined cost pension postemployment benefits service attribution periods employees abbott must develop longterm assumptions significant health care cost trend rates discount rates expected return plan assets differences expected longterm return plan assets actual return amortized fiveyear period actuarial losses gains amortized remaining service attribution periods employees corridor method fair value measurements assets liabilities measured using quoted prices active markets total fair value published market price per unit multiplied number units held without consideration transaction costs assets liabilities measured using significant observable inputs valued reference similar assets liabilities adjusted contract restrictions terms specific asset liability items significant portion fair value derived reference quoted prices similar assets liabilities active markets remaining assets liabilities fair value derived using fair value model discounted cash flow model blackscholes model purchased intangible assets recorded fair value fair value significant purchased intangible assets based independent appraisals abbott uses discounted cash flow model value intangible assets discounted cash flow model requires assumptions timing amount future net cash flows risk cost capital terminal values market participants intangible assets reviewed impairment quarterly basis goodwill indefinitelived intangible assets tested impairment least annually sharebased compensation fair value stock options restricted stock awards units amortized requisite service period could shorter vesting period employee retirement eligible charge compensation expense litigation abbott accounts litigation losses accordance fasb asc 450 “contingencies” asc 450 loss contingency provisions recorded probable losses management’s best estimate loss best estimate cannot made minimum loss contingency amount recorded legal fees recorded incurred cash equivalents investments cash equivalents consist bank time deposits us government securities money market funds us treasury bills original maturities three months less abbott holds certain investments carrying value 321 million accounted equity method accounting investments held rabbi trust investments publicly traded equity securities recorded fair value changes fair value recorded earnings investments equity securities traded public stock exchanges recorded cost minus impairment plus minus changes resulting observable price changes orderly transactions identical similar investments issuer investments debt securities classified heldtomaturity management intent ability hold securities maturity reported cost net unamortized premium discount income relating securities reported interest income trade receivable valuations accounts receivable stated net realizable value allowance gross trade receivables reflects best estimate probable losses inherent receivables portfolio determined basis historical experience specific allowances known troubled accounts currently available information accounts receivable charged reasonable means collect full amount including litigation appropriate exhausted inventories stated lower cost firstin firstout basis net realizable value cost includes material conversion costs abbott laboratories subsidiaries notes consolidated financial statements continued note 1 summary significant accounting policies continued property equipment depreciation amortization provided straightline basis estimated useful lives assets following table shows estimated useful lives property equipment product liability abbott accrues product liability claims probable liability incurred amount liability reasonably estimated based existing information liabilities adjusted quarterly additional information becomes available product liability losses selfinsured research development costs internal research development costs expensed incurred clinical trial costs incurred third parties expensed contracted work performed contingent milestone payments due third parties research development arrangements milestone payment obligations expensed milestone results achieved acquired inprocess collaborations research development iprd initial costs rights iprd projects obtained asset acquisition expensed iprd unless project alternative future use costs include initial payments incurred prior regulatory approval connection research development collaboration agreements provide rights develop manufacture market andor sell pharmaceutical medical device products fair value iprd projects acquired business combination capitalized accounted indefinitelived intangible assets completed amortized remaining useful life collaborations significant concentration risk guarantees due nature operations abbott subject significant concentration risks relating customers products geographic locations product warranties significant abbott material exposures offbalance sheet arrangements special purpose entities activities include nonexchangetraded contracts accounted fair value abbott periodically entered agreements ordinary course business assignment product rights companies resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote abbott periodically acquires business product rights abbott agrees pay contingent consideration based attaining certain thresholds based occurrence certain events note 2 new accounting standards recently adopted accounting standards february 2018 financial accounting standards board fasb issued accounting standards update asu 201802 reclassification certain tax effects accumulated comprehensive income allows companies reclassify stranded tax effects resulting 2017 tax cuts jobs act accumulated comprehensive income loss retained earnings employed business abbott adopted new standard beginning fourth quarter 2018 result adoption new standard approximately 337 million stranded tax effects reclassified accumulated comprehensive income loss earnings employed business abbott laboratories subsidiaries notes consolidated financial statements continued note 2 new accounting standards continued october 2016 fasb issued asu 201616 income taxes topic 740 intraentity transfers assets inventory requires recognition income tax effects intercompany sales transfers assets inventory period transfer occurs abbott adopted standard january 1 2018 using modified retrospective approach recorded cumulative catchup adjustment earnings employed business consolidated balance sheet significant february 2016 fasb issued asu 201602 leases requires lessees measure recognize lease asset liability balance sheet leases including operating leases abbott adopted new standard january 1 2019 using modified retrospective approach applied standard’s transition provisions january 1 2019 result changes made december 31 2018 consolidated balance sheet abbott elected apply package practical expedients related transition practical expedients allowed abbott carry forward historical assessments whether existing contracts contain leases lease classification lease existing january 1 2019 whether initial direct costs leases qualified capitalization new lease accounting standard material impact amounts reported consolidated statement earnings material impact amounts reported consolidated balance sheet adoption new standard resulted recording approximately 850 million new right use rou assets additional liabilities operating leases consolidated balance sheet january 1 2019 january 2016 fasb issued asu 201601 financial instruments recognition measurement financial assets financial liabilities provides new guidance recognition measurement presentation disclosure financial assets liabilities abbott adopted standard january 1 2018 new standard changes fair value equity investments readily determinable fair values recorded income expense net within consolidated statement earnings previously fair value changes recorded comprehensive income abbott elected measurement alternative allowed asu 201601 equity investments without readily determinable fair values investments measured cost less impairment plus minus changes resulting observable price changes orderly transactions identical similar investment issuer changes measurement investments recorded income expense net within consolidated statement earnings part adoption cumulativeeffect adjustment earnings employed business consolidated balance sheet net unrealized losses equity investments recorded accumulated comprehensive income loss december 31 2017 significant may 2014 fasb issued asu 201409 revenue contracts customers provides single comprehensive model accounting revenue contracts customers supersedes nearly previously existing revenue recognition guidance core principle asu entity recognize revenue transfers promised goods services customers amount reflects consideration entity expects entitled exchange goods services abbott adopted new standard january 1 2018 using modified retrospective approach method entities recognize cumulative effect applying new standard date initial application restatement comparative periods presented cumulative effect applying new standard resulted increase earnings employed business consolidated balance sheet 23 million recorded january 1 2018 new standard applied contracts completed january 1 2018 impact adopting asu 201409 significant individual financial statement line items consolidated balance sheet consolidated statement earnings abbott laboratories subsidiaries notes consolidated financial statements continued note 2 new accounting standards continued recent accounting standards yet adopted december 2019 fasb issued asu 201912 income taxes topic 740 simplifying accounting income taxes among things eliminates certain exceptions current rules regarding approach intraperiod tax allocations methodology calculating income taxes interim period clarifies accounting transactions result stepup tax basis goodwill standard becomes effective abbott first quarter 2021 early adoption permitted abbott expect adoption new standard material impact consolidated financial statements june 2016 fasb issued asu 201613 financial instruments credit losses changes methodology used measure credit losses certain financial instruments financial assets including trade receivables new methodology requires recognition allowance reflects current estimate credit losses expected incurred life financial asset new standard effective abbott beginning 2020 adoption new standard material impact consolidated financial statements note 3 revenue abbott’s revenues derived primarily sale broad line health care products shortterm receivable arrangements patent protection licenses technological performance features inclusion abbott’s products contract impact products sold price controls competition rebates impact net selling prices products foreign currency translation impacts measurement net sales costs abbotts products generally sold directly retailers wholesalers distributors hospitals health care facilities laboratories physicians offices government agencies throughout world abbott four reportable segments established pharmaceutical products diagnostic products nutritional products medical devices abbott laboratories subsidiaries notes consolidated financial statements continued note 3 revenue continued following tables provide detail sales category insertable cardiac monitor icm sales previously reported electrophysiology included rhythm management historic periods adjusted reflect change b diabetes care sales previously reported included medical devices segment historic periods adjusted reflect change abbott recognizes revenue product sales upon transfer control generally upon shipment delivery depending delivery terms set forth customer contract maintenance agreements provide service beyond abbott’s standard warranty service agreements revenue recognized ratably contract term timebased measure progress appropriately reflects transfer services customer payment terms abbott customers vary type customer country sale products services offered term invoicing payment due date significant abbott laboratories subsidiaries notes consolidated financial statements continued note 3 revenue continued management exercises judgment estimating variable consideration provisions discounts rebates sales incentives customers returns adjustments provided period related sales recorded sales incentives customers material historical data readily available reliable used estimating amount reduction gross sales abbott provides rebates government agencies wholesalers group purchasing organizations private entities rebate amounts usually based upon volume purchases using contractual statutory prices product factors used rebate calculations include identification products sold subject rebate customer government agency price terms apply estimated lag time sale payment rebate using historical trends adjusted current changes abbott estimates amount rebate paid records liability reduction gross sales abbott records sale product settlement rebate generally occurs one six months sale abbott regularly analyzes historical rebate trends makes adjustments reserves changes trends terms rebate programs historically adjustments prior years rebate accruals material net income allowances charged gross sales include cash discounts returns significant cash discounts known within 15 30 days sale therefore reliably estimated returns reliably estimated abbotts historical returns low sales return terms sales terms remained relatively unchanged several periods product warranties also significant abbott also applies judgment determining timing revenue recognition related contracts include multiple performance obligations total transaction price contract allocated performance obligation amount based estimated relative standalone selling prices promised goods services underlying performance obligation goods services observable standalone selling prices available abbott uses expected cost plus margin approach estimate standalone selling price performance obligation remaining performance obligations december 31 2019 estimated revenue expected recognized future related performance obligations unsatisfied partially unsatisfied approximately 33 billion diagnostic products segment approximately 380 million medical devices segment abbott expects recognize revenue approximately 60 percent remaining performance obligations next 24 months approximately 16 percent subsequent 12 months remainder thereafter performance obligations primarily reflect future sale reagentsconsumables contracts minimum purchase obligations extended warranty service obligations related previously sold equipment remote monitoring services related previously implanted devices abbott applied practical expedient described accounting standards codification asc 606105014 included remaining performance obligations related contracts original expected durations one year less amounts assets recognized costs obtain contract customer abbott applied practical expedient asc 34040254 records expense incremental costs obtaining contracts customers period occurrence amortization period asset abbott otherwise would recognized one year less upfront commission fees paid sales personnel result obtaining renewing contracts customers incremental obtaining contract abbott capitalizes amounts contract costs capitalized commission fees amortized based contract duration assets relate ranges two ten years amounts december 31 2019 2018 significant abbott laboratories subsidiaries notes consolidated financial statements continued note 3 revenue continued additionally cost transmitters provided customers use abbott’s remote monitoring service respect certain medical devices capitalized contract costs capitalized transmitter costs amortized based timing transfer services assets relate typically ranges eight ten years amounts december 31 2019 2018 significant contract assets liabilities abbott discloses trade receivables separately consolidated balance sheet net realizable value contract assets primarily relate abbott’s conditional right consideration work completed billed reporting date contract assets beginning end period well changes balance significant contract liabilities primarily relate payments received customers advance performance contract abbott’s contract liabilities arise primarily medical devices reportable segment payment received upfront various multiperiod extended service arrangements changes contract liabilities period follows note 4 discontinued operations business dispositions february 2015 abbott completed sale developed markets branded generics pharmaceuticals business mylan inc mylan 110 million ordinary shares approximately 22 percent newly formed entity mylan nv combined mylan’s existing business abbott’s developed markets branded generics pharmaceuticals business april 2015 abbott sold 4025 million 110 million ordinary shares mylan nv recorded pretax gain 207 million 229 billion net proceeds sale shares 2017 abbott sold 6975 million ordinary shares mylan nv received 2704 billion proceeds abbott recorded 45 million gain sale ordinary shares 2017 recognized income expense net line consolidated statement earnings abbott longer ownership interest mylan nv net earnings discontinued operations include income tax benefits 39 million 2018 109 million 2017 tax benefits primarily relate resolution various tax positions related abbvie’s operations years prior separation abbott completed separation abbvie inc abbvie formed hold abbott’s researchbased proprietary pharmaceuticals business january 2013 abbott retained liabilities us federal foreign income taxes income prior separation well certain nonincome taxes attributable abbvie’s business abbvie generally liable taxes attributable business abbott laboratories subsidiaries notes consolidated financial statements continued note 4 discontinued operations business dispositions continued september 2016 abbott announced entered definitive agreement sell abbott medical optics amo vision care business johnson 4325 billion cash subject customary purchase price adjustments cash debt working capital decision sell amo reflected abbotts proactive shaping portfolio line strategic priorities february 2017 abbott completed sale amo johnson recognized pretax gain 1163 billion including working capital adjustments reported income expense net line consolidated statement earnings 2017 abbott recorded aftertax gain 728 million 2017 related sale amo operating results amo date sale continued included earnings continuing operations business qualify reporting discontinued operations 2017 amo loss taxes included abbott’s consolidated earnings 18 million note 5 supplemental financial information income expense net 2019 2018 2017 includes approximately 225 million 160 million 160 million income respectively related nonservice cost components net periodic benefit costs associated pension postretirement medical plans income expense net 2017 includes pretax gain 1163 billion related sale amo johnson 2017 abbott recorded 45 million pretax gain related sale mylan nv ordinary shares see note 4 discontinued operations business dispositions discussion 2017 sales detail various balance sheet components follows abbott’s equity securities december 31 2019 december 31 2018 include 346 million 307 million respectively investments mutual funds held rabbi trust acquired part st jude medical inc st jude medical business acquisition investments specifically designated available purpose paying benefits deferred compensation plan available general corporate purposes subject creditor claims event insolvency abbott also holds certain investments december 31 2019 carrying value 321 million accounted equity method accounting equity investments carrying value 158 million readily determinable fair value 158 million carrying value includes unrealized gain approximately 50 million investment gain recorded second quarter 2018 relates observable price change similar investment issuer abbott laboratories subsidiaries notes consolidated financial statements continued note 5 supplemental financial information continued first quarter 2019 conjunction acquisition cephea valve technologies inc abbott acquired research development rd asset valued 102 million immediately expensed 102 million expense recorded rd line abbotts consolidated statement earnings aaccrued wholesaler chargeback rebates 175 million 197 million december 31 2019 2018 respectively netted trade receivables abbott’s customers invoiced higher catalog price remit abbott contract price products b2019 includes approximately 580 million net unrecognized tax benefits well approximately 68 million acquisition consideration payable 2018 includes approximately 465 million net unrecognized tax benefits well approximately 65 million acquisition consideration payable abbott laboratories subsidiaries notes consolidated financial statements continued note 6 accumulated comprehensive income loss components changes accumulated comprehensive income loss continuing operations net income taxes follows areclassified amounts foreign currency translation adjustments recorded consolidated statement earnings net foreign exchange gain loss gainslosses related cash flow hedges recorded cost products sold net actuarial losses prior service cost included component net periodic benefit cost see note 15 additional information note 7 business acquisitions january 4 2017 abbott completed acquisition st jude medical global medical device manufacturer approximately 236 billion including approximately 136 billion cash approximately 10 billion abbott common shares represented approximately 254 million shares abbott common stock based abbott’s closing stock price acquisition date part acquisition approximately 59 billion st jude medical’s debt assumed repaid refinanced abbott acquisition provides expanded opportunities future growth important part companys ongoing effort develop strong diverse portfolio devices diagnostics nutritionals branded generic pharmaceuticals combined business competes nearly every area cardiovascular device market well neuromodulation market terms agreement st jude medical common share st jude medical shareholders received 4675 cash 08708 abbott common share abbott stock price 3936 reflects closing price january 4 2017 represented value approximately 81 per st jude medical common share total purchase consideration 236 billion cash portion acquisition funded combination medium longterm debt issued november 2016 20 billion 120day senior unsecured bridge term loan facility subsequently repaid abbott laboratories subsidiaries notes consolidated financial statements continued note 7 business acquisitions continued 2016 abbott st jude medical agreed sell certain businesses terumo corporation terumo approximately 112 billion sale included st jude medical angioseal™ femoseal™ vascular closure abbott’s vado® steerable sheath businesses sale closed january 20 2017 gain loss recorded consolidated statement earnings october 3 2017 abbott acquired alere diagnostic device service provider 5100 per common share cash equated purchase price approximately 45 billion part acquisition abbott tendered alere’s preferred shares total value approximately 07 billion addition approximately 30 billion alere’s debt assumed subsequently repaid acquisition establishes abbott leader point care testing expands abbott’s global diagnostics presence provides access new products channels geographies abbott utilized combination cash hand debt fund acquisition see note 11 debt lines credit details regarding debt utilized acquisition third quarter 2017 alere entered agreements sell triage meterpro cardiovascular toxicology business assets liabilities related btype natriuretic peptide assay business run beckman coulter analyzers quidel transactions quidel reflect total purchase price 400 million payable close transaction 240 million payable six annual installments beginning approximately six months close transaction contingent consideration maximum value 40 million third quarter 2017 alere entered agreement siemens diagnostics holding ii bv siemens sell subsidiary epocal inc approximately 200 million payable close transaction alere agreed divest businesses connection review federal trade commission european commission abbott’s agreement acquire alere sale quidel closed october 6 2017 sale siemens closed october 31 2017 gain loss sales recorded consolidated statement earnings 2017 consolidated abbott results include 65 billion sales pretax loss approximately 13 billion related st jude medical alere acquisitions including approximately 15 billion intangible amortization 907 million inventory stepup amortization pretax loss excludes acquisition integration restructuringrelated costs acquisitions st jude medical alere occurred beginning 2016 unaudited pro forma consolidated net sales would approximately 289 billion unaudited pro forma consolidated net loss continuing operations would approximately 485 million 2016 includes amortization approximately 940 million inventory stepup 17 billion intangibles related st jude medical alere 2017 unaudited pro forma consolidated net sales would approximately 289 billion unaudited pro forma consolidated net earnings continuing operations would approximately 750 million includes 225 million intangible amortization related alere unaudited pro forma consolidated net earnings continuing operations 2017 exclude inventory stepup amortization related st jude medical alere approximately 907 million recorded 2017 included 2016 unaudited pro forma results noted unaudited pro forma information necessarily indicative consolidated results operations would realized st jude medical alere acquisitions completed beginning 2016 meant indicative future results operations combined entity experience abbott laboratories subsidiaries notes consolidated financial statements continued note 7 business acquisitions continued july 17 2017 abbott commenced tender offer purchase cash 177 million outstanding shares alere’s series b convertible perpetual preferred stock price 402 per share plus accrued unpaid dividends including settlement date tender offer tender offer subject satisfaction certain conditions including abbott’s acquisition alere upon validly tendered properly withdrawn expiration date tender offer number shares preferred stock equaled least majority preferred stock issued outstanding expiration tender offer tender offer expired october 3 2017 conditions offer satisfied abbott accepted payment 1748 million shares preferred stock validly tendered properly withdrawn remaining shares cashed amount equal 40000 per share liquidation preference shares plus accrued unpaid dividends without interest payment shares preferred stock made fourth quarter 2017 note 8 goodwill intangible assets total amount goodwill reported 232 billion december 31 2019 233 billion december 31 2018 foreign currency translation adjustments decreased goodwill approximately 103 million 2019 440 million 2018 purchase price accounting adjustments associated alere acquisition decreased goodwill 326 million 2018 amount goodwill related reportable segments december 31 2019 30 billion established pharmaceutical products segment 286 million nutritional products segment 37 billion diagnostic products segment 161 billion medical devices segment significant reduction goodwill relating impairments 2019 2018 gross amount amortizable intangible assets primarily product rights technology 276 billion 257 billion december 31 2019 2018 respectively accumulated amortization 119 billion 104 billion december 31 2019 2018 respectively foreign currency translation adjustments decreased intangible assets approximately 71 million 2019 281 million 2018 purchase price allocation adjustments increased intangible assets 280 million estimated annual amortization expense intangible assets recorded december 31 2019 approximately 21 billion 2020 20 billion 2021 20 billion 2022 20 billion 2023 19 billion 2024 amortizable intangible assets amortized 2 20 years indefinitelived intangible assets relate inprocess research development acquired business combination approximately 13 billion 36 billion december 31 2019 2018 respectively decrease due inprocess research development intangible asset related medical devices segment became amortizable end 2019 2017 abbott recorded 53 million impairment inprocess research development project related medical devices segment abbott laboratories subsidiaries notes consolidated financial statements continued note 9 restructuring plans 2017 2019 abbott management approved restructuring plans part integration acquisitions st jude medical devices segment alere diagnostic products segment order leverage economies scale reduce costs abbott recorded employee related severance charges approximately 72 million 2019 52 million 2018 187 million 2017 approximately 19 million 2019 5 million 2018 5 million 2017 recorded cost products sold approximately 4 million 2019 10 million 2018 recorded research development approximately 49 million 2019 37 million 2018 182 million 2017 recorded selling general administrative expense abbott also assumed restructuring liabilities approximately 23 million part st jude medical alere acquisitions following summarizes activity related actions status related accruals 2016 2019 abbott management approved plans streamline operations order reduce costs improve efficiencies various abbott businesses including nutritional established pharmaceuticals vascular businesses abbott recorded employee related severance charges approximately 66 million 2019 28 million 2018 120 million 2017 approximately 16 million 2019 10 million 2018 7 million 2017 recorded cost products sold approximately 28 million 2019 2 million 2018 77 million 2017 recorded research development approximately 22 million 2019 16 million 2018 36 million 2017 recorded selling general administrative expense additional charges approximately 2 million 2017 recorded primarily accelerated depreciation following summarizes activity restructurings abbott laboratories subsidiaries notes consolidated financial statements continued note 10 incentive stock program 2017 incentive stock program authorizes granting nonqualified stock options restricted stock awards restricted stock units performance awards foreign benefits sharebased awards stock options restricted stock awards units comprise majority benefits granted currently outstanding program prior program 2019 abbott granted 4579283 stock options 736100 restricted stock awards 6628009 restricted stock units program abbott’s stock incentive programs purchase price shares option must least equal fair market value common stock date grant maximum term option 10 years options generally vest equally three years restricted stock awards generally vest 3 years onethird award vesting one year upon abbott reaching minimum return equity target restricted stock units vest three years upon vesting recipient receives one share abbott stock vested restricted stock unit aggregate fair market value options restricted stock awards units recognized expense requisite service period may shorter vesting period employee retirement eligible forfeitures estimated time grant restricted stock awards settlement vested restricted stock units issued treasury shares abbott generally issues new shares exercises stock options policy abbott purchase shares relating sharebased programs april 2017 abbott’s shareholders authorized 2017 incentive stock program maximum 170 million shares available issuance december 31 2019 approximately 127 million shares remained available future issuance connection completion st jude medical acquisition first quarter 2017 unvested st jude medical stock options restricted stock units assumed abbott converted abbott options restricted stock units applicable substantially equivalent value accordance merger agreement number shares underlying converted options 7364571 weighted average exercise price 3050 number restricted stock units converted 2324500 weighted average grant date fair value 3769 following table summarizes stock option activity year ended december 31 2019 outstanding stock options december 31 2019 abbott laboratories subsidiaries notes consolidated financial statements continued note 10 incentive stock program continued following table summarizes restricted stock awards units activity 2019 fair market value restricted stock awards units vested 2019 2018 2017 588 million 458 million 348 million respectively total intrinsic value options exercised 2019 2018 2017 315 million 249 million 233 million respectively total unrecognized compensation cost related sharebased compensation plans december 31 2019 amounted approximately 419 million expected recognized next three years total noncash stock compensation expense charged income continuing operations 2019 2018 2017 sharebased plans totaled approximately 519 million 477 million 406 million respectively tax benefit recognized approximately 197 million 185 million 242 million respectively decrease tax benefit 2018 primarily relates tax cuts jobs act tcja reduces us federal corporate tax rate 35 21 stock compensation cost capitalized part inventory significant table summarizes fair value option granted 2019 2018 2017 assumptions included blackscholes optionpricing model used estimate fair value riskfree interest rate based rates available time grant zerocoupon us government issues remaining term equal option’s expected life average life option based historical projected exercise lapsing data expected volatility based implied volatilities traded options abbott’s stock historical volatility abbott’s stock expected life option dividend yield based option’s exercise price annual dividend rate time grant abbott laboratories subsidiaries notes consolidated financial statements continued note 11 debt lines credit following summary longterm debt december 31 february 16 2018 board directors authorized early redemption 5 billion outstanding longterm notes redemptions authorization include following ●0947 billion principal amount 5125 notes due 2019 redeemed march 22 2018 ●1055 billion 2850 billion principal amount 235 notes due 2019 redeemed march 22 2018 ●1300 billion 1795 billion outstanding principal amount 235 notes due 2019 redeemed june 22 2018 ●0495 billion outstanding principal amount 235 notes due 2019 redeemed september 28 2018 ●0500 billion outstanding principal amount 280 notes due 2020 redeemed february 24 2019 abbott incurred net charge 14 million related march 22 2018 early repayment debt september 2019 board directors authorized early redemption 5 billion outstanding longterm notes bond redemption authorization supersedes board’s previous authorization 700 million yet redeemed abbott laboratories subsidiaries notes consolidated financial statements continued note 11 debt lines credit continued november 19 2019 abbotts wholly owned subsidiary ireland financing dac completed offering €1180 billion longterm debt consisting €590 million 010 notes due 2024 €590 million 0375 notes due 2027 proceeds equated approximately 13 billion notes guaranteed abbott november 21 2019 abbott borrowed ¥598 billion 5year term loan designated yendenominated loan hedge net investment certain foreign subsidiaries term loan bears interest tibor plus fixed spread interest rate reset quarterly proceeds equated approximately 550 million december 19 2019 abbott redeemed 2850 billion principal amount 29 notes due 2021 abbott incurred charge 63 million related early repayment debt september 17 2018 abbott repaid upon maturity 500 million aggregate principal amount outstanding 200 senior notes due 2018 september 27 2018 abbott’s wholly owned subsidiary abbott ireland financing dac completed euro debt offering €3420 billion longterm debt consisting €1140 billion noninterest bearing senior notes due 2020 99727 par value €1140 billion 0875 senior notes due 2023 99912 par value €1140 billion 150 senior notes due 2026 99723 par value proceeds equated approximately 4 billion notes guaranteed abbott october 28 2018 abbott redeemed approximately 4 billion debt included 750 million principal amount 200 notes due 2020 597 million principal amount 4125 notes due 2020 900 million principal amount 325 notes due 2023 450 million principal amount 34 notes due 2023 1300 billion principal amount 375 notes due 2026 amounts addition 5 billion authorization 2018 discussed conjunction redemption abbott unwound approximately 11 billion interest rate swaps relating 340 note due 2023 375 note due 2026 abbott incurred net charge 153 million related early repayment debt unwinding related interest rate swaps november 30 2018 abbott entered five year credit agreement revolving credit agreement terminated 2014 revolving credit agreement outstanding borrowings 2014 revolving credit agreement time termination revolving credit agreement provides abbott ability borrow 5 billion unsecured basis borrowings revolving credit agreement mature payable november 30 2023 borrowings revolving credit agreement bear interest abbott’s option based either base rate eurodollar rate plus applicable margin based abbott’s credit ratings first quarter 2017 part acquisition st jude medical abbott’s longterm debt increased due assumption outstanding debt previously issued st jude medical abbott exchanged certain st jude medical debt obligations aggregate principal amount approximately 29 billion debt issued abbott consists abbott laboratories subsidiaries notes consolidated financial statements continued note 11 debt lines credit continued following exchange approximately 1942 million existing st jude medical notes remained outstanding across five series existing notes coupons maturities listed significant costs associated exchange debt addition first quarter 2017 abbott assumed subsequently repaid approximately 28 billion various st jude medical debt obligations 2017 abbott issued 364day yendenominated debt 201 million 199 million outstanding december 31 2019 2018 respectively 2017 abbott also paid 479 million yendenominated shortterm borrowing year july 31 2017 abbott entered 5year term loan agreement allowed abbott borrow 28 billion unsecured basis acquisition alere october 3 2017 abbott borrowed 28 billion term loan agreement finance acquisition alere repay certain indebtedness abbott alere pay fees expenses connection acquisition borrowings term loan bore interest based eurodollar rate plus applicable margin based abbott’s credit ratings abbott paid term loan january 5 2018 october 3 2017 abbott borrowed 17 billion lines credit proceeds borrowing used finance acquisition alere repay certain indebtedness abbott alere pay fees expenses connection acquisition lines credit part 2014 revolving credit agreement provided abbott ability borrow 5 billion unsecured basis advances revolving credit agreement including 17 billion borrowing october 2017 scheduled mature payable july 10 2019 17 billion borrowing bore interest based eurodollar rate plus applicable margin based abbott’s credit ratings prior october 3 2017 amounts previously drawn revolving credit agreement fourth quarter 2017 abbott paid 550 million revolving loan abbott paid remaining balance revolving loan january 5 2018 fourth quarter 2017 conjunction acquisition alere abbott assumed subsequently repaid 30 billion alere’s debt principal payments required longterm debt outstanding december 31 2019 13 billion 2020 5 million 2021 752 million 2022 23 billion 2023 12 billion 2024 125 billion 2025 thereafter december 31 2019 abbott’s longterm debt rating standard poor’s corporation a3 moody’s abbott readily available financial resources including lines credit 50 billion expire 2023 support commercial paper borrowing arrangements abbott’s weightedaverage interest rate shortterm borrowings 04 december 31 2019 04 december 31 2018 03 december 31 2017 note 12 leases abbott lessee abbott entered operating leases lessee office space manufacturing facilities rd laboratories warehouses vehicles equipment finance leases significant abbott’s operating leases generally remaining lease terms 1 10 years leases include options extend beyond original lease term generally 10 years include options terminate early options included determination lease liability reasonably certain option exercised asset classes abbott elected practical expedient allowed fasb asc 842 “leases” account lease component eg right use office space associated nonlease components eg maintenance services single lease component abbott also elected shortterm lease accounting policy asset classes therefore abbott recognizing lease liability rou asset lease commencement date lease term 12 months less include option purchase underlying asset abbott reasonably certain exercise abbott laboratories subsidiaries notes consolidated financial statements continued note 12 leases continued abbott’s leases typically provide implicit rate interest rate used determine present value payments lease typically reflects abbott’s incremental borrowing rate based information available lease commencement date abbott’s incremental borrowing rates january 1 2019 used operating leases commenced prior january 1 2019 following table provides information related abbott’s operating leases includes shortterm lease expense variable lease costs immaterial year ended december 31 2019 weighted average remaining lease term discount rate operating leases december 31 2019 8 years 39 respectively future minimum lease payments noncancellable operating leases december 31 2019 follows following table summarizes amounts location operating lease rou assets lease liabilities december 31 2019 abbott laboratories subsidiaries notes consolidated financial statements continued note 12 leases continued leases abbott lessor certain assets primarily diagnostics instruments leased customers contractual arrangements typically include operating salestype lease well performance obligations reagents consumables salestype leases significant contract terms vary customer may include options terminate contract options extend contract instruments provided operating lease arrangements portion entire lease revenue may variable subject subsequent nonlease component eg reagent sales allocation revenue lease nonlease components based standalone selling prices operating lease revenue represented less 3 percent abbott’s total net sales year ended december 31 2019 assets related operating leases reported within net property equipment consolidated balance sheet original cost net book value assets 28 billion 12 billion respectively december 31 2019 note 13 financial instruments derivatives fair value measures certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates primarily anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts gross notional amounts totaling 68 billion december 31 2019 51 billion december 31 2018 designated cash flow hedges variability cash flows due changes foreign exchange rates recorded fair value accumulated gains losses december 31 2019 included cost products sold time products sold generally next twelve eighteen months abbott enters foreign currency forward exchange contracts manage currency exposures foreign currency denominated thirdparty trade payables receivables intercompany loans trade accounts payable receivable payable denominated currency functional currency entity intercompany loans contracts require abbott sell buy foreign currencies primarily european currencies exchange primarily us dollars european currencies intercompany trade payables receivables currency exposures primarily us dollar european currencies december 31 2019 2018 abbott held gross notional amounts 91 billion 136 billion respectively foreign currency forward exchange contracts november 2019 abbott borrowed ¥598 billion 5year term loan designated yendenominated loan hedge net investment certain foreign subsidiaries date borrowing december 31 2019 value longterm debt decreased approximately 4 million 546 million due foreign exchange rate changes change value recorded accumulated comprehensive income loss net tax march 2017 abbott repaid 479 million yendenominated shortterm debt designated hedge net investment foreign subsidiary december 31 2016 value shortterm debt 454 million changes fair value debt date repayment due changes exchange rates recorded accumulated comprehensive income loss net tax abbott party interest rate hedge contracts totaling approximately 29 billion december 31 2019 2018 manage exposure changes fair value fixedrate debt contracts designated fair value hedges variability fair value fixedrate debt due changes longterm benchmark interest rates effect hedge change fixedrate interest obligation variable rate portion debt abbott records contracts fair value adjusts carrying amount fixedrate debt offsetting amount october 2018 abbott unwound approximately 11 billion interest rate swaps relating 340 note due 2023 375 note due 2026 part unwinding abbott paid approximately 90 million cash included financing activities section consolidated statement cash flows 2018 abbott laboratories subsidiaries notes consolidated financial statements continued note 13 financial instruments derivatives fair value measures continued second quarter 2017 abbott unwound approximately 15 billion interest rate swaps relating 200 note due 2020 255 note due 2022 proceeds received significant following table summarizes amounts location certain derivative financial instruments december 31 following table summarizes activity foreign currency forward exchange contracts designated cash flow hedges debt designated hedge net investment foreign subsidiary certain derivative financial instruments well amounts location income expense gain loss reclassified income gain 75 million losses 100 million 64 million recognized 2019 2018 2017 respectively related foreign currency forward exchange contracts designated hedges amounts reported consolidated statement earnings net foreign exchange gain loss line interest rate swaps designated fair value hedges variability fair value fixedrate debt due changes longterm benchmark interest rates hedged debt marked market offsetting effect marking interest rate swaps market abbott laboratories subsidiaries notes consolidated financial statements continued note 13 financial instruments derivatives fair value measures continued carrying values fair values certain financial instruments december 31 shown table carrying values financial instruments approximate estimated fair values counterparties financial instruments consist select major international financial institutions abbott expect losses nonperformance counterparties fair value debt determined based significant observable inputs including current interest rates following table summarizes bases used measure certain assets liabilities fair value recurring basis balance sheet abbott laboratories subsidiaries notes consolidated financial statements continued note 13 financial instruments derivatives fair value measures continued fair value foreign currency forward exchange contracts determined using market approach utilizes values comparable derivative instruments fair value debt determined based face value debt adjusted fair value interest rate swaps based discounted cash flow analysis using significant observable inputs contingent consideration relates businesses acquired abbott fair value contingent consideration determined based independent appraisal adjusted time value money changes fair value maximum amount certain contingent consideration determinable based percent certain sales excluding contingent consideration maximum amount estimated due approximately 470 million dependent upon attaining certain sales thresholds based occurrence certain events regulatory approvals note 14 litigation environmental matters abbott identified potentially responsible party investigation cleanup costs number locations united states puerto rico federal state remediation laws investigating potential contamination number companyowned locations abbott recorded estimated cleanup cost site management believes abbott probable loss exposure individual site cleanup exposure expected exceed 4 million aggregate cleanup exposure expected exceed 10 million abbott involved various claims legal proceedings abbott estimates range possible loss legal proceedings environmental exposures approximately 95 million 130 million recorded accrual balance december 31 2019 proceedings exposures approximately 110 million accrual represents management’s best estimate probable loss defined fasb asc 450 “contingencies” within next year legal proceedings may occur may result change estimated loss accrued abbott feasible predict outcome proceedings exposures certainty management believes ultimate disposition material adverse effect abbott’s financial position cash flows results operations abbott laboratories subsidiaries notes consolidated financial statements continued note 15 postemployment benefits retirement plans consist defined benefit defined contribution medical dental plans information abbott’s major defined benefit plans postemployment medical dental benefit plans follows projected benefit obligations nonus defined benefit plans 33 billion 27 billion december 31 2019 2018 respectively accumulated benefit obligations defined benefit plans 102 billion 83 billion december 31 2019 2018 respectively plans accumulated benefit obligations exceeded plan assets december 31 2019 2018 aggregate accumulated benefit obligations projected benefit obligations aggregate plan assets follows abbott laboratories subsidiaries notes consolidated financial statements continued note 15 postemployment benefits continued components net periodic benefit cost follows 2017 abbott recognized 10 million curtailment gain related sale amo comprehensive income loss respective year includes amortization actuarial losses prior service costs credits noted previous table comprehensive income loss respective year also includes net actuarial losses 944 million defined benefit plans loss 190 million medical dental plans 2019 net actuarial losses 86 million defined benefit plans gain 53 million medical dental plans 2018 net actuarial losses 247 million defined benefit plans 97 million medical dental plans 2017 change net actuarial losses 2019 primarily relates lower discount rates december 31 2019 compared december 31 2018 partially offset impact actual 2019 asset returns excess expected returns pretax amount actuarial losses prior service cost credits included accumulated comprehensive income loss december 31 2019 expected recognized net periodic benefit cost 2020 253 million 1 million expense respectively defined benefit pension plans 32 million expense 28 million income respectively medical dental plans weighted average assumptions used determine benefit obligations defined benefit plans medical dental plans follows weighted average assumptions used determine net cost defined benefit plans medical dental plans follows assumed health care cost trend rates medical dental plans december 31 follows abbott laboratories subsidiaries notes consolidated financial statements continued note 15 postemployment benefits continued discount rates used measure liabilities determined based highquality fixed income securities match duration expected retiree benefits health care cost trend rates represent abbott’s expected annual rates change cost health care benefits forward projections health care costs measurement date onepercentage point increasedecrease assumed health care cost trend rate would increasedecrease accumulated postemployment benefit obligations december 31 2019 221 million 179 million total service interest cost components net postemployment health care cost year ended approximately 12 million9 million following table summarizes bases used measure defined benefit medical dental plan assets fair value aa mix index funds actively managed equity accounts benchmarked various large cap indices ba mix index funds actively managed equity accounts benchmarked various mid small cap indices ca mix index funds actively managed pooled investment funds benchmarked various nonus equity indices developed emerging markets da mix index funds actively managed accounts benchmarked various us government bond indices abbott laboratories subsidiaries notes consolidated financial statements continued note 15 post employment benefits continued ea mix index funds actively managed accounts benchmarked various corporate bond indices fprimarily united kingdom japan eurozone government bonds gprimarily asset backed securities actively managed diversified fixed income vehicle benchmarked onemonth libor euribor hprimarily funds invested managers global mandate flexibility allocate capital broadly across wide range asset classes strategies including limited equities fixed income commodities interest rate futures currencies securities outperform agreed upon benchmark specific return volatility targets iprimarily investments private energy funds jprimarily investments private funds private equity private credit private real estate kin accordance asu 201507 investments measured fair value using net asset value nav practical expedient classified fair value hierarchy fair value amounts presented table intended permit reconciliation fair value hierarchy amounts presented consolidated balance sheet equities valued using quoted prices valued published market prices equities common collective trust registered investment company valued using significant observable inputs valued nav provided fund administrator nav based value underlying assets owned fund minus liabilities approximately half funds investments may redeemed per month required 7 30 day notice period remaining funds daily redemption investment allowed fixed income securities valued using significant observable inputs valued prices obtained independent financial service industry recognized vendors abbott unfunded commitments related fixed income funds december 31 2019 2018 fixed income securities common collective trust registered investment company valued using significant observable inputs valued nav provided fund administrator majority funds investments may redeemed either weekly monthly required 2 14 day notice period remaining funds investments may generally redeemed daily absolute return funds commodities valued nav provided fund administrator private funds valued nav provided fund onequarter lag adjusted known cash flows significant events reporting date abbott unfunded commitments related absolute return funds december 31 2019 2018 investments funds may generally redeemed monthly quarterly required notice periods ranging 5 90 days approximately 235 million 100 million absolute return funds redemptions subject 33 percent gate 25 percent gate respectively 45 million subject lock 2022 commodities investments private energy funds cannot redeemed funds make distributions liquidation estimate liquidation period fund ranges 2020 2022 abbott’s unfunded commitments funds december 31 2019 2018 significant investments private funds excluding private energy funds cannot redeemed funds make distributions liquidation estimate liquidation period fund ranges 2020 2029 abbott’s unfunded commitment funds 571 million 518 million december 31 2019 2018 respectively abbott laboratories subsidiaries notes consolidated financial statements continued note 15 postemployment benefits continued investment mix equity securities fixed income asset allocation strategies based upon achieving desired return well balancing higher return volatile equity securities lower return less volatile fixed income securities investment allocations made across range markets industry sectors capitalization sizes case fixed income securities maturities credit quality plans directly hold securities abbott known significant concentrations risk plans’ assets abbott’s medical dental plans’ assets invested similar mix pension plan assets actual asset allocation percentages year end consistent company’s targeted asset allocation percentages plans’ expected return assets shown based management’s expectations longterm average rates return achieved underlying investment portfolios establishing assumption management considers historical expected returns asset classes plans invested well current economic capital market conditions abbott funds domestic pension plans according irs funding limitations international pension plans funded according similar regulations abbott funded 382 million 2019 114 million 2018 defined pension plans abbott expects contribute approximately 387 million pension plans 2020 total benefit payments expected paid participants includes payments funded company assets well paid plans follows abbott stock retirement plan principal defined contribution plan abbott’s contributions plan 158 million 2019 146 million 2018 79 million 2017 2018 contributions include amounts related participants st jude medical retirement plan terminated january 2018 note 16 taxes earnings continuing operations taxes earnings continuing operations reflect annual effective rates including charges interest penalties deferred income taxes reflect tax consequences future years differences tax bases assets liabilities financial reporting amounts tax cuts jobs act tcja enacted us december 22 2017 tcja reduces us federal corporate tax rate 35 21 requires companies pay onetime transition tax earnings certain foreign subsidiaries previously tax deferred creates new taxes certain foreign sourced earnings december 31 2018 abbott completed accounting enactment date income tax effects tcja effective fiscal years beginning december 31 2017 tcja subjects taxpayers tax global intangible lowtaxed income gilti earned certain foreign subsidiaries january 2018 fasb staff provided guidance entity may make accounting policy election either recognize deferred taxes related items give rise gilti future years provide tax expense related gilti year tax incurred abbott elected treat gilti tax period expense provide tax year tax incurred abbott laboratories subsidiaries notes consolidated financial statements continued note 16 taxes earnings continuing operations continued fourth quarter 2017 abbott recorded estimate net tax expense 146 billion impact tcja included taxes earnings continuing operations consolidated statement earnings estimate provisional included charge approximately 289 billion transition tax partially offset net benefit approximately 142 billion remeasurement deferred tax assets liabilities net benefit approximately 10 million related certain impacts tcja 2018 abbott recorded 130 million additional tax expense increased final tax expense related tcja 159 billion 130 million additional tax expense reflects 120 million increase transition tax 289 billion 301 billion 10 million reduction net benefit related remeasurement deferred tax assets liabilities 2019 taxes earnings continuing operations include 86 million reduction transition tax 86 million reduction transition tax liability result issuance final transition tax regulations us department treasury 2019 adjustment decreased cumulative net tax expense related tcja 150 billion onetime transition tax based abbott’s total post1986 earnings profits ep previously deferred us income taxes tax computation also requires determination amount post1986 ep considered held cash specified assets december 31 2019 remaining balance abbott’s transition tax obligation approximately 133 billion paid next seven years allowed tcja 2019 taxes earnings continuing operations included 68 million tax expense resulting tax legislation enacted fourth quarter 2019 india 2018 taxes earnings continuing operations included 98 million net tax expense related settlement abbott’s 20142016 federal income tax audit us partial settlement former st jude medical consolidated group’s 2014 2015 federal income tax returns us audit settlements various countries 2017 taxes earnings continuing operations include 435 million tax expense related gain sale amo business undistributed foreign earnings remain indefinitely reinvested foreign operations determining amount unrecognized deferred tax liability related remaining undistributed foreign earnings subject transition tax additional outside basis difference foreign entities practicable us abbott’s federal income tax returns 2016 settled except federal income tax returns former alere consolidated group settled 2015 former st jude medical consolidated group settled 2013 numerous income tax jurisdictions tax returns yet settled none individually significant reserves interest penalties significant earnings continuing operations taxes related provisions taxes earnings continuing operations follows abbott laboratories subsidiaries notes consolidated financial statements continued note 16 taxes earnings continuing operations continued differences effective income tax rate us statutory tax rate follows impact foreign operations primarily derived operations puerto rico switzerland ireland netherlands costa rica singapore abbott laboratories subsidiaries notes consolidated financial statements continued note 16 taxes earnings continuing operations continued tax effect differences give rise deferred tax assets liabilities follows abbott incurred losses foreign jurisdiction realization future economic benefit remote benefit reflected deferred tax asset following table summarizes gross amounts unrecognized tax benefits without regard reduction tax liabilities additions deferred tax assets liabilities unrecognized tax benefits settled total amount unrecognized tax benefits recognized would impact effective tax rate approximately 107 billion abbott believes reasonably possible recorded amount gross unrecognized tax benefits may decrease within range 220 million 510 million including cash adjustments within next twelve months result concluding various domestic international tax matters abbott laboratories subsidiaries notes consolidated financial statements continued note 17 segment geographic area information abbott’s principal business discovery development manufacture sale broad line health care products abbott’s products generally sold directly retailers wholesalers hospitals health care facilities laboratories physicians’ offices government agencies throughout world beginning fourth quarter 2019 results diabetes care business previously included aggregated results businesses cardiovascular neuromodulation segment comprise medical devices reportable segment historic periods adjusted reflect change october 3 2017 abbott completed acquisition alere beginning fourth quarter 2017 abbott’s diagnostic products reportable segment includes results alere date acquisition abbott’s reportable segments follows established pharmaceutical productsinternational sales broad line branded generic pharmaceutical products nutritional productsworldwide sales broad line adult pediatric nutritional products diagnostic productsworldwide sales diagnostic systems tests blood banks hospitals commercial laboratories alternatecare testing sites segment reporting purposes core laboratories diagnostics rapid diagnostics molecular diagnostics point care divisions aggregated reported diagnostic products segment rapid diagnostics business acquired alere medical devices worldwide sales rhythm management electrophysiology heart failure vascular structural heart neuromodulation diabetes care products segment reporting purposes cardiac arrhythmias heart failure vascular neuromodulation structural heart diabetes care divisions aggregated reported medical devices segment nonreportable segments include amo date sale february 2017 abbotts underlying accounting records maintained legal entity basis government public reporting requirements segment disclosures performance basis consistent internal management reporting cost corporate functions cost certain employee benefits charged segments predetermined rates approximate cost remaining costs allocated segments addition intangible asset amortization allocated operating segments intangible assets goodwill included measure segment’s assets following segment information prepared accordance internal accounting policies abbott described presented accordance generally accepted accounting principles applied consolidated financial statements anet sales unfavorably affected relatively stronger us dollar 2019 2018 operating earnings unfavorably affected impact foreign exchange 2019 2018 2017 abbott laboratories subsidiaries notes consolidated financial statements continued note 17 segment geographic area information continued bother net includes integration costs associated acquisition st jude medical alere restructuring charges 2019 net includes inventory stepup amortization integration costs associated acquisition st jude medical alere restructuring charges 2018 2017 net includes inventory stepup amortization integration costs associated acquisition st jude medical alere restructuring charges partially offset gain sale amo business charges restructuring actions cost reduction initiatives approximately 215 million 2019 153 million 2018 384 million 2017 camounts exclude property plant equipment acquired business acquisitions abbott laboratories subsidiaries notes consolidated financial statements continued note 17 segment geographic area information continued dsales country based country sold product longlived assets geographic basis primarily include property plant equipment excludes goodwill intangible assets deferred tax assets financial instruments december 31 2019 2018 longlived assets totaled 102 billion 87 billion respectively united states assets totaled 51 billion 43 billion respectively longlived asset balances associated countries material individual country basis either two years abbott laboratories subsidiaries notes consolidated financial statements continued note 18 quarterly results unaudited athe sum four quarters earnings per share 2019 2018 may add full year earnings per share amount due rounding andor use quartertodate weighted average shares calculate earnings per share amount respective quarter management report internal control financial reporting management abbott laboratories responsible establishing maintaining adequate internal control financial reporting abbott’s internal control system designed provide reasonable assurance company’s management board directors regarding preparation fair presentation published financial statements internal control systems matter well designed inherent limitations therefore even systems determined effective provide reasonable assurance respect financial statement preparation presentation abbott’s management assessed effectiveness company’s internal control financial reporting december 31 2019 making assessment used criteria set forth internal control integrated framework 2013 issued committee sponsoring organizations treadway commission based assessment believe december 31 2019 company’s internal control financial reporting effective based criteria abbott’s independent registered public accounting firm issued audit report assessment effectiveness company’s internal control financial reporting report appears page 90 miles white chairman board chief executive officer brian b yoor executive vice president finance chief financial officer robert e funck jr senior vice president finance controller february 21 2020 report independent registered public accounting firm shareholders board directors abbott laboratories opinion financial statements audited accompanying consolidated balance sheets abbott laboratories subsidiaries company december 31 2019 2018 related consolidated statements earnings comprehensive income shareholders’ investment cash flows three years period ended december 31 2019 related notes collectively referred “consolidated financial statements” opinion consolidated financial statements present fairly material respects financial position company december 31 2019 2018 results operations cash flows three years period ended december 31 2019 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states pcaob company’s internal control financial reporting december 31 2019 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission 2013 framework report dated february 21 2020 expressed unqualified opinion thereon basis opinion financial statements responsibility company’s management responsibility express opinion company’s financial statements based audits public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement whether due error fraud audits included performing procedures assess risks material misstatement financial statements whether due error fraud performing procedures respond risks procedures included examining test basis evidence regarding amounts disclosures financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation financial statements believe audits provide reasonable basis opinion critical audit matters critical audit matters communicated matters arising current period audit financial statements communicated required communicated audit committee 1 relate accounts disclosures material financial statements 2 involved especially challenging subjective complex judgments communication critical audit matters alter way opinion consolidated financial statements taken whole communicating critical audit matters providing separate opinions critical audit matters accounts disclosures relate evaluation acquired inprocess research development intangible assets description matter described note 8 consolidated financial statements acquired inprocess research development “iprd” intangible assets approximately 13 billion december 31 2019 iprd intangible assets assessed impairment annually frequently impairment indicators suggest fair value iprd intangible asset may carrying value auditing fair value estimate iprd intangible assets complex estimate involves making assumptions timing amount forecasted future net cash flows related iprd projects well risk associated forecasted future net cash flows significant assumptions forwardlooking could affected future economic market conditions addressed matter audit obtained understanding evaluated design tested operating effectiveness controls company’s iprd intangible asset impairment assessment well process identification events indicate iprd intangible asset may impaired included controls managements review valuation model significant assumptions eg discount rate projected research development “rd” costs probability technical success projected revenues product profitability used develop prospective financial information pfi test fair value company’s iprd intangible assets audit procedures included among others evaluating companys use income approach testing significant assumptions described used develop prospective financial information testing completeness accuracy underlying data example compared certain significant assumptions current industry market economic trends historical results companys business guideline companies within industry relevant factors performed sensitivity analysis significant assumptions evaluate change fair value iprd assets resulting changes assumptions also involved valuation specialists assist testing certain significant assumptions fair value estimate addition evaluate probability technical success considered phase development iprd project companys history obtaining regulatory approvals income taxes unrecognized tax benefits description matter described note 16 consolidated financial statements unrecognized tax benefits approximately 12 billion december 31 2019 unrecognized tax benefits assessed management quarterly identification measurement frequently indicators suggesting change unrecognized tax benefits assessing tax positions involves judgement including interpreting tax laws multiple jurisdictions assumptions relevant measurement unrecognized tax benefit including estimated amount tax liability may incurred tax position sustained upon inspection tax authority judgements assumptions significantly affect unrecognized tax benefits addressed matter audit obtained understanding evaluated design tested operating effectiveness controls company’s identification measurement unrecognized tax benefits well process assessment events may indicate change unrecognized tax benefits warranted example tested controls management’s review completeness identified unrecognized tax benefits well controls management’s review significant assumptions used within measurement unrecognized tax benefits support tax professionals valuation specialists among audit procedures performed evaluated reasonableness management’s judgement respect interpretation tax laws multiple jurisdictions reading evaluating management’s documentation including relevant accounting policies considering tax law including statutes regulations case law affected management’s judgments tested completeness management’s assessment identification unrecognized tax benefits possible outcomes related including evaluation technical merits unrecognized tax benefits also tested appropriateness consistency management’s methods significant assumptions associated measurement unrecognized tax benefits including assessing estimated amount tax liability may incurred tax position sustained upon inspection tax authority ernst young llp served company’s auditor since 2013 chicago illinois february 21 2020 report independent registered public accounting firm shareholders board directors abbott laboratories opinion internal control financial reporting audited abbott laboratories subsidiaries’ internal control financial reporting december 31 2019 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission 2013 framework coso criteria opinion abbott laboratories subsidiaries company maintained material respects effective internal control financial reporting december 31 2019 based coso criteria also audited accordance standards public company accounting oversight board united states pcaob consolidated balance sheets company december 31 2019 2018 related consolidated statements earnings comprehensive income shareholders’ investment cash flows three years period ended december 31 2019 related notes report dated february 21 2020 expressed unqualified opinion thereon basis opinion company’s management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management report internal control financial reporting responsibility express opinion company’s internal control financial reporting based audit public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audit accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion definition limitations internal control financial reporting company’s internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles company’s internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition company’s assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate ernst young llp chicago illinois february 21 2020 item 9 item 8 financial statements supplementary data page abbott laboratories financial statements consolidated statement earnings consolidated statement cash flows consolidated balance sheet consolidated statement shareholders investment notes consolidated financial statements management report internal control financial reporting reports independent registered public accounting firm tap pharmaceutical products inc financial statements consolidated statements income comprehensive income consolidated statements cash flows consolidated balance sheets consolidated statements shareholders equity notes consolidated financial statements report independent registered public accounting firm abbott laboratories subsidiaries consolidated statement earnings dollars shares thousands except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement cash flows dollars thousands accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated balance sheet dollars thousands abbott laboratories subsidiaries consolidated balance sheet dollars thousands accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement shareholders investment dollars thousands except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries notes consolidated financial statements note 1 summary significant accounting policies nature business abbotts principal business discovery development manufacture sale broad line health care products concentration risk guarantees due nature operations abbott subject significant concentration risks relating customers products geographic locations except three us wholesalers accounted 25 percent 23 percent 24 percent trade receivables december 31 2007 2006 2005 respectively product warranties significant abbott material exposures offbalance sheet arrangements special purpose entities activities include nonexchangetraded contracts accounted fair value abbott periodically entered agreements ordinary course business assignment product rights companies resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote abbott periodically acquires business product rights abbott agrees pay contingent consideration based attaining certain thresholds based occurrence certain events