What changed in this filing

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Item 7. Management’s Discussion and Analysis

2022-02-18 compared with 2021-02-19 · 180 added, 202 removed, 339 unchanged (53% of the section changed)

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price controls, competition and rebates most impact the net selling prices of products;

and foreign currency translation impacts the measurement of net sales and costs.

and the measurement of net sales and costs is impacted by foreign currency translation.

Abbott’s primary products are medical devices, diagnostic testing products, nutritional products and branded generic pharmaceuticals.

Sales in international markets comprise approximately 61 percent of consolidated net sales.

In 2020, the coronavirus (COVID-19) pandemic affected Abbott’s diversified health care businesses in various ways.

As is further described below, some businesses have performed at the levels required to successfully meet new demands, others have faced challenges, and still others have been relatively less impacted by the pandemic.

Abbott’s Diagnostics business experienced the most significant change in sales from 2019 to 2020 as sales from new tests and other related products to detect COVID-19 more than outweighed the negative impact of COVID-19 on routine diagnostic testing volumes.

Abbott mobilized its teams across multiple fronts to develop and launch the following new diagnostic tests for COVID-19 in 2020:

● In March, Abbott launched a molecular test using polymerase chain reaction (PCR) methods on its m 2000™ RealTi m e lab-based platform to detect COVID-19 pursuant to an Emergency Use Authorization (EUA) in the U.S.

● In March, Abbott also launched a molecular test to detect COVID-19 on its ID NOW™ rapid point-of-care platform in the U.S.

pursuant to an EUA.

● In April, Abbott launched an IgG (Immunoglobulin G) lab-based serology blood test on its ARCHITECT ® i1000SR and i2000SR ® laboratory instruments for the detection of an antibody to determine if someone was previously infected with the virus.

The serology test was granted an EUA in the U.S.

and CE Mark in April.

● In May, Abbott launched a lab-based serology blood test on its Alinity ® i system pursuant to an EUA in the U.S.

● In May, Abbott also launched a molecular PCR test on its Alinity m system to detect COVID-19 pursuant to an EUA in the U.S.

Abbott received CE Mark for this test in June.

● In June, Abbott launched a lateral flow COVID-19 rapid antibody test on its Panbio™ system in select countries pursuant to a CE Mark.

This serology test detects an antibody to determine if someone was previously infected with the virus.

● In August, Abbott launched its AdviseDx SARS-CoV-2 IgM (Immunoglobulin M) lab-based serology test for use on its ARCHITECT and Alinity platforms pursuant to a CE Mark.

Abbott was granted an EUA in the U.S.

for this test in October.

In 2020 and 2021, the coronavirus (COVID-19) pandemic affected Abbott’s diversified health care businesses in various ways.

As is further described below, some businesses have performed at the levels required to successfully meet new demands, others have faced challenges during periods when the number of COVID-19 cases significantly increased, and still others have been relatively less impacted by the pandemic.

Abbott’s Diagnostics segment experienced the most significant change in sales from 2019 to 2021 as a result of the COVID-19 pandemic.

In 2020 and 2021, Abbott mobilized its teams across multiple fronts to develop and launch various new diagnostic tests for COVID-19.

In March 2020, Rapid Diagnostics launched 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, Abbott launched its BinaxNOW ® COVID-19 Ag Card test, a portable, lateral flow rapid test to detect COVID-19 pursuant to an EUA in the U.S.

● In September, Abbott launched its Panbio rapid antigen test to detect COVID-19 pursuant to a CE Mark.

In October, Abbott received approval by the World Health Organization for emergency use listing for the Panbio antigen test.

● In December, Abbott received CE Mark and launched its SARS-CoV-2-IgG II quantitative lab-based serology blood test for use on its ARCHITECT and Alinity i platforms.

In December 2020, Abbott received an EUA in the U.S.

for virtually guided at-home use of its BinaxNOW COVID-19 Ag Card rapid test to detect COVID-19 and launched the product for at-home use.

● In December, Abbott launched its multiplex molecular test on its Alinity m system to detect COVID-19, flu A, flu B, and respiratory syncytial virus (RSV) pursuant to a CE Mark.

In 2020, Abbott’s COVID-19 testing related sales totaled approximately $3.884 billion, led by sales related to Abbott’s BinaxNOW, Panbio and ID NOW rapid testing platforms.

In addition to negatively impacting routine core diagnostic testing volumes, the pandemic negatively affected the number of cardiovascular and neuromodulation procedures performed by health care providers globally, thereby reducing the demand for Abbott’s cardiovascular and neuromodulation devices and routine diagnostic tests in 2020.

for virtually guided at-home use of its BinaxNOW COVID-19 Ag Card rapid test and launched the product for at-home use.

In March 2021, Abbott announced that it had received an EUA in the U.S.

for its over-the-counter, non-prescription BinaxNOW COVID-19 Ag Self Test for individuals with or without symptoms.

In the first quarter of 2021, Abbott also received EUAs in the U.S.

that allow the non-prescription use of the BinaxNOW COVID-19 Ag Card Home Test and the BinaxNOW COVID-19 Ag Card test for professional use for individuals with or without symptoms.

Outside the U.S., in September 2020, Rapid Diagnostics launched its Panbio ® rapid antigen test to detect COVID-19 pursuant to a CE Mark.

In October 2020, Abbott received approval by the World Health Organization for emergency use listing for the Panbio antigen test.

In January 2021, Abbott received 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, Abbott announced 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 Diagnostics developed and launched molecular tests to detect COVID-19 using polymerase chain reaction (PCR) methods on its m2000 ® RealTi m e lab-based platform and its Alinity ® m system pursuant to EUAs in the U.S.

and CE Marks.

Molecular Diagnostics also 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 2020 and an EUA in the U.S.

in March 2021.

In 2020 and 2021, Core Laboratory Diagnostics developed 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’s COVID-19 testing-related sales totaled approximately $3.9 billion and $7.7 billion, respectively, led by sales related to Abbott’s BinaxNOW, 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, 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’s cardiovascular and neuromodulation devices and routine diagnostic tests.

