What changed in this filing

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Item 7. Management’s Discussion and Analysis

2023-02-17 compared with 2022-02-18 · 229 added, 211 removed, 308 unchanged (59% of the section changed)

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Abbott’s revenues are derived primarily from the sale of a broad line of health care products under short-term receivable arrangements.

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

Patent protection and licenses, technological and performance features, and inclusion of Abbott’s products under a contract most impact which products are sold;

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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 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.

Sales in international markets comprise 58 percent of consolidated net sales.

The coronavirus (COVID-19) pandemic affected Abbott’s diversified health care businesses in various ways over the 2020 through 2022 period.

Abbott’s Diagnostics segment experienced the most significant change in sales from 2020 to 2022 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.

(The Diagnostics segment includes the Rapid Diagnostics, Core Laboratory Diagnostics, Molecular Diagnostics and Point of Care Diagnostics divisions.) In 2020 and 2021, Abbott mobilized its teams across multiple fronts to develop and launch various new diagnostic tests to detect COVID-19.

Rapid diagnostic tests developed by Abbott to detect COVID-19 included, among others, the following:

• a molecular test on Abbott’s ID NOW ® rapid point-of-care platform launched in March 2020,

• the professional BinaxNOW ® COVID-19 Ag Card test, a portable, lateral flow rapid test launched in August 2020, and

• an over-the-counter, non-prescription BinaxNOW COVID-19 Ag Self Test for individuals with or without symptoms launched in March 2021.

Each of these tests was launched 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 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 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.

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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 that country or region as well as the actions taken by the government in that country related to COVID-19.

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 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’s COVID-19 testing-related sales totaled approximately $8.4 billion in 2022, $7.7 billion in 2021, and $3.9 billion in 2020, led by sales related to Abbott’s BinaxNOW, Panbio and ID NOW rapid testing platforms.

The demand for COVID-19 tests has been volatile over the last two years as the number of COVID-19 cases, especially in the U.S., has fluctuated during this period.

On January 30, 2023, the U.S.

government announced that it plans to end the COVID-19 public health emergency on May 11, 2023.

Abbott is evaluating the potential impacts of the end of the public health emergency, and it will continue to monitor further regulatory actions from relevant U.S.

government agencies and assess potential impacts on pandemic-related government policies and product authorizations.

Abbott expects the COVID-19 pandemic to shift to an endemic state in 2023, which would likely result in significantly lower demand for COVID-19 tests.

Due to the unpredictability of the pandemic, including how and when it will shift to an endemic state, the extent to which COVID-19 will have a material effect on Abbott's business, financial condition or results of operations is uncertain.

With respect to other products sold by the Diagnostics segment, demand for routine diagnostic testing generally fluctuated with changes in the number of COVID-19 cases in various geographic regions throughout the 2020 - 2022 period.

Across Abbott’s cardiovascular and neuromodulation businesses, procedure volumes were negatively impacted i n 2021 and 2022 by surges of COVID-19 in various geographies as well as intermittent COVID-19 lockdown restrictions and healthcare staffing challenges.

Despite such challenges, overall volume trends improved in several cardiovascular businesses in 2021 and 2022.

While Abbott’s branded generic pharmaceuticals business was also negatively affected by the pandemic in 2020 as COVID-19 spread across emerging market countries, volumes recovered and grew in 2021 and 2022.

Abbott’s nutritional and diabetes care businesses were the least affected by the pandemic.

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

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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.

While Abbott’s 2022 and 2021 sales were most significantly affected by the COVID-19 pandemic, the increase in total sales since 2020 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 5.6 percent in 2022 and 19.6 percent in 2021, 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’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 2021, Abbott experienced availability issues with some services and materials used in its products.

Pediatric Nutritionals, Abbott initiated a voluntary recall in February 2022 of certain infant powder formula products manufactured at its facility in Sturgis, Michigan and stopped production at the facility.

On May 16, 2022, Abbott entered into a consent decree with the U.S.

Food and Drug Administration (FDA) on the steps necessary to resume production and maintain the Sturgis facility and operations.

On July 1, Abbott restarted partial production at the facility beginning with its specialty formula EleCare ® and metabolic formulas.

Subsequently, Abbott restarted Similac ® production.

The consent decree does not affect any other Abbott plants or operations.

In 2022, Abbott took various actions to mitigate the impact of the recall on the supply of formula in the U.S.

