Abbott Laboratories
Annual Report 2020

Plain-text annual report

2 0 2 0 A N N U A L R E P O R T At Abbott, we’ve been improving people’s health, at all ages and stages of life, for more than 130 years. Today, we’re tackling some of the world’s most pressing healthcare challenges to help people live fuller and healthier lives with greater freedom and dignity. Because we believe that the best healthcare product is one that helps the most people, we design breakthrough products in each of our businesses — medical devices, nutrition, branded generic pharmaceuticals and diagnostics — to help ensure maximum access and affordability. Our balanced leadership across diverse markets and geographies gives us more ways to grow and insulates us from the impact of global economic swings, helping us deliver consistent growth and strong shareholder returns, even in an environment as turbulent as today’s. TA B L E O F C O N T E N T S TA B L E O F C O N T E N T S Letter to Shareholders Letter to Shareholders 1 1 5 Abbott Proud 5 Abbott Proud 10 Rapid Diagnostics 10 Rapid Diagnostics 12 Core Lab Diagnostics 12 Core Lab Diagnostics 14 Pediatric Nutrition 14 Pediatric Nutrition 16 Adult Nutrition 16 Adult Nutrition 18 Diabetes Care 18 Diabetes Care 20 Electrophysiology and 20 Cardiac Rhythm Management Cardiac Rhythm Management 22 Heart Failure Management 22 Heart Failure Management 24 Structural Heart 24 Structural Heart 26 Vascular Care 26 Vascular Care 28 Neuromodulation 28 Neuromodulation 30 Established Pharmaceuticals 30 Established Pharmaceuticals 32 Financial Report 32 Financial Report F R O N T C OV E R F R O N T C OV E R Tyler Walsh, Quality Control Technician Rapid Diagnostics B AC K C OV E R B AC K C OV E R Carsten Buenning, Divisional Vice President Research and Development, Rapid Diagnostics By leveraging Abbott’s experience in infectious disease assay research, knowing which regions of the virus to target and applying proven development approaches, we were able to quickly create a comprehensive array of highly accurate tests for COVID-19 — a process that would normally take years — in just a matter of months. A B B O T T 2 0 2 0 A N N U A L R E P O R T ROBERT FORD President and Chief Executive Officer MILES WHITE Executive Chairman of the Board DE AR FELLOW SHAREHOLDER: In the most challenging year in living memory, Abbott rose to the test, making major contributions to the global effort to defeat COVID-19. This was consistent with our long history, with our values, and with our purpose as a company. We were built for times like these. THE CHALLENGE Our tradition has been to focus this report on those we’re here to serve, with stories of people whose lives have been changed for the better by our innovative products and technologies. This is as it should be, as that’s what the company is here to do. But, as with so many aspects of our business in the past year, COVID made us find new ways to get the job done. Since it’s our purpose to improve human health, we couldn’t ask people who — by definition as our customers — have underlying health conditions to shoot photography with us during the pandemic. So, this year, we’re focusing instead on the people who worked so tirelessly through unprecedented circumstances to find ways to keep delivering our life-changing products to those who need them — our 109,000 colleagues around the world. This report tells a few representative stories of the countless ways Abbott people powered through everything 2020 threw at them to meet the moment and take care of the people who depend on them. Continued innovation drives growth Thanks to their efforts, while 2020 was certainly one of the most difficult of Abbott’s 133 years, it was also a year of extraordinary achievement. Not only were we a prominent player in the global fight against the pandemic — creating twelve separate diagnostic tests to identify the virus — but, despite disruptions to global supply chains and to many of our customers, we kept all of our businesses on track and advanced our new-product pipeline for the future. >30 KEY NUTRITION PRODUCTS LAUNCHED at once, to rapid point-of-care testing delivering reliable, on-the-spot results, fast. We formed multiple R&D teams to pursue these complementary objectives. The result was a range of tools across the testing spectrum for use from advanced labs to drive-thru sites. As important as creating the tests themselves is the