The decrease began in February 2020 in China as that country implemented quarantine restrictions and postponed non-emergency health care activities.

The negative impact on cardiovascular and neuromodulation procedures and routine diagnostic tests expanded to other countries and geographic regions as COVID-19 spread geographically in the first half of 2020 and health care systems in these countries shifted their focus to fighting COVID-19.

The extent of the impact and the timing of a recovery in the number of procedures and routine testing in a particular country or geographic region depended upon the progression of COVID-19 cases in the country or region.

The recovery in procedures and routine testing volumes in China began in March.

In 2020, the recovery in procedures and routine testing volumes in China began in March 2020.

In other parts of the world, such as the U.S.

and Europe, volumes improved across Abbott’s hospital-based businesses as the second quarter progressed and the improvement continued in the third quarter.

However, in the fourth quarter, the improving trends in the demand for procedures and routine testing flattened or were negatively impacted depending upon the business and the region as many countries experienced an increase in the number of COVID-19 cases and hospitalizations.

Abbott’s branded generic pharmaceuticals business was also negatively affected by the pandemic in 2020 as COVID-19 spread across emerging market countries in the second and third quarters of 2020.

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 routine diagnostic testing and cardiovascular and neuromodulation procedure volumes were negatively impacted early in 2021 by elevated COVID-19 case rates, overall volumes improved over the course of the year until the latter part of 2021 when demand softened in several geographies with the emergence of another variant.

While Abbott’s branded generic pharmaceuticals business was also negatively affected by the pandemic in 2020 as COVID-19 spread across emerging market countries in the second and third quarters of 2020, volumes recovered and grew in 2021.

Abbott’s nutritional and diabetes care businesses were the least affected by the pandemic as is further discussed below.

Abbott is continually implementing business continuity plans in the face of the pandemic.

Due to the critical nature of its products and services, Abbott was generally exempt from governmental orders issued during the first quarter of 2020 in the U.S.

and other countries requiring businesses to cease operations.

The majority of its office-based work was conducted remotely during the period of such governmental orders and the company implemented strict travel restrictions.

As some governmental orders were lifted in May and June 2020, Abbott entered a new phase in its operations whereby some office-based employees started working at Abbott’s offices on a rotational basis.

As various governmental orders and guidelines were modified in the fourth quarter to put in place new restrictions, Abbott continued to ensure that its guidance was aligned with such restrictions.

Abbott has taken aggressive steps to limit exposure and enhance the safety of facilities for its employees.

Due to the unpredictability of the duration and impact of the current COVID-19 pandemic, the extent to which the COVID-19 pandemic will have a material effect on its business, financial condition or results of operations is uncertain.

While Abbott’s 2020 sales were most significantly affected by the COVID-19 pandemic, the increase in total sales over the last three years also reflects volume growth due to the introduction of new products across various businesses as well as higher sales of various existing products.

Abbott is continually monitoring the effects of the pandemic on its operations.

Throughout the pandemic, Abbott has continued to ensure that its operations throughout the world are aligned with the specific governmental orders and guidelines affecting each location.

Abbott has 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.

Abbott expects 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’s business, financial condition or results of operations is uncertain.

While Abbott’s 2021 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.

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Over the last three years, Abbott’s operating 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 Diagnostics and growth across virtually all of Abbott’s businesses 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 2019, the increase in Abbott’s operating margin also reflects margin improvement in various businesses and lower intangible amortization expense compared to 2018.

With respect to the performance of each reportable segment over the last three years, sales in the Medical Devices segment excluding the impact of foreign exchange decreased 3.8 percent in 2020 and increased 10.5 percent in 2019.

In 2021, Abbott experienced availability issues with some services and materials used in its products.

To date, Abbott has been able to manage the various supply chain challenges without significant supply disruption or shortage for services, raw materials and supplies.

While Abbott expects 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 Abbott operates 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’s Medical Devices divisions, led by Diabetes Care, Structural Heart and Electrophysiology.

The sales decrease in 2020 was driven by Abbott’s cardiovascular and neuromodulation businesses due primarily to reduced procedure volumes as a result of the COVID-19 pandemic.

These decreases were partially offset by double-digit growth in Diabetes Care.

The sales increase in 2019 was driven primarily by higher Diabetes Care, Structural Heart, Electrophysiology and Heart Failure sales.

In 2020, operating earnings for the Medical Devices segment decreased 19.4 percent.

The operating margin profile decreased from 30.8 percent of sales in 2019 to 25.8 percent in 2020 primarily due to lower sales and manufacturing volumes as a result of the pandemic and pricing pressures on drug eluting stents (DES) as a result of market competition in the U.S.

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’s cardiovascular 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.

In 2021, key product approvals in the Medical Devices segment included:

● CE Mark for Abbott’s Tendyne™ Transcatheter Mitral Valve Implantation system for the treatment of significant mitral regurgitation (MR) in patients requiring a heart valve replacement who are not candidates for open-heart surgery or transcatheter mitral valve repair,

● CE Mark for Abbott’s TriClip ® heart valve repair system, the world’s first minimally invasive, clip-based device for repair of a leaky tricuspid heart valve,

Food and Drug Administration (FDA) clearance of FreeStyle ® Libre 2 as an integrated continuous glucose monitoring (iCGM) system for adults and children ages 4 and older with diabetes,

● CE Mark for Abbott’s FreeStyle Libre 3 system, which automatically delivers real time, up-to-the-minute glucose readings, 14-day accuracy and real-time glucose alarms,

● CE Mark for the Libre Sense™ Glucose Sport Biosensor that provides continuous glucose monitoring to help athletes better understand the efficacy of their nutrition choices on training and athletic performance,

FDA approval of the next-generation Gallant™ implantable cardioverter defibrillator and cardiac resynchronization therapy defibrillator devices which help manage heart rhythm disorders and offer Bluetooth technology and a new patient smartphone app for improved remote monitoring and enhanced patient-physician engagement,

● CE Mark for MitraClip ® G4, Abbott’s next-generation MitraClip mitral valve repair device,

● CE Mark of EnSite™ X EP System, a next-generation 3D cardiac mapping platform used for ablation therapy to treat abnormal heart rhythms,

FDA clearance and CE Mark of the IonicRF™ Generator, a non-surgical, minimally invasive device that uses heat to target specific nerves for the management of chronic pain, and

FDA approval of updated labeling to allow Abbott’s HeartMate 3™ heart pump to be used in pediatric patients with advanced refractory left ventricular heart failure.