These actions included the shipment of infant formula powder into the U.S.

from Abbott's FDA-registered facility in Ireland;

prioritization of infant formula production at its Columbus, Ohio facility;

conversion of other liquid manufacturing lines into manufacturing Similac liquid ready-to-feed product;

increased production of powder infant formula at its Casa Grande, Arizona manufacturing site;

and importation of product from its facility in Spain as permitted by the FDA.

Over the last three years, Abbott’s operating margin as a percentage of sales increased from 15.5 percent in 2020 to 19.6 percent in 2021 and then decreased to 19.2 percent in 2022.

The decrease in 2022 from 2021 reflects the impact of the voluntary infant product recall and manufacturing stoppage in U.S.

Pediatric Nutritionals and the impact of inflation and supply chain challenges on various manufacturing inputs and transportation costs across Abbott's businesses, partially offset by the favorable impact of margin improvement initiatives.

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 partial recovery from the COVID-19 pandemic, partially offset by the impact of inflation and supply chain challenges on various manufacturing inputs and transportation costs and an increase in restructuring costs.

In 2022 and 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.

The future extent to which inflation, supply chain disruptions, and unfavorable foreign exchange rates may have a material effect on Abbott's operating results is uncertain.

While Abbott expects inflationary pressures on various raw materials, packaging materials and transportation costs to continue in 2023, 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.

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.

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 8.1 percent in 2022 and 19.4 percent in 2021.

The sales increase in 2022 was driven by growth in Diabetes Care, Structural Heart, Electrophysiology, and Heart Failure.

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, due, in part, to a partial recovery from the COVID-19 pandemic.

In 2022, operating earnings for the Medical Devices segment decreased 2.3 percent.

Excluding the impact of foreign exchange, Medical Devices operating earnings increased 9.3 percent.

The operating margin profile for the Medical Devices segment increased from 25.8 percent of sales in 2020 to 31.4 percent in 2021 and then decreased to 30.0 percent in 2022.

The overall increase over the two years reflects the impact of higher sales volumes across the Medical Device businesses, partially offset by continued pricing pressures on drug eluting stents (DES) and other products.

The decrease in 2022 from 2021 reflects various factors, including the impacts of inflationary pressures and supply chain challenges related to various manufacturing inputs and processes.

In 2022, key product approvals in the Medical Devices segment included:

● 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 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.

• FDA clearance for the EnSite ® X EP System with EnSite OT, which leverages the Advisor ® HD Grid Catheter to provide a 360‑degree view of the heart without regard to the orientation of the catheter in the heart,

• FDA clearance of the Freestyle Libre ® 3 system which automatically delivers up-to-the minute glucose readings and 14-day accuracy in a wearable sensor,

• FDA approval for an expanded indication for the CardioMEMS ® HF system, a small implantable pulmonary artery sensor and remote monitoring system that can detect early warning signs of worsening heart failure,

• FDA approval for the Aveir ® single-chamber leadless pacemaker for the treatment of patients with slow heart rhythms, and

• FDA approval of the Eterna TM rechargeable spinal cord stimulation system for the treatment of chronic pain.

In Abbott’s Diagnostics segment, sales increased 10.4 percent in 2022 and 42.7 percent in 2021, excluding the impact of foreign exchange.

As was discussed above, sales growth in 2022 and 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.

In 2022, operating earnings for the Diagnostics segment increased 6.6 percent.

The operating margin profile increased from 34.3 percent of sales in 2020 to 40.2 percent in 2022 primarily due to higher sales in Rapid Diagnostics and the impact of increased routine diagnostics testing on Core Laboratory Diagnostics versus 2020 levels.

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 obtained regulatory approval for the “Alinity h” system for hematology in Europe, Japan and other regions.

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 24.8 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.

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, that leveraged Abbott’s strong brands.

Sales over the last two years were also positively impacted by consumers’ interest in nutrients that help support their immune systems.

In Abbott’s Nutritional Products segment, total pediatric nutrition sales, excluding the impact of foreign exchange, decreased 16.6 percent in 2022 as a result of the voluntary recall and manufacturing stoppage discussed above as well as challenging market dynamics in Greater China.

In December 2022, Abbott initiated steps to exit its pediatric nutrition business in China.

Excluding the impact of foreign exchange, total pediatric nutrition sales increased 3.3 percent in 2021 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 Greater China infant category.

Excluding the impact of foreign exchange, total adult nutrition sales increased 4.8 percent in 2022 and 12.8 percent in 2021, 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.

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.

In 2022, operating earnings for the Nutritional Products segment decreased 60.0 percent.

Operating margins for the worldwide nutritional products business decreased from 22.9 percent in 2020 to 9.5 percent in 2022.