ability to produce them at massive scale to meet this unprecedented need for ongoing testing at the population level. So, we moved with unprecedented speed to increase our manufacturing capacity, quickly launching three new facilities, allowing us to deliver tens of millions of tests every month. But, while the year was dominated by COVID-19, our work on the pandemic was only part of Abbott’s story in 2020. We kept our other businesses moving and growing as well, receiving approval for a host of new products, including: • Two important devices that address mitral regurgitation in the heart: our next-generation MitraClip repair device and our Tendyne device, which replaces the whole valve for patients for whom repair is not an option. • Two defibrillators from our Gallant family of devices in the U.S. • Our Ensite X next-generation cardiac mapping system. • The FlexNav delivery system, which improves control and delivery of our Portico valve for minimally invasive treatment of severe aortic stenosis. • Our FreeStyle Libre 3 system — the thinnest and most discreet glucose sensor ever, and Libre Sense Glucose Sport Biosensor, moving our sensing technology beyond diabetes. This performance demonstrated Abbott’s capabilities at the highest level possible and made clear to the world like never before just who we are, what we do, and the powerful positive impact our work has on countless lives around the world. THE YEAR We recognized early in the year that COVID would require a major mobilization on our part as a global leader in medical diagnostics. To tackle a challenge of this magnitude, we knew the world would need different tests for different stages of the disease process and for different testing environments — from high-throughput instruments capable of handling large volumes of tests 2 • TriClip, our device for people with severe tricuspid regurgitation, a difficult-to-manage heart condition. • Three new formulations of Pedialyte for rehydration: Pedialyte with Immune Support, Pedialyte Zero Sugar, and Pedialyte Sport. • More than 50 launches of branded generic medicines across EPD markets. • And we have a very rich ongoing pipeline, with more than 100 new products scheduled to launch over the next few years. ABBOTT 2020 ANNUAL REPORTAbbott 2020 Strength across our diversified businesses $34.6B WORLDWIDE SALES IN 2020 97 CONSECUTIVE YEARS OF DIVIDENDS PAID 9.8% ORGANIC SALES INCREASE OVER 2019 1 25% INCREASE IN DIVIDEND PAYOUT FOR 2021 12.7% ADJUSTED ONGOING EARNINGS PER SHARE INCREASE 2 168.8% 5-YEAR TOTAL SHAREHOLDER RETURN A B B O T T 2 0 2 0 A N N U A L R E P O R T >100 NEW PRODUCTS IN OUR NEAR-TERM PIPELINE 12 NEW TESTS FOR COVID-19 >400 MILLION COVID-19 TESTS PROVIDED IN 2020 3 1 Excludes impact of foreign exchange. On a GAAP basis, Abbott sales increased 8.5%2 GAAP EPS growth from continuing operations 20.9% For full financial data and reconciliation of non-GAAP measures, please see Abbott’s 2020 earnings release at www.abbottinvestor.comBalanced Performance >>40%40% GROWTH FOR FREESTYLE LIBRE This level of productivity would be strong for any year; delivering it at the same time we were launching and ramping up our immense COVID response, while operating under the limitations imposed by the pandemic, speaks volumes about Abbott’s strength and capabilities. Of course, no company has fully escaped COVID’s impact, and Abbott is no exception. The pandemic’s effects limited access to care around the world, which was felt by several of our businesses. But, despite these heavy headwinds, Abbott delivered outstanding results across the breadth of its operations. Earnings per share rose 12.7 percent for the year — at the high end of our original, pre- pandemic guidance — on sales of almost $35 billion, up 9.8 percent over 2019. We again returned more than $2 billion to shareholders and, in December, announced a dividend increase of 25 percent. Abbott has now paid dividends for 97 consecutive years and they’ve risen annually for the last half of that span, 49 years in a row. We believe that by reconceptualizing the strategy and process of development we can create future products with both imperatives — effectiveness and affordability — as equally fundamental design principles, without compromising quality. And we can state from experience, this is not solely a matter of altruism — it’s sound business strategy, as this approach drove the creation of some