● CE Mark in Europe for Navitor™, Abbott’s latest-generation transcatheter aortic valve implantation (TAVI) system for patients with severe aortic stenosis who are at high or extreme surgical risk,

Food and Drug Administration (FDA) approval of the Amplatzer ® Amulet ® Left Atrial Appendage Occluder, which offers immediate closure of the left atrial appendage, an area in the heart where blood clots can form,

● FDA approval of the Portico ® with FlexNav ® TAVI system to treat people with symptomatic, severe aortic stenosis who are at high or extreme risk for open heart surgery, and

● FDA approval of the Amplatzer Talisman ™ PFO Occlusion System to treat people with a patent foramen ovale – a small opening between the upper chambers of the heart – who are at risk of recurrent ischemic stroke.

In Abbott’s worldwide 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 2020 was driven by demand for Abbott's portfolio of COVID-19 diagnostics tests across its rapid and lab-based platforms, partially offset by lower volumes of routine laboratory testing due to the pandemic.

Growth in 2019 reflected continued market penetration by the core laboratory business in the U.S.

and internationally.

The 2019 growth included the continued adoption by customers of Alinity, which is Abbott’s integrated family of next-generation diagnostic systems and solutions that are designed to increase efficiency by running more tests in less space, generating test results faster and minimizing human errors while continuing to provide quality results.

As was discussed above, sales growth in 2021 was driven by demand for Abbott's portfolio of rapid diagnostics tests for COVID-19 and higher routine diagnostics testing in the core laboratory business, partially offset by lower demand for Abbott’s laboratory-based tests for COVID-19 in the molecular diagnostics business.

Growth in 2020 was driven by demand for Abbott's portfolio of COVID-19 diagnostics tests across its rapid and lab-based platforms, partially offset by lower volumes of routine laboratory testing due to the pandemic.

Abbott has regulatory approvals in the U.S., Europe, China, and other markets for the “Alinity c” and “Alinity i” instruments and has continued to build out its test menu for clinical chemistry and immunoassay diagnostics.

Abbott has obtained regulatory approval for the “Alinity h” instrument for hematology in Europe and Japan.

Abbott has also obtained regulatory approvals in the U.S.

and Europe for the “Alinity s” (blood screening) and “Alinity m” (molecular) instruments and several testing assays.

Abbott has also obtained regulatory approvals in the U.S., Europe and 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 24.9 percent of sales in 2018 to 34.5 percent in 2020 primarily due to higher sales in 2020 in Rapid Diagnostics and Molecular Diagnostics, partially offset by lower volumes of routine testing in Core Laboratory.

In Abbott’s worldwide nutritional products business, sales over the last three years were positively impacted by numerous new product introductions, including the roll-outs of human milk oligosaccharide, or HMO, in infant formula and of high-protein Ensure ® , that leveraged Abbott’s strong brands.

Sales were also positively affected by demographics such as an aging population and an increasing rate of chronic disease in developed markets and the rise of a middle class in many emerging markets.

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 Diagnostics in 2020 and 2021 and increased routine diagnostics testing in 2021 in Core Laboratory Diagnostics.

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’s market-leading complete and balanced nutrition brand, and Glucerna ® , Abbott’s market-leading diabetes-specific nutrition brand, across several countries.

The 2019 sales growth was partially offset by the unfavorable impact of the discontinuation of a non-core product line in the U.S.

Excluding the impact of foreign exchange, total pediatric nutrition sales increased 0.3 percent in 2020 and 3.4 percent in 2019 driven by the PediaSure ® and Pedialyte ® brands in the U.S.

as well as infant and toddler product growth across several markets in Asia and Latin America, partially offset by challenging market dynamics in the infant category in Greater China.

The 2020 increase was also driven by higher Similac ® sales in the U.S.

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 Products segment focuses on the sale of its products in emerging markets.

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The sales increases in 2021 and 2020 reflect higher sales in several geographies including India, China, Brazil and Russia.

Operating margins decreased from 20.2 percent of sales in 2018 to 18.5 percent in 2020 primarily due to the unfavorable impact of foreign exchange, product mix and lower gross margins.

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’s financial position, at December 31, 2021, Abbott’s cash and cash equivalents and short-term investments total approximately $10.2 billion compared to $7.1 billion at December 31, 2020.

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In December 2021, Abbott increased the company’s quarterly dividend by 4.4 percent to $0.47 per share from $0.45 per share, effective with the dividend paid in February 2022.

In December 2020, Abbott increased the company’s quarterly dividend by 25 percent to $0.45 per share from $0.36 per share, effective with the dividend paid in February 2021.

In 2022, Abbott will focus on continuing to meet the demand for COVID-19 tests and will continue to invest in product development areas that provide the opportunity for strong sustainable growth over the next several years.

In its diagnostics business, Abbott will continue to focus on driving market adoption and geographic expansion of its Alinity suite of diagnostics instruments.

In the medical devices business, Abbott will continue to focus on expanding its market position in various areas including diabetes care, structural heart, electrophysiology, and heart failure.

In the Medical Devices segment, Abbott will focus on expanding its market position across the various businesses.

In its nutritionals business, Abbott will continue to focus on driving growth globally and further enhancing its portfolio with the introduction of line extensions of its science-based products.

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A difference between the assumed rates and the actual rates, which will not be known for years, can be significant in relation to the obligations and the annual cost recorded for these programs.

Low interest rates have significantly increased actuarial losses for these plans.

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 billion for Abbott’s defined benefit plans and net losses of $373 million for Abbott’s medical and dental plans.

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Medical Devices Segment

The increase in Total Net Sales in 2021 reflects volume growth across all of Abbott’s segments.

In 2021, Abbott’s COVID-19 testing-related sales totaled approximately $7.7 billion led by combined sales of approximately $6.6 billion related to Abbott’s BinaxNOW, Panbio, and ID NOW rapid testing platforms.