The decrease was driven by higher manufacturing and distribution costs, including commodity prices, partially offset by the impact of gross margin improvement initiatives.

The decrease was driven by the impact of the voluntary infant product recall and manufacturing stoppage as well as higher manufacturing and distribution costs, including commodity prices, partially offset by the impact of gross margin improvement initiatives and select product price increases.

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

Excluding the impact of foreign exchange, Established Pharmaceutical sales increased 10.6 percent in 2022 and 10.4 percent in 2021.

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

Abbott’s long-term debt and short-term borrowings total $18.1 billion and $18.7 billion at December 31, 2021 and 2020, respectively.

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

The sales increases in 2022 and 2021 reflect higher sales in several geographies including India, China, and Brazil.

In 2022, operating earnings for the Established Pharmaceutical Products segment increased 18.0 percent.

Operating margins increased from 18.5 percent of sales in 2020 to 21.4 percent in 2022 primarily due to the impact of gross margin improvement initiatives and higher selling prices partially offset by inflation on various product inputs.

With respect to Abbott’s financial position, at December 31, 2022 and 2021, Abbott’s cash and cash equivalents and short-term investments total approximately $10.2 billion.

Abbott’s long-term debt totals $16.8 billion and $18.1 billion at December 31, 2022 and 2021, respectively.

Abbott declared dividends of $1.92 per share in 2022 and $1.82 per share in 2021, an increase of approximately 5.5 percent.

Dividends paid totaled $3.309 billion in 2022 compared to $3.202 billion in 2021.

The year-over-year change in the amount of dividends paid primarily reflects the increase in the dividend rate.

The year-over-year change in the amount of dividends paid reflects the increase in the dividend rate.

In December 2022, Abbott increased the company’s quarterly dividend by 8.5 percent to $0.51 per share from $0.47 per share, effective with the dividend paid in February 2023.

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 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 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.

On February 8, 2023, Abbott entered into a definitive agreement to acquire Cardiovascular Systems, Inc.

CSI sells an atherectomy system used in treating peripheral and coronary artery disease.

The acquisition, which is expected to add complementary technologies to Abbott’s portfolio of vascular device offerings, is subject to the approval of CSI shareholders and the satisfaction of customary closing conditions, including applicable regulatory approvals.

Under the terms of the agreement, Abbott will pay $20 per common share at a total expected equity value of approximately $890 million.

The acquisition is expected to be funded with cash on hand.

In 2023, Abbott will also focus on continuing to invest in product development areas that provide the opportunity for strong sustainable growth over the next several years.

In its diagnostics business, Abbott's focus will include driving sales growth from its Alinity suite of diagnostics instruments and its portfolio of rapid diagnostic testing systems as well as continuing to meet COVID-19 test demand.

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

In its nutritional business, Abbott will continue to focus on executing the actions needed to achieve a recovery in its infant formula business and growth globally.

In the established pharmaceuticals business, Abbott will continue to focus on growing its business with the depth and breadth of its portfolio in emerging markets.

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Using historical trends, adjusted for current changes, Abbott estimates the amount of the rebate that will be paid, and records the liability as a reduction of gross sales when Abbott records its sale of the product.

Settlement of the rebate generally occurs from one to six months after sale.

Settlement of the rebate gener ally occurs from one to six months after sale.

Abbott regularly analyzes the historical rebate trends and makes adjustments to reserves for changes in trends and terms of rebate programs.

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Cash discounts are known within 15 to 30 days of sale, and therefore can be reliably estimated.

Returns can be reliably estimated because Abbott’s historical returns are low, and because sales returns terms and other sales terms have remained relatively unchanged for several periods.

Returns can be reliably estimated be cause Abbott’s historical 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.

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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.

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Application of these rules requires a significant amount of judgment.

In the U.S., Abbott’s federal income tax returns through 2016 are settled.

In the U.S., Abbott’s federal income tax returns through 2016 were settled as of December 31, 2022.

Undistributed foreign earnings remain indefinitely reinvested in foreign operations.

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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.

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.

The significant net actuarial gains for these plans in 2022 reflects the impact of higher discount rates on the measurement of plan liabilities, partially offset by lower asset returns during the year.

At December 31, 2022, pretax net actuarial losses and prior service costs and (credits) recognized in Accumulated other comprehensive income (loss) were net losses of $2.0 billion for Abbott’s defined benefit plans and net gains of $6 million for Abbott’s medical 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.

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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.

Goodwill and 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, 2022, goodwill amounted to $22.8 billion and net intangibles amounted to $10.5 billion .