of our leading current products. For example, our FreeStyle Libre is the world’s most-used glucose-monitoring system because we worked very purposefully to drive down cost at every step of the product’s development in order to make it affordable and accessible to more people. This is how we’ll make our largest possible contribution to global welfare and sustainability in the years ahead. Today, about two billion people a year are helped by Abbott products; by 2030, this approach will allow us to extend these benefits — and the greater freedom and dignity they enable — to an additional billion people per year. THE FUTURE 2020 taught us powerful lessons that we’ll carry into our approach to the years ahead. The COVID pandemic has demonstrated — as vividly as possible — both the fragility of health and our health systems and the extent of our power to protect and improve them. This is the essence of our company and our purpose — helping more people than ever before to live their lives as fully as possible through better health. This past year of threat and challenge has indelibly underscored for all of us the immeasurable value of that purpose and the overwhelming importance of the work we’re privileged to do. Abbott Proud, ROBERT B. FORD President and Chief Executive Officer MILES D. WHITE Executive Chairman of the Board March 2, 2021 Looking ahead, we recently launched our 2030 Sustainability Plan, outlining strategies and commitments for how we’ll lead the company in the coming years to address critical societal goals. Our record has been very strong in this regard, but our new plan takes our thinking to a different level. While we remain fully committed to making positive environmental and social contributions, the focus of our long-term thinking on sustainability is where it belongs: on our purpose for being, on what we do best, and on the way we can make the greatest positive impact for people and for the world. For Abbott, that means focusing our creative power on producing greater total health at lower total cost. Going forward, we will work to solve not only the medical challenge that our products address but, at the same time, the challenge of access and affordability. 4 ABBOTT 2020 ANNUAL REPORT# ABBOTT PROUD. APARAJITA BHATTACHARYA Senior Design/Product Development Engineer, Diabetes Care 55 A B B O T T 2 0 2 0 A N N U A L R E P O R T OUR PEOPLE MADE THE DIFFERENCE IN 2020. ANAS TAHIR Field Service Engineer Aberdeen, Scotland Maria Rodriguez Structural Heart Engineer Singapore 6 JEANNETTE DALESSANDRI Quality Control Technician NICK NAMER Manufacturing Site Director Scarborough, Maine, USA ANTONIA HERNANDEZ Program Manager Alameda, California, USA FLORIAN BOLLINGER and JEREMIA SCHIMPF CentriMag Manufacturing, Zürich, Switzerland KOKO YAO Senior Manager, Supply Shanghai, China PANDORA STEVENS Customer Relations Coordinator Columbus, Ohio, USA Our work has never been more important. And our dedication to making a difference showed in our results. Despite a challenging environment, Abbott people stepped up to do what we’ve always done: deliver breakthrough solutions that help people live healthier, fuller lives. SHRIDHARA ALVA Senior Director, Clinical Affairs, Diabetes Care Alameda, California, USA JOSIE WEIGEL Endovascular Account Manager Chicago, Illinois, USA CARSTEN BUENNING Divisional Vice President, Research and Development, Rapid Diagnostics Wiesbaden, Germany 77 ABBOTT 2020 ANNUAL REPORTA B B O T T 2 0 2 0 A N N U A L R E P O R T WE WERE BUILT FOR TIMES LIKE THESE. 2020 was a more difficult year than any in living memory. But despite the obstacles we faced, Abbott people stepped up to deliver our life-changing solutions to the people who need them, working with the sense of urgency and commitment our customers expect from us. With more than 130 years of dedication to human health, our balanced business portfolio, and almost 110,000 colleagues committed to making a difference in people’s lives, Abbott is a go-to healthcare company when it matters most. 8 WE’VE SPENT DECADES ADDRESSING THE WORLD’S MOST PRESSING HEALTHCARE NEEDS. WE WERE MORE THAN READY FOR THE CHALLENGES OF 2020.A B B O T T 2 0 2 0 A N N U A L R E P O R T ANNIE ANGEYANGO Production Specialist Scarborough, Maine, USA 9 ABBOTT 2020 ANNUAL REPORTRAPID DIAGNOSTICS FASTER RESPONSE. NICK NAMER Manufacturing Site Director Scarborough, Maine and members of our Rapid Diagnostics quality control team With the launch of Abbott’s ID NOW COVID-19 test, Nick and the ID-NOW team were faced with the task of ramping up production more than ten-fold. In a matter of just months, they built multiple new production lines and established new supply chains to ensure that Abbott could meet the overwhelming demand for this important test. 10 A B B O T T 2 0 2 0 A N N U A L R E P O R T Critical insights to help deliver the right care, at the right time, in any environment. 