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Note 11 — Goodwill and Intangible Assets
(dollars in millions)
Abbott recorded goodwill of $53, $3,721 and $69 in 2007, 2006 and 2005, respectively, related to acquisitions. Goodwill adjustments recorded in 2007 allocated to the Pharmaceutical Products segment amounted to $194 and goodwill allocated to the Vascular Products segment amounted to $(141). Acquired goodwill allocated to the Pharmaceutical Products segment amounted to $1,590 in 2006 and goodwill allocated to the Vascular Products segment amounted to $1,688 in 2006. Foreign currency translation and other adjustments increased (decreased) goodwill in 2007, 2006 and 2005 by $627, $509 and $(535), respectively. The amount of goodwill related to reportable segments at December 31, 2007 was $6,221 for the Pharmaceutical Products segment, $210 for the Nutritional Products segment, $261 for the Diagnostic Products segment, and $2,086 for the Vascular Products segment. There were no reductions of goodwill relating to impairments or disposal of all or a portion of a business.
The gross amount of amortizable intangible assets, primarily product rights and technology, was $9,043, $8,988 and $6,776 as of December 31, 2007, 2006 and 2005, respectively, and accumulated amortization was $3,323, $2,602 and $2,053 as of December 31, 2007, 2006 and 2005, respectively. The estimated annual amortization expense for intangible assets is $710 in 2008, 2009 and 2010; $690 in 2011 and $680 in 2012. Intangible assets are amortized over 4 to 25 years (average 11 years).
Note 12 — Equity Method Investments
(dollars in millions)
Abbott's 50 percent-owned joint venture, TAP Pharmaceutical Products Inc. (TAP), is accounted for under the equity method of accounting. The investment in TAP was $159, $162 and $167 at December 31, 2007, 2006 and 2005, respectively, and dividends received from TAP were $502, $487 and $343 in 2007, 2006 and 2005, respectively. Abbott performs certain administrative and manufacturing services for TAP at negotiated rates that approximate fair value. Summarized financial information for TAP is as follows:
| Year Ended December 31 | 2007 | 2006 | 2005 |
| Net sales | $3,002 | $3,363 | $3,260 |
| Cost of sales | 720 | 836 | 883 |
| Income before taxes | 1,564 | 1,524 | 1,379 |
| Net income | 996 | 952 | 883 |
| December 31 | 2007 | 2006 | 2005 |
| Current assets | $1,101 | $1,181 | $1,339 |
| Total assets | 1,354 | 1,333 | 1,470 |
| Current liabilities | 914 | 955 | 1,082 |
| Total liabilities | 1,037 | 1,009 | 1,136 |
Undistributed earnings of investments accounted for under the equity method amounted to approximately $136 as of December 31, 2007.
Note 13 — Restructuring Plans
(dollars in millions)
In 2007, 2006 and 2005, Abbott management approved plans to realign its worldwide pharmaceutical and vascular manufacturing operations and selected domestic and international commercial and research and development operations in order to reduce costs. In 2007, 2006 and 2005, Abbott recorded pretax charges against earnings of approximately $107, $210 and $256, respectively, reflecting the impairment of manufacturing facilities and other assets, employee severance and other related charges. Approximately $94, $181 and $174, respectively, is classified as cost of products sold, $3, $29 and $10, respectively, as research and development and $10 in 2007 and $72 in 2005 as selling, general and administrative. Fair value for the determination of the amount of asset impairments was determined primarily based on a discounted cash flow method. An additional $90, $70 and $14 were subsequently recorded in 2007, 2006 and 2005, respectively, relating to these restructurings, primarily for accelerated depreciation. In addition, Abbott implemented facilities restructuring plans in 2007 related to the acquired operations of Kos Pharmaceuticals Inc., which resulted in an increase to goodwill of approximately $52.