Amortization expense in continuing operations for intangible assets amounted to $2.0 billion in 2021, $2.1 billion in 2020 and $1.9 billion in 2019.

Amortization expense in continuing operations for intangible assets amounted to $2.0 billion in 2022 and 2021 and $2.1 billion in 2020 .

There was no reduction of goodwill relating to impairments in 2022 , 2021 , and 2020 .

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Components of % Change

% Change Price Volume Exchange

Total Net Sales

1.3 (0.3) 6.7 (5.1)

24.5 (1.5) 24.4 1.6

9.0 (0.6) 9.6 —

27.8 (1.9) 29.7 —

Total International

(3.5) — 4.7 (8.2)

22.5 (1.3) 21.2 2.6

Established Pharmaceutical Products Segment

4.1 3.7 6.9 (6.5)

9.6 4.2 6.2 (0.8)

Nutritional Products Segment

(10.1) 7.4 (13.6) (3.9)

8.5 1.0 6.7 0.8

Diagnostic Products Segment

6.0 (5.5) 15.9 (4.4)

44.8 (6.2) 48.9 2.1

Medical Devices Segment

2.2 (0.2) 8.3 (5.9)

21.9 (0.9) 20.3 2.5

The increase in Total Net Sales in 2022 reflects growth in demand for Abbott’s rapid diagnostic tests to detect COVID-19 as well as growth in the Established Pharmaceutical Products and Medical Devices segments, partially offset by lower Nutritional Products sales.

Abbott’s COVID-19 testing-related sales totaled approximately $8.4 billion in 2022, $7.7 billion in 2021 and $3.9 billion in 2020.

Excluding the impact of COVID-19 testing-related sales, Abbott’s total net sales decreased 0.3 percent in 2022.

Excluding the impacts of COVID-19 testing-related sales and foreign exchange, Abbott’s total net sales increased 5.1 percent.

Abbott’s net sales in 2022 were unfavorably impacted by changes in foreign exchange rates as the relatively stronger U.S.

dollar decreased total international sales by 8.2 percent and total sales by 5.1 percent.

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 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.

A comparison of significant product and product group sales is as follows.

Excluding the impacts of COVID-19 testing-related sales and foreign exchange, Abbott’s total net sales increased 13.7 percent.

The price declines related to the Diagnostic Products segment in 2022 and 2021 primarily reflect lower pricing for COVID-19 tests.

The table below provides detail by sales category for the years ended December 31.

Percent changes are versus the prior year and are based on unrounded numbers.

Change Impact of

Exchange Total Change

(dollars in millions)

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Key Emerging Markets $ 3,728 $ 3,539 5 % (7) % 12 %

Other 1,184 1,179 — (7) 7

Nutritionals —

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Core Laboratory 4,888 5,128 (5) (7) 2

Molecular 995 1,427 (30) (3) (27)

Point of Care 525 536 (2) (1) (1)

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Heart Failure 920 889 4 (2) 6

Vascular 2,483 2,654 (6) (5) (1)

Structural Heart 1,712 1,610 6 (7) 13

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Diabetes Care 4,756 4,328 10 (7) 17

Change Impact of

Exchange Total Change

(dollars in millions)

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Key Emerging Markets $ 3,539 $ 3,209 10 % (2) % 12 %

Other 1,179 1,094 8 2 6

Nutritionals —

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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

4 unchanged sentences

Heart Failure 889 740 20 1 19

Vascular 2,654 2,339 14 3 11

Structural Heart 1,610 1,247 29 2 27

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Diabetes Care 4,328 3,267 33 4 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 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 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 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.

Total Established Pharmaceutical Products sales increased 10.6 percent in 2022 and 10.4 percent in 2021, excluding the unfavorable impact of foreign exchange.

Excluding the impact of foreign exchange, total sales in Key Emerging markets increased 11.8 percent in 2022 and 11.9 percent in 2021 due to higher sales in various geographies including India, China, and Brazil, and several therapeutic areas, including gastroenterology, central nervous system/pain management, and cardiometabolic products.

Excluding the impact of foreign exchange, sales in Established Pharmaceuticals’ other emerging markets increased 7.3 percent in 2022 and 6.0 percent in 2021.

Excluding the impact of foreign exchange, total Nutritional Products sales decreased 6.2 percent in 2022 compared to a 7.7 percent increase in 2021.

The 28.7 percent decrease in U.S.