11 PANBIO COVID-19 TEST ID NOW COVID-19 TEST BINAXNOW COVID-19 TEST AND NAVICA APP RESULTS IN 15 MINUTES OR LESS AT THE POINT OF CARE.Abbott’s Rapid Diagnostics systems and tests provide real-time, lab-quality results at the point of care, helping decentralize testing and allowing healthcare providers to deliver the right care, at the right time, in any environment. In 2020, these tests became vital tools in the fight against COVID-19. • Within months of the pandemic’s outbreak, Abbott launched four new rapid tests for COVID-19, including our ID NOW COVID-19 molecular test and BinaxNOW antigen test in the U.S.; and our Panbio COVID-19 Ag rapid antigen test and Panbio COVID-19 IgG/IgM rapid antibody test in countries outside the U.S.• In December, our widely used BinaxNOW rapid test, about the size of a credit card and requiring no instrumentation, received emergency use authorization (EUA) from the U.S. Food and Drug Administration (FDA) for use at home, with a prescription, through a virtually guided online service.• Our COVID-19 tests build on the strong position we’ve established in rapid diagnostics, with leading systems such as our Afinion 2 multi-assay analyzer, the Cholestech LDX system for lipid and glucose testing; and our SoToxa mobile test system for rapid drug screening.High-quality, critical tests, quickly developed and deployed, serve communities and help ensure proper patient care. CORE L ABORATORY LEADERSHIP MOBILIZED. In early 2020, Abbott began the complex task of outfitting a new diagnostics laboratory for the NHS Grampian health system in Aberdeen, Scotland. When the pandemic threatened to delay the installation, Anas and his colleagues stepped up to the task, quickly adapting to strict safety protocols, keeping the project on track and ensuring the lab could continue delivering critical results to guide patient care. 12 As a long-time leader in laboratory diagnostics, Abbott was uniquely positioned to respond quickly and effectively to the challenges of COVID-19. Early in the pandemic, with only limited information available about the virus, our scientists leveraged years of assay-development expertise to create a series of tests for high-volume laboratories. These included molecular tests, which help identify active infections, to run on our Alinity m and m2000 RealTime systems; and immunoassay tests for our Alinity i and ARCHITECT platforms to detect IgG and IgM antibodies to the COVID-19 virus, which help identify late-stage and previous infections. Our rapid response to the pandemic is just the latest example of Abbott’s commitment to addressing important challenges in core laboratory diagnostics. Beyond the development of new tests, we remain focused on improving diagnostic practice with next-generation solutions like our Alinity family of systems, which helps streamline critical interactions between individuals, systems and information, delivering increased efficiency, improved workflows, and consistent, high-quality results through user-friendly design elements and proven technology. 2 0 2 0 A N N U A L R E P O R T A B B O T T 2 0 2 0 A N N U A L R E P O R T A B B O T T 13 REALTIME M2000 High-throughput molecular testing ALINITY C/I Speed and flexibility in a smaller footprint ANAS TAHIR Field Service EngineerAberdeen, ScotlandPEDIATRIC NUTRITION STRONGER START. NGUI CHEE SIONG Senior Technician, Packaging, Abbott Nutrition, Singapore When the Malaysian government announced that it was closing its borders in response to the pandemic, Chee Siong was part of a team that faced a significant challenge: they lived in Malaysia, and would be barred from commuting to our Singapore facility every day. Rather than compromise production, they lived away from home for weeks, joining a broad group of colleagues who stayed close to the plant, keeping it running at capacity and ensuring an uninterrupted supply of pediatric nutrition products for the parents who count on us. 