In 2021, excluding the impact of COVID-19 testing-related sales, Abbott’s total net sales increased 15.2 percent.

Excluding the impacts of COVID-19 testing-related sales and foreign exchange, Abbott’s total 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 Sales in 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’s cardiovascular and neuromodulation businesses was partially offset by double-digit volume growth in Diabetes Care.

The increase in Total Net Sales in 2019 reflects volume growth across all of Abbott’s segments.

The price declines related to the Medical Devices segment in 2021 and 2020 primarily reflect DES pricing pressures as a result of market competition in the U.S.

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Diabetes Care

(a) Vascular Product Lines:

Coronary and Endovascular

(dollars in millions)

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Diabetes Care

(a) Vascular Product Lines:

Coronary and Endovascular

In order to compute results excluding the impact of exchange rates, current year U.S.

dollar sales are multiplied or divided, as appropriate, by the current year average foreign exchange rates and then those amounts are multiplied or divided, as appropriate, by the prior year average foreign exchange rates.

Total Established Pharmaceutical Products sales increased 1.9 percent in 2020 and 7.3 percent in 2019, excluding the unfavorable impact of foreign exchange.

Total Established Pharmaceutical Products sales increased 10.4 percent in 2021 and 1.9 percent in 2020, excluding the impact of foreign exchange.

The Established Pharmaceutical Products segment is focused on several key emerging markets including India, Russia, China and Brazil.

Excluding the impact of foreign exchange, total sales in these key emerging markets increased 2.6 percent in 2020 and 7.9 percent in 2019 due to higher sales in several geographies including China, Brazil, India and Russia.

Excluding the impact of foreign exchange, sales in Established Pharmaceuticals’ other emerging markets decreased 0.5 percent in 2020 and increased 5.6 percent in 2019.

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, Russia and 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 2020, International Pediatric Nutritional sales, excluding the effect of foreign exchange, decreased 4.1 percent as growth across Abbott’s pediatric products in various countries in Southeast Asia was more than offset by challenging market dynamics in the infant category in Greater China.

The 4.6 percent increase in 2019 International Pediatric Nutritional sales, excluding the effect of foreign exchange, was driven by growth across Abbott’s portfolio, including Similac and PediaSure in various countries in Asia and Latin America and Pedialyte in Latin America.

This growth was partially offset by challenging market dynamics in the infant category in Greater China.

Pediatric Nutritional business, sales increased 5.8 percent in 2020 and 1.9 percent in 2019, reflecting growth in Similac in 2020 and growth in PediaSure and Pedialyte in both years.

In the International Adult Nutritional business, sales increased 13.6 percent and 10.9 percent in 2020 and 2019, respectively, excluding the effect of foreign exchange, due to continued growth of Ensure and Glucerna in several countries.

Adult Nutritional sales increased 4.9 percent, primarily due to growth of Ensure.

In 2021, International Pediatric Nutritional sales, excluding the effect of foreign exchange, decreased 3.2 percent as lower sales in China, the Middle East and various countries in Southeast Asia were partially offset by higher volumes sold in various countries in Latin America and 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 China that more than offset growth across Abbott’s pediatric products in various countries in Southeast Asia.

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.

Adult Nutritional sales increased 5.6 percent in 2021, primarily due to growth of Ensure and Glucerna.

In 2020, U.S.

Adult Nutritional sales were unchanged from 2018 due to the impact of Abbott’s discontinuation of a non-core product line during the third quarter of 2018 that was offset by growth in other areas of the business.

In the Diagnostics segment, Core Laboratory sales decreased 2.8 percent in 2020, excluding the effect of foreign exchange, as the lower volume of routine testing performed in hospital and other laboratories due to COVID-19 was partially offset by sales of Abbott’s COVID-19 laboratory-based tests for the detection of the IgG and IgM antibodies, which determine if someone was previously infected with the virus.

Core Laboratory antibody testing-related sales on Abbott’s ARCHITECT and Alinity i platforms were $268 million in 2020.

The 225.7 percent increase in Molecular Diagnostics sales in 2020, excluding the effect of foreign exchange, reflects higher volumes due to demand for Abbott’s laboratory-based molecular tests for COVID-19 on its m2000 and Alinity m platforms.

Adult Nutritional sales increased 4.9 percent, primarily due to growth of Ensure.

In the Diagnostics segment, Core Laboratory Diagnostics sales 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’s laboratory-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’s COVID-19 laboratory-based tests for the detection of the IgG and IgM antibodies.

Core Laboratory Diagnostics COVID-19 testing-related sales on Abbott’s ARCHITECT and Alinity i platforms were $204 million and $262 million in 2021 and 2020, respectively.

In 2021, Core Laboratory Diagnostics sales 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’s laboratory-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’s laboratory-based molecular tests for COVID-19.

Abbott received U.S.

FDA approval in March 2020 for its Alinity m molecular diagnostics system.

Molecular Diagnostics COVID-19 testing-related sales were $1.023 billion in 2020.

In Rapid Diagnostics, sales increased 112.3 percent in 2020, excluding the effect of foreign exchange, due to strong demand for Abbott’s point-of-care COVID-19 molecular test on its ID NOW platform and its BinaxNOW COVID-19 Ag Card test in the U.S.

as well as international demand for COVID-19 rapid tests on its Panbio system and increased testing in the first quarter for the flu in the U.S.

These increases were partially offset by the unfavorable impact of COVID-19 on routine diagnostic testing.

Rapid Diagnostics COVID-19 testing-related sales were $2.593 billion in 2020.

In the Diagnostics segment, the sales increase in 2019 was driven by above-market growth in Core Laboratory in the U.S.

and internationally, where Abbott achieved continued adoption of its Alinity family of diagnostic instruments.

The 6.3 percent decrease in 2019 Molecular sales, excluding the effect of foreign exchange, reflects the negative impact of lower non-governmental organization purchases in Africa.

In Rapid Diagnostics, sales growth in 2019 in various areas, including infectious disease testing in developed markets and cardio-metabolic testing, was mostly offset by lower than expected infectious disease testing sales in Africa.