Pediatric Nutritional sales in 2022 reflects the impact of the voluntary recall and production stoppage of certain infant powder formula products manufactured at Abbott's facility in Sturgis, Michigan, partially offset by increased demand for Abbott’s Pedialyte products.

sales of infant powder formula brands associated with the recall were $479 million and $1.2 billion in 2022 and 2021, respectively.

In 2021, U.S.

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 $891 million and $1.0 billion in 2021 and 2020, respectively.

Pediatric Nutritional sales increased 10.3 percent compared to 2020, reflecting growth in Pedialyte, Similac, and PediaSure.

International Pediatric Nutritional sales, excluding the effect of foreign exchange, decreased 3.9 percent in 2022 and 3.2 percent in 2021.

The 2022 decrease reflects the impact of challenging market dynamics in the infant category in Greater China, partially offset by higher sales volumes in several countries in Southeast Asia and Latin America.

The 2021 decrease reflects lower sales in China, the Middle East and various countries in Southeast Asia, partially offset by higher volumes sold in various countries in Latin America and Europe.

International Adult Nutritional sales, excluding the effect of foreign exchange, increased 7.6 percent in 2022 and 17.0 percent in 2021, reflecting continued growth of the Ensure and Glucerna brands in various countries.

In 2022, U.S.

Adult Nutritional sales decreased 0.5 percent as continued growth of the Ensure brand was offset by lower sales of other products and the impact of temporarily utilizing liquid manufacturing capacity to manufacture infant formula.

In 2021, U.S.

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

Excluding the effect of foreign exchange, Diagnostics segment sales increased 10.4 percent in 2022 and 42.7 percent in 2021, driven by demand for Abbott’s portfolio of COVID-19 tests in Rapid Diagnostics.

Rapid Diagnostics sales increased 22.5 percent and 93.3 percent in 2022 and 2021, respectively, excluding the effect of foreign exchange.

The increases reflect COVID-19 test demand across Abbott’s rapid testing platforms, including the Panbio system, the ID NOW platfo rm, and the BinaxNOW COVID-19 Ag Card test.

Rapid Diagnostics COVID-19 testing-related sales were $7.9 billion in 2022, $6.6 billion in 2021 and $2.6 billion in 2020.

In 2022, Rapid Diagnostics sales increased 15.8 percent, excluding COVID-19 testing-related sales, and 19.1 percent, excluding the impact of foreign exchange and COVID-19 testing-related sales.

These increases reflect higher sales of ID NOW tests for flu, strep, and respiratory syncytial virus (RSV) as well as growth in various other Rapid Diagnostics products.

In 2021, Rapid Diagnostics sales increased 10.4 percent, excluding COVID-19 testing-related sales, and 9.2 percent, excluding the impact of foreign exchange and COVID-19 testing-related sales.

These increases reflected the recovery of routine diagnostic testing from the 2020 impact of the pandemic.

In Core Laboratory Diagnostics, sales increased 1.9 percent in 2022, excluding the effect of foreign exchange, due to the higher volume of routine diagnostic testing from the continued roll-out of the Alinity platform and an expanded menu of tests.

These higher volumes were partially offset by lower sales of Abbott’s laboratory-based tests for the detection of COVID-19 IgG and IgM antibodies as well as intermittent market disruptions in China due to COVID-19 quarantine restrictions in various cities.

Core Laboratory Diagnostics COVID-19 testing-related sales on Abbott’s ARCHITECT and Alinity i platforms were $62 million in 2022, $204 million in 2021, and $262 million in 2020.

In 2022, Core Laboratory Diagnostics sales decreased 2.0 percent, excluding COVID-19 testing-related sales, and increased 4.8 percent, excluding the impact of foreign exchange and COVID-19 testing-related sales.

In 2021, Core Laboratory Diagnostics sales increased 12.4 percent, excluding the effect of foreign exchange, as a higher volume of routine diagnostic testing performed in hospitals and other laboratories was partially offset by lower sales of tests for the detection of COVID-19 IgG and IgM antibodies.

In Molecular Diagnostics, sales decreased 27.4 percent in 2022 and 2.9 percent in 2021, excluding the effect of foreign exchange.

In both years, the decreases were driven by lower demand for Abbott’s laboratory-based PCR molecular tests for COVID-19, partially offset by growth in other areas from the continued roll-out of the Alinity m platform .

Molecular Diagnostics COVID-19 testing-related sales were $411 million in 2022, $891 million in 2021, and $1.0 billion in 2020.

In 2022, Molecular Diagnostics sales increased 9.0 percent, excluding COVID-19 testing-related sales, and 13.8 percent, excluding the impact of foreign exchange and COVID-19 testing-related sales.