1414 14 A B B O T T 2 0 2 0 A N N U A L R E P O R T Leveraging advanced nutrition science to help children around the world reach their full potential. ##11 U.S. LEADER IN INFANT NUTRITION 15 Proper nutrition early in life can help children reach their fullest potential, providing support for immune-system development and helping keep their growth on track. From our research and development scientists, to our manufacturing teams, to our colleagues in the field, Abbott people showed relentless dedication in 2020, helping to ensure a steady flow of trusted products and important innovations to our customers around the world. • We continued our global rollout of Similac Pro-Advance and Similac Pro-Sensitive, next-generation infant formulas with 2’-FL HMO (human milk oligosaccharide), an ingredient that helps a baby’s immune system be more like a breastfed infant’s.• We launched 20 key products in multiple global markets, including Similac Organic and Similac Grow & Gain toddler drink.• When COVID-related economic disruption caused an increase in need, we donated our Similac infant formula — a total of 1.5 million feedings — to regional food banks across the United States.• We launched three new Pedialyte formulations: Pedialyte Sport, with a scientifically designed balance of sugar and electrolytes; Pedialyte Zero Sugar; and Pedialyte with Immune Support. ADULT NUTRITION FUEL FOR LIFE. TARGETED NUTRITION TO SUPPORT FULLER, MORE ACTIVE LIVES. 10 key product launches in 2020 Continued innovation, built on proven expertise, has helped Abbott remain the global leader in adult nutrition for more than 40 years. 1616 16 A B B O T T 2 0 2 0 A N N U A L R E P O R T People have been relying on Abbott for complete and balanced nutrition supplements since 1973, the year we introduced our first Ensure product. We’ve been expanding our portfolio ever since, adding variations like Ensure Plant-Based Protein, Ensure Max Protein, as well as condition-specific options like Glucerna, formulated to help manage blood-glucose levels, and Nepro for people undergoing kidney dialysis treatment. • In 2020, consumer recognition of our products’ immune-system benefits helped accelerate Abbott’s growth in this segment in many markets around the world. • We continued our global rollout of Ensure Max Protein, providing adults across the globe with an easy, on-the-go option to help maintain their active, healthy lifestyles. PANDORA STEVENS Customer Relations Coordinator, Columbus, Ohio, USA Working from home, without easy access to the usual array of problem-solving resources, can present a unique set of challenges for Quality Coordinators like Pandora. But because Pandora — like Abbott people all around the world— puts our customers at the center of everything she does, she doesn’t let those obstacles stop her from delivering for the people who count on Abbott nutrition to help them get and stay healthy. This was exemplified in the case of an elderly cancer patient who was relying on Ensure for the majority of his nutritional needs. He contacted Abbott inquiring about discounts, and Pandora cared enough to dig into his story and fully understand the extent of his need, ultimately providing him with complimentary cases of Ensure to help keep his recovery on track. 17 DIABETES CARE FUTURE SENSE. Expanding our impact with new applications for our glucose-sensing technology. Real-Time Data AUTOMATICALLY DELIVERS UP-TO-THE- MINUTE GLUCOSE READINGS TO SMARTPHONES* FOR PEOPLE WITH DIABETES 18 * The FreeStyle Libre 3 app is only compatible with certain mobile devices and operating systems.For years, our diabetes care business has been building a digital ecosystem to help people with diabetes stay healthier. Our FreeStyle LibreLink app lets users send glucose data directly to their smartphones, then securely share it with family and healthcare providers in real time through our LibreLinkUp app. In 2020: • FreeStyle Libre 2, our integrated continuous glucose-monitoring (iCGM) system that transmits glucose data every minute with customizable, optional real-time alarms, was cleared for adults and children four years and older by the U.S. FDA. • FreeStyle Libre 14 day system was made available for use by frontline healthcare workers in hospitals to remotely monitor patients with diabetes who can scan themselves, minimizing healthcare workers’ exposure to COVID-19 and preserving use of personal protective