Excluding the effect of foreign exchange, total Medical Devices sales decreased 3.8 percent and increased 10.5 percent in 2020 and 2019, respectively.

Molecular Diagnostics COVID-19 testing-related sales were $891 million and $1.0 billion in 2021 and 2020, respectively.

In 2021, Molecular Diagnostics sales 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’s point-of-care COVID-19 molecular test on its ID NOW platform and its BinaxNOW COVID-19 Ag Card test in the U.S.

as well as international demand for COVID-19 rapid tests on its Panbio 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 billion and $2.6 billion in 2021 and 2020, respectively.

In 2021, Rapid Diagnostics sales 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’s cardiovascular and neuromodulation businesses due to the impact of COVID-19 and lower vascular sales in China in the fourth quarter of 2020 as a result of a new national tender program.

The 2019 sales increase was driven by double-digit growth in Diabetes Care, Structural Heart, Electrophysiology and Heart Failure.

The 2021 and 2020 growth in Diabetes Care revenue was driven by continued growth of FreeStyle Libre, Abbott’s continuous glucose monitoring system, internationally and in the U.S.

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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.

In 2019, growth in Structural Heart revenue was broad-based across several areas of the business, including MitraClip, Abbott's market-leading device for the minimally invasive treatment of mitral regurgitation (MR), a leaky heart valve.

2019 growth in Electrophysiology revenue reflects higher sales of cardiac diagnostic and ablation catheters in both the U.S.

and internationally.

The growth in Heart Failure revenue in 2019 was driven by rapid market adoption in the U.S.

of Abbott's HeartMate 3 ® Left Ventricular Assist Device (LVAD) following FDA approval in October 2018 as a destination (long-term use) therapy for people living with advanced heart failure as well as higher sales of Abbott’s CardioMEMS ® heart failure monitoring system.

In Vascular, excluding the effect of foreign exchange, sales in 2019 were flat as the 1.3 percent increase in coronary and endovascular product sales, which includes drug-eluting stents, balloon catheters, guidewires, vascular imaging/diagnostics products, vessel closure, carotid and other coronary and peripheral products, was offset by reductions in royalty and contract manufacturing revenue.

In Rhythm Management, higher 2019 international sales, excluding the effect of foreign exchange, were offset by a 4.4 percent decrease in U.S.

In 2019, the 2.4 percent decline in Neuromodulation sales, excluding the effect of foreign exchange, reflects a 4.2 percent decline in U.S.

While procedure volumes across Abbott’s cardiovascular 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 Services expanded reimbursement coverage eligibility for MitraClip ® , Abbott's market-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 Europe in May 2020.

Abbott has periodically sold product rights to non-strategic products and has recorded the related gains in net sales in accordance with Abbott’s revenue recognition policies as discussed in Note 1 to the consolidated financial statements.

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There are no significant patent or license expirations in the next three years that are expected to materially affect Abbott.

In April 2017, Abbott received a warning letter from the U.S.

FDA related to its manufacturing facility in Sylmar, CA which was acquired by Abbott on January 4, 2017 as part of the acquisition of St.

Jude Medical, Inc.

Jude Medical).

This facility manufactures implantable cardioverter defibrillators, cardiac resynchronization therapy defibrillators, and monitors.

Abbott prepared and executed a comprehensive plan of corrective actions.

On April 28, 2020, Abbott received a letter from the FDA indicating that, based on the FDA’s evaluation, it appeared that Abbott had addressed the items in the warning letter.

As a result, the warning letter is considered closed.

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 2020, the decrease primarily reflects the mix of sales across Abbott’s various businesses and operational inefficiencies due to the impact of COVID-19, as well as the increase in intangible asset amortization, the impairment of intangible assets and the unfavorable effect of foreign exchange on gross margin in 2020.

In 2019, the increase primarily reflects lower intangible amortization expense and lower integration and restructuring costs.

Research and development (R&D) expenses were $2.4 billion in 2020 and 2019, and $2.3 billion in 2018.

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.

Research and development (R&D) expenses were $2.7 billion in 2021, and $2.4 billion in 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 million that was acquired in conjunction with the acquisition of Cephea Valve Technologies, Inc.

(Cephea) was partially offset by the $55 million impairment of an in-process R&D intangible asset in 2020.

was partially offset by the $55 million impairment of an in-process R&D intangible asset in 2020.

R&D expense in 2020 also reflects lower integration and restructuring costs in 2020 related to R&D, partially offset by higher spending on various projects.

R&D expenses in 2019 increased 6.1 percent, primarily reflecting the immediate expensing of the Cephea R&D asset as well as higher R&D spending in various businesses, primarily in Medical Devices, partially offset by the favorable effect of foreign exchange.

In 2020, R&D expenditures totaled $1.3 billion for the Medical Devices segment, $608 million for the Diagnostic Products segment, $189 million for the Nutritional Products segment and $177 million for the Established Pharmaceutical Products segment.

Selling, general and administrative (SG&A) expenses were basically flat in 2020 and 2019 versus the respective prior years.

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 million of 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 million from a litigation settlement in 2020, lower spending due to COVID-19 travel restrictions, and the impact of various cost saving initiatives were offset by higher spending to drive growth in various businesses.

In 2019, the favorable effect of foreign exchange and lower acquisition-related integration costs offset higher selling and marketing costs to drive continued growth across various businesses.

Restructurings

On May 27, 2021, Abbott management 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, Abbott recorded charges of $499 million under 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, Abbott sold approximately $181 million of 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 million as Abbott fulfilled its purchase obligations under certain contracts for which a liability was recorded in the second quarter or Abbott settled 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 million and primarily represent severance obligations.

From 2017 to 2021, Abbott management approved restructuring plans as part of the integration of the acquisitions of St.

Jude Medical, Inc.

Jude Medical) into the Medical Devices segment, and Alere Inc.

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Approximately $31 million was recorded in Cost of products sold, approximately $5 million was recorded in Research and development, and approximately $59 million was recorded in Selling, general and administrative expense over the last three years.