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 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.

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’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.

Excluding the effect of foreign exchange, total Medical Devices sales grew 8.1 percent in 2022 and 19.4 percent in 2021.

In 2022 and 2021, the increase was driven by growth in Diabetes Care, Structural Heart, Electrophysiology and Heart Failure.

The 2022 and 2021 growth in Diabetes Care sales was driven by continued growth of FreeStyle Libre, Abbott’s continuous glucose monitoring system, in the U.S.

and internationally.

FreeStyle Libre sales totaled $4.3 billion in 2022, which reflected a 22.4 percent increase, excluding the effect of foreign exchange, over 2021.

FreeStyle Libre sales totaled $3.7 billion in 2021, which reflected a 36.8 percent increase, excluding the effect of foreign exchange, over 2020 when sales totaled $2.6 billion.

In 2022, while procedure volumes across Abbott’s cardiovascular and neuromodulation businesses were negatively impacted by new surges of COVID-19 in various geographies as well as intermittent COVID-19 lockdown restrictions in China and healthcare staffing challenges throughout the year, overall volumes improved in several businesses versus 2021.

I n Electrophysiology, the 7.3 percent growth, excluding the effect of foreign exchange, reflects the increase in procedure volumes and the continued roll‑out of Abbott’s EnSite X EP System with EnSite Omnipolar Technology (OT), a new cardiac mapping platform available in the U.S., Japan and across Europe.

Growth in Structural Heart, excluding the effect of foreign exchange, was 13.0 percent in 2022, driven by growth across several areas of the busin ess, including 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 and MitraClip®, Abbott's market-leading device for the minimally invasive treatment of mitral regurgitation, a leaky heart valve.

In Vascular, 2022 sales decreased 1.0 percent, excluding the impact of exchange, as higher endovascular sales were offset by the negative effect of lower average selling prices globally on traditional DES and other coronary products and a lower recovery of percutaneous coronary intervention (PCI) procedures which impacted the coronary business.

In 2021, while procedure volumes across Abbott’s cardiovascular and neuromodulation businesses were negatively impacted early in the year 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’s operations in Russia and Ukraine represent approximately 2 percent of Abbott’s total revenues and net assets, and to date the financial impact of Russia’s invasion of Ukraine has not been material to Abbott’s operations or financial condition.

Future implications are difficult to predict, but at present Abbott does not anticipate that the Russia-Ukraine conflict will have a material impact on its operations or financial condition.

A more detailed discussion of the risks associated with the Russia-Ukraine conflict is contained in Item 1A.

Risk Factors.

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.

Related net sales were not significant in 2021, 2020 and 2019.

Related net sales were not significant in 2022, 2021, or 2020.

The expiration of licenses and patent protection can affect the future revenues and operating income of Abbott.

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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’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.

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.

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.

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.

Gross profit margins were 51.5 percent of net sa les in 2022, 52.2 percent of net sales in 2021, and 50.5 percent in 2020.

The decrease in 2022 reflects the impact of the voluntary infant product recall and Sturgis manufacturing stoppage as well as the prioritization of infant formula sales related to the WIC Program in the Nutritional business.

The decrease also reflects higher manufacturing and supply chain costs across Abbott's businesses, including inflation, commodities and distribution expenses.

In 2021, the increase primarily reflects the effects of higher sales volume, higher manufacturing utilization, and the nonrecurrence of a 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 $2.9 billion in 2022, $2.7 billion in 2021, and $2.4 billion in 2020.

The increase primarily reflects higher spending on various projects to advance products in development as well as the impairment of certain in-process R&D intangible assets partially offset b y the favorable impact of foreign exchange.

Th e increase in 2021 R&D spending was primarily driven by higher spending on various projects to advance products in development.

Selling, general and administrative (SG&A) expenses were virtually unchanged in 2022 compared to 2021 as higher selling and marketing spending to drive growth was offset by the favorable impact of foreign exchange.

SG&A expenses increased 16.8 percent in 2021 due primarily to higher selling and marketing spending 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.

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.

In 2022, Abbott management approved plans to streamline operations in order to reduce costs and improve efficiencies in its medical devices, nutritional, diagnostic, and established pharmaceutical businesses.

Abbott recorded employee-related severance and other charges of approximately $234 million of which approximately $59 million was recorded in Cost of products sold, approximately $36 million was recorded in Research and development and approximately $139 million was recorded in Selling, general and administrative expenses.

In addition, Abbott recognized inventory-related charges of approximately $23 million and fixed assets impairment charges of approximately $4 million related to these restructuring plans.