equipment (PPE). • FreeStyle Libre 3, featuring the world’s smallest, thinnest sensor*, received CE mark in Europe. • Abbott announced a new collaboration with Insulet to develop a platform to integrate our leading glucose sensing technology with Insulet’s Omnipod Horizon™ Automated Insulin Delivery System. Through this platform, glucose data will be sent directly to the pod, which will automatically adjust insulin delivery. NAMVAR KIAIE Senior Director, Research and Development Alameda, California, USA In 2020, Namvar led a team that explored new and novel uses of Abbott’s cutting-edge sensing technology. With potential applications from remote monitoring of chronic conditions to helping maximize athletic performance, our sensor is poised to have an even greater impact on global health. * Among patient-applied sensors. Data on file, Abbott Diabetes Care. 19 LIBRE SENSE GLUCOSE SPORT BIOSENSOR Launched in Europe in 2020, Libre Sense helps athletes better understand the correlation between glucose levels and their athletic performance. Libre Sense Glucose Sport Biosensor is not intended for medical purposes. ABBOTT 2020 ANNUAL REPORT ELECTROPHYSIOLOGY AND CARDIAC RHY THM MANAGEMENT A STEADY BEAT. GALL ANT implantable cardioverter defibrillators offer smartphone connectivity to encourage greater patient engagement. KARA METCALF Territory Manager New York, New York, USA As the pandemic hit New York City, when many suppliers stopped visiting hospitals altogether, Kara continued assisting doctors with both electrophysiology and cardiac rhythm management procedures so that patients could get the critical treatment they needed, when they needed it. 20 Abbott’s expanding array of solutions helps manage abnormal heart rhythms in a variety of ways. Abbott’s innovative technologies help assess, treat, and manage long- term heart rhythm problems. Our cardiac rhythm management solutions include pacemakers, implantable cardiac defibrillators, and cardiac resynchronization devices. In electrophysiology, we help treat atrial fibrillation with next-generation mapping systems, as well as a full line of diagnostic and ablation catheters. • Our Confirm Rx insertable cardiac monitor with SharpSense technology is designed to accurately detect arrhythmias so doctors can confidently diagnose various forms of heart rhythm disorders. It features Bluetooth® wireless technology and an easy-to-use mobile app for fast and reliable remote monitoring. • In 2020, we received clearance in the U.S. for Gallant ICD and CRT-D, next- generation implantable cardioverter defibrillator devices that offer Bluetooth capability for a more meaningful connection between patients and their doctors. • Our electrophysiology portfolio includes the ADVISOR HD Grid Mapping Catheter, Sensor Enabled, which uses a first-of-its-kind electrode configuration to create more highly detailed maps of the heart; our TactiCath Ablation Catheter, Sensor Enabled which helps physicians determine where to apply optimal pressure during a cardiac ablation; and the Ensite X Cardiac Mapping System. 21 ABBOTT 2020 ANNUAL REPORTHEART FAILURE MANAGEMENT CONTINUOUS FLOW. MICHAEL DAHINDEN Manager, Manufacturing Engineering, Zürich, Switzerland When pandemic-related hospitalizations caused a dramatic increase in demand for our CentriMag circulatory support system, Michael and his colleagues leapt into action. They quickly ramped up production at our plant in Switzerland, while simultaneously redesigning, modernizing and expanding their manufacturing site to help ensure broad access to this life-saving technology. 22 FULL MAGLEV FLOW TECHNOLOGY Both HeartMate 3 and CentriMag employ this technology, which allows the pump’s rotor to be suspended by magnetic forces, reducing trauma to the blood as it passes through the pump. CENTRIMAG The only acute circulatory support system approved in the U.S. for 30-day use HEARTMATE 3 Left Ventricular Assist Device 2 0 2 0 A N N U A L R E P O R T A B B O T T 2 0 2 0 A N N U A L R E P O R T A B B O T T Abbott’s full spectrum of heart failure management tools help treat the condition at every stage. 