connection spinoff hospira inc abbott retained liabilities taxes income prior spinoff certain potential liabilities related alleged improper pricing practices connection federal state private reimbursement certain drugs basis consolidation consolidated financial statements include accounts parent company subsidiaries elimination intercompany transactions accounts foreign subsidiaries consolidated november 30 due time needed consolidate subsidiaries december 2005 certain foreign subsidiaries borrowed approximately 14 billion borrowings related interest expense reflected december 31 2005 consolidated balance sheet 2005 consolidated statement earnings events occurred related foreign subsidiaries december 2007 2006 2005 materially affected financial position results operations cash flows use estimates financial statements prepared accordance generally accepted accounting principles united states necessarily include amounts based estimates assumptions management actual results could differ amounts significant estimates include amounts sales rebates income taxes pension postemployment benefits valuation intangible assets litigation sharebased compensation derivative financial instruments inventory accounts receivable exposures revenue recognition revenue product sales recognized upon passage title risk loss customers provisions discounts rebates sales incentives customers returns adjustments provided period related sales recorded sales incentives customers material historical data readily available reliable used estimating amount reduction gross sales revenue launch new product improved version existing product shipments excess customers normal requirements recorded conditions noted met situations management records returns reserve revenue necessary sales product rights marketable products recorded revenue upon disposition rights revenue license product rights performance research selling activities recorded periods earned note 1 summary significant accounting policies continued income taxes january 1 2007 abbott adopted provisions fasb interpretation 48 accounting uncertainty income taxes interpretation order recognize uncertain tax benefit taxpayer must likely sustaining position measurement benefit calculated largest amount 50 percent likely realized upon resolution benefit deferred income taxes provided tax effect differences tax bases assets liabilities reported amounts financial statements enacted statutory rate effect taxes paid us income taxes provided earnings foreign subsidiaries intended remitted parent company deferred income taxes provided undistributed earnings reinvested indefinitely foreign subsidiaries working capital plant equipment interest penalties income tax obligations included taxes income pension postemployment benefits abbott accrues actuarially determined cost pension postemployment benefits service attribution periods employees abbott must develop longterm assumptions significant health care cost trend rates discount rate expected return plan assets differences expected longterm return plan assets actual return amortized fiveyear period actuarial losses gains amortized remaining service attribution periods employees corridor method december 31 2006 abbott adopted provisions sfas 158 employers accounting defined benefit pension postretirement plans statement requires recognition deferrals balance sheet corresponding charge accumulated comprehensive income loss adoption statement december 31 2006 resulted decrease abbotts shareholders equity approximately 13 billion fair value measurements january 1 2007 abbott adopted sfas 157 fair value measurements adoption provisions standard material effect abbotts financial position assets liabilities measured using quoted prices active markets total fair value published market price per unit multiplied number units held without consideration transaction costs assets liabilities measured using significant observable inputs valued reference similar assets liabilities adjusted contract restrictions terms specific asset liability items significant portion fair value derived reference quoted prices similar assets liabilities active markets remaining assets liabilities fair value derived using fair value model discounted cash flow model blackscholes model purchased intangible assets recorded fair value fair value significant purchased intangible assets based independent appraisals abbott uses discounted cash flow model value intangible assets discounted cash flow model requires assumptions timing amount future net cash inflows risk cost capital terminal values market participants intangible assets goodwill reviewed impairment least quarterly annual basis respectively sharebased compensation december 31 2005 abbott measured compensation cost using intrinsic valuebased method accounting stock options replacement stock options granted employees restricted stock awards units amortized service period charge compensation expense 2006 abbott adopted sfas 123 revised 2004 sharebased payment requires fair value stock options recorded results operations litigation abbott accounts litigation losses accordance sfas 5 sfas 5 loss contingency provisions recorded probable losses managements best estimate loss best estimate cannot made minimum loss contingency amount recorded note 1 summary significant accounting policies continued cash equivalents investments cash equivalents consist time deposits certificates deposit original maturities three months less except abbotts investment common stock boston scientific investments marketable equity securities classified availableforsale recorded fair value unrealized holding gains losses net tax included accumulated comprehensive income loss beginning january 1 2007 investment common stock boston scientific accounted trading security changes fair value recorded income investments equity securities traded public stock exchanges recorded cost investments debt securities classified heldtomaturity management intent ability hold securities maturity reported cost net unamortized premium discount income relating securities reported interest income abbott reviews carrying value investments equity securities quarter determine whether temporary decline market value exists abbott considers factors affecting investee factors affecting industry investee operates general equity market trends abbott considers length time investments market value carrying value nearterm prospects recovery carrying value abbott determines temporary decline occurred investment written charge income expense net inventories stated lower cost firstin firstout basis market cost includes material conversion costs property equipment depreciation amortization provided straightline basis estimated useful lives assets following table shows estimated useful lives property equipment product liability abbott accrues product liability claims undiscounted basis probable liability incurred amount liability reasonably estimated based existing information liabilities adjusted quarterly additional information becomes available receivables insurance recoveries product liability claims recorded assets undiscounted basis probable recovery realized abbott carries thirdparty insurance coverage amounts reflect historical loss experience include coverage sizable losses research development costs internal research development costs expensed incurred clinical trial costs incurred third parties expensed contracted work performed contingent milestone payments due third parties research development arrangements milestone payment obligations expensed milestone results achieved note 2 supplemental financial information dollars thousands 2007 financial accounting standards board issued statement financial accounting standards 159 fair value option financial assets financial liabilities sfas 159 allows companies measure specific financial assets liabilities fair value debt equity investments fair value option investment boston scientific common stock applied effective january 1 2007 abbott applied fair value option investment boston scientific stock sfas 159 unlike equity investments boston scientific stock strategic investment abbott required dispose stock later october 2008 abbott subject limitation amount shares may sell one month october 2007 abbott reacquire boston scientific shares sells accordingly since adoption realized gains losses expected near future fair value option better represented nearterm expected earnings impact sales stock fair value option cumulative unrealized gains losses equity investment previously accounted availableforsale security recorded cumulative effect adjustment retained earnings date adoption standard pretax tax adjustment earnings employed business upon adoption 297000 189000 respectively fair value carrying amount investment adoption approximately 1000000 pretax tax adjustment accumulated comprehensive income loss 303000 182000 respectively effect adoption deferred income taxes significant income expense net 2007 includes 190000 fair market value loss adjustment abbotts investment boston scientific common stock realized gain 37000 sales boston scientific common stock income expense net 2007 2006 includes fair value gain note 2 supplemental financial information dollars thousands continued adjustments 28000 91000 respectively certain derivative financial instruments included investment boston scientific common stock aaccrued wholesaler chargeback rebates 156996 122729 83551 december 31 2007 2006 2005 respectively netted trade receivables abbotts customers invoiced higher catalog price remit abbott contract price products note 2 supplemental financial information dollars thousands continued december 31 2006 abbott adopted provisions sfas 158 employers accounting defined benefit pension postretirement plans adoption statement resulted decrease abbotts shareholders equity 1257568 net taxes approximately 733000 note 3 financial instruments derivatives fair value measures certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts totaling 281 million 768 million 222 million december 31 2007 2006 2005 respectively designated cash flow hedges variability cash flows due changes foreign exchange rates abbott records contracts fair value resulting charge 12 million 2007 credits 16 million 39 million accumulated comprehensive income loss 2006 2005 respectively ineffectiveness recorded 2007 2006 2005 significant accumulated gains losses december 31 2007 included cost products sold time products sold generally next twelve months abbott enters foreign currency forward exchange contracts manage currency exposures foreign currency denominated thirdparty trade payables receivables intercompany loans trade accounts payable receivable payable denominated currency functional currency entity intercompany loans contracts require abbott sell buy foreign currencies primarily european currencies japanese yen exchange primarily us dollars european currencies intercompany trade payables receivables currency exposures primarily us dollar european currencies japanese yen contracts recorded fair value resulting gains losses reflected income net foreign exchange gain loss december 31 2007 2006 2005 abbott held 55 billion 56 billion 39 billion respectively foreign currency forward exchange contracts abbott designated approximately 17 billion foreign denominated shortterm debt hedge net investment certain foreign subsidiaries accordingly changes fair value debt due changes exchange rates recorded accumulated comprehensive income loss net tax resulting charge 72 million accumulated comprehensive income loss 2007 abbott party interest rate hedge contracts totaling 15 billion manage exposure changes fair value 15 billion fixedrate debt due 2009 2014 contracts designated fair value hedges variability fair value fixedrate debt due changes longterm benchmark interest rates effect hedge change fixedrate interest obligation variable rate portion debt abbott records contracts fair value adjusts carrying amount fixedrate debt offsetting amount hedge ineffectiveness recorded income 2007 2006 2005 gross unrealized holding gains losses availableforsale equity securities totaled 108 million 3 million respectively december 31 2007 21 million 304 million respectively december 31 2006 18 million 4 million respectively december 31 2005 note 3 financial instruments derivatives fair value measures continued carrying values fair values certain financial instruments december 31 shown table carrying values financial instruments approximate estimated fair values counter parties financial instruments consist select major international financial institutions abbott expect losses nonperformance counter parties following table summarizes bases used measure certain assets liabilities fair value recurring basis balance sheet 2007 adjustments record derivative financial instrument liability whose value derived using significant unobservable inputs resulted credit income expense net amount 25 million value derivative financial instrument liability zero december 31 2007 note 4 postemployment benefits dollars thousands retirement plans consist defined benefit defined contribution medical dental plans information abbotts major defined benefit plans postemployment medical dental benefit plans follows projected benefit obligations nonus defined benefit plans 1754000 1483000 1148000 december 31 2007 2006 2005 respectively accumulated benefit obligations defined benefit plans 4920000 4738000 4158000 december 31 2007 2006 2005 respectively plans accumulated benefit obligations exceeded plan assets december 31 2007 2006 2005 aggregate accumulated benefit obligations 697000 544000 465000 note 4 postemployment benefits dollars thousands continued respectively projected benefit obligations 770000 592000 508000 respectively aggregate plan assets 84000 22000 5000 respectively comprehensive income loss 2007 includes amortization actuarial losses prior service cost 81110 3573 respectively net actuarial gains 341408 defined benefit plans comprehensive income loss 2007 includes amortization actuarial losses prior service credits 54727 21550 respectively net actuarial gains 95748 medical dental plans pretax amount actuarial losses prior service cost credits included accumulated comprehensive income loss december 31 2007 expected recognized net periodic benefit cost 2008 46100 3800 respectively defined benefit pension plans 42600 21500 respectively medical dental plans weighted average assumptions used determine benefit obligations defined benefit plans medical dental plans december 31 measurement date plans follows weighted average assumptions used determine net cost defined benefit plans medical dental plans follows assumed health care cost trend rates medical dental plans december 31 follows note 4 postemployment benefits dollars thousands continued discount rates used measure liabilities determined based highquality fixed income securities match duration expected retiree benefits health care cost trend rates represent abbotts expected annual rates change cost health care benefits forward projection health care costs measurement date onepercentage point increasedecrease assumed health care cost trend rate would increasedecrease accumulated postemployment benefit obligations december 31 2007 205600163500 total service interest cost components net postemployment health care cost year ended approximately 2870022400 approximately 70 abbotts us defined benefit plans medical dental plans assets invested equity securities remainder invested primarily fixed income securities investment mix equity securities fixed income securities based upon achieving desired return balancing higher return volatile equity securities lower return less volatile fixed income securities abbotts domestic plans invested diversified portfolios publicmarket equity fixed income securities investment allocations made across range markets industry sectors capitalization sizes case fixed income securities maturities credit quality plans directly hold securities abbott abbotts international defined benefit plans invested corresponding manner variance portfolio structure around local practices plans expected return assets shown based managements expectations longterm average rates return achieved underlying investment portfolios establishing assumption management considers historical expected returns asset classes plans invested well current economic capital market conditions abbott funds domestic pension plans according irs funding limitations 2007 2006 200000 funded main domestic pension plan 2005 641000 funded main domestic pension plan international pension plans funded according similar regulations abbott expects pension funding main domestic pension plan 200000 annually total benefit payments expected paid participants includes payments funded company assets well paid plans follows abbott stock retirement plan principal defined contribution plan abbotts contributions plan 119000 2007 102000 2006 100000 2005 abbott provides certain postemployment benefits primarily salary continuation plans qualifying domestic employees accrues related cost service lives employees note 5 taxes earnings dollars thousands taxes earnings reflect annual effective rates including charges interest penalties deferred income taxes reflect tax consequences future years differences tax bases assets liabilities financial reporting amounts us income taxes provided note 5 taxes earnings dollars thousands continued earnings foreign subsidiaries intended remitted parent company except taxes dividends remitted american jobs creation act 2004 abbott record deferred income taxes earnings reinvested indefinitely foreign subsidiaries undistributed earnings reinvested indefinitely foreign subsidiaries working capital plant equipment aggregated 12330000 december 31 2007 practicable determine amount deferred income taxes provided earnings us abbotts federal income tax returns 2003 settled income tax returns years 2003 open numerous income tax jurisdictions tax returns yet settled none individually significant reserves interest penalties significant earnings taxes related provisions taxes earnings follows note 5 taxes earnings dollars thousands continued differences effective income tax rate us statutory tax rate follows december 31 2007 2006 2005 total deferred tax assets 3582137 3172933 2040906 respectively total deferred tax liabilities 1353575 1136964 1355181 respectively valuation allowances deferred tax assets significant tax effect differences give rise deferred tax assets liabilities follows january 1 2007 abbott adopted provisions fasb interpretation 48 accounting uncertainty income taxes interpretation order recognize uncertain tax benefit taxpayer must likely sustaining position measurement benefit calculated largest amount 50 percent likely realized upon resolution benefit adoption interpretation material impact abbotts financial position following table summarizes gross amounts unrecognized tax benefits without regard reduction note 5 taxes earnings dollars thousands continued tax liabilities additions deferred tax assets liabilities unrecognized tax benefits settled total amount unrecognized tax benefits recognized would affect effective tax rate approximately 890000 abbott expect significant changes aggregate amount unrecognized tax benefits may occur within next twelve months tax settlements among provisions american jobs creation act 2004 provision allows exclusion income portion remittances earnings foreign subsidiaries us shareholders december 31 2005 abbott remitted accordance provisions act approximately 4300000 foreign earnings previously reinvested indefinitely additional income tax expense recorded remittance approximately 245000 note 6 segment geographic area information dollars millions abbotts principal business discovery development manufacture sale broad line health care products abbotts products generally sold directly retailers wholesalers hospitals health care facilities laboratories physicians offices government agencies throughout world abbotts reportable segments follows pharmaceutical products worldwide sales broad line pharmaceuticals segment reporting purposes two pharmaceutical divisions aggregated reported pharmaceutical products segment nutritional products worldwide sales broad line adult pediatric nutritional products diagnostic products worldwide sales diagnostic systems tests blood banks hospitals commercial laboratories alternatecare testing sites segment reporting purposes three diagnostic divisions aggregated reported diagnostic products segment vascular products worldwide sales coronary endovascular vessel closure products abbotts underlying accounting records maintained legal entity basis government public reporting requirements segment disclosures performance basis consistent internal management reporting intersegment transfers inventory recorded standard cost measure segment operating earnings cost corporate functions cost certain employee benefits charged segments predetermined rates approximate cost remaining costs allocated segments effective 2007 diagnostic segment reorganized prior years segment information adjusted reflect change acquisitions prior 2006 substantially intangible assets related amortization allocated segments following segment information prepared accordance internal accounting policies abbott note 6 segment geographic area information dollars millions continued described presented accordance generally accepted accounting principles applied consolidated financial statements anet sales operating earnings 2007 2005 favorably affected relatively weaker us dollar unfavorably affected relatively stronger us dollar 2006 bthe increase pharmaceutical product segment sales 2007 due primarily acquisition kos pharmaceuticals inc december 2006 decrease 2006 due primarily effects termination distribution agreement cadditions longterm assets pharmaceutical products segment includes goodwill intangible assets acquired 1590 821 respectively 2006 vascular products segment includes goodwill intangible assets acquired 1688 1195 respectively 2006 dthe decrease nutritional products segment operating earnings 2007 primarily due completion us copromotion synagis 2006 ecorporate functions benefit plans costs 2006 includes philanthropic contribution 70 abbott fund fthe increase sharebased compensation 2007 partially due granting replacement stock options result increase market value abbott common stock abbott adopted fasb 123 revised 2004 sharebased payment january 1 2006 note 6 segment geographic area information dollars millions continued gother net 2007 includes 197 restructuring plans 256 acquisition integration related costs primarily associated acquisitions guidants vascular intervention endovascular solutions kos pharmaceuticals inc 190 fair market value loss adjustment abbotts investment boston scientific common stock net 2006 includes 281 restructuring plans 220 acquisition integration related costs primarily associated acquisition guidants vascular intervention endovascular solutions net 2005 includes 266 restructuring impairment charges hsales country based country sold product note 7 litigation environmental matters abbott identified potentially responsible party investigation cleanup costs number locations united states puerto rico federal state remediation laws investigating potential contamination number companyowned locations abbott recorded estimated cleanup cost site management believes abbott probable loss exposure individual site cleanup exposure expected exceed 3 million aggregate cleanup exposure expected exceed 15 million number patent disputes third parties claim abbotts products infringe patents one disputes filed april 2007 abbott unable estimate range possible loss reserve recorded abbotts acquisition kos pharmaceuticals inc resulted assumption various cases investigations abbott recorded reserves related several cases investigations note 7 litigation environmental matters continued several civil actions pending brought individuals entities allege generally abbott numerous pharmaceutical companies reported false misleading pricing information relating average wholesale price certain pharmaceutical products connection federal state private reimbursement civil actions also brought abbott cases members pharmaceutical industry state attorneys general seeking recover alleged damages behalf state medicaid programs may 2006 abbott notified us department justice intervened civil whistleblower lawsuit alleging abbott inflated prices medicaid medicare reimbursable drugs outcome investigations litigation could include imposition fines penalties abbott recorded reserves estimated losses cases however abbott unable estimate range amount possible loss majority cases loss reserves recorded many products involved cases hospira products hospira abbotts former hospital products business spun abbotts shareholders 2004 abbott retained liability losses result cases investigations extent losses relate sale hospiras products prior spinoff hospira relate allegations made pending future cases investigations allegations existing date spinoff within next year legal proceedings may occur may result change estimated reserves recorded abbott legal proceedings environmental exposures except noted second third paragraphs footnote abbott estimates range possible loss approximately 110 million 325 million recorded reserve balance december 31 2007 proceedings exposures approximately 165 million reserves represent managements best estimate probable loss defined statement financial accounting standards 5 accounting contingencies feasible predict outcome proceedings exposures certainty management believes ultimate disposition material adverse effect abbotts financial position cash flows results operations except cases investigations discussed third paragraph footnote resolution could material cash flows results operations quarter note 8 incentive stock program 1996 incentive stock program authorizes granting stock options replacement stock options stock appreciation rights limited stock appreciation rights restricted stock awards restricted stock units performance units foreign qualified benefits stock options replacement stock options restricted stock awards units comprise majority benefits granted currently outstanding program 2007 abbott granted 20263311 stock options 16696463 replacement stock options 1556770 net forfeitures 87400 restricted stock awards 649530 net forfeitures 23600 restricted stock units program purchase price shares option must least equal fair market value common stock date grant maximum term option 10 years options vest equally three years except replacement options vest six months options granted january 1 2005 included replacement feature except options outstanding replacement feature options granted december 31 2004 include replacement feature employee tenders mature shares abbott upon exercise stock option replacement stock option may granted equal amount shares tendered replacement options granted current market price term expires date underlying option grant upon change control abbott outstanding stock options become fully exercisable terms conditions restricted stock awards units deemed satisfied restricted stock awards granted 2007 2006 generally vest 3 5 years restricted note 8 incentive stock program continued stock awards vest 5 years onethird award vests one year upon abbott reaching minimum return equity target restricted stock units granted 2007 2006 vest three years upon vesting recipient receives one share abbott stock vested restricted stock unit aggregate fair market value restricted stock awards units recognized expense service period restricted stock awards settlement vested restricted stock units issued treasury shares abbott issues new shares exercises stock options abbott policy purchasing shares relating sharebased programs january 1 2008 approximately 51 million shares reserved future grants 1996 program subsequent yearend board directors granted approximately 22 million stock options restricted stock awards units reserve number restricted stock awards units outstanding weightedaverage grantdate fair value december 31 2006 december 31 2007 3830728 4531 3740341 4904 respectively number restricted stock awards units weightedaverage grantdate fair value granted vested lapsed 2007 2317300 5273 2156091 4654 251596 4758 respectively fair market value restricted stock awards units vested 2007 2006 2005 114170000 32226000 12949000 respectively aggregate intrinsic value options outstanding exercisable december 31 2007 12 billion 882 million respectively total intrinsic value options exercised 2007 2006 2005 613 million 205 million 189 million respectively total unrecognized compensation cost related sharebased compensation plans december 31 2007 amounted approximately 250 million expected recognized next three years january 1 2006 abbott adopted provisions statement financial accounting standards 123 revised 2004 sharebased payment requires fair value sharebased awards recorded results operations abbott used modified prospective method adoption method prior years financial results include impact recording stock options using fair value revised standard awards issued 2005 remainder unrecognized cost grants issued prior 2006 charged expense total noncash compensation expense charged income 2007 2006 sharebased plans totaled approximately 430 million 330 million respectively tax benefit recognized approximately 142 million 78 million respectively compensation cost capitalized part inventory significant december 31 2005 abbott measured compensation cost using intrinsic valuebased method accounting stock options replacement options granted employees compensation cost determined using fair valuebased accounting method 2005 pro forma net income would 32 billion basic earnings per share would 204 diluted earnings per share would 202 note 8 incentive stock program continued fair value option granted 2007 2006 2005 1288 1172 1217 respectively fair value option grant estimated using blackscholes optionpricing model following assumptions riskfree interest rate based rates available time grant zerocoupon us government issues remaining term equal options expected life average life option granted 2007 2006 based historical projected exercise lapsing data prior 2006 average life option granted based historical experience expected volatility 2007 2006 option grants based implied volatilities traded options abbotts stock historical volatility abbotts stock expected life option expected volatility options granted prior 2006 based historical volatility period prior option grant equal options expected life dividend yield based options exercise price annual dividend rate time grant note 9 debt lines credit dollars thousands following summary longterm debt december 31 note 9 debt lines credit dollars thousands continued principal payments required longterm debt outstanding december 31 2007 857454 2008 1003619 2009 138218 2010 2001958 2011 1000390 2012 5281102 thereafter december 31 2007 abbott 3000000 unused lines credit support commercial paper borrowing arrangements unused lines credit expire 2012 related compensating balances subject withdrawal abbott option commitment fees material abbotts weightedaverage interest rate shortterm borrowings 37 december 31 2007 50 december 31 2006 13 december 31 2005 note 10 business combinations technology acquisitions related transactions december 2006 abbott acquired kos pharmaceuticals inc cash approximately 38 billion net cash held kos pharmaceuticals inc expand abbotts presence lipid management market provide several onmarket latestage pipeline products kos pharmaceuticals inc specialty pharmaceutical company developed marketed proprietary medications treatment chronic cardiovascular metabolic respiratory diseases business acquired december 13 2006 financial results acquired operations included financial statements beginning date acquisition financed primarily shortterm debt allocation purchase price resulted charge 13 billion acquired inprocess research development intangible assets 821 million goodwill primarily nondeductible 16 billion net liabilities primarily deferred income taxes recorded acquisition 331 million acquired intangible assets amortized 4 15 years nondeductible acquired inprocess research development charged income 2006 substantial amount acquired inprocess research development charge relating kos acquisition related primarily cholesterol treatment drugs research efforts ranged 70 percent 80 percent complete date acquisition valuation method used fair value projects multiperiod excess earnings method income approach riskadjusted discount rate used 16 percent developing assumptions valuation model comparable abbott products marketed competitors used estimate pricing margins expense levels december 31 2007 one drug approved marketing us remaining research efforts primarily schedule estimated projected costs complete projects totaled approximately 75 million december 31 2007 anticipated product launches 2008 2010 significant changes development plans acquired incomplete projects significant net cash inflows commence launches products order expand abbotts presence growing vascular market abbott acquired guidants vascular intervention endovascular solutions businesses april 21 2006 approximately 41 billion cash connection boston scientifics acquisition guidant addition abbott also pay boston scientific 250 million upon government approvals market xience v drugeluting stent us japan government approvals anticipated 2008 us 2009 japan 250 million payment result recording additional goodwill allocation purchase price resulted charge 665 million acquired inprocess research development intangible assets 12 billion goodwill primarily deductible 17 billion tangible net assets 580 million acquired intangible assets amortized 4 15 years deductible acquired inprocess research development charged income 2006 net tangible assets acquired consist primarily property equipment approximately 530 million trade accounts receivable approximately 250 million inventories approximately 120 million net assumed liabilities primarily trade accounts payable litigation reserves liabilities note 10 business combinations technology acquisitions related transactions continued substantial amount acquired inprocess research development charge relating guidant acquisition related drug eluting bioabsorbable stents research efforts ranged 35 percent 85 percent complete date acquisition valuation method used fair value projects multiperiod excess earnings method income approach riskadjusted discount rates used ranged 16 percent 25 percent developing assumptions valuation model comparable abbott products marketed competitors used estimate pricing margins expense levels december 31 2007 research efforts primarily schedule estimated projected costs complete totaled approximately 390 million december 31 2007 anticipated product launch dates 2008 2013 significant changes development plans acquired incomplete projects significant net cash inflows commence within one two years product launch order facilitate boston scientifics acquisition guidant abbott also acquired 646 million shares boston scientific common stock directly boston scientific loaned 900 million whollyowned subsidiary boston scientific common stock valued 13 billion note receivable valued 829 million acquisition date connection acquisition shares boston scientific entitled certain aftertax gains upon abbotts sale shares addition boston scientific agreed reimburse abbott certain borrowing costs debt incurred acquire boston scientific shares abbott recorded net derivative financial instruments liability 59 million gainsharing derivative financial instrument liability interest derivative financial instrument asset effect recording shares loan boston scientific derivative financial instruments fair value date acquisition resulted recording additional goodwill approximately 204 million changes fair value derivative financial instruments net recorded income expense net 2005 abbott acquired remaining interest small medical products company less 50 percent equity interest small medical products company 25 million 2005 abbott also acquired additional rights related humira approximately 270 million amortized 13 years acquisitions taken place january 1 previous year consolidated net sales income would significantly different reported amounts note 11 goodwill intangible assets dollars millions abbott recorded goodwill 53 3721 69 2007 2006 2005 respectively related acquisitions goodwill adjustments recorded 2007 allocated pharmaceutical products segment amounted 194 goodwill allocated vascular products segment amounted 141 acquired goodwill allocated pharmaceutical products segment amounted 1590 2006 goodwill allocated vascular products segment amounted 1688 2006 foreign currency translation adjustments increased decreased goodwill 2007 2006 2005 627 509 535 respectively amount goodwill related reportable segments december 31 2007 6221 pharmaceutical products segment 210 nutritional products segment 261 diagnostic products segment 2086 vascular products segment reductions goodwill relating impairments disposal portion business gross amount amortizable intangible assets primarily product rights technology 9043 8988 6776 december 31 2007 2006 2005 respectively accumulated amortization 3323 2602 2053 december 31 2007 2006 2005 respectively estimated annual amortization expense intangible assets 710 2008 2009 2010 690 2011 680 2012 intangible assets amortized 4 25 years average 11 years note 12 equity method investments dollars millions abbotts 50 percentowned joint venture tap pharmaceutical products inc tap accounted equity method accounting investment tap 159 162 167 december 31 2007 2006 2005 respectively dividends received tap 502 487 343 2007 2006 2005 respectively abbott performs certain administrative manufacturing services tap negotiated rates approximate fair value summarized financial information tap follows undistributed earnings investments accounted equity method amounted approximately 136 december 31 2007 note 13 restructuring plans dollars millions 2007 2006 2005 abbott management approved plans realign worldwide pharmaceutical vascular manufacturing operations selected domestic international commercial research development operations order reduce costs 2007 2006 2005 abbott recorded pretax charges earnings approximately 107 210 256 respectively reflecting impairment manufacturing facilities assets employee severance related charges approximately 94 181 174 respectively classified cost products sold 3 29 10 respectively research development 10 2007 72 2005 selling general administrative fair value determination amount asset impairments determined primarily based discounted cash flow method additional 90 70 14 subsequently recorded 2007 2006 2005 respectively relating restructurings primarily accelerated depreciation addition abbott implemented facilities restructuring plans 2007 related acquired operations kos pharmaceuticals inc resulted increase goodwill approximately 52 note 13 restructuring plans dollars millions continued following summarizes activity restructurings abbott expects incur additional 73 future periods restructuring plans primarily accelerated depreciation note 14 quarterly results unaudited dollars millions except per share data athe sum quarters basic earnings per share 2007 2006 add full year earnings per share amounts due rounding bthe sum quarters diluted earnings per share 2006 add full year earnings per share amount due rounding csecond quarter 2006 includes pretax charge 493 acquired inprocess collaborations research development dthird quarter 2006 includes pretax charge 214 acquired inprocess research development 2005 includes pretax restructuring charges 201 efourth quarter 2006 includes pretax charge 1307 acquired inprocess collaborations research development management report internal control financial reporting management abbott laboratories responsible establishing maintaining adequate internal control financial reporting abbotts internal control system designed provide reasonable assurance companys management board directors regarding preparation fair presentation published financial statements internal control systems matter well designed inherent limitations therefore even systems determined effective provide reasonable assurance respect financial statement preparation presentation abbotts management assessed effectiveness companys internal control financial reporting december 31 2007 making assessment used criteria set forth internal control integrated framework issued committee sponsoring organizations treadway commission based assessment believe december 31 2007 companys internal control financial reporting effective based criteria abbotts independent registered public accounting firm issued audit report assessment effectiveness companys internal control financial reporting report appears page 73 miles white chairman board chief executive officer thomas c freyman executive vice president finance chief financial officer greg w linder vice president controller february 14 reports independent registered public accounting firm board directors shareholders abbott laboratories audited accompanying consolidated balance sheets abbott laboratories subsidiaries company december 31 2007 2006 2005 related consolidated statements earnings shareholders investment cash flows years ended financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position company december 31 2007 2006 2005 results operations cash flows years ended conformity accounting principles generally accepted united states america discussed notes 1 2 4 8 consolidated financial statements company changed method accounting fair value measurements adopt statement financial accounting standards sfas 157 fair value measurements adopted fair value option sfas 159 fair value option financial assets financial liabilities certain investments 2007 company changed method accounting pension post employment benefits sharebased payments adopt sfas 158 employers accounting defined benefit pension postretirement plans sfas 123r sharebased payment 2006 also audited accordance standards public company accounting oversight board united states companys internal control financial reporting december 31 2007 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated february 14 2008 expressed unqualified opinion companys internal control financial reporting deloitte touche llp chicago illinois february 14 2008 board directors shareholders abbott laboratories audited internal control financial reporting abbott laboratories subsidiaries company december 31 2007 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission companys management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management report internal control financial reporting responsibility express opinion companys internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion companys internal control financial reporting process designed supervision companys principal executive principal financial officers persons performing similar functions effected companys board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting including possibility collusion improper management override controls material misstatements due error fraud may prevented detected timely basis also projections evaluation effectiveness internal control financial reporting future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion company maintained material respects effective internal control financial reporting december 31 2007 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission also audited accordance standards public company accounting oversight board united states consolidated financial statements company year ended december 31 2007 report dated february 14 2008 expressed unqualified opinion financial statements included explanatory paragraph regarding companys adoption new accounting standards deloitte touche llp chicago illinois february 14 2008 tap pharmaceutical products inc consolidated statements income comprehensive income dollars thousands see notes consolidated financial statements tap pharmaceutical products inc consolidated statements cash flows dollars thousands see notes consolidated financial statements tap pharmaceutical products inc consolidated balance sheets thousands except share amount see notes consolidated financial statements tap pharmaceutical products inc consolidated statements shareholders equity years ended december 31 2007 2006 2005 dollars thousands except share amounts see notes consolidated financial statements tap pharmaceutical products inc notes consolidated financial statements years ended december 31 2007 2006 2005 dollars thousands note 1 description business tap pharmaceutical products inc subsidiaries tap delaware corporation owned equally abbott laboratories abbott illinois corporation takeda america holdings inc whollyowned subsidiary takeda pharmaceutical company ltd japanese corporation collectively takeda tap headquartered lake forest illinois approximately 3000 employees agreement abbott takeda tap develops markets sells human pharmaceutical products united states puerto rico canada tap operates one business segment sales primarily united states taps primary products prevacid lupron principal indications prevacid lansoprazole proton pump inhibitor shortterm treatment duodenal ulcers gastric ulcers erosive esophagitis lupron leuprolide acetate luteinizing hormonereleasing hormone lhrh analog lupron depot sustained release form lupron used principally palliative treatment advanced prostate cancer endometriosis central precocious puberty preoperative treatment patients anemia caused uterine fibroids patents related lansoprazole lupron depot material operation taps business original united states compound patent covering lansoprazole licensed tap takeda original united states patents covering lupron depot formulations licensed tap takeda taps products generally sold directly physicians retailers wholesalers health care facilities government agencies cases distributed abbottowned distribution centers primary marketing efforts directed toward securing prescription taps brand products physicians managed care purchasers example health maintenance organizations pharmacy benefit managers increasingly important customers taps products supplied owners principally takeda disruption supply products could adversely impact operating results tap sales taps primary products follows 2007 tap received total 147925 resolve litigation relating alleged infringement lupron depot patent 2006 2005 tap recognized revenue milestone payments related 2005 license prevacid trademark certain patents technical information third party overthecounter sale prevacid united states financial instruments potentially subject tap concentrations credit risk consist primarily accounts receivable tap sells primarily wholesale distributors majority taps accounts note 1 description business continued receivable derived sales wholesale distributors three us wholesale distributors accounted 10 taps gross sales follows tap material exposures offbalance sheet arrangements special purpose entities activities include nonexchangetraded contracts accounted fair value except equity swap agreements hedge market price exposure employee stock options described note 6 note 2 summary significant accounting policies basis presentation consolidated financial statements include accounts tap subsidiaries intercompany accounts transactions eliminated use estimates preparation financial statements conformity accounting principles generally accepted united states america requires estimates assumptions management actual results could differ estimates significant estimates include amounts income taxes sales rebates postemployment benefits litigation sharebased compensation derivative financial instruments inventory reserves accounts receivable allowances cash equivalents cash equivalents include time deposits certificates deposit commercial paper money market funds shortterm investments governmental agency debt securities original maturities three months less contractually convertible cash three months less investment securities investments equity securities classified availableforsale recorded fair value unrealized holding gains losses net tax included accumulated comprehensive income loss tap monitors equity investments temporary declines fair value charges impairment losses income temporary decline estimated value occurs investments debt securities classified heldtomaturity management intent ability hold securities maturity reported cost net unamortized premium discount income relating securities reported interest income inventories stated lower cost firstin firstout basis market cost includes material packaging costs inventories consist following december 31 note 2 summary significant accounting policies continued property equipment property equipment recorded cost less accumulated depreciation provided using straightline method estimated useful lives assets estimated useful lives property equipment follows longlived assets reviewed impairment whenever events changes circumstances indicate carrying value may recoverable based projected undiscounted cash flows associated affected assets fair value less carrying value asset loss recognized difference fair value determined based market quotes available based valuation techniques revenue recognition revenue product sales recognized upon passage title risk loss customers product delivered common carrier revenue license product rights recorded periods earned provisions estimated rebates sales incentives customers doubtful accounts cash discounts product returns customer chargebacks provided period related sales recorded rebates sales incentives recorded accrued rebates balance sheets reserves doubtful accounts cash discounts product returns customer chargebacks recorded reductions accounts receivable historical data readily available reliable used estimating amount reduction gross sales research development internal research development costs expensed incurred clinical trial costs incurred third parties expensed contracted work performed milestone payments due third parties research development arrangements milestone payment obligations expensed milestone results achieved advertising promotion expense advertising promotion costs expensed selling general administrative expenses incurred total advertising promotion expense incurred 126482 186052 203375 2007 2006 2005 respectively income taxes deferred income taxes recognized tax consequences temporary differences applying statutory tax rates applicable future years differences financial statement carrying amount tax basis assets liabilities recent accounting pronouncements 2006 fasb issued sfas 157 fair value measurements standard provides guidance using fair value measure assets liabilities standard effective fiscal years beginning november 15 2007 tap yet assessed impact implementation standard consolidated results operations financial condition note 3 property equipment lease obligations property equipment consists following december 31 tap leases certain administrative regional sales offices equipment automobiles noncancelable leases expire various dates 2013 operating lease expense totaled 4939 4688 5153 2007 2006 2005 respectively future minimum lease payments noncancelable operating capital leases december 31 2007 consist following note 4 financial instruments derivatives tap enters foreign currency forward contracts hedge purchases inventories fixed yendenominated prices forward contracts require tap purchase yen exchange us dollars predetermined exchange rates designated cash flow hedges variability cash flows due changes exchange rates tap trade financial instruments objective earning financial gains exchange rate fluctuations alone trade currencies commodities underlying exposures effective portion changes value forward contracts recorded accumulated comprehensive income loss subsequently recognized earnings period hedged forecasted transactions affect earnings cash flow hedge ineffectiveness reported earnings current period tap outstanding foreign exchange forward contracts notional values 16349 176509 fair values 131 2049 december 31 2007 2006 respectively fair value adjustments contracts recorded prepaid expenses accrued liabilities december 31 2007 2006 respectively 2007 2006 2005 cash flow hedge ineffectiveness material note 5 employee benefit plans tap employees participate various abbott employee benefit plans including abbott laboratories annuity retirement plan abbott laboratories stock retirement plan abbott laboratories incentive stock program see note 6 details tap billed share note 5 employee benefit plans continued costs plans taps share employer contribution abbott laboratories annuity retirement plan generally allocated based taps proportionate share total compensation expense participants plan tap made contributions plan 16000 2007 2006 2005 taps contribution abbott laboratories stock retirement plan based participating employee contributions taps contributions 2007 2006 2005 14093 12989 12619 respectively tap provides health welfare benefits employees tap pharmaceutical products inc healthcare plan contributions plan made accordance taps funding policy tap provides certain medical life insurance benefits qualifying retirees tap pharmaceutical products inc retiree medical plan following provides reconciliation postemployment benefit obligations funded status plan pretax amount actuarial losses prior service credits included accumulated comprehensive income loss december 31 2007 expected recognized net periodic benefit cost 2008 280 401 respectively note 5 employee benefit plans continued december 31 2007 tap adopted provisions sfas 158 employers accounting defined benefit pension postretirement plans provisions standard require immediate recognition deferrals balance sheet corresponding charge accumulated comprehensive income loss discount rates used determine benefit obligations medical dental plans december 31 measurement date plan 665 percent 2007 59 percent 2006 discount rates used determine net cost medical dental plans 59 percent 2007 575 percent 2006 58 percent 2005 assumed health care cost trend rates medical dental plans december 31 follows onepercentage point increase decrease assumed health care trend rate would increase decrease accumulated postemployment benefit obligations december 31 2007 approximately 7422 5666 respectively total service interest cost components net postemployment benefit cost year ended approximately 1687 1253 respectively total benefit payments expected paid participants company assets postemployment medical dental benefits follows note 6 incentive stock program certain employees tap granted options purchase abbott common stock 1996 abbott incentive stock program stock options replacement stock options granted tap employees currently outstanding program purchase price shares option must least equal fair market value abbott common stock date grant maximum term option 10 years options granted vest equally three years except replacement options generally vest six months life equal remaining life replaced option addition beginning 2006 certain employees tap granted restricted stock units abbott stock restricted stock units granted vest three years upon vesting recipient receives one share abbott stock vested restricted stock unit upon change control abbott outstanding stock options restricted stock units become fully exercisable option exercises restricted stock vesting transacted abbott tap liable excess market value option shares granted tap employees employed tap option price time exercise market value abbott stock time vesting note 6 incentive stock program continued restricted stock units reimburses abbott annually cost options exercised restricted stock units vested year tap accounted stock options issued abbott incentive stock program accordance eitf 0208 2005 january 1 2006 tap adopted provisions sfas 123 revised 2004 sharebased payment using modified prospective method adoption provisions statement effect taps financial statements taps liability options granted 92108 66231 december 31 2007 2006 respectively changes fair value options recorded selling general administrative expense weighted average fair value option granted 2007 2006 2005 1402 1183 1288 respectively fair value option granted estimated using blackscholes optionpricing model following assumptions fair value option december 31 estimated using blackscholes optionpricing model following assumptions riskfree interest rate based rates available measurement date us government treasury strips remaining term equal options expected life average life option granted 2007 2006 based historical projected exercise lapsing data prior 2006 average life option granted based historical experience expected volatility based historical volatility period prior measurement date equal options expected life dividend yield based options exercise price annual dividend rate time grant following summarizes stock option activity 2007 aggregate intrinsic value options outstanding exercisable december 31 2007 76006 56231 respectively total intrinsic value options exercised 33705 8500 2007 2006 respectively total unrecognized compensation cost related sharebased note 6 incentive stock program continued compensation plans december 31 2007 amounted approximately 11686 expected recognized next three years december 31 2007 2006 tap recorded liability exercised options 25990 7567 respectively payable abbott tap also recorded liability options issued adoption eitf 0208 difference market value strike price vested yet unexercised options 20838 15761 december 31 2007 2006 respectively total expense income related abbott incentive stock program 59549 49489 12553 recorded selling general administrative expense 2007 2006 2005 respectively amount income tax benefit realized stock options exercised 2007 2006 2005 amounted 7654 2236 2407 respectively number restricted stock units outstanding weightedaverage grant date fair value december 31 2007 2006 43791 4917 26400 4416 respectively number restricted stock units weightedaverage grantdate fair value granted vested 2007 26200 5254 8809 4416 respectively restricted stock units lapsed 2007 fair value restricted stock units vested 2007 464 due significant impact fluctuations market price abbott common stock amount recorded compensation expense options issued abbott incentive stock program tap entered isda master agreement master agreement dated september 29 2000 allows tap enter equity swap transactions hedge market price exposure equity swap transaction guarantees return equal actual return specified number shares abbott common stock effectively acts hedge abbott incentive stock program time tap enters equity swap transactions master agreement transaction term one three years requires quarterly cash settlement resulting gains losses realized recorded statements income transaction requires ongoing quarterly interest payments based equity notional amount fair value abbott common stock shares swapped transaction date swap rate libor plus 114 basis points 100 basis points transactions prior october 2003 equity swap transaction recorded fair value fair value equity swaps 10593 811 december 31 2007 2006 respectively recorded accrued liabilities prepaid expenses assets balance sheets 2007 2006 respectively 2007 2006 2005 tap recorded selling general administrative expenses 39674 47554 27945 respectively gain loss related equity swap investments note 7 income taxes earnings reflect annual effective rates including charges interest penalties deferred income taxes reflect tax consequences future years differences tax bases assets liabilities financial reporting amounts taps us income tax liabilities years 2001 2004 2006 subject final determination internal revenue service irs challenged deductibility item taps 2001 tax return management believes deduction proper expects ultimate resolution material impact taps financial position results operations note 7 income taxes continued provision income taxes includes following components differences effective tax rate us statutory tax rate follows december 31 2007 2006 total deferred tax assets 147566 141308 respectively total deferred tax liabilities 9686 7139 respectively tax effect differences give rise deferred tax assets liabilities follows january 1 2007 tap adopted provisions fasb interpretation 48 accounting uncertainty income taxes interpretation order recognize uncertain tax benefit taxpayer must likely sustaining position measurement benefit calculated largest amount 50 percent likely realized upon resolution note 7 income taxes continued benefit adoption interpretation material impact taps financial position following summarizes activity unrecognized tax benefits total amount unrecognized tax benefits recognized would affect effective tax rate approximately 79000 tap expect significant changes aggregate amount unrecognized tax benefits may occur within next twelve months reserves interest penalties significant note 8 litigation related matters several civil actions pending brought individuals entities allege generally tap numerous pharmaceutical companies reported false misleading pricing information relating average wholesale price certain pharmaceutical products connection federal state private reimbursement civil actions also brought tap members pharmaceutical industry state attorneys general seeking recover alleged damages behalf state medicaid programs outcome investigations litigation could include imposition fines penalties tap unable estimate amount possible loss reserves recorded exposures within next year legal proceedings may occur may result change estimated reserves recorded tap feasible predict outcome pending claims proceedings investigations certainty management opinion except noted paragraph ultimate disposition material adverse effect taps financial position cash flows results operations note 9 relatedparty transactions various agreements exist among tap abbott takeda subsidiaries amounts due payable abbott takeda subsidiaries reflected balance sheets captions receivable abbott receivable takeda subsidiaries payable abbott payable takeda subsidiaries tap purchases lupron prevacid unpackaged finished goods inventories takeda subsidiaries purchases contracted fixed yendenominated prices amount paid takeda subsidiaries purchases inventories 2007 2006 2005 totaled 488160 609436 753096 respectively tap royalty agreements takeda subsidiaries sales lupron prevacid 2007 2006 2005 tap recorded royalty expense 163572 179770 173878 respectively beginning 2007 tap copromotes certain takeda subsidiaries products tap recognized copromotion revenue relating agreement 79422 2007 tap pays abbott services related packaging warehousing research development administrative functions amounts incurred services totaled 53967 60425 59969 2007 2006 2005 respectively addition abbott purchased international markets taps products 93437 84515 75295 2007 2006 2005 respectively report independent registered public accounting firm board directors shareholders tap pharmaceutical products inc audited accompanying consolidated balance sheets tap pharmaceutical products inc subsidiaries company december 31 2007 2006 related consolidated statements income comprehensive income shareholders equity cash flows three years period ended december 31 2007 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement company required engaged perform audit internal control financial reporting audits included consideration internal control financial reporting basis designing audit procedures appropriate circumstances purpose expressing opinion effectiveness companys internal control financial reporting accordingly express opinion audit also includes examining test basis evidence supporting amounts disclosures financial statements assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position tap pharmaceutical products inc subsidiaries december 31 2007 2006 results operations cash flows three years period ended december 31 2007 conformity accounting principles generally accepted united states america deloitte touche llp chicago illinois february 1 2008 item 9 item 8 financial statements supplementary data page consolidated statement earnings consolidated statement comprehensive income consolidated statement cash flows consolidated balance sheet consolidated statement shareholders investment notes consolidated financial statements management report internal control financial reporting report independent registered public accounting firm report independent registered public accounting firm report independent registered public accounting firm abbott laboratories subsidiaries consolidated statement earnings millions except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement comprehensive income millions accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement cash flows millions accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated balance sheet dollars millions abbott laboratories subsidiaries consolidated balance sheet dollars millions accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement shareholders investment millions except shares per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries notes consolidated financial statements note 1 summary significant accounting policies nature business abbotts principal business discovery development manufacture sale broad line health care products changes presentation february 27 2015 abbott completed sale developed markets branded generics pharmaceuticals business mylan inc mylan equity ownership newly formed entity combined mylans existing business abbotts developed markets pharmaceuticals business mylan nv publicly traded sale announced july 2014 february 10 2015 abbott completed sale animal health business zoetis inc abbott entered agreement sell business november 2014 historical operating results businesses date sale excluded earnings continuing operations presented earnings discontinued operations line abbotts consolidated statement earnings assets liabilities businesses reported held disposition abbotts consolidated balance sheet december 31 2014 cash flows businesses date disposition included abbotts consolidated statements cash flows see note 3 discontinued operations additional information basis consolidation consolidated financial statements include accounts parent company subsidiaries elimination intercompany transactions use estimates financial statements prepared accordance generally accepted accounting principles united states necessarily include amounts based estimates assumptions management actual results could differ amounts significant estimates include amounts sales rebates income taxes pension postemployment benefits including certain asset values based significant unobservable inputs valuation intangible assets litigation derivative financial instruments inventory accounts receivable exposures foreign currency translation statements earnings foreign subsidiaries whose functional currencies us dollar translated us dollars using average exchange rates period net assets foreign subsidiaries whose functional currencies us dollar translated us dollars using exchange rates balance sheet date us dollar effects arise translating net assets subsidiaries changing rates recorded foreign currency translation adjustment account included equity component accumulated comprehensive income loss transaction gains losses recorded net foreign exchange gain loss line consolidated statement earnings revenue recognition revenue product sales recognized upon passage title risk loss customers provisions discounts rebates sales incentives customers returns adjustments provided period related sales recorded sales incentives customers material historical data readily available reliable used estimating amount reduction gross sales revenue launch new product improved version existing product shipments excess customers normal requirements recorded conditions noted met situations management records returns reserve revenue necessary certain abbotts businesses primarily within diagnostics medical optics abbott participates selling arrangements include multiple deliverables eg instruments reagents procedures service agreements arrangements abbott recognizes revenue upon delivery product performance service allocates revenue based relative selling price deliverable based primarily vendor specific objective evidence sales product rights marketable products recorded revenue upon disposition rights abbott laboratories subsidiaries notes consolidated financial statements continued note 1 summary significant accounting policies continued revenue license product rights performance research selling activities recorded periods earned may 2014 financial accounting standards board fasb issued accounting standards update asu 201409 revenue contracts customers provides single comprehensive model accounting revenue contracts customers supersede existing revenue recognition guidance standard becomes effective abbott first quarter 2018 abbott currently evaluating effect standard consolidated financial statements related disclosures income taxes deferred income taxes provided tax effect differences tax bases assets liabilities reported amounts financial statements enacted statutory rate effect taxes paid us income taxes provided earnings foreign subsidiaries intended remitted parent company deferred income taxes provided undistributed earnings reinvested indefinitely foreign subsidiaries working capital plant equipment interest penalties income tax obligations included taxes income november 2015 fasb issued asu 201517 balance sheet classification deferred taxes requires entities classify deferred tax assets liabilities noncurrent balance sheet standard may adopted either prospective retrospective basis standard effective fiscal years beginning december 15 2016 early adoption permitted effective december 31 2015 abbott adopted asu 201517 applied new standard retrospectively result applying asu 201517 previously reported consolidated balance sheet december 31 2014 deferred income taxes within total current assets line decreased deferred income taxes assets line increased approximately 17 billion respectively accrued liabilities within total current liabilities line decreased 65 million postemployment obligations longterm liabilities line increased 12 million reclassification deferred tax balances current noncurrent affected netting balances deferred tax asset liability various jurisdictions earnings per share unvested restricted stock units awards contain nonforfeitable rights dividends treated participating securities included computation earnings per share twoclass method twoclass method net earnings allocated common shares participating securities earnings continuing operations allocated common shares 2015 2014 2013 2595 billion 1713 billion 1979 billion respectively net earnings allocated common shares 2015 2014 2013 4403 billion 2273 billion 2558 billion respectively pension postemployment benefits abbott accrues actuarially determined cost pension postemployment benefits service attribution periods employees abbott must develop longterm assumptions significant health care cost trend rates discount rates expected return plan assets differences expected longterm return plan assets actual return amortized fiveyear period actuarial losses gains amortized remaining service attribution periods employees corridor method fair value measurements assets liabilities measured using quoted prices active markets total fair value published market price per unit multiplied number units held without consideration transaction costs assets liabilities measured using significant abbott laboratories subsidiaries notes consolidated financial statements continued note 1 summary significant accounting policies continued observable inputs valued reference similar assets liabilities adjusted contract restrictions terms specific asset liability items significant portion fair value derived reference quoted prices similar assets liabilities active markets remaining assets liabilities fair value derived using fair value model discounted cash flow model blackscholes model purchased intangible assets recorded fair value fair value significant purchased intangible assets based independent appraisals abbott uses discounted cash flow model value intangible assets discounted cash flow model requires assumptions timing amount future net cash flows risk cost capital terminal values market participants intangible assets goodwill indefinitelived intangible assets reviewed impairment least quarterly annual basis respectively sharebased compensation fair value stock options restricted stock awards units amortized requisite service period could shorter vesting period employee retirement eligible charge compensation expense litigation abbott accounts litigation losses accordance fasb asc 450 contingencies asc 450 loss contingency provisions recorded probable losses managements best estimate loss best estimate cannot made minimum loss contingency amount recorded legal fees recorded incurred cash equivalents investments cash equivalents consist bank time deposits us treasury bills original maturities three months less investments two publicly traded companies carrying value approximately 104 million accounted equity method accounting investments marketable equity securities classified availableforsale recorded fair value unrealized holding gains losses net tax included accumulated comprehensive income loss investments equity securities traded public stock exchanges recorded cost investments debt securities classified heldtomaturity management intent ability hold securities maturity reported cost net unamortized premium discount income relating securities reported interest income abbott reviews carrying value investments quarter determine whether temporary decline fair value exists abbott considers factors affecting investee factors affecting industry investee operates general equity market trends abbott considers length time investments fair value carrying value nearterm prospects recovery carrying value abbott determines temporary decline occurred investment written charge income expense net trade receivable valuations accounts receivable stated net realizable value allowance gross trade receivables reflects best estimate probable losses inherent receivables portfolio determined basis historical experience specific allowances known troubled accounts currently available information accounts receivable charged reasonable means collect full amount including litigation appropriate exhausted inventories stated lower cost firstin firstout basis market cost includes material conversion costs abbott laboratories subsidiaries notes consolidated financial statements continued note 1 summary significant accounting policies continued property equipment depreciation amortization provided straightline basis estimated useful lives assets following table shows estimated useful lives property equipment product liability abbott accrues product liability claims probable liability incurred amount liability reasonably estimated based existing information liabilities adjusted quarterly additional information becomes available receivables insurance recoveries product liability claims recorded assets undiscounted basis probable recovery realized product liability losses selfinsured research development costs internal research development costs expensed incurred clinical trial costs incurred third parties expensed contracted work performed contingent milestone payments due third parties research development arrangements milestone payment obligations expensed milestone results achieved acquired inprocess collaborations research development iprd initial costs rights iprd projects obtained asset acquisition expensed iprd unless project alternative future use costs include initial payments incurred prior regulatory approval connection research development collaboration agreements provide rights develop manufacture market andor sell pharmaceutical products fair value iprd projects acquired business combination capitalized accounted indefinitelived intangible assets completed amortized remaining useful life collaborations significant continuing operations concentration risk guarantees due nature operations abbott subject significant concentration risks relating customers products geographic locations governmental accounts italy spain greece portugal accounted 7 percent 9 percent total net trade receivables december 31 2015 2014 respectively product warranties significant abbott material exposures offbalance sheet arrangements special purpose entities activities include nonexchangetraded contracts accounted fair value abbott periodically entered agreements ordinary course business assignment product rights companies resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote abbott periodically acquires business product rights abbott agrees pay contingent consideration based attaining certain thresholds based occurrence certain events abbott laboratories subsidiaries notes consolidated financial statements continued note 2 separation abbvie inc january 1 2013 abbott completed separation abbvie inc abbvie formed hold abbotts researchbased proprietary pharmaceuticals business abbott abbvie entered transitional services agreements prior separation pursuant abbott abbvie provided interim transitional basis various services transition services provided 24 months option oneyear extension recipient services provided abbott included certain information technology back office support billings abbott transitional services agreements recorded reduction costs provide respective service applicable expense category consolidated statement earnings transitional support enabled abbvie establish standalone processes various activities previously provided abbott constitute significant continuing support abbvies operations small portion abbvies operations legal transfer abbvies assets net liabilities occur separation abbvie january 1 2013 due time required transfer marketing authorizations regulatory requirements countries terms separation agreement abbott abbvie subject risks entitled benefits generated operations assets majority operations transferred abbvie 2013 2014 assets liabilities presented held disposition consolidated balance sheet december 31 2015 assets liabilities held disposition consist cash trade accounts receivable 54 million inventories 43 million assets 10 million trade accounts payable accrued liabilities 373 million abbott recorded prepaid asset 266 million obligation transfer net liabilities held disposition abbvie abbott retained liabilities us federal foreign income taxes income prior separation well certain nonincome taxes attributable abbvies business abbvie generally liable taxes attributable business note 3 discontinued operations february 27 2015 abbott completed sale developed markets branded generics pharmaceuticals business mylan inc mylan 110 million shares approximately 22 newly formed entity mylan nv combined mylans existing business abbotts developed markets branded generics pharmaceuticals business mylan nv publicly traded historically business included abbotts established pharmaceutical products segment abbott retained branded generics pharmaceuticals business emerging markets date closing 110 million mylan nv shares abbott received valued 577 billion abbott recorded aftertax gain sale business approximately 16 billion shareholder agreement mylan nv includes voting restrictions prevent abbott exercising significant influence operating financial policies mylan nv close transaction abbott mylan entered transition services agreement pursuant abbott mylan providing various back office support services interim transitional basis transition services may provided 2 years charges abbott transition services agreement recorded reduction costs provide respective service applicable expense category consolidated statement earnings transition support constitute significant continuing involvement mylans operations abbott also entered manufacturing supply agreements mylan related certain products supply term ranging 3 10 years requiring 2 year notice prior termination cash flows associated abbott laboratories subsidiaries notes consolidated financial statements continued note 3 discontinued operations continued transition services manufacturing supply agreements expected significant therefore cash flows direct cash flows disposed component accounting standards codification 205 april 2015 abbott sold 4025 million 110 million ordinary shares mylan nv received sale developed markets branded generics pharmaceuticals business mylan abbott recorded pretax gain 207 million 229 billion net proceeds sale shares gain recognized income expense line consolidated statement earnings result sale abbotts ownership interest mylan nv decreased approximately 14 february 10 2015 abbott completed sale animal health business zoetis inc abbott received cash proceeds 230 million reported tax gain sale approximately 130 million result disposition businesses current prior years operating results businesses date sale reported part discontinued operations earnings discontinued operations net taxes line consolidated statement earnings discontinued operations include allocation interest expense assuming uniform ratio consolidated debt equity abbotts historical operations operating results abbotts developed markets branded generics pharmaceuticals animal health businesses well income tax benefit related businesses transferred abbvie reported discontinued operations follows net earnings discontinued operations include income tax benefits 52 million 2015 58 million 2014 108 million 2013 2015 includes 48 million tax benefits related resolution various tax positions related prior years 2014 2013 include 166 million 193 million respectively tax benefits result resolution various tax positions related abbvies operations years prior separation abbott laboratories subsidiaries notes consolidated financial statements continued note 3 discontinued operations continued sale developed markets branded generics pharmaceuticals animal health business 2015 resulted recognition pretax gain 2840 billion tax expense 1088 billion tax gain 1752 billion tax provision includes 667 million tax expense certain current year funds earned outside us related developed markets branded generics pharmaceuticals businesses designated permanently reinvested overseas assets operations held disposition liabilities assumed disposition related businesses noted well abbvie assets liabilities discussed note 2 classified held disposition consolidated balance sheet december 31 2014 held disposition balances december 31 2015 relate abbvie assets liabilities prior period balance sheets adjusted business designated held sale cash flows associated developed markets branded generics pharmaceuticals animal health businesses date disposition included abbotts consolidated statement cash flows following summary assets liabilities held disposition note 4 supplemental financial information income expense net 2015 primarily relates 207 million gain sale portion abbotts position mylan nv stock 79 million income resulting decrease fair value contingent consideration related business acquisition abbott sold 4025 million 110 million ordinary shares mylan nv received sale developed markets branded generics pharmaceuticals business mylan abbott received 229 billion net proceeds sale shares result sale abbotts ownership interest mylan nv decreased approximately 22 approximately 14 income expense net 2014 primarily relates impairment charges related nonpublically traded equity securities partially offset gains sales equity securities loss extinguishment debt 18 million 2014 relates early redemption approximately 500 million longterm notes abbott laboratories subsidiaries notes consolidated financial statements continued note 4 supplemental financial information continued detail various balance sheet components follows longterm investments equity securities december 31 2015 include 697 million ordinary shares mylan nv market value 3771 billion aaccrued wholesaler chargeback rebates 170 million 158 million december 31 2015 2014 respectively netted trade receivables abbotts customers invoiced higher catalog price remit abbott contract price products b2015 2014 include approximately 600 million net unrecognized tax benefits well approximately 148 million 220 million respectively acquisition consideration payable since january 2010 venezuela designated highly inflationary economy us gaap 2014 2015 government venezuela operated multiple mechanisms exchange bolivars us dollars mechanisms included cencoex sicad simadi rates stood 63 135 approximately 200 respectively december 31 2015 abbott continued use cencoex rate 63 venezuelan bolivars us dollar report results financial position cash flows related operations venezuela since abbott continued qualify exchange rate pay import various products venezuela abbott laboratories subsidiaries notes consolidated financial statements continued note 4 supplemental financial information continued revenue operations venezuela represented approximately 2 abbotts total net sales pretax income totaled approximately 200 million 2015 175 million 2014 abbotts sales venezuela primarily relate nutritional established pharmaceuticals segments abbott net monetary assets subject revaluation venezuela approximately 440 million december 31 2015 assets comprised primarily cash february 17 2016 venezuelan government announced threetier exchange rate system reduced two rates official rate food medicine imports adjusted 63 10 bolivars per us dollar result new 10 bolivars per us dollar exchange rate abbotts net monetary assets venezuela subject revaluation quarter ending march 31 2016 result recognition foreign currency exchange loss period based abbotts net monetary assets subject revaluation december 31 2015 remeasuring assets rate 10 bolivars per us dollar would result foreign currency loss approximately 165 million abbott cannot certain venezuelan government make revisions official exchange rate future could result additional foreign currency losses note 5 accumulated comprehensive income components changes accumulated comprehensive income continuing operations net income taxes follows millions areclassified amounts foreign currency translation recorded consolidated statement earnings net foreign exchange loss gain gains losses marketable equity securities recorded income expense gainslosses related cash flow hedges recorded cost product sold net actuarial losses prior service cost included component net periodic benefit plan cost see note 13 additional information abbott laboratories subsidiaries notes consolidated financial statements continued note 6 business acquisitions august 2015 abbott completed acquisition equity tendyne holdings inc tendyne abbott already approximately 225 million cash plus additional payments 150 million made upon completion certain regulatory milestones acquisition tendyne focused developing minimally invasive mitral valve replacement therapies allows abbott broaden foundation treatment mitral valve disease preliminary allocation fair value acquisition resulted nondeductible acquired inprocess research development approximately 220 million accounted indefinitelived intangible asset regulatory approval discontinuation nondeductible goodwill approximately 142 million assets approximately 13 million net deferred tax liabilities approximately 80 million contingent consideration approximately 70 million preliminary allocations fair value acquisition finalized valuation completed september 2014 abbott completed acquisition controlling interest cfr pharmaceuticals sa cfr approximately 29 billion cash 28 billion net cfr cash hand closing including assumption approximately 570 million debt total cost acquisition 34 billion acquisition cfr doubles abbotts branded generics pharmaceutical presence latin america expands presence emerging markets cfrs financial results included abbotts financial statements beginning september 26 2014 date abbott acquired control business abbott currently owns 999 outstanding ordinary shares cfr fair value noncontrolling interest acquisition date approximately 3 million acquisition funded cash equivalents shortterm investments final allocation fair value acquisition shown table acquired intangible assets consist primarily product rights currently marketed products amortized 12 16 years weighted average 15 years goodwill primarily attributable intangible assets qualify separate recognition goodwill identifiable established pharmaceutical products segment acquired tangible assets consist primarily cash equivalents approximately 94 million trade accounts receivable approximately 180 million inventory approximately 169 million current assets approximately 51 million property equipment approximately 210 million longterm assets approximately 145 million assumed liabilities consist borrowings approximately 570 million trade accounts payable current liabilities approximately 240 million noncurrent liabilities approximately 14 million net sales cfr pharmaceuticals totaled approximately 750 million 2015 december 2014 abbott acquired control veropharm leading russian pharmaceutical company approximately 315 million excluding assumed debt plus subsequent 5 million payment related working capital adjustment acquisition abbott establishes manufacturing footprint russia obtains portfolio medicines well aligned abbotts current pharmaceutical therapeutic areas focus abbott acquired control veropharm purchase abbott laboratories subsidiaries notes consolidated financial statements continued note 6 business acquisitions continued limited liability company garden hills holding company owns approximately 98 percent veropharm including assumption approximately 90 million debt noncontrolling interest fair value 5 million total value acquired business approximately 415 million final allocation fair value acquisition resulted definitelived nondeductible intangible assets approximately 100 million nondeductible goodwill approximately 140 million net deferred tax liabilities approximately 25 million nondeductible goodwill identifiable established pharmaceutical products segment additionally abbott acquired property plant equipment approximately 150 million accounts receivable approximately 45 million inventory approximately 25 million net liabilities approximately 20 million acquired intangible assets consist developed technology amortized 16 years 2015 abbott acquired remaining shares veropharm increasing ownership 100 percent december 2014 abbott completed acquisition topera inc approximately 250 million cash plus additional payments 300 million made upon completion certain regulatory sales milestones acquisition topera provides abbott foundational entry electrophysiology market final allocation fair value acquisition resulted nondeductible acquired inprocess research development approximately 60 million accounted indefinitelived intangible asset regulatory approval discontinuation nondeductible definitelived intangible assets approximately 215 million nondeductible goodwill approximately 145 million net deferred tax liabilities approximately 80 million contingent consideration approximately 90 million fair value contingent consideration determined based independent appraisal acquired intangible assets consist developed technology trademarks amortized 17 years august 2013 abbott acquired 100 percent idev technologies net debt 310 million cash acquisition idev technologies expands abbotts endovascular portfolio final allocation fair value acquisition resulted nondeductible acquired inprocess research development approximately 170 million accounted indefinitelived intangible asset regulatory approval discontinuation nondeductible definitelived intangible assets approximately 66 million nondeductible goodwill approximately 112 million net deferred tax liabilities 47 million acquired intangible assets consist developed technology amortized 11 years august 2013 abbott acquired 100 percent optimedica 260 million cash plus additional payments 150 million made upon completion certain development regulatory sales milestones acquisition optimedica provides abbott immediate entry point laser assisted cataract surgery market final allocation fair value acquisition resulted nondeductible definitelived intangible assets approximately 160 million nondeductible acquired inprocess research development approximately 60 million accounted indefinitelived intangible asset regulatory approval discontinuation nondeductible goodwill approximately 130 million net deferred tax liabilities 49 million contingent consideration approximately 70 million fair value contingent consideration determined based independent appraisal acquired intangible assets consist primarily developed technology amortized 18 years aggregate year acquisitions taken place beginning comparable prior annual reporting period consolidated net sales earnings would significantly different reported amounts abbott laboratories subsidiaries notes consolidated financial statements continued note 7 goodwill intangible assets total amount goodwill reported 9638 billion december 31 2015 10067 billion december 31 2014 excluded goodwill classified held disposition foreign currency translation decreased goodwill 2015 2014 454 million 566 million respectively 2015 abbott recorded goodwill approximately 142 million related tendyne acquisition purchase price allocation adjustments associated recent acquisitions decreased goodwill approximately 117 million amount goodwill related reportable segments december 31 2015 29 billion established pharmaceutical products segment 286 million nutritional products segment 450 million diagnostic products segment 29 billion vascular products segment 2015 reduction goodwill relating impairments 2014 abbott recorded goodwill approximately 18 billion related acquisitions cfr pharmaceuticals veropharm topera purchase price allocation adjustments associated recent acquisitions decreased goodwill approximately 30 million approximately 950 million goodwill moved noncurrent assets held disposition due planned disposition developed markets branded generics pharmaceuticals business gross amount amortizable intangible assets primarily product rights technology 108 billion 110 billion december 31 2015 2014 respectively accumulated amortization 57 billion 49 billion december 31 2015 2014 respectively december 31 2014 amounts exclude intangibles classified held disposition indefinitelived intangible assets relate inprocess research development acquired business combination approximately 419 million 134 million december 31 2015 2014 respectively foreign currency translation decreased intangible assets net amortization 2015 2014 251 million 396 million respectively 2015 acquisition tendyne increased intangible assets approximately 220 million 2014 acquisition cfr pharmaceuticals increased intangible assets approximately 18 billion approximately 804 million net intangible assets related developed markets branded generics pharmaceuticals businesses reclassified noncurrent assets held disposition due planned disposition business estimated annual amortization expense intangible assets recorded december 31 2015 approximately 580 million 2016 560 million 2017 520 million 2018 490 million 2019 480 million 2020 amortizable intangible assets amortized 2 20 years average 13 years note 8 restructuring plans 2015 2014 abbott management approved plans streamline operations order reduce costs improve efficiencies various abbott businesses including nutritional established pharmaceuticals vascular businesses abbott recorded employee related severance charges approximately 95 million 2015 164 million 2014 approximately 18 million 2015 20 million 2014 recorded cost products sold approximately 34 million 2015 53 million 2014 recorded research development approximately 43 million 2015 91 million 2014 recorded selling general administrative expense additional charges abbott laboratories subsidiaries notes consolidated financial statements continued note 8 restructuring plans continued approximately 45 million 2015 39 million 2014 recorded primarily accelerated depreciation following summarizes activity restructurings 2013 2015 abbott management approved various plans reduce costs improve efficiencies across various functional areas 2013 abbott management also approved plans streamline certain manufacturing operations order reduce costs improve efficiencies abbotts established pharmaceuticals business 2012 abbott management approved plans streamline various commercial operations order reduce costs improve efficiencies abbotts core diagnostics established pharmaceuticals nutritionals businesses abbott recorded employee related severance charges approximately 66 million 2015 125 million 2014 78 million 2013 approximately 9 million 2015 7 million 2014 14 million 2013 recorded cost products sold approximately 2 million 2015 6 million 2014 recorded research development approximately 55 million 2015 112 million 2014 32 million 2013 recorded selling general administrative expense remaining charge 32 million 2013 related abbotts developed market established pharmaceutical business recognized results discontinued operations additional charges approximately 4 million 2013 also recorded primarily accelerated depreciation following summarizes activity related restructurings 2013 prior years abbott management approved plans streamline global manufacturing operations reduce overall costs improve efficiencies worldwide pharmaceutical vascular core diagnostics businesses well selected domestic international commercial research development operations abbott recorded charges employee severance well impairment manufacturing facilities assets 2013 abbott recorded employee severance charges approximately 11 million classified cost products sold additional 41 million abbott laboratories subsidiaries notes consolidated financial statements continued note 8 restructuring plans continued recorded 2013 relating restructurings primarily accelerated depreciation following summarizes activity related restructurings note 9 incentive stock program 2009 incentive stock program authorizes granting nonqualified stock options restricted stock awards restricted stock units performance awards foreign benefits sharebased awards stock options restricted stock awards units comprise majority benefits granted currently outstanding program prior program 2015 abbott granted 5577553 stock options 662553 restricted stock awards 5940778 restricted stock units program purchase price shares option must least equal fair market value common stock date grant maximum term option 10 years options generally vest equally three years restricted stock awards generally vest 3 5 years restricted stock awards vest 5 years onethird award vests one year upon abbott reaching minimum return equity target restricted stock units vest three years upon vesting recipient receives one share abbott stock vested restricted stock unit aggregate fair market value restricted stock awards units recognized expense requisite service period may shorter vesting period employee retirement eligible restricted stock awards settlement vested restricted stock units issued treasury shares abbott generally issues new shares exercises stock options policy abbott purchase shares relating sharebased programs connection separation abbvie january 1 2013 abbott modified outstanding equity awards granted incentive stock programs employees awards generally modified immediately following separation awardees held number awards abbott stock equal number awards abbvie stock exercise price outstanding abbott options adjusted exercise price abbvie options granted modification established intention generally preserving value awards immediately prior separation modification result additional compensation expense abbott laboratories subsidiaries notes consolidated financial statements continued note 9 incentive stock program continued december 31 2015 approximately 87 million shares reserved future grants number restricted stock awards units outstanding weightedaverage grantdate fair value december 31 2015 december 31 2014 11855327 4254 12671328 3548 respectively number restricted stock awards units weightedaverage grantdate fair value granted vested lapsed 2015 6603331 4694 6693743 3372 725589 4077 respectively fair market value restricted stock awards units vested 2015 2014 2013 312 million 281 million 274 million respectively aggregate intrinsic value options outstanding exercisable december 31 2015 475 million 447 million respectively total intrinsic value options exercised 2015 2014 2013 167 million 152 million 120 million respectively total unrecognized compensation cost related sharebased compensation plans december 31 2015 amounted approximately 169 million expected recognized next three years total noncash stock compensation expense charged income continuing operations 2015 2014 2013 sharebased plans totaled approximately 291 million 239 million 254 million respectively tax benefit recognized approximately 98 million 79 million 82 million respectively stock compensation cost capitalized part inventory significant fair value option granted 2015 2014 2013 667 639 577 respectively fair value option grant estimated using blackscholes optionpricing model following assumptions riskfree interest rate based rates available time grant zerocoupon us government issues remaining term equal options expected life average life option based historical projected exercise lapsing data expected volatility based implied volatilities traded options abbotts stock historical volatility abbotts stock expected life option dividend yield based options exercise price annual dividend rate time grant abbott laboratories subsidiaries notes consolidated financial statements continued note 10 debt lines credit following summary longterm debt december 31 millions 2015 2014 balances also include debt issuance costs accordance asu 201503 adopted 2015 prior adoption asu 201503 debt issuance costs classified balance sheet assets within deferred income taxes assets march 2015 abbott issued 25 billion longterm debt consisting 750 million 200 senior notes due march 15 2020 750 million 255 senior notes due march 15 2022 10 billion 295 senior notes due march 15 2025 proceeds debt used pay shortterm borrowings abbott also entered interest rate swap contracts totaling 25 billion contracts effect changing abbotts obligation fixed interest rate variable interest rate obligation 2014 abbott extinguished approximately 500 million longterm debt assumed part cfr pharmaceuticals acquisition incurred cost 183 million extinguish debt principal payments required longterm debt outstanding december 31 2015 3 million 2016 2 million 2017 1 million 2018 09 billion 2019 13 billion 2020 35 billion 2021 thereafter december 31 2015 abbotts longterm debt rating standard poors corporation a2 moodys investors service result pending acquisition alere abbotts credit ratings review anticipated ratings adjusted reflect increased borrowings incurred finance acquisition abbott readily available financial resources including unused lines credit 50 billion expire 2019 support commercial paper borrowing arrangements abbotts weightedaverage interest rate shortterm borrowings 02 december 31 2015 2014 2013 note 11 financial instruments derivatives fair value measures certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts notional amounts abbott laboratories subsidiaries notes consolidated financial statements continued note 11 financial instruments derivatives fair value measures continued totaling 24 billion december 31 2015 15 billion december 31 2014 designated cash flow hedges variability cash flows due changes foreign exchange rates recorded fair value accumulated gains losses december 31 2015 included cost products sold time products sold generally next twelve eighteen months amount hedge ineffectiveness significant 2015 2014 2013 abbott enters foreign currency forward exchange contracts manage currency exposures foreign currency denominated thirdparty trade payables receivables intercompany loans trade accounts payable receivable payable denominated currency functional currency entity intercompany loans contracts require abbott sell buy foreign currencies primarily european currencies japanese yen exchange primarily us dollars european currencies intercompany trade payables receivables currency exposures primarily us dollar european currencies japanese yen december 31 2015 2014 2013 abbott held 140 billion 141 billion 138 billion respectively foreign currency forward exchange contracts abbott designated foreign denominated shortterm debt hedge net investment foreign subsidiary approximately 439 million 445 million 505 million december 31 2015 2014 2013 respectively accordingly changes fair value debt due changes exchange rates recorded accumulated comprehensive income loss net tax abbott party interest rate hedge contracts totaling 40 billion december 31 2015 15 billion december 31 2014 december 31 2013 manage exposure changes fair value fixedrate debt contracts designated fair value hedges variability fair value fixedrate debt due changes longterm benchmark interest rates effect hedge change fixedrate interest obligation variable rate portion debt abbott records contracts fair value adjusts carrying amount fixedrate debt offsetting amount hedge ineffectiveness recorded income 2015 2014 2013 hedges gross unrealized holding gains losses availableforsale equity securities totaled 171 million 3 million 22 million december 31 2015 2014 2013 respectively abbott laboratories subsidiaries notes consolidated financial statements continued note 11 financial instruments derivatives fair value measures continued following table summarizes amounts location certain derivative financial instruments december 31 following table summarizes activity foreign currency forward exchange contracts designated cash flow hedges debt designated hedge net investment foreign subsidiary certain derivative financial instruments well amounts location income expense gain loss reclassified income amount hedge ineffectiveness significant 2015 2014 2013 hedges interest rate swaps designated fair value hedges variability fair value fixedrate debt due changes longterm benchmark interest rates hedged debt marked market offsetting effect marking interest rate swaps market carrying values fair values certain financial instruments december 31 shown table carrying values financial instruments approximate estimated fair values abbott laboratories subsidiaries notes consolidated financial statements continued note 11 financial instruments derivatives fair value measures continued counterparties financial instruments consist select major international financial institutions abbott expect losses nonperformance counterparties following table summarizes bases used measure certain assets liabilities fair value recurring basis balance sheet abbott laboratories subsidiaries notes consolidated financial statements continued note 11 financial instruments derivatives fair value measures continued equity securities principally comprised mylan nv ordinary shares fair value mylan nv equity securities determined based value publiclytraded ordinary shares fair value foreign currency forward exchange contracts determined using market approach utilizes values comparable derivative instruments fair value debt determined based face value debt adjusted fair value interest rate swaps based discounted cash flow analysis using significant observable inputs fair value contingent consideration determined based independent appraisals adjusted time value money changes fair value primarily resulting changes regulatory timelines contingent consideration results three acquisitions maximum amount estimated due 450 million dependent upon attaining certain sales thresholds based occurrence certain events regulatory approvals note 12 litigation environmental matters abbott identified potentially responsible party investigation cleanup costs number locations united states puerto rico federal state remediation laws investigating potential contamination number companyowned locations abbott recorded estimated cleanup cost site management believes abbott probable loss exposure individual site cleanup exposure expected exceed 4 million aggregate cleanup exposure expected exceed 10 million abbott involved various claims legal proceedings abbott estimates range possible loss legal proceedings environmental exposures approximately 35 million 50 million recorded accrual balance december 31 2015 proceedings exposures approximately 45 million accrual represents managements best estimate probable loss defined fasb asc 450 contingencies within next year legal proceedings may occur may result change estimated loss accrued abbott feasible predict outcome proceedings exposures certainty management believes ultimate disposition material adverse effect abbotts financial position cash flows results operations abbott laboratories subsidiaries notes consolidated financial statements continued note 13 postemployment benefits retirement plans consist defined benefit defined contribution medical dental plans information abbotts major defined benefit plans postemployment medical dental benefit plans follows projected benefit obligations nonus defined benefit plans 21 billion 25 billion december 31 2015 2014 respectively accumulated benefit obligations defined benefit plans 69 billion 73 billion december 31 2015 2014 respectively abbott laboratories subsidiaries notes consolidated financial statements continued note 13 postemployment benefits continued plans accumulated benefit obligations exceeded plan assets december 31 2015 2014 aggregate accumulated benefit obligations projected benefit obligations aggregate plan assets follows components net periodic benefit cost follows comprehensive income loss respective year includes amortization actuarial losses prior service costs credits noted previous table comprehensive income loss respective year also includes net actuarial gains prior service credits 37 million defined benefit plans 116 million medical dental plans 2015 net actuarial losses prior service credits 16 billion defined benefit plans 57 million medical dental plans 2014 net actuarial gains prior service credits 995 million defined benefit plans 201 million medical dental plans 2013 pretax amount actuarial losses prior service cost credits included accumulated comprehensive income loss december 31 2015 expected recognized net periodic benefit cost 2016 131 million nil expense respectively defined benefit pension plans 22 million expense 45 million income respectively medical dental plans weighted average assumptions used determine benefit obligations defined benefit plans medical dental plans follows abbott laboratories subsidiaries notes consolidated financial statements continued note 13 postemployment benefits continued weighted average assumptions used determine net cost defined benefit plans medical dental plans follows assumed health care cost trend rates medical dental plans december 31 follows discount rates used measure liabilities determined based highquality fixed income securities match duration expected retiree benefits health care cost trend rates represent abbotts expected annual rates change cost health care benefits forward projections health care costs measurement date onepercentage point increasedecrease assumed health care cost trend rate would increasedecrease accumulated postemployment benefit obligations december 31 2015 176 million 144 million total service interest cost components net postemployment health care cost year ended approximately 16 million12 million abbott laboratories subsidiaries notes consolidated financial statements continued note 13 postemployment benefits continued following table summarizes basis used measure defined benefit medical dental plan assets fair value aa mix index funds track sp 500 35 percent 2015 50 percent 2014 separate actively managed equity accounts benchmarked russell 1000 65 percent 2015 50 percent 2014 ba mix index funds 80 percent 2015 70 percent 2014 separate actively managed equity accounts 20 percent 2015 30 percent 2014 track benchmarked sp 400 midcap index abbott laboratories subsidiaries notes consolidated financial statements continued note 13 postemployment benefits continued ca mix index funds 30 percent 2015 20 percent 2014 separate actively managed pooled investment funds 70 percent 2015 80 percent 2014 track benchmarked msci eafe msci emerging market indices da mix index funds track barclays us govt aggregate 70 percent 2015 65 percent 2014 separate actively managed accounts 30 percent 2015 35 percent 2014 benchmarked barclays us long govtcorp index barclays global aggregate ea mix index funds track barclays us govt aggregate 10 percent 2015 15 percent 2014 separate actively managed accounts 90 percent 2015 85 percent 2014 benchmarked barclays us long govtcorp index barclays global aggregate fprimarily united kingdom japan netherlands irish governmentissued bonds gprimarily mortgage backed securities 40 percent 2015 2014 actively managed diversified fixed income vehicle benchmarked onemonth libor euribor 60 percent 2015 2014 hprimarily funds invested managers global mandate flexibility allocate capital broadly across wide range asset classes strategies including limited equities fixed income commodities interest rate futures currencies securities outperform agreed upon benchmark specific return volatility targets iprimarily investments liquid commodity future contracts private energy funds jprimarily cash equivalents 50 percent 2015 75 percent 2014 investment private equity funds 50 percent 2015 25 percent 2014 equities valued using quoted prices valued published market prices equities common collective trust registered investment company valued using significant observable inputs valued net asset value nav provided fund administrator nav based value underlying assets owned fund minus liabilities fixed income securities valued using significant observable inputs valued prices obtained independent financial service industryrecognized vendors absolute return funds commodities valued nav provided fund administrator private energy private equity funds valued nav provided partnership onequarter lag adjusted known cash flows significant events reporting date abbott laboratories subsidiaries notes consolidated financial statements continued note 13 postemployment benefits continued following table summarizes change value assets measured using significant unobservable inputs investment mix equity securities fixed income asset allocation strategies based upon achieving desired return well balancing higher return volatile equity securities lower return less volatile fixed income securities investment allocations made across range markets industry sectors capitalization sizes case fixed income securities maturities credit quality plans directly hold securities abbott known significant concentrations risk plans assets abbotts medical dental plans assets invested similar mix pension plan assets actual asset allocation percentages year end consistent companys targeted asset allocation percentages plans expected return assets shown based managements expectations longterm average rates return achieved underlying investment portfolios establishing assumption management considers historical expected returns asset classes plans invested well current economic capital market conditions abbott funds domestic pension plans according irs funding limitations international pension plans funded according similar regulations abbott funded 579 million 2015 393 million 2014 defined pension plans abbott expects contribute approximately 576 million pension plans 2016 approximately 470 million relates main domestic pension plan total benefit payments expected paid participants includes payments funded company assets well paid plans follows abbott stock retirement plan principal defined contribution plan abbotts contributions plan 81 million 2015 85 million 2014 86 million 2013 abbott laboratories subsidiaries notes consolidated financial statements continued note 14 taxes earnings continuing operations taxes earnings continuing operations reflect annual effective rates including charges interest penalties deferred income taxes reflect tax consequences future years differences tax bases assets liabilities financial reporting amounts 2015 taxes earnings continuing operations include tax cost 71 million related disposal shares mylan nv stock 2014 taxes earnings continuing operations reflect recognition 440 million tax expense associated onetime repatriation 2014 nonus earnings partially offset favorable resolution various tax positions adjustments tax uncertainties pertaining prior years 2013 taxes earnings continuing operations reflect recognition 230 million tax benefits result favorable resolution various tax positions pertaining prior years addition result american taxpayer relief act 2012 signed law january 2013 abbott recognized tax benefit tax provision related continuing operations approximately 103 million first quarter 2013 retroactive extension research tax credit lookthrough rules section 954c6 internal revenue code beginning 2012 us income taxes provided earnings foreign subsidiaries intended remitted parent company abbott record deferred income taxes earnings reinvested indefinitely foreign subsidiaries undistributed earnings reinvested indefinitely foreign subsidiaries working capital plant equipment aggregated 224 billion december 31 2015 practicable determine amount deferred income taxes provided earnings us abbotts federal income tax returns 2011 settled except one item income tax returns years 2011 open numerous income tax jurisdictions tax returns yet settled none individually significant reserves interest penalties significant earnings continuing operations taxes related provisions taxes earnings continuing operations follows abbott laboratories subsidiaries notes consolidated financial statements continued note 14 taxes earnings continuing operations continued differences effective income tax rate us statutory tax rate follows impact foreign operations primarily derived operations puerto rico switzerland ireland singapore netherlands 2014 benefit offset tax expense accrued result abbotts onetime repatriation current year foreign earnings 2015 effective tax rate includes impact rd tax credit made permanent us protecting americans tax hikes act 2015 abbott laboratories subsidiaries notes consolidated financial statements continued note 14 taxes earnings continuing operations continued tax effect differences give rise deferred tax assets liabilities follows abbott incurred losses foreign jurisdiction realization future economic benefit remote benefit reflected deferred tax asset valuation allowances recorded deferred tax assets significant following table summarizes gross amounts unrecognized tax benefits without regard reduction tax liabilities additions deferred tax assets liabilities unrecognized tax benefits settled total amount unrecognized tax benefits recognized would impact effective tax rate approximately 14 billion abbott believes reasonably possible recorded amount gross unrecognized tax benefits may decrease within range 555 million 655 million including cash adjustments within next twelve months result concluding various domestic international tax matters abbott laboratories subsidiaries notes consolidated financial statements continued note 15 segment geographic area information abbotts principal business discovery development manufacture sale broad line health care products abbotts products generally sold directly retailers wholesalers hospitals health care facilities laboratories physicians offices government agencies throughout world february 27 2015 abbott completed sale developed markets branded generics pharmaceuticals business mylan business previously included established pharmaceutical products segment information including prior period amounts adjusted reflect classification developed markets branded generics pharmaceuticals business part discontinued operations consolidated statement earnings abbotts reportable segments follows established pharmaceutical products international sales broad line branded generic pharmaceutical products nutritional products worldwide sales broad line adult pediatric nutritional products diagnostic products worldwide sales diagnostic systems tests blood banks hospitals commercial laboratories alternatecare testing sites segment reporting purposes core laboratories diagnostics molecular diagnostics point care ibis diagnostic divisions aggregated reported diagnostic products segment vascular products worldwide sales coronary endovascular structural heart vessel closure medical device products segment reporting purposes vascular electrophysiology products divisions aggregated reported vascular products segment nonreportable segments include diabetes care medical optics segments abbotts underlying accounting records maintained legal entity basis government public reporting requirements segment disclosures performance basis consistent internal management reporting cost corporate functions cost certain employee benefits charged segments predetermined rates approximate cost remaining costs allocated segments addition intangible asset amortization allocated operating segments intangible assets goodwill included measure segments assets following segment information prepared accordance internal accounting policies abbott described presented accordance generally accepted accounting principles applied consolidated financial statements anet sales operating earnings unfavorably affected relatively stronger us dollar 2015 2014 2013 abbott laboratories subsidiaries notes consolidated financial statements continued note 15 segment geographic area information continued bother net includes charges restructuring actions cost reduction initiatives approximately 310 million 2015 435 million 2014 350 million 2013 2015 includes 207 million pretax gain sale portion mylan nv shares camounts years 2014 2013 include depreciation related discontinued operations dgoodwill intangible assets related developed markets established pharmaceuticals animal health included goodwill intangible assets line 2013 line 2014 abbott laboratories subsidiaries notes consolidated financial statements continued note 15 segment geographic area information continued esales country based country sold product longlived assets geographic basis primarily include property plant equipment excludes goodwill intangible assets deferred tax assets financial instruments previously included balances reported longterm assets prior years december 31 2015 2014 longlived assets totaled 64 billion 68 billion respectively united states assets totaled 31 billion years longlived asset balances associated countries material individual country basis either two years note 16 subsequent event january 30 2016 abbott entered definitive agreement acquire alere inc alere annual sales approximately 25 billion alere global leader point care diagnostics acquisition expected significantly advance abbotts global diagnostics presence leadership subject approval alere shareholders satisfaction customary closing conditions including applicable regulatory approvals terms agreement abbott pay 56 per common share total expected equity value 58 billion aleres net debt currently 26 billion assumed refinanced abbott february 2016 abbott obtained commitment 364day senior unsecured bridge term loan facility amount exceed 9 billion conjunction pending acquisition alere abbott plans use cash hand time acquisition anticipated longterm borrowings acquire alere bridge facility provide backup financing abbott laboratories subsidiaries notes consolidated financial statements continued note 17 quarterly results unaudited athe sum four quarters earnings per share 2015 2014 may add full year earnings per share amount due rounding andor use quartertodate weighted average shares calculate earnings per share amount respective quarter management report internal control financial reporting management abbott laboratories responsible establishing maintaining adequate internal control financial reporting abbotts internal control system designed provide reasonable assurance companys management board directors regarding preparation fair presentation published financial statements internal control systems matter well designed inherent limitations therefore even systems determined effective provide reasonable assurance respect financial statement preparation presentation abbotts management assessed effectiveness companys internal control financial reporting december 31 2015 making assessment used criteria set forth internal control integrated framework 2013 issued committee sponsoring organizations treadway commission based assessment believe december 31 2015 companys internal control financial reporting effective based criteria abbotts independent registered public accounting firm issued audit report assessment effectiveness companys internal control financial reporting report appears page 91 miles white chairman board chief executive officer brian b yoor senior vice president finance chief financial officer robert e funck vice president controller february 19 report independent registered public accounting firm board directors shareholders abbott laboratories audited accompanying consolidated balance sheets abbott laboratories subsidiaries december 31 2015 2014 related consolidated statements earnings comprehensive income shareholders investment cash flows two years period ended december 31 2015 financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects consolidated financial position abbott laboratories subsidiaries december 31 2015 2014 consolidated results operations cash flows two years period ended december 31 2015 conformity us generally accepted accounting principles discussed note 1 consolidated financial statements company changed method classifying deferred tax liabilities assets result adoption amendments fasb accounting standards codification resulting accounting standards update 201517 income taxes topic 740 effective december 31 2015 also audited accordance standards public company accounting oversight board united states abbott laboratories subsidiaries internal control financial reporting december 31 2015 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission 2013 framework report dated february 19 2016 expressed unqualified opinion thereon ernst young llp chicago illinois february 19 2016 report independent registered public accounting firm board directors shareholders abbott laboratories audited abbott laboratories subsidiaries internal control financial reporting december 31 2015 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission 2013 framework coso criteria abbott laboratories subsidiaries management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management report internal control financial reporting responsibility express opinion companys internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion companys internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion abbott laboratories subsidiaries maintained material respects effective internal control financial reporting december 31 2015 based coso criteria also audited accordance standards public company accounting oversight board united states consolidated balance sheets abbott laboratories subsidiaries december 31 2015 2014 related consolidated statements earnings comprehensive income shareholders investment cash flows two years period ended december 31 2015 abbott laboratories subsidiaries report dated february 19 2016 expressed unqualified opinion thereon ernst young llp chicago illinois february 19 2016 report independent registered public accounting firm board directors shareholders abbott laboratories audited accompanying consolidated statements earnings comprehensive income shareholders investment cash flows abbott laboratories subsidiaries company year ended december 31 2013 financial statements responsibility companys management responsibility express opinion financial statements based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects results operations cash flows company year ended december 31 2013 conformity accounting principles generally accepted united states america discussed note 3 consolidated financial statements accompanying 2013 financial statements retrospectively adjusted reflect developed markets branded generics pharmaceuticals animal health businesses discontinued operations addition discussed note 2 consolidated financial statements january 1 2013 company distributed outstanding shares abbvie inc encompasses companys researchbased pharmaceuticals business companys shareholders deloitte touche llp chicago illinois february 21 2014 february 27 2015 note 3 item 9 item 8 financial statements supplementary data page consolidated statement earnings consolidated statement comprehensive income consolidated statement cash flows consolidated balance sheet consolidated statement shareholders investment notes consolidated financial statements management report internal control financial reporting reports independent registered public accounting firm abbott laboratories subsidiaries consolidated statement earnings dollars shares thousands except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement comprehensive income dollars thousands accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement cash flows dollars thousands accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated balance sheet dollars thousands abbott laboratories subsidiaries consolidated balance sheet dollars thousands accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement shareholders investment dollars thousands except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries notes consolidated financial statements note 1 summary significant accounting policies nature business abbotts principal business discovery development manufacture sale broad line health care products concentration risk guarantees due nature operations abbott subject significant concentration risks relating customers products geographic locations except three us wholesalers accounted 22 percent trade receivables december 31 2011 23 percent trade receivables december 31 2010 2009 addition governmental accounts greece portugal italy spain accounted 23 percent 21 percent 24 percent total net trade receivables december 31 2011 2010 2009 respectively product warranties significant abbott material exposures offbalance sheet arrangements special purpose entities activities include nonexchangetraded contracts accounted fair value abbott periodically entered agreements ordinary course business assignment product rights companies resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote abbott periodically acquires business product rights abbott agrees pay contingent consideration based attaining certain thresholds based occurrence certain events basis consolidation change accounting principle prior january 1 2011 accounts foreign subsidiaries consolidated based fiscal year ended november 30 due time needed consolidate subsidiaries effective january 1 2011 one month lag consolidation accounts foreign subsidiaries eliminated yearend foreign subsidiaries changed december 31 abbott believes change accounting principle related elimination one month reporting lag preferable result contemporaneous reporting results foreign subsidiaries accordance applicable accounting literature change subsidiaries yearend treated change accounting principle requires retrospective application cumulative effect change increase retained earnings 289 million january 1 2009 corresponding decrease longterm liabilities impact change material results operations previously reported annual interim periods january 1 2009 thus results revised charge 137 million recorded income expense net 2011 recognize cumulative immaterial impacts 2009 2010 financial statements revised net sales operating earnings net earnings 2009 would increased 211 million 36 million 38 million respectively net sales operating earnings net earnings 2010 would decreased 21 million 195 million 175 million respectively balance sheets december 31 2010 2009 appropriately revised include longterm deferred tax liabilities 11 billion 165 million respectively within postemployment obligations longterm liabilities amounts previously netted within deferred income taxes assets 2011 abbott changed presentation comprehensive income include consolidated statement comprehensive income accordance fasb asc 220 comprehensive income use estimates financial statements prepared accordance generally accepted accounting principles united states necessarily include amounts based estimates abbott laboratories subsidiaries notes consolidated financial statements continued note 1 summary significant accounting policies continued assumptions management actual results could differ amounts significant estimates include amounts sales rebates income taxes pension postemployment benefits valuation intangible assets litigation derivative financial instruments inventory accounts receivable exposures revenue recognition revenue product sales recognized upon passage title risk loss customers provisions discounts rebates sales incentives customers returns adjustments provided period related sales recorded sales incentives customers material historical data readily available reliable used estimating amount reduction gross sales revenue launch new product improved version existing product shipments excess customers normal requirements recorded conditions noted met situations management records returns reserve revenue necessary certain abbotts businesses primarily within diagnostics medical optics abbott participates selling arrangements include multiple deliverables eg instruments reagents procedures service agreements arrangements abbott recognizes revenue upon delivery product performance service allocates revenue based relative selling price deliverable based primarily vendor specific objective evidence sales product rights marketable products recorded revenue upon disposition rights revenue license product rights performance research selling activities recorded periods earned income taxes deferred income taxes provided tax effect differences tax bases assets liabilities reported amounts financial statements enacted statutory rate effect taxes paid us income taxes provided earnings foreign subsidiaries intended remitted parent company deferred income taxes provided undistributed earnings reinvested indefinitely foreign subsidiaries working capital plant equipment interest penalties income tax obligations included taxes income earnings per share unvested restricted stock units awards contain nonforfeitable rights dividends treated participating securities included computation earnings per share twoclass method twoclass method net earnings allocated common shares participating securities net earnings allocated common shares 2011 2010 2009 4714 billion 4613 billion 5733 billion respectively pension postemployment benefits abbott accrues actuarially determined cost pension postemployment benefits service attribution periods employees abbott must develop longterm assumptions significant health care cost trend rates discount rates expected return plan assets differences expected longterm return plan assets actual return amortized fiveyear period actuarial losses gains amortized remaining service attribution periods employees corridor method fair value measurements assets liabilities measured using quoted prices active markets total fair value published market price per unit multiplied number units held without consideration transaction costs assets liabilities measured using significant observable inputs valued reference similar assets liabilities adjusted contract restrictions terms specific asset liability items significant portion fair value derived reference quoted prices similar assets liabilities active markets abbott laboratories subsidiaries notes consolidated financial statements continued note 1 summary significant accounting policies continued remaining assets liabilities fair value derived using fair value model discounted cash flow model blackscholes model purchased intangible assets recorded fair value fair value significant purchased intangible assets based independent appraisals abbott uses discounted cash flow model value intangible assets discounted cash flow model requires assumptions timing amount future net cash flows risk cost capital terminal values market participants intangible assets goodwill indefinitelived intangible assets reviewed impairment least quarterly annual basis respectively sharebased compensation value stock options restricted stock awards units amortized service period could shorter vesting period employee retirement eligible charge compensation expense litigation abbott accounts litigation losses accordance fasb asc 450 contingencies asc 450 loss contingency provisions recorded probable losses managements best estimate loss best estimate cannot made minimum loss contingency amount recorded legal fees recorded incurred cash equivalents investments cash equivalents consist time deposits certificates deposit original maturities three months less investments marketable equity securities certain investments debt securities classified availableforsale recorded fair value unrealized holding gains losses net tax included accumulated comprehensive income loss investments equity securities traded public stock exchanges recorded cost investments debt securities classified heldtomaturity management intent ability hold securities maturity reported cost net unamortized premium discount income relating securities reported interest income abbott reviews carrying value investments quarter determine whether temporary decline market value exists abbott considers factors affecting investee factors affecting industry investee operates general equity market trends abbott considers length time investments market value carrying value nearterm prospects recovery carrying value abbott determines temporary decline occurred investment written charge income expense net trade receivable valuations accounts receivable stated net realizable value allowance gross trade receivables reflects best estimate probable losses inherent receivables portfolio determined basis historical experience specific allowances known troubled accounts currently available information accounts receivable charged reasonable means collect full amount including litigation appropriate exhausted inventories stated lower cost firstin firstout basis market cost includes material conversion costs abbott laboratories subsidiaries notes consolidated financial statements continued note 1 summary significant accounting policies continued property equipment depreciation amortization provided straightline basis estimated useful lives assets following table shows estimated useful lives property equipment product liability abbott accrues product liability claims undiscounted basis probable liability incurred amount liability reasonably estimated based existing information liabilities adjusted quarterly additional information becomes available receivables insurance recoveries product liability claims recorded assets undiscounted basis probable recovery realized product liability losses selfinsured research development costs internal research development costs expensed incurred clinical trial costs incurred third parties expensed contracted work performed contingent milestone payments due third parties research development arrangements milestone payment obligations expensed milestone results achieved acquired inprocess collaborations research development iprd initial costs rights iprd projects obtained asset acquisition expensed iprd unless project alternative future use costs include initial payments incurred prior regulatory approval connection research development collaboration agreements provide rights develop manufacture market andor sell pharmaceutical products fair value iprd projects acquired business combination capitalized accounted indefinitelived intangible assets note 2 supplemental financial information judgment entered us district court eastern district texas abbott litigation new york university centocor inc required abbott secure judgment event appeal federal circuit court unsuccessful overturning district courts decision first quarter 2010 abbott deposited 187 billion escrow agent considered assets restricted february 23 2011 federal circuit reversed district courts final judgment found centocors patent invalid april 25 2011 centocor petitioned federal circuit abbott laboratories subsidiaries notes consolidated financial statements continued note 2 supplemental financial information continued rehear reconsider decision june 2011 federal circuit denied centocors petition restrictions funds lifted discussed note 1 income expense net 2011 includes charge 137 million recognize cumulative immaterial impacts 2009 2010 relating change year end foreign subsidiaries addition income expense net 2011 includes 56 million fair value adjustments accretion contingent consideration related acquisition solvays pharmaceutical business income expense net 2009 includes derecognition contingent liability 797 million associated conclusion tap pharmaceutical products inc joint venture contingent liability established conclusion joint venture abbott agreed remit cash takeda certain research development events achieved development assets retained takeda 2009 research development events achieved contingent liability derecognized addition income expense net 2009 includes 287 million gain settlement reached abbott medtronic inc resolving outstanding intellectual property litigation two parties income recording certain investments fair value connection business acquisitions income expense net 2011 2010 2009 also includes ongoing contractual payments takeda associated conclusion tap joint venture aaccrued wholesaler chargeback rebates 202 216 217 december 31 2011 2010 2009 respectively netted trade receivables abbotts customers invoiced higher catalog price remit abbott contract price products b2011 includes 1509 related previously disclosed government investigation 400 acquired inprocess research development 2011 2010 includes acquisition consideration payable 400 related acquisition piramal healthcare limiteds healthcare solutions business c2011 2010 includes acquisition consideration payable 770 1150 respectively related acquisition piramal healthcare limiteds healthcare solutions business abbott laboratories subsidiaries notes consolidated financial statements continued note 3 financial instruments derivatives fair value measures certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts totaling 16 billion 13 billion 20 billion december 31 2011 2010 2009 respectively designated cash flow hedges variability cash flows due changes foreign exchange rates recorded fair value accumulated gains losses december 31 2011 included cost products sold time products sold generally next twelve months amount hedge ineffectiveness significant 2011 2010 2009 abbott enters foreign currency forward exchange contracts manage currency exposures foreign currency denominated thirdparty trade payables receivables intercompany loans trade accounts payable receivable payable denominated currency functional currency entity intercompany loans contracts require abbott sell buy foreign currencies primarily european currencies japanese yen exchange primarily us dollars european currencies intercompany trade payables receivables currency exposures primarily us dollar european currencies japanese yen december 31 2011 2010 2009 abbott held 157 billion 108 billion 75 billion respectively foreign currency forward exchange contracts abbott designated foreign denominated shortterm debt hedge net investment foreign subsidiary approximately 680 million 650 million 575 million december 31 2011 2010 2009 respectively accordingly changes fair value debt due changes exchange rates recorded accumulated comprehensive income loss net tax abbott party interest rate hedge contracts totaling 68 billion 73 billion 55 billion december 31 2011 2010 2009 respectively manage exposure changes fair value fixedrate debt contracts designated fair value hedges variability fair value fixedrate debt due changes longterm benchmark interest rates effect hedge change fixedrate interest obligation variable rate portion debt abbott records contracts fair value adjusts carrying amount fixedrate debt offsetting amount hedge ineffectiveness recorded income 2011 2010 2009 hedges gross unrealized holding gains losses availableforsale equity securities totaled 64 million 2 million respectively december 31 2011 40 million 1 million respectively december 31 2010 42 million 3 million respectively december 31 2009 abbott laboratories subsidiaries notes consolidated financial statements continued note 3 financial instruments derivatives fair value measures continued following table summarizes amounts location certain derivative financial instruments december 31 following table summarizes activity foreign currency forward exchange contracts designated cash flow hedges debt designated hedge net investment foreign subsidiary amounts location income expense gain loss reclassified income certain derivative financial instruments amount hedge ineffectiveness significant 2011 2010 2009 hedges interest rate swaps designated fair value hedges variability fair value fixedrate debt due changes longterm benchmark interest rates hedged debt marked market offsetting effect marking interest rate swaps market carrying values fair values certain financial instruments december 31 shown table carrying values financial instruments approximate estimated fair abbott laboratories subsidiaries notes consolidated financial statements continued note 3 financial instruments derivatives fair value measures continued values counterparties financial instruments consist select major international financial institutions abbott expect losses nonperformance counterparties abbott laboratories subsidiaries notes consolidated financial statements continued note 3 financial instruments derivatives fair value measures continued following table summarizes bases used measure certain assets liabilities fair value recurring basis balance sheet fair value debt determined based face value debt adjusted fair value interest rate swaps based discounted cash flow analysis fair value contingent consideration determined based independent appraisal adjusted time value money exchange changes fair value abbott laboratories subsidiaries notes consolidated financial statements continued note 4 postemployment benefits retirement plans consist defined benefit defined contribution medical dental plans information abbotts major defined benefit plans postemployment medical dental benefit plans follows dollars millions projected benefit obligations nonus defined benefit plans 23 billion 30 billion 20 billion december 31 2011 2010 2009 respectively accumulated benefit obligations defined benefit plans 77 billion 75 billion 58 billion december 31 2011 2010 2009 respectively plans accumulated benefit obligations exceeded plan assets december 31 2011 2010 2009 aggregate accumulated benefit obligations 67 billion 20 billion abbott laboratories subsidiaries notes consolidated financial statements continued note 4 postemployment benefits continued 15 billion respectively projected benefit obligations 79 billion 22 billion 18 billion respectively aggregate plan assets 58 billion 11 billion 780 million respectively comprehensive income loss 2011 includes amortization actuarial losses prior service cost 163 million 4 million respectively net actuarial losses 11 billion defined benefit plans amortization actuarial losses prior service credits 38 million 42 million respectively net actuarial gains 66 million medical dental plans comprehensive income loss 2010 includes amortization actuarial losses prior service cost 136 million 4 million respectively net actuarial losses 305 million defined benefit plans amortization actuarial losses prior service credits 38 million 22 million respectively net actuarial gains 177 million medical dental plans comprehensive income loss 2009 includes amortization actuarial losses prior service cost 52 million 4 million respectively net actuarial losses 197 million defined benefit plans amortization actuarial losses prior service credits 30 million 22 million respectively net actuarial losses 128 million medical dental plans pretax amount actuarial losses prior service cost credits included accumulated comprehensive income loss december 31 2011 expected recognized net periodic benefit cost 2012 253 million 4 million respectively defined benefit pension plans 35 million 42 million respectively medical dental plans weighted average assumptions used determine benefit obligations defined benefit plans medical dental plans follows abbott laboratories subsidiaries notes consolidated financial statements continued note 4 postemployment benefits continued weighted average assumptions used determine net cost defined benefit plans medical dental plans follows assumed health care cost trend rates medical dental plans december 31 follows discount rates used measure liabilities determined based highquality fixed income securities match duration expected retiree benefits health care cost trend rates represent abbotts expected annual rates change cost health care benefits forward projection health care costs measurement date onepercentage point increasedecrease assumed health care cost trend rate would increasedecrease accumulated postemployment benefit obligations december 31 2011 231 million188 million total service interest cost components net postemployment health care cost year ended approximately 25 million20 million abbott laboratories subsidiaries notes consolidated financial statements continued note 4 postemployment benefits continued following table summarizes bases used measure defined benefit plans assets fair value aa mix index funds track sp 500 45 percent 2011 2010 40 percent 2009 separate actively managed equity accounts benchmarked russell 1000 55 percent 2011 2010 60 percent 2009 abbott laboratories subsidiaries notes consolidated financial statements continued note 4 postemployment benefits continued ba mix index funds 75 percent separate actively managed equity accounts 25 percent track benchmarked sp 400 midcap index cprimarily separate actively managed pooled investment accounts benchmarked msci emerging market indices dindex funds actively managed 45 percent 2011 2010 75 percent 2009 separate actively managed accounts 55 percent 2011 2010 25 percent 2009 eindex funds actively managed 40 percent 2011 15 percent 2010 75 percent 2009 separate actively managed accounts 60 percent 2011 85 percent 2010 25 percent 2009 fprimarily united kingdom japan irish governmentissued bonds gprimarily mortgage backed securities hprimarily funds invested managers global mandate flexibility allocate capital broadly across wide range asset classes strategies including limited equities fixed income commodities interest rate futures currencies securities outperform agreed upon benchmark specific return volatility targets iprimarily investments liquid commodity future contracts jprimarily cash equivalents equities valued using quoted prices valued published market prices equities common collective trust registered investment company valued using significant observable inputs valued net asset value nav provided fund administrator nav based value underlying assets owned fund minus liabilities fixed income securities valued using significant observable inputs valued prices obtained independent financial service industryrecognized vendors absolute return funds commodities valued nav provided fund administrator following table summarizes change value assets measured using significant unobservable inputs investment mix equity securities fixed income asset allocation strategies based upon achieving desired return balancing higher return volatile equity securities lower return less volatile fixed income securities investment allocations made across range markets industry sectors capitalization sizes case fixed income securities maturities credit quality abbott laboratories subsidiaries notes consolidated financial statements continued note 4 postemployment benefits continued plans directly hold securities abbott known significant concentrations risk plans assets abbotts medical dental plans assets invested similar mix pension plan assets plans expected return assets shown based managements expectations longterm average rates return achieved underlying investment portfolios establishing assumption management considers historical expected returns asset classes plans invested well current economic capital market conditions abbott funds domestic pension plans according irs funding limitations international pension plans funded according similar regulations abbott funded 394 million 2011 525 million 2010 862 million 2009 defined pension plans abbott expects pension funding main domestic pension plan 200 million annually total benefit payments expected paid participants includes payments funded company assets well paid plans follows dollars millions abbott stock retirement plan principal defined contribution plan abbotts contributions plan 151 million 2011 147 million 2010 137 million 2009 abbott provides certain postemployment benefits primarily salary continuation plans qualifying domestic employees accrues related cost service lives employees note 5 taxes earnings taxes earnings reflect annual effective rates including charges interest penalties deferred income taxes reflect tax consequences future years differences tax bases assets liabilities financial reporting amounts us income taxes provided earnings foreign subsidiaries intended remitted parent company abbott record deferred income taxes earnings reinvested indefinitely foreign subsidiaries undistributed earnings reinvested indefinitely foreign subsidiaries working capital plant equipment aggregated 319 billion december 31 2011 practicable determine amount deferred income taxes provided earnings us abbotts federal income tax returns 2008 settled except one item income tax returns years 2008 open numerous income tax jurisdictions tax returns yet settled none individually significant reserves interest penalties significant abbott laboratories subsidiaries notes consolidated financial statements continued note 5 taxes earnings continued earnings taxes related provisions taxes earnings follows dollars millions differences effective income tax rate us statutory tax rate follows december 31 2011 2010 2009 total deferred tax assets 63 billion 61 billion 44 billion respectively total deferred tax liabilities 29 billion 30 billion 18 billion respectively abbott incurred losses foreign jurisdiction realization future economic benefit remote benefit reflected deferred tax asset valuation allowances abbott laboratories subsidiaries notes consolidated financial statements continued note 5 taxes earnings continued recorded deferred tax assets significant tax effect differences give rise deferred tax assets liabilities follows dollars millions following table summarizes gross amounts unrecognized tax benefits without regard reduction tax liabilities additions deferred tax assets liabilities unrecognized tax benefits settled dollars millions total amount unrecognized tax benefits recognized would impact effective tax rate approximately 19 billion abbott believes reasonably possible recorded amount gross unrecognized tax benefits may decrease 550 million including cash adjustments within next twelve months result concluding various domestic international tax matters note 6 segment geographic area information abbotts principal business discovery development manufacture sale broad line health care products abbotts products generally sold directly retailers wholesalers hospitals health care facilities laboratories physicians offices government agencies throughout world effective january 1 2011 abbotts segments reorganized reflect shift international branded generic pharmaceutical products newly formed division established pharmaceuticals combination domestic international proprietary pharmaceuticals businesses one global abbott laboratories subsidiaries notes consolidated financial statements continued note 6 segment geographic area information continued division segment information adjusted reflect reorganizations abbotts reportable segments follows proprietary pharmaceutical products worldwide sales broad line proprietary pharmaceutical products established pharmaceutical products international sales broad line branded generic pharmaceutical products nutritional products worldwide sales broad line adult pediatric nutritional products diagnostic products worldwide sales diagnostic systems tests blood banks hospitals commercial laboratories alternatecare testing sites segment reporting purposes core laboratories diagnostics molecular diagnostics point care ibis diagnostic divisions aggregated reported diagnostic products segment vascular products worldwide sales coronary endovascular structural heart vessel closure medical device products nonreportable segments include diabetes care medical optics segments abbotts underlying accounting records maintained legal entity basis government public reporting requirements segment disclosures performance basis consistent internal management reporting intersegment transfers inventory recorded standard cost measure segment operating earnings cost corporate functions cost certain employee benefits charged segments predetermined rates approximate cost remaining costs allocated segments acquisitions prior 2006 substantially intangible assets related amortization allocated segments addition intangible assets related amortization allocated established pharmaceutical products segment following segment information prepared accordance internal accounting policies abbott described presented accordance generally accepted accounting principles applied consolidated financial statements dollars millions anet sales operating earnings favorably affected relatively weaker us dollar 2011 2010 2009 unfavorably affected relatively stronger us dollar abbott laboratories subsidiaries notes consolidated financial statements continued note 6 segment geographic area information continued badditions longterm assets 2010 established pharmaceutical products segment include goodwill 2797 cother net 2011 includes charge 1509 related previously disclosed government investigation net 2011 2010 includes charges 402 881 respectively integration restructuring costs associated acquisitions solvay piramal 2010 189 impairment intangible asset related sibutramine net 2009 includes derecognition contingent liability 797 established connection conclusion tap joint venture 287 gain patent litigation settlement abbott laboratories subsidiaries notes consolidated financial statements continued note 6 segment geographic area information continued dsales country based country sold product note 7 litigation environmental matters abbott identified potentially responsible party investigation cleanup costs number locations united states puerto rico federal state remediation laws investigating potential contamination number companyowned locations abbott recorded estimated cleanup cost site management believes abbott probable loss exposure individual site cleanup exposure expected exceed 4 million aggregate cleanup exposure expected exceed 15 million number patent disputes third parties claim abbotts products infringe patents april 2007 new york university nyu centocor inc filed lawsuit eastern district texas asserting humira infringes patent coowned nyu centocor exclusively licensed centocor june 2009 jury found abbott willfully infringed patent awarded nyu centocor approximately 167 billion past compensatory damages december 2009 district court issued final judgment awarded plaintiffs additional 175 million prejudgment interest february 23 2011 federal circuit reversed district courts final judgment found centocors patent invalid april 25 2011 centocor petitioned federal circuit rehear reconsider decision june 2011 federal circuit denied centocors request reconsider november 2011 centocor known janssen biotech inc petitioned united states supreme court review federal circuits decision abbott confident merits case result reserves recorded case united states department justice united states attorney western district virginia investigating abbotts sales marketing activities depakote government seeking determine whether activities violated civil andor criminal laws including federal false claims act food drug cosmetic act antikickback statute connection medicare andor medicaid reimbursement third parties addition eight state attorneys general offices florida illinois north carolina ohio oregon pennsylvania south carolina texas formed committee behalf state attorneys general investigate abbotts sales marketing activities depakote determine whether activities violated various state laws abbott laboratories subsidiaries notes consolidated financial statements continued note 7 litigation environmental matters continued including state consumer fraudprotection statutes discussions resolve potential civil criminal claims arising matter advanced point abbott believes loss probable estimable therefore abbott recorded charge 15 billion 2011 discussions successfully concluded abbott expects discussions result resolution depakoterelated federal claims well similar state medicaidrelated claims state consumer fraudprotection claims however discussions ongoing concluded certainty definitive resolution within next year legal proceedings may occur may result change estimated reserves recorded abbott legal proceedings environmental exposures abbott estimates range possible loss approximately 159 billion 163 billion includes 15 billion charge discussed recorded reserve balance december 31 2011 proceedings exposures approximately 16 billion reserves represent managements best estimate probable loss defined fasb asc 450 contingencies feasible predict outcome proceedings exposures certainty management believes ultimate disposition material adverse effect abbotts financial position cash flows results operations except federal government investigation discussed third paragraph footnote resolution expected material cash flows given year 2009 abbott medtronic inc reached settlement resolving outstanding intellectual property litigation two parties terms settlement medtronic paid abbott 400 million settlement also includes mutual agreement pursue additional litigation current future vascular products subject specific conditions time limits connection settlement abbott recognized gain 287 million included income expense net remaining amounts recognized royalty income earned note 8 incentive stock program 2009 incentive stock program authorizes granting nonqualified stock options replacement stock options restricted stock awards restricted stock units performance awards foreign benefits sharebased awards stock options replacement stock options restricted stock awards units comprise majority benefits granted currently outstanding program prior program 2011 abbott granted 1757339 stock options 852819 replacement stock options 1180159 restricted stock awards 6793336 restricted stock units program purchase price shares option must least equal fair market value common stock date grant maximum term option 10 years options vest equally three years except replacement options vest six months options granted january 1 2005 included replacement feature except options outstanding replacement feature options granted december 31 2004 include replacement feature employee tenders mature shares abbott upon exercise stock option replacement stock option may granted equal amount shares tendered replacement options granted current market price term expires date underlying option grant upon change control abbott outstanding stock options become fully exercisable terms conditions restricted stock awards units deemed satisfied restricted stock awards generally vest 3 5 years restricted stock awards vest 5 years onethird award vests one year upon abbott reaching minimum return equity target restricted stock units vest three years upon vesting abbott laboratories subsidiaries notes consolidated financial statements continued note 8 incentive stock program continued recipient receives one share abbott stock vested restricted stock unit aggregate fair market value restricted stock awards units recognized expense service period restricted stock awards settlement vested restricted stock units issued treasury shares abbott generally issues new shares exercises stock options abbott policy purchasing shares relating sharebased programs december 31 2011 approximately 180 million shares reserved future grants subsequent yearend reserve reduced approximately 25 million shares stock options restricted stock awards units granted board directors number restricted stock awards units outstanding weightedaverage grantdate fair value december 31 2010 december 31 2011 12449413 5402 14698595 5029 respectively number restricted stock awards units weightedaverage grantdate fair value granted vested lapsed 2011 7973495 4685 4998410 5394 725903 5118 respectively fair market value restricted stock awards units vested 2011 2010 2009 237 million 203 million 81 million respectively aggregate intrinsic value options outstanding exercisable december 31 2011 529 million 508 million respectively total intrinsic value options exercised 2011 2010 2009 94 million 77 million 129 million respectively total unrecognized compensation cost related sharebased compensation plans december 31 2011 amounted approximately 242 million expected recognized next three years total noncash compensation expense charged income 2011 2010 2009 sharebased plans totaled approximately 383 million 385 million 365 million respectively tax benefit recognized approximately 116 million 119 million 118 million respectively compensation cost capitalized part inventory significant fair value option granted 2011 2010 2009 623 924 928 respectively fair value option grant estimated using blackscholes optionpricing model following assumptions abbott laboratories subsidiaries notes consolidated financial statements continued note 8 incentive stock program continued riskfree interest rate based rates available time grant zerocoupon us government issues remaining term equal options expected life average life option based historical projected exercise lapsing data expected volatility based implied volatilities traded options abbotts stock historical volatility abbotts stock expected life option dividend yield based options exercise price annual dividend rate time grant note 9 debt lines credit following summary longterm debt december 31 dollars millions principal payments required longterm debt outstanding december 31 2011 10 billion 2012 330 million 2013 505 million 2014 750 million 2015 20 billion 2016 78 billion thereafter december 31 2011 abbotts longterm debt rating aa standard poors corporation a1 moodys investors service abbott readily available financial resources including unused lines credit 67 billion support commercial paper borrowing arrangements 30 billion facility expires october 2012 37 billion facility expires 2013 related compensating balances subject withdrawal abbott option commitment fees material abbotts weightedaverage interest rate shortterm borrowings 04 december 31 2011 2010 02 december 31 2009 abbott laboratories subsidiaries notes consolidated financial statements continued note 10 business combinations technology acquisitions related transactions september 8 2010 abbott acquired piramal healthcare limiteds healthcare solutions business leader indian branded generics market 22 billion cash plus additional payments 400 million annually 2011 2012 2013 2014 abbott recorded 16 billion liability present value additional payments acquisition date acquisition financed cash allocation fair value acquisition resulted recording 27 billion deductible acquired intangible assets 10 billion deductible goodwill acquired intangible assets consist primarily trade names customer relationships associated rights amortized average 19 years february 2010 abbott acquired solvays pharmaceuticals business solvay pharmaceuticals approximately 61 billion cash plus additional payments eur 100 million per year certain sales milestones met 2011 2012 2013 contingent consideration approximately 290 million recorded acquisition solvay pharmaceuticals provides abbott large complementary portfolio pharmaceutical products expands abbotts presence key global emerging markets abbott acquired control business february 15 2010 financial results acquired operations included financial statements beginning date net sales acquired operations 2010 approximately 31 billion pretax loss acquired operations including acquisition integration restructuring expenses 2010 approximately 395 million acquisition funded cash shortterm investments allocation fair value acquisition shown table billions dollars acquired intangible assets consist primarily product rights currently marketed products amortized 2 14 years average 11 years acquired inprocess research development projects accounted indefinite lived intangible assets regulatory approval discontinuation net tangible assets acquired consist primarily trade accounts receivable approximately 675 million inventory approximately 390 million property equipment approximately 725 million net assumed liabilities primarily trade accounts payable accrued compensation liabilities acquisition solvay pharmaceuticals taken place january 1 2010 january 1 2009 unaudited pro forma net sales net earnings diluted earnings per share 2010 2009 would 358 billion 342 billion 46 billion 52 billion 296 336 respectively pro forma information includes adjustments amortization intangible assets fair value adjustments acquisitiondate inventory well acquisition integration restructuring expenses pro forma financial information necessarily indicative results operations would transaction effected assumed date march 2010 abbott acquired starlims technologies approximately 100 million cash net cash held starlims providing abbott leading products expertise build position laboratory informatics substantial portion fair value acquisition allocated goodwill amortizable intangible assets abbott laboratories subsidiaries notes consolidated financial statements continued note 10 business combinations technology acquisitions related transactions continued april 2010 abbott acquired outstanding shares facet biotech corporation approximately 430 million cash net cash held facet acquisition enhances abbotts early midstage pharmaceutical pipeline including biologic multiple sclerosis compounds complement abbotts oncology program substantial portion fair value acquisition allocated acquired inprocess research development accounted indefinitelived intangible asset regulatory approval discontinuation february 2009 abbott acquired outstanding shares advanced medical optics inc amo approximately 14 billion cash net cash held amo prior acquisition abbott held small investment amo abbott acquired amo take advantage increasing demand vision care technologies due population growth demographic shifts amos premier position field abbott acquired control business february 25 2009 financial results acquired operations included financial statements beginning date allocation fair value acquisition resulted nondeductible goodwill approximately 17 billion nondeductible definitelived intangible assets approximately 900 million net tangible assets approximately 400 million addition abbott assumed 15 billion debt acquired intangible assets consist established customer relationships developed technology trade names amortized 2 30 years average 15 years addition subsequent acquisition abbott repaid substantially acquired debt amo october 2009 abbott acquired 100 percent visiogen inc 400 million cash providing abbott nextgeneration accommodating intraocular lens iol technology address presbyopia cataract patients allocation fair value acquisition resulted nondeductible acquired inprocess research development approximately 200 million accounted indefinitelived intangible asset regulatory approval discontinuation nondeductible definitelived intangible assets approximately 24 million goodwill approximately 200 million october 2009 abbott acquired evalve inc 320 million cash plus additional payment 90 million made upon completion certain regulatory milestones abbott acquired evalve obtain presence growing area nonsurgical treatment structural heart disease including previous investment evalve abbott acquired 100 percent outstanding shares evalve connection acquisition carrying amount investment revalued fair value resulting recording 28 million income reported income expense net allocation fair value acquisition resulted nondeductible definitelived intangible assets approximately 140 million nondeductible acquired inprocess research development approximately 220 million accounted indefinitelived intangible asset regulatory approval discontinuation goodwill approximately 100 million deferred income taxes approximately 110 million acquired intangible assets consist developed technology amortized 11 years january 2009 abbott acquired ibis biosciences inc ibis 175 million cash expand abbotts position molecular diagnostics infectious disease including 40 million investment ibis 2008 abbott acquired 100 percent outstanding shares ibis substantial portion fair value acquisition allocated goodwill amortizable intangible assets acquired inprocess research development accounted indefinitelived intangible asset regulatory approval discontinuation investment ibis 2008 resulted charge acquired inprocess research development connection acquisition carrying amount abbott laboratories subsidiaries notes consolidated financial statements continued note 10 business combinations technology acquisitions related transactions continued investment revalued fair value resulting recording 33 million income reported income expense net except acquisition solvay pharmaceuticals acquisitions taken place january 1 previous year consolidated net sales income would significantly different reported amounts 2011 abbott entered collaboration agreement joint development commercialization secondgeneration oral antioxidant inflammation modulators resulting charge acquired inprocess research development 400 million 2010 abbott entered agreement acquire licensing rights outside us excluding certain asian markets product development treatment chronic kidney disease resulting charge acquired inprocess research development 238 million 2011 certain milestones achieved charges acquired inprocess research development 188 million recorded additional payments approximately 200 million could required achievement certain development regulatory milestones addition equity interests approximately 62 million acquired 2011 2010 2011 abbott entered agreement develop commercialize treatment rheumatoid arthritis psoriasis resulting charge acquired inprocess research development 85 million additional payments totaling 395 million could required achievement certain development regulatory commercial milestones agreement 2010 abbott also entered agreement develop commercialize product treatment endometriosis resulting charge acquired inprocess research development 75 million additional payments approximately 500 million could required achievement certain development regulatory commercial milestones agreement 2009 abbott acquired global rights novel biologic treatment chronic pain 170 million resulting charge acquired inprocess research development note 11 goodwill intangible assets abbott recorded goodwill approximately 34 billion 2010 related acquisitions solvays pharmaceuticals business piramal healthcare limiteds healthcare solutions business facet biotech starlims technologies goodwill related solvay piramal facet acquisitions allocated pharmaceutical products segments addition 2010 abbott paid 250 million boston scientific result approval market xience v drugeluting stent japan resulting increase goodwill vascular products segment abbott recorded goodwill approximately 22 billion 2009 related acquisitions advanced medical optics inc ibis biosciences inc visiogen inc evalve inc goodwill approximately 120 million related ibis acquisition allocated diagnostic products segment goodwill approximately 160 million related evalve acquisition allocated vascular products segment foreign currency translation adjustments decreased increased goodwill 2011 2010 2009 225 million 879 million 997 million respectively amount goodwill related reportable segments december 31 2011 62 billion proprietary pharmaceutical products segment 30 billion established pharmaceutical products segment 207 million nutritional products segment 383 million diagnostic products segment 26 billion vascular products segment significant reductions goodwill relating impairments disposal portion business abbott laboratories subsidiaries notes consolidated financial statements continued note 11 goodwill intangible assets continued gross amount amortizable intangible assets primarily product rights technology 175 billion 173 billion 108 billion december 31 2011 2010 2009 respectively accumulated amortization 83 billion 65 billion 51 billion december 31 2011 2010 2009 respectively indefinitelived intangible assets relate inprocess research development acquired business combination approximately 814 million 14 billion 610 million december 31 2011 2010 2009 respectively 2011 abbott recorded impairment charges certain research development assets due changes projected development regulatory timelines projects 125 million related nonreportable segment 49 million related categories abbotts segment reporting discounted cash flow analysis used analyze fair value charges included research development expenses estimated annual amortization expense intangible assets recorded december 31 2011 approximately 15 billion 2012 13 billion 2013 10 billion 2014 800 million 2015 765 million 2016 intangible asset amortization included cost products sold consolidated statement earnings amortizable intangible assets amortized 2 30 years average 10 years note 12 restructuring plans 2011 prior years abbott management approved plans realign worldwide pharmaceutical vascular manufacturing operations selected domestic international commercial research development operations order reduce costs 2011 2010 2009 abbott recorded charges approximately 194 million 56 million 114 million respectively reflecting impairment manufacturing facilities assets employee severance related charges approximately 76 million 2011 classified cost products sold 69 million research development 49 million selling general administrative approximately 56 million 2010 classified cost products sold 114 million 2009 selling general administrative following summarizes activity restructurings dollars millions additional 25 million 13 million 47 million recorded 2011 2010 2009 respectively relating restructurings primarily accelerated depreciation 2010 abbott management approved restructuring plan primarily related acquisition solvays pharmaceuticals business plan streamlines operations improves efficiencies reduces costs certain solvay sites functions well certain abbott solvay commercial organizations various countries plan abbott recorded charges cost products sold research abbott laboratories subsidiaries notes consolidated financial statements continued note 12 restructuring plans continued development selling general administrative approximately 99 million 152 million 272 million respectively following summarizes activity restructuring dollars millions additional 102 million 12 million recorded 2011 2010 respectively relating restructuring primarily additional employee severance accelerated depreciation 2011 2008 abbott management approved plans streamline global manufacturing operations reduce overall costs improve efficiencies abbotts core diagnostic business 2011 charge 28 million recorded cost products sold following summarizes activity restructurings dollars millions addition charges approximately 42 million 60 million 54 million recorded 2011 2010 2009 primarily accelerated depreciation product transfer costs additional charges incurred 2012 result product reregistration timelines required manufacturing regulations number countries product transition timelines note 13 spinoff abbotts proprietary pharmaceuticals business october 2011 abbott announced plan separate two publicly traded companies one diversified medical products researchbased pharmaceuticals accomplish separation abbott plans create new company researchbased pharmaceuticals business include abbotts proprietary pharmaceutical products segment transaction expected take form taxfree distribution abbott shareholders stock newly created researchbased pharmaceutical company expected completed end 2012 subsequent separation historical results researchbased pharmaceuticals business presented discontinued operations abbott laboratories subsidiaries notes consolidated financial statements continued note 14 quarterly results unaudited dollars millions except per share data athe sum quarters basic earnings per share 2011 2010 2009 diluted earnings per share 2011 2009 add full year earnings per share amounts due rounding management report internal control financial reporting management abbott laboratories responsible establishing maintaining adequate internal control financial reporting abbotts internal control system designed provide reasonable assurance companys management board directors regarding preparation fair presentation published financial statements internal control systems matter well designed inherent limitations therefore even systems determined effective provide reasonable assurance respect financial statement preparation presentation abbotts management assessed effectiveness companys internal control financial reporting december 31 2011 making assessment used criteria set forth internal control integrated framework issued committee sponsoring organizations treadway commission based assessment believe december 31 2011 companys internal control financial reporting effective based criteria abbotts independent registered public accounting firm issued audit report assessment effectiveness companys internal control financial reporting report appears page 91 miles white chairman board chief executive officer thomas c freyman executive vice president finance chief financial officer greg w linder vice president controller february 21 reports independent registered public accounting firm board directors shareholders abbott laboratories audited accompanying consolidated balance sheets abbott laboratories subsidiaries company december 31 2011 2010 2009 related consolidated statements earnings comprehensive income shareholders investment cash flows years ended financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position company december 31 2011 2010 2009 results operations cash flows years ended conformity accounting principles generally accepted united states america discussed note 1 consolidated financial statements 2011 company changed year end foreign subsidiaries november 30 fiscal year end december 31 calendar year end changed presentation comprehensive income also audited accordance standards public company accounting oversight board united states companys internal control financial reporting december 31 2011 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated february 21 2012 expressed unqualified opinion companys internal control financial reporting deloitte touche llp chicago illinois february 21 2012 board directors shareholders abbott laboratories audited internal control financial reporting abbott laboratories subsidiaries company december 31 2011 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission companys management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management report internal control financial reporting responsibility express opinion companys internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion companys internal control financial reporting process designed supervision companys principal executive principal financial officers persons performing similar functions effected companys board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting including possibility collusion improper management override controls material misstatements due error fraud may prevented detected timely basis also projections evaluation effectiveness internal control financial reporting future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion company maintained material respects effective internal control financial reporting december 31 2011 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission also audited accordance standards public company accounting oversight board united states consolidated financial statements company year ended december 31 2011 report dated february 21 2012 expresses unqualified opinion financial statements includes explanatory paragraph regarding companys change year end foreign subsidiaries change presentation comprehensive income 2011 deloitte touche llp chicago illinois february 21 2012 item 9 item 8 financial statements supplementary data incorporated herein reference portions 1996 annual report captioned consolidated balance sheet consolidated statement earnings consolidated statement cash flows consolidated statement shareholders investment notes consolidated financial statements report independent public accountants contains related report arthur andersen llp dated january 15 1997 data relating quarterly results found note 8 item 9 item 8 financial statements supplementary data incorporated herein reference portions 1999 annual report captioned consolidated statement earnings comprehensive income consolidated statement cash flows consolidated balance sheet consolidated statement shareholders investment notes consolidated financial statements report independent public accountants contains related report arthur andersen llp dated january 17 2000 except respect matter discussed third paragraph note 12 date january 20 2000 data relating quarterly results found note 10 item 9 item 8 financial statements supplementary data abbott laboratories subsidiaries consolidated statement earnings comprehensive income dollars shares thousands except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement cash flows dollars thousands accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated balance sheet dollars thousands accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated balance sheet dollars thousands abbott laboratories subsidiaries consolidated statement shareholders investment dollars thousands except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries notes consolidated financial statements note 1 summary significant accounting policies nature business concentration risk abbotts principal business discovery development manufacture sale broad line health care products services due nature operations abbott subject significant concentration risks relating customers products geographic locations basis consolidation consolidated financial statements include accounts parent company subsidiaries elimination intercompany transactions accounts foreign subsidiaries consolidated november 30 due time needed consolidate subsidiaries events occurred related foreign subsidiaries december 2000 1999 1998 materially affected financial position results operations certain prior year amounts consolidated statement cash flows reclassified conform 2000 presentation use estimates financial statements prepared accordance generally accepted accounting principles necessarily include amounts based estimates assumptions management actual results could differ amounts significant estimates include amounts litigation income taxes sales rebates inventory accounts receivable exposures cash equivalents investment securities cash equivalents consist time deposits certificates deposit original maturities three months less investments marketable equity securities classified availableforsale recorded fair value unrealized holding gains losses net tax included accumulated comprehensive income loss impairment losses charged income temporary declines fair value equity securities investments debt securities classified heldtomaturity management intent ability hold securities maturity reported cost net unamortized premium discount income relating securities reported component interest income inventories stated lower cost firstin firstout basis market cost includes material conversion costs longlived assets depreciation amortization provided straightline basis estimated useful lives assets following table shows estimated useful lives property equipment intangible assets primarily purchased intangible assets goodwill resulting business acquisitions amortized straightline basis 40 years accumulated amortization december 31 2000 1999 1998 334 million 228 million 163 million respectively longlived assets reviewed impairment whenever events changes circumstances indicate carrying amount may recoverable based projected undiscounted cash flows associated affected assets fair value less carrying amount asset loss recognized difference fair value determined based market quotes available based valuation techniques product liability provisions made portions probable losses covered product liability insurance translation adjustments foreign operations highly inflationary economies translation gains losses included net foreign exchange gain loss remaining foreign operations translation adjustments included component accumulated comprehensive income loss revenue recognition revenue product sales recognized upon shipment customers provisions discounts rebates customers returns adjustments provided period related sales recorded sales product rights recorded revenue upon disposition rights revenue license product rights performance research selling activities recorded periods earned research development internal research development costs expensed incurred thirdparty research development costs expensed contracted work performed milestone results achieved note 2 supplemental financial information dollars thousands note 3 taxes earnings dollars thousands deferred income taxes reflect tax consequences future years temporary differences tax bases assets liabilities financial reporting amounts us income taxes provided earnings foreign subsidiaries operating puerto rico tax incentive grants intended remitted parent company undistributed earnings reinvested indefinitely foreign subsidiaries working capital plant equipment aggregated 2432433 december 31 2000 deferred income taxes provided earnings would approximately 572016 earnings taxes related provisions taxes earnings follows differences effective income tax rate us statutory tax rate follows december 31 2000 1999 1998 total deferred tax assets 1458707 1364867 1286341 respectively total deferred tax liabilities 463406 441404 487207 respectively valuation allowances deferred tax assets significant temporary differences give rise deferred tax assets liabilities follows note 4 investment securities dollars thousands following summary investment securities december 31 investment securities listed 590678 742610 858809 held december 31 2000 1999 1998 respectively subsidiaries operating puerto rico tax incentive grants expiring 2002 2007 addition subsidiaries held cash equivalents 85925 11900 74900 december 31 2000 1999 1998 respectively note 5 postemployment benefits dollars thousands retirement plans consist defined benefit defined contribution medical dental plans information abbotts major defined benefit plans postemployment medical dental benefit plans follows note 5 postemployment benefits dollars thousands continued projected benefit obligations certain foreign defined benefit plans plan assets 65116 63904 62719 december 31 2000 1999 1998 respectively assumptions used major benefit plans december 31 include five percent annual rate increase per capita cost covered health care benefits assumed onepercentage point increasedecrease assumed health care cost trend rate would increasedecrease accumulated postemployment benefit obligations december 31 2000 approximately 12573975875 total service interest cost components net postemployment health care cost year ended approximately 1634710122 abbott stock retirement plan principal defined contribution plan company contributions plan approximately 86000 2000 76000 1999 67000 1998 equal 733 percent dividends declared provided plan abbott provides certain postemployment benefits primarily salary continuation plans qualifying domestic employees accrues related cost service lives employees note 6 financial instruments derivatives abbott enters foreign currency forward exchange contracts hedge intercompany loans trade accounts payable receivable payable denominated currency functional currency entity contracts also used hedge foreign currency denominated thirdparty trade payables receivables intercompany loans contracts require abbott sell foreign currencies primarily european currencies japanese yen exchange primarily us dollars european currencies intercompany trade payables receivables currencies hedged primarily us dollar european currencies japanese yen december 31 2000 1999 1998 abbott held 13 billion 14 billion 16 billion respectively foreign currency forward exchange contracts outstanding december 31 2000 mature 2001 contracts markedtomarket month resulting gains losses reflected income generally offset losses gains exposures hedged abbotts foreign subsidiaries whose functional currency us dollar purchase us dollar call options hedge anticipated intercompany purchases contracts give abbott right requirement purchase us dollars exchange foreign currencies primarily european currencies japanese yen predetermined exchange rates december 31 1999 1998 abbott held 85 million 406 million respectively us dollar call option contracts realized unrealized gains losses contracts qualify hedges anticipated purchases foreign subsidiaries recognized period foreign currency exposure recognized contracts qualify hedge accounting markedtomarket month resulting gains losses reflected income net unrealized losses foreign currency forward exchange contracts included prepaid expenses receivables net unrealized gains included accrued liabilities gains losses classified net foreign exchange gain loss us dollar call options net unrealized gains losses unamortized premiums included prepaid expenses receivables us dollar call options qualify hedge accounting gains losses included net foreign exchange gain loss us dollar call options qualify hedge accounting treatment gains losses included cost products sold time products sold june 1998 financial accounting standards board issued statement financial accounting standards 133 accounting derivative instruments hedging activities statement requires recognition fair value derivatives either assets liabilities adoption provisions statement january 1 2001 material effect financial statements abbott transition credit recorded income january 1 2001 approximately 2 million gross unrealized holding gains losses current longterm heldtomaturity investment securities totaled 13 million 214 million respectively december 31 2000 11 million 299 million respectively december 31 1999 37 million 96 million respectively december 31 1998 gross unrealized holding gains losses availableforsale equity securities totaled 803 million 340 million respectively december 31 2000 493 million 47 million respectively december 31 1999 617 million 67 million respectively december 31 1998 carrying values fair values certain financial instruments december 31 shown table carrying values financial instruments approximate estimated fair values fair value quoted market price instrument held quoted market price similar instrument counterparties financial instruments consist select major international financial institutions abbott expect losses nonperformance counterparties note 7 incentive stock program 1996 incentive stock program authorizes granting stock options replacement stock options stock appreciation rights limited stock appreciation rights restricted stock awards performance units foreign qualified benefits stock options replacement stock options limited stock appreciation rights restricted stock awards foreign qualified benefits granted currently outstanding program prior programs purchase price shares option must least equal fair market value common stock date grant maximum term option 10 years options granted 2000 1999 1998 vest equally three four years except replacement options generally vest six months upon change control abbott outstanding stock options become fully exercisable terms conditions restricted stock awards deemed satisfied january 1 2001 370 million shares reserved future grants 1996 program subsequent year end board directors granted approximately 185 million stock options reserve abbott measures compensation cost using intrinsic valuebased method accounting compensation cost determined using fair market valuebased accounting method pro forma net income earnings per share eps amounts would follows weighted average fair value option granted 2000 1999 1998 1060 1226 1102 respectively purposes fair market value disclosures fair market value option grant estimated using blackscholes option pricing model following assumptions note 8 debt lines credit dollars thousands following summary longterm debt december 31 payments required longterm debt outstanding december 31 2000 250172 2001 1059 2002 200059 2003 59 2004 150050 2005 december 31 2000 abbott 1505000 unused domestic lines credit support domestic commercial paper borrowing arrangements related compensating balances subject withdrawal abbott option commitment fees material abbotts weighted average interest rate shortterm borrowings 59 57 55 december 31 2000 1999 1998 respectively note 9 equity method investments dollars millions abbotts 50 percent owned joint venture tap pharmaceutical products inc tap accounted equity method accounting abbotts share taps income 481 390 266 2000 1999 1998 respectively investment tap 491 521 368 december 31 2000 1999 1998 respectively dividends received tap 511 237 209 2000 1999 1998 respectively summarized financial information tap follows undistributed earnings investments accounted equity method amounted 467 december 31 2000 note 10 quarterly results unaudited dollars millions except per share data note 11 stock purchase rights common shares outstanding subject stock purchase rights exercisable certain conditions entitle holder purchase common shares prices specified rights agreement rights exercisable december 31 2000 note 12 business combinations divestiture december 15 2000 abbott basf ag reached agreement abbott purchase pharmaceutical business basf subject approval government regulators purchase price 69 billion abbott estimates acquisition completed result purchase accounting charges approximately 10 billion inprocess research development 2001 result goodwill intangibles approximately 50 billion purchase financed us dollar eurobased borrowings november 19 1999 abbott completed merger transaction perclose inc accounted poolingofinterests transaction abbott issued approximately 151 million common shares perclose shareholders percloses outstanding stock options converted options purchase approximately 29 million abbott common shares mergerrelated charges approximately 162 million included selling general administrative expenses 1999 abbotts consolidated financial statements prior periods restated include perclose significantly different previously reported amounts 1999 abbott acquired certain assets glaxo wellcome incs us anesthesia business approximately 217 million cash substantial portion purchase price allocated intangible assets amortized straightline basis 15 years 1998 abbott acquired common stock international murex technologies corporation manufacturer medical diagnostic products approximately 234 million cash substantial portion purchase price allocated goodwill amortized straightline basis 20 years acquisitions taken place january 1 previous years consolidated sales income would significantly different reported amounts january 2000 abbott sold agricultural products business sumitomo chemical co ltd resulting 139 million gain transaction sumitomo acquired research development sales marketing support operations abbotts entire line naturally occurring biopesticides plant growth regulators products agriculture public health forestry bulk active ingredient manufacturing rights retained abbott full year 1999 abbott recorded approximately 102 million sales business note 13 segment geographic area information dollars millions revenue segments abbotts principal business discovery development manufacture sale broad line health care products services abbotts products generally sold directly retailers wholesalers hospitals health care facilities laboratories physicians offices government agencies throughout world abbotts reportable segments follows pharmaceutical products us sales broad line pharmaceuticals diagnostic products worldwide sales diagnostic systems blood banks hospitals consumers commercial laboratories alternatecare testing sites hospital products us sales intravenous irrigation fluids related administration equipment drugs drugdelivery systems anesthetics critical care products medical specialty products hospitals alternatecare sites ross products us sales broad line adult pediatric nutritional products pediatric pharmaceuticals consumer products international nonus sales abbotts pharmaceutical hospital nutritional products sold international manufactured domestic segments international manufacturing locations abbotts underlying accounting records maintained legal entity basis government public reporting requirements segment disclosures performance basis consistent internal management reporting intersegment transfers inventory recorded standard cost measure segment operating earnings cost corporate functions cost certain employee benefits sold segments predetermined rates approximate cost remaining costs allocated revenue segments effective january 1 2001 certain intangibles related amortization excluded performance measures revenue segments segment information 2000 1999 1998 reflects change following segment information prepared accordance internal accounting policies abbott described presented accordance generally accepted accounting principles applied consolidated financial statements 2000 management vascular medicine franchise transferred pharmaceutical segment hospital segment information 1999 1998 restated reflect transfer bin 2001 management fact plus product franchise transferred diagnostics segment ross segment information reflects transfer cas january 2001 certain intersegment royalties longer charged hospital segment operating earnings hospital segment reflect change dnet sales operating earnings unfavorably affected relatively stronger us dollar year presented eall years include intangibles amortization previously reported reportable segments 1999 includes charges 168 relating fda consent decree described note 15 fsales country based country sold product service classes products contributed least 10 percent consolidated net sales least one last three years note 14 litigation environmental matters abbott involved various claims legal proceedings including numerous antitrust suits investigations connection pricing prescription pharmaceuticals suits investigations allege various pharmaceutical manufacturers conspired fix prices prescription pharmaceuticals andor discriminate pricing retail pharmacies providing discounts mailorder pharmacies institutional pharmacies hmos violation state federal antitrust laws suits brought behalf individuals retail pharmacies name abbott certain pharmaceutical manufacturers pharmaceutical wholesalers least one mailorder pharmacy company defendants cases seek treble damages civil penalties injunctive relief abbott filed intends file response remaining complaints denying substantive allegations addition several lawsuits one investigation pending connection sales hytrin suits investigation allege abbott violated state federal antitrust laws cases unfair competition laws signing separate agreements geneva pharmaceuticals inc zenith laboratories inc agreements related pending patent infringement lawsuits abbott two companies suits also allege abbott violated various state federal laws filing frivolous patent infringement lawsuits protect hytrin generic competition cases seek treble damages civil penalties relief abbott filed intends file response complaints denying substantive allegations us department justice investigating marketing sales practices tap pharmaceutical products inc tap lupron addition various state federal agencies investigating pricing practices tap respect lupron andor abbott respect certain medicare medicaid reimbursable products abbott also identified potentially responsible party investigation cleanup costs number locations united states puerto rico federal state remediation laws investigating potential contamination number companyowned locations abbott expects within next year legal proceedings occur may result change estimated reserves recorded abbott feasible predict outcome pending claims proceedings investigations remediation activities certainty management opinion ultimate disposition material adverse effect abbotts financial position ongoing cash flows ongoing results operations adverse outcome us department justices investigation tap could material adverse effect abbotts cash flows results operations particular period note 15 us food drug administration consent decree november 1999 abbott reached agreement us government consent decree entered settle issues involving abbotts diagnostics manufacturing operations lake county ill decree amended december 2000 requires abbott ensure diagnostics manufacturing processes lake county ill conform us food drug administrations fda quality system regulation qsr decree allows continued manufacture distribution medically necessary diagnostic products made lake county ill however abbott prohibited manufacturing distributing certain diagnostic products abbott ensures processes lake county ill diagnostics manufacturing operations conform qsr decree allows abbott export diagnostic products components sale distribution outside united states meet export requirements federal food drug cosmetic act terms amended consent decree abbott must ensure diagnostics manufacturing operations conformance qsr various dates january 15 2001 fda determine abbotts conformance qsr inspection abbotts facilities fda concludes operations conformance qsr date required abbott may subject additional costs abbott laboratories subsidiaries report independent public accountants shareholders abbott laboratories audited accompanying consolidated balance sheet abbott laboratories illinois corporation subsidiaries december 31 2000 1999 1998 related consolidated statements earnings comprehensive income shareholders investment cash flows years ended financial statements responsibility abbotts management responsibility express opinion financial statements based audits conducted audits accordance auditing standards generally accepted united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion financial statements referred present fairly material respects financial position abbott laboratories subsidiaries december 31 2000 1999 1998 results operations cash flows years ended conformity accounting principles generally accepted united states chicago illinois january 15 2001 arthur andersen llp management report financial statements management prepared responsible abbotts consolidated financial statements related notes prepared accordance generally accepted accounting principles necessarily include amounts based judgments estimates management financial information annual report consistent consolidated financial statements abbott maintains internal accounting control systems related policies procedures designed provide reasonable assurance assets safeguarded transactions executed accordance managements authorization properly recorded accounting records may relied upon preparation consolidated financial statements financial information design monitoring revision internal accounting control systems involve among things managements judgment respect relative cost expected benefits specific control measures abbott also maintains internal auditing function evaluates formally reports adequacy effectiveness internal accounting controls policies procedures abbotts consolidated financial statements audited independent public accountants expressed opinion respect fairness statements miles white chairman board chief executive officer gary p coughlan senior vice president finance chief financial officer gary l flynn vice president controller part iii item 10 item 8 financial statements supplementary data page consolidated statement earnings consolidated statement comprehensive income consolidated statement cash flows consolidated balance sheet consolidated statement shareholders investment notes consolidated financial statements management report internal control financial reporting report independent registered public accounting firm report independent registered public accounting firm abbott laboratories subsidiaries consolidated statement earnings millions except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement comprehensive income millions accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement cash flows millions accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated balance sheet dollars millions abbott laboratories subsidiaries consolidated balance sheet dollars millions accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement shareholders investment millions except shares per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries notes consolidated financial statements note 1 summary significant accounting policies nature business abbotts principal business discovery development manufacture sale broad line health care products changes presentation september 2016 abbott announced entered agreement sell abbott medical optics amo vision care business johnson transaction closed february 2017 operating results amo date sale reported part continuing operations amo qualify reporting discontinued operation assets liabilities amo reported held disposition abbotts consolidated balance sheet december 31 2016 february 27 2015 abbott completed sale developed markets branded generics pharmaceuticals business mylan inc mylan equity ownership newly formed entity combined mylans existing business abbotts developed markets pharmaceuticals business february 10 2015 abbott completed sale animal health business zoetis inc historical operating results two businesses date sale excluded earnings continuing operations presented earnings discontinued operations net taxes line abbotts consolidated statement earnings cash flows businesses included abbotts consolidated statement cash flows date disposition see note 2 discontinued operations additional information basis consolidation consolidated financial statements include accounts parent company subsidiaries elimination intercompany transactions use estimates consolidated financial statements prepared accordance generally accepted accounting principles united states necessarily include amounts based estimates assumptions management actual results could differ amounts significant estimates include amounts sales rebates income taxes pension postemployment benefits including certain asset values based significant unobservable inputs valuation intangible assets litigation derivative financial instruments inventory accounts receivable exposures foreign currency translation statements earnings foreign subsidiaries whose functional currencies us dollar translated us dollars using average exchange rates period net assets foreign subsidiaries whose functional currencies us dollar translated us dollars using exchange rates balance sheet date us dollar effects arise translating net assets subsidiaries changing rates recorded foreign currency translation adjustment account included equity component accumulated comprehensive income loss transaction gains losses recorded net foreign exchange gain loss line consolidated statement earnings revenue recognition revenue product sales recognized upon passage title risk loss customers provisions discounts rebates sales incentives customers returns adjustments provided period related sales recorded sales incentives customers material historical data readily available reliable used estimating amount reduction gross sales revenue launch new product improved version existing product shipments excess customers normal requirements recorded conditions noted met situations management records returns reserve revenue necessary certain abbotts businesses primarily within diagnostics medical optics prior divestiture abbott participates selling arrangements include multiple abbott laboratories subsidiaries notes consolidated financial statements continued note 1 summary significant accounting policies continued deliverables eg instruments reagents procedures service agreements arrangements abbott recognizes revenue upon delivery product performance service allocates revenue based relative selling price deliverable based primarily vendor specific objective evidence sales product rights marketable products recorded revenue upon disposition rights revenue license product rights performance research selling activities recorded periods earned may 2014 financial accounting standards board fasb issued accounting standards update asu 201409 revenue contracts customers provides single comprehensive model accounting revenue contracts customers supersede existing revenue recognition guidance standard becomes effective abbott first quarter 2018 abbotts revenues primarily comprised product sales abbott completed thorough evaluation new standard including detailed review abbotts revenue streams contracts abbott expect adoption new standard material impact consolidated financial statements abbott use modified retrospective method adopt standard income taxes deferred income taxes provided tax effect differences tax bases assets liabilities reported amounts financial statements enacted statutory rate effect taxes paid additional income taxes provided remaining undistributed foreign earnings subject transition tax related us tax cuts jobs act additional outside basis differences exist amounts continue indefinitely reinvested foreign operations interest penalties income tax obligations included taxes income earnings per share unvested restricted stock units awards contain nonforfeitable rights dividends treated participating securities included computation earnings per share twoclass method twoclass method net earnings allocated common shares participating securities earnings continuing operations allocated common shares 2017 2016 2015 346 million 1057 billion 2595 billion respectively net earnings allocated common shares 2017 2016 2015 468 million 1393 billion 4403 billion respectively pension postemployment benefits abbott accrues actuarially determined cost pension postemployment benefits service attribution periods employees abbott must develop longterm assumptions significant health care cost trend rates discount rates expected return plan assets differences expected longterm return plan assets actual return amortized fiveyear period actuarial losses gains amortized remaining service attribution periods employees corridor method fair value measurements assets liabilities measured using quoted prices active markets total fair value published market price per unit multiplied number units held without consideration transaction costs assets liabilities measured using significant observable inputs valued reference similar assets liabilities adjusted contract restrictions terms specific asset liability items significant portion fair value derived reference quoted prices similar assets liabilities active markets remaining assets liabilities fair value derived using fair value model discounted cash flow model blackscholes model purchased intangible assets recorded fair value fair value abbott laboratories subsidiaries notes consolidated financial statements continued note 1 summary significant accounting policies continued significant purchased intangible assets based independent appraisals abbott uses discounted cash flow model value intangible assets discounted cash flow model requires assumptions timing amount future net cash flows risk cost capital terminal values market participants intangible assets reviewed impairment quarterly basis goodwill indefinitelived intangible assets tested impairment least annually sharebased compensation fair value stock options restricted stock awards units amortized requisite service period could shorter vesting period employee retirement eligible charge compensation expense march 2016 fasb issued asu 201609 improvements employee sharebased payment accounting asu 201609 modifies several aspects accounting sharebased payment transactions including accounting income taxes classification statement cash flows abbott adopted standard first quarter 2017 following changes made presentation abbotts financial statements • excess tax benefits tax deficiencies recognized income tax benefit expense applicable previously abbott recorded benefits shareholders investment tax benefit recorded abbotts consolidated statement earnings 2017 120 million standard permit retrospective presentation benefit prior years • tax benefit deficiency required classified operating activity statement cash flows previously required classified within financing activities abbott adopted standard prospective basis revised classification excess tax benefit prior years consolidated statement cash flows litigation abbott accounts litigation losses accordance fasb asc 450 contingencies asc 450 loss contingency provisions recorded probable losses managements best estimate loss best estimate cannot made minimum loss contingency amount recorded legal fees recorded incurred cash equivalents investments cash equivalents consist bank time deposits us government securities money market funds us treasury bills original maturities three months less abbott holds certain investments carrying value approximately 235 million accounted equity method accounting investments held rabbi trust accounted trading securities investments marketable equity securities classified availableforsale recorded fair value unrealized holding gains losses net tax included accumulated comprehensive income loss investments equity securities traded public stock exchanges recorded cost investments debt securities classified heldtomaturity management intent ability hold securities maturity reported cost net unamortized premium discount income relating securities reported interest income abbott reviews carrying value investments quarter determine whether temporary decline fair value exists abbott considers factors affecting investee factors affecting industry investee operates general equity market trends abbott considers length time investments fair value carrying value nearterm prospects recovery carrying value abbott determines temporary decline occurred investment written charge income expense net abbott laboratories subsidiaries notes consolidated financial statements continued note 1 summary significant accounting policies continued trade receivable valuations accounts receivable stated net realizable value allowance gross trade receivables reflects best estimate probable losses inherent receivables portfolio determined basis historical experience specific allowances known troubled accounts currently available information accounts receivable charged reasonable means collect full amount including litigation appropriate exhausted inventories stated lower cost firstin firstout basis market cost includes material conversion costs property equipment depreciation amortization provided straightline basis estimated useful lives assets following table shows estimated useful lives property equipment product liability abbott accrues product liability claims probable liability incurred amount liability reasonably estimated based existing information liabilities adjusted quarterly additional information becomes available receivables insurance recoveries product liability claims recorded assets undiscounted basis probable recovery realized product liability losses selfinsured research development costs internal research development costs expensed incurred clinical trial costs incurred third parties expensed contracted work performed contingent milestone payments due third parties research development arrangements milestone payment obligations expensed milestone results achieved acquired inprocess collaborations research development iprd initial costs rights iprd projects obtained asset acquisition expensed iprd unless project alternative future use costs include initial payments incurred prior regulatory approval connection research development collaboration agreements provide rights develop manufacture market andor sell pharmaceutical products fair value iprd projects acquired business combination capitalized accounted indefinitelived intangible assets completed amortized remaining useful life collaborations significant concentration risk guarantees due nature operations abbott subject significant concentration risks relating customers products geographic locations product warranties significant abbott material exposures offbalance sheet arrangements special purpose entities activities include nonexchangetraded contracts accounted fair value abbott periodically entered agreements ordinary course business assignment product rights companies resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements abbott laboratories subsidiaries notes consolidated financial statements continued note 1 summary significant accounting policies continued remote abbott periodically acquires business product rights abbott agrees pay contingent consideration based attaining certain thresholds based occurrence certain events note 2 discontinued operations february 27 2015 abbott completed sale developed markets branded generics pharmaceuticals business mylan inc mylan 110 million ordinary shares approximately 22 newly formed entity mylan nv combined mylans existing business abbotts developed markets branded generics pharmaceuticals business mylan nv publicly traded historically business included abbotts established pharmaceutical products segment abbott retained branded generics pharmaceuticals business emerging markets date closing 110 million mylan nv ordinary shares abbott received valued 577 billion abbott recorded aftertax gain sale business approximately 16 billion shareholder agreement mylan nv includes voting restrictions prevent abbott exercising significant influence operating financial policies mylan nv close transaction abbott mylan entered transition services agreement pursuant abbott mylan provided various back office support services interim transitional basis 2 years certain services extended additional five ten months charges abbott transition services agreement recorded reduction costs provide respective service applicable expense category consolidated statement earnings transition support constitute significant continuing involvement mylans operations abbott also entered manufacturing supply agreements mylan related certain products supply term ranging 3 10 years requiring 2 year notice prior termination cash flows associated transition services manufacturing supply agreements expected significant therefore cash flows direct cash flows disposed component accounting standards codification 205 april 2015 abbott sold 4025 million 110 million ordinary shares mylan nv received sale developed markets branded generics pharmaceuticals business mylan abbott recorded pretax gain 207 million 229 billion net proceeds sale shares gain recognized income expense line 2015 consolidated statement earnings result sale abbotts ownership interest mylan nv decreased approximately 14 2017 abbott sold 6975 million ordinary shares mylan nv received 2704 billion proceeds abbott recorded 45 million gain sale ordinary shares 2017 recognized income expense net line consolidated statement earnings abbott longer ownership interest mylan nv february 10 2015 abbott completed sale animal health business zoetis inc abbott received cash proceeds 230 million reported tax gain sale approximately 130 million first quarter 2016 abbott received additional 25 million proceeds due expiration holdback agreement associated sale business reported aftertax gain 16 million result disposition businesses operating results businesses date sale reported part discontinued operations earnings discontinued operations net taxes line consolidated statement earnings discontinued operations include abbott laboratories subsidiaries notes consolidated financial statements continued note 2 discontinued operations continued allocation interest expense assuming uniform ratio consolidated debt equity abbotts historical operations january 1 2013 abbott completed separation abbvie inc abbvie formed hold abbotts researchbased proprietary pharmaceuticals business abbott retained liabilities us federal foreign income taxes income prior separation well certain nonincome taxes attributable abbvies business abbvie generally liable taxes attributable business operating results abbotts developed markets branded generics pharmaceuticals animal health businesses well income tax benefit related businesses transferred abbvie reported discontinued operations follows net earnings discontinued operations include income tax benefits 109 million 2017 325 million 2016 52 million 2015 tax benefits 2017 2016 primarily relate resolution various tax positions related abbvies operations years prior separation 2015 includes 48 million tax benefits related resolution various tax positions related prior years sale developed markets branded generics pharmaceuticals animal health business 2015 resulted recognition pretax gain 2840 billion tax expense 1088 billion tax gain 1752 billion 2015 tax provision included 667 million tax expense certain prior year income earned outside us related developed markets branded generics pharmaceuticals businesses designated permanently reinvested overseas note 3 assets liabilities held disposition september 2016 abbott announced entered definitive agreement sell abbott medical optics amo vision care business johnson 4325 billion cash subject customary purchase price adjustments cash debt working capital decision sell amo reflected abbotts proactive shaping portfolio line strategic priorities february 2017 abbott laboratories subsidiaries notes consolidated financial statements continued note 3 assets liabilities held disposition continued abbott completed sale amo johnson recognized pretax gain 1163 billion including working capital adjustments reported income expense net line consolidated statement earnings 2017 abbott recorded aftertax gain 728 million 2017 related sale amo operating results amo date sale continued included earnings continuing operations business qualify reporting discontinued operations 2017 2016 2015 amo earnings losses taxes included abbotts consolidated earnings 18 million 30 million 64 million respectively assets liabilities amo classified held disposition abbotts consolidated balance sheet december 31 2016 discussed note 6 business acquisitions conjunction acquisition alere inc alere abbott sold triage meterpro cardiovascular toxicology business assets liabilities related btype natriuretic peptide assay business run beckman coulter analyzers quidel corporation quidel legal transfer certain assets liabilities related businesses occur close sale quidel due among factors time required transfer marketing authorizations regulatory requirements various countries terms sale agreement abbott quidel subject risks entitled benefits generated operations assets liabilities presented held disposition consolidated balance sheet december 31 2017 primarily relate businesses sold quidel following summary assets liabilities held disposition december 31 2017 2016 abbott laboratories subsidiaries notes consolidated financial statements continued note 4 supplemental financial information income expense net 2017 includes pretax gain 1163 billion related sale amo jonhson johnson see note 3 assets liabilities held disposition details income expense net 2016 includes expense 947 million adjust abbotts holding mylan nv ordinary shares due decline fair value securities considered abbott temporary income expense net 2015 primarily relates 207 million gain sale portion abbotts position mylan nv stock 79 million income resulting decrease fair value contingent consideration related business acquisition detail various balance sheet components follows decrease longterm investments relates sale 2017 remaining ordinary shares mylan nv abbott held abbott sold 6975 million ordinary shares mylan nv received 2704 billion proceeds abbott recorded 45 million pretax gain 2017 related sale ordinary shares recognized income expense net line consolidated statement earnings december 31 2017 abbott longer ownership interest mylan nv abbotts equity securities december 31 2017 include 363 million investments mutual funds held rabbi trust acquired part st jude medical inc st jude medical business acquisition investments specifically designated available purpose paying benefits deferred compensation plan available general corporate purposes subject creditor claims event insolvency abbott laboratories subsidiaries notes consolidated financial statements continued note 4 supplemental financial information continued aaccrued wholesaler chargeback rebates 178 million 214 million december 31 2017 2016 respectively netted trade receivables abbotts customers invoiced higher catalog price remit abbott contract price products b2017 includes approximately 835 million net unrecognized tax benefits well approximately 100 million acquisition consideration payable 2016 includes approximately 560 million net unrecognized tax benefits well approximately 130 million acquisition consideration payable since january 2010 venezuela designated highly inflationary economy us gaap 2014 2015 government venezuela operated multiple mechanisms exchange bolivars us dollars mechanisms included cencoex sicad simadi rates stood 63 135 approximately 200 respectively december 31 2015 abbott continued use cencoex rate 63 venezuelan bolivars us dollar report results financial position cash flows related operations venezuela since abbott continued qualify exchange rate pay import various products venezuela february 17 2016 venezuelan government announced threetier exchange rate system would reduced two rates renamed dipro dicom rates dipro rate official rate food medicine imports adjusted 63 10 bolivars per us dollar dicom rate floating market rate published daily venezuelan central bank end first quarter 2016 approximately 263 bolivars per us dollar result decreasing government approvals convert bolivars us dollars pay intercompany accounts well accelerating deterioration economic conditions country abbott concluded appropriate move dicom rate end first quarter 2016 result abbott recorded foreign currency exchange loss 480 million 2016 revalue net monetary assets venezuela abbott continuing use dicom rate report results operations remeasure net monetary assets venezuela end quarter december 31 2017 abbotts investment venezuelan operations significant result additional future foreign currency losses related venezuela would material abbott laboratories subsidiaries notes consolidated financial statements continued note 5 accumulated comprehensive income loss components changes accumulated comprehensive income loss continuing operations net income taxes follows millions areclassified amounts foreign currency translation adjustments recorded consolidated statement earnings net foreign exchange gain loss gains losses marketable equity securities recorded income expense gainslosses related cash flow hedges recorded cost product sold net actuarial losses prior service cost included component net periodic benefit plan cost see note 13 additional information note 6 business acquisitions january 4 2017 abbott completed acquisition st jude medical global medical device manufacturer approximately 236 billion including approximately 136 billion cash approximately 10 billion abbott common shares represented approximately 254 million shares abbott common stock based abbotts closing stock price acquisition date part acquisition approximately 59 billion st jude medicals debt assumed repaid refinanced abbott acquisition provides expanded opportunities future growth important part companys ongoing effort develop strong diverse portfolio devices diagnostics nutritionals branded generic pharmaceuticals combined business competes nearly every area cardiovascular device market well neuromodulation market terms agreement st jude medical common share st jude medical shareholders received 4675 cash 08708 abbott common share abbott stock price abbott laboratories subsidiaries notes consolidated financial statements continued note 6 business acquisitions continued 3936 reflects closing price january 4 2017 represented value approximately 81 per st jude medical common share total purchase consideration 236 billion cash portion acquisition funded combination medium longterm debt issued november 2016 20 billion 120day senior unsecured bridge term loan facility subsequently repaid final allocation fair value st jude medical acquisition shown table goodwill primarily attributable expected synergies combining operations well intangible assets qualify separate recognition goodwill identifiable cardiovascular neuromodulation products reportable segment acquired tangible assets consist primarily trade accounts receivable approximately 11 billion inventory approximately 17 billion current assets 176 million property equipment approximately 15 billion longterm assets approximately 455 million acquired tangible liabilities consist trade accounts payable current liabilities approximately 11 billion noncurrent liabilities approximately 870 million 2016 abbott st jude medical agreed sell certain businesses terumo corporation terumo approximately 112 billion sale included st jude medical angioseal™ femoseal™ vascular closure abbotts vado® steerable sheath businesses sale closed january 20 2017 gain loss recorded consolidated statement earnings october 3 2017 abbott acquired alere inc alere diagnostic device service provider 5100 per common share cash equated purchase price approximately 45 billion part acquisition abbott tendered aleres preferred shares total value approximately 07 billion addition approximately 30 billion aleres debt assumed subsequently repaid acquisition establishes abbott leader point care testing expands abbotts global diagnostics presence provides access new products channels geographies abbott utilized combination cash hand debt fund acquisition see note 10 debt lines credit details regarding debt utilized acquisition abbott laboratories subsidiaries notes consolidated financial statements continued note 6 business acquisitions continued preliminary allocation fair value alere acquisition shown table allocation fair value acquisition finalized valuation completed differences preliminary final allocation could material goodwill primarily attributable expected synergies combining operations well intangible assets qualify separate recognition goodwill identifiable diagnostic products reportable segment acquired tangible assets consist primarily trade accounts receivable approximately 430 million inventory approximately 425 million current assets 206 million property equipment approximately 540 million longterm assets 112 million acquired tangible liabilities consist trade accounts payable current liabilities approximately 625 million noncurrent liabilities approximately 160 million third quarter 2017 alere entered agreements sell triage meterpro cardiovascular toxicology business assets liabilities related btype natriuretic peptide assay business run beckman coulter analyzers quidel corporation quidel transactions quidel reflect total purchase price 400 million payable close transaction 240 million payable six annual installments beginning approximately six months close transaction contingent consideration maximum value 40 million third quarter 2017 alere entered agreement siemens diagnostics holding ii bv siemens sell subsidiary epocal inc approximately 200 million payable close transaction alere agreed divest businesses connection review federal trade commission european commission abbotts agreement acquire alere sale quidel closed october 6 2017 sale siemens closed october 31 2017 gain loss sales recorded consolidated statement earnings 2017 consolidated abbott results include 65 billion sales pretax loss approximately 13 billion related st jude medical alere acquisitions including approximately 15 billion intangible amortization 907 million inventory stepup amortization pretax loss excludes acquisition integration restructuringrelated costs acquisitions st jude medical alere occurred beginning 2016 unaudited pro forma consolidated net sales would approximately 289 billion unaudited pro forma consolidated net loss continuing operations would approximately 485 million 2016 includes amortization approximately 940 million inventory stepup 17 billion intangibles related st jude medical alere 2017 unaudited pro forma consolidated net sales would approximately 289 billion unaudited pro forma consolidated net earnings continuing operations would approximately 750 million includes 225 million abbott laboratories subsidiaries notes consolidated financial statements continued note 6 business acquisitions continued intangible amortization related alere unaudited pro forma consolidated net earnings continuing operations 2017 exclude inventory stepup amortization related st jude medical alere approximately 907 million recorded 2017 included 2016 unaudited pro forma results noted unaudited pro forma information necessarily indicative consolidated results operations would realized st jude medical alere acquisitions completed beginning 2016 meant indicative future results operations combined entity experience july 17 2017 abbott commenced tender offer purchase cash 177 million outstanding shares aleres series b convertible perpetual preferred stock price 402 per share plus accrued unpaid dividends including settlement date tender offer tender offer subject satisfaction certain conditions including abbotts acquisition alere upon validly tendered properly withdrawn expiration date tender offer number shares preferred stock equaled least majority preferred stock issued outstanding expiration tender offer tender offer expired october 3 2017 conditions offer satisfied abbott accepted payment 1748 million shares preferred stock validly tendered properly withdrawn remaining shares cashed amount equal 40000 per share liquidation preference shares plus accrued unpaid dividends without interest payment shares preferred stock made fourth quarter 2017 august 2015 abbott completed acquisition equity tendyne holdings inc tendyne abbott already approximately 225 million cash plus additional payments 150 million made upon completion certain regulatory milestones acquisition tendyne focused developing minimally invasive mitral valve replacement therapies allows abbott broaden foundation treatment mitral valve disease final allocation fair value acquisition resulted nondeductible acquired inprocess research development approximately 220 million accounted indefinitelived intangible asset regulatory approval discontinuation nondeductible goodwill approximately 142 million deferred tax assets net assets approximately 18 million deferred tax liabilities approximately 85 million contingent consideration approximately 70 million goodwill identifiable cardiovascular neuromodulation products segment acquisition tendyne taken place beginning comparable prior annual reporting period consolidated net sales earnings would significantly different reported amounts note 7 goodwill intangible assets total amount goodwill reported 240 billion december 31 2017 77 billion december 31 2016 amounts reported december 31 2017 2016 exclude goodwill reported noncurrent assets held disposition 2017 approximately 20 billion goodwill included part net assets sold amo divestiture goodwill increased 172 billion 2017 due completion st jude medical alere acquisitions partially offset decrease 15 billion due sale certain businesses terumo quidel siemens foreign currency translation increased goodwill 653 million 2017 decreased goodwill 66 million 2016 business acquisitions increased goodwill approximately 79 million 2016 amount goodwill related reportable segments december 31 2017 32 billion established pharmaceutical products segment 286 million nutritional products segment 41 billion diagnostic products segment 155 billion cardiovascular neuromodulation products segment cardiovascular abbott laboratories subsidiaries notes consolidated financial statements continued note 7 goodwill intangible assets continued neuromodulation products segment includes amount previously reported abbotts vascular products segment well goodwill related st jude medical acquisition 2017 significant reduction goodwill relating impairments gross amount amortizable intangible assets primarily product rights technology 256 billion 104 billion december 31 2017 2016 respectively accumulated amortization 81 billion 62 billion december 31 2017 2016 respectively december 31 2016 amounts exclude net intangible assets reported noncurrent assets held disposition part sale amo 2017 approximately 529 million net intangible assets included net assets sold 2017 gross amount amortizable intangible assets increased approximately 145 billion due completion st jude medical alere acquisitions partially offset decrease 210 million due sale certain businesses quidel siemens 2016 intangible assets increased approximately 104 million related business acquisitions indefinitelived intangible assets relate inprocess research development acquired business combination approximately 39 billion 349 million december 31 2017 2016 respectively 2017 inprocess research development increased 45 billion due completion st jude medical alere acquisitions portion became amortizable year 2017 abbott also recorded 53 million impairment inprocess research development project related cardiovascular neuromodulation products segment 2016 abbott recorded impairment 59 million inprocess research development project related nonreportable segment foreign currency translation increased intangible assets 227 million 2017 6 million 2016 estimated annual amortization expense intangible assets recorded december 31 2017 approximately 24 billion 2018 23 billion 2019 21 billion 2020 20 billion 2021 20 billion 2022 amortizable intangible assets amortized 2 20 years average 14 years note 8 restructuring plans 2017 abbott management approved restructuring plans part integration acquisitions st jude medical cardiovascular neuromodulation segment alere diagnostics segment order leverage economies scale reduce costs 2017 charges approximately 187 million including onetime employee termination benefits recorded approximately 5 million recorded cost products sold approximately 182 million selling general administrative expense abbott also assumed restructuring liabilities approximately 23 million part st jude medical alere acquisitions following summarizes activity 2017 related actions status related accrual december 31 2017 abbott laboratories subsidiaries notes consolidated financial statements continued note 8 restructuring plans continued 2014 2017 abbott management approved plans streamline operations order reduce costs improve efficiencies various abbott businesses including nutritional established pharmaceuticals vascular businesses abbott recorded employee related severance charges approximately 120 million 2017 33 million 2016 95 million 2015 approximately 7 million 2017 9 million 2016 18 million 2015 recorded cost products sold approximately 77 million 2017 5 million 2016 34 million 2015 recorded research development approximately 36 million 2017 19 million 2016 43 million 2015 recorded selling general administrative expense additional charges approximately 2 million 2017 2 million 2016 45 million 2015 recorded primarily accelerated depreciation following summarizes activity restructurings note 9 incentive stock program connection completion st jude medical acquisition first quarter 2017 unvested st jude medical stock options restricted stock units assumed abbott converted abbott options restricted stock units applicable substantially equivalent value accordance merger agreement number shares underlying converted options 7364571 weighted average exercise price 3050 number restricted stock units converted 2324500 weighted average grant date fair value 3769 2017 incentive stock program authorizes granting nonqualified stock options restricted stock awards restricted stock units performance awards foreign benefits sharebased awards stock options restricted stock awards units comprise majority benefits granted currently outstanding program prior program 2017 abbott granted 4985970 stock options 580203 restricted stock awards 7687009 restricted stock units program abbotts stock incentive programs purchase price shares option must least equal fair market value common stock date grant maximum term option 10 years options generally vest equally three years restricted stock awards generally vest 3 5 years restricted stock awards vest 5 years onethird abbott laboratories subsidiaries notes consolidated financial statements continued note 9 incentive stock program continued award vests one year upon abbott reaching minimum return equity target restricted stock units vest three years upon vesting recipient receives one share abbott stock vested restricted stock unit aggregate fair market value restricted stock awards units recognized expense requisite service period may shorter vesting period employee retirement eligible forfeitures estimated time grant restricted stock awards settlement vested restricted stock units issued treasury shares abbott generally issues new shares exercises stock options policy abbott purchase shares relating sharebased programs april 2017 abbotts shareholders authorized 2017 incentive stock program maximum 170 million shares available issuance december 31 2017 approximately 169 million shares remained available future issuance number restricted stock awards units outstanding weightedaverage grantdate fair value december 31 2017 december 31 2016 15518719 4282 13705511 4103 respectively number restricted stock awards units weightedaverage grantdate fair value granted converted vested lapsed 2017 8267212 4520 2324500 3769 7553969 4077 1224535 4176 respectively fair market value restricted stock awards units vested 2017 2016 2015 348 million 225 million 312 million respectively aggregate intrinsic value options outstanding exercisable december 31 2017 500 million total intrinsic value options exercised 2017 2016 2015 233 million 98 million 167 million respectively total unrecognized compensation cost related sharebased compensation plans december 31 2017 amounted approximately 291 million expected recognized next three years total noncash stock compensation expense charged income continuing operations 2017 2016 2015 sharebased plans totaled approximately 406 million 310 million 291 million respectively tax benefit recognized approximately 242 million 100 million 98 million respectively increase 2017 tax benefit primarily relates 120 million tax benefit recorded income adoption asu 201609 stock compensation cost capitalized part inventory significant abbott laboratories subsidiaries notes consolidated financial statements continued note 9 incentive stock program continued fair value option granted 2017 2016 2015 654 438 667 respectively fair value option grant estimated using blackscholes optionpricing model following assumptions riskfree interest rate based rates available time grant zerocoupon us government issues remaining term equal options expected life average life option based historical projected exercise lapsing data expected volatility based implied volatilities traded options abbotts stock historical volatility abbotts stock expected life option dividend yield based options exercise price annual dividend rate time grant abbott laboratories subsidiaries notes consolidated financial statements continued note 10 debt lines credit following summary longterm debt december 31 millions first quarter 2017 part acquisition st jude medical abbotts longterm debt increased due assumption outstanding debt previously issued st jude medical abbott exchanged certain st jude medical debt obligations aggregate principal amount approximately 29 billion debt issued abbott consists following exchange approximately 1942 million existing st jude medical notes remain outstanding across five series existing notes coupons maturities listed significant costs associated exchange debt addition abbott laboratories subsidiaries notes consolidated financial statements continued note 10 debt lines credit continued first quarter 2017 abbott assumed subsequently repaid approximately 28 billion various st jude medical debt obligations january 4 2017 part funding cash portion st jude medical acquisition abbott borrowed 20 billion 120day senior unsecured bridge term loan facility repaid first quarter 2017 abbott issued 364day yendenominated debt 195 million outstanding december 31 2017 abbott also paid 479 million yendenominated shortterm borrowing year july 31 2017 abbott entered 5year term loan agreement allowed abbott borrow 28 billion unsecured basis acquisition alere october 3 2017 abbott borrowed 28 billion term loan agreement finance acquisition alere repay certain indebtedness abbott alere pay fees expenses connection acquisition borrowings term loan bore interest based eurodollar rate plus applicable margin based abbotts credit ratings abbott paid term loan january 5 2018 october 3 2017 abbott borrowed 17 billion lines credit proceeds borrowing used finance acquisition alere repay certain indebtedness abbott alere pay fees expenses connection acquisition lines credit part 2014 revolving credit agreement provides abbott ability borrow 5 billion unsecured basis advances revolving credit agreement including 17 billion borrowing october 2017 mature payable july 10 2019 17 billion borrowing bore interest based eurodollar rate plus applicable margin based abbotts credit ratings prior october 3 2017 amounts previously drawn revolving credit agreement fourth quarter 2017 abbott paid 550 million revolving loan abbott paid remaining balance revolving loan january 5 2018 fourth quarter 2017 conjunction acquisition alere abbott assumed subsequently repaid 30 billion aleres debt november 2016 abbott issued 151 billion medium longterm debt primarily fund cash portion acquisition st jude medical abbott issued 285 billion 235 senior notes due november 22 2019 285 billion 290 senior notes due november 30 2021 150 billion 340 senior notes due november 30 2023 300 billion 375 senior notes due november 30 2026 165 billion 475 senior notes due november 30 2036 325 billion 490 senior notes due november 30 2046 november 2016 abbott also entered interest rate swap contracts totaling 30 billion related new debt effect changing abbotts obligation fixed interest rate variable interest rate obligation related debt instruments march 2015 abbott issued 25 billion longterm debt consisting 750 million 200 senior notes due march 15 2020 750 million 255 senior notes due march 15 2022 10 billion 295 senior notes due march 15 2025 proceeds debt used pay shortterm borrowings abbott also entered interest rate swap contracts totaling 25 billion 15 billion unwound 2017 contracts effect changing abbotts obligation fixed interest rate variable interest rate obligation abbott laboratories subsidiaries notes consolidated financial statements continued note 10 debt lines credit continued principal payments required longterm debt outstanding december 31 2017 508 million 2018 50 billion 2019 18 billion 2020 29 billion 2021 36 billion 2022 143 billion 2023 thereafter december 31 2017 abbotts longterm debt rating bbb standard poors corporation baa3 moodys investors service moodys february 2018 moodys raised abbotts rating baa2 positive outlook abbott readily available financial resources including lines credit 50 billion expire 2019 support commercial paper borrowing arrangements abbotts weightedaverage interest rate shortterm borrowings 03 december 31 2017 06 december 31 2016 02 december 31 2015 february 2016 abbott obtained commitment 364day senior unsecured bridge term loan facility amount exceed 9 billion conjunction pending acquisition alere commitment automatically extended 90 days january 29 2017 expired april 30 2017 renewed since abbott need bridge facility finance alere acquisition fees associated bridge facilities recognized interest expense note 11 financial instruments derivatives fair value measures certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts notional amounts totaling 33 billion december 31 2017 26 billion december 31 2016 designated cash flow hedges variability cash flows due changes foreign exchange rates recorded fair value december 31 2016 107 million notional amount related amo business divested first quarter 2017 accumulated gains losses december 31 2017 included cost products sold time products sold generally next twelve eighteen months amount hedge ineffectiveness significant 2017 2016 2015 abbott enters foreign currency forward exchange contracts manage currency exposures foreign currency denominated thirdparty trade payables receivables intercompany loans trade accounts payable receivable payable denominated currency functional currency entity intercompany loans contracts require abbott sell buy foreign currencies primarily european currencies japanese yen exchange primarily us dollars european currencies intercompany trade payables receivables currency exposures primarily us dollar european currencies japanese yen december 31 2017 2016 2015 abbott held notional amounts 201 billion 149 billion 140 billion respectively foreign currency forward exchange contracts december 31 2016 12 billion contracts related amo business divested first quarter 2017 march 2017 abbott repaid 479 million foreign denominated shortterm debt designated hedge net investment foreign subsidiary december 31 2016 2015 value shortterm debt 454 million 439 million respectively changes fair value debt date repayment due changes exchange rates recorded accumulated comprehensive income loss net tax abbott laboratories subsidiaries notes consolidated financial statements continued note 11 financial instruments derivatives fair value measures continued abbott party interest rate hedge contracts totaling notional amounts 40 billion december 31 2017 55 billion december 31 2016 40 billion december 31 2015 manage exposure changes fair value fixedrate debt contracts designated fair value hedges variability fair value fixedrate debt due changes longterm benchmark interest rates effect hedge change fixedrate interest obligation variable rate portion debt abbott records contracts fair value adjusts carrying amount fixedrate debt offsetting amount hedge ineffectiveness recorded income 2017 2016 2015 hedges second quarter 2017 abbott unwound approximately 15 billion interest rate swaps relating 200 note due 2020 255 note due 2022 proceeds received significant december 2016 abbott unwound approximately 15 billion interest rate swaps relating 4125 note due 2020 5125 note due 2019 part unwinding abbott received approximately 55 million cash included cash flow financing activities section consolidated statement cash flows 2016 gross unrealized holding gains losses availableforsale equity securities totaled 5 million 10 million 171 million december 31 2017 2016 2015 respectively following table summarizes amounts location certain derivative financial instruments december 31 abbott laboratories subsidiaries notes consolidated financial statements continued note 11 financial instruments derivatives fair value measures continued following table summarizes activity foreign currency forward exchange contracts designated cash flow hedges debt designated hedge net investment foreign subsidiary certain derivative financial instruments well amounts location income expense gain loss reclassified income amount hedge ineffectiveness significant 2017 2016 2015 hedges losses 64 million gains 8 million losses 77 million recognized 2017 2016 2015 respectively related foreign currency forward exchange contracts designated hedges amounts reported consolidated statement earnings net foreign exchange gain loss line interest rate swaps designated fair value hedges variability fair value fixedrate debt due changes longterm benchmark interest rates hedged debt marked market offsetting effect marking interest rate swaps market carrying values fair values certain financial instruments december 31 shown table carrying values financial instruments approximate estimated fair values counterparties financial instruments consist select major international financial institutions abbott expect losses nonperformance counterparties abbott laboratories subsidiaries notes consolidated financial statements continued note 11 financial instruments derivatives fair value measures continued following table summarizes bases used measure certain assets liabilities fair value recurring basis balance sheet decrease equity securities 2017 driven sale remaining mylan nv ordinary shares held abbott sold 6975 million ordinary shares mylan nv 2017 value approximately 27 billion fair value mylan nv equity securities date sale determined based value publiclytraded ordinary shares fair value foreign currency forward exchange contracts determined using market approach utilizes values comparable derivative instruments fair value debt determined based face value debt adjusted fair value interest rate swaps based discounted cash flow analysis using significant observable inputs fair value contingent consideration determined based independent appraisals adjusted time value money changes fair value primarily resulting changes regulatory timelines contingent consideration relates businesses acquired abbott maximum amount certain contingent consideration determinable based percent certain sales excluding contingent consideration maximum amount estimated due approximately 525 million dependent upon attaining certain sales thresholds based occurrence certain events regulatory approvals abbott laboratories subsidiaries notes consolidated financial statements continued note 12 litigation environmental matters abbott identified potentially responsible party investigation cleanup costs number locations united states puerto rico federal state remediation laws investigating potential contamination number companyowned locations abbott recorded estimated cleanup cost site management believes abbott probable loss exposure individual site cleanup exposure expected exceed 4 million aggregate cleanup exposure expected exceed 10 million abbott involved various claims legal proceedings abbott estimates range possible loss legal proceedings environmental exposures approximately 115 million 160 million recorded accrual balance december 31 2017 proceedings exposures approximately 135 million accrual represents managements best estimate probable loss defined fasb asc 450 contingencies within next year legal proceedings may occur may result change estimated loss accrued abbott feasible predict outcome proceedings exposures certainty management believes ultimate disposition material adverse effect abbotts financial position cash flows results operations abbott laboratories subsidiaries notes consolidated financial statements continued note 13 postemployment benefits retirement plans consist defined benefit defined contribution medical dental plans information abbotts major defined benefit plans postemployment medical dental benefit plans follows projected benefit obligations nonus defined benefit plans 30 billion 25 billion december 31 2017 2016 respectively accumulated benefit obligations defined benefit plans 89 billion 74 billion december 31 2017 2016 respectively abbott laboratories subsidiaries notes consolidated financial statements continued note 13 postemployment benefits continued plans accumulated benefit obligations exceeded plan assets december 31 2017 2016 aggregate accumulated benefit obligations projected benefit obligations aggregate plan assets follows components net periodic benefit cost follows 2017 abbott recognized 10 million curtailment gain related sale amo comprehensive income loss respective year includes amortization actuarial losses prior service costs credits noted previous table comprehensive income loss respective year also includes net actuarial losses 247 million defined benefit plans 97 million medical dental plans 2017 net actuarial losses 571 million defined benefit plans 20 million medical dental plans 2016 net actuarial gains 37 million defined benefit plans 116 million medical dental plans 2015 pretax amount actuarial losses prior service cost credits included accumulated comprehensive income loss december 31 2017 expected recognized net periodic benefit cost 2018 213 million 1 million expense respectively defined benefit pension plans 31 million expense 45 million income respectively medical dental plans weighted average assumptions used determine benefit obligations defined benefit plans medical dental plans follows abbott laboratories subsidiaries notes consolidated financial statements continued note 13 postemployment benefits continued weighted average assumptions used determine net cost defined benefit plans medical dental plans follows assumed health care cost trend rates medical dental plans december 31 follows discount rates used measure liabilities determined based highquality fixed income securities match duration expected retiree benefits health care cost trend rates represent abbotts expected annual rates change cost health care benefits forward projections health care costs measurement date onepercentage point increasedecrease assumed health care cost trend rate would increasedecrease accumulated postemployment benefit obligations december 31 2017 179 million 150 million total service interest cost components net postemployment health care cost year ended approximately 11 million9 million abbott laboratories subsidiaries notes consolidated financial statements continued note 13 postemployment benefits continued following table summarizes basis used measure defined benefit medical dental plan assets fair value aa mix index funds actively managed equity accounts benchmarked various large cap indices ba mix index funds actively managed equity accounts benchmarked various mid small cap indices ca mix index funds actively managed pooled investment funds benchmarked various nonus equity indices developed emerging markets abbott laboratories subsidiaries notes consolidated financial statements continued note 13 postemployment benefits continued da mix index funds actively managed accounts benchmarked various us government bond indices ea mix index funds actively managed accounts benchmarked various corporate bond indices fprimarily united kingdom japan netherlands irish governmentissued bonds gprimarily asset backed securities actively managed diversified fixed income vehicle benchmarked onemonth libor euribor hprimarily funds invested managers global mandate flexibility allocate capital broadly across wide range asset classes strategies including limited equities fixed income commodities interest rate futures currencies securities outperform agreed upon benchmark specific return volatility targets iprimarily investments liquid commodity future contracts private energy funds jprimarily investments private funds private equity private credit private real estate kin accordance asu 201507 investments measured fair value using nav practical expedient classified fair value hierarchy fair value amounts presented table intended permit reconciliation fair value hierarchy amounts presented consolidated balance sheet equities valued using quoted prices valued published market prices equities common collective trust registered investment company valued using significant observable inputs valued nav provided fund administrator nav based value underlying assets owned fund minus liabilities approximately half funds investments may redeemed per month required 7 30 day notice period remaining funds daily redemption investment allowed fixed income securities valued using significant observable inputs valued prices obtained independent financial service industry recognized vendors abbott unfunded commitments related fixed income funds december 31 2017 2016 majority funds investments may redeemed either weekly monthly required 2 14 day notice period remaining funds investments may generally redeemed daily absolute return funds commodities valued nav provided fund administrator private funds valued nav provided fund onequarter lag adjusted known cash flows significant events reporting date abbott unfunded commitments related absolute return funds december 31 2017 2016 investments funds may generally redeemed monthly quarterly required notice periods ranging 5 45 days approximately 100 million absolute return funds redemptions subject 25 gate commodities investments private energy funds cannot redeemed funds make distributions liquidation estimate liquidation period fund ranges 2018 2022 abbotts unfunded commitments funds december 31 2017 2016 significant investments private funds excluding private energy funds cannot redeemed funds make distributions liquidation estimate liquidation period fund ranges 2018 2027 abbotts unfunded commitment funds 489 million 337 million december 31 2017 2016 respectively abbott laboratories subsidiaries notes consolidated financial statements continued note 13 postemployment benefits continued investment mix equity securities fixed income asset allocation strategies based upon achieving desired return well balancing higher return volatile equity securities lower return less volatile fixed income securities investment allocations made across range markets industry sectors capitalization sizes case fixed income securities maturities credit quality plans directly hold securities abbott known significant concentrations risk plans assets abbotts medical dental plans assets invested similar mix pension plan assets actual asset allocation percentages year end consistent companys targeted asset allocation percentages plans expected return assets shown based managements expectations longterm average rates return achieved underlying investment portfolios establishing assumption management considers historical expected returns asset classes plans invested well current economic capital market conditions abbott funds domestic pension plans according irs funding limitations international pension plans funded according similar regulations abbott funded 645 million 2017 582 million 2016 defined pension plans abbott expects contribute approximately 114 million pension plans 2018 total benefit payments expected paid participants includes payments funded company assets well paid plans follows abbott stock retirement plan principal defined contribution plan abbotts contributions plan 79 million 2017 83 million 2016 81 million 2015 note 14 taxes earnings continuing operations taxes earnings continuing operations reflect annual effective rates including charges interest penalties deferred income taxes reflect tax consequences future years differences tax bases assets liabilities financial reporting amounts tax cuts jobs act tcja enacted us december 22 2017 tcja reduces us federal corporate tax rate 35 21 requires companies pay onetime transition tax earnings certain foreign subsidiaries previously tax deferred creates new taxes certain foreign sourced earnings abbott laboratories subsidiaries notes consolidated financial statements continued note 14 taxes earnings continuing operations continued fourth quarter 2017 abbott recorded estimate net tax expense 146 billion impact tcja included taxes earnings continuing operations consolidated statement earnings estimate provisional includes charge approximately 289 billion transition tax partially offset net benefit approximately 142 billion remeasurement deferred tax assets liabilities net benefit approximately 10 million related certain impacts tcja onetime transition tax based abbotts total post1986 earnings profits ep previously deferred us income taxes abbott yet completed calculation total post1986 ep foreign subsidiaries tax computation also requires determination amount post1986 ep considered held cash specified assets amount may change abbott finalizes calculation post1986 foreign ep previously deferred us federal taxation finalizes amounts held cash specified assets abbott plans elect pay transition tax eight years allowed tcja given significant complexity tcja abbott continue evaluate analyze impact legislation 146 billion estimate provisional based abbotts initial analysis tcja may materially adjusted future periods due among things additional analysis performed abbott additional guidance may issued us department treasury securities exchange commission financial accounting standards board 2017 taxes earnings continuing operations also include 435 million tax expense related gain sale amo business 2016 taxes earnings continuing operations include impact net tax benefit approximately 225 million primarily result resolution various tax positions prior years partially offset unfavorable impact nondeductible foreign exchange losses related venezuela adjustment mylan nv equity investment well recognition deferred taxes associated pending sale amo 2015 taxes earnings continuing operations include tax cost 71 million related disposal shares mylan nv stock additional income taxes provided remaining undistributed foreign earnings subject transition tax determining amount unrecognized deferred tax liability related remaining undistributed foreign earnings subject transition tax additional outside basis difference entities practicable us abbotts federal income tax returns 2013 settled except federal income tax returns former alere consolidated group settled 2012 numerous income tax jurisdictions tax returns yet settled none individually significant reserves interest penalties significant earnings continuing operations taxes related provisions taxes earnings continuing operations follows abbott laboratories subsidiaries notes consolidated financial statements continued note 14 taxes earnings continuing operations continued differences effective income tax rate us statutory tax rate follows impact foreign operations primarily derived operations puerto rico switzerland ireland netherlands costa rica singapore 2015 effective tax rate includes impact rd tax credit made permanent us protecting americans tax hikes act 2015 abbott laboratories subsidiaries notes consolidated financial statements continued note 14 taxes earnings continuing operations continued tax effect differences give rise deferred tax assets liabilities follows abbott incurred losses foreign jurisdiction realization future economic benefit remote benefit reflected deferred tax asset increase valuation allowance 2016 2017 relates deferred tax assets recorded certain entities acquired part acquisition st jude medical abbott believe likely benefits deferred tax assets realized following table summarizes gross amounts unrecognized tax benefits without regard reduction tax liabilities additions deferred tax assets liabilities unrecognized tax benefits settled abbott laboratories subsidiaries notes consolidated financial statements continued note 14 taxes earnings continuing operations continued total amount unrecognized tax benefits recognized would impact effective tax rate approximately 136 billion abbott believes reasonably possible recorded amount gross unrecognized tax benefits may decrease within range 150 million 300 million including cash adjustments within next twelve months result concluding various domestic international tax matters note 15 segment geographic area information abbotts principal business discovery development manufacture sale broad line health care products abbotts products generally sold directly retailers wholesalers hospitals health care facilities laboratories physicians offices government agencies throughout world january 4 2017 abbott completed acquisition st jude medical beginning first quarter 2017 abbotts cardiovascular neuromodulation business includes results historical vascular products segment results businesses acquired st jude medical date acquisition october 3 2017 abbott completed acquisition alere beginning fourth quarter 2017 abbotts diagnostic products reportable segment includes results alere date acquisition abbotts reportable segments follows established pharmaceutical products international sales broad line branded generic pharmaceutical products nutritional products worldwide sales broad line adult pediatric nutritional products diagnostic products worldwide sales diagnostic systems tests blood banks hospitals commercial laboratories alternatecare testing sites segment reporting purposes core laboratories diagnostics molecular diagnostics point care rapid diagnostics ibis diagnostic divisions aggregated reported diagnostic products segment rapid diagnostics business acquired alere cardiovascular neuromodulation products worldwide sales rhythm management electrophysiology heart failure vascular structural heart neuromodulation products nonreportable segments include amo date sale diabetes care abbotts underlying accounting records maintained legal entity basis government public reporting requirements segment disclosures performance basis consistent internal management reporting cost corporate functions cost certain employee benefits charged segments predetermined rates approximate cost remaining costs allocated segments addition intangible asset amortization allocated operating segments intangible assets goodwill included measure segments assets abbott laboratories subsidiaries notes consolidated financial statements continued note 15 segment geographic area information continued following segment information prepared accordance internal accounting policies abbott described presented accordance generally accepted accounting principles applied consolidated financial statements anet sales unfavorably affected relatively stronger us dollar 2016 2015 operating earnings unfavorably affected impact foreign exchange 2017 2016 2015 bother net includes inventory stepup amortization integration costs associated acquisition st jude medical alere restructuring charges partially offset gain sale amo business 2017 2016 net includes 947 million adjustment mylan equity investment 480 million foreign currency exchange loss related operations venezuela charges restructuring actions cost reduction initiatives approximately 384 million 2017 167 million 2016 310 million 2015 includes 207 million pretax gain sale portion mylan nv ordinary shares abbott laboratories subsidiaries notes consolidated financial statements continued note 15 segment geographic area information continued camounts exclude property plant equipment acquired business acquisitions dgoodwill intangible assets related amo included line 2016 abbott laboratories subsidiaries notes consolidated financial statements continued note 15 segment geographic area information continued esales country based country sold product longlived assets geographic basis primarily include property plant equipment excludes goodwill intangible assets deferred tax assets financial instruments december 31 2017 2016 longlived assets totaled 89 billion 66 billion respectively united states assets totaled 45 billion 31 billion respectively longlived asset balances associated countries material individual country basis either two years abbott laboratories subsidiaries notes consolidated financial statements continued note 16 quarterly results unaudited athe sum four quarters earnings per share 2017 2016 may add full year earnings per share amount due rounding andor use quartertodate weighted average shares calculate earnings per share amount respective quarter management report internal control financial reporting management abbott laboratories responsible establishing maintaining adequate internal control financial reporting abbotts internal control system designed provide reasonable assurance companys management board directors regarding preparation fair presentation published financial statements internal control systems matter well designed inherent limitations therefore even systems determined effective provide reasonable assurance respect financial statement preparation presentation abbotts management assessed effectiveness companys internal control financial reporting december 31 2017 making assessment used criteria set forth internal control integrated framework 2013 issued committee sponsoring organizations treadway commission allowed sec guidance management excluded assessment october 2017 acquisition alere inc accounted approximately 13 abbotts total assets 2 abbotts total net sales continuing operations year ended december 31 2017 based assessment believe december 31 2017 companys internal control financial reporting effective based criteria abbotts independent registered public accounting firm issued audit report assessment effectiveness companys internal control financial reporting report appears page 96 miles white chairman board chief executive officer brian b yoor executive vice president finance chief financial officer robert e funck vice president controller february 16 2018 report independent registered public accounting firm shareholders board directors abbott laboratories opinion financial statements audited accompanying consolidated balance sheets abbott laboratories subsidiaries company december 31 2017 2016 related consolidated statements earnings comprehensive income shareholders investment cash flows three years period ended december 31 2017 related notes collectively referred financial statements opinion financial statements present fairly material respects consolidated financial position company december 31 2017 2016 consolidated results operations cash flows three years period ended december 31 2017 conformity us generally accepted accounting principles also audited accordance standards public company accounting oversight board united states pcaob companys internal control financial reporting december 31 2017 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission 2013 framework report dated february 16 2018 expressed unqualified opinion thereon basis opinion financial statements responsibility companys management responsibility express opinion companys financial statements based audits public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audits accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement whether due error fraud audits included performing procedures assess risks material misstatement financial statements whether due error fraud performing procedures respond risks procedures include examining test basis evidence regarding amounts disclosures financial statements audits also included evaluating accounting principles used significant estimates made management well evaluating overall presentation financial statements believe audits provide reasonable basis opinion ernst young llp served companys auditor since 2013 chicago illinois february 16 2018 report independent registered public accounting firm shareholders board directors abbott laboratories opinion internal control financial reporting audited abbott laboratories subsidiaries internal control financial reporting december 31 2017 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission 2013 framework coso criteria opinion abbott laboratories subsidiaries company maintained material respects effective internal control financial reporting december 31 2017 based coso criteria indicated accompanying management report internal control financial reporting managements assessment conclusion effectiveness internal control financial reporting include internal controls alere inc included 2017 consolidated financial statements company constituted approximately 13 total assets december 31 2017 2 total net sales continuing operations year ended audit internal control financial reporting company also include evaluation internal control financial reporting alere inc also audited accordance standards public company accounting oversight board united states pcaob consolidated balance sheets company december 31 2017 2016 related consolidated statements earnings comprehensive income shareholders investment cash flows three years period ended december 31 2017 related notes company report dated february 16 2018 expressed unqualified opinion thereon basis opinion companys management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management report internal control financial reporting responsibility express opinion companys internal control financial reporting based audit public accounting firm registered pcaob required independent respect company accordance us federal securities laws applicable rules regulations securities exchange commission pcaob conducted audit accordance standards pcaob standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion definition limitations internal control financial reporting companys internal control financial reporting process designed provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting may prevent detect misstatements also projections evaluation effectiveness future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate ernst young llp chicago illinois february 16 2018 item 9 item 8 financial statements supplementary data abbott laboratories subsidiaries consolidated statement earnings dollars shares thousands except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement cash flows dollars thousands accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated balance sheet dollars thousands abbott laboratories subsidiaries consolidated balance sheet dollars thousands accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries consolidated statement shareholders investment dollars thousands except per share data accompanying notes consolidated financial statements integral part statement abbott laboratories subsidiaries notes consolidated financial statements note 1 summary significant accounting policies nature business abbotts principal business discovery development manufacture sale broad line health care products concentration risk guarantees due nature operations abbott subject significant concentration risks relating customers products geographic locations except three us wholesalers accounted 23 percent 27 percent 25 percent trade receivables december 31 2009 2008 2007 respectively product warranties significant abbott material exposures offbalance sheet arrangements special purpose entities activities include nonexchangetraded contracts accounted fair value abbott periodically entered agreements ordinary course business assignment product rights companies resulted abbott becoming secondarily liable obligations abbott previously primarily liable since abbott longer maintains business relationship parties abbott unable develop estimate maximum potential amount future payments obligations based upon past experience likelihood payments agreements remote abbott periodically acquires business product rights abbott agrees pay contingent consideration based attaining certain thresholds based occurrence certain events connection spinoff hospira inc abbott retained liabilities taxes income prior spinoff certain potential liabilities related alleged improper pricing practices connection federal state private reimbursement certain drugs basis consolidation consolidated financial statements include accounts parent company subsidiaries elimination intercompany transactions accounts foreign subsidiaries consolidated november 30 due time needed consolidate subsidiaries december 2009 foreign subsidiary acquired certain technology accounted acquired inprocess research development transaction recorded 2009 due significance amount events occurred related foreign subsidiaries december 2009 2008 2007 materially affected financial position results operations cash flows events occurred december 31 2009 date financial statements filed securities exchange commission considered preparation financial statements effective january 1 2009 abbott adopted sfas 160 noncontrolling interests consolidated financial statements amendment arb 51 codified fasb asc 810 consolidation accordingly noncontrolling interests subsidiaries presented component total equity december 31 2009 2008 2007 use estimates financial statements prepared accordance generally accepted accounting principles united states necessarily include amounts based estimates assumptions management actual results could differ amounts significant estimates include amounts sales rebates income taxes pension postemployment benefits valuation intangible assets litigation sharebased compensation derivative financial instruments inventory accounts receivable exposures revenue recognition revenue product sales recognized upon passage title risk loss customers provisions discounts rebates sales incentives customers returns adjustments provided period related sales recorded sales incentives customers material historical data readily available reliable used estimating note 1 summary significant accounting policies continued amount reduction gross sales revenue launch new product improved version existing product shipments excess customers normal requirements recorded conditions noted met situations management records returns reserve revenue necessary sales product rights marketable products recorded revenue upon disposition rights revenue license product rights performance research selling activities recorded periods earned income taxes deferred income taxes provided tax effect differences tax bases assets liabilities reported amounts financial statements enacted statutory rate effect taxes paid us income taxes provided earnings foreign subsidiaries intended remitted parent company deferred income taxes provided undistributed earnings reinvested indefinitely foreign subsidiaries working capital plant equipment interest penalties income tax obligations included taxes income earnings per share effective january 1 2009 abbott adopted fsp eitf 0361 determining whether instruments granted sharebased payment transactions participating securities codified fasb asc 260 earnings per share requires unvested restricted stock units contain nonforfeitable rights dividends treated participating securities included computation earnings per share twoclass method twoclass method net earnings allocated common shares participating securities net earnings allocated common shares 2009 5733 billion net earnings allocated common shares 2008 2007 significantly different net earnings pension postemployment benefits abbott accrues actuarially determined cost pension postemployment benefits service attribution periods employees abbott must develop longterm assumptions significant health care cost trend rates discount rates expected return plan assets differences expected longterm return plan assets actual return amortized fiveyear period actuarial losses gains amortized remaining service attribution periods employees corridor method fair value measurements assets liabilities measured using quoted prices active markets total fair value published market price per unit multiplied number units held without consideration transaction costs assets liabilities measured using significant observable inputs valued reference similar assets liabilities adjusted contract restrictions terms specific asset liability items significant portion fair value derived reference quoted prices similar assets liabilities active markets remaining assets liabilities fair value derived using fair value model discounted cash flow model blackscholes model purchased intangible assets recorded fair value fair value significant purchased intangible assets based independent appraisals abbott uses discounted cash flow model value intangible assets discounted cash flow model requires assumptions timing amount future net cash flows risk cost capital terminal values market participants intangible assets goodwill indefinitelived intangible assets reviewed impairment least quarterly annual basis respectively sharebased compensation value stock options restricted stock awards units amortized service period could shorter vesting period employee retirement eligible charge compensation expense litigation abbott accounts litigation losses accordance fasb asc 450 contingencies asc 450 loss contingency provisions recorded probable losses note 1 summary significant accounting policies continued managements best estimate loss best estimate cannot made minimum loss contingency amount recorded cash equivalents investments cash equivalents consist time deposits certificates deposit original maturities three months less except abbotts investment common stock boston scientific investments marketable equity securities classified availableforsale recorded fair value unrealized holding gains losses net tax included accumulated comprehensive income loss beginning january 1 2007 investment common stock boston scientific accounted trading security changes fair value recorded income investments equity securities traded public stock exchanges recorded cost investments debt securities classified heldtomaturity management intent ability hold securities maturity reported cost net unamortized premium discount income relating securities reported interest income abbott reviews carrying value investments quarter determine whether temporary decline market value exists abbott considers factors affecting investee factors affecting industry investee operates general equity market trends abbott considers length time investments market value carrying value nearterm prospects recovery carrying value abbott determines temporary decline occurred investment written charge income expense net inventories stated lower cost firstin firstout basis market cost includes material conversion costs property equipment depreciation amortization provided straightline basis estimated useful lives assets following table shows estimated useful lives property equipment product liability abbott accrues product liability claims undiscounted basis probable liability incurred amount liability reasonably estimated based existing information liabilities adjusted quarterly additional information becomes available receivables insurance recoveries product liability claims recorded assets undiscounted basis probable recovery realized prior 2009 abbott carried thirdparty insurance coverage amounts reflect historical loss experience include coverage sizable losses beginning 2009 product liability losses selfinsured research development costs internal research development costs expensed incurred clinical trial costs incurred third parties expensed contracted work performed contingent milestone payments due third parties research development arrangements milestone payment obligations expensed milestone results achieved note 2 supplemental financial information fair value option investment boston scientific common stock applied effective january 1 2007 fair value option cumulative unrealized gains losses equity investment previously accounted availableforsale security recorded cumulative effect adjustment retained earnings date election apply fair value option pretax tax adjustment earnings employed business upon election apply fair value option 297 million 189 million respectively fair value carrying amount investment election approximately 10 billion pretax tax adjustment accumulated comprehensive income loss 303 million 182 million respectively effect deferred income taxes applying fair value option significant income expense net 2009 includes derecognition contingent liability 797 million associated conclusion tap pharmaceutical products inc joint venture discussed note 3 287 million gain settlement reached abbott medtronic inc resolving outstanding intellectual property litigation two parties income recording certain investments fair value connection business acquisitions income expense net 2009 2008 also includes ongoing contractual payments takeda associated conclusion tap joint venture gain 2008 sale equity investment accounted availableforsale investment addition abbott recorded gain approximately 94 million connection dissolution tap joint venture 2008 income expense net 2007 includes 190 million fair market value loss adjustment abbotts investment boston scientific common stock realized gain 37 million sales boston scientific common stock note 2 supplemental financial information continued aaccrued wholesaler chargeback rebates 217 210 157 december 31 2009 2008 2007 respectively netted trade receivables abbotts customers invoiced higher catalog price remit abbott contract price products acquired lupron business 2008 discussed note 3 abbott recorded intangible assets primarily lupron product rights approximately 700 million goodwill approximately 350 million deferred tax liabilities related intangible assets approximately 260 million abbott also recorded liability approximately 11 billion relating agreement remit cash takeda certain research development events achieved development assets retained takeda related deferred tax assets approximately 410 million also recorded sale abbotts equity interest note 2 supplemental financial information continued tap resulted recording net assets related lupron business primarily cash receivables inventory assets net accounts payable accrued liabilities offset credit abbotts investment tap amount approximately 280 million note 3 conclusion tap pharmaceutical products inc joint venture sale abbotts spine business april 30 2008 abbott takeda concluded tap pharmaceutical products inc tap joint venture evenly splitting value assets joint venture abbott exchanged 50 percent equity interest tap assets liabilities employees related taps lupron business subsequent conclusion joint venture tap merged two takeda entities exchange abbotts investment tap taps lupron business resulted gain closing approximately 94 million internal revenue service issued private letter ruling transaction qualifies taxfree us income tax purposes beginning may 1 2008 abbott began recording us lupron net sales costs operating results longer records income tap joint venture taps sales lupron 182 million four months ended april 30 2008 645 million 2007 abbott also receives payments based specified development approval commercial events achieved respect products retained takeda payments takeda based sales products retained takeda recorded abbott income expense net earned exchange transaction accounted sale abbotts equity interest tap acquisition taps lupron business sale abbotts equity interest tap resulted recording net assets related lupron business primarily cash receivables inventory assets net accounts payable accrued liabilities offset credit abbotts investment tap amount approximately 280 million acquired lupron business abbott recorded intangible assets primarily lupron product rights approximately 700 million goodwill approximately 350 million deferred tax liabilities related primarily intangible assets approximately 260 million intangible assets amortized 15 years abbott also agreed remit cash takeda certain research development events achieved development assets retained takeda amounts recorded liability closing amount approximately 11 billion related deferred tax assets approximately 410 million also recorded 11 billion abbott made taxdeductible payments 83 million 200 million 2009 2008 respectively abbott make taxdeductible payment approximately 36 million 2010 2009 events occurred resulting remaining payments required remaining liability amount 797 million derecognized recorded income expense net 50 percentowned joint venture accounted equity method accounting summarized financial information tap follows results 2008 include results april 30 dollars millions note 3 conclusion tap pharmaceutical products inc joint venture sale abbotts spine business continued fourth quarter 2008 abbott sold spine business approximately 360 million cash resulting aftertax gain approximately 147 million presented gain sale discontinued operations net taxes accompanying statement income operations financial position spine business presented discontinued operations effects would significant note 4 financial instruments derivatives fair value measures certain abbott foreign subsidiaries enter foreign currency forward exchange contracts manage exposures changes foreign exchange rates anticipated intercompany purchases subsidiaries whose functional currencies us dollar contracts totaling 20 billion 129 million 281 million december 31 2009 2008 2007 respectively designated cash flow hedges variability cash flows due changes foreign exchange rates recorded fair value accumulated gains losses december 31 2009 included cost products sold time products sold generally next twelve months abbott enters foreign currency forward exchange contracts manage currency exposures foreign currency denominated thirdparty trade payables receivables intercompany loans trade accounts payable receivable payable denominated currency functional currency entity intercompany loans contracts require abbott sell buy foreign currencies primarily european currencies japanese yen exchange primarily us dollars european currencies intercompany trade payables receivables currency exposures primarily us dollar european currencies japanese yen december 31 2009 2008 2007 abbott held 75 billion 83 billion 55 billion respectively foreign currency forward exchange contracts abbott designated foreign denominated shortterm debt hedge net investment certain foreign subsidiaries approximately 575 million 585 million 17 billion december 31 2009 2008 2007 respectively accordingly changes fair value debt due changes exchange rates recorded accumulated comprehensive income loss net tax abbott party interest rate hedge contracts totaling 55 billion 25 billion 15 billion december 31 2009 2008 2007 respectively manage exposure changes fair value fixedrate debt due 2011 2019 contracts designated fair value hedges variability fair value fixedrate debt due changes longterm benchmark interest rates effect hedge change fixedrate interest obligation variable rate portion debt abbott records contracts fair value adjusts carrying amount fixedrate debt offsetting amount hedge ineffectiveness recorded income 2009 2008 2007 hedges gross unrealized holding gains losses availableforsale equity securities totaled 42 million 3 million respectively december 31 2009 55 million 23 million respectively december 31 2008 108 million 3 million respectively december 31 2007 note 4 financial instruments derivatives fair value measures continued following table summarizes amounts location certain derivative financial instruments december 31 following table summarizes activity foreign currency forward exchange contracts designated cash flow hedges debt designated hedge net investment certain foreign subsidiaries amounts location income expense gain loss reclassified income certain derivative financial instruments amount hedge ineffectiveness significant 2009 2008 2007 hedges interest rate swaps designated fair value hedges variability fair value fixedrate debt due changes longterm benchmark interest rates hedged debt marked market offsetting effect marking interest rate swaps market carrying values fair values certain financial instruments december 31 shown table carrying values financial instruments approximate estimated fair note 4 financial instruments derivatives fair value measures continued values counterparties financial instruments consist select major international financial institutions abbott expect losses nonperformance counterparties following table summarizes bases used measure certain assets liabilities fair value recurring basis balance sheet connection conclusion tap pharmaceutical products inc joint venture abbott received investments 2008 valued using significant unobservable inputs recorded value investments changed significantly note 5 postemployment benefits retirement plans consist defined benefit defined contribution medical dental plans information abbotts major defined benefit plans postemployment medical dental benefit plans follows dollars millions projected benefit obligations nonus defined benefit plans 20 billion 13 billion 18 billion december 31 2009 2008 2007 respectively accumulated benefit obligations defined benefit plans 58 billion 47 billion 49 billion december 31 2009 2008 2007 respectively plans accumulated benefit obligations exceeded plan assets december 31 2009 2008 2007 aggregate accumulated benefit obligations 15 billion 42 billion note 5 postemployment benefits continued 697 million respectively projected benefit obligations 18 billion 48 billion 770 million respectively aggregate plan assets 780 million 33 billion 84 million respectively comprehensive income loss 2009 includes amortization actuarial losses prior service cost 52 million 4 million respectively net actuarial losses 197 million defined benefit plans amortization actuarial losses prior service credits 30 million 22 million respectively net actuarial losses 128 million medical dental plans comprehensive income loss 2008 includes amortization actuarial losses prior service cost 34 million 4 million respectively net actuarial losses 16 billion defined benefit plans amortization actuarial losses prior service credits 29 million 21 million respectively net actuarial gains 19 million medical dental plans comprehensive income loss 2007 includes amortization actuarial losses prior service cost 81 million 4 million respectively net actuarial gains 341 million defined benefit plans amortization actuarial losses prior service credits 55 million 22 million respectively net actuarial gains 96 million medical dental plans pretax amount actuarial losses prior service cost credits included accumulated comprehensive income loss december 31 2009 expected recognized net periodic benefit cost 2010 117 million 4 million respectively defined benefit pension plans 39 million 22 million respectively medical dental plans weighted average assumptions used determine benefit obligations defined benefit plans medical dental plans follows weighted average assumptions used determine net cost defined benefit plans medical dental plans follows note 5 postemployment benefits continued assumed health care cost trend rates medical dental plans december 31 follows discount rates used measure liabilities determined based highquality fixed income securities match duration expected retiree benefits health care cost trend rates represent abbotts expected annual rates change cost health care benefits forward projection health care costs measurement date onepercentage point increasedecrease assumed health care cost trend rate would increasedecrease accumulated postemployment benefit obligations december 31 2009 232 million189 million total service interest cost components net postemployment health care cost year ended approximately 23 million18 million following table summarizes bases used measure defined benefit plans assets fair value december 31 2009 aa mix lowcost index funds actively managed track sp 500 40 percent separate actively managed equity accounts track russell 1000 60 percent ba mix lowcost index funds actively managed 75 percent separate actively managed equity accounts 25 percent track sp 400 midcap index cprimarily separate actively managed pooled investment accounts track msci emerging market indices dlowcost index funds actively managed 75 percent separate actively managed accounts 25 percent note 5 postemployment benefits continued elowcost index funds actively managed 75 percent separate actively managed accounts 25 percent fprimarily united kingdom irish governmentissued bonds gprimarily mortgage backed securities hprimarily funds invested managers global mandate flexibility allocate capital broadly across wide range asset classes strategies including limited equities fixed income commodities interest rate futures currencies securities outperform agreed upon benchmark specific return volatility targets iprimarily cash equivalents equities valued using quoted prices valued published market prices equities common collective trust registered investment company valued using significant observable inputs valued net asset value nav provided fund administrator nav based value underlying assets owned fund minus liabilities fixed income securities valued using significant observable inputs valued prices obtained independent financial service industryrecognized vendors absolute return funds valued nav provided fund administrator following table summarizes change value assets measured using significant unobservable inputs dollars millions investment mix equity securities fixed income asset allocation strategies based upon achieving desired return balancing higher return volatile equity securities lower return less volatile fixed income securities investment allocations made across range markets industry sectors capitalization sizes case fixed income securities maturities credit quality plans directly hold securities abbott known significant concentrations risk plans assets plans expected return assets shown based managements expectations longterm average rates return achieved underlying investment portfolios establishing assumption management considers historical expected returns asset classes plans invested well current economic capital market conditions approximately 70 percent abbotts medical dental plans assets invested equity securities 30 percent fixed income securities measured using quoted prices active markets significant observable inputs abbott funds domestic pension plans according irs funding limitations 2009 700 million funded main domestic pension plan 200 million funded