In 2021, Abbott management approved plans to streamline operations in order to reduce costs and improve efficiencies in Abbott's diagnostic, established pharmaceutical, nutritional, and medical device businesses.

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

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 of 2021 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.

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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.

(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, Abbott recorded employee-related severance and other charges totaling approximately $95 million, comprised of $10 million in 2021, $13 million in 2020, and $72 million in 2019.

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, 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.

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 $115 million in 2022 due t o the impact of higher interest rates and cash and short-term investment balances on interest income and the repayment of debt in the first quarter of 2022 partially offset by the impact of interest rate hedge contracts related to certain fixed-rate debt.

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

On December 19, 2019, Abbott redeemed the $2.850 billion principal amount of its 2.9% Notes due 2021.

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

Other (Income) Expense, net

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.

Other (income) expense, net includes income of approximat ely $406 million, $270 million, and $205 million in 2022, 2021, and 2020, 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 equity investment impairments that totaled approximately $45 million in 2022 and $115 million in 2020 and a gain on the s ale of an equity method investment in 2021.

Taxes on Earnings

The income tax rates on earnings from continuing operations were 16.5 percent in 2022, 13.9 percent in 2021, and 10.0 percent in 2020.

In 2022, taxes on earnings from continuing operations include approximately $43 million in excess tax benefits associated with share-based compensation and approximately $20 million of net tax expense as a result of the resolution of various tax positions related to prior years.

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.

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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.

As of December 31, 2022, the remaining balance of Abbott’s transition tax obligation is approximately $739 million, which will be paid over the next four 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.

The $86 million reduction to the transition tax liability was the result of the issuance of final transition tax regulations by the U.S.

Department of Treasury in 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.

Abbott benefits from a combination of favorable statutory tax rules, tax rulings, grants, and exemptions in these tax jurisdictions.

Abbott’s future effective tax rate could be impacted by changes in federal, state or international tax laws or tax rulings.

In December 2022, the European Union approved a tax directive that instructs its member states to adopt local legislation that ensures that every multinational company pays a minimum 15 percent tax rate in every jurisdiction in which it operates, beginning in 2024.

Other non-EU countries have also announced their intentions to adopt a similar policy.

Widespread adoption of a minimum tax rate regime could have an unfavorable impact on Abbott’s future effective tax rate.

See Note 14 to the consolidated financial statements for a full reconciliation of the effective tax rate to the U.S.

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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 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 2017, the EU adopted the new In Vitro Diagnostic Regulation (IVDR) which replaced the existing directive in the EU for in vitro diagnostic products and imposed 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 a range of one to three years, with the transition period extending to May 2027 for certain classes of diagnostic devices.

However, the amendment did not delay the date of application of the IVDR itself which took 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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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.

The MDR applies to manufacturers as of May 26, 2021 with a transition period until May 26, 2024.

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

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Established Pharmaceuticals — Abbott focuses 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, Abbott plans 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.

Over the next several years, Abbott plans to expand its product portfolio in key therapeutic areas with the aim of addressing the health needs of more people in emerging markets and being among the first to launch new off-patent and differentiated medicines.

In addition, Abbott continues to expand existing brands into new markets, implement product enhancements that provide value to patients and acquire strategic products and technology through licensing activities.

Abbott is also actively working on the further development of several key brands such as Creon™, Duphaston™, Duphalac™ and Influvac™.

Abbott is also actively working on the further development of several key brands such as Creon™, Duphaston™, Femoston™ and Influvac™.

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

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• 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.

• Neuromodulation – Development of clinical evidence and next-generation technologies leveraging digital health to support improved patient clinical outcomes, physician engagement, and expanded indications in the treatment of chronic pain, movement disorders and other indications.

• Diabetes Care – Develop enhancements and additional indications for the FreeStyle Libre platform of continuous glucose monitoring products to help patients improve their ability to manage diabetes and for use beyond diabetes.

Nutritionals — Abbott is focusing its research and development spend on platforms that span the pediatric and adult nutrition areas:

gastro intestinal/immunity health, brain health, mobility and metabolism, and user experience platforms.

gastrointestinal/immunity health, brain health, mobility and metabolism, and user experience platforms.

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 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.

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 but not limited to infectious disease, cardiac care, metabolics, oncology, and neurologic assays 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.

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Net cash from operating activities amounted to $9.6 billion, $10.5 billion, and $7.9 billion in 2022, 2021, and 2020, respectively.