As of December 31, 2020, the accrued liabilities remaining in the Consolidated Balance Sheet related to these actions total $25 million and primarily represent severance obligations.

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, Abbott management approved plans to streamline operations in order to reduce costs and improve efficiencies in various Abbott businesses including the nutritional, established pharmaceuticals and vascular businesses.

Abbott recorded employee related severance and other charges of approximately $36 million in 2020, $66 million in 2019 and $28 million in 2018.

Approximately $6 million in 2020, $16 million in 2019 and $10 million in 2018 are recorded in Cost of products sold, approximately $2 million in 2020, $28 million in 2019 and $2 million in 2018 are recorded in Research and development, and approximately $28 million in 2020, $22 million in 2019 and $16 million in 2018 are recorded in Selling, general and administrative expense.

As of December 31, 2018, the accrued balance associated with these actions was $70 million.

From 2019 to 2020, Abbott recorded employee-related severance and other charges totaling approximately $102 million, comprised of $36 million in 2020 and $66 million in 2019.

Approximately $22 million was recorded in Cost of products sold, approximately $30 million was recorded in Research and development, and approximately $50 million was 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.

In 2021, Abbott management approved plans to streamline operations in order to reduce costs and improve efficiencies in various Abbott businesses including the diagnostics, established pharmaceuticals and nutritional businesses.

Abbott recorded employee-related severance and other charges of approximately $68 million.

Approximately $16 million was recorded in Cost of products sold, approximately $4 million was recorded in Research and development, and approximately $48 million was 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 million and primarily represent severance obligations.

Interest Expense and Interest (Income)

Interest expense, net decreased $76 million in 2020 due to a reduction in interest expense resulting from the favorable impact of the euro debt financing in November 2019, the repayment of debt in December 2019 and a lower interest rate environment in 2020.

In 2019, interest expense, net decreased $145 million due to the favorable impact of the euro debt financing in September 2018, as well as the repayment of debt in 2018 and the first quarter of 2019.

Interest expense, net decreased $10 million in 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 million due to a reduction in interest expense resulting from the favorable impact of the euro debt financing in November 2019, the repayment of debt in December 2019 and a lower interest rate environment in 2020.

Debt Extinguishment Costs

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Abbott incurred a charge of $63 million related to the early repayment of this debt.

On October 28, 2018, Abbott redeemed approximately $4 billion of debt, which included $750 million principal amount of its 2.00% Notes due 2020;

$597 million principal amount of its 4.125% Notes due 2020;

$900 million principal amount of its 3.25% Notes due 2023;

$450 million principal amount of its 3.4% Notes due 2023;

and $1.300 billion principal amount of its 3.75% Notes due 2026.

Abbott incurred a net charge of $153 million related to the early repayment of this debt and the unwinding of related interest rate swaps.

On March 22, 2018, Abbott redeemed all of the $947 million principal amount of its 5.125% Notes due 2019, as well as $1.055 billion of the $2.850 billion principal amount of its 2.35% Notes due 2019.

Abbott incurred a net charge of $14 million related to the early repayment of this debt.

Other (Income) Expense, net

Other (income) expense, net, for 2020, 2019 and 2018 includes approximately $205 million, $225 million, and $160 million of income in each year, respectively, related to the non-service cost components of the net periodic benefit costs associated with the pension and post-retirement medical plans.

Other (income) expense, net for 2020 also includes equity investment impairments that totaled approximately $115 million.

Other (income) expense, net includes income of approximately $270 million, $205 million and $225 million in 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 million in 2020.

Taxes on Earnings

The income tax rates on earnings from continuing operations were 13.9 percent in 2021, 10.0 percent in 2020, and 9.6 percent in 2019.

In 2021, taxes on earnings from continuing operations include approximately $145 million in excess tax benefits associated with share-based compensation and approximately $55 million of 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 million of tax benefits associated with the impairment of certain assets, approximately $140 million of net tax benefits as a result of the resolution of various tax positions related to prior years, and approximately $100 million in excess tax benefits associated with share-based compensation.

In 2020, taxes on earnings from continuing operations also include a $26 million increase to the transition tax associated with the 2017 Tax Cuts and Jobs Act (TCJA).

In 2020, taxes on earnings from continuing operations also include a $26 million increase to the transition tax liability associated with the 2017 Tax Cuts and Jobs Act (TCJA).

The $26 million increase to the transition tax liability was the result of the resolution of various tax positions related to prior years.

This adjustment increased the cumulative net tax expense related to the TCJA to $1.53 billion.

As of December 31, 2021, the remaining balance of Abbott’s transition 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 million of 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 million in excess tax benefits associated with share-based compensation, an $86 million reduction of the transition tax and $68 million of tax expense resulting from tax legislation enacted in the fourth quarter of 2019 in India.

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Department of Treasury in 2019.

In 2018, taxes on earnings from continuing operations included $98 million of net tax expense related to the settlement of Abbott’s 2014-2016 federal income tax audit in the U.S., partial settlement of the former St.

Jude Medical consolidated group’s 2014 and 2015 federal income tax returns in the U.S.

and audit settlements in various countries as well as approximately $90 million in excess tax benefits associated with share-based compensation.

In 2018, Abbott also recorded $130 million of additional tax expense related to the TCJA;

the $130 million reflected a $120 million increase in the transition tax from $2.89 billion to $3.01 billion and a $10 million reduction in the net benefit related to the remeasurement of deferred tax assets and liabilities.

Exclusive of these discrete items, tax expense was favorably impacted by lower tax rates and tax exemptions on foreign income primarily derived from operations in Puerto Rico, Switzerland, Ireland, the Netherlands, Costa Rica, Singapore, and Malta.

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federal statutory rate.

Discontinued Operations

The net earnings of discontinued operations include income tax benefits of $24 million in 2020 and $39 million in 2018.

The 2020 tax benefits primarily relate to the resolution of various tax positions related to Abbott’s developed markets branded generic pharmaceuticals business which was sold to Mylan Inc.

(Mylan) in 2015.

The tax positions relate to years prior to the sale to Mylan.

The 2018 tax benefits primarily relate to the resolution of various tax positions related to the operations of AbbVie Inc.