The following summarizes the activity for restructurings:
| Employee- Related and Other |
Asset Impairments |
Total | |
| 2005 restructuring charges | $192 | $64 | $256 |
| Payments, impairments and other adjustments | (37) | (64) | (101) |
| Accrued balance at December 31, 2005 | 155 | — | 155 |
| 2006 restructuring charges | 118 | 93 | 211 |
| Payments, impairments and other adjustments | (80) | (93) | (173) |
| Accrued balance at December 31, 2006 | 193 | — | 193 |
| 2007 restructuring charges | 122 | 38 | 160 |
| Payments, impairments and other adjustments | (121) | (38) | (159) |
| Accrued balance at December 31, 2007 | $194 | $— | $194 |
Abbott expects to incur up to an additional $73 in future periods for restructuring plans, primarily for accelerated depreciation.
Note 14 — Quarterly Results (Unaudited)
(dollars in millions except per share data)
| 2007 | 2006 | 2005 | |
| First Quarter | |||
| Net Sales | $5,945.5 | $5,183.5 | $5,382.7 |
| Gross Profit | 3,353.5 | 3,013.8 | 2,860.1 |
| Net Earnings | 697.6 | 865.0 | 837.9 |
| Basic Earnings Per Common Share (a) | .45 | .57 | .54 |
| Diluted Earnings Per Common Share (b) | .45 | .56 | .53 |
| Market Price Per Share-High | 57.26 | 45.58 | 48.16 |
| Market Price Per Share-Low | 48.75 | 39.18 | 43.34 |
| Second Quarter | |||
| Net Sales | $6,370.6 | $5,501.1 | $5,523.8 |
| Gross Profit | 3,566.3 | 3,112.5 | 2,892.0 |
| Net Earnings (c) | 988.7 | 612.2 | 877.1 |
| Basic Earnings Per Common Share (a) (c) | .64 | .40 | .56 |
| Diluted Earnings Per Common Share (b) (c) | .63 | .40 | .56 |
| Market Price Per Share-High | 59.50 | 43.61 | 49.98 |
| Market Price Per Share-Low | 52.80 | 40.55 | 45.98 |
| Third Quarter | |||
| Net Sales | $6,376.7 | $5,573.8 | $5,384.0 |
| Gross Profit | 3,512.7 | 3,182.5 | 2,706.8 |
| Net Earnings (d) | 717.0 | 715.8 | 680.7 |
| Basic Earnings Per Common Share (a) (d) | .46 | .47 | .44 |
| Diluted Earnings Per Common Share (b) (d) | .46 | .46 | .44 |
| Market Price Per Share-High | 56.91 | 49.87 | 50.00 |
| Market Price Per Share-Low | 49.58 | 43.25 | 41.57 |
| Fourth Quarter | |||
| Net Sales | $7,221.4 | $6,218.0 | $6,047.3 |
| Gross Profit | 4,059.7 | 3,352.4 | 3,237.8 |
| Net Earnings (Loss) (e) | 1,203.0 | (476.2) | 976.4 |
| Basic Earnings (Loss) Per Common Share (a) (e) | .78 | (.31) | .63 |
| Diluted Earnings (Loss) Per Common Share (b) (e) | .77 | (.31) | .63 |
| Market Price Per Share-High | 59.48 | 49.10 | 44.36 |
| Market Price Per Share-Low | 50.51 | 45.41 | 37.50 |
(a)The sum of the quarters' basic earnings per share for 2007 and 2006 do not add to the full year earnings per share amounts due to rounding.
(b)The sum of the quarters' diluted earnings per share for 2006 does not add to the full year earnings per share amount due to rounding.
(c)Second quarter 2006 includes a pretax charge of $493 for acquired in-process and collaborations research and development.
(d)Third quarter 2006 includes a pretax charge of $214 for acquired in-process research and development and 2005 includes pretax restructuring charges of $201.
(e)Fourth quarter 2006 includes a pretax charge of $1,307 for acquired in-process and collaborations research and development.
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