The decrease in Net cash from operating activities in 2022 was primarily due to the unfavorable cash flow impact of an increased investment in working capital partially offset by reduced expenditures related to restructuring actions and lower cash payments for income taxes.

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 portion of Abbott’s cash and cash equivalents at December 31, 2022, is held by Abbott affiliates outside of the U.S.

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Debt and Capital

At December 31, 2021, Abbott’s long-term debt rating was A+ by Standard & Poor’s Corporation and A2 by Moody’s.

At December 31, 2022, Abbott’s long-term debt rating was AA- by Standard & Poor’s Corporation and A1 by Moody’s.

Abbott expects to maintain an investment grade rating.

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The lines of credit are part of a Five Year Credit Agreement (Revolving Credit Agreement) that Abbott entered into on November 12, 2020.

At that time, Abbott also 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’s option, based on either a base rate or Eurodollar rate, plus an applicable margin based on Abbott’s credit ratings.

Any borrowings under the Revolving Credit Agreement will mature and be payable on November 12, 2025, and 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.

As of December 31, 2022, Abbott's total debt outstanding was $16.8 billion, of which $2.25 billion will mature in 2023.

The repayment of the debt maturing in 2023 is expected to be funded from cash on hand.

On March 15, 2022, Abbott repaid the $750 million outstanding principal amount of its 2.55% Notes upon maturity.

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.

After the repayment, Abbott has no short-term debt.

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.

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.

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

In September 2019, the board of directors authorized the early redemption of up to $5 billion of outstanding long-term notes.

This bond redemption authorization superseded the board’s previous authorization under which $700 million had not yet been redeemed.

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

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.

The proceeds equated to approximately $1.3 billion.

The Notes are guaranteed by Abbott.

On November 21, 2019, Abbott borrowed ¥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 repayment of approximately of $1.6 billion of debt, net of borrowings.

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 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.

As of December 31, 2022, $2.15 billion of the $5 billion authorization remains available.

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

This authorization was in addition to the unused portion of a previous share repurchase program that was authorized in 2014.

Under the program authorized in 2014, Abbott repurchased 1.6 million shares at a cost of $173 million in 2020.

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.

This authorization was in addition to the $1.081 billion portion of the share repurchase program authorized in 2019 that was unused as of December 31, 2021.

In 2022, Abbott repurchased 32.3 million of its common shares for $3.65 billion which fully utilized the authorization remaining under the 2019 share repurchase program and a portion of the 2021 authorization.

As of December 31, 2022, $2.43 billion remains available for repurchase under the 2021 repurchase program.

Abbott declared dividends of $1.92 per share in 2022 compared to $1.82 per share in 2021, an increase of approximately 5.5 percent.

Dividends paid were $3.309 billion in 2022 compared to $3.202 billion in 2021.

The year-over-year change in dividends paid primarily reflects the impact of the increase in the dividend rate.

The year-over-year change in dividends paid reflects the impact of the increase in the dividend rate.

Working Capital

Working capital was $9.7 billion at December 31, 2022 and $11.1 billion at December 31, 2021.

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.

The decrease was due largely to the classification of $2.3 billion of Senior Notes due in 2023 as current liabilities, partially offset by an increase in inventory.

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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Capital expenditures of $1.8 billion in 2022, $1.9 billion in 2021, and $2.2 billion in 2020 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.

2020 capital expenditures also included the building of capacity for the manufacture of COVID-19 diagnostics tests.

Contractual Obligations

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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.

Debt — Principal payments required on long-term debt outstanding at December 31, 2022 are $2.3 billion in 2023, $1.1 billion in 2024, $1.5 billion in 2025, $2.9 billion in 2026, $0.6 billion in 2027 and $8.7 billion in 2028 and thereafter.

Interest payments required on long-term debt outstanding at December 31, 2022 are $567 million in 2023, $525 million in 2024, $493 million in 2025, $462 million in 2026, $391 million in 2027 and $5.4 billion in 2028 and thereafter.

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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.

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.

Abbott adopted the standard on January 1, 2020 and recorded a cumulative adjustment that was not significant to Earnings employed in the business in the Consolidated Balance Sheet.

Recent Accounting Standards Not Yet Adopted

In September 2022, the FASB issued ASU 2022-04, Disclosure of Supplier Finance Program Obligations , which requires an entity to report information about its supplier finance program.

The standard becomes effective for Abbott in the first quarter of 2023.

Abbott does not expect adoption of this new standard to have a material impact on its consolidated financial statements.

Private Securities Litigation Reform Act of 1995 — A Caution Concerning Forward-Looking Statements

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis