ABBOTT LABORATORIES MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND RESULTS OF OPERATIONS (Form 10-K)
Abbott'srevenues are derived primarily from the sale of a broad line of health care products under short-term receivable arrangements. Patent protection and licenses, technological and performance features, and inclusion of Abbott'sproducts under a contract most impact which products are sold; price controls, competition and rebates most impact the net selling prices of products; and the measurement of net sales and costs is impacted by foreign currency translation.
In 2020 and 2021, the coronavirus (COVID-19) pandemic affected
Abbott'sdiversified health care businesses in various ways. As is further described below, some businesses have performed at the levels required to successfully meet new demands, others have faced challenges during periods when the number of COVID-19 cases significantly increased, and still others have been relatively less impacted by the pandemic. Abbott'sDiagnostics segment experienced the most significant change in sales from 2019 to 2021 as a result of the COVID-19 pandemic. In 2020 and 2021, Abbottmobilized its teams across multiple fronts to develop and launch various new diagnostic tests for COVID-19. In March 2020, Rapid Diagnosticslaunched a molecular test to detect COVID-19 on its ID NOW® rapid point-of-care platform in the U.S.pursuant to an Emergency Use Authorization (EUA). In August 2020, Abbottlaunched its BinaxNOW® COVID-19 Ag Cardtest, a portable, lateral flow rapid test to detect COVID-19 pursuant to an EUA in the U.S.In December 2020, Abbottreceived an EUA in the U.S.for virtually guided at-home use of its BinaxNOW COVID-19 Ag Cardrapid test and launched the product for at-home use. In March 2021, Abbottannounced that it had received an EUA in the U.S.for its over-the-counter, non-prescription BinaxNOW COVID-19 Ag Self Testfor individuals with or without symptoms. In the first quarter of 2021, Abbottalso received EUAs in the U.S.that allow the non-prescription use of the BinaxNOW COVID-19 Ag Card Home Testand the BinaxNOW COVID-19 Ag Cardtest for professional use for individuals with or without symptoms. Outside the U.S., in September 2020, Rapid Diagnosticslaunched its Panbio® rapid antigen test to detect COVID-19 pursuant to a CE Mark. In October 2020, Abbottreceived approval by the World Health Organizationfor emergency use listing for the Panbio antigen test. In January 2021, Abbottreceived CE Mark for two new uses of its Panbio rapid antigen test: asymptomatic testing and self-swabbing under the supervision of a healthcare worker. In June 2021, Abbottannounced that it had received CE Mark for its over-the-counter Panbio COVID-19 Antigen Self-Test for individuals with or without symptoms. In 2020, Molecular Diagnosticsdeveloped and launched molecular tests to detect COVID-19 using polymerase chain reaction (PCR) methods on its m2000® RealTime lab-based platform and its Alinity® m system pursuant to EUAs in the U.S.and CE Marks. Molecular Diagnosticsalso developed and launched its multiplex molecular test on its Alinity m system to detect COVID-19, influenza A, influenza B, and respiratory syncytial virus (RSV) in one test. This multiplex molecular test was launched pursuant to a CE Mark in December 2020and an EUA in the U.S.in March 2021. In 2020 and 2021, Core Laboratory Diagnosticsdeveloped and launched various lab-based serology blood tests on its ARCHITECT® i1000SR® and ARCHITECT i2000SR® laboratory instruments and on its Alinity i system for the detection of an antibody to determine if someone was previously infected with the virus. The tests were launched under EUAs in the U.S.and CE Marks. In 2020 and 2021, Abbott'sCOVID-19 testing-related sales totaled approximately $3.9 billionand $7.7 billion, respectively, led by sales related to Abbott'sBinaxNOW, Panbio and ID NOW rapid testing platforms. 2021 volumes were affected by fluctuations in the number of COVID-19 cases, especially in the U.S., over the course of the year. In the second quarter of 2021, demand for COVID-19 tests decreased from the previous quarter as COVID-19 vaccines were administered, COVID-19 cases and hospitalizations declined, and the U.S.health authority updated its guidance on testing for fully vaccinated individuals.
However, in the second half of 2021, as the Delta and Omicron variants of COVID-19 spread and the number of new COVID-19 cases increased, the demand for rapid COVID-19 tests increased significantly.
With respect to other products sold by the Diagnostics segment, demand for routine diagnostic testing generally fluctuated as the number of COVID-19 cases changed in various geographic regions throughout the two-year period. In 2020, in addition to negatively impacting routine core diagnostic testing volumes, the pandemic negatively affected the number of cardiovascular and neuromodulation procedures performed by health care providers globally, thereby reducing the demand for
Abbott'scardiovascular and neuromodulation devices and routine diagnostic tests. The decrease began in February 2020in Chinaas that country implemented quarantine restrictions and postponed non-emergency health care activities. The negative impact on cardiovascular and neuromodulation procedures and routine diagnostic tests expanded to other countries and geographic regions as COVID-19 spread geographically in the first half of 2020 and health care systems in these countries shifted their focus to fighting COVID-19. 22
The extent of the impact and timing of a resumption of the number of routine procedures and tests in a particular country or geographic region depended on the progression of COVID-19 cases in that country or region as well as the measures taken by the government in this country related to COVID-19.
In 2020, the recovery in procedures and routine testing volumes in
Chinabegan in March 2020. In other parts of the world, such as the U.S.and Europe, volumes improved across Abbott'shospital-based businesses as the second quarter progressed and the improvement continued in the third quarter. However, in the fourth quarter of 2020, the improving trends in the demand for procedures and routine testing flattened or were negatively impacted depending upon the business and the region as many countries, including the U.S., experienced an increase in the number of COVID-19 cases and hospitalizations.
While volumes of routine diagnostic tests and cardiovascular and neuromodulation procedures were negatively impacted in early 2021 by high COVID-19 case rates, overall volumes have improved over the year to at the end of 2021, when demand softened in several geographies with the emergence of another variant.