annually main domestic note 5 postemployment benefits continued pension plan 2008 2007 international pension plans funded according similar regulations abbott expects pension funding main domestic pension plan 200 million annually total benefit payments expected paid participants includes payments funded company assets well paid plans follows dollars millions abbott stock retirement plan principal defined contribution plan abbotts contributions plan 137 million 2009 129 million 2008 119 million 2007 abbott provides certain postemployment benefits primarily salary continuation plans qualifying domestic employees accrues related cost service lives employees note 6 taxes earnings taxes earnings continuing operations reflect annual effective rates including charges interest penalties deferred income taxes reflect tax consequences future years differences tax bases assets liabilities financial reporting amounts us income taxes provided earnings foreign subsidiaries intended remitted parent company abbott record deferred income taxes earnings reinvested indefinitely foreign subsidiaries undistributed earnings reinvested indefinitely foreign subsidiaries working capital plant equipment aggregated 206 billion december 31 2009 practicable determine amount deferred income taxes provided earnings us abbotts federal income tax returns 2005 settled income tax returns years 2005 open numerous income tax jurisdictions tax returns yet settled none individually significant reserves interest penalties significant note 6 taxes earnings continued earnings continuing operations taxes related provisions taxes earnings continuing operations follows dollars millions differences effective income tax rate us statutory tax rate follows december 31 2009 2008 2007 total deferred tax assets 44 billion 54 billion 36 billion respectively total deferred tax liabilities 18 billion 14 billion 14 billion respectively abbott incurred losses foreign jurisdiction realization future economic benefit remote benefit reflected deferred tax asset valuation allowances note 6 taxes earnings continued recorded deferred tax assets significant tax effect differences give rise deferred tax assets liabilities follows dollars millions following table summarizes gross amounts unrecognized tax benefits without regard reduction tax liabilities additions deferred tax assets liabilities unrecognized tax benefits settled dollars millions total amount unrecognized tax benefits recognized would impact effective tax rate approximately 20 billion abbott believes reasonably possible unrecognized tax benefits settled within next twelve months result concluding various tax matters abbott expects range decrease recorded amounts unrecognized tax benefits primarily result cash adjustments range zero 680 million arising conclusion tax matters note 7 segment geographic area information abbotts principal business discovery development manufacture sale broad line health care products abbotts products generally sold directly retailers wholesalers hospitals health care facilities laboratories physicians offices government agencies throughout world abbotts reportable segments follows pharmaceutical products worldwide sales broad line pharmaceuticals segment reporting purposes two pharmaceutical divisions aggregated reported pharmaceutical products segment nutritional products worldwide sales broad line adult pediatric nutritional products note 7 segment geographic area information continued diagnostic products worldwide sales diagnostic systems tests blood banks hospitals commercial laboratories alternatecare testing sites segment reporting purposes three diagnostic divisions aggregated reported diagnostic products segment vascular products worldwide sales coronary endovascular vessel closure products abbotts underlying accounting records maintained legal entity basis government public reporting requirements segment disclosures performance basis consistent internal management reporting intersegment transfers inventory recorded standard cost measure segment operating earnings cost corporate functions cost certain employee benefits charged segments predetermined rates approximate cost remaining costs allocated segments acquisitions prior 2006 substantially intangible assets related amortization allocated segments following segment information prepared accordance internal accounting policies abbott described presented accordance generally accepted accounting principles applied consolidated financial statements dollars millions anet sales operating earnings 2009 unfavorably affected relatively stronger us dollar favorably affected relatively weaker us dollar 2008 2007 badditions longterm assets 2009 vascular products segment include goodwill 158 intangibles 373 additions longterm assets 2008 pharmaceutical products segment includes acquired intangible assets 700 vascular products segment includes goodwill 321 note 7 segment geographic area information continued cother net 2009 includes derecognition contingent liability 797 established connection conclusion tap joint venture 287 gain patent litigation settlement dsales country based country sold product note 8 litigation environmental matters abbott identified potentially responsible party investigation cleanup costs number locations united states puerto rico federal state remediation laws investigating potential contamination number companyowned locations abbott recorded estimated cleanup cost site management believes abbott probable loss exposure individual site cleanup exposure expected exceed 3 million aggregate cleanup exposure expected exceed 15 million number patent disputes third parties claim abbotts products infringe patents april 2007 new york university nyu centocor inc filed lawsuit eastern district texas asserting humira infringes patent coowned nyu centocor exclusively licensed centocor june 2009 jury found abbott willfully infringed patent awarded nyu centocor approximately 167 billion past compensatory damages october 2009 district court overturned jurys finding abbotts infringement willful denied abbotts request overturn jurys verdict validity infringement damages december 2009 district court issued final judgment awarded plaintiffs additional 175 million note 8 litigation environmental matters continued prejudgment interest abbott appealed jurys verdict abbott confident merits case believes prevail appeal result reserves recorded case abbotts acquisition kos pharmaceuticals inc resulted assumption various cases investigations abbott recorded reserve several civil actions pending brought individuals entities allege generally abbott numerous pharmaceutical companies reported false misleading pricing information relating average wholesale price certain pharmaceutical products connection federal state private reimbursement civil actions also brought abbott cases members pharmaceutical industry state attorneys general seeking recover alleged damages behalf state medicaid programs may 2006 abbott notified us department justice intervened civil whistleblower lawsuit alleging abbott inflated prices medicaid medicare reimbursable drugs abbott settled cases recorded reserves estimated losses cases however abbott unable estimate range amount possible loss remaining cases loss reserves recorded many products involved cases hospira products hospira abbotts former hospital products business spun abbotts shareholders 2004 abbott retained liability losses result cases investigations extent losses relate sale hospiras products prior spinoff hospira relate allegations made pending future cases investigations allegations existing date spinoff within next year legal proceedings may occur may result change estimated reserves recorded abbott legal proceedings environmental exposures except noted abbott estimates range possible loss approximately 170 million 310 million recorded reserve balance december 31 2009 proceedings exposures approximately 215 million reserves represent managements best estimate probable loss defined fasb asc 450 contingencies feasible predict outcome proceedings exposures certainty management believes ultimate disposition material adverse effect abbotts financial position cash flows results operations except cases investigations discussed third paragraph patent case discussed second paragraph footnote resolution could material cash flows results operations 2009 abbott medtronic inc reached settlement resolving outstanding intellectual property litigation two parties terms settlement medtronic paid abbott 400 million settlement also includes mutual agreement pursue additional litigation current future vascular products subject specific conditions time limits connection settlement abbott recognized gain 287 million included income expense net remaining amounts recognized royalty income earned note 9 incentive stock program 2009 incentive stock program authorizes granting nonqualified stock options replacement stock options restricted stock awards restricted stock units performance awards foreign benefits sharebased awards stock options replacement stock options restricted stock awards units comprise majority benefits granted currently outstanding program prior program 2009 abbott granted 1783300 stock options 1449301 replacement stock options 1278467 restricted stock awards 5677322 restricted stock units program addition 2899411 options issued connection conversion advanced medical optics inc options abbott options purchase price shares option must least equal fair note 9 incentive stock program continued market value common stock date grant maximum term option 10 years options vest equally three years except replacement options vest six months options granted january 1 2005 included replacement feature except options outstanding replacement feature options granted december 31 2004 include replacement feature employee tenders mature shares abbott upon exercise stock option replacement stock option may granted equal amount shares tendered replacement options granted current market price term expires date underlying option grant upon change control abbott outstanding stock options become fully exercisable terms conditions restricted stock awards units deemed satisfied restricted stock awards generally vest 3 5 years restricted stock awards vest 5 years onethird award vests one year upon abbott reaching minimum return equity target restricted stock units vest three years upon vesting recipient receives one share abbott stock vested restricted stock unit aggregate fair market value restricted stock awards units recognized expense service period restricted stock awards settlement vested restricted stock units issued treasury shares abbott generally issues new shares exercises stock options abbott policy purchasing shares relating sharebased programs december 31 2009 approximately 220 million shares reserved future grants including 175 million shares authorized abbotts shareholders april 2009 subsequent yearend reserve reduced approximately 23 million shares stock options restricted stock awards units granted board directors number restricted stock awards units outstanding weightedaverage grantdate fair value december 31 2008 december 31 2009 3574445 5221 8703247 5364 respectively number restricted stock awards units weightedaverage grantdate fair value granted vested lapsed 2009 6955789 5354 1556472 4998 270515 5339 respectively fair market value restricted stock awards units vested 2009 2008 2007 81 million 76 million 114 million respectively aggregate intrinsic value options outstanding exercisable december 31 2009 574 million 565 million respectively total intrinsic value options exercised 2009 2008 2007 129 million 314 million 613 million respectively total unrecognized compensation cost related sharebased compensation plans december 31 2009 amounted approximately 230 million expected recognized next three years total noncash compensation expense charged income 2009 2008 2007 sharebased plans totaled approximately 365 million 350 million 430 million respectively tax benefit recognized approximately 118 million 117 million 142 million respectively compensation cost capitalized part inventory significant note 9 incentive stock program continued fair value option granted 2009 2008 2007 928 1142 1288 respectively fair value option grant estimated using blackscholes optionpricing model following assumptions riskfree interest rate based rates available time grant zerocoupon us government issues remaining term equal options expected life average life option based historical projected exercise lapsing data expected volatility based implied volatilities traded options abbotts stock historical volatility abbotts stock expected life option dividend yield based options exercise price annual dividend rate time grant note 10 debt lines credit following summary longterm debt december 31 dollars millions principal payments required longterm debt outstanding december 31 2009 211 million 2010 20 billion 2011 10 billion 2012 291 million 2013 502 million 2014 76 billion thereafter december 31 2009 abbotts longterm debt rating aa standard poors corporation a1 moodys investors service abbott readily available financial resources including unused lines credit 63 billion support commercial paper borrowing arrangements 33 billion facility expires october 2010 30 billion facility expires 2012 related compensating balances subject withdrawal abbott option commitment fees material abbotts weightedaverage interest rate shortterm borrowings 02 december 31 2009 05 december 31 2008 37 december 31 2007 note 11 business combinations technology acquisitions related transactions january 1 2009 abbott adopted provisions sfas 141 revised 2007 business combinations codified fasb asc 805 business combinations asc 805 acquired inprocess research development accounted indefinitelived intangible asset approval discontinuation rather expense acquisition costs connection acquisition expensed rather added cost acquisition fair value contingent consideration date acquisition added cost acquisition february 2009 abbott acquired outstanding shares advanced medical optics inc amo approximately 14 billion cash net cash held amo prior acquisition abbott held small investment amo abbott acquired amo take advantage increasing demand vision care technologies due population growth demographic shifts amos premier position field abbott acquired control business february 25 2009 financial results acquired operations included financial statements beginning date acquisition financed longterm debt allocation fair value acquisition shown table dollars billions acquired intangible assets consist established customer relationships developed technology trade names amortized 2 30 years average 15 years acquired inprocess research development accounted indefinitelived intangible asset regulatory approval discontinuation net tangible assets acquired consist primarily trade accounts receivable inventory property equipment assets net assumed liabilities primarily trade accounts payable accrued compensation liabilities abbott incurred approximately 89 million acquisitionrelated expenses 2009 classified selling general administrative expense addition subsequent acquisition abbott repaid substantially acquired debt amo october 2009 abbott acquired 100 percent visiogen inc 400 million cash providing abbott nextgeneration accommodating intraocular lens iol technology address presbyopia cataract patients preliminary allocation fair value acquisition resulted nondeductible acquired inprocess research development approximately 195 million accounted indefinitelived intangible asset regulatory approval discontinuation nondeductible definitelived intangible assets approximately 33 million goodwill approximately 260 million deferred income taxes approximately 89 million acquired intangible assets consist developed technology amortized 12 years allocation fair value acquisition finalized valuation completed october 2009 abbott acquired evalve inc 320 million cash plus additional payment 90 million made upon completion certain regulatory milestones abbott acquired evalve obtain presence growing area nonsurgical treatment structural heart disease including previous investment evalve abbott acquired 100 percent outstanding shares evalve connection acquisition carrying amount investment revalued fair value resulting recording 28 million income reported income expense net preliminary note 11 business combinations technology acquisitions related transactions continued allocation fair value acquisition resulted nondeductible definitelived intangible assets approximately 145 million nondeductible acquired inprocess research development approximately 228 million accounted indefinitelived intangible asset regulatory approval discontinuation goodwill approximately 158 million deferred income taxes approximately 136 million acquired intangible assets consist developed technology amortized 12 years allocation fair value acquisition finalized valuation completed january 2009 abbott acquired ibis biosciences inc ibis 175 million cash expand abbotts position molecular diagnostics infectious disease including 40 million investment ibis 2008 abbott acquired 100 percent outstanding shares ibis substantial portion fair value acquisition allocated goodwill amortizable intangible assets acquired inprocess research development accounted indefinitelived intangible asset regulatory approval discontinuation investment ibis 2008 resulted charge acquired inprocess research development connection acquisition carrying amount investment revalued fair value resulting recording 33 million income reported income expense net acquisitions taken place january 1 previous year consolidated net sales income would significantly different reported amounts december 2009 abbott acquired global rights novel biologic treatment chronic pain 170 million cash resulting charge acquired inprocess research development september 2009 abbott announced agreement acquire solvays pharmaceuticals business eur 45 billion approximately 62 billion cash plus additional payments eur 300 million certain sales milestones met acquisition provide abbott large complementary portfolio pharmaceutical products significant presence key global emerging markets add approximately 500 million abbotts research development spending transaction closed february 15 2010 sales acquired business forecast approximately 29 billion 2010 allocation fair value acquisition finalized valuation completed note 12 goodwill intangible assets abbott recorded goodwill approximately 22 billion 2009 related acquisitions advanced medical optics inc ibis biosciences inc visiogen inc evalve inc goodwill approximately 120 million related ibis acquisition allocated diagnostic products segment goodwill approximately 160 million related evalve acquisition allocated vascular products segment connection dissolution tap pharmaceutical products inc tap joint venture 2008 abbott recorded approximately 350 million goodwill related pharmaceutical products segment 2008 abbott paid 250 million boston scientific result fdas approval market xience v drugeluting stent us resulting increase goodwill vascular products segment abbott recorded goodwill 53 million 2007 related acquisitions goodwill adjustments recorded 2007 allocated pharmaceutical products segment amounted 194 million adjustments allocated vascular products segment amounted 141 million foreign currency translation adjustments increased decreased goodwill 2009 2008 2007 997 million 677 million 627 million respectively amount goodwill related reportable segments december 31 2009 67 billion pharmaceutical products segment 206 million nutritional products segment 385 million diagnostic products segment 27 billion vascular products segment goodwill reduced approximately 64 million note 12 goodwill intangible assets continued connection sale abbotts spine business 2008 reductions goodwill relating impairments disposal portion business gross amount amortizable intangible assets primarily product rights technology 108 billion 94 billion 90 billion december 31 2009 2008 2007 respectively accumulated amortization 51 billion 42 billion 33 billion december 31 2009 2008 2007 respectively indefinitelived intangible assets relate inprocess research development acquired business combination approximately 610 million december 31 2009 estimated annual amortization expense intangible assets recorded december 31 2009 approximately 899 million 2010 884 million 2011 865 million 2012 739 million 2013 656 million 2014 amortizable intangible assets amortized 2 30 years average 11 years note 13 restructuring plans 2008 abbott management approved plan streamline global manufacturing operations reduce overall costs improve efficiencies abbotts core diagnostic business 2008 abbott recorded charge cost products sold approximately 129 million plan additional charges approximately 54 million 16 million recorded 2009 2008 respectively relating restructuring primarily accelerated depreciation product transfer costs additional charges incurred 2011 result product reregistration timelines required manufacturing regulations number countries product transition timelines following summarizes activity restructuring dollars millions 2009 prior years abbott management approved plans realign worldwide pharmaceutical vascular manufacturing operations selected domestic international commercial research development operations order reduce costs 2009 2008 2007 abbott recorded charges approximately 114 million 36 million 107 million respectively reflecting impairment manufacturing facilities assets employee severance related charges approximately 94 million 2007 classified cost products sold 3 million 2007 research development 114 million 36 million 10 million 2009 2008 2007 respectively selling general administrative fair value determination amount asset impairments determined primarily based discounted cash flow method additional 47 million 81 million 90 million subsequently recorded 2009 2008 2007 respectively relating restructurings primarily accelerated depreciation addition abbott implemented facilities restructuring plans 2007 related acquired operations kos pharmaceuticals inc resulted increase goodwill note 13 restructuring plans continued approximately 52 million following summarizes activity restructurings dollars millions note 14 subsequent events beginning 2010 venezuela designated highly inflationary economy us gaap result beginning 2010 us dollar functional currency abbotts operations venezuela january 2010 venezuelan government announced devaluation bolivar currency relative us dollar excluding onetime balance sheet devaluation local tax liability impact approximately 110 million abbott expect bolivar devaluation significant impact consolidated results operations financial position cash flows january 2010 abbott suspended sales sibutramine european union eu following recommendation committee medicinal products human use chmp european medicines agency ema abbott reflected 2009 impact suspension primarily related inventory exposures 2009 results abbott expect suspension eu sibutramine sales significant impact consolidated results operations financial position cash flows judgment entered us district court eastern district texas abbott litigation new york university centocor inc requires abbott secure judgment event appeal federal circuit court unsuccessful overturning district courts decision abbott expects deposit approximately 18 billion escrow agent first quarter 2010 consider assets restricted note 15 quarterly results unaudited dollars millions except per share data athe sum quarters basic earnings per share 2009 2007 sum quarters diluted earnings per share 2009 add full year earnings per share amounts due rounding management report internal control financial reporting management abbott laboratories responsible establishing maintaining adequate internal control financial reporting abbotts internal control system designed provide reasonable assurance companys management board directors regarding preparation fair presentation published financial statements internal control systems matter well designed inherent limitations therefore even systems determined effective provide reasonable assurance respect financial statement preparation presentation abbotts management assessed effectiveness companys internal control financial reporting december 31 2009 making assessment used criteria set forth internal control integrated framework issued committee sponsoring organizations treadway commission allowed sec guidance management excluded assessment abbott medical optics acquired 2009 accounted approximately 7 percent consolidated total assets 3 percent consolidated net sales year ended december 31 2009 based assessment believe december 31 2009 companys internal control financial reporting effective based criteria abbotts independent registered public accounting firm issued audit report assessment effectiveness companys internal control financial reporting report appears page 77 miles white chairman board chief executive officer thomas c freyman executive vice president finance chief financial officer greg w linder vice president controller february 19 reports independent registered public accounting firm board directors shareholders abbott laboratories audited accompanying consolidated balance sheets abbott laboratories subsidiaries company december 31 2009 2008 2007 related consolidated statements earnings shareholders investment cash flows years ended financial statements responsibility companys management responsibility express opinion financial statements based audits conducted audits accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether financial statements free material misstatement audit includes examining test basis evidence supporting amounts disclosures financial statements audit also includes assessing accounting principles used significant estimates made management well evaluating overall financial statement presentation believe audits provide reasonable basis opinion consolidated financial statements present fairly material respects financial position company december 31 2009 2008 2007 results operations cash flows years ended conformity accounting principles generally accepted united states america discussed note 11 consolidated financial statements company adopted provisions new accounting standard relating business combinations 2009 also audited accordance standards public company accounting oversight board united states companys internal control financial reporting december 31 2009 based criteria established internal controlintegrated framework issued committee sponsoring organizations treadway commission report dated february 19 2010 expressed unqualified opinion companys internal control financial reporting deloitte touche llp chicago illinois february 19 2010 board directors shareholders abbott laboratories audited internal control financial reporting abbott laboratories subsidiaries company december 31 2009 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission described management report internal control financial reporting management excluded assessment abbott medical optics acquired 2009 accounted approximately 7 consolidated total assets approximately 3 consolidated net sales year ended december 31 2009 accordingly audit include internal control financial reporting abbott medical optics companys management responsible maintaining effective internal control financial reporting assessment effectiveness internal control financial reporting included accompanying management report internal control financial reporting responsibility express opinion companys internal control financial reporting based audit conducted audit accordance standards public company accounting oversight board united states standards require plan perform audit obtain reasonable assurance whether effective internal control financial reporting maintained material respects audit included obtaining understanding internal control financial reporting assessing risk material weakness exists testing evaluating design operating effectiveness internal control based assessed risk performing procedures considered necessary circumstances believe audit provides reasonable basis opinion companys internal control financial reporting process designed supervision companys principal executive principal financial officers persons performing similar functions effected companys board directors management personnel provide reasonable assurance regarding reliability financial reporting preparation financial statements external purposes accordance generally accepted accounting principles companys internal control financial reporting includes policies procedures 1 pertain maintenance records reasonable detail accurately fairly reflect transactions dispositions assets company 2 provide reasonable assurance transactions recorded necessary permit preparation financial statements accordance generally accepted accounting principles receipts expenditures company made accordance authorizations management directors company 3 provide reasonable assurance regarding prevention timely detection unauthorized acquisition use disposition companys assets could material effect financial statements inherent limitations internal control financial reporting including possibility collusion improper management override controls material misstatements due error fraud may prevented detected timely basis also projections evaluation effectiveness internal control financial reporting future periods subject risk controls may become inadequate changes conditions degree compliance policies procedures may deteriorate opinion company maintained material respects effective internal control financial reporting december 31 2009 based criteria established internal control integrated framework issued committee sponsoring organizations treadway commission also audited accordance standards public company accounting oversight board united states consolidated financial statements company year ended december 31 2009 report dated february 19 2010 expresses unqualified opinion financial statements includes explanatory paragraph regarding companys adoption new accounting standard 2009 deloitte touche llp chicago illinois february 19 2010 item 9 item 15 exhibits financial statement schedules adocuments filed part form 10k 1financial statements see item 8 financial statements supplementary data page 45 hereof list financial statements 2financial statement schedules required financial statement schedules found pages indicated schedules read conjunction consolidated financial statements abbott laboratories abbott laboratories financial statement schedules page valuation qualifying accounts schedule ii schedules iii iv v submitted applicable required report independent registered public accounting firm individual financial statements businesses acquired registrant omitted pursuant rule 305 regulation sx 3exhibits required item 601 regulation sk information called paragraph incorporated herein reference exhibit index pages 96 101 form 10k bexhibits filed see exhibit index pages 96 101 cfinancial statement schedule filed page 94 signatures pursuant requirements section 13 15d securities exchange act 1934 abbott laboratories duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf abbott laboratories february 2014 capacities indicated miles white miles white chairman board chief executive officer director abbott laboratories principal executive officer thomas c freyman thomas c freyman executive vice president finance chief financial officer principal financial officer robert e funck robert e funck vice president controller principal accounting officer robert j alpern md robert j alpern md director abbott laboratories roxanne austin roxanne austin director abbott laboratories sally e blount phd sally e blount phd director abbott laboratories w james farrell w james farrell director abbott laboratories edward liddy edward liddy director abbott laboratories nancy mckinstry nancy mckinstry director abbott laboratories phebe n novakovic phebe n novakovic director abbott laboratories william osborn william osborn director abbott laboratories samuel c scott iii samuel c scott iii director abbott laboratories glenn f tilton glenn f tilton director abbott laboratories abbott laboratories subsidiaries schedule ii valuation qualifying accounts years ended december 31 2013 2012 2011 millions dollars 1includes 178 million transferred abbvie part separation january 1 2013 report independent registered public accounting firm board directors shareholders abbott laboratories audited consolidated financial statements abbott laboratories subsidiaries company december 31 2013 2012 three years period ended december 31 2013 companys internal control financial reporting december 31 2013 issued reports thereon dated february 21 2014 report relating consolidated financial statements expresses unqualified opinion includes explanatory paragraph regarding distribution shares abbvie inc companys shareholders companys change year end foreign subsidiaries reports included elsewhere form 10k audits also included consolidated financial statement schedule company listed item 15 consolidated financial statement schedule responsibility companys management responsibility express opinion based audits opinion consolidated financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein deloitte touche llp chicago illinois february 21 2014 exhibit index abbott laboratories annual report form 10k exhibits 321 322 furnished herewith deemed filed securities exchange act 1934 2014 abbott laboratories proxy statement filed securities exchange commission separate cover march 14 2014 incorporated herein reference commission file number 12189 denotes management contract compensatory plan arrangement required filed exhibit hereto abbott furnish copies exhibits shareholder upon written request secretary abbott laboratories 100 abbott park road abbott park illinois 600646400 item 15 exhibits financial statement schedules adocuments filed part form 10k 1financial statements see item 8 financial statements supplementary data page 50 hereof list financial statements 2financial statement schedules required financial statement schedules found pages indicated schedules read conjunction consolidated financial statements abbott laboratories abbott laboratories financial statement schedules page valuation qualifying accounts schedule ii schedules iii iv v submitted applicable required report independent registered public accounting firm individual financial statements businesses acquired registrant omitted pursuant rule 305 regulation sx 3exhibits required item 601 regulation sk information called paragraph incorporated herein reference exhibit index pages 101 107 form 10k bexhibits filed see exhibit index pages 101 107 c financial statement schedule filed page 99 signatures pursuant requirements section 13 15d securities exchange act 1934 abbott laboratories duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf abbott laboratories february 17 2017 capacities indicated miles white miles white chairman board chief executive officer director abbott laboratories principal executive officer brian b yoor brian b yoor senior vice president finance chief financial officer principal financial officer robert e funck robert e funck vice president controller principal accounting officer robert j alpern md robert j alpern md director abbott laboratories roxanne austin roxanne austin director abbott laboratories sally e blount phd sally e blount phd director abbott laboratories w james farrell w james farrell director abbott laboratories edward liddy edward liddy director abbott laboratories nancy mckinstry nancy mckinstry director abbott laboratories phebe n novakovic phebe n novakovic director abbott laboratories william osborn william osborn director abbott laboratories samuel c scott iii samuel c scott iii director abbott laboratories daniel j starks daniel j starks director abbott laboratories glenn f tilton glenn f tilton director abbott laboratories abbott laboratories subsidiaries schedule ii valuation qualifying accounts years ended december 31 2016 2015 2014 millions dollars report independent registered public accounting firm board directors shareholders abbott laboratories audited consolidated financial statements abbott laboratories subsidiaries december 31 2016 2015 three years period ended december 31 2016 issued report thereon dated february 17 2017 included elsewhere annual report form 10k audits also included financial statement schedule listed item 15a2 annual report form 10k schedule responsibility companys management responsibility express opinion schedule based audits opinion financial statement schedule referred considered relation basic financial statements taken whole present fairly material respects information set forth therein ernst young llp chicago illinois february 17 2017 exhibit index abbott laboratories annual report form 10k incorporated herein reference commission file number 12189 denotes management contract compensatory plan arrangement required filed exhibit hereto incorporated herein reference commission file number 112441 abbott furnish copies exhibits shareholder upon written request secretary abbott laboratories 100 abbott park road abbott park illinois 600646400 item 15 exhibits financial statement schedules reports form 8k documents filed part form 10k 1 financial statements see item 8 financial statements supplementary data page 36 hereof list financial statements 2 financial statement schedules required financial statement schedules found pages indicated schedules read conjunction consolidated financial statements abbott laboratories tap pharmaceutical products inc abbott laboratories financial statement schedules page valuation qualifying accounts schedule ii schedules iii iv v submitted applicable required report independent public accountants supplemental schedule supplemental report independent public accountants individual financial statements businesses acquired registrant omitted pursuant rule 305 paragraph 1 regulation sx tap pharmaceutical products inc financial statement schedules page valuation qualifying accounts schedule ii schedules iii iv v submitted applicable required report independent public accountants supplemental schedule 3 exhibits required item 601 regulation sk information called paragraph incorporated herein reference exhibit index pages 91 92 93 94 form 10k b reports form 8k quarter ended december 31 2002 reports form 8k filed quarter ended december 31 2002 c exhibits filed see exhibit index pages 91 92 93 94 financial statement schedules filed pages 86 89 signatures pursuant requirements section 13 15d securities exchange act 1934 abbott laboratories duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf abbott laboratories february 14 2003 capacities indicated miles white miles white chairman board chief executive officer director abbott laboratories principal executive officer roxanne austin roxanne austin director abbott laboratories richard gonzalez richard gonzalez president chief operating officer medical products group director abbott laboratories h laurance fuller h laurance fuller director abbott laboratories jeffrey leiden jeffrey leiden president chief operating officer pharmaceutical products group director abbott laboratories jack greenberg jack greenberg director abbott laboratories thomas c freyman thomas c freyman senior vice president finance chief financial officer principal financial officer david jones david jones director abbott laboratories greg w linder greg w linder vice president controller principal accounting officer david l owen david l owen director abbott laboratories boone powell jr boone powell jr director abbott laboratories roy roberts roy roberts director abbott laboratories barry rand barry rand director abbott laboratories william smithburg william smithburg director abbott laboratories w ann reynolds w ann reynolds director abbott laboratories john r walter john r walter director abbott laboratories certification miles white certify 1i reviewed annual report form 10k abbott laboratories 2based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows abbott laboratories periods presented annual report 4abbott laboratories certifying officer responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 abbott laboratories adesigned disclosure controls procedures ensure material information relating abbott laboratories including consolidated subsidiaries made known us others within entities particularly period annual report prepared bevaluated effectiveness abbott laboratories disclosure controls procedures date within 90 days prior filing date annual report evaluation date cpresented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5abbott laboratories certifying officer disclosed based recent evaluation abbott laboratories auditors audit committee abbott laboratories board directors aall significant deficiencies design operation internal controls could adversely affect abbott laboratories ability record process summarize report financial data identified abbott laboratories auditors material weaknesses internal controls bany fraud whether material involves management employees significant role abbott laboratories internal controls 6abbott laboratories certifying officer indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses certification thomas c freyman certify 1i reviewed annual report form 10k abbott laboratories 2based knowledge annual report contain untrue statement material fact omit state material fact necessary make statements made light circumstances statements made misleading respect period covered annual report 3based knowledge financial statements financial information included annual report fairly present material respects financial condition results operations cash flows abbott laboratories periods presented annual report 4abbott laboratories certifying officer responsible establishing maintaining disclosure controls procedures defined exchange act rules 13a14 15d14 abbott laboratories adesigned disclosure controls procedures ensure material information relating abbott laboratories including consolidated subsidiaries made known us others within entities particularly period annual report prepared bevaluated effectiveness abbott laboratories disclosure controls procedures date within 90 days prior filing date annual report evaluation date cpresented annual report conclusions effectiveness disclosure controls procedures based evaluation date 5abbott laboratories certifying officer disclosed based recent evaluation abbott laboratories auditors audit committee abbott laboratories board directors aall significant deficiencies design operation internal controls could adversely affect abbott laboratories ability record process summarize report financial data identified abbott laboratories auditors material weaknesses internal controls bany fraud whether material involves management employees significant role abbott laboratories internal controls 6abbott laboratories certifying officer indicated annual report whether significant changes internal controls factors could significantly affect internal controls subsequent date recent evaluation including corrective actions regard significant deficiencies material weaknesses abbott laboratories subsidiaries schedule ii valuation qualifying accounts years ended december 31 2002 2001 2000 thousands dollars arepresents provisions related allowances doubtful accounts net change allowances sales deductions report independent public accountants supplemental schedule board directors shareholders abbott laboratories audited consolidated financial statements abbott laboratories subsidiaries company december 31 2002 year ended issued report thereon dated january 15 2003 report includes explanatory paragraphs companys change method accounting goodwill intangible assets audit 2001 2000 transitional disclosures note 15 required change consolidated financial statements report included 2002 annual report shareholders annual report form 10k consolidated financial statements company december 31 2001 2000 audited auditors ceased operations auditors expressed unqualified opinion consolidated financial statements report dated january 15 2002 audit also included financial statement schedule company relates year ended december 31 2002 listed item 15 consolidated financial statement schedule responsibility companys management responsibility express opinion based audit opinion financial statement schedule relates year ended december 31 2002 considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein financial schedule related years ended december 31 2001 2000 subject auditing procedures auditors whose report dated january 15 2002 stated information fairly stated material respects considered relation basic 2001 2000 financial statements taken whole deloitte touche llp chicago illinois january 15 2003 supplemental report independent public accountants abbott laboratories audited accordance auditing standards generally accepted united states financial statements abbott laboratories included annual report form 10k issued report thereon dated january 15 2002 audits made purpose forming opinion statements taken whole schedule ii responsibility abbotts management presented purposes complying securities exchange commissions rules part basic financial statements schedule subjected auditing procedures applied audits basic financial statements opinion fairly states material respects financial data required set forth therein relation basic financial statements taken whole arthur andersen llp 1 chicago illinois january 15 2002 1this report copy previously issued report covering fiscal years 2001 2000 1999 predecessor auditors reissued report tap pharmaceutical products inc subsidiaries schedule ii valuation qualifying accounts years ended december 31 2002 2001 2000 thousands dollars arepresents provisions related allowances doubtful accounts net change allowances sales deductions report independent public accountants supplemental schedule board directors shareholders tap pharmaceutical products inc audited consolidated financial statements tap pharmaceutical products inc subsidiaries tap december 31 2002 year ended issued report thereon dated january 15 2003 report included elsewhere form 10k audit also included financial statement schedule tap listed item 15 year ended december 31 2002 financial statement schedule responsibility taps management responsibility express opinion based audit opinion financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein accompanying financial statement schedules years ended december 31 2001 2000 audited us accordingly express opinion deloitte touche llp chicago illinois january 15 2003 exhibit index abbott laboratories annual report form 10k exhibit table item 21 purchase agreement basf aktiengesellschaft abbott laboratories recorded december 14 2000 filed exhibit 21 2000 abbott laboratories annual report form 10k 22 amendment purchase agreement basf aktiengesellschaft abbott laboratories dated march 2 2001 filed exhibit 22 2001 abbott laboratories annual report form 10k 23 second amendment purchase agreement basf aktiengesellschaft abbott laboratories recorded may 18 2001 filed exhibit 23 2001 abbott laboratories annual report form 10k 24 agreement third amendment purchase agreement basf aktiengesellschaft abbott laboratories recorded july 24 2001 filed exhibit 24 2001 abbott laboratories annual report form 10k 25 agreement fourth amendment purchase agreement basf aktiengesellschaft abbott laboratories recorded march 12 2002 filed exhibit 21 abbott laboratories quarterly report quarter ended march 31 2002 form 10q 26 agreement fifth amendment purchase agreement basf aktiengesellschaft abbott laboratories 31 articles incorporation abbott laboratories filed exhibit 31 abbott laboratories quarterly report quarter ended march 31 1998 form 10q see also exhibit 430 32 corporate bylaws abbott laboratories filed exhibit 31 abbott laboratories quarterly report quarter ended september 30 2002 form 10q 41 abbott laboratories deferred compensation plan filed exhibit 4 registration statement 333102179 42 indenture dated october 1 1993 abbott laboratories harris trust savings bank filed exhibit 41 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 43 form 56 note issued pursuant indenture filed exhibit 42 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 44 form mediumterm note series fixed rate issued pursuant indenture filed exhibit 43 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 45 form mediumterm note series floating rate issued pursuant indenture filed exhibit 44 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 46 resolution abbotts board directors filed exhibit 45 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 47 actions authorized officers respect abbotts 200000000 56 notes filed exhibit 46 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 48 actions authorized officers respect abbotts mediumterm notes series filed exhibit 47 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 49 officers certificate company order respect abbotts 200000000 56 notes filed exhibit 48 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 410 form 68 note issued pursuant indenture filed exhibit 49 1995 abbott laboratories annual report form 10k 411 actions authorized officers respect abbotts 150000000 68 notes filed exhibit 410 1995 abbott laboratories annual report form 10k 412 officers certificate company order respect abbotts 150000000 68 notes filed exhibit 411 1995 abbott laboratories annual report form 10k 413 resolution abbotts board directors relating 64 notes filed exhibit 412 1996 abbott laboratories annual report form 10k 414 form 50000000 64 note issued pursuant indenture filed exhibit 413 1996 abbott laboratories annual report form 10k 415 form 200000000 64 note issued pursuant indenture filed exhibit 414 1996 abbott laboratories annual report form 10k 416 actions authorized officers respect abbotts 64 notes filed exhibit 415 1996 abbott laboratories annual report form 10k 417 officers certificate company order respect abbotts 64 notes filed exhibit 416 1996 abbott laboratories annual report form 10k 418 form 200000000 60 note issued pursuant indenture filed exhibit 42 abbott laboratories quarterly report quarter ended june 30 1998 form 10q 419 actions authorized officers respect abbotts 60 note filed exhibit 43 abbott laboratories quarterly report quarter ended june 30 1998 form 10q 420 officers certificate company order respect abbotts 60 note filed exhibit 44 abbott laboratories quarterly report quarter ended june 30 1998 form 10q 421 form 200000000 540 note issued pursuant indenture filed exhibit 42 abbott laboratories quarterly report quarter ended september 30 1998 form 10q 422 actions authorized officers respect abbotts 540 note filed exhibit 43 abbott laboratories quarterly report quarter ended september 30 1998 form 10q 423 officers certificate company order respect abbotts 540 note filed exhibit 44 abbott laboratories quarterly report quarter ended september 30 1998 form 10q 424 indenture dated february 9 2001 abbott laboratories bank one trust company na filed exhibit 41 registration statement 33355446 425 form 5125 note issued pursuant indenture filed exhibit 41 abbott laboratories quarterly report quarter ended june 30 2001 form 10q 426 form 5625 note issued pursuant indenture filed exhibit 42 abbott laboratories quarterly report quarter ended june 30 2001 form 10q 427 actions authorized officers respect abbotts 5125 notes 5625 notes filed exhibit 43 abbott laboratories quarterly report quarter ended june 30 2001 form 10q 428 officers certificate company order respect abbotts 5125 notes 5625 notes filed exhibit 44 abbott laboratories quarterly report quarter ended june 30 2001 form 10q 429 certificate designations preferences rights series junior participating preferred stock filed exhibit 41 abbott laboratories current report form 8k filed november 15 1999 430 rights agreement dated november 11 1999 abbott laboratories bankboston na rights agent filed exhibit 991 abbott laboratories current report form 8k filed november 15 1999 431 amendment 1 rights agreement dated december 7 1999 abbott laboratories bankboston na rights agent filed exhibit 991 abbott laboratories current report form 8k filed december 20 1999 432 amendment 2 rights agreement dated may 19 2000 filed exhibit 991 abbott laboratories current report form 8k filed may 19 2000 debt instruments omitted accordance item 601b4iiia regulation sk copies agreements furnished securities exchange commission upon request 101 supplemental plan abbott laboratories extended disability plan filed exhibit pages 5051 1992 abbott laboratories annual report form 10k 102 abbott laboratories 1991 incentive stock program filed exhibit 102 abbott laboratories quarterly report quarter ended september 30 2001 form 10q 103 abbott laboratories 401k supplemental plan filed exhibit 103 2001 abbott laboratories annual report form 10k 104 abbott laboratories supplemental pension plan 105 1986 abbott laboratories management incentive plan filed exhibit 105 2001 abbott laboratories annual report form 10k 106 abbott laboratories nonemployee directors fee plan filed exhibit 106 2001 abbott laboratories annual report form 10k 107 abbott laboratories 1996 incentive stock program filed exhibit 101 abbott laboratories quarterly report quarter ended september 30 2001 form 10q 108 1998 abbott laboratories performance incentive plan filed exhibit 101 abbott laboratories quarterly report quarter ended march 31 1998 form 10q 109 form agreement abbott laboratories white j leiden r gonzalez w g dempsey c freyman regarding change control filed exhibit 109 2001 abbott laboratories annual report form 10k 1010 abbott laboratories employee share ownership plan filed exhibit 4 registration statement 33376516 computation ratio earnings fixed charges subsidiaries abbott laboratories 231 consent independent public accountants 232 consent independent public accountants 991 cautionary statement regarding forwardlooking statements 992 certification chief executive officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 993 certification chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 2003 abbott laboratories proxy statement filed securities exchange commission separate cover march 11 2003 incorporated herein reference commission file number 12189 denotes management contract compensatory plan arrangement required filed exhibit hereto certain portions exhibit omitted pursuant request confidential treatment separately filed securities exchange commission abbott furnish copies exhibits shareholder upon written request corporate secretary abbott laboratories 100 abbott park road abbott park illinois 600646400 part item 1 business general development business financial information relating industry segments geographic areas classes similar products narrative description business information respect abbotts business general international operations internet information item 2 properties item 3 legal proceedings item 4 submission matters vote security holders executive officers registrant part ii item 6 selected financial data item 7 managements discussion analysis financial condition results operations item 7a quantitative qualitative disclosures market risk item 8 financial statements supplementary data consolidated statement earnings comprehensive income consolidated statement cash flows consolidated balance sheet consolidated statement shareholders investment abbott laboratories subsidiaries notes consolidated financial statements reports independent public accountants consolidated statements income comprehensive income consolidated statements cash flows consolidated balance sheets thousands except share amounts consolidated statements shareholders’ equity notes consolidated financial statements report independent public accountants item 9 changes disagreements accountants accounting financial disclosure part iii item 10 directors executive officers registrant item 11 executive compensation item 12 security ownership certain beneficial owners management item 13 certain relationships related transactions item 14 controls procedures part iv item 15 exhibits financial statement schedules reports form 8k signatures certification abbott laboratories subsidiaries schedule ii valuation qualifying accounts years ended december 31 2002 2001 2000 thousands dollars report independent public accountants supplemental schedule supplemental report independent public accountants tap pharmaceutical products inc subsidiaries schedule ii valuation qualifying accounts years ended december 31 2002 2001 2000 thousands dollars report independent public accountants supplemental schedule exhibit index item 15 exhibits financial statement schedules adocuments filed part form 10k 1financial statements see item 8 financial statements supplementary data page 51 hereof list financial statements 2financial statement schedules required financial statement schedules found pages indicated schedules read conjunction consolidated financial statements abbott laboratories 3exhibits required item 601 regulation sk information called paragraph incorporated herein reference exhibit index pages 99 105 form 10k bexhibits filed see exhibit index pages 99 105 cfinancial statement schedule filed page 97 signatures pursuant requirements section 13 15d securities exchange act 1934 abbott laboratories duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf abbott laboratories february 15 2013 capacities indicated miles white miles white chairman board chief executive officer director abbott laboratories principal executive officer thomas c freyman thomas c freyman executive vice president finance chief financial officer principal financial officer greg w linder greg w linder vice president controller principal accounting officer robert j alpern md robert j alpern md director abbott laboratories roxanne austin roxanne austin director abbott laboratories sally e blount phd sally e blount phd director abbott laboratories w james farrell w james farrell director abbott laboratories edward liddy edward liddy director abbott laboratories nancy mckinstry nancy mckinstry director abbott laboratories phebe n novakovic phebe n novakovic director abbott laboratories william osborn william osborn director abbott laboratories samuel c scott iii samuel c scott iii director abbott laboratories glenn f tilton glenn f tilton director abbott laboratories abbott laboratories subsidiaries schedule ii valuation qualifying accounts years ended december 31 2012 2011 2010 thousands dollars report independent registered public accounting firm board directors shareholders abbott laboratories audited consolidated financial statements abbott laboratories subsidiaries company years ended december 31 2012 2011 2010 companys internal control financial reporting december 31 2012 issued reports thereon dated february 15 2013 report relating consolidated financial statements expresses unqualified opinion includes explanatory paragraph regarding distribution shares abbvie inc companys shareholders companys change year end foreign subsidiaries reports included elsewhere form 10k audits also included consolidated financial statement schedule company listed item 15 consolidated financial statement schedule responsibility companys management responsibility express opinion based audits opinion consolidated financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein deloitte touche llp chicago illinois february 15 2013 exhibit index abbott laboratories annual report form 10k exhibits 321 322 furnished herewith deemed filed securities exchange act 1934 2013 abbott laboratories proxy statement filed securities exchange commission separate cover march 15 2013 incorporated herein reference commission file number 12189 denotes management contract compensatory plan arrangement required filed exhibit hereto abbott furnish copies exhibits shareholder upon written request secretary abbott laboratories 100 abbott park road abbott park illinois 600646400 item 15 exhibits financial statement schedules adocuments filed part form 10k 1financial statements see item 8 financial statements supplementary data page 49 hereof list financial statements 2financial statement schedules required financial statement schedules found pages indicated schedules read conjunction consolidated financial statements abbott laboratories 3exhibits required item 601 regulation sk information called paragraph incorporated herein reference exhibit index pages 97 105 form 10k bexhibits filed see exhibit index pages 97 105 cfinancial statement schedule filed page 95 signatures pursuant requirements section 13 15d securities exchange act 1934 abbott laboratories duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf abbott laboratories february 18 2011 capacities indicated miles white miles white chairman board chief executive officer director abbott laboratories principal executive officer thomas c freyman thomas c freyman executive vice president finance chief financial officer principal financial officer greg w linder greg w linder vice president controller principal accounting officer robert j alpern md robert j alpern md director abbott laboratories roxanne austin roxanne austin director abbott laboratories w james farrell w james farrell director abbott laboratories h laurance fuller h laurance fuller director abbott laboratories edward liddy edward liddy director abbott laboratories phebe n novakovic phebe n novakovic director abbott laboratories william osborn william osborn director abbott laboratories david l owen david l owen director abbott laboratories roy roberts roy roberts director abbott laboratories samuel c scott iii samuel c scott iii director abbott laboratories william smithburg william smithburg director abbott laboratories glenn f tilton glenn f tilton director abbott laboratories abbott laboratories subsidiaries schedule ii valuation qualifying accounts years ended december 31 2010 2009 2008 thousands dollars 1includes increases allowance due business acquisitions 64862 report independent registered public accounting firm board directors shareholders abbott laboratories audited consolidated financial statements abbott laboratories subsidiaries company years ended december 31 2010 2009 2008 companys internal control financial reporting december 31 2010 issued reports thereon dated february 18 2011 report relating consolidated financial statements expresses unqualified opinion includes explanatory paragraph regarding companys adoption new accounting standard 2009 reports included elsewhere form 10k audits also included consolidated financial statement schedule company listed item 15 consolidated financial statement schedule responsibility companys management responsibility express opinion based audits opinion consolidated financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein deloitte touche llp chicago illinois february 18 2011 exhibit index abbott laboratories annual report form 10k exhibits 321 322 furnished herewith deemed filed securities exchange act 1934 2011 abbott laboratories proxy statement filed securities exchange commission separate cover march 15 2011 incorporated herein reference commission file number 12189 denotes management contract compensatory plan arrangement required filed exhibit hereto abbott furnish copies exhibits shareholder upon written request secretary abbott laboratories 100 abbott park road abbott park illinois 600646400 item 15 exhibits financial statement schedules adocuments filed part form 10k 1financial statements see item 8 financial statements supplementary data page 46 hereof list financial statements 2financial statement schedules required financial statement schedules found pages indicated schedules read conjunction consolidated financial statements abbott laboratories abbott laboratories financial statement schedules page valuation qualifying accounts schedule ii schedules iii iv v submitted applicable required report independent registered public accounting firm individual financial statements businesses acquired registrant omitted pursuant rule 305 regulation sx 3exhibits required item 601 regulation sk information called paragraph incorporated herein reference exhibit index pages 100 105 form 10k bexhibits filed see exhibit index pages 100 105 cfinancial statement schedule filed page 97 signatures pursuant requirements section 13 15d securities exchange act 1934 abbott laboratories duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf abbott laboratories february 27 2015 capacities indicated miles white miles white chairman board chief executive officer director abbott laboratories principal executive officer thomas c freyman thomas c freyman executive vice president finance chief financial officer principal financial officer robert e funck robert e funck vice president controller principal accounting officer robert j alpern robert j alpern md director abbott laboratories roxanne austin roxanne austin director abbott laboratories sally e blount sally e blount phd director abbott laboratories w james farrell w james farrell director abbott laboratories edward liddy edward liddy director abbott laboratories nancy mckinstry nancy mckinstry director abbott laboratories phebe n novakovic phebe n novakovic director abbott laboratories william osborn william osborn director abbott laboratories samuel c scott iii samuel c scott iii director abbott laboratories glenn f tilton glenn f tilton director abbott laboratories abbott laboratories subsidiaries schedule ii valuation qualifying accounts years ended december 31 2014 2013 2012 millions dollars 1includes 178 million transferred abbvie part separation january 1 2013 report independent registered public accounting firm board directors shareholders abbott laboratories audited consolidated financial statements abbott laboratories subsidiaries year ended december 31 2014 issued report thereon dated february 27 2015 included elsewhere annual report form 10k audit also included financial statement schedule listed item 15a2 annual report form 10k schedule responsibility companys management responsibility express opinion schedule based audit opinion financial statement schedule referred considered relation basic financial statements taken whole present fairly material respects information set forth therein ernst young llp chicago illinois february 27 2015 report independent registered public accounting firm board directors shareholders abbott laboratories audited consolidated financial statements abbott laboratories subsidiaries company december 31 2013 two years period ended december 31 2013 issued reports thereon dated february 21 2014 february 27 2015 note 3 report relating consolidated financial statements expresses unqualified opinion includes explanatory paragraph regarding retrospective adjustment reflect developed markets branded generics pharmaceuticals animal health businesses discontinued operations distribution shares abbvie inc companys shareholders reports included elsewhere form 10k audits also included consolidated financial statement schedule company listed item 15 years ended december 31 2013 2012 consolidated financial statement schedule responsibility companys management responsibility express opinion based audits opinion consolidated financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein deloitte touche llp chicago illinois february 21 2014 exhibit index abbott laboratories annual report form 10k exhibits 321 322 furnished herewith deemed filed securities exchange act 1934 2015 abbott laboratories proxy statement filed securities exchange commission separate cover march 13 2015 incorporated herein reference commission file number 12189 denotes management contract compensatory plan arrangement required filed exhibit hereto abbott furnish copies exhibits shareholder upon written request secretary abbott laboratories 100 abbott park road abbott park illinois 600646400 item 15 exhibits financial statement schedules adocuments filed part form 10k 1financial statements see item 8 financial statements supplementary data page 40 hereof list financial statements 2financial statement schedules required financial statement schedules found pages indicated schedules read conjunction consolidated financial statements abbott laboratories tap pharmaceutical products inc 3exhibits required item 601 regulation sk information called paragraph incorporated herein reference exhibit index pages 96 100 form 10k bexhibits filed see exhibit index pages 96 100 cfinancial statement schedules filed pages 92 94 signatures pursuant requirements section 13 15d securities exchange act 1934 abbott laboratories duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf abbott laboratories march 2 2005 capacities indicated miles white miles white chairman board chief executive officer director abbott laboratories principal executive officer roxanne austin roxanne austin director abbott laboratories richard gonzalez richard gonzalez president chief operating officer medical products group director abbott laboratories william daley william daley director abbott laboratories jeffrey leiden jeffrey leiden president chief operating officer pharmaceutical products group director abbott laboratories h laurance fuller h laurance fuller director abbott laboratories thomas c freyman thomas c freyman executive vice president finance chief financial officer principal financial officer jack greenberg jack greenberg director abbott laboratories greg w linder greg w linder vice president controller principal accounting officer david l owen david l owen director abbott laboratories boone powell jr boone powell jr director abbott laboratories roy roberts roy roberts director abbott laboratories barry rand barry rand director abbott laboratories william smithburg william smithburg director abbott laboratories w ann reynolds w ann reynolds director abbott laboratories john r walter john r walter director abbott laboratories abbott laboratories subsidiaries schedule ii valuation qualifying accounts years ended december 31 2004 2003 2002 thousands dollars arepresents provisions related allowances doubtful accounts net change allowances sales deductions b2004 amounts charged net recoveries includes 18189 allowance transferred hospira inc report independent registered public accounting firm supplemental schedule board directors shareholders abbott laboratories audited consolidated financial statements abbott laboratories subsidiaries company december 31 2004 2003 2002 years ended managements assessment effectiveness companys internal control financial reporting december 31 2004 effectiveness companys internal control financial reporting december 31 2004 issued reports thereon dated february 18 2005 consolidated financial statements reports included 2004 annual report shareholders annual report form 10k audits also included consolidated financial statement schedule company listed item 15 consolidated financial statement schedule responsibility companys management responsibility express opinion based audits opinion consolidated financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein deloitte touche llp chicago illinois february 18 2005 tap pharmaceutical products inc subsidiaries schedule ii valuation qualifying accounts years ended december 31 2004 2003 2002 thousands dollars arepresents provisions related allowances doubtful accounts net change allowances sales deductions report independent registered public accounting firm supplemental schedule board directors stockholders tap pharmaceutical products inc audited consolidated financial statements tap pharmaceutical products inc subsidiaries tap december 31 2004 2003 three years period ended december 31 2004 issued report thereon dated february 16 2005 consolidated financial statements report included annual report form 10k audits also included consolidated financial statement schedule tap listed item 15 consolidated financial statement schedule responsibility taps management responsibility express opinion based audits opinion consolidated financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein deloitte touche llp chicago illinois february 16 2005 exhibit index abbott laboratories annual report form 10k exhibits 321 322 furnished herewith deemed filed securities exchange act 1934 10k exhibit table item 31 articles incorporation abbott laboratories filed exhibit 31 abbott laboratories quarterly report quarter ended march 31 1998 form 10q see also exhibit 433 32 corporate bylaws abbott laboratories filed exhibit 31 abbott laboratories current report dated february 18 2005 form 8k 41 abbott laboratories deferred compensation plan filed exhibit 4 registration statement 333102179 42 indenture dated october 1 1993 abbott laboratories harris trust savings bank filed exhibit 41 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 43 form mediumterm note series fixed rate issued pursuant indenture filed exhibit 43 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 44 form mediumterm note series floating rate issued pursuant indenture filed exhibit 44 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 45 resolution abbotts board directors filed exhibit 45 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 46 actions authorized officers respect abbotts mediumterm notes series filed exhibit 47 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 47 form 68 note issued pursuant indenture filed exhibit 49 1995 abbott laboratories annual report form 10k 48 actions authorized officers respect abbotts 150000000 68 notes filed exhibit 410 1995 abbott laboratories annual report form 10k 49 officers certificate company order respect abbotts 150000000 68 notes filed exhibit 411 1995 abbott laboratories annual report form 10k 410 resolution abbotts board directors relating 64 notes filed exhibit 412 1996 abbott laboratories annual report form 10k 411 form 50000000 64 note issued pursuant indenture filed exhibit 413 1996 abbott laboratories annual report form 10k 412 form 200000000 64 note issued pursuant indenture filed exhibit 414 1996 abbott laboratories annual report form 10k 413 actions authorized officers respect abbotts 64 notes filed exhibit 415 1996 abbott laboratories annual report form 10k 414 officers certificate company order respect abbotts 64 notes filed exhibit 416 1996 abbott laboratories annual report form 10k 415 form 200000000 60 note issued pursuant indenture filed exhibit 42 abbott laboratories quarterly report quarter ended june 30 1998 form 10q 416 actions authorized officers respect abbotts 60 note filed exhibit 43 abbott laboratories quarterly report quarter ended june 30 1998 form 10q 417 officers certificate company order respect abbotts 60 note filed exhibit 44 abbott laboratories quarterly report quarter ended june 30 1998 form 10q 418 form 200000000 540 note issued pursuant indenture filed exhibit 42 abbott laboratories quarterly report quarter ended september 30 1998 form 10q 419 actions authorized officers respect abbotts 540 note filed exhibit 43 abbott laboratories quarterly report quarter ended september 30 1998 form 10q 420 officers certificate company order respect abbotts 540 note filed exhibit 44 abbott laboratories quarterly report quarter ended september 30 1998 form 10q 421 indenture dated february 9 2001 abbott laboratories bank one trust company na filed exhibit 41 registration statement 33355446 422 form 5625 note issued pursuant indenture filed exhibit 42 abbott laboratories quarterly report quarter ended june 30 2001 form 10q 423 actions authorized officers respect abbotts 5625 notes filed exhibit 43 abbott laboratories quarterly report quarter ended june 30 2001 form 10q 424 officers certificate company order respect abbotts 5625 notes filed exhibit 44 abbott laboratories quarterly report quarter ended june 30 2001 form 10q 425 form 35 note issued pursuant indenture filed exhibit 429 2003 abbott laboratories annual report form 10k 426 actions authorized officers respect abbotts 35 notes filed exhibit 430 2003 abbott laboratories annual report form 10k 427 officers certificate company order respect abbotts 35 notes filed exhibit 431 2003 abbott laboratories annual report form 10k 428 form 375 note issued pursuant indenture 429 form 435 note issued pursuant indenture 430 actions authorized officers respect abbotts 375 notes 435 notes 431 officers certificate company order respect abbotts 375 notes 435 notes 432 certificate designations preferences rights series junior participating preferred stock filed exhibit 41 abbott laboratories current report form 8k filed november 15 1999 433 rights agreement dated november 11 1999 abbott laboratories bankboston na rights agent filed