2323 23 Heart failure, one of the world’s most serious and costly diseases, is a condition that tends to develop over time. Abbott’s comprehensive portfolio of cardiac technologies helps doctors assess and treat the condition throughout the progression of the disease. • CardioMEMS HF System is an implantable heart failure monitoring system that continuously monitors pulmonary artery pressure, letting healthcare providers assess a patient’s condition and adjust treatment plans remotely. • Our Gallant HF cardiac resynchronization defibrillator harnesses smartphone connectivity with long-lasting therapy, letting healthcare providers intuitively program the device to make a powerful difference in the lives of heart failure patients. • CentriMag is an external circulatory support system for use in acute care settings. • The HeartMate 3 Left Ventricular Assist Device (LVAD) is a miniature pump for patients in advanced stages of heart failure. HeartMate 3 is now available in the United States for use in pediatric patients, helping children and adolescents with advanced heart failure regain a sense of normal life. We also received clearance in the U.S. for a less-invasive method of implanting this device through an incision in the chest wall versus open-heart surgery.STRUCTURAL HEART STRUCTURALLY SOUND. 24 After Kellie, a sales representative for Abbott Nutrition, suffered a minor stroke, her doctor discovered that she had a small hole between the upper chambers of her heart and recommended she have Abbott’s Amplatzer PFO occluder implanted to repair it. This news would have been stressful under any circumstances, but coming at the start of the pandemic, it was even more so. Luckily, she was able to reach out to Pat, a colleague in our Structural Heart business, for guidance. Pat walked her through the process, helped her find the right doctor, and visited the hospital to reassure her on the day of her procedure. DR. JOHN WANG, M.D. Interventional CardiologistPATRICK COOKE Executive Account Manager Abbott Structural HeartKELLIE WARNER Amplatzer Patient and Abbott Nutrition Sales Representative Baltimore, Maryland, USAAMPLATZER PFO OCCLUDER Significantly lowers the risk of recurrent ischemic stroke. Our growing portfolio of minimally invasive devices helps patients lead healthier, more active lives. TRICLIP Approved in Europe in 2020, TriClip leverages proven Abbott technology to repair leaking tricuspid valves. >100 THOUSAND PEOPLE WORLDWIDE HAVE BENEFITED FROM ABBOT T’S MITRACLIP DEVICE 25 From transcatheter and surgical valves to structural interventions, our structural heart portfolio spans a wide range of life-changing technologies. In 2020, we expanded our offering with European clearance for a number of game-changing devices. • Tendyne is a novel transcatheter mitral valve implantation system that treats mitral regurgitation by replacing native valves, providing a life-changing option for patients who are not surgical candidates. • Our FlexNav delivery system improves control and delivery of our Portico valve, allowing doctors to treat severe aortic valve stenosis effectively without invasive surgery. • TriClip provides an important treatment option for people with severe tricuspid regurgitation, a difficult-to-manage heart condition.• Our next-generation MitraClip G4 device offers an expanded range of clip sizes, so doctors can tailor the repair with a customized approach based on each patient’s mitral valve anatomy. ABBOTT 2020 ANNUAL REPORTVASCUL AR CARE A CLEAR VISION. State-of-the-art imaging systems help deliver improved patient outcomes. OPTIS INTEGRATED SYSTEM Provides detailed information to guide stenting procedures. 2626 26 PEOPLE IN THE WORLD EXPERIENCE HEART DISEASE>33MILLIONJOSIE WEIGEL Endovascular Account Manager Chicago, Illinois, USA When the COVID-19 pandemic dramatically reduced the number of endovascular procedures being performed in hospitals and clinics, Josie and her colleagues found new ways to make a difference for their customers, including developing virtual training programs to help doctors and nurses meet their continuing-education goals. They also went the extra mile to work with their counterparts in Abbott electrophysiology (EP) on the use of Abbott’s Perclose vessel closure device to help decrease the time patients spend in the clinic. A B B O T T 2 0 2 0 A N N U A L R E P O R T Abbott’s vascular care products are designed to optimize stenting procedures with diagnostic and imaging devices that help interventional cardiologists assess blockages prior to placing our market-leading stents. Our comprehensive portfolio includes: • Our OPTIS integrated imaging system, which combines fractional flow reserve technology and optical