Abbottis continually monitoring the effects of the pandemic on its operations. Throughout the pandemic, Abbotthas continued to ensure that its operations throughout the world are aligned with the specific governmental orders and guidelines affecting each location. Abbotthas taken aggressive steps to limit exposure to COVID-19 and enhance the safety of facilities for its employees. The demand for COVID-19 tests has been highly volatile. Abbottexpects this volatility to continue as the possible emergence and severity of new variants are unpredictable. Due to the unpredictability of the duration and impact of the COVID-19 pandemic, the extent to which the pandemic will have a material effect on Abbott'sbusiness, financial condition or results of operations is uncertain. While Abbott's2021 and 2020 sales were most significantly affected by the COVID-19 pandemic, the increase in total sales over the last three years also reflects the introduction of new products across various businesses as well as higher sales of various existing products. Sales in emerging markets, which represent approximately 35 percent of total company sales, increased 19.6 percent in 2021 and 2.0 percent in 2020, excluding the impact of foreign exchange. (Emerging markets include all countries except the United States, Western Europe, Japan, Canada, Australia and New Zealand.) Over the last three years, Abbott'soperating margin as a percentage of sales increased from 14.2 percent in 2019 to 15.5 percent in 2020 and 19.6 percent in 2021. The increase in 2021 from 2020 reflects the impact of sales volume increases for COVID-19 tests in Rapid Diagnosticsand growth across virtually all of Abbott'sbusinesses due, in part, to recovery from the COVID-19 pandemic, partially offset by the impact of inflation and supply chain challenges on various manufacturing inputs and transportation costs, an increase in restructuring costs, and the unfavorable effect of foreign exchange. The increase in 2020 reflects the sales volume increases in the rapid and molecular diagnostics businesses, partially offset by lower Medical Devices sales due to the impact of the pandemic and the unfavorable effect of foreign exchange. In addition, a reduction in the costs associated with business acquisitions and restructuring activities drove an improvement in operating margins from 2019 to 2020. In 2021, Abbottexperienced availability issues with some services and materials used in its products. To date, Abbotthas been able to manage the various supply chain challenges without significant supply disruption or shortage for services, raw materials and supplies. While Abbottexpects inflationary pressures on various raw materials, packaging materials and transportation costs to continue in 2022, the impact of such cost increases is expected to be at least partially mitigated by price increases in certain businesses and the impact of continued gross margin improvement initiatives. To the extent that supply chain challenges in the industries in which Abbottoperates normalize over time, this may lessen inflationary pressures. With respect to the performance of each reportable segment over the last three years, sales in the Medical Devices segment, excluding the impact of foreign exchange, increased 19.4 percent in 2021 and decreased 3.8 percent in 2020. The sales increase in 2021 was driven by double-digit growth across all of Abbott'sMedical Devices divisions, led by Diabetes Care, Structural Heart and Electrophysiology. The sales decrease in 2020 was driven by Abbott'scardiovascular and neuromodulation businesses due primarily to reduced procedure volumes as a result of the COVID-19 pandemic. These decreases were partially offset by double-digit growth in Diabetes Care. In 2021, operating earnings for the Medical Devices segment increased 48.6 percent. The operating margin profile increased from 30.8 percent of sales in 2019 to 31.4 percent in 2021 primarily due to higher sales volumes in Diabetes Care and Abbott'scardiovascular and neuromodulation businesses. This growth was partially offset by pricing pressures on drug eluting stents (DES) as a result of market competition in the U.S.and other major markets. 23
In 2021, major product approvals in the medical device segment included:
CE marking in
? valve implantation system (TAVI) for patients with severe aortic stenosis
are at high or extreme surgical risk,
? Atrial Appendage Occluder, which provides immediate closure of the left atrium
appendix, an area of the heart where blood clots can form
FDA Approval of Portico® System with FlexNav® TAVI to Treat Sufferers
? symptomatic severe aortic stenosis
heart surgery and
FDA Approval of Amplatzer Talisman™ PFO Occlusion System to Treat People
? with a patent foramen ovale – a small opening between the upper chambers of the
Abbott'sworldwide diagnostics business, sales increased 42.7 percent in 2021 and 40.6 percent in 2020, excluding the impact of foreign exchange. As was discussed above, sales growth in 2021 was driven by demand for Abbott'sportfolio of rapid diagnostics tests for COVID-19 and higher routine diagnostics testing in the core laboratory business, partially offset by lower demand for Abbott'slaboratory-based tests for COVID-19 in the molecular diagnostics business. Growth in 2020 was driven by demand for Abbott'sportfolio of COVID-19 diagnostics tests across its rapid and lab-based platforms, partially offset by lower volumes of routine laboratory testing due to the pandemic. Abbotthas regulatory approvals in the U.S., Europe, China, and other markets for the "Alinity c" and "Alinity i" instruments and has continued to build out its test menu for clinical chemistry and immunoassay diagnostics. Abbotthas obtained regulatory approval for the "Alinity h" instrument for hematology in Europeand Japan. Abbotthas also obtained regulatory approvals in the U.S., Europeand other markets for the "Alinity s" (blood screening) and "Alinity m" (molecular) instruments and several testing assays. In 2021, operating earnings for the Diagnostics segment increased 68.0 percent. The operating margin profile increased from 24.8 percent of sales in 2019 to 40.0 percent in 2021 primarily due to higher sales in Rapid Diagnosticsin 2020 and 2021 and increased routine diagnostics testing in 2021 in Core Laboratory Diagnostics. In Abbott'sworldwide nutritional products business, sales over the last three years were positively impacted by numerous new product introductions, including the roll-outs of human milk oligosaccharide, or HMO, in infant formula, that leveraged Abbott'sstrong brands. Sales over the last two years were also positively impacted by consumers' interest in nutrients that help support their immune systems. Excluding the impact of foreign exchange, total adult nutrition sales increased 12.8 percent in 2021 and 10.3 percent in 2020, led by the continued growth of Ensure®, Abbott'smarket-leading complete and balanced nutrition brand, and Glucerna®, Abbott'smarket-leading diabetes-specific nutrition brand, across several countries. Excluding the impact of foreign exchange, total pediatric nutrition sales increased 3.3 percent in 2021 and 0.3 percent in 2020 driven by the Pedialyte®, PediaSure® and Similac® brands in the U.S.as well as infant and toddler product growth across several international markets, partially offset by challenging market dynamics in the infant category in Greater China. Operating margins for the worldwide nutritional products business decreased from 23.0 percent in 2019 to 21.3 percent in 2021. The decrease was driven by higher manufacturing and distribution costs, including commodity prices, partially offset by the impact of gross margin improvement initiatives. The Established Pharmaceutical Productssegment focuses on the sale of its products in emerging markets. Excluding the impact of foreign exchange, Established Pharmaceutical sales increased 10.4 percent in 2021 and 1.9 percent in 2020. The sales increases in 2021 and 2020 reflect higher sales in several geographies including India, China, Braziland Russia. Operating margins decreased from 20.1 percent of sales in 2019 to 18.8 percent in 2021 primarily due to the unfavorable impact of foreign exchange, higher product costs and product mix, partially offset by the impact of gross margin improvement initiatives. With respect to Abbott'sfinancial position, at December 31, 2021, Abbott'scash and cash equivalents and short-term investments total approximately $10.2 billioncompared to $7.1 billionat December 31, 2020. Abbott'slong-term debt and short-term borrowings total $18.1 billionand $18.7 billionat December 31, 2021and 2020, respectively. Abbottdeclared dividends of $1.82per share in 2021 compared to $1.53per share in 2020, an increase of approximately 19 percent. Dividends paid totaled $3.202 billionin 2021 compared to $2.560 billionin 2020. The year-over-year change in the amount of dividends paid primarily reflects the increase in the dividend rate. In December 2021, Abbottincreased the company's quarterly dividend by 4.4 percent to $0.47per share from $0.45per share, effective with the dividend paid in February 2022. In December 2020, Abbottincreased the company's quarterly dividend by 25 percent to $0.45per share from $0.36per share, effective with the dividend paid in February 2021. 24 In 2022, Abbottwill focus on continuing to meet the demand for COVID-19 tests and will continue to invest in product development areas that provide the opportunity for strong sustainable growth over the next several years. In its diagnostics business, Abbottwill continue to focus on driving market adoption and geographic expansion of its Alinity suite of diagnostics instruments. In the Medical Devices segment, Abbottwill focus on expanding its market position across the various businesses. In its nutritionals business, Abbottwill continue to focus on driving growth globally and further enhancing its portfolio with the introduction of line extensions of its science-based products. In the established pharmaceuticals business, Abbottwill continue to focus on growing its business with the depth and breadth of its portfolio in emerging markets.
Critical accounting policies
Sales Rebates - In 2021, approximately 45 percent of
Abbott'sconsolidated gross revenues were subject to various forms of rebates and allowances that Abbottrecorded as reductions of revenues at the time of sale. Most of these rebates and allowances in 2021 are in the Nutritional Products and Diabetes Care businesses. Abbottprovides rebates to state agencies that administer the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), wholesalers, group purchasing organizations, and other government agencies and private entities. Rebate amounts are usually based upon the volume of purchases using contractual or statutory prices for a product. Factors used in the rebate calculations include the identification of which products have been sold subject to a rebate, which customer or government agency price terms apply, and the estimated lag time between sale and payment of a rebate. Using historical trends, adjusted for current changes, Abbottestimates the amount of the rebate that will be paid, and records the liability as a reduction of gross sales when Abbottrecords its sale of the product. Settlement of the rebate generally occurs from one to six months after sale. Abbottregularly analyzes the historical rebate trends and makes adjustments to reserves for changes in trends and terms of rebate programs. Rebates and chargebacks charged against gross sales in 2021, 2020 and 2019 amounted to approximately $3.9 billion, $3.3 billionand $3.1 billion, respectively, or 17.5 percent, 20.1 percent and 19.1 percent of gross sales, respectively, based on gross sales of approximately $22.3 billion, $16.6 billionand $16.3 billion, respectively, subject to rebate. A one-percentage point increase in the percentage of rebates to related gross sales would decrease net sales by approximately $223 millionin 2021. Abbottconsiders a one-percentage point increase to be a reasonably likely increase in the percentage of rebates to related gross sales. Other allowances charged against gross sales were approximately $268 million, $207 millionand $169 millionfor cash discounts in 2021, 2020 and 2019, respectively, and $211 million, $232 millionand $192 millionfor returns in 2021, 2020 and 2019, respectively. Cash discounts are known within 15 to 30 days of sale, and therefore can be reliably estimated. Returns can be reliably estimated because Abbott'shistorical returns are low, and because sales returns terms and other sales terms have remained relatively unchanged for several periods. Management analyzes the adequacy of ending rebate accrual balances each quarter. In the domestic nutritional business, management uses both internal and external data available to estimate the accruals. In the WIC business, estimates are required for the amount of WIC sales within each state where Abbottholds the WIC contract. The state where the sale is made, which is the determining factor for the applicable rebated price, is reliably determinable. Rebated prices are based on contractually obligated agreements generally lasting a period of two to four years. Except for a change in contract price or a transition period before or after a change in the supplier for the WIC business in a state, accruals are based on historical redemption rates and data from the U.S. Department of Agriculture(USDA) and the states submitting rebate claims. The USDA, which administers the WIC program, has been making its data available for many years. Management also estimates the states' processing lag time based on sales and claims data. Inventory in the retail distribution channel does not vary substantially. Management has access to several large customers' inventory management data, which allows management to make reliable estimates of inventory in the retail distribution channel. At December 31, 2021, Abbotthad WIC business in 36 states. Historically, adjustments to prior years' rebate accruals have not been material to net income. Abbottemploys various techniques to verify the accuracy of claims submitted to it, and where possible, works with the organizations submitting claims to gain insight into changes that might affect the rebate amounts. For government agency programs, the calculation of a rebate involves interpretations of relevant regulations, which are subject to challenge or change in interpretation. 25 Income Taxes - Abbottoperates in numerous countries where its income tax returns are subject to audits and adjustments. Because Abbottoperates globally, the nature of the audit items is often very complex, and the objectives of the government auditors can result in a tax on the same income in more than one country. Abbottemploys internal and external tax professionals to minimize audit adjustment amounts where possible. In accordance with the accounting rules relating to the measurement of tax contingencies, in order to recognize an uncertain tax benefit, the taxpayer must be more likely than not of sustaining the position, and the measurement of the benefit is calculated as the largest amount that is more than 50 percent likely to be realized upon resolution of the benefit. Application of these rules requires a significant amount of judgment. In the U.S., Abbott'sfederal income tax returns through 2016 are settled. Undistributed foreign earnings remain indefinitely reinvested in foreign operations. Determining the amount of unrecognized deferred tax liability related to any remaining undistributed foreign earnings not subject to the transition tax and additional outside basis difference in its foreign entities is not practicable. Pension and Post-Employment Benefits - Abbottoffers pension benefits and post-employment health care to many of its employees. Abbottengages outside actuaries to assist in the determination of the obligations and costs under these programs. Abbottmust develop long-term assumptions, the most significant of which are the health care cost trend rates, discount rates and the expected return on plan assets. The discount rates used to measure liabilities were determined based on high-quality fixed income securities that match the duration of the expected retiree benefits. The health care cost trend rates represent Abbott'sexpected annual rates of change in the cost of health care benefits and are a forward projection of health care costs as of the measurement date. A difference between the assumed rates and the actual rates, which will not be known for years, can be significant in relation to the obligations and the annual cost recorded for these programs. The impact of higher interest rates and improved asset returns during 2021 significantly decreased the net actuarial losses for these plans. At December 31, 2021, pretax net actuarial losses and prior service costs and (credits) recognized in Accumulated other comprehensive income (loss) were net losses of $3.1 billionfor Abbott'sdefined benefit plans and net losses of $373 millionfor Abbott'smedical and dental plans. Actuarial losses and gains are amortized over the remaining service attribution periods of the employees under the corridor method, in accordance with the rules for accounting for post-employment benefits. Differences between the expected long-term return on plan assets and the actual annual return are amortized over a five-year period. Valuation of Intangible Assets - Abbotthas acquired and continues to acquire significant intangible assets that Abbottrecords at fair value at the acquisition date. Transactions involving the purchase or sale of intangible assets occur with some frequency between companies in the health care field and valuations are usually based on a discounted cash flow analysis. The discounted cash flow model requires assumptions about the timing and amount of future net cash flows, risk, cost of capital, terminal values and market participants. Each of these factors can significantly affect the value of the intangible asset. Abbottengages independent valuation experts whoreview Abbott'scritical assumptions and calculations for