exhibit 991 abbott laboratories current report form 8k filed november 15 1999 434 amendment 1 rights agreement dated december 7 1999 abbott laboratories bankboston na rights agent filed exhibit 991 abbott laboratories current report form 8k filed december 20 1999 435 amendment 2 rights agreement dated may 19 2000 filed exhibit 991 abbott laboratories current report form 8k filed may 19 2000 debt instruments omitted accordance item 601b4iiia regulation sk copies agreements furnished securities exchange commission upon request 101 supplemental plan abbott laboratories extended disability plan filed exhibit pages 5051 1992 abbott laboratories annual report form 10k 102 abbott laboratories 1991 incentive stock program amended filed exhibit 106 2003 abbott laboratories annual report form 10k 103 abbott laboratories 401k supplemental plan amended filed exhibit 103 abbott laboratories quarterly report quarter ended june 30 2003 form 10q 104 abbott laboratories supplemental pension plan amended filed exhibit 104 abbott laboratories quarterly report quarter ended june 30 2003 form 10q 105 1986 abbott laboratories management incentive plan amended filed exhibit 105 abbott laboratories quarterly report quarter ended june 30 2003 form 10q 106 abbott laboratories nonemployee directors fee plan amended filed exhibit 430 2003 abbott laboratories annual report form 10k 107 abbott laboratories 1996 incentive stock program amended filed exhibit 108 abbott laboratories current report form 8k dated february 18 2005 108 form employee stock option agreement nonqualified stock option granted incentive stock option abbott laboratories 1996 incentive stock program filed exhibit 101 abbott laboratories current report form 8k dated august 20 2004 109 form employee stock option agreement nonqualified stock option abbott laboratories 1996 incentive stock program filed exhibit 102 abbott laboratories current report dated august 20 2004 form 8k 1010 form employee stock option agreement incentive stock option granted nonqualified stock option abbott laboratories 1996 incentive stock program filed exhibit 103 abbott laboratories current report form 8k dated august 20 2004 1011 form employee stock option agreement incentive stock option abbott laboratories 1996 incentive stock program filed exhibit 104 abbott laboratories current report form 8k dated august 20 2004 1012 form employee stock option agreement replacement stock option abbott laboratories 1996 incentive stock program filed exhibit 105 abbott laboratories current report form 8k dated august 20 2004 1013 form employee restricted stock agreement abbott laboratories 1996 incentive stock program filed exhibit 106 abbott laboratories current report form 8k dated august 20 2004 1014 form employee restricted stock unit agreement abbott laboratories 1996 incentive stock program filed exhibit 107 abbott laboratories current report form 8k dated august 20 2004 1015 form nonemployee director stock option agreement abbott laboratories 1996 incentive stock program filed exhibit 108 abbott laboratories current report form 8k dated august 20 2004 1015 form nonemployee director restricted stock unit agreement abbott laboratories 1996 incentive stock program filed exhibit 102 abbott laboratories current report form 8k dated december 10 2004 1016 1998 abbott laboratories performance incentive plan filed exhibit 101 abbott laboratories quarterly report quarter ended march 31 1998 form 10q 1017 rules 1998 abbott laboratories performance incentive plan 1018 form employee stock option agreement nonqualified stock option granted incentive stock option abbott laboratories 1996 incentive stock program february 18 2005 filed exhibit 101 abbott laboratories current report form 8k dated february 18 2005 1019 form employee stock option agreement new nonqualified stock option abbott laboratories 1996 incentive stock program granted february 18 2005 filed exhibit 102 abbott laboratories current report form 8k dated february 18 2005 1020 form employee stock option agreement incentive stock option granted nonqualified stock option abbott laboratories 1996 incentive stock program february 18 2005 filed exhibit 103 abbott laboratories current report form 8k dated february 18 2005 1021 form employee stock option agreement incentive stock option abbott laboratories 1996 incentive stock program granted february 18 2005 filed exhibit 104 abbott laboratories current report form 8k dated february 18 2005 1022 form employee restricted stock agreement abbott laboratories 1996 incentive stock program filed exhibit 105 abbott laboratories current report form 8k dated february 18 2005 1023 form employee restricted stock unit agreement abbott laboratories 1996 incentive stock program filed exhibit 106 abbott laboratories current report form 8k dated february 18 2005 1024 form nonemployee director stock option agreement abbott laboratories 1996 incentive stock program granted february 18 2005 filed exhibit 107 abbott laboratories current report form 8k dated february 18 2005 1025 form agreement abbott laboratories white r gonzalez j leiden w g dempsey c freyman regarding change control filed exhibit 106 abbott laboratories quarterly report quarter ended june 30 2003 form 10q 1026 base salary named executive officers computation ratio earnings fixed charges subsidiaries abbott laboratories 231 consent independent registered public accounting firm 232 consent independent registered public accounting firm 311 certification chief executive officer required rule 13a14a 17 cfr 24013a14a 312 certification chief financial officer required rule 13a14a 17 cfr 24013a14a 321 certification chief executive officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 322 certification chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 991 cautionary statement regarding forwardlooking statements 2005 abbott laboratories proxy statement filed securities exchange commission separate cover march 18 2005 incorporated herein reference commission file number 12189 denotes management contract compensatory plan arrangement required filed exhibit hereto abbott furnish copies exhibits shareholder upon written request corporate secretary abbott laboratories 100 abbott park road abbott park illinois 600646400 part item 1 business information respect abbotts business general international operations internet information item 2 properties item 3 legal proceedings item 4 submission matters vote security holders part ii item 6 selected financial data item 7 managements discussion analysis financial condition results operations item 7a quantitative qualitative disclosures market risk item 8 financial statements supplementary data consolidated statement earnings consolidated statement cash flows consolidated balance sheet consolidated statement shareholders investment notes consolidated financial statements management report internal control financial reporting reports independent registered public accounting firm consolidated statements income comprehensive income sonsolidated statements cash flows consolidated balance sheets consolidated statements shareholders equity notes consolidated financial statements item 9 changes disagreements accountants accounting financial disclosure item 9a controls procedures item 9b information part iii item 10 directors executive officers registrant item 11 executive compensation item 12 security ownership certain beneficial owners management item 13 certain relationships related transactions item 14 principal accounting fees services part iv signatures exhibit index item 15 exhibits financial statement schedules documents filed part form 10k 1 financial statements see item 8 “financial statements supplementary data” page 42 hereof list financial statements 2 financial statement schedules required financial statement schedules found pages indicated schedules read conjunction consolidated financial statements abbott laboratories abbott laboratories financial statement schedules page valuation qualifying accounts schedule ii schedules iii iv v submitted applicable required report independent registered public accounting firm individual financial statements businesses acquired registrant omitted pursuant rule 305 regulation sx 3 exhibits required item 601 regulation sk information called paragraph set forth item 15b b exhibits filed 10k exhibit table item 31 articles incorporation abbott laboratories filed exhibit 31 abbott laboratories quarterly report form 10q quarter ended march 31 1998 32 bylaws abbott laboratories amended restated effective april 24 2020 filed exhibit 31 abbott laboratories current report form 8k dated february 21 2020 41 indenture dated february 9 2001 abbott laboratories bank new york mellon trust company na successor jp morgan trust company national association successor bank one trust company na including form security filed exhibit 41 abbott laboratories registration statement form s3 dated february 12 2001 42 supplemental indenture dated february 27 2006 abbott laboratories bank new york mellon trust company na successor jp morgan trust company national association filed exhibit 42 abbott laboratories registration statement form s3 dated february 28 2006 43 form 1000000000 6150 note due 2037 filed exhibit 996 abbott laboratories current report form 8k dated november 6 2007 44 actions authorized officers respect abbott’s 5150 notes due 2012 5600 notes due 2017 6150 notes due 2037 filed exhibit 993 abbott laboratories current report form 8k dated november 6 2007 45 form 1000000000 6000 note due 2039 filed exhibit 995 abbott laboratories current report form 8k dated february 26 2009 46 actions authorized officers respect abbott’s 5125 note due 2019 6000 note due 2039 filed exhibit 993 abbott laboratories current report form 8k dated february 26 2009 10k exhibit table item 47 form 2040 note filed exhibit 996 abbott laboratories current report form 8k dated may 27 2010 48 actions authorized officers respect abbott’s 270 notes 4125 notes 530 notes filed exhibit 993 abbott laboratories current report form 8k dated may 27 2010 49 indenture dated march 10 2015 abbott laboratories us bank national association including form security filed exhibit 41 abbott laboratories current report form 8k dated march 5 2015 410 form 2550 note due 2022 filed exhibit 995 abbott laboratories current report form 8k dated march 5 2015 411 form 2950 note due 2025 filed exhibit 996 abbott laboratories current report form 8k dated march 5 2015 412 actions authorized officers respect abbott’s 2000 notes 2550 notes 2950 notes filed exhibit 993 abbott laboratories current report form 8k dated march 5 2015 413 form 3400 notes due 2023 filed exhibit 44 abbott laboratories current report form 8k dated november 22 2016 414 form 3750 notes due 2026 filed exhibit 45 abbott laboratories current report form 8k dated november 22 2016 415 form 4750 notes due 2036 filed exhibit 46 abbott laboratories current report form 8k dated november 22 2016 416 form 4900 notes due 2046 filed exhibit 47 abbott laboratories current report form 8k dated november 22 2016 417 officers’ certificate pursuant sections 31 33 indenture respect 2350 notes due 2019 2900 notes due 2021 3400 notes due 2023 3750 notes due 2026 4750 notes due 2036 4900 notes due 2046 including forms notes filed exhibit 422 abbott laboratories 2016 annual report form 10k 418 form 3875 notes due 2025 filed exhibit 45 abbott laboratories current report form 8k dated march 22 2017 419 form 475 notes due 2043 filed exhibit 46 abbott laboratories current report form 8k dated march 22 2017 420 officers’ certificate pursuant sections 31 33 indenture respect 2000 notes due 2018 2800 notes due 2020 325 notes due 2023 3875 notes due 2025 475 notes due 2043 including form notes filed exhibit 47 abbott laboratories quarterly report form 10q period ended march 31 2017 10k exhibit table item 421 † indenture dated july 28 2009 st jude medical llc successor st jude medical inc us bank national association trustee filed exhibit 41 st jude medical inc current report form 8k dated july 28 2009 422 † fourth supplemental indenture dated april 2 2013 st jude medical llc successor st jude medical inc us bank national association trustee relating st jude medical llc’s 325 senior notes due 2023 475 senior notes due 2043 including forms notes filed exhibit 41 st jude medical inc current report form 8k dated april 2 2013 423 † fifth supplemental indenture dated september 23 2015 st jude medical llc successor st jude medical inc us bank national association trustee relating st jude medical llc’s 2000 senior notes due 2018 2800 senior notes due 2020 3875 senior notes due 2025 filed exhibit 41 st jude medical inc current report form 8k dated september 23 2015 424 † sixth supplemental indenture dated january 4 2017 among st jude medical inc st jude medical llc us bank national association trustee filed exhibit 41 st jude medical llc current report form 8k dated january 4 2017 425 form seventh supplemental indenture st jude medical llc us bank national association trustee filed exhibit 43 abbott laboratories registration statement form s4 dated february 21 2017 426 indenture dated september 27 2018 among abbott ireland financing dac issuer abbott laboratories guarantor us bank national association trustee filed exhibit 41 abbott laboratories current report form 8k dated september 27 2018 427 first supplemental indenture dated september 27 2018 among abbott ireland financing dac issuer abbott laboratories guarantor us bank national association trustee elavon financial services dac uk branch paying agent transfer agent elavon financial services dac registrar filed exhibit 42 abbott laboratories current report form 8k dated september 27 2018 428 second supplemental indenture dated november 19 2019 among abbott ireland financing dac issuer abbott laboratories guarantor us bank national association trustee elavon financial services dac paying agent transfer agent registrar filed exhibit 42 abbott laboratories current report form 8k dated november 19 2019 429 form 0875 note due 2023 included exhibit 42 abbott laboratories current report form 8k dated september 27 2018 430 form 1500 note due 2026 included exhibit 42 abbott laboratories current report form 8k dated september 27 2018 431 form 0100 note due 2024 included exhibit 42 abbott laboratories current report form 8k dated november 19 2019 432 form 0375 note due 2027 included exhibit 42 abbott laboratories current report form 8k dated november 19 2019 10k exhibit table item 433 officers’ certificate pursuant sections 31 33 indenture respect 1150 notes due 2028 1400 notes due 2030 filed exhibit 42 abbott laboratories current report form 8k dated june 22 2020 434 form 1150 notes due 2028 filed exhibit 43 abbott laboratories current report form 8k filed june 24 2020 included exhibit 42 abbott laboratories current report form 8k dated june 22 2020 435 form 1400 notes due 2030 filed exhibit 44 abbott laboratories current report form 8k filed june 24 2020 included exhibit 42 abbott laboratories current report form 8k dated june 22 2020 debt instruments omitted accordance item 601b4iiia regulation sk copies agreements furnished securities exchange commission upon request 436 description registrants securities filed exhibit 434 2019 abbott laboratories annual report form 10k 101 supplemental plan abbott laboratories extended disability plan filed exhibit pages 5051 1992 abbott laboratories annual report form 10k 102 abbott laboratories deferred compensation plan amended 103 abbott laboratories 401k supplemental plan amended restated filed exhibit 103 2012 abbott laboratories annual report form 10k 104 abbott laboratories supplemental pension plan amended restated filed exhibit 104 2014 abbott laboratories annual report form 10k 105 1986 abbott laboratories management incentive plan amended restated filed exhibit 105 2014 abbott laboratories annual report form 10k 106 1998 abbott laboratories performance incentive plan amended filed exhibit 106 2014 abbott laboratories annual report form 10k 107 rules 1998 abbott laboratories performance incentive plan amended restated filed exhibit 107 2012 abbott laboratories annual report form 10k 108 abbott laboratories 2009 incentive stock program amended restated filed exhibit 109 2014 abbott laboratories annual report form 10k 109 abbott laboratories 2017 incentive stock program incorporated reference exhibit b abbott’s definitive proxy statement schedule 14a filed securities exchange commission march 17 2017 1010 abbott laboratories nonemployee directors’ fee plan amended restated filed exhibit 1010 2016 abbott laboratories annual report form 10k exhibit table item 1011 form nonemployee director restricted stock unit agreement abbott laboratories 1996 incentive stock program filed exhibit 102 abbott laboratories current report form 8k dated december 10 2004 1012 form nonemployee director nonqualified stock option agreement filed exhibit 102 abbott laboratories current report form 8k dated april 24 2009 1013 form nonemployee director restricted stock unit agreement filed exhibit 103 abbott laboratories current report form 8k dated april 24 2009 1014 form nonqualified stock option agreement ratably vested filed exhibit 105 abbott laboratories current report form 8k dated april 24 2009 1015 form performance restricted stock unit agreement foreign executive officers annual performance based filed exhibit 1040 2013 abbott laboratories annual report form 10k 1016 form performance restricted stock unit agreement foreign executive officers interim performance based filed exhibit 1042 2013 abbott laboratories annual report form 10k 1017 form restricted stock unit agreement executive officers cliff vested filed exhibit 1044 2013 abbott laboratories annual report form 10k 1018 form restricted stock unit agreement foreign executive officers cliff vested filed exhibit 1046 2013 abbott laboratories annual report form 10k 1019 form nonemployee director restricted stock unit agreement filed exhibit 1047 2013 abbott laboratories annual report form 10k 1020 form nonemployee director restricted stock unit agreement foreign nonemployee directors filed exhibit 1048 2013 abbott laboratories annual report form 10k 1021 form performance restricted stock agreement executive officers annual performance based filed exhibit 1053 2013 abbott laboratories annual report form 10k 1022 form performance restricted stock agreement executive officers interim performance based filed exhibit 1055 2013 abbott laboratories annual report form 10k 1023 form restricted stock agreement executive officers cliff vested filed exhibit 1057 2013 abbott laboratories annual report form 10k 1024 form nonqualified stock option agreement filed exhibit 1058 2013 abbott laboratories annual report form 10k 1025 form nonqualified stock option agreement executive officers filed exhibit 1059 2013 abbott laboratories annual report form 10k 1026 form nonqualified stock option agreement foreign employees filed exhibit 1060 2013 abbott laboratories annual report form 10k exhibit table item 1027 form nonqualified stock option agreement foreign executive officers filed exhibit 1061 2013 abbott laboratories annual report form 10k 1028 form nonemployee director nonqualified stock option agreement filed exhibit 1064 2013 abbott laboratories annual report form 10k 1029 form nonemployee director nonqualified stock option agreement foreign nonemployee directors filed exhibit 1065 2013 abbott laboratories annual report form 10k 1030 form restricted stock unit agreement ratably vested abbott laboratories 2017 incentive stock program filed exhibit 102 abbott laboratories current report form 8k dated april 28 2017 1031 form restricted stock unit agreement foreign employees ratably vested abbott laboratories 2017 incentive stock program filed exhibit 103 abbott laboratories current report form 8k dated april 28 2017 1032 form restricted stock unit agreement cliff vested abbott laboratories 2017 incentive stock program filed exhibit 104 abbott laboratories current report form 8k dated april 28 2017 1033 form restricted stock unit agreement foreign employees cliff vested abbott laboratories 2017 incentive stock program filed exhibit 105 abbott laboratories current report form 8k dated april 28 2017 1034 form performance restricted stock unit agreement foreign employees annual performance based abbott laboratories 2017 incentive stock program filed exhibit 106 abbott laboratories current report form 8k dated april 28 2017 1035 form performance restricted stock unit agreement foreign employees interim performance based abbott laboratories 2017 incentive stock program filed exhibit 107 abbott laboratories current report form 8k dated april 28 2017 1036 form restricted stock agreement ratably vested abbott laboratories 2017 incentive stock program filed exhibit 108 abbott laboratories current report form 8k dated april 28 2017 1037 form restricted stock agreement cliff vested abbott laboratories 2017 incentive stock program filed exhibit 109 abbott laboratories current report form 8k dated april 28 2017 1038 form performance restricted stock agreement annual performance based abbott laboratories 2017 incentive stock program filed exhibit 1010 abbott laboratories current report form 8k dated april 28 2017 1039 form performance restricted stock agreement interim performance based abbott laboratories 2017 incentive stock program filed exhibit 1011 abbott laboratories current report form 8k dated april 28 2017 1040 form nonqualified stock option agreement abbott laboratories 2017 incentive stock program filed exhibit 1012 abbott laboratories current report form 8k dated april 28 2017 10k exhibit table item 1041 form nonqualified stock option agreement foreign employees abbott laboratories 2017 incentive stock program filed exhibit 1013 abbott laboratories current report form 8k dated april 28 2017 1042 form restricted stock unit agreement executive officers cliff vested abbott laboratories 2017 incentive stock program filed exhibit 1014 abbott laboratories current report form 8k dated april 28 2017 1043 form restricted stock unit agreement foreign executive officers cliff vested abbott laboratories 2017 incentive stock program filed exhibit 1015 abbott laboratories current report form 8k dated april 28 2017 1044 form performance restricted stock unit agreement foreign executive officers annual performance based abbott laboratories 2017 incentive stock program filed exhibit 1016 abbott laboratories current report form 8k dated april 28 2017 1045 form performance restricted stock unit agreement foreign executive officers interim performance based abbott laboratories 2017 incentive stock program filed exhibit 1017 abbott laboratories current report form 8k dated april 28 2017 1046 form restricted stock agreement executive officers ratably vested abbott laboratories 2017 incentive stock program filed exhibit 1018 abbott laboratories current report form 8k dated april 28 2017 1047 form restricted stock agreement executive officers cliff vested abbott laboratories 2017 incentive stock program filed exhibit 1019 abbott laboratories current report form 8k dated april 28 2017 1048 form performance restricted stock agreement executive officers annual performance based abbott laboratories 2017 incentive stock program filed exhibit 1020 abbott laboratories current report form 8k dated april 28 2017 1049 form performance restricted stock agreement executive officers interim performance based abbott laboratories 2017 incentive stock program filed exhibit 1021 abbott laboratories current report form 8k dated april 28 2017 1050 form nonqualified stock option agreement executive officers abbott laboratories 2017 incentive stock program filed exhibit 1022 abbott laboratories current report form 8k dated april 28 2017 1051 form nonqualified stock option agreement foreign executive officers abbott laboratories 2017 incentive stock program filed exhibit 1023 abbott laboratories current report form 8k dated april 28 2017 1052 form nonemployee director restricted stock unit agreement abbott laboratories 2017 incentive stock program filed exhibit 1024 abbott laboratories current report form 8k dated april 28 2017 10k exhibit table item 1053 form nonemployee director restricted stock unit agreement foreign nonemployee directors abbott laboratories 2017 incentive stock program filed exhibit 1025 abbott laboratories current report form 8k dated april 28 2017 1054 form nonemployee director nonqualified stock option agreement abbott laboratories 2017 incentive stock program filed exhibit 1026 abbott laboratories current report form 8k dated april 28 2017 1055 form nonemployee director nonqualified stock option agreement foreign nonemployee directors abbott laboratories 2017 incentive stock program filed exhibit 1027 abbott laboratories current report form 8k dated april 28 2017 1056 form performance restricted stock unit agreement foreign employees annual performance based abbott laboratories 2017 incentive stock program 1057 form performance restricted stock unit agreement foreign employees interim performance based abbott laboratories 2017 incentive stock program 1058 form performance restricted stock agreement annual performance based abbott laboratories 2017 incentive stock program 1059 form performance restricted stock agreement interim performance based abbott laboratories 2017 incentive stock program 1060 form performance restricted stock unit agreement foreign executive officers annual performance based abbott laboratories 2017 incentive stock program 1061 form performance restricted stock unit agreement foreign executive officers interim performance based abbott laboratories 2017 incentive stock program 1062 form performance restricted stock agreement executive officers annual performance based abbott laboratories 2017 incentive stock program 1063 form performance restricted stock agreement executive officers interim performance based abbott laboratories 2017 incentive stock program 1064 form agreement regarding change control abbott laboratories named executive officers mr white filed exhibit 101 abbott laboratories current report form 8k dated november 30 2012 1065 form extension agreement regarding change control abbott laboratories named executive officers mr white extending agreement term december 31 2020 filed exhibit 1074 2018 abbott laboratories annual report form 10k 1066 form extension agreement regarding change control abbott laboratories named executive officers mr white extending agreement term december 31 2022 1067 form time sharing agreement abbott laboratories inc md white filed exhibit 106 abbott laboratories quarterly report form 10q quarter ended june 30 2006 10k exhibit table item 1068 form time sharing agreement abbott laboratories inc robert b ford 1069 † st jude medical inc 2007 stock incentive plan amended restated 2014 filed exhibit 1022 st jude medical inc annual report form 10k year ended january 3 2015 dated february 26 2015 1070 † form nonqualified stock option agreement global related notice nonqualified stock option grant stock options granted december 10 2012 st jude medical inc 2007 stock incentive plan filed exhibit 1024 st jude medical inc annual report form 10k year ended december 29 2012 dated february 26 2013 1071 † form nonqualified stock option agreement nonemployee directors related notice nonqualified stock option grant stock options granted december 10 2012 st jude medical inc 2007 stock incentive plan filed exhibit 1025 st jude medical inc annual report form 10k year ended december 29 2012 dated february 26 2013 1072 † form restricted stock units award agreement global related restricted stock units award certificate restricted stock units granted december 10 2012 st jude medical inc 2007 stock incentive plan filed exhibit 1027 st jude medical inc annual report form 10k year ended december 29 2012 dated february 26 2013 1073 management savings plan amended restated filed exhibit 1075 2019 abbott laboratories annual report form 10k 1074 abbott overseas managers pension plan amended restated 1075 five year credit agreement dated november 12 2020 among abbott laboratories borrower various financial institutions lenders jpmorgan chase bank na administrative agent subsidiaries abbott laboratories 231 consent independent registered public accounting firm 311 certification chief executive officer required rule 13a14a 17 cfr 24013a14a 312 certification chief financial officer required rule 13a14a 17 cfr 24013a14a exhibits 321 322 furnished herewith deemed “filed” securities exchange act 1934 321 certification chief executive officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 322 certification chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 10k exhibit table item following financial statements notes abbott laboratories annual report form 10k year ended december 31 2020 filed february 19 2021 formatted inline xbrl consolidated statement earnings ii consolidated statement comprehensive income iii consolidated statement cash flows iv consolidated balance sheet v consolidated statement shareholders’ investment vi notes consolidated financial statements cover page interactive data file cover page xbrl tags embedded inline xbrl document included exhibit 101 incorporated herein reference commission file number 12189 denotes management contract compensatory plan arrangement required filed exhibit hereto † incorporated herein reference commission file number 112441 abbott furnish copies exhibits shareholder upon written request secretary abbott laboratories 100 abbott park road abbott park illinois 600646400 c financial statement schedule filed page 101 item 16 form 10k summary none signatures pursuant requirements section 13 15d securities exchange act 1934 abbott laboratories duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf abbott laboratories february 19 2021 capacities indicated robert b ford robert e funck jr robert b ford robert e funck jr president chief executive officer director abbott laboratories principal executive officer executive vice president finance chief financial officer principal financial officer philip p boudreau miles white philip p boudreau miles white vice president finance controller principal accounting officer executive chairman board robert j alpern roxanne austin robert j alpern md roxanne austin director abbott laboratories director abbott laboratories sally e blount michelle kumbier sally e blount phd michelle kumbier director abbott laboratories director abbott laboratories edward liddy darren w mcdew edward liddy director abbott laboratories darren w mcdew director abbott laboratories nancy mckinstry phebe n novakovic nancy mckinstry phebe n novakovic director abbott laboratories director abbott laboratories william osborn daniel j starks william osborn daniel j starks director abbott laboratories director abbott laboratories john g stratton glenn f tilton john g stratton glenn f tilton director abbott laboratories director abbott laboratories abbott laboratories subsidiaries schedule ii valuation qualifying accounts years ended december 31 2020 2019 2018 millions dollars report independent registered public accounting firm shareholders board directors abbott laboratories opinion financial statement schedule audited consolidated financial statements abbott laboratories subsidiaries company december 31 2020 2019 three years period ended december 31 2020 issued report thereon dated february 19 2021 included elsewhere annual report form 10k audits consolidated financial statements included financial statement schedule listed item 15a2 annual report form 10k “schedule” schedule responsibility company’s management responsibility express opinion company’s schedule based audits opinion schedule presents fairly material respects information set forth therein considered conjunction consolidated financial statements ernst young llp chicago illinois february 19 2021 item 15 exhibits financial statement schedules reports form 8k adocuments filed part form 10k 1financial statements see item 8 financial statements supplementary data page 41 hereof list financial statements 2financial statement schedules required financial statement schedules found pages indicated schedules read conjunction consolidated financial statements abbott laboratories tap pharmaceutical products inc 3exhibits required item 601 regulation sk information called paragraph incorporated herein reference exhibit index pages 97 98 99 100 form 10k breports form 8k quarter ended december 31 2003 october 9 2003 abbott laboratories furnished current report securities exchange commission form 8k reporting press release issued abbott laboratories announced abbotts results operations third quarter 2003 cexhibits filed see exhibit index pages 97 98 99 100 dfinancial statement schedules filed pages 92 95 signatures pursuant requirements section 13 15d securities exchange act 1934 abbott laboratories duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf abbott laboratories february 20 2004 capacities indicated miles white miles white chairman board chief executive officer director abbott laboratories principal executive officer roxanne austin roxanne austin director abbott laboratories richard gonzalez richard gonzalez president chief operating officer medical products group director abbott laboratories h laurance fuller h laurance fuller director abbott laboratories jeffrey leiden jeffrey leiden president chief operating officer pharmaceutical products group director abbott laboratories jack greenberg jack greenberg director abbott laboratories thomas c freyman thomas c freyman executive vice president finance chief financial officer principal financial officer david l owen david l owen director abbott laboratories greg w linder greg w linder vice president controller principal accounting officer boone powell jr boone powell jr director abbott laboratories barry rand barry rand director abbott laboratories william smithburg william smithburg director abbott laboratories w ann reynolds w ann reynolds director abbott laboratories john r walter john r walter director abbott laboratories roy roberts roy roberts director abbott laboratories abbott laboratories subsidiaries schedule ii valuation qualifying accounts years ended december 31 2003 2002 2001 thousands dollars arepresents provisions related allowances doubtful accounts net change allowances sales deductions report independent public accountants supplemental schedule board directors shareholders abbott laboratories audited consolidated financial statements abbott laboratories subsidiaries company december 31 2003 2002 years ended issued report thereon dated february 11 2004 report expresses unqualified opinion includes explanatory paragraphs related audit certain 2001 disclosures note 5 related pensions postemployment benefits abbott laboratories change method accounting goodwill intangible assets audit 2001 transitional disclosures note 15 required change consolidated financial statements report included 2003 annual report shareholders annual report form 10k audits also included financial statement schedule company relates years ended december 31 2003 2002 listed item 15 consolidated financial statement schedule responsibility companys management responsibility express opinion based audits opinion financial statement schedule relates years ended december 31 2003 2002 considered relation 2003 2002 basic consolidated financial statements taken whole presents fairly material respects information set forth therein financial statement schedule year ended december 31 2001 audited auditors ceased operations auditors expressed opinion report dated january 15 2002 2001 financial statement schedule considered relation 2001 basic consolidated financial statements taken whole presented fairly material respects information set forth therein deloitte touche llp chicago illinois february 11 2004 supplemental report independent public accountants abbott laboratories audited accordance auditing standards generally accepted united states financial statements abbott laboratories included annual report form 10k issued report thereon dated january 15 2002 audits made purpose forming opinion statements taken whole schedule ii responsibility abbotts management presented purposes complying securities exchange commissions rules part basic financial statements schedule subjected auditing procedures applied audits basic financial statements opinion fairly states material respects financial data required set forth therein relation basic financial statements taken whole arthur andersen llp1 chicago illinois january 15 2002 1this report copy previously issued report covering fiscal years 2001 2000 1999 predecessor auditors reissued report tap pharmaceutical products inc subsidiaries schedule ii valuation qualifying accounts years ended december 31 2003 2002 2001 thousands dollars arepresents provisions related allowances doubtful accounts net change allowances sales deductions report independent public accountants supplemental schedule board directors shareholders tap pharmaceutical products inc audited consolidated financial statements tap pharmaceutical products inc subsidiaries tap december 31 2003 2002 years ended issued report thereon dated february 6 2004 report included elsewhere form 10k audits also included financial statement schedules tap listed item 15 years ended december 31 2003 2002 financial statement schedules responsibility taps management responsibility express opinion based audits opinion financial statement schedules considered relation basic consolidated financial statements taken whole present fairly material respects information set forth therein accompanying financial statement schedule year ended december 31 2001 audited us accordingly express opinion deloitte touche llp chicago illinois february 6 2004 exhibit index abbott laboratories annual report form 10k exhibits 321 322 furnished herewith deemed filed securities exchange act 1934 10k exhibit table item 21 agreement plan merger abbott laboratories corvette acquisition corp therasense inc dated january 12 2004 filed exhibit 2 schedule 13d filed abbott laboratories january 22 2004 31 articles incorporation abbott laboratories filed exhibit 31 abbott laboratories quarterly report quarter ended march 31 1998 form 10q see also exhibit 433 32 corporate bylaws abbott laboratories filed exhibit 31 abbott laboratories current report dated june 20 2003 form 8k 41 abbott laboratories deferred compensation plan filed exhibit 4 registration statement 333102179 42 indenture dated october 1 1993 abbott laboratories harris trust savings bank filed exhibit 41 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 43 form 56 note issued pursuant indenture filed exhibit 42 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 44 form mediumterm note series fixed rate issued pursuant indenture filed exhibit 43 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 45 form mediumterm note series floating rate issued pursuant indenture filed exhibit 44 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 46 resolution abbotts board directors filed exhibit 45 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 47 actions authorized officers respect abbotts 200000000 56 notes filed exhibit 46 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 48 actions authorized officers respect abbotts mediumterm notes series filed exhibit 47 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 49 officers certificate company order respect abbotts 200000000 56 notes filed exhibit 48 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 410 form 68 note issued pursuant indenture filed exhibit 49 1995 abbott laboratories annual report form 10k 411 actions authorized officers respect abbotts 150000000 68 notes filed exhibit 410 1995 abbott laboratories annual report form 10k 412 officers certificate company order respect abbotts 150000000 68 notes filed exhibit 411 1995 abbott laboratories annual report form 10k 413 resolution abbotts board directors relating 64 notes filed exhibit 412 1996 abbott laboratories annual report form 10k 414 form 50000000 64 note issued pursuant indenture filed exhibit 413 1996 abbott laboratories annual report form 10k 415 form 200000000 64 note issued pursuant indenture filed exhibit 414 1996 abbott laboratories annual report form 10k 416 actions authorized officers respect abbotts 64 notes filed exhibit 415 1996 abbott laboratories annual report form 10k 417 officers certificate company order respect abbotts 64 notes filed exhibit 416 1996 abbott laboratories annual report form 10k 418 form 200000000 60 note issued pursuant indenture filed exhibit 42 abbott laboratories quarterly report quarter ended june 30 1998 form 10q 419 actions authorized officers respect abbotts 60 note filed exhibit 43 abbott laboratories quarterly report quarter ended june 30 1998 form 10q 420 officers certificate company order respect abbotts 60 note filed exhibit 44 abbott laboratories quarterly report quarter ended june 30 1998 form 10q 421 form 200000000 540 note issued pursuant indenture filed exhibit 42 abbott laboratories quarterly report quarter ended september 30 1998 form 10q 422 actions authorized officers respect abbotts 540 note filed exhibit 43 abbott laboratories quarterly report quarter ended september 30 1998 form 10q 423 officers certificate company order respect abbotts 540 note filed exhibit 44 abbott laboratories quarterly report quarter ended september 30 1998 form 10q 424 indenture dated february 9 2001 abbott laboratories bank one trust company na filed exhibit 41 registration statement 33355446 425 form 5125 note issued pursuant indenture filed exhibit 41 abbott laboratories quarterly report quarter ended june 30 2001 form 10q 426 form 5625 note issued pursuant indenture filed exhibit 42 abbott laboratories quarterly report quarter ended june 30 2001 form 10q 427 actions authorized officers respect abbotts 5125 notes 5625 notes filed exhibit 43 abbott laboratories quarterly report quarter ended june 30 2001 form 10q 428 officers certificate company order respect abbotts 5125 notes 5625 notes filed exhibit 44 abbott laboratories quarterly report quarter ended june 30 2001 form 10q 429 form 35 note issued pursuant indenture 430 actions authorized officers respect abbotts 35 notes 431 officers certificate company order respect abbotts 35 notes 432 certificate designations preferences rights series junior participating preferred stock filed exhibit 41 abbott laboratories current report form 8k filed november 15 1999 433 rights agreement dated november 11 1999 abbott laboratories bankboston na rights agent filed exhibit 991 abbott laboratories current report form 8k filed november 15 1999 434 amendment 1 rights agreement dated december 7 1999 abbott laboratories bankboston na rights agent filed exhibit 991 abbott laboratories current report form 8k filed december 20 1999 435 amendment 2 rights agreement dated may 19 2000 filed exhibit 991 abbott laboratories current report form 8k filed may 19 2000 debt instruments omitted accordance item 601b4iiia regulation sk copies agreements furnished securities exchange commission upon request 101 supplemental plan abbott laboratories extended disability plan filed exhibit pages 5051 1992 abbott laboratories annual report form 10k 102 abbott laboratories 1991 incentive stock program amended 103 abbott laboratories 401k supplemental plan amended filed exhibit 103 abbott laboratories quarterly report quarter ended june 30 2003 form 10q 104 abbott laboratories supplemental pension plan amended filed exhibit 104 abbott laboratories quarterly report quarter ended june 30 2003 form 10q 105 1986 abbott laboratories management incentive plan amended filed exhibit 105 abbott laboratories quarterly report quarter ended june 30 2003 form 10q 106 abbott laboratories nonemployee directors fee plan amended 107 abbott laboratories 1996 incentive stock program amended 108 1998 abbott laboratories performance incentive plan filed exhibit 101 abbott laboratories quarterly report quarter ended march 31 1998 form 10q 109 form agreement abbott laboratories white r gonzalez j leiden c freyman w g dempsey regarding change control filed exhibit 106 abbott laboratories quarterly report quarter ended june 30 2003 form 10q computation ratio earnings fixed charges subsidiaries abbott laboratories 231 consent independent public accountants 232 consent independent public accountants 311 certification chief executive officer required rule 13a14a 17 cfr 24013a14a 312 certification chief financial officer required rule 13a14a 17 cfr 24013a14a 321 certification chief executive officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 322 certification chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 991 cautionary statement regarding forwardlooking statements 2004 abbott laboratories proxy statement filed securities exchange commission separate cover march 9 2004 incorporated herein reference commission file number 12189 denotes management contract compensatory plan arrangement required filed exhibit hereto abbott furnish copies exhibits shareholder upon written request corporate secretary abbott laboratories 100 abbott park road abbott park illinois 600646400 part item 1 business item 2 properties item 3 legal proceedings item 4 submission matters vote security holders part ii item 5 market registrants common equity related stockholder matters item 6 selected financial data item 7 managements discussion analysis financial condition results operations item 7a quantitative qualitative disclosures market risk item 8 financial statements supplementary data item 9 changes disagreements accountants accounting financial disclosure item 9a controls procedures part iii item 10 directors executive officers registrant item 11 executive compensation item 12 security ownership certain beneficial owners management item 13 certain relationships related transactions item 14 principal accounting fees services part iv item 15 exhibits financial statement schedules reports form 8k signatures exhibit index item 15 exhibits financial statement schedules documents filed part form 10k financial statements see item 8 financial statements supplementary data page 45 hereof list financial statements financial statement schedules required financial statement schedules found pages indicated schedules read conjunction consolidated financial statements abbott laboratories tap pharmaceutical products inc exhibits required item 601 regulation sk information called paragraph incorporated herein reference exhibit index pages 100 105 form 10k exhibits filed see exhibit index pages 100 105 financial statement schedules filed pages 96 98 signatures pursuant requirements section 13 15d securities exchange act 1934 abbott laboratories duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf abbott laboratories february 21 2006 capacities indicated miles white miles white chairman board chief executive officer director abbott laboratories principal executive officer roxanne austin roxanne austin director abbott laboratories richard gonzalez richard gonzalez president chief operating officer medical products group director abbott laboratories william daley william daley director abbott laboratories jeffrey leiden jeffrey leiden president chief operating officer pharmaceutical products group director abbott laboratories w james farrell w james farrell director abbott laboratories thomas c freyman thomas c freyman executive vice president finance chief financial officer principal financial officer h laurance fuller h laurance fuller director abbott laboratories greg w linder greg w linder vice president controller principal accounting officer jack greenberg jack greenberg director abbott laboratories david l owen david l owen director abbott laboratories boone powell jr boone powell jr director abbott laboratories w ann reynolds w ann reynolds director abbott laboratories roy roberts roy roberts director abbott laboratories william smithburg william smithburg director abbott laboratories john r walter john r walter director abbott laboratories abbott laboratories subsidiaries schedule ii valuation qualifying accounts years ended december 31 2005 2004 2003 thousands dollars arepresents provisions related allowances doubtful accounts net change allowances sales deductions b2004 amounts charged net recoveries includes 18189 allowance transferred hospira inc report independent registered public accounting firm supplemental schedule board directors shareholders abbott laboratories audited consolidated financial statements abbott laboratories subsidiaries company december 31 2005 2004 2003 years ended managements assessment effectiveness companys internal control financial reporting december 31 2005 effectiveness companys internal control financial reporting december 31 2005 issued reports thereon dated february 17 2006 consolidated financial statements reports included 2005 annual report shareholders included elsewhere annual report form 10k audits also included consolidated financial statement schedule company listed item 15 consolidated financial statement schedule responsibility companys management responsibility express opinion based audits opinion consolidated financial schedule considered relation basic consolidated financial statements taken whole present fairly material respects information set forth therein deloitte touche llp chicago illinois february 17 2006 tap pharmaceutical products inc subsidiaries schedule ii valuation qualifying accounts years ended december 31 2005 2004 2003 thousands dollars arepresents provisions related allowances doubtful accounts net change allowances sales deductions report independent registered public accounting firm supplemental schedule board directors stockholders tap pharmaceutical products inc audited consolidated financial statements tap pharmaceutical products inc subsidiaries tap december 31 2005 2004 three years period ended december 31 2005 issued report thereon dated february 3 2006 consolidated financial statements report included annual report form 10k audits also included consolidated financial statement schedule tap listed item 15 consolidated financial statement schedule responsibility taps management responsibility express opinion based audits opinion consolidated financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein deloitte touche llp chicago illinois february 3 2006 exhibit index abbott laboratories annual report form 10k exhibits 321 322 furnished herewith deemed filed securities exchange act 1934 10k exhibit table item 31 articles incorporation abbott laboratories filed exhibit 31 abbott laboratories quarterly report quarter ended march 31 1998 form 10q see also exhibit 433 32 corporate bylaws abbott laboratories filed exhibit 31 abbott laboratories current report dated april 22 2005 form 8k 41 abbott laboratories deferred compensation plan filed exhibit 4 registration statement 333102179 42 indenture dated october 1 1993 abbott laboratories harris trust savings bank filed exhibit 41 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 43 form mediumterm note series fixed rate issued pursuant indenture filed exhibit 43 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 44 form mediumterm note series floating rate issued pursuant indenture filed exhibit 44 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 45 resolution abbotts board directors filed exhibit 45 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 46 actions authorized officers respect abbotts mediumterm notes series filed exhibit 47 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 47 form 68 note issued pursuant indenture filed exhibit 49 1995 abbott laboratories annual report form 10k 48 actions authorized officers respect abbotts 150000000 68 notes filed exhibit 410 1995 abbott laboratories annual report form 10k 49 officers certificate company order respect abbotts 150000000 68 notes filed exhibit 411 1995 abbott laboratories annual report form 10k 410 resolution abbotts board directors relating 64 notes filed exhibit 412 1996 abbott laboratories annual report form 10k 411 form 50000000 64 note issued pursuant indenture filed exhibit 413 1996 abbott laboratories annual report form 10k 412 form 200000000 64 note issued pursuant indenture filed exhibit 414 1996 abbott laboratories annual report form 10k 413 actions authorized officers respect abbotts 64 notes filed exhibit 415 1996 abbott laboratories annual report form 10k 414 officers certificate company order respect abbotts 64 notes filed exhibit 416 1996 abbott laboratories annual report form 10k 415 form 200000000 60 note issued pursuant indenture filed exhibit 42 abbott laboratories quarterly report quarter ended june 30 1998 form 10q 416 actions authorized officers respect abbotts 60 note filed exhibit 43 abbott laboratories quarterly report quarter ended june 30 1998 form 10q 417 officers certificate company order respect abbotts 60 note filed exhibit 44 abbott laboratories quarterly report quarter ended june 30 1998 form 10q 418 form 200000000 540 note issued pursuant indenture filed exhibit 42 abbott laboratories quarterly report quarter ended september 30 1998 form 10q 419 actions authorized officers respect abbotts 540 note filed exhibit 43 abbott laboratories quarterly report quarter ended september 30 1998 form 10q 420 officers certificate company order respect abbotts 540 note filed exhibit 44 abbott laboratories quarterly report quarter ended september 30 1998 form 10q 421 indenture dated february 9 2001 abbott laboratories bank one trust company na filed exhibit 41 registration statement 33355446 422 form 5625 note issued pursuant indenture filed exhibit 42 abbott laboratories quarterly report quarter ended june 30 2001 form 10q 423 actions authorized officers respect abbotts 5625 notes filed exhibit 43 abbott laboratories quarterly report quarter ended june 30 2001 form 10q 424 officers certificate company order respect abbotts 5125 notes 5625 notes filed exhibit 44 abbott laboratories quarterly report quarter ended june 30 2001 form 10q 425 form 35 note issued pursuant indenture filed exhibit 429 2003 abbott laboratories annual report form 10k 426 actions authorized officers respect abbotts 35 notes filed exhibit 430 2003 abbott laboratories annual report form 10k 427 officers certificate company order respect abbotts 35 notes filed exhibit 431 2003 abbott laboratories annual report form 10k 428 form 375 note issued pursuant indenture notes filed exhibit 428 2004 abbott laboratories annual report form 10k 429 form 435 note issued pursuant indenture notes filed exhibit 429 2004 abbott laboratories annual report form 10k 1010 form employee stock option agreement incentive stock option granted nonqualified stock option abbott laboratories 1996 incentive stock program filed exhibit 103 abbott laboratories current report form 8k dated august 20 2004 1011 form employee stock option agreement incentive stock option abbott laboratories 1996 incentive stock program filed exhibit 104 abbott laboratories current report form 8k dated august 20 2004 1012 form employee stock option agreement replacement stock option abbott laboratories 1996 incentive stock program filed exhibit 105 abbott laboratories current report form 8k dated august 20 2004 1013 form employee restricted stock agreement abbott laboratories 1996 incentive stock program filed exhibit 106 abbott laboratories current report form 8k dated august 20 2004 1014 form employee restricted stock unit agreement abbott laboratories 1996 incentive stock program filed exhibit 107 abbott laboratories current report form 8k dated august 20 2004 1015 form nonemployee director stock option agreement abbott laboratories 1996 incentive stock program filed exhibit 108 abbott laboratories current report form 8k dated august 20 2004 1016 form nonemployee director restricted stock unit agreement abbott laboratories 1996 incentive stock program filed exhibit 102 abbott laboratories current report form 8k dated december 10 2004 1017 1998 abbott laboratories performance incentive plan filed exhibit 101 abbott laboratories quarterly report quarter ended march 31 1998 form 10q 1018 rules 1998 abbott laboratories performance incentive plan filed exhibit 1017 2004 abbott laboratories annual report form 10k 1019 form employee stock option agreement nonqualified stock option granted incentive stock option abbott laboratories 1996 incentive stock program february 18 2005 filed exhibit 101 abbott laboratories current report form 8k dated february 18 2005 1020 form employee stock option agreement new nonqualified stock option abbott laboratories 1996 incentive stock program granted february 18 2005 filed exhibit 102 abbott laboratories current report form 8k dated february 18 2005 1021 form employee stock option agreement incentive stock option granted nonqualified stock option abbott laboratories 1996 incentive stock program february 18 2005 filed exhibit 103 abbott laboratories current report form 8k dated february 18 2005 1022 form employee stock option agreement incentive stock option abbott laboratories 1996 incentive stock program granted february 18 2005 filed exhibit 104 abbott laboratories current report form 8k dated february 18 2005 1023 form employee restricted stock agreement abbott laboratories 1996 incentive stock program filed exhibit 105 abbott laboratories current report form 8k dated february 18 2005 1024 form employee restricted stock unit agreement abbott laboratories 1996 incentive stock program filed exhibit 106 abbott laboratories current report form 8k dated february 18 2005 1025 form nonemployee director stock option agreement abbott laboratories 1996 incentive stock program granted february 18 2005 filed exhibit 107 abbott laboratories current report form 8k dated february 18 2005 1026 form agreement abbott laboratories named executive officers regarding change control filed exhibit 106 abbott laboratories quarterly report quarter ended june 30 2003 form 10q 1027 base salary named executive officers 1028 transaction agreement boston scientific corporation abbott laboratories dated january 8 2006 1029 amendment 1 transaction agreement dated january 16 2006 boston scientific corporation abbott laboratories 1030 amendment 2 transaction agreement dated january 16 2006 boston scientific corporation abbott laboratories 1031 form time sharing agreement abbott laboratories inc md white jm leiden ra gonzalez tc freyman 1032 form performance restricted stock agreement award performance restricted stock section 10 abbott laboratories 1996 incentive stock program granted february 17 2006 filed exhibit 101 abbott laboratories current report form 8k dated february 16 2006 1033 form performance restricted stock agreement award performance restricted stock section 11 abbott laboratories 1996 incentive stock program granted february 17 2006 filed exhibit 102 abbott laboratories current report form 8k dated february 16 2006 1034 form performance restricted stock unit agreement award performance restricted stock units abbott laboratories 1996 incentive stock program granted february 17 2006 filed exhibit 103 abbott laboratories current report form 8k dated february 16 2006 1035 form nonqualified stock option agreement award nonqualified stock options abbott laboratories 1996 incentive stock program granted february 17 2006 filed exhibit 104 abbott laboratories current report form 8k dated february 16 2006 1036 form restricted stock unit agreement award restricted stock units abbott laboratories 1996 incentive stock program granted february 17 2006 filed exhibit 105 abbott laboratories current report form 8k dated february 16 2006 computation ratio earnings fixed charges subsidiaries abbott laboratories 231 consent independent registered public accounting firm 232 consent independent registered public accounting firm 311 certification chief executive officer required rule 13a14a 17 cfr 24013a14a 312 certification chief financial officer required rule 13a14a 17 cfr 24013a14a 321 certification chief executive officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 322 certification chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 991 cautionary statement regarding forwardlooking statements 2006 abbott laboratories proxy statement filed securities exchange commission separate cover march 21 2006 incorporated herein reference commission file number 12189 denotes management contract compensatory plan arrangement required filed exhibit hereto abbott furnish copies exhibits shareholder upon written request corporate secretary abbott laboratories 100 abbott park road abbott park illinois 600646400 documents incorporated reference part item 1 business general development business financial information relating industry segments geographic areas classes similar products narrative description business information respect abbotts business general international operations internet information item 1a risk factors item 1b unresolved staff comments item 2 properties item 3 legal proceedings item 4 submission matters vote security holders part ii item 5 market registrants common equity related stockholder matters issuer purchases equity securities item 6 selected financial data item 7 managements discussion analysis financial condition results operations item 7a quantitative qualitative disclosures market risk item 8 financial statements supplementary data consolidated statement earnings consolidated statement cash flows consolidated balance sheet consolidated statement shareholders investment notes consolidated financial statements management report internal control financial reporting report independent registered public accounting firm report independent registered public accounting firm consolidated statements income comprehensive income sonsolidated statements cash flows consolidated balance sheets consolidated statements shareholders equity notes consolidated financial statements item 9 changes disagreements accountants accounting financial disclosure item 9a controls procedures item 9b information part iii item 10 directors executive officers registrant item 11 executive compensation item 12 security ownership certain beneficial owners management related stockholder matters item 13 certain relationships related transactions item 14 principal accounting fees services part iv item 15 exhibits financial statement schedules signatures abbott laboratories subsidiaries schedule ii valuation qualifying accounts years ended december 31 2005 2004 2003 thousands dollars exhibit index abbott laboratories annual report form 10k 2005 item 15 exhibits financial statement schedules adocuments filed part form 10k 1financial statements see item 8 financial statements supplementary data page 49 hereof list financial statements 2financial statement schedules required financial statement schedules found pages indicated schedules read conjunction consolidated financial statements abbott laboratories abbott laboratories financial statement schedules page valuation qualifying accounts schedule ii schedules iii iv v submitted applicable required report independent registered public accounting firm individual financial statements businesses acquired registrant omitted pursuant rule 305 regulation sx 3exhibits required item 601 regulation sk information called paragraph set forth item 15b bexhibits filed incorporated herein reference commission file number 12189 denotes management contract compensatory plan arrangement required filed exhibit hereto incorporated herein reference commission file number 112441 abbott furnish copies exhibits shareholder upon written request secretary abbott laboratories 100 abbott park road abbott park illinois 600646400 cfinancial statement schedule filed page 115 item 16 form 10k summary none signatures pursuant requirements section 13 15d securities exchange act 1934 abbott laboratories duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf abbott laboratories february 22 2019 capacities indicated miles white miles white chairman board chief executive officer director abbott laboratories principal executive officer brian b yoor brian b yoor executive vice president finance chief financial officer principal financial officer robert e funck robert e funck senior vice president finance controller principal accounting officer robert j alpern md robert j alpern md director abbott laboratories roxanne austin roxanne austin director abbott laboratories sally e blount phd sally e blount phd director abbott laboratories michelle kumbier michelle kumbier director abbott laboratories edward liddy edward liddy director abbott laboratories nancy mckinstry nancy mckinstry director abbott laboratories phebe n novakovic phebe n novakovic director abbott laboratories william osborn william osborn director abbott laboratories samuel c scott iii samuel c scott iii director abbott laboratories daniel j starks daniel j starks director abbott laboratories john g stratton john g stratton director abbott laboratories glenn f tilton glenn f tilton director abbott laboratories abbott laboratories subsidiaries schedule ii valuation qualifying accounts years ended december 31 2018 2017 2016 millions dollars report independent registered public accounting firm shareholders board directors abbott laboratories opinion financial statement schedule audited consolidated financial statements abbott laboratories subsidiaries company december 31 2018 2017 three years period ended december 31 2018 issued report thereon dated february 22 2019 included elsewhere annual report form 10k audits consolidated financial statements included financial statement schedule listed item 15a2 annual report form 10k schedule responsibility companys management responsibility express opinion companys schedule based audits opinion schedule presents fairly material respects information set forth therein considered conjunction consolidated financial statements ernst young llp chicago illinois february 22 2019 item 15 exhibits financial statement schedules documents filed part form 10k financial statements see item 8 “financial statements supplementary data” page 44 hereof list financial statements financial statement schedules required financial statement schedules found pages indicated schedules read conjunction consolidated financial statements abbott laboratories tap pharmaceutical products inc abbott laboratories financial statement schedules page valuation qualifying accounts schedule ii schedules iii iv v submitted applicable required report independent registered public accounting firm individual financial statements businesses acquired registrant omitted pursuant rule 305 paragraph 1 regulation sx exhibits required item 601 regulation sk information called paragraph incorporated herein reference exhibit index pages 104 110 form 10k exhibits filed see exhibit index pages 104 110 financial statement schedules filed pages 100 102 signatures pursuant requirements section 13 15d securities exchange act 1934 abbott laboratories duly caused report signed behalf undersigned thereunto duly authorized abbott laboratories miles white miles white chairman board chief executive officer date february 22 pursuant requirements securities exchange act 1934 report signed following persons behalf abbott laboratories february 22 2007 capacities indicated miles white roxanne austin miles white chairman board chief executive officer director abbott laboratories principal executive officer roxanne austin director abbott laboratories richard gonzalez william daley richard gonzalez president chief operating officer director abbott laboratories william daley director abbott laboratories thomas c freyman w james farrell thomas c freyman executive vice president finance chief financial officer principal financial officer w james farrell director abbott laboratories greg w linder h laurance fuller greg w linder vice president controller principal accounting officer h laurance fuller director abbott laboratories jack greenberg david l owen jack greenberg director abbott laboratories david l owen director abbott laboratories boone powell jr w ann reynolds boone powell jr director abbott laboratories w ann reynolds director abbott laboratories roy roberts william smithburg roy roberts director abbott laboratories william smithburg director abbott laboratories abbott laboratories subsidiaries schedule ii valuation qualifying accounts years ended december 31 2006 2005 2004 thousands dollars represents provisions related allowances doubtful accounts net change allowances sales deductions b 2004 amounts charged net recoveries includes 18189 allowance transferred hospira inc report independent registered public accounting firm board directors shareholders abbott laboratories audited consolidated financial statements abbott laboratories subsidiaries “company” december 31 2006 2005 2004 years ended management’s assessment effectiveness company’s internal control financial reporting december 31 2006 effectiveness company’s internal control financial reporting december 31 2006 issued reports thereon dated february 15 2007 report relating consolidated financial statements expresses unqualified opinion includes explanatory paragraph concerning adoption statement financial accounting standards sfas 158 employers’ accounting defined benefit pension postretirement plans sfas 123r sharebased payment 2006 reports included elsewhere form 10k audits also included consolidated financial statement schedule company listed item 15 consolidated financial statement schedule responsibility company’s management responsibility express opinion based audits opinion consolidated financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein deloitte touche llp chicago illinois february 15 2007 tap pharmaceutical products inc subsidiaries schedule ii valuation qualifying accounts years ended december 31 2006 2005 2004 thousands dollars represents provisions related allowances doubtful accounts net change allowances sales deductions report independent registered public accounting firm board directors stockholders tap pharmaceutical products inc audited consolidated financial statements tap pharmaceutical products inc subsidiaries tap december 31 2006 2005 three years period ended december 31 2006 issued report thereon dated february 1 2007 february 16 2007 note 10 consolidated financial statements report included annual report form 10k audits also included consolidated financial statement schedule tap listed item 15 consolidated financial statement schedule responsibility tap’s management responsibility express opinion based audits opinion consolidated financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein deloitte touche llp chicago illinois february 1 2007 exhibit index abbott laboratories annual report form 10k exhibits 321 322 furnished herewith deemed “filed securities exchange act 1934” 411 actions authorized officers respect abbott’s 540 note filed exhibit 43 abbott laboratories quarterly report quarter ended september 30 1998 form 10q 412 officers’ certificate company order respect abbott’s 540 note filed exhibit 44 abbott laboratories quarterly report quarter ended september 30 1998 form 10q 413 indenture dated february 9 2001 abbott laboratories bank one trust company na filed exhibit 41 registration statement 33355446 414 form 35 note issued pursuant indenture filed exhibit 429 2003 abbott laboratories annual report form 10k 415 actions authorized officers respect abbott’s 35 notes filed exhibit 430 2003 abbott laboratories annual report form 10k 416 officers’ certificate company order respect abbott’s 35 notes filed exhibit 431 2003 abbott laboratories annual report form 10k 417 form 375 note issued pursuant indenture notes filed exhibit 428 2004 abbott laboratories annual report form 10k 418 form 435 note issued pursuant indenture notes filed exhibit 429 2004 abbott laboratories annual report form 10k 419 actions authorized officers respect abbott’s 375 notes 435 notes filed exhibit 430 2004 abbott laboratories annual report form 10k 420 officers’ certificate company order respect abbott’s 375 notes 435 notes filed exhibit 431 2004 abbott laboratories annual report form 10k 421 form 5375 note issued pursuant indenture notes filed exhibit 993 abbott laboratories current report form 8k filed may 11 2006 422 form 5600 note issued pursuant indenture notes filed exhibit 993 abbott laboratories current report form 8k filed may 11 2006 423 form 5875 note issued pursuant indenture notes filed exhibit 993 abbott laboratories current report form 8k filed may 11 2006 424 actions authorized officers respect abbott’s 5375 notes 5600 notes 5875 notes filed exhibit 993 abbott laboratories current report form 8k filed may 11 2006 425 officers’ certificate company order respect abbott’s 5375 notes 5600 notes 5875 notes 426 supplemental indenture dated february 27 2006 abbott laboratories jp morgan trust company national association successor interest bank one trust company na filed exhibit 42 registration statement 333132104 debt instruments omitted accordance item 601b4iiia regulation sk copies agreements furnished securities exchange commission upon request 101 supplemental plan abbott laboratories extended disability plan filed exhibit pages 5051 1992 abbott laboratories annual report form 10k 102 abbott laboratories 401k supplemental plan amended filed exhibit 101 abbott laboratories current report form 8k dated december 9 2005 103 abbott laboratories supplemental pension plan amended filed exhibit 102 abbott laboratories current report form 8k dated december 9 2005 104 1986 abbott laboratories management incentive plan amended filed exhibit 105 abbott laboratories quarterly report quarter ended june 30 2003 form 10q 105 abbott laboratories nonemployee directors’ fee plan amended filed exhibit 101 abbott laboratories current report form 8k dated february 17 2006 106 abbott laboratories nonemployee directors’ fee plan amended restated effective april 27 2007 107 abbott laboratories 1996 incentive stock program amended filed exhibit 108 abbott laboratories current report form 8k dated february 18 2005 108 form employee stock option agreement nonqualified stock option granted incentive stock option abbott laboratories 1996 incentive stock program filed exhibit 101 abbott laboratories current report form 8k dated august 20 2004 109 form employee stock option agreement nonqualified stock option abbott laboratories 1996 incentive stock program filed exhibit 102 abbott laboratories current report dated august 20 2004 form 8k 1010 form employee stock option agreement incentive stock option granted nonqualified stock option abbott laboratories 1996 incentive stock program filed exhibit 103 abbott laboratories current report form 8k dated august 20 2004 1011 form employee stock option agreement incentive stock option abbott laboratories 1996 incentive stock program filed exhibit 104 abbott laboratories current report form 8k dated august 20 2004 1012 form employee stock option agreement replacement stock option abbott laboratories 1996 incentive stock program filed exhibit 105 abbott laboratories current report form 8k dated august 20 2004 1013 form employee restricted stock agreement abbott laboratories 1996 incentive stock program filed exhibit 106 abbott laboratories current report form 8k dated august 20 2004 1014 form employee restricted stock unit agreement abbott laboratories 1996 incentive stock program filed exhibit 107 abbott laboratories current report form 8k dated august 20 2004 1015 form nonemployee director stock option agreement abbott laboratories 1996 incentive stock program filed exhibit 108 abbott laboratories current report form 8k dated august 20 2004 1016 form nonemployee director restricted stock unit agreement abbott laboratories 1996 incentive stock program filed exhibit 102 abbott laboratories current report form 8k dated december 10 2004 1017 1998 abbott laboratories performance incentive plan filed exhibit 101 abbott laboratories quarterly report quarter ended march 31 1998 form 10q 1018 rules 1998 abbott laboratories performance incentive plan filed exhibit 1017 2004 abbott laboratories annual report form 10k 1019 form employee stock option agreement nonqualified stock option granted incentive stock option abbott laboratories 1996 incentive stock program february 18 2005 filed exhibit 101 abbott laboratories current report form 8k dated february 18 2005 1020 form employee stock option agreement new nonqualified stock option abbott laboratories 1996 incentive stock program granted february 18 2005 filed exhibit 102 abbott laboratories current report form 8k dated february 18 2005 1021 form employee stock option agreement incentive stock option granted nonqualified stock option abbott laboratories 1996 incentive stock program february 18 2005 filed exhibit 103 abbott laboratories current