coherence tomography to give doctors the information they need to make the best treatment decisions. • Pressurewire X, a guidewire that provides vital information to guide stenting procedures. • Supera stent, which offers superior flexibility for peripheral stenting procedures. • Perclose Proglide, a vascular closure system with the broadest indication for both femoral arterial and venous access. In September, we announced the start of a clinical trial to evaluate the safety and effectiveness of our new Esprit BTK Everolimus Eluting Resorbable Scaffold System. If approved, Esprit BTK would be the first fully bioresorbable stent approved to treat blocked arteries below the knees. XIENCE SIERRA Designed for enhanced deliverability. 27 NEUROMODUL ATION CUSTOMIZED CARE. 28 RYAN LAKIN Divisional Vice President, Product DevelopmentPlano, Texas, USAAt a time when COVID-19 restrictions limit some patients’ ability to visit their healthcare providers in person, Ryan and his team developed a highly secure application that remotely interacts with healthcare providers in a convenient, easy-to-use interface. PROCLAIM XR SYSTEM Recharge-free device has a battery that lasts up to 10 years at low-dose settings without ever needing to charge the system.1 Our advanced neuromodulation technologies are designed to optimize care for patients with chronic pain and movement disorders. Abbott’s portfolio of pain management therapies can help allow chronic pain patients to reduce or stabilize the long- term use of opioids and get back to living their lives. Our Deep Brain Stimulation (DBS) devices help people with movement disorders alleviate the symptoms of their conditions. An important innovation in this area is our next-generation smartphone application that allows clinicians to stay connected with their patients. Our leading-edge neuromodulation devices include: • Our Proclaim series of devices designed to deliver spinal cord stimulation (SCS) for the treatment of chronic pain, and dorsal root ganglion (DRG) stimulation for patients seeking relief from nerve pain from complex regional pain syndrome (CRPS). The Proclaim SCS System can employ our proprietary BurstDR stimulation waveform, a therapy designed to more closely mimic how pain signals travel to the brain. • The IonicRF radio-frequency ablation system, which offers a minimally invasive treatment option for early therapeutic interventions for chronic pain patients. • The Infinity DBS system, the only directional DBS system approved for all major targets in the brain used to treat Parkinson’s disease and essential tremor. 29 ankle painknee pain1Up to 10 years of battery longevity at the lowest dose setting: 0.6mA, 500 Ohms, duty cycle 30s on/360s off. NOTE: In neurostimulation therapy, ‘dose’ refers to the delivery of a quantity of energy to tissue. Safety comparisons and specific dose-response curves for each dosage have not been clinically established.ABBOTT 2020 ANNUAL REPORTContinually improving our global supply chain helped ensure steady access to our trusted medicines in 2020. ESTABLISHED PHARMACEUTICALS MAXIMIZING ACCESS. >1,500 ABBOTT OFFERS A BROAD PORTFOLIO OF TRUSTED MEDICINES 3030 30 A B B O T T 2 0 2 0 A N N U A L R E P O R T KOKO YAO Senior Manager, Supply, Shanghai, China With shipping and air freight capacity significantly reduced between Europe and China, Koko and her colleagues were tasked with finding alternatives for bringing our medicines to China from our manufacturing facilities in Europe. Taking inspiration from history, they established what they called the “The New Silk Road” (after the historic trade route between Europe and China), leveraging a train-based transportation network to ensure a steady supply of medicines to Chinese customers, despite the limitations imposed by COVID-19. 31 We believe that the best medical products are those that help the most people. That’s why Abbott tailors our product portfolios to the specific needs of the local communities we serve, helping ensure that we can make a life-changing difference for more people, in more places. We are a trusted source for high-quality medicines, and we work continuously to build on our leadership positions with new indications and new ways of using our medicines. Among our accomplishments in 2020:• Launching the world’s first once-a-day Ivabradine formulation for heart failure and angina patients. • Approval in China for Duphaston