acquisitions of significant intangibles. Abbottreviews definite-lived intangible assets for impairment each quarter using an undiscounted net cash flows approach. If the undiscounted cash flows of an intangible asset are less than the carrying value of an intangible asset, the intangible asset is written down to its fair value, which is usually the discounted cash flow amount. Where cash flows cannot be identified for an individual asset, the review is applied at the lowest group level for which cash flows are identifiable. Goodwilland indefinite-lived intangible assets, which relate to in-process research and development acquired in a business combination, are reviewed for impairment annually or when an event that could result in impairment occurs. At December 31, 2021, goodwill amounted to $23.2 billionand net intangibles amounted to $12.7 billion. Amortization expense in continuing operations for intangible assets amounted to $2.0 billionin 2021, $2.1 billionin 2020 and $1.9 billionin 2019. There was no reduction of goodwill relating to impairments in 2021, 2020 and 2019. Litigation - Abbott accounts for litigation losses in accordance with Financial Accounting Standards Board(FASB) Accounting Standards Codification (ASC) No. 450, "Contingencies." Under ASC No. 450, loss contingency provisions are recorded for probable losses at management's best estimate of a loss, or when a best estimate cannot be made, a minimum loss contingency amount is recorded. These estimates are often initially developed substantially earlier than the ultimate loss is known, and the estimates are refined each accounting period as additional information becomes known. Accordingly, Abbottis often initially unable to develop a best estimate of loss, and therefore the minimum amount, which could be zero, is recorded. As information becomes known, either the minimum loss amount is increased, resulting in additional loss provisions, or a best estimate can be made, also resulting in additional loss provisions. Occasionally, a best estimate amount is changed to a lower amount when events result in an expectation of a more favorable outcome than previously expected. Abbottestimates the range of possible loss to be from approximately $30 millionto $45 millionfor its legal proceedings and environmental exposures. Accruals of approximately $40 millionhave been recorded at December 31, 2021for these proceedings and exposures. These accruals represent management's best estimate of probable loss, as defined by FASB ASC No. 450, "Contingencies." 26 Results of Operations Sales The following table details the components of sales growth by reportable segment for the last two years: Components of % Change Total % Change Price Volume Exchange Total Net Sales 2021 vs. 2020 24.5 (1.5) 24.4 1.6 2020 vs. 2019 8.5 (0.4) 10.2 (1.3) Total U.S. 2021 vs. 2020 27.8 (1.9) 29.7 - 2020 vs. 2019 14.2 (1.1) 15.3 - Total International2021 vs. 2020 22.5 (1.3) 21.2 2.6 2020 vs. 2019 5.3 0.1 7.2 (2.0) Established Pharmaceutical Products Segment 2021 vs. 2020 9.6 4.2 6.2 (0.8) 2020 vs. 2019 (4.1) 2.7 (0.8) (6.0) Nutritional Products Segment 2021 vs. 2020 8.5 1.0 6.7 0.8 2020 vs. 2019 3.2 0.8 3.9 (1.5) Diagnostic Products Segment 2021 vs. 2020 44.8 (6.2) 48.9 2.1 2020 vs. 2019 40.1 (0.8) 41.4 (0.5) Medical Devices Segment 2021 vs. 2020 21.9 (0.9) 20.3 2.5 2020 vs. 2019 (3.7) (1.9) (1.9) 0.1 The increase in Total Net Salesin 2021 reflects volume growth across all of Abbott'ssegments. In 2021, Abbott'sCOVID-19 testing-related sales totaled approximately $7.7 billionled by combined sales of approximately $6.6 billionrelated to Abbott'sBinaxNOW, Panbio, and ID NOW rapid testing platforms. In 2021, excluding the impact of COVID-19 testing-related sales, Abbott'stotal net sales increased 15.2 percent. Excluding the impacts of COVID-19 testing-related sales and foreign exchange, Abbott'stotal net sales in 2021 increased 13.7 percent. The price decline related to the Diagnostic Products segment in 2021 primarily reflects lower pricing for COVID-19 tests. The increase in Total Net Salesin 2020 reflects volume growth in the Diagnostics and Nutritional Products segments. In 2020, COVID-19 testing-related sales totaled approximately $3.9 billion. In Medical Devices, the 2020 impact of COVID-19 on Abbott'scardiovascular and neuromodulation businesses was partially offset by double-digit volume growth in Diabetes Care. The price declines related to the Medical Devices segment in 2021 and 2020 primarily reflect DES pricing pressures as a result of market competition in the U.S.and other major markets. 27 A comparison of significant product and product group sales is as follows. Percent changes are versus the prior year and are based on unrounded numbers. Total Impact of Total Change 2021 2020 Change Exchange Excl. Exchange (dollars in millions) Total Established Pharmaceuticals- Key Emerging Markets $ 3,539 $ 3,20910 % (2) % 12 % Other 1,179 1,094 8 2 6 Nutritionals -
International Pediatric Nutritionals 2,106 2,140 (2) 1 (3) U.S. Pediatric Nutritionals 2,192 1,987 10 - 10 International Adult Nutritionals 2,632 2,228 18
1 17 U.S. Adult Nutritionals 1,364 1,292 6 - 6 Diagnostics - Core Laboratory 5,128 4,475 15 3 12 Molecular 1,427 1,438 (1) 2 (3) Point of Care 536 516 4 1 3 Rapid Diagnostics 8,553 4,376 95 2 93 Medical Devices - Rhythm Management 2,198 1,914 15 2 13 Electrophysiology 1,907 1,578 21 2 19 Heart Failure 889 740 20 1 19 Vascular 2,654 2,339 14 3 11 Structural Heart 1,610 1,247 29 2 27 Neuromodulation 781 702 11 1 10 Diabetes Care 4,328 3,267 33 4 29 28 Total Impact of Total Change 2020 2019 Change Exchange Excl. Exchange (dollars in millions)
Total Established Pharmaceuticals- Key Emerging Markets $ 3,209 $ 3,392(5) % (8) % 3 % Other 1,094 1,094 - 1 (1) Nutritionals -
International Pediatric Nutritionals 2,140 2,282 (6) (2) (4) U.S. Pediatric Nutritionals 1,987 1,879 6 - 6 International Adult Nutritionals 2,228 2,017 11
(3) 14 U.S. Adult Nutritionals 1,292 1,231 5 - 5 Diagnostics - Core Laboratory 4,475 4,656 (4) (1) (3) Molecular 1,438 442 225 (1) 226 Point of Care 516 561 (8) - (8) Rapid Diagnostics 4,376 2,054 113 1 112 Medical Devices - Rhythm Management 1,914 2,144 (11) - (11) Electrophysiology 1,578 1,721 (8) 1 (9) Heart Failure 740 769 (4) - (4) Vascular 2,339 2,850 (18) - (18) Structural Heart 1,247 1,400 (11) - (11) Neuromodulation 702 831 (16) - (16) Diabetes Care 3,267 2,524 29 - 29
In order to compute results excluding the impact of exchange rates, current year
U.S.dollar sales are multiplied or divided, as appropriate, by the current year average foreign exchange rates and then those amounts are multiplied or divided, as appropriate, by the prior year average foreign exchange rates. Total Established Pharmaceutical Productssales increased 10.4 percent in 2021 and 1.9 percent in 2020, excluding the impact of foreign exchange. The Established Pharmaceutical Productssegment is focused on several key emerging markets including India, Russia, Chinaand Brazil. Excluding the impact of foreign exchange, total sales in these key emerging markets increased 11.9 percent in 2021 and 2.6 percent in 2020 due to higher sales in several geographies including India, China, Russiaand Brazil. Excluding the impact of foreign exchange, sales in Established Pharmaceuticals'other emerging markets increased 6.0 percent in 2021 and decreased 0.5 percent in 2020. Total Nutritional Products sales increased 7.7 percent in 2021 and 4.7 percent in 2020, excluding the impact of foreign exchange. In 2021, International Pediatric Nutritional sales, excluding the effect of foreign exchange, decreased 3.2 percent as lower sales in China, the Middle Eastand various countries in Southeast Asiawere partially offset by higher volumes sold in various countries in Latin Americaand Europe. The 4.1 percent decrease in 2020 International Pediatric Nutritional sales, excluding the effect of foreign exchange, was due to challenging market dynamics in the infant category in Greater Chinathat more than offset growth across Abbott'spediatric products in various countries in Southeast Asia. In the U.S.Pediatric Nutritional business, sales increased 10.3 percent in 2021 and 5.8 percent in 2020, reflecting growth in Pedialyte, Similac and PediaSure. In International Adult Nutritionals, sales increased 17.0 percent and 13.6 percent in 2021 and 2020, respectively, excluding the effect of foreign exchange, due to continued growth of Ensure and Glucerna in several countries. U.S.Adult Nutritional sales increased 5.6 percent in 2021, primarily due to growth of Ensure and Glucerna. In 2020, U.S.Adult Nutritional sales increased 4.9 percent, primarily due to growth of Ensure. 29 In the Diagnostics segment, Core Laboratory Diagnosticssales increased 12.4 percent in 2021 and decreased 2.8 percent in 2020, excluding the effect of foreign exchange. In 2021, growth was driven by increased volume of routine diagnostic testing performed in hospitals and other laboratories, partially offset by lower sales of Abbott'slaboratory-based tests for the detection of the IgG and IgM antibodies, which determine if someone was previously infected with the COVID-19 virus. In 2020, the decrease was due to the lower volume of routine testing performed in hospital and other laboratories due to COVID-19, partially offset by sales of Abbott'sCOVID-19 laboratory-based tests for the detection of the IgG and IgM antibodies. Core Laboratory Diagnostics COVID-19 testing-related sales on Abbott'sARCHITECT and Alinity i platforms were $204 millionand $262 millionin 2021 and 2020, respectively. In 2021, Core Laboratory Diagnosticssales increased 16.9 percent, excluding COVID-19 testing-related sales, and increased 14.4 percent, excluding the impact of foreign exchange and COVID-19 testing-related sales. In Molecular Diagnostics, sales decreased 2.9 percent and increased 225.7 percent in 2021 and 2020, respectively, excluding the effect of foreign exchange. In 2021, the decrease was due to lower demand for Abbott'slaboratory-based molecular tests for COVID-19 on its m2000 platform, partially offset by growth in the base business from the continued roll-out of the Alinity m platform. In 2020, the increase reflects higher volumes due to demand for Abbott'slaboratory-based molecular tests for COVID-19. Abbottreceived U.S.FDA approval in March 2020for its Alinity m molecular diagnostics system. Molecular Diagnostics COVID-19 testing-related sales were $891 millionand $1.0 billionin 2021 and 2020, respectively. In 2021, Molecular Diagnosticssales increased 29.2 percent, excluding COVID-19 testing-related sales, and increased 27.0 percent, excluding the impact of foreign exchange and COVID-19 testing-related sales. In Rapid Diagnostics, sales increased 93.3 percent and 112.3 percent in 2021 and 2020, respectively, excluding the effect of foreign exchange, due to strong demand for Abbott'spoint-of-care COVID-19 molecular test on its ID NOW platform and its BinaxNOW COVID-19 Ag Cardtest in the U.S.as well as international demand for COVID-19 rapid tests on its Panbio platform. The sales increase for 2021 also included the recovery of routine diagnostic testing. The sales increase for 2020 also included increased testing in the first quarter for the flu in the U.S., partially offset by the unfavorable impact of COVID-19 on routine diagnostic testing in 2020. Rapid Diagnostics COVID-19 testing-related sales were $6.6 billionand $2.6 billionin 2021 and 2020, respectively. In 2021, Rapid Diagnosticssales increased 10.4 percent, excluding COVID-19 testing-related sales, and increased 9.2 percent, excluding the impact of foreign exchange and COVID-19 testing-related sales. In Medical Devices, sales increased 19.4 percent and decreased 3.8 percent in 2021 and 2020, respectively, excluding the effect of foreign exchange. In 2021, the increase was driven by double-digit growth across all divisions, led by Diabetes Care, Structural Heart and Electrophysiology. In 2020, double-digit growth in Diabetes Care was more than offset by decreases in Abbott'scardiovascular and neuromodulation businesses due to the impact of COVID-19 and lower vascular sales in Chinain the fourth quarter of 2020 as a result of a new national tender program. The 2021 and 2020 growth in Diabetes Care revenue was driven by continued growth of FreeStyle Libre, Abbott'scontinuous glucose monitoring system, internationally and in the U.S.In 2021, FreeStyle Libre sales totaled $3.7 billion, which reflected a 36.8 percent increase over 2020, excluding the effect of foreign exchange. FreeStyle Libre sales in 2020 were $2.6 billion, which reflected a 42.6 percent increase, excluding the effect of foreign exchange, over 2019 when sales totaled $1.8 billion. While procedure volumes across Abbott'scardiovascular and neuromodulation businesses were negatively impacted early in 2021 by elevated COVID-19 case rates in certain countries, including the U.S., overall volumes improved over the course of 2021 across various businesses. The year-over-year increases in the various businesses reflect a recovery from the 2020 levels when the pandemic reduced procedure volumes as well as sales growth from pre-pandemic levels in Structural Heart, Electrophysiology, and Heart Failure, excluding the effect of foreign exchange. In January 2021, the U.S. Centers for Medicare & Medicaid Servicesexpanded reimbursement coverage eligibility for MitraClip®, Abbott'smarket-leading device for the minimally invasive treatment of mitral regurgitation (MR), a leaky heart valve. The growth in Structural Heart during 2021 was broad-based across several areas of the business, including MitraClip and TriClip®, the world's first minimally invasive, clip-based device for repair of a leaky tricuspid heart valve which was launched in Europein May 2020.
The expiration of licenses and patent protection may affect future revenues and operating results of
30 Operating Earnings Gross profit margins were 52.2 percent of net sales in 2021, 50.5 percent in 2020 and 52.5 percent in 2019. In 2021, the increase primarily reflects the effects of higher sales volume, higher manufacturing utilization, and the nonrecurrence of the 2020 impairment of intangible assets, partially offset by increases in various manufacturing costs and the impact of higher restructuring charges. In 2020, the decrease primarily reflects the mix of sales across
Abbott'svarious businesses and operational inefficiencies due to the impact of COVID-19, as well as the increase in intangible asset amortization, the impairment of intangible assets and the unfavorable effect of foreign exchange on gross margin. Research and development (R&D) expenses were $2.7 billionin 2021, and $2.4 billionin both 2020 and 2019. The increase in 2021 R&D spending was primarily driven by higher spending on various projects to advance products in development. R&D spending in 2020 was relatively flat compared to 2019 as the impact of the immediate expensing in 2019 of an R&D asset valued at $102 millionthat was acquired in conjunction with the acquisition of Cephea Valve Technologies, Inc.was partially offset by the $55 millionimpairment of an in-process R&D intangible asset in 2020. R&D expense in 2020 also reflects lower integration and restructuring costs in 2020 related to R&D, partially offset by higher spending on various projects. Selling, general and administrative (SG&A) expenses increased 16.8 percent in 2021 due primarily to higher selling and marketing spending to drive growth across various businesses and the nonrecurrence of $100 millionof income in 2020 from a litigation settlement. The increase in 2021 also includes charges related to certain litigation. SG&A expenses were basically flat in 2020 compared to 2019. In 2020, the favorable effect of foreign exchange, income of approximately $100 millionfrom a litigation settlement in 2020, lower spending due to COVID-19 travel restrictions, and the impact of various cost saving initiatives were offset by higher spending to drive growth in various businesses.
May 27, 2021, Abbottmanagement approved a restructuring plan related to its Diagnostic Products segment to align its manufacturing network for COVID-19 diagnostic tests with changes in the second quarter in projected testing demand driven by several factors, including significant reductions in cases in the U.S.and other major developed countries, the accelerated rollout of COVID-19 vaccines globally and the U.S.health authority's updated guidance on testing for fully vaccinated individuals. In the second quarter of 2021, Abbottrecorded charges of $499 millionunder this plan in Cost of products sold. The charge recognized in the second quarter included fixed asset write-downs of $80 million, inventory-related charges of $248 million, and other exit costs, which included contract cancellations and employee-related costs of $171 million. In the second half of 2021, as the Delta and Omicron variants of COVID-19 spread and the number of new COVID-19 cases increased significantly, particularly in the U.S., demand for rapid COVID-19 tests increased significantly. As a result, in the second half of 2021, Abbottsold approximately $181 millionof inventory that was previously estimated to have no net realizable value under the second quarter restructuring action. In addition, the estimate of other exit costs was reduced by a net $58 millionas Abbottfulfilled its purchase obligations under certain contracts for which a liability was recorded in the second quarter or Abbottsettled with the counterparty in the second half of 2021. As of December 31, 2021, the accrued liabilities remaining in the Consolidated Balance Sheet related to these actions total $23 millionand primarily represent severance obligations. From 2017 to 2021, Abbottmanagement approved restructuring plans as part of the integration of the acquisitions of St. Jude Medical, Inc.(St. Jude Medical) into the Medical Devices segment, and Alere Inc.(Alere) into the Diagnostic Products segment, in order to leverage economies of scale and reduce costs. As of December 31, 2018, the accrued balance associated with these actions was $41 million. From 2019 to 2021, Abbottrecorded employee-related severance and other charges totaling approximately $95 million, comprised of $10 millionin 2021, $13 millionin 2020, and $72 millionin 2019. Approximately $31 millionwas recorded in Cost of products sold, approximately $5 millionwas recorded in Research and development, and approximately $59 millionwas recorded in Selling, general and administrative expense over the last three years. As of December 31, 2021, the accrued liabilities remaining in the Consolidated Balance Sheet related to these actions total $9 million. From 2017 to 2020, Abbottmanagement approved plans to streamline operations in order to reduce costs and improve efficiencies in various Abbottbusinesses including the nutritional, established pharmaceuticals and vascular businesses. As of December 31, 2018, the accrued balance associated with these actions was $70 million. From 2019 to 2020, Abbottrecorded employee-related severance and other charges totaling approximately $102 million, comprised of $36 millionin 2020 and $66 millionin 2019. Approximately $22 millionwas recorded in Cost of products sold, approximately $30 millionwas recorded in Research and development, and approximately $50 millionwas recorded in Selling, general and administrative expense over the two years. As of December 31, 2021, the accrued liabilities remaining in the Consolidated Balance Sheet related to these actions total $24 million. 31
Abbottmanagement approved plans to streamline operations in order to reduce costs and improve efficiencies in various Abbottbusinesses including the diagnostics, established pharmaceuticals and nutritional businesses. Abbottrecorded employee-related severance and other charges of approximately $68 million. Approximately $16 millionwas recorded in Cost of products sold, approximately $4 millionwas recorded in Research and development, and approximately $48 millionwas recorded in Selling, general and administrative expense. As of December 31, 2021, the accrued liabilities remaining in the Consolidated Balance Sheet related to these actions total $61 millionand primarily represent severance obligations.
Interest expense and interest (income)
Interest expense, net decreased
$10 millionin 2021 due to the reduction of interest expense driven by lower interest rates in 2021. The effects of higher cash and short-term investment balances were more than offset by the impact of lower interest rates on interest income in 2021. In 2020, interest expense, net decreased $76 milliondue to a reduction in interest expense resulting from the favorable impact of the euro debt financing in November 2019, the repayment of debt in December 2019and a lower interest rate environment in 2020.
Debt extinguishment costs
Other (income) Expenses, net
Other (income) expense, net includes income of approximately
$270 million, $205 millionand $225 millionin 2021, 2020 and 2019, respectively, related to the non-service cost components of the net periodic benefit costs associated with the pension and post-retirement medical plans. Other (income) expense, net also includes a gain on the sale of an equity method investment in 2021 and equity investment impairments that totaled approximately $115 millionin 2020.
Income tax rates from continuing operations were 13.9% in 2021, 10.0% in 2020 and 9.6% in 2019.
In 2021, taxes on earnings from continuing operations include approximately
$145 millionin excess tax benefits associated with share-based compensation and approximately $55 millionof net tax benefits as a result of the resolution of various tax positions related to prior years. In 2020, taxes on earnings from continuing operations include the recognition of approximately $170 millionof tax benefits associated with the impairment of certain assets, approximately $140 millionof net tax benefits as a result of the resolution of various tax positions related to prior years, and approximately $100 millionin excess tax benefits associated with share-based compensation. In 2020, taxes on earnings from continuing operations also include a $26 millionincrease to the transition tax liability associated with the 2017 Tax Cuts and Jobs Act (TCJA). The $26 millionincrease to the transition tax liability was the result of the resolution of various tax positions related to prior years. This adjustment increased the cumulative net tax expense related to the TCJA to $1.53 billion. As of December 31, 2021, the remaining balance of Abbott'stransition tax obligation is approximately $794 million, which will be paid over the next five years as allowed by the TCJA. Earnings from discontinued operations, net of tax, in 2020 reflect the recognition of $24 millionof net tax benefits primarily as a result of the resolution of various tax positions related to prior years. In 2019, taxes on earnings from continuing operations included approximately $100 millionin excess tax benefits associated with share-based compensation, an $86 millionreduction of the transition tax and $68 millionof tax expense resulting from tax legislation enacted in the fourth quarter of 2019 in India. The $86 millionreduction to the transition tax liability was the result of the issuance of final transition tax regulations by the U.S. Department of Treasuryin 2019. Exclusive of these discrete items, tax expense was favorably impacted by lower tax rates and tax exemptions on foreign income primarily derived from operations in Puerto Rico, Switzerland, Ireland, the Netherlands, Costa Rica, Singapore, and Malta. Abbottbenefits from a combination of favorable statutory tax rules, tax rulings, grants, and exemptions in these tax jurisdictions. See Note 14 to the consolidated financial statements for a full reconciliation of the effective tax rate to the U.S.federal statutory rate.
Research and development programs
Research and development process
Established Pharmaceuticalssegment, the development process focuses on the geographic expansion and continuous improvement of the segment's existing products to provide benefits to patients and customers. As Established Pharmaceuticalsdoes not actively pursue primary research, development usually begins with work on existing products or after the acquisition of an advanced stage licensing opportunity.
Depending on the product, development phases may include:
? Development of pharmaceutical products.
Phase I bioequivalence studies to compare a future established drug
? brand with a compound already marketed with the same active drug
? Phase II studies to test the effectiveness of benefits in a small group of patients.
? Phase III studies to expand testing to a larger population that reflects
actual medical use.
? Phase IV and other post-marketing studies to obtain new clinical use data on
existing products in approved indications.
The specific requirements (e.g., scope of clinical trials) for obtaining regulatory approval vary across different countries and geographic regions. The process may range from one year for a bioequivalence study project to six or more years for complex formulations, new indications, or geographic expansion in specific countries, such as
In the Diagnostics segment, the phases of the research and development process include:
? Discovery which focuses on identifying a product that will meet a
specific therapeutic area, platform or unmet clinical need.
Concept/Feasibility in which the materials and manufacturing processes are
? assessed, testing may include product characterization and analysis
performed to confirm clinical utility.
Development in which extensive testing is carried out to demonstrate that the
? product meets the specified design requirements and that the design specifications
conform to user needs and intended uses.
The regulatory requirements for diagnostic products vary across different countries and geographic regions. In the
U.S., the FDA classifies diagnostic products into classes (I, II, or III) and the classification determines the regulatory process for approval. While the Diagnostics segment has products in all three classes, the vast majority of its products are categorized as Class I or Class II. Submission of a separate regulatory filing is not required for Class I products. Class II devices typically require pre-market notification to the FDA through a regulatory filing known as a 510(k) submission. Most Class III products are subject to the FDA'sPremarket Approval (PMA) requirements. Other Class III products, such as those used to screen blood, require the submission and approval of a Biological License Application (BLA). In the European Union(EU), diagnostic products are also categorized into different categories and the regulatory process, which has been governed by the European In Vitro Diagnostic Medical Device Directive, depends upon the category, with certain product categories requiring review and approval by an independent company, known as a Notified Body, before the manufacturer can affix a CE mark to the product to declare conformity to the Directive. Other products only require a self-certification process. In 2017, the EU adopted the new In Vitro Diagnostic Regulation (IVDR) which replaces the existing directive in the EU for in vitro diagnostic products and imposes additional premarket and post-market regulatory requirements on manufacturers of such products. In December 2021, the IVDR was amended to extend the regulation's previous two-year transition period by one to three years, with the transition period extending to May 2027for certain devices. However, the amendment does not delay the date of application of the IVDR itself which will take effect on May 26, 2022. In the Medical Devices segment, the research and development process begins with research on a specific technology that is evaluated for feasibility and commercial viability. If the research program passes that hurdle, it moves forward into development. The development process includes evaluation, selection and qualification of a product design, completion of applicable clinical trials to test the product's safety and efficacy, and validation of the manufacturing process to demonstrate its repeatability and ability to consistently meet pre-determined specifications. Similar to the diagnostic products discussed above, in the U.S., medical devices are classified as Class I, II, or III. Most of Abbott'smedical device products are classified as Class II devices that follow the 510(k) regulatory process or Class III devices that are subject to the PMA process. 33 In the EU, medical devices are also categorized into different classes and the regulatory process, which had been governed by the European Medical Device Directive and the Active Implantable Medical Device Directive, varies by class. In the second quarter of 2017, the EU adopted the new Medical Devices Regulation (MDR) which replaced the existing directives in the EU for medical devices and imposes additional premarket and post-market regulatory requirements on manufacturers of such products. The MDR applies to manufacturers as of May 26, 2021after a four-year transition period. Each product must bear a CE mark to show compliance with the MDR. Some products require submission of a design dossier to the appropriate regulatory authority for review and approval prior to CE marking of the device. For other products, the company is required to prepare a technical file which includes testing results and clinical evaluations but can self-certify its ability to apply the CE mark to the product. Outside the U.S.and the EU, the regulatory requirements vary across different countries and regions.
After approval and commercial launch of certain medical devices, post-marketing trials may be conducted either as a conditional requirement of regulatory marketing approval or for the purpose of proving product superiority .
In the Nutritional segment, the research and development process generally focuses on identifying and developing ingredients and products that address the nutritional needs of particular populations (e.g., infants and adults) or patients (e.g., people with diabetes). Depending upon the country and/or region, if claims regarding a product's efficacy will be made, clinical studies typically must be conducted. In the
U.S., the FDA requires that it be notified of proposed new formulations and formulation or packaging changes related to infant formula products. Prior to the launch of an infant formula or product packaging change, the company is required to obtain the FDA'sconfirmation that it has no objections to the proposed product or packaging. For other nutritional products, notification or pre-approval from the FDA is not required unless the product includes a new food additive. In some countries, regulatory approval may be required for certain nutritional products, including infant formula and medical nutritional products.
Areas of intervention
In 2022 and beyond,
Established Pharmaceuticals- Abbottfocuses on building country-specific portfolios made up of high-quality medicines that meet the needs of people in emerging markets. Over the next several years, Abbottplans to expand its product portfolio in key therapeutic areas with the aim of being among the first to launch new off-patent and differentiated medicines. In addition, Abbottcontinues to expand existing brands into new markets, implement product enhancements that provide value to patients and acquire strategic products and technology through licensing activities. Abbottis also actively working on the further development of several key brands such as Creon™, Duphaston™, Duphalac™ and Influvac™. Depending on the product, the activities focus on development of new data, markets, formulations, delivery systems, or indications.
Medical equipement –
Cardiac Rhythm Management – Development of Next Generation Rhythm Management
? technologies, including advanced communication capabilities and leadless stimulation
Heart Failure – Continuous Improvements in
? pulmonary arterial pressure and support systems, including enhanced clinical systems
performance and usability.
? Electrophysiology – Development of next-generation technologies in the fields of
ablation, diagnosis, mapping, visualization and recording.
? Vascular – Development of next-generation technologies for use in coronary heart disease and
peripheral vascular procedures.
Structural heart – Development of transcatheter and surgical devices for the
? repair and replacement of heart valves and occlusion therapies for congenital diseases
heart defects and reduced risk of stroke.
Neuromodulation – Development of additional clinical evidence and
? next-generation technologies leveraging digital health to improve patients and
the commitment of doctors to treat chronic pain, movement disorders and other
Diabetes Care – Developing improvements and additional indications for
? FreeStyle Libre platform of continuous glucose monitoring products to help
patients improve their ability to manage their diabetes and use them beyond diabetes.
Core Laboratory Diagnostics- Abbottcontinues to commercialize its next-generation blood and plasma screening, immunoassay, clinical chemistry and hematology systems, along with assays, including a focus on unmet medical need, in various areas including infectious disease, cardiac care, metabolics, and oncology, as well as informatics solutions to help optimize diagnostics laboratory performance and automation solutions to increase efficiency in laboratories.
In addition, the Diagnostics division continues to
Given the diversity of
Abbott'sbusiness, its intention to remain a broad-based health care company and the numerous sources for potential future growth, no individual project is expected to be material to cash flows or results of operations over the next five years. Factors considered included research and development expenses projected to be incurred for the project over the next year relative to Abbott'stotal research and development expenses, as well as qualitative factors, such as marketplace perceptions and impact of a new product on Abbott'soverall market position. There were no delays in Abbott's2021 research and development activities that are expected to have a material impact on operations. While the aggregate cost to complete the numerous projects currently in development is expected to be material, the total cost to complete will depend upon Abbott'sability to successfully finish each project, the rate at which each project advances, and the ultimate timing for completion. Given the potential for significant delays and the risk of failure inherent in the development of medical device, diagnostic and pharmaceutical products and technologies, it is not possible to accurately estimate the total cost to complete all projects currently in development. Abbottplans to manage its portfolio of projects to achieve research and development spending that will be competitive in each of the businesses in which it participates, and such spending is targeted at approximately 7 percent of total Abbottsales in 2022. Abbottdoes not regularly accumulate or make management decisions based on the total expenses incurred for a particular development phase in a given period.
December 31, 2021, goodwill recorded as a result of business combinations totaled $23.2 billion. Goodwillis reviewed for impairment annually in the third quarter or when an event that could result in an impairment occurs, using a quantitative assessment to determine whether it is more likely than not that the fair value of any reporting unit is less than its carrying amount. The income and market approaches are used to calculate the fair value of each reporting unit. The results of the last impairment test indicated that the fair value of each reporting unit was substantially in excess of its carrying value.
Net cash from operating activities amounted to
$10.5 billion, $7.9 billionand $6.1 billionin 2021, 2020 and 2019, respectively. The increase in Net cash from operating activities in 2021 was primarily due to the favorable cash flow impact of higher segment operating earnings and improved working capital management partially offset by higher cash taxes paid and the net impact of litigation settlements. The increase in Net cash from operating activities in 2020 was primarily due to the favorable cash flow impact of higher segment operating earnings, lower payments related to interest, integration expenses, and restructuring actions, and the proceeds from a litigation settlement partially offset by an increased investment in working capital and higher income tax payments.