report form 8k dated february 18 2005 1022 form employee stock option agreement incentive stock option abbott laboratories 1996 incentive stock program granted february 18 2005 filed exhibit 104 abbott laboratories current report form 8k dated february 18 2005 1023 form employee restricted stock agreement abbott laboratories 1996 incentive stock program filed exhibit 105 abbott laboratories current report form 8k dated february 18 2005 1024 form employee restricted stock unit agreement abbott laboratories 1996 incentive stock program filed exhibit 106 abbott laboratories current report form 8k dated february 18 2005 1025 form nonemployee director stock option agreement abbott laboratories 1996 incentive stock program granted february 18 2005 filed exhibit 107 abbott laboratories current report form 8k dated february 18 2005 1026 form agreement abbott laboratories w g dempsey h liepmann regarding change control filed exhibit 106 abbott laboratories quarterly report quarter ended june 30 2003 form 10q 1027 base salary named executive officers 1028 transaction agreement boston scientific corporation abbott laboratories dated january 8 2006 filed exhibit 1028 2005 abbott laboratories annual report form 10k 1029 amendment 1 transaction agreement dated january 16 2006 boston scientific corporation abbott laboratories filed exhibit 1029 2005 abbott laboratories annual report form 10k 1030 amendment 2 transaction agreement dated january 16 2006 boston scientific corporation abbott laboratories filed exhibit 1030 2005 abbott laboratories annual report form 10k 1031 amendment 3 transaction agreement dated february 22 2006 boston scientific corporation abbott laboratories filed exhibit 101 abbott laboratories quarterly report quarter ended march 31 2006 1032 amendment 4 transaction agreement dated april 5 2006 boston scientific corporation abbott laboratories filed exhibit 102 abbott laboratories quarterly report quarter ended march 31 2006 1033 purchase agreement dated april 21 2006 guidant corporation abbott laboratories filed exhibit 101 abbott laboratories quarterly report quarter ended june 30 2006 1034 amendment purchase agreement dated april 21 2006 guidant corporation abbott laboratories filed exhibit 102 abbott laboratories quarterly report quarter ended june 30 2006 1035 promissory note dated april 21 2006 bsc international holding ltd filed exhibit 103 abbott laboratories quarterly report quarter ended june 30 2006 1036 subscription stockholder agreement dated april 21 2006 boston scientific corporation abbott laboratories filed exhibit 104 abbott laboratories quarterly report quarter ended june 30 2006 1037 amendment subscription stockholder agreement dated april 21 2006 boston scientific corporation abbott laboratories filed exhibit 105 abbott laboratories quarterly report quarter ended june 30 2006 1038 form time sharing agreement abbott laboratories inc md white ra gonzalez tc freyman filed exhibit 106 abbott laboratories quarterly report quarter ended june 30 2006 1039 form performance restricted stock agreement award performance restricted stock section 10 abbott laboratories 1996 incentive stock program granted february 17 2006 filed exhibit 101 abbott laboratories current report dated february 16 2006 form 8k 1040 form performance restricted stock agreement award performance restricted stock section 11 abbott laboratories 1996 incentive stock program granted february 17 2006 filed exhibit 102 abbott laboratories current report dated february 16 2006 form 8k 1041 form performance restricted stock unit agreement award performance restricted stock units abbott laboratories 1996 incentive stock program granted february 17 2006 filed exhibit 103 abbott laboratories current report dated february 16 2006 form 8k 1042 form nonqualified stock option agreement award nonqualified stock options abbott laboratories 1996 incentive stock program granted february 17 2006 filed exhibit 104 abbott laboratories current report dated february 16 2006 form 8k 1043 form restricted stock unit agreement award restricted stock units abbott laboratories 1996 incentive stock program granted february 17 2006 filed exhibit 105 abbott laboratories current report dated february 16 2006 form 8k 1044 stock purchase agreement dated november 5 2006 among abbott laboratories michael jaharis kathryn jaharis steven jaharis daniel bell steven k aronoff filed exhibit 991 abbott laboratories current report form 8k filed november 9 2006 1045 shareholders agreement dated november 5 2006 among abbott laboratories michael jaharis mary jaharis kathryn jaharis steven jaharis wilson point holdings lp kos investments inc cubs management llc kos holdings inc jaharis holdings llc steven jaharis generational trust 2002 mary jaharis grantor retained annuity trust 2 michael mary jaharis alaska community property trust kathryn jaharis richard ledes joint account jaharis family foundation inc michael steven jaharis trust 1 filed exhibit 992 abbott laboratories current report form 8k filed november 9 2006 1046 agreement plan merger dated november 5 2006 among abbott laboratories parthenon acquisition corp fka sg nutritionals inc kos pharmaceuticals inc filed exhibit 21 abbott laboratories current report dated november 9 2006 form 8k 1047 assignment assumption amendment agreement dated november 13 2006 among abbott laboratories parthenon acquisition corp fka sg nutritionals inc kos pharmaceuticals inc filed exhibit 99d2 abbott laboratories schedule dated november 14 2006 form sc 1048 transaction agreement dated january 18 2007 abbott laboratories general electric company 1049 form performance restricted stock agreement award performance restricted stock section 10 abbott laboratories 1996 incentive stock program granted february 16 2007 1050 form performance restricted stock agreement award performance restricted stock section 11 abbott laboratories 1996 incentive stock program granted february 16 2007 1051 form performance restricted stock unit agreement award performance restricted stock units abbott laboratories 1996 incentive stock program granted february 16 2007 1052 form restricted stock unit agreement award restricted stock units abbott laboratories 1996 incentive stock program granted february 16 2007 computation ratio earnings fixed charges subsidiaries abbott laboratories 231 consent independent registered public accounting firm 232 consent independent registered public accounting firm 311 certification chief executive officer required rule 13a14a 17 cfr 24013a14a 312 certification chief financial officer required rule 13a14a 17 cfr 24013a14a 321 certification chief executive officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 322 certification chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 2007 abbott laboratories proxy statement filed securities exchange commission separate cover march 19 2007 incorporated herein reference commission file number 12189 denotes management contract compensatory plan arrangement required filed exhibit hereto schedules exhibits hereto omitted abbott hereby undertakes furnish supplementally copy omitted schedule exhibit securities exchange commission upon request abbott furnish copies exhibits shareholder upon written request corporate secretary abbott laboratories 100 abbott park road abbott park illinois 600646400 item 15 exhibits financial statement schedules documents filed part form 10k 1financial statements see item 8 financial statements supplementary data page 43 hereof list financial statements 2financial statement schedules required financial statement schedules found pages indicated schedules read conjunction consolidated financial statements abbott laboratories tap pharmaceutical products inc abbott laboratories financial statement schedules page valuation qualifying accounts schedule ii schedules iii iv v submitted applicable required report independent registered public accounting firm individual financial statements businesses acquired registrant omitted pursuant rule 305 regulation sx tap pharmaceutical products inc financial statement schedules page valuation qualifying accounts schedule ii schedules iii iv v submitted applicable required report independent registered public accounting firm 3exhibits required item 601 regulation sk information called paragraph incorporated herein reference exhibit index pages 102 107 form 10k b exhibits filed see exhibit index pages 102 107 c financial statement schedules filed pages 98 100 signatures pursuant requirements section 13 15d securities exchange act 1934 abbott laboratories duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf abbott laboratories february 20 2009 capacities indicated miles white miles white chairman board chief executive officer director abbott laboratories principal executive officer robert j alpern md robert j alpern md director abbott laboratories thomas c freyman thomas c freyman executive vice president finance chief financial officer principal financial officer roxanne austin roxanne austin director abbott laboratories greg w linder greg w linder vice president controller principal accounting officer william daley william daley director abbott laboratories w james farrell w james farrell director abbott laboratories h laurance fuller h laurance fuller director abbott laboratories william osborn william osborn director abbott laboratories david l owen david l owen director abbott laboratories boone powell jr boone powell jr director abbott laboratories w ann reynolds phd w ann reynolds phd director abbott laboratories roy roberts roy roberts director abbott laboratories samuel c scott iii samuel c scott iii director abbott laboratories william smithburg william smithburg director abbott laboratories glenn f tilton glenn f tilton director abbott laboratories abbott laboratories subsidiaries schedule ii valuation qualifying accounts years ended december 31 2008 2007 2006 thousands dollars report independent registered public accounting firm board directors shareholders abbott laboratories audited consolidated financial statements abbott laboratories subsidiaries company december 31 2008 2007 2006 years ended companys internal control financial reporting december 31 2008 issued reports thereon dated february 19 2009 report relating consolidated financial statements expresses unqualified opinion includes explanatory paragraph regarding adoption new accounting standards 2007 2006 reports included elsewhere form 10k audits also included consolidated financial statement schedule company listed item 15 consolidated financial statement schedule responsibility companys management responsibility express opinion based audits opinion consolidated financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein deloitte touche llp chicago illinois february 19 2009 tap pharmaceutical products inc subsidiaries schedule ii valuation qualifying accounts four months ended april 30 2008 years ended december 31 2007 2006 thousands dollars arepresents provisions related allowances doubtful accounts net change allowances sales deductions report independent registered public accounting firm board directors shareholders tap pharmaceutical products inc audited consolidated financial statements tap pharmaceutical products inc subsidiaries company april 30 2008 december 31 2007 2006 four months ended april 30 2008 years ended december 31 2007 2006 issued report thereon dated august 27 2008 consolidated financial statements report included annual report form 10k audits also included consolidated financial statement schedule company listed item 15 consolidated financial statement schedule responsibility companys management responsibility express opinion based audits opinion consolidated financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein deloitte touche llp chicago illinois august 27 2008 exhibit index abbott laboratories annual report form 10k exhibits 321 322 furnished herewith deemed filed securities exchange act 1934 2009 abbott laboratories proxy statement filed securities exchange commission separate cover march 13 2009 incorporated herein reference commission file number 12189 denotes management contract compensatory plan arrangement required filed exhibit hereto abbott furnish copies exhibits shareholder upon written request corporate secretary abbott laboratories 100 abbott park road abbott park illinois 600646400 part item 1 business general development business financial information relating industry segments geographic areas classes similar products narrative description business information respect abbotts business general international operations internet information item 1a risk factors cautionary statement regarding forwardlooking statements item 1b unresolved staff comments item 2 properties item 3 legal proceedings item 4 submission matters vote security holders executive officers registrant part ii item 5 market registrants common equity related stockholder matters issuer purchases equity securities item 6 selected financial data item 7 managements discussion analysis financial condition results operations financial review item 7a quantitative qualitative disclosures market risk financial instruments risk management item 8 financial statements supplementary data abbott laboratories subsidiaries consolidated statement earnings dollars shares thousands except per share data abbott laboratories subsidiaries consolidated statement cash flows dollars thousands abbott laboratories subsidiaries consolidated balance sheet dollars thousands abbott laboratories subsidiaries consolidated balance sheet dollars thousands abbott laboratories subsidiaries consolidated statement shareholders investment dollars thousands except per share data notes consolidated financial statements management report internal control financial reporting report independent registered public accounting firm report independent registered public accounting firm tap pharmaceutical products inc subsidiaries consolidated statements income comprehensive income dollars thousands tap pharmaceutical products inc subsidiaries consolidated statements cash flows dollars thousands tap pharmaceutical products inc subsidiaries consolidated balance sheets thousands except share amount tap pharmaceutical products inc subsidiaries consolidated statements shareholders equity four months ended april 30 2008 years ended december 31 2007 2006 dollars thousands except share amounts tap pharmaceutical products inc subsidiaries notes consolidated financial statements four months ended april 30 2008 years ended december 31 2007 2006 dollars thousands item 9 changes disagreements accountants accounting financial disclosure item 9a controls procedures item 9b information part iii item 10 directors executive officers corporate governance item 11 executive compensation item 12 security ownership certain beneficial owners management related stockholder matters item 13 certain relationships related transactions director independence item 14 principal accounting fees services part iv item 15 exhibits financial statement schedules signatures abbott laboratories subsidiaries schedule ii valuation qualifying accounts years ended december 31 2008 2007 2006 thousands dollars report independent registered public accounting firm tap pharmaceutical products inc subsidiaries schedule ii valuation qualifying accounts four months ended april 30 2008 years ended december 31 2007 2006 thousands dollars report independent registered public accounting firm exhibit index abbott laboratories annual report form 10k 2008 item 15 exhibits financial statement schedules documents filed part form 10k 1 financial statements see item 8 “financial statements supplementary data” page 43 hereof list financial statements 2 financial statement schedules required financial statement schedules found pages indicated schedules read conjunction consolidated financial statements abbott laboratories 3 exhibits required item 601 regulation sk information called paragraph set forth item 15b b exhibits filed 10k exhibit table item 21 agreement plan merger dated january 30 2016 among alere inc abbott laboratories filed exhibit 21 abbott laboratories current report form 8k dated january 30 2016 22 amendment agreement plan merger dated april 13 2017 among alere inc abbott laboratories angel sub inc filed exhibit 21 abbott laboratories current report form 8k dated april 14 2017 23 agreement plan merger dated april 27 2016 among abbott laboratories st jude medical inc vault merger sub inc vault merger sub llc filed exhibit 21 abbott laboratories current report form 8k dated april 27 2016 24 stock purchase agreement dated september 14 2016 abbott laboratories chace llc solely certain purposes johnson filed exhibit 21 abbott laboratories current report form 8k dated september 14 2016 certain schedules exhibits omitted filings pursuant item 601b2 regulation sk abbott furnish supplemental copies schedules exhibits us securities exchange commission upon request 31 articles incorporation abbott laboratories filed exhibit 31 abbott laboratories quarterly report form 10q quarter ended march 31 1998 32 bylaws abbott laboratories amended restated effective november 12 2019 filed exhibit 31 abbott laboratories current report form 8k dated november 13 2019 10k exhibit table item 41 indenture dated february 9 2001 abbott laboratories bank new york mellon trust company na successor jp morgan trust company national association successor bank one trust company na including form security filed exhibit 41 abbott laboratories registration statement form s3 dated february 12 2001 42 supplemental indenture dated february 27 2006 abbott laboratories bank new york mellon trust company na successor jp morgan trust company national association filed exhibit 42 abbott laboratories registration statement form s3 dated february 28 2006 43 form 1000000000 6150 note due 2037 filed exhibit 996 abbott laboratories current report form 8k dated november 6 2007 44 actions authorized officers respect abbott’s 5150 notes due 2012 5600 notes due 2017 6150 notes due 2037 filed exhibit 993 abbott laboratories current report form 8k dated november 6 2007 45 form 1000000000 6000 note due 2039 filed exhibit 995 abbott laboratories current report form 8k dated february 26 2009 46 actions authorized officers respect abbott’s 5125 note due 2019 6000 note due 2039 filed exhibit 993 abbott laboratories current report form 8k dated february 26 2009 47 form 2040 note filed exhibit 996 abbott laboratories current report form 8k dated may 27 2010 48 actions authorized officers respect abbott’s 270 notes 4125 notes 530 notes filed exhibit 993 abbott laboratories current report form 8k dated may 27 2010 49 indenture dated march 10 2015 abbott laboratories us bank national association including form security filed exhibit 41 abbott laboratories current report form 8k dated march 5 2015 410 form 2550 note due 2022 filed exhibit 995 abbott laboratories current report form 8k dated march 5 2015 411 form 2950 note due 2025 filed exhibit 996 abbott laboratories current report form 8k dated march 5 2015 412 actions authorized officers respect abbott’s 2000 notes 2550 notes 2950 notes filed exhibit 993 abbott laboratories current report form 8k dated march 5 2015 413 form 3400 notes due 2023 filed exhibit 44 abbott laboratories current report form 8k dated november 22 2016 414 form 3750 notes due 2026 filed exhibit 45 abbott laboratories current report form 8k dated november 22 2016 415 form 4750 notes due 2036 filed exhibit 46 abbott laboratories current report form 8k dated november 22 2016 10k exhibit table item 416 form 4900 notes due 2046 filed exhibit 47 abbott laboratories current report form 8k dated november 22 2016 417 officers’ certificate pursuant sections 31 33 indenture respect 2350 notes due 2019 2900 notes due 2021 3400 notes due 2023 3750 notes due 2026 4750 notes due 2036 4900 notes due 2046 including forms notes filed exhibit 422 abbott laboratories 2016 annual report form 10k 418 form 3875 notes due 2025 filed exhibit 45 abbott laboratories current report form 8k dated march 22 2017 419 form 475 notes due 2043 filed exhibit 46 abbott laboratories current report form 8k dated march 22 2017 420 officers’ certificate pursuant sections 31 33 indenture respect 2000 notes due 2018 2800 notes due 2020 325 notes due 2023 3875 notes due 2025 475 notes due 2043 including form notes filed exhibit 47 abbott laboratories quarterly report form 10q period ended march 31 2017 421 † indenture dated july 28 2009 st jude medical llc successor st jude medical inc us bank national association trustee filed exhibit 41 st jude medical inc current report form 8k dated july 28 2009 422 † fourth supplemental indenture dated april 2 2013 st jude medical llc successor st jude medical inc us bank national association trustee relating st jude medical llc’s 325 senior notes due 2023 475 senior notes due 2043 including forms notes filed exhibit 41 st jude medical inc current report form 8k dated april 2 2013 423 † fifth supplemental indenture dated september 23 2015 st jude medical llc successor st jude medical inc us bank national association trustee relating st jude medical llc’s 2000 senior notes due 2018 2800 senior notes due 2020 3875 senior notes due 2025 filed exhibit 41 st jude medical inc current report form 8k dated september 23 2015 424 † sixth supplemental indenture dated january 4 2017 among st jude medical inc st jude medical llc us bank national association trustee filed exhibit 41 st jude medical llc current report form 8k dated january 4 2017 425 form seventh supplemental indenture st jude medical llc us bank national association trustee filed exhibit 43 abbott laboratories registration statement form s4 dated february 21 2017 426 indenture dated september 27 2018 among abbott ireland financing dac issuer abbott laboratories guarantor us bank national association trustee filed exhibit 41 abbott laboratories current report form 8k dated september 27 2018 427 first supplemental indenture dated september 27 2018 among abbott ireland financing dac issuer abbott laboratories guarantor us bank national association trustee elavon financial services dac uk branch paying agent transfer agent elavon financial services dac registrar filed exhibit 42 abbott laboratories current report form 8k dated september 27 2018 10k exhibit table item 428 second supplemental indenture dated november 19 2019 among abbott ireland financing dac issuer abbott laboratories guarantor us bank national association trustee elavon financial services dac paying agent transfer agent registrar filed exhibit 42 abbott laboratories current report form 8k dated november 19 2019 429 form 0000 note due 2020 included exhibit 42 abbott laboratories current report form 8k dated september 27 2018 430 form 0875 note due 2023 included exhibit 42 abbott laboratories current report form 8k dated september 27 2018 431 form 1500 note due 2026 included exhibit 42 abbott laboratories current report form 8k dated september 27 2018 432 form 0100 note due 2024 included exhibit 42 abbott laboratories current report form 8k dated november 19 2019 433 form 0375 note due 2027 included exhibit 42 abbott laboratories current report form 8k dated november 19 2019 debt instruments omitted accordance item 601b4iiia regulation sk copies agreements furnished securities exchange commission upon request 434 description registrants securities 101 supplemental plan abbott laboratories extended disability plan filed exhibit pages 5051 1992 abbott laboratories annual report form 10k 102 abbott laboratories deferred compensation plan amended filed exhibit 102 2017 abbott laboratories annual report form 10k 103 abbott laboratories 401k supplemental plan amended restated filed exhibit 103 2012 abbott laboratories annual report form 10k 104 abbott laboratories supplemental pension plan amended restated filed exhibit 104 2014 abbott laboratories annual report form 10k 105 1986 abbott laboratories management incentive plan amended restated filed exhibit 105 2014 abbott laboratories annual report form 10k 106 1998 abbott laboratories performance incentive plan amended filed exhibit 106 2014 abbott laboratories annual report form 10k 107 rules 1998 abbott laboratories performance incentive plan amended restated filed exhibit 107 2012 abbott laboratories annual report form 10k 108 abbott laboratories 2009 incentive stock program amended restated filed exhibit 109 2014 abbott laboratories annual report form 10k exhibit table item 109 abbott laboratories 2017 incentive stock program incorporated reference exhibit b abbott’s definitive proxy statement schedule 14a filed securities exchange commission march 17 2017 1010 abbott laboratories nonemployee directors’ fee plan amended restated filed exhibit 1010 2016 abbott laboratories annual report form 10k 1011 form nonemployee director restricted stock unit agreement abbott laboratories 1996 incentive stock program filed exhibit 102 abbott laboratories current report form 8k dated december 10 2004 1012 form nonemployee director nonqualified stock option agreement filed exhibit 102 abbott laboratories current report form 8k dated april 24 2009 1013 form nonemployee director restricted stock unit agreement filed exhibit 103 abbott laboratories current report form 8k dated april 24 2009 1014 form nonqualified stock option agreement ratably vested filed exhibit 105 abbott laboratories current report form 8k dated april 24 2009 1015 form restricted stock unit agreement ratably vested filed exhibit 1037 2013 abbott laboratories annual report form 10k 1016 form restricted stock unit agreement foreign employees ratably vested filed exhibit 1038 2013 abbott laboratories annual report form 10k 1017 form performance restricted stock unit agreement foreign employees annual performance based filed exhibit 1039 2013 abbott laboratories annual report form 10k 1018 form performance restricted stock unit agreement foreign executive officers annual performance based filed exhibit 1040 2013 abbott laboratories annual report form 10k 1019 form performance restricted stock unit agreement foreign employees interim performance based filed exhibit 1041 2013 abbott laboratories annual report form 10k 1020 form performance restricted stock unit agreement foreign executive officers interim performance based filed exhibit 1042 2013 abbott laboratories annual report form 10k 1021 form restricted stock unit agreement cliff vested filed exhibit 1043 2013 abbott laboratories annual report form 10k 1022 form restricted stock unit agreement executive officers cliff vested filed exhibit 1044 2013 abbott laboratories annual report form 10k 1023 form restricted stock unit agreement foreign employees cliff vested filed exhibit 1045 2013 abbott laboratories annual report form 10k 1024 form restricted stock unit agreement foreign executive officers cliff vested filed exhibit 1046 2013 abbott laboratories annual report form 10k exhibit table item 1025 form nonemployee director restricted stock unit agreement filed exhibit 1047 2013 abbott laboratories annual report form 10k 1026 form nonemployee director restricted stock unit agreement foreign nonemployee directors filed exhibit 1048 2013 abbott laboratories annual report form 10k 1027 form restricted stock unit agreement participants france filed exhibit 1049 2013 abbott laboratories annual report form 10k 1028 form restricted stock agreement ratably vested filed exhibit 1050 2013 abbott laboratories annual report form 10k 1029 form restricted stock agreement executive officers ratably vested filed exhibit 1051 2013 abbott laboratories annual report form 10k 1030 form performance restricted stock agreement annual performance based filed exhibit 1052 2013 abbott laboratories annual report form 10k 1031 form performance restricted stock agreement executive officers annual performance based filed exhibit 1053 2013 abbott laboratories annual report form 10k 1032 form performance restricted stock agreement interim performance based filed exhibit 1054 2013 abbott laboratories annual report form 10k 1033 form performance restricted stock agreement executive officers interim performance based filed exhibit 1055 2013 abbott laboratories annual report form 10k 1034 form restricted stock agreement cliff vested filed exhibit 1056 2013 abbott laboratories annual report form 10k 1035 form restricted stock agreement executive officers cliff vested filed exhibit 1057 2013 abbott laboratories annual report form 10k 1036 form nonqualified stock option agreement filed exhibit 1058 2013 abbott laboratories annual report form 10k 1037 form nonqualified stock option agreement executive officers filed exhibit 1059 2013 abbott laboratories annual report form 10k 1038 form nonqualified stock option agreement foreign employees filed exhibit 1060 2013 abbott laboratories annual report form 10k 1039 form nonqualified stock option agreement foreign executive officers filed exhibit 1061 2013 abbott laboratories annual report form 10k 1040 form nonemployee director nonqualified stock option agreement filed exhibit 1064 2013 abbott laboratories annual report form 10k 1041 form nonemployee director nonqualified stock option agreement foreign nonemployee directors filed exhibit 1065 2013 abbott laboratories annual report form 10k exhibit table item 1042 form restricted stock unit agreement ratably vested abbott laboratories 2017 incentive stock program filed exhibit 102 abbott laboratories current report form 8k dated april 28 2017 1043 form restricted stock unit agreement foreign employees ratably vested abbott laboratories 2017 incentive stock program filed exhibit 103 abbott laboratories current report form 8k dated april 28 2017 1044 form restricted stock unit agreement cliff vested abbott laboratories 2017 incentive stock program filed exhibit 104 abbott laboratories current report form 8k dated april 28 2017 1045 form restricted stock unit agreement foreign employees cliff vested abbott laboratories 2017 incentive stock program filed exhibit 105 abbott laboratories current report form 8k dated april 28 2017 1046 form performance restricted stock unit agreement foreign employees annual performance based abbott laboratories 2017 incentive stock program filed exhibit 106 abbott laboratories current report form 8k dated april 28 2017 1047 form performance restricted stock unit agreement foreign employees interim performance based abbott laboratories 2017 incentive stock program filed exhibit 107 abbott laboratories current report form 8k dated april 28 2017 1048 form restricted stock agreement ratably vested abbott laboratories 2017 incentive stock program filed exhibit 108 abbott laboratories current report form 8k dated april 28 2017 1049 form restricted stock agreement cliff vested abbott laboratories 2017 incentive stock program filed exhibit 109 abbott laboratories current report form 8k dated april 28 2017 1050 form performance restricted stock agreement annual performance based abbott laboratories 2017 incentive stock program filed exhibit 1010 abbott laboratories current report form 8k dated april 28 2017 1051 form performance restricted stock agreement interim performance based abbott laboratories 2017 incentive stock program filed exhibit 1011 abbott laboratories current report form 8k dated april 28 2017 1052 form nonqualified stock option agreement abbott laboratories 2017 incentive stock program filed exhibit 1012 abbott laboratories current report form 8k dated april 28 2017 1053 form nonqualified stock option agreement foreign employees abbott laboratories 2017 incentive stock program filed exhibit 1013 abbott laboratories current report form 8k dated april 28 2017 10k exhibit table item 1054 form restricted stock unit agreement executive officers cliff vested abbott laboratories 2017 incentive stock program filed exhibit 1014 abbott laboratories current report form 8k dated april 28 2017 1055 form restricted stock unit agreement foreign executive officers cliff vested abbott laboratories 2017 incentive stock program filed exhibit 1015 abbott laboratories current report form 8k dated april 28 2017 1056 form performance restricted stock unit agreement foreign executive officers annual performance based abbott laboratories 2017 incentive stock program filed exhibit 1016 abbott laboratories current report form 8k dated april 28 2017 1057 form performance restricted stock unit agreement foreign executive officers interim performance based abbott laboratories 2017 incentive stock program filed exhibit 1017 abbott laboratories current report form 8k dated april 28 2017 1058 form restricted stock agreement executive officers ratably vested abbott laboratories 2017 incentive stock program filed exhibit 1018 abbott laboratories current report form 8k dated april 28 2017 1059 form restricted stock agreement executive officers cliff vested abbott laboratories 2017 incentive stock program filed exhibit 1019 abbott laboratories current report form 8k dated april 28 2017 1060 form performance restricted stock agreement executive officers annual performance based abbott laboratories 2017 incentive stock program filed exhibit 1020 abbott laboratories current report form 8k dated april 28 2017 1061 form performance restricted stock agreement executive officers interim performance based abbott laboratories 2017 incentive stock program filed exhibit 1021 abbott laboratories current report form 8k dated april 28 2017 1062 form nonqualified stock option agreement executive officers abbott laboratories 2017 incentive stock program filed exhibit 1022 abbott laboratories current report form 8k dated april 28 2017 1063 form nonqualified stock option agreement foreign executive officers abbott laboratories 2017 incentive stock program filed exhibit 1023 abbott laboratories current report form 8k dated april 28 2017 1064 form nonemployee director restricted stock unit agreement abbott laboratories 2017 incentive stock program filed exhibit 1024 abbott laboratories current report form 8k dated april 28 2017 1065 form nonemployee director restricted stock unit agreement foreign nonemployee directors abbott laboratories 2017 incentive stock program filed exhibit 1025 abbott laboratories current report form 8k dated april 28 2017 10k exhibit table item 1066 form nonemployee director nonqualified stock option agreement abbott laboratories 2017 incentive stock program filed exhibit 1026 abbott laboratories current report form 8k dated april 28 2017 1067 form nonemployee director nonqualified stock option agreement foreign nonemployee directors abbott laboratories 2017 incentive stock program filed exhibit 1027 abbott laboratories current report form 8k dated april 28 2017 1068 form agreement regarding change control abbott laboratories named executive officers mr white filed exhibit 101 abbott laboratories current report form 8k dated november 30 2012 1069 form extension agreement regarding change control abbott laboratories named executive officers mr white extending agreement term december 31 2020 filed exhibit 1074 2018 abbott laboratories annual report form 10k 1070 form time sharing agreement abbott laboratories inc md white filed exhibit 106 abbott laboratories quarterly report form 10q quarter ended june 30 2006 1071 † st jude medical inc 2007 stock incentive plan amended restated 2014 filed exhibit 1022 st jude medical inc annual report form 10k year ended january 3 2015 dated february 26 2015 1072 † form nonqualified stock option agreement global related notice nonqualified stock option grant stock options granted december 10 2012 st jude medical inc 2007 stock incentive plan filed exhibit 1024 st jude medical inc annual report form 10k year ended december 29 2012 dated february 26 2013 1073 † form nonqualified stock option agreement nonemployee directors related notice nonqualified stock option grant stock options granted december 10 2012 st jude medical inc 2007 stock incentive plan filed exhibit 1025 st jude medical inc annual report form 10k year ended december 29 2012 dated february 26 2013 1074 † form restricted stock units award agreement global related restricted stock units award certificate restricted stock units granted december 10 2012 st jude medical inc 2007 stock incentive plan filed exhibit 1027 st jude medical inc annual report form 10k year ended december 29 2012 dated february 26 2013 1075 management savings plan amended restated 1076 five year credit agreement dated november 30 2018 among abbott laboratories various financial institutions lenders jpmorgan chase bank na administrative agent filed exhibit 1082 2018 abbott laboratories annual report form 10k subsidiaries abbott laboratories 231 consent independent registered public accounting firm 311 certification chief executive officer required rule 13a14a 17 cfr 24013a14a 10k exhibit table item 312 certification chief financial officer required rule 13a14a 17 cfr 24013a14a exhibits 321 322 furnished herewith deemed “filed” securities exchange act 1934 321 certification chief executive officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 322 certification chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 following financial statements notes abbott laboratories annual report form 10k year ended december 31 2019 filed february 21 2020 formatted inline xbrl consolidated statement earnings ii consolidated statement comprehensive income iii consolidated statement cash flows iv consolidated balance sheet v consolidated statement shareholders’ investment vi notes consolidated financial statements cover page interactive data file cover page xbrl tags embedded inline xbrl document included exhibit 101 incorporated herein reference denotes management contract compensatory plan arrangement required filed exhibit hereto † incorporated herein reference abbott furnish copies exhibits shareholder upon written request secretary abbott laboratories 100 abbott park road abbott park illinois 600646400 c financial statement schedule filed page 107 item 16 form 10k summary none signatures pursuant requirements section 13 15d securities exchange act 1934 abbott laboratories duly caused report signed behalf undersigned thereunto duly authorized abbott laboratories miles white miles white chairman board chief executive officer date february 21 2020 pursuant requirements securities exchange act 1934 report signed following persons behalf abbott laboratories february 21 2020 capacities indicated abbott laboratories subsidiaries schedule ii valuation qualifying accounts years ended december 31 2019 2018 2017 millions dollars report independent registered public accounting firm shareholders board directors abbott laboratories opinion financial statement schedule audited consolidated financial statements abbott laboratories subsidiaries company december 31 2019 2018 three years period ended december 31 2019 issued report thereon dated february 21 2020 included elsewhere annual report form 10k audits consolidated financial statements included financial statement schedule listed item 15a2 annual report form 10k “schedule” schedule responsibility company’s management responsibility express opinion company’s schedule based audits opinion schedule presents fairly material respects information set forth therein considered conjunction consolidated financial statements ernst young llp chicago illinois february 21 2020 item 15 exhibits financial statement schedules documents filed part form 10k 1financial statements see item 8 financial statements supplementary data page 42 hereof list financial statements 2financial statement schedules required financial statement schedules found pages indicated schedules read conjunction consolidated financial statements abbott laboratories tap pharmaceutical products inc 3exhibits required item 601 regulation sk information called paragraph incorporated herein reference exhibit index pages 100 105 form 10k bexhibits filed see exhibit index pages 100 105 cfinancial statement schedules filed pages 96 98 signatures pursuant requirements section 13 15d securities exchange act 1934 abbott laboratories duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf abbott laboratories february 19 2008 capacities indicated miles white miles white chairman board chief executive officer director abbott laboratories principal executive officer roxanne austin roxanne austin director abbott laboratories thomas c freyman thomas c freyman executive vice president finance chief financial officer principal financial officer william daley william daley director abbott laboratories greg w linder greg w linder vice president controller principal accounting officer w james farrell w james farrell director abbott laboratories h laurance fuller h laurance fuller director abbott laboratories william osborn william osborn director abbott laboratories david l owen david l owen director abbott laboratories boone powell jr boone powell jr director abbott laboratories w ann reynolds w ann reynolds director abbott laboratories roy roberts roy roberts director abbott laboratories samuel c scott iii samuel c scott iii director abbott laboratories william smithburg william smithburg director abbott laboratories glenn f tilton glenn f tilton director abbott laboratories abbott laboratories subsidiaries schedule ii valuation qualifying accounts years ended december 31 2007 2006 2005 thousands dollars report independent registered public accounting firm board directors shareholders abbott laboratories audited consolidated financial statements abbott laboratories subsidiaries company december 31 2007 2006 2005 years ended companys internal control financial reporting december 31 2007 issued reports thereon dated february 14 2008 report relating consolidated financial statements expresses unqualified opinion includes explanatory paragraph regarding adoption new accounting standards 2007 2006 reports included elsewhere form 10k audits also included consolidated financial statement schedule company listed item 15 consolidated financial statement schedule responsibility companys management responsibility express opinion based audits opinion consolidated financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein deloitte touche llp chicago illinois february 14 2008 tap pharmaceutical products inc subsidiaries schedule ii valuation qualifying accounts years ended december 31 2007 2006 2005 thousands dollars arepresents provisions related allowances doubtful accounts net change allowances sales deductions report independent registered public accounting firm board directors shareholders tap pharmaceutical products inc audited consolidated financial statements tap pharmaceutical products inc subsidiaries company december 31 2007 2006 three years period ended december 31 2007 issued report thereon dated february 1 2008 consolidated financial statements report included annual report form 10k audits also included consolidated financial statement schedule company listed item 15 consolidated financial statement schedule responsibility companys management responsibility express opinion based audits opinion consolidated financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein deloitte touche llp chicago illinois february 1 2008 exhibit index abbott laboratories annual report form 10k exhibits 321 322 furnished herewith deemed filed securities exchange act 1934 10k exhibit table item 31 articles incorporation abbott laboratories filed exhibit 31 abbott laboratories quarterly report quarter ended march 31 1998 form 10q 32 corporate bylaws abbott laboratories filed exhibit 31 abbott laboratories current report dated december 14 2007 form 8k 41 abbott laboratories deferred compensation plan filed exhibit 4 registration statement 333102179 42 indenture dated october 1 1993 abbott laboratories harris trust savings bank filed exhibit 41 abbott laboratories quarterly report quarter ended september 30 1993 form 10q 43 form 200000000 60 note filed exhibit 42 abbott laboratories quarterly report quarter ended june 30 1998 form 10q 44 actions authorized officers respect abbotts 60 note filed exhibit 43 abbott laboratories quarterly report quarter ended june 30 1998 form 10q 45 officers certificate company order respect abbotts 60 note filed exhibit 44 abbott laboratories quarterly report quarter ended june 30 1998 form 10q 46 form 200000000 540 note filed exhibit 42 abbott laboratories quarterly report quarter ended september 30 1998 form 10q 47 actions authorized officers respect abbotts 540 note filed exhibit 43 abbott laboratories quarterly report quarter ended september 30 1998 form 10q 48 officers certificate company order respect abbotts 540 note filed exhibit 44 abbott laboratories quarterly report quarter ended september 30 1998 form 10q 49 indenture dated february 9 2001 abbott laboratories bank one trust company na filed exhibit 41 registration statement 33355446 410 form 35 note filed exhibit 429 2003 abbott laboratories annual report form 10k 411 actions authorized officers respect abbotts 35 notes filed exhibit 430 2003 abbott laboratories annual report form 10k 412 officers certificate company order respect abbotts 35 notes filed exhibit 431 2003 abbott laboratories annual report form 10k 413 form 375 note filed exhibit 428 2004 abbott laboratories annual report form 10k 414 form 435 note filed exhibit 429 2004 abbott laboratories annual report form 10k 415 actions authorized officers respect abbotts 375 notes 435 notes filed exhibit 430 2004 abbott laboratories annual report form 10k 416 officers certificate company order respect abbotts 375 notes 435 notes filed exhibit 431 2004 abbott laboratories annual report form 10k 417 form 5375 note filed exhibit 993 abbott laboratories current report form 8k filed may 11 2006 418 form 5600 note filed exhibit 993 abbott laboratories current report form 8k filed may 11 2006 419 form 5875 note filed exhibit 993 abbott laboratories current report form 8k filed may 11 2006 420 actions authorized officers respect abbotts 5375 notes 5600 notes 5875 notes filed exhibit 993 abbott laboratories current report form 8k filed may 11 2006 421 officers certificate company order respect abbotts 5375 notes 5600 notes 5875 notes filed exhibit 425 2006 abbott laboratories report form 10k 422 supplemental indenture dated february 27 2006 abbott laboratories jp morgan trust company national association successor interest bank one trust company na filed exhibit 42 registration statement 333132104 423 actions authorized officers respect abbotts 5150 notes due 2012 5600 notes due 2017 6150 notes due 2037 filed exhibit 993 abbott laboratories current report dated november 6 2007 form 8k 424 form 1000000000 5150 note due 2012 filed exhibit 994 abbott laboratories current report dated november 6 2007 form 8k 425 form 1500000000 5600 note due 2017 filed exhibit 995 abbott laboratories current report dated november 6 2007 form 8k 426 form 1000000000 6150 note due 2037 filed exhibit 996 abbott laboratories current report dated november 6 2007 form 8k debt instruments omitted accordance item 601b4iiia regulation sk copies agreements furnished securities exchange commission upon request 101 supplemental plan abbott laboratories extended disability plan filed exhibit pages 5051 1992 abbott laboratories annual report form 10k 102 abbott laboratories 401k supplemental plan amended filed exhibit 101 abbott laboratories current report form 8k dated december 9 2005 103 abbott laboratories supplemental pension plan amended filed exhibit 102 abbott laboratories current report form 8k dated december 9 2005 104 1986 abbott laboratories management incentive plan amended filed exhibit 105 abbott laboratories quarterly report quarter ended june 30 2003 form 10q 105 abbott laboratories nonemployee directors fee plan amended filed exhibit 101 abbott laboratories current report form 8k dated february 17 2006 106 abbott laboratories nonemployee directors fee plan amended restated effective april 27 2007 filed exhibit 106 2006 abbott laboratories report form 10k 107 abbott laboratories 1996 incentive stock program amended filed exhibit 108 abbott laboratories current report form 8k dated february 18 2005 108 form employee stock option agreement nonqualified stock option granted incentive stock option abbott laboratories 1996 incentive stock program filed exhibit 101 abbott laboratories current report form 8k dated august 20 2004 109 form employee stock option agreement nonqualified stock option abbott laboratories 1996 incentive stock program filed exhibit 102 abbott laboratories current report dated august 20 2004 form 8k 1010 form employee stock option agreement incentive stock option granted nonqualified stock option abbott laboratories 1996 incentive stock program filed exhibit 103 abbott laboratories current report form 8k dated august 20 2004 1011 form employee stock option agreement incentive stock option abbott laboratories 1996 incentive stock program filed exhibit 104 abbott laboratories current report form 8k dated august 20 2004 1012 form employee stock option agreement replacement stock option abbott laboratories 1996 incentive stock program filed exhibit 105 abbott laboratories current report form 8k dated august 20 2004 1013 form employee restricted stock agreement abbott laboratories 1996 incentive stock program filed exhibit 106 abbott laboratories current report form 8k dated august 20 2004 1014 form employee restricted stock unit agreement abbott laboratories 1996 incentive stock program filed exhibit 107 abbott laboratories current report form 8k dated august 20 2004 1015 form nonemployee director stock option agreement abbott laboratories 1996 incentive stock program filed exhibit 108 abbott laboratories current report form 8k dated august 20 2004 1016 form nonemployee director restricted stock unit agreement abbott laboratories 1996 incentive stock program filed exhibit 102 abbott laboratories current report form 8k dated december 10 2004 1017 1998 abbott laboratories performance incentive plan filed exhibit 101 abbott laboratories quarterly report quarter ended march 31 1998 form 10q 1018 rules 1998 abbott laboratories performance incentive plan filed exhibit 1017 2004 abbott laboratories annual report form 10k 1019 form employee stock option agreement nonqualified stock option granted incentive stock option abbott laboratories 1996 incentive stock program february 18 2005 filed exhibit 101 abbott laboratories current report form 8k dated february 18 2005 1020 form employee stock option agreement new nonqualified stock option abbott laboratories 1996 incentive stock program granted february 18 2005 filed exhibit 102 abbott laboratories current report form 8k dated february 18 2005 1021 form employee stock option agreement incentive stock option granted nonqualified stock option abbott laboratories 1996 incentive stock program february 18 2005 filed exhibit 103 abbott laboratories current report form 8k dated february 18 2005 1022 form employee stock option agreement incentive stock option abbott laboratories 1996 incentive stock program granted february 18 2005 filed exhibit 104 abbott laboratories current report form 8k dated february 18 2005 1023 form employee restricted stock agreement abbott laboratories 1996 incentive stock program filed exhibit 105 abbott laboratories current report form 8k dated february 18 2005 1024 form employee restricted stock unit agreement abbott laboratories 1996 incentive stock program filed exhibit 106 abbott laboratories current report form 8k dated february 18 2005 1025 form nonemployee director stock option agreement abbott laboratories 1996 incentive stock program granted february 18 2005 filed exhibit 107 abbott laboratories current report form 8k dated february 18 2005 1026 form agreement abbott laboratories h liepmann regarding change control filed exhibit 106 abbott laboratories quarterly report quarter ended june 30 2003 form 10q 1027 base salary named executive officers 1028 transaction agreement boston scientific corporation abbott laboratories dated january 8 2006 filed exhibit 1028 2005 abbott laboratories annual report form 10k 1029 amendment 1 transaction agreement dated january 16 2006 boston scientific corporation abbott laboratories filed exhibit 1029 2005 abbott laboratories annual report form 10k 1030 amendment 2 transaction agreement dated january 16 2006 boston scientific corporation abbott laboratories filed exhibit 1030 2005 abbott laboratories annual report form 10k 1031 amendment 3 transaction agreement dated february 22 2006 boston scientific corporation abbott laboratories filed exhibit 101 abbott laboratories quarterly report quarter ended march 31 2006 1032 amendment 4 transaction agreement dated april 5 2006 boston scientific corporation abbott laboratories filed exhibit 102 abbott laboratories quarterly report quarter ended march 31 2006 1033 purchase agreement dated april 21 2006 guidant corporation abbott laboratories filed exhibit 101 abbott laboratories quarterly report quarter ended june 30 2006 1034 amendment purchase agreement dated april 21 2006 guidant corporation abbott laboratories filed exhibit 102 abbott laboratories quarterly report quarter ended june 30 2006 1035 promissory note dated april 21 2006 bsc international holding ltd filed exhibit 103 abbott laboratories quarterly report quarter ended june 30 2006 1036 subscription stockholder agreement dated april 21 2006 boston scientific corporation abbott laboratories filed exhibit 104 abbott laboratories quarterly report quarter ended june 30 2006 1037 amendment subscription stockholder agreement dated april 21 2006 boston scientific corporation abbott laboratories filed exhibit 105 abbott laboratories quarterly report quarter ended june 30 2006 1038 form time sharing agreement abbott laboratories inc md white tc freyman filed exhibit 106 abbott laboratories quarterly report quarter ended june 30 2006 1039 form performance restricted stock agreement award performance restricted stock section 10 abbott laboratories 1996 incentive stock program granted february 17 2006 filed exhibit 101 abbott laboratories current report dated february 16 2006 form 8k 1040 form performance restricted stock agreement award performance restricted stock section 11 abbott laboratories 1996 incentive stock program granted february 17 2006 filed exhibit 102 abbott laboratories current report dated february 16 2006 form 8k 1041 form performance restricted stock unit agreement award performance restricted stock units abbott laboratories 1996 incentive stock program granted february 17 2006 filed exhibit 103 abbott laboratories current report dated february 16 2006 form 8k 1042 form nonqualified stock option agreement award nonqualified stock options abbott laboratories 1996 incentive stock program granted february 17 2006 filed exhibit 104 abbott laboratories current report dated february 16 2006 form 8k 1043 form restricted stock unit agreement award restricted stock units abbott laboratories 1996 incentive stock program granted february 17 2006 filed exhibit 105 abbott laboratories current report dated february 16 2006 form 8k 1044 form performance restricted stock agreement award performance restricted stock section 10 abbott laboratories 1996 incentive stock program granted february 16 2007 filed exhibit 1049 2006 abbott laboratories report form 10k 1045 form performance restricted stock agreement award performance restricted stock section 11 abbott laboratories 1996 incentive stock program granted february 16 2007 filed exhibit 1050 2006 abbott laboratories report form 10k 1046 form performance restricted stock unit agreement award performance restricted stock units abbott laboratories 1996 incentive stock program granted february 16 2007 filed exhibit 1057 2006 abbott laboratories report form 10k 1047 form restricted stock unit agreement award restricted stock units abbott laboratories 1996 incentive stock program granted february 16 2007 filed exhibit 1052 2006 abbott laboratories report form 10k computation ratio earnings fixed charges subsidiaries abbott laboratories 231 consent independent registered public accounting firm 232 consent independent registered public accounting firm 311 certification chief executive officer required rule 13a14a 17 cfr 24013a14a 312 certification chief financial officer required rule 13a14a 17 cfr 24013a14a 321 certification chief executive officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 322 certification chief financial officer pursuant 18 usc section 1350 adopted pursuant section 906 sarbanesoxley act 2002 2008 abbott laboratories proxy statement filed securities exchange commission separate cover march 19 2008 incorporated herein reference commission file number 12189 denotes management contract compensatory plan arrangement required filed exhibit hereto abbott furnish copies exhibits shareholder upon written request corporate secretary abbott laboratories 100 abbott park road abbott park illinois 600646400 part item 1 business general development business financial information relating industry segments geographic areas classes similar products narrative description business information respect abbotts business general international operations internet information item 1a risk factors cautionary statement regarding forwardlooking statements item 1b unresolved staff comments item 2 properties item 3 legal proceedings item 4 submission matters vote security holders executive officers registrant part ii item 5 market registrants common equity related stockholder matters issuer purchases equity securities item 6 selected financial data item 7 managements discussion analysis financial condition results operations financial review item 7a quantitative qualitative disclosures market risk financial instruments risk management item 8 financial statements supplementary data abbott laboratories subsidiaries consolidated statement earnings dollars shares thousands except per share data abbott laboratories subsidiaries consolidated statement cash flows dollars thousands abbott laboratories subsidiaries consolidated balance sheet dollars thousands abbott laboratories subsidiaries consolidated statement shareholders investment dollars thousands except per share data notes consolidated financial statements tap pharmaceutical products inc consolidated statements income comprehensive income dollars thousands tap pharmaceutical products inc consolidated statements cash flows dollars thousands tap pharmaceutical products inc consolidated balance sheets thousands except share amount tap pharmaceutical products inc consolidated statements shareholders equity years ended december 31 2007 2006 2005 dollars thousands except share amounts notes consolidated financial statements years ended december 31 2007 2006 2005 dollars thousands item 9 changes disagreements accountants accounting financial disclosure item 9a controls procedures item 9b information part iii item 10 directors executive officers corporate governance item 11 executive compensation item 12 security ownership certain beneficial owners management related stockholder matters item 13 certain relationships related transactions director independence item 14 principal accounting fees services part iv signatures abbott laboratories subsidiaries schedule ii valuation qualifying accounts years ended december 31 2007 2006 2005 thousands dollars report independent registered public accounting firm tap pharmaceutical products inc subsidiaries schedule ii valuation qualifying accounts years ended december 31 2007 2006 2005 thousands dollars report independent registered public accounting firm exhibit index abbott laboratories annual report form 10k 2007 item 15 exhibits financial statement schedules adocuments filed part form 10k 1financial statements see item 8 financial statements supplementary data page 49 hereof list financial statements 2financial statement schedules required financial statement schedules found pages indicated schedules read conjunction consolidated financial statements abbott laboratories abbott laboratories financial statement schedules page valuation qualifying accounts schedule ii schedules iii iv v submitted applicable required report independent registered public accounting firm individual financial statements businesses acquired registrant omitted pursuant rule 305 regulation sx 3exhibits required item 601 regulation sk information called paragraph incorporated herein reference exhibit index pages 103 109 form 10k bexhibits filed see exhibit index pages 103 109 cfinancial statement schedule filed page 100 signatures pursuant requirements section 13 15d securities exchange act 1934 abbott laboratories duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf abbott laboratories february 19 2016 capacities indicated miles white miles white chairman board chief executive officer director abbott laboratories principal executive officer brian b yoor brian b yoor senior vice president finance chief financial officer principal financial officer robert e funck robert e funck vice president controller principal accounting officer robert j alpern robert j alpern md director abbott laboratories roxane austin roxanne austin director abbott laboratories sally e blount sally e blount phd director abbott laboratories w james farrell w james farrell director abbott laboratories edward liddy edward liddy director abbott laboratories nancy mckinstry nancy mckinstry director abbott laboratories phebe n novakovic phebe n novakovic director abbott laboratories william osborn william osborn director abbott laboratories samuel c scott iii samuel c scott iii director abbott laboratories glenn f tilton glenn f tilton director abbott laboratories abbott laboratories subsidiaries schedule ii valuation qualifying accounts years ended december 31 2015 2014 2013 millions dollars 1includes 178 million transferred abbvie part separation january 1 2013 report independent registered public accounting firm board directors shareholders abbott laboratories audited consolidated financial statements abbott laboratories subsidiaries december 31 2015 2014 two years period ended december 31 2015 issued report thereon dated february 19 2016 included elsewhere annual report form 10k audits also included financial statement schedule listed item 15a2 annual report form 10k schedule responsibility companys management responsibility express opinion schedule based audits opinion financial statement schedule referred considered relation basic financial statements taken whole present fairly material respects information set forth therein ernst young llp chicago illinois february 19 2016 report independent registered public accounting firm board directors shareholders abbott laboratories audited consolidated statements earnings comprehensive income shareholders investment cash flows abbott laboratories subsidiaries company year ended december 31 2013 issued report thereon dated february 21 2014 february 27 2015 note 3 report relating consolidated financial statements expresses unqualified opinion includes explanatory paragraph regarding retrospective adjustment reflect developed markets branded generics pharmaceuticals animal health businesses discontinued operations distribution shares abbvie inc companys shareholders report included elsewhere form 10k audit also included consolidated financial statement schedule company listed item 15 year ended december 31 2013 consolidated financial statement schedule responsibility companys management responsibility express opinion based audit opinion consolidated financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein deloitte touche llp chicago illinois february 21 2014 exhibit index abbott laboratories annual report form 10k exhibits 321 322 furnished herewith deemed filed securities exchange act 1934 2016 abbott laboratories proxy statement filed securities exchange commission separate cover march 18 2016 incorporated herein reference commission file number 12189 denotes management contract compensatory plan arrangement required filed exhibit hereto abbott furnish copies exhibits shareholder upon written request secretary abbott laboratories 100 abbott park road abbott park illinois 600646400 item 15 exhibits financial statement schedules adocuments filed part form 10k 1financial statements see item 8 financial statements supplementary data page 53 hereof list financial statements 2financial statement schedules required financial statement schedules found pages indicated schedules read conjunction consolidated financial statements abbott laboratories 3exhibits required item 601 regulation sk information called paragraph incorporated herein reference exhibit index pages 101 108 form 10k bexhibits filed see exhibit index pages 101 108 cfinancial statement schedule filed page 99 signatures pursuant requirements section 13 15d securities exchange act 1934 abbott laboratories duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf abbott laboratories february 21 2012 capacities indicated miles white miles white chairman board chief executive officer director abbott laboratories principal executive officer thomas c freyman thomas c freyman executive vice president finance chief financial officer principal financial officer greg w linder greg w linder vice president controller principal accounting officer robert j alpern md robert j alpern md director abbott laboratories roxanne austin roxanne austin director abbott laboratories sally e blount phd sally e blount phd director abbott laboratories w james farrell w james farrell director abbott laboratories h laurance fuller h laurance fuller director abbott laboratories edward liddy edward liddy director abbott laboratories nancy mckinstry nancy mckinstry director abbott laboratories phebe n novakovic phebe n novakovic director abbott laboratories william osborn william osborn director abbott laboratories samuel c scott iii samuel c scott iii director abbott laboratories glenn f tilton glenn f tilton director abbott laboratories abbott laboratories subsidiaries schedule ii valuation qualifying accounts years ended december 31 2011 2010 2009 thousands dollars note prior year amounts adjusted conform current year presentation includes provisions amounts charged related product returns report independent registered public accounting firm board directors shareholders abbott laboratories audited consolidated financial statements abbott laboratories subsidiaries company years ended december 31 2011 2010 2009 companys internal control financial reporting december 31 2011 issued reports thereon dated february 21 2012 report relating consolidated financial statements expresses unqualified opinion includes explanatory paragraph regarding companys change year end foreign subsidiaries change presentation comprehensive income 2011 reports included elsewhere form 10k audits also included consolidated financial statement schedule company listed item 15 consolidated financial statement schedule responsibility companys management responsibility express opinion based audits opinion consolidated financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein deloitte touche llp chicago illinois february 21 2012 exhibit index abbott laboratories annual report form 10k exhibits 321 322 furnished herewith deemed filed securities exchange act 1934 2012 abbott laboratories proxy statement filed securities exchange commission separate cover march 15 2012 incorporated herein reference commission file number 12189 denotes management contract compensatory plan arrangement required filed exhibit hereto abbott furnish copies exhibits shareholder upon written request secretary abbott laboratories 100 abbott park road abbott park illinois 600646400 item 15 exhibits financial statement schedules adocuments filed part form 10k 1financial statements see item 8 financial statements supplementary data page 49 hereof list financial statements 2financial statement schedules required financial statement schedules found pages indicated schedules read conjunction consolidated financial statements abbott laboratories abbott laboratories financial statement schedules page valuation qualifying accounts schedule ii schedules iii iv v submitted applicable required report independent registered public accounting firm individual financial statements businesses acquired registrant omitted pursuant rule 305 regulation sx 3exhibits required item 601 regulation sk information called paragraph incorporated herein reference exhibit index pages 108 117 form 10k bexhibits filed see exhibit index pages 108 117 cfinancial statement schedule filed page 106 item 16 form 10k summary none signatures pursuant requirements section 13 15d securities exchange act 1934 abbott laboratories duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf abbott laboratories february 16 2018 capacities indicated miles white miles white chairman board chief executive officer director abbott laboratories principal executive officer brian b yoor brian b yoor executive vice president finance chief financial officer principal financial officer robert e funck robert e funck vice president controller principal accounting officer robert j alpern md robert j alpern md director abbott laboratories roxanne austin roxanne austin director abbott laboratories sally e blount phd sally e blount phd director abbott laboratories edward liddy edward liddy director abbott laboratories nancy mckinstry nancy mckinstry director abbott laboratories phebe n novakovic phebe n novakovic director abbott laboratories william osborn william osborn director abbott laboratories samuel c scott iii samuel c scott iii director abbott laboratories daniel j starks daniel j starks director abbott laboratories john g stratton john g stratton director abbott laboratories glenn f tilton glenn f tilton director abbott laboratories abbott laboratories subsidiaries schedule ii valuation qualifying accounts years ended december 31 2017 2016 2015 millions dollars report independent registered public accounting firm shareholders board directors abbott laboratories opinion financial statement schedule audited consolidated financial statements abbott laboratories subsidiaries company december 31 2017 2016 three years period ended december 31 2017 issued report thereon dated february 16 2018 included elsewhere annual report form 10k audits also included financial statement schedule listed item 15a2 annual report form 10k opinion financial statement schedule considered relation basic financial statements taken whole presents fairly material respects information set forth therein basis opinion schedule responsibility companys management responsibility express opinion companys schedule based audits believe audits provide reasonable basis opinion ernst young llp chicago illinois february 16 2018 exhibit index abbott laboratories annual report form 10k incorporated herein reference commission file number 12189 denotes management contract compensatory plan arrangement required filed exhibit hereto incorporated herein reference commission file number 112441 abbott furnish copies exhibits shareholder upon written request secretary abbott laboratories 100 abbott park road abbott park illinois 600646400 item 15 exhibits financial statement schedules adocuments filed part form 10k 1financial statements see item 8 financial statements supplementary data page 43 hereof list financial statements 2financial statement schedules required financial statement schedules found pages indicated schedules read conjunction consolidated financial statements abbott laboratories 3exhibits required item 601 regulation sk information called paragraph incorporated herein reference exhibit index pages 87 95 form 10k bexhibits filed see exhibit index pages 87 95 c financial statement schedule filed page 85 signatures pursuant requirements section 13 15d securities exchange act 1934 abbott laboratories duly caused report signed behalf undersigned thereunto duly authorized pursuant requirements securities exchange act 1934 report signed following persons behalf abbott laboratories february 19 2010 capacities indicated miles white miles white chairman board chief executive officer director abbott laboratories principal executive officer thomas c freyman thomas c freyman executive vice president finance chief financial officer principal financial officer greg w linder greg w linder vice president controller principal accounting officer robert j alpern md robert j alpern md director abbott laboratories roxanne austin roxanne austin director abbott laboratories william daley william daley director abbott laboratories w james farrell w james farrell director abbott laboratories h laurance fuller h laurance fuller director abbott laboratories william osborn william osborn director abbott laboratories david l owen david l owen director abbott laboratories w ann reynolds phd w ann reynolds phd director abbott laboratories roy roberts roy roberts director abbott laboratories samuel c scott iii samuel c scott iii director abbott laboratories william smithburg william smithburg director abbott laboratories glenn f tilton glenn f tilton director abbott laboratories abbott laboratories subsidiaries schedule ii valuation qualifying accounts years ended december 31 2009 2008 2007 thousands dollars report independent registered public accounting firm board directors shareholders abbott laboratories audited consolidated financial statements abbott laboratories subsidiaries company years ended december 31 2009 2008 2007 companys internal control financial reporting december 31 2009 issued reports thereon dated february 19 2010 report relating consolidated financial statements expresses unqualified opinion includes explanatory paragraph regarding companys adoption new accounting standard 2009 reports included elsewhere form 10k audits also included consolidated financial statement schedule company listed item 15 consolidated financial statement schedule responsibility companys management responsibility express opinion based audits opinion consolidated financial statement schedule considered relation basic consolidated financial statements taken whole presents fairly material respects information set forth therein deloitte touche llp chicago illinois february 19 2010 exhibit index abbott laboratories annual report form 10k exhibits 321 322 furnished herewith deemed filed securities exchange act 1934 2010 abbott laboratories proxy statement filed securities exchange commission separate cover march 15 2010 incorporated herein reference commission file number 12189 denotes management contract compensatory plan arrangement required filed exhibit hereto abbott furnish copies exhibits shareholder upon written request secretary abbott laboratories 100 abbott park road abbott park illinois 600646400 part item 1 business general development business financial information relating industry segments geographic areas classes similar products narrative description business information respect abbotts business general international operations internet information item 1a risk factors cautionary statement regarding forwardlooking statements item 1b unresolved staff comments item 2 properties item 3 legal proceedings item 4 submission matters vote security holders executive officers registrant part ii item 5 market registrants common equity related stockholder matters issuer purchases equity securities item 6 selected financial data item 7 managements discussion analysis financial condition results operations financial review item 7a quantitative qualitative disclosures market risk financial instruments risk management item 8 financial statements supplementary data abbott laboratories subsidiaries consolidated statement earnings dollars shares thousands except per share data abbott laboratories subsidiaries consolidated statement cash flows dollars thousands abbott laboratories subsidiaries consolidated balance sheet dollars thousands abbott laboratories subsidiaries consolidated statement shareholders investment dollars thousands except per share data abbott laboratories subsidiaries notes consolidated financial statements management report internal control financial reporting reports independent registered public accounting firm item 9 changes disagreements accountants accounting financial disclosure item 9a controls procedures item 9b information part iii item 10 directors executive officers corporate governance item 11 executive compensation item 12 security ownership certain beneficial owners management related stockholder matters item 13 certain relationships related transactions director independence item 14 principal accounting fees services part iv item 15 exhibits financial statement schedules signatures abbott laboratories subsidiaries schedule ii valuation qualifying accounts years ended december 31 2009 2008 2007 thousands dollars report independent registered public accounting firm exhibit index abbott laboratories annual report form 10k 2009