(AbbVie) for years prior to the separation.

Abbott completed the separation of AbbVie, which was formed to hold Abbott’s research-based proprietary pharmaceuticals business, in January 2013.

Abbott retained all liabilities for all U.S.

federal and foreign income taxes on income prior to the separation.

Research and Development Programs

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The specific requirements (e.g., scope of clinical trials) for obtaining regulatory approval vary across different countries and geographic regions.

The process may range from one year for a bioequivalence study project to 6 or more years for complex formulations, new indications, or geographic expansion in specific countries, such as China.

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 China.

In the Diagnostics segment, the phases of the research and development process include:

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Other products only require a self-certification process.

In the second quarter of 2017, the EU adopted the new In Vitro Diagnostic Regulation (IVDR) which replaces the existing directive in the EU for in vitro diagnostic products.

The IVDR will apply after a five-year transition period and imposes additional premarket and postmarket regulatory requirements on manufacturers of such products.

In 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 2027 for 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.

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Most of Abbott’s medical device products are classified as Class II devices that follow the 510(k) regulatory process or Class III devices that are subject to the PMA process.

In the EU, medical devices are also categorized into different classes and the regulatory process, which has been governed by the European Medical Device Directive and the Active Implantable Medical Device Directive, varies by class.

Each product must bear a CE mark to show compliance with the Directive.

In the second quarter of 2017, the EU adopted the new Medical Devices Regulation (MDR) which replaces the existing directives in the EU for medical devices and imposes additional premarket and postmarket regulatory requirements on manufacturers of such products.

While the MDR was previously adopted to apply after a three year transition period, in 2020 the European Parliament postponed the date of application by one year.

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, 2021 after 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.

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Depending on the product, the activities focus on development of new data, markets, formulations, delivery systems, or indications.

One example includes the launch of Abbott’s quadrivalent influenza vaccination Influvac® Tetra in 12 markets and an expanded indication in 16 markets to cover children, adolescents and young adults from 3 to 17 years old.

Medical Devices — Abbott’s research and development programs focus on:

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● Vascular – Development of next-generation technologies for use in coronary and peripheral vascular procedures.

● Structural Heart – Development of minimally-invasive transcatheter and surgical devices for the repair and replacement of heart valves and other structural heart conditions.

● Structural Heart – Development of transcatheter and surgical devices for the repair and replacement of heart valves, and occlusion therapies for congenital heart defects and stroke-risk reduction.

● Neuromodulation – Development of additional clinical evidence and next-generation technologies leveraging digital health to improve patient and physician engagement to treat chronic pain, movement disorders and other indications.

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Numerous new products that build on advances in these platforms are currently under development, including clinical outcome testing, and are expected to be launched over the coming years.

Core Laboratory Diagnostics — Abbott continues to commercialize its next-generation blood screening, immunoassay, clinical chemistry and hematology systems, along with assays, including a focus on unmet medical need, in various areas including infectious disease, cardiac care, metabolics, and oncology, as well as informatics solutions to help optimize diagnostics laboratory performance and automation solutions to increase efficiency in laboratories.

Core Laboratory Diagnostics — Abbott continues 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.

Molecular Diagnostics — Several new molecular in vitro diagnostic (IVD) tests are in various stages of development and launch.

Rapid Diagnostics — Abbott’s research and development programs focus on the development of diagnostic products for infectious disease, cardiometabolic disease and toxicology.

In addition, the Diagnostics Divisions are pursuing the FDA’s customary regulatory process for various COVID-19 tests for which an EUA was obtained in 2020.

In addition, the Diagnostics segment is pursuing the FDA’s customary regulatory process for various COVID-19 tests for which EUAs were obtained.

Given the diversity of Abbott’s business, its intention to remain a broad-based health care company and the numerous sources for potential future growth, no individual project is expected to be material to cash flows or results of operations over the next five years.

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Given the potential for significant delays and the risk of failure inherent in the development of medical device, diagnostic and pharmaceutical products and technologies, it is not possible to accurately estimate the total cost to complete all projects currently in development.

Abbott plans to manage its portfolio of projects to achieve research and development spending that will be competitive in each of the businesses in which it participates, and such spending is expected to approximate 7.0 percent of total Abbott sales in 2021.

Abbott plans to manage its portfolio of projects to achieve research and development spending that will be competitive in each of the businesses in which it participates, and such spending is targeted at approximately 7 percent of total Abbott sales in 2022.

Abbott does not regularly accumulate or make management decisions based on the total expenses incurred for a particular development phase in a given period.

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Net cash from operating activities amounted to $10.5 billion, $7.9 billion and $6.1 billion in 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.

The decrease in Net cash from operating activities in 2019 was primarily due to an increased investment in working capital, timing of pension contributions relative to 2018 and higher income tax payments, partially offset by the favorable cash flow impact of improved segment operating earnings and lower interest and acquisition-related expenses.

While a significant portion of Abbott’s cash and cash equivalents at December 31, 2020, are reinvested in foreign subsidiaries, Abbott does not expect such reinvestment to affect its liquidity and capital resources.

Due to the enactment of the TCJA, if these funds were needed for operations in the U.S., Abbott does not expect to incur significant additional income taxes in the future to repatriate these funds.

A substantial portion of Abbott’s cash and cash equivalents at December 31, 2021, is held by Abbott affiliates outside of the U.S.

If these funds were needed for operations in the U.S., Abbott does not expect to incur significant additional income taxes in the future to repatriate these funds.

Abbott funded $418 million in 2021, $400 million in 2020 and $382 million in 2019 to defined benefit pension plans.

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Any borrowings under the Revolving Credit Agreement will bear interest, at Abbott’s option, based on either a base rate or Eurodollar rate, plus an applicable margin based on Abbott’s credit ratings.

In 2021, Abbott repaid approximately $195 million on a short-term facility upon maturity.

After the repayment, Abbott has no short-term debt, and as of December 31, 2021, Abbott’s total debt is $18.1 billion.

In 2020, financing activities related to the issuance and repayment of long-term debt included the following:

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The repayment equated to approximately $1.3 billion.