A substantial part of
Abbottfunded $418 millionin 2021, $400 millionin 2020 and $382 millionin 2019 to defined benefit pension plans. Abbottexpects pension funding of approximately $415 millionin 2022 for its pension plans. Abbottexpects annual cash flow from operating activities to continue to exceed Abbott'scapital expenditures and cash dividends. 35
Debt and capital
December 31, 2021, Abbott'slong-term debt rating was A+ by Standard & Poor's Corporationand A2 by Moody's. Abbottexpects to maintain an investment grade rating. Abbotthas readily available financial resources, including unused lines of credit that support commercial paper borrowing arrangements and provide Abbottwith the ability to borrow up to $5 billionon an unsecured basis. The lines of credit are part of a Five Year Credit Agreement (Revolving Credit Agreement) that Abbottentered into on November 12, 2020. At that time, Abbottalso terminated its 2018 revolving credit agreement. There were no outstanding borrowings under the 2018 revolving credit agreement at the time of its termination. Any borrowings under the Revolving Credit Agreement will mature and be payable on November 12, 2025. Any borrowings under the Revolving Credit Agreement will bear interest, at Abbott'soption, based on either a base rate or Eurodollar rate, plus an applicable margin based on Abbott'scredit ratings. In 2021, Abbottrepaid approximately $195 millionon a short-term facility upon maturity. After the repayment, Abbotthas no short-term debt, and as of December 31, 2021, Abbott'stotal debt is $18.1 billion.
In 2020, financing activities related to the issuance and repayment of long-term debt included the following:
? Principal Amount of Senior Notes, consisting of
2028 deadline and
? amount of its 0.00% bonds due in 2020 at maturity. The refund is equivalent to
Abbottcommitted to reducing its debt levels which had increased as part of the acquisitions of St. Jude Medical and Alere in 2017. On February 24, 2019, Abbottredeemed the $500 millionoutstanding principal amount of its 2.80% Notes due 2020. In September 2019, the board of directors authorized the early redemption of up to $5 billionof outstanding long-term notes. This bond redemption authorization superseded the board's previous authorization under which $700 millionhad not yet been redeemed. On December 19, 2019, Abbottredeemed the $2.850 billionoutstanding principal amount of its 2.90% Notes due 2021. Of the $5 billionauthorization, $2.15 billionremains available as of December 31, 2021. On November 19, 2019, Abbott'swholly owned subsidiary, Abbott Ireland Financing DAC, completed a euro debt offering of €1.180 billion of long-term debt. The proceeds equated to approximately $1.3 billion. The Notes are guaranteed by Abbott. On November 21, 2019, Abbottborrowed ¥59.8 billion under a 5-year term loan and designated the yen-denominated loan as a hedge of its net investment in certain foreign subsidiaries. The term loan bears interest at TIBOR plus a fixed spread, and the interest rate is reset quarterly. The proceeds equated to approximately $550 million.
In total, these 2019 transactions resulted in the reimbursement of approximately
September 2014, the board of directors authorized the repurchase of up to $3 billionof Abbott'scommon shares from time to time. Under the program authorized in 2014, Abbottrepurchased 48.5 million shares at a cost of $2.205 billionfrom 2015 through 2018, 6.3 million shares at a cost of $525 millionin 2019 and 1.6 million shares at a cost of $173 millionin 2020 for a total of approximately $2.9 billion. In October 2019, the board of directors authorized the repurchase of up to $3 billionof Abbott'scommon shares from time to time. In 2021, Abbottrepurchased 16.6 million of its common shares for $2.016 billionwhich fully utilized the authorization remaining under the 2014 share repurchase program and a portion of the 2019 authorization. In December 2021, the board of directors authorized the repurchase of up to $5 billionof Abbott'scommon shares from time to time. The new authorization is in addition to the $1.081 billionunused portion of the share repurchase program authorized in 2019. Abbottdeclared dividends of $1.82per share in 2021 compared to $1.53per share in 2020, an increase of approximately 19 percent. Dividends paid were $3.202 billionin 2021 compared to $2.560 billionin 2020. The year-over-year change in dividends paid primarily reflects the impact of the increase in the dividend rate. 36 Working Capital
Working capital was
$11.1 billionat December 31, 2021and $8.5 billionat December 31, 2020. The increase was due in large part to the higher level of cash and cash equivalents, which was due primarily to the increase in cash generated from operating activities, partially offset by the classification of $750 millionof Senior Notes due 2022 as current liabilities at December 31, 2021and an increase in accounts payable associated with the growth of the business. Abbottmonitors the credit worthiness of customers and establishes an allowance that reflects the current estimate of credit losses expected to be incurred over the life of the financial asset. Abbottconsiders various factors in establishing, monitoring, and adjusting its allowance for doubtful accounts, including the aging of the accounts and aging trends, the historical level of charge-offs, and specific exposures related to particular customers. Abbottalso monitors other risk factors and forward-looking information, such as country risk, when determining credit limits for customers and establishing adequate allowances. Capital Expenditures
Capital expenditures of
$1.9 billionin 2021, $2.2 billionin 2020 and $1.6 billionin 2019 were principally for upgrading and expanding manufacturing and research and development facilities and equipment in various segments, investments in information technology, and laboratory instruments placed with customers. The 2020 increase in capital expenditures primarily reflects the building of capacity for the manufacture of COVID-19 diagnostics tests.
Abbottbelieves that its available cash and cash equivalents along with its ability to generate operating cash flow and continued access to debt markets are sufficient to fund existing and planned cash requirements. Abbott'smaterial cash requirements include the following contractual obligations: Debt - Principal payments required on long-term debt outstanding at December 31, 2021are $754 millionin 2022, $2.3 billionin 2023, $1.2 billionin 2024, $1.5 billionin 2025, $3.0 billionin 2026 and $9.3 billionin 2027 and thereafter. Interest payments required on long-term debt outstanding at December 31, 2021are $579 millionin 2022, $569 millionin 2023, $526 millionin 2024, $494 millionin 2025, $463 millionin 2026 and $5.8 billionin 2027 and thereafter. Operating leases - As of December 31, 2021, estimated contractual obligations for operating lease payments were $1.351 billion, with $272 milliondue within 12 months. In addition, Abbottenters into purchase commitments in the normal course of business to meet operational and capital expenditure requirements. The majority of outstanding purchase commitments generally do not extend past one year.
Abbottperiodically acquires a business or product rights in which Abbottagrees to pay contingent consideration based on attaining certain thresholds or based on the occurrence of certain events.
Abbott'sprimary markets are highly competitive and subject to substantial government regulations throughout the world. Abbottexpects debate to continue over the availability, method of delivery, and payment for health care products and services. It is not possible to predict the extent to which Abbottor the health care industry in general might be adversely affected by these factors in the future. A more complete discussion of these factors is contained in Item 1, Business, and Item 1A, Risk Factors.
Recently issued accounting standards
December 2019, the Financial Accounting Standards Board(FASB) issued Accounting Standards Update (ASU) 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which among other things, eliminates certain exceptions in the current rules regarding the approach for intraperiod tax allocations and the methodology for calculating income taxes in an interim period, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. Abbottadopted the standard on January 1, 2021. The new standard did not have an impact on its consolidated financial statements. 37 In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses, which changes the methodology to be used to measure credit losses for certain financial instruments and financial assets, including trade receivables. The new methodology requires the recognition of an allowance that reflects the current estimate of credit losses expected to be incurred over the life of the financial asset. Abbottadopted the standard on January 1, 2020and recorded a cumulative adjustment that was not significant to Earnings employed in the business in the Consolidated Balance Sheet.
Private Securities Litigation Reform Act of 1995 – A Caution Regarding Forward-Looking Statements
Under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995,
Abbottcautions investors that any forward-looking statements or projections made by Abbott, including those made in this document, are subject to risks and uncertainties that may cause actual results to differ materially from those projected. Economic, competitive, governmental, technological and other factors that may affect Abbott'soperations are discussed in Item 1A, Risk Factors.
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