As of December 31, 2020, Abbott’s total debt is $18.7 billion.

In 2018 and 2019, Abbott committed to reducing its debt levels which had increased as part of the acquisitions of St.

In 2019, Abbott committed to reducing its debt levels which had increased as part of the acquisitions of St.

Jude Medical and Alere in 2017.

In 2018, net repayments totaled approximately $8.3 billion of debt.

On February 24, 2019, Abbott redeemed the $500 million outstanding principal amount of its 2.80% Notes due 2020.

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On December 19, 2019, Abbott redeemed the $2.850 billion outstanding principal amount of its 2.90% Notes due 2021.

$2.15 billion of the 2019 $5 billion redemption authorization remains available as of December 31, 2020.

Of the $5 billion authorization, $2.15 billion remains available as of December 31, 2021.

On November 19, 2019, Abbott’s wholly owned subsidiary, Abbott Ireland Financing DAC, completed a euro debt offering of €1.180 billion of long-term debt.

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In September 2014, the board of directors authorized the repurchase of up to $3 billion of Abbott’s common shares from time to time.

Under the program authorized in 2014, Abbott repurchased 36.2 million shares at a cost of $1.666 billion in 2015, 10.4 million shares at a cost of $408 million in 2016, 1.9 million shares at a cost of $130 million in 2018, 6.3 million shares at a cost of $525 million in 2019, and 1.6 million shares at a cost of $173 million in 2020 for a total of approximately $2.9 billion.

Under the program authorized in 2014, Abbott repurchased 48.5 million shares at a cost of $2.205 billion from 2015 through 2018, 6.3 million shares at a cost of $525 million in 2019 and 1.6 million shares at a cost of $173 million in 2020 for a total of approximately $2.9 billion.

In October 2019, the board of directors authorized the repurchase of up to $3 billion of Abbott’s common shares from time to time.

The 2019 authorization is in addition to the approximately $100 million unused portion of the share repurchase program authorized in 2014.

On April 27, 2016, the board of directors authorized the issuance and sale for general corporate purposes of up to 75 million common shares that would result in proceeds of up to $3 billion.

No shares have been issued under this authorization.

In 2021, Abbott repurchased 16.6 million of its common shares for $2.016 billion which 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 billion of Abbott’s common shares from time to time.

The new authorization is in addition to the $1.081 billion unused portion of the share repurchase program authorized in 2019.

Abbott declared dividends of $1.82 per share in 2021 compared to $1.53 per share in 2020, an increase of approximately 19 percent.

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Working capital was $11.1 billion at December 31, 2021 and $8.5 billion at 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, and the repayment of the current portion of long term debt after the issuance of new long term notes in 2020.

Working capital also increased due to the higher levels of accounts receivable and inventory partially offset by an increase in accounts payable associated with the growth of the business.

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 million of Senior Notes due 2022 as current liabilities at December 31, 2021 and an increase in accounts payable associated with the growth of the business.

Abbott monitors the credit worthiness of customers and establishes an allowance that reflects the current estimate of credit losses expected to be incurred over the life of the financial asset.

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Contractual Obligations

The table below summarizes Abbott’s estimated contractual obligations as of December 31, 2020.

Payments Due By Period

(in millions)

Long‑term debt, including current maturities

Interest on debt obligations

Operating lease obligations

Purchase commitments (a)

Other long‑term liabilities (b)

(a) Purchase commitments are for purchases made in the normal course of business to meet operational and capital expenditure requirements.

(b) Other long-term liabilities include estimated payments for the transition tax under the TCJA, net of applicable credits.

(c) Net unrecognized tax benefits totaling approximately $740 million are excluded from the table above as Abbott is unable to reasonably estimate the period of cash settlement with the respective taxing authorities on such items.

See Note 15 — Taxes on Earnings from Continuing Operations for further details.

The company has employee benefit obligations consisting of pensions and other post-employment benefits, including medical and life, which have been excluded from the table.

A discussion of the company’s pension and post-retirement plans, including funding matters is included in Note 14 — Post-employment Benefits.

Abbott believes 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's material cash requirements include the following contractual obligations:

Debt — Principal payments required on long-term debt outstanding at December 31, 2021 are $754 million in 2022, $2.3 billion in 2023, $1.2 billion in 2024, $1.5 billion in 2025, $3.0 billion in 2026 and $9.3 billion in 2027 and thereafter.

Interest payments required on long-term debt outstanding at December 31, 2021 are $579 million in 2022, $569 million in 2023, $526 million in 2024, $494 million in 2025, $463 million in 2026 and $5.8 billion in 2027 and thereafter.

Operating leases — As of December 31, 2021, estimated contractual obligations for operating lease payments were $1.351 billion, with $272 million due within 12 months.

In addition, Abbott enters 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.

Contingent Obligations

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Recently Issued Accounting Standards

In December 2019, the FASB issued Accounting Standards Update (ASU) 2019-12, Income Taxes (Topic 740):

In 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.

The standard becomes effective for Abbott in the first quarter of 2021.

Adoption of this new standard will not have a material impact on Abbott’s consolidated financial statements.

In February 2018, the FASB issued ASU 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income , which allows companies to reclassify stranded tax effects resulting from the 2017 Tax Cuts and Jobs Act, from Accumulated other comprehensive income (loss) to retained earnings (Earnings employed in the business).

Abbott adopted the new standard at the beginning of the fourth quarter of 2018.

As a result of the adoption of the new standard, approximately $337 million of stranded tax effects were reclassified from Accumulated other comprehensive income (loss) to Earnings employed in the business.

In October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic 740):

Intra-Entity Transfers of Assets Other Than Inventory , which requires the recognition of the income tax effects of intercompany sales and transfers of assets, other than inventory, in the period in which the transfer occurs.

Abbott adopted the standard on January 1, 2018, using a modified retrospective approach and recorded a cumulative catch-up adjustment to Earnings employed in the business in the Consolidated Balance Sheet that was not significant.

Abbott adopted the standard on January 1, 2021.

The new standard did not have an impact on its consolidated financial statements.

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.

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What changed 10-K

Item 7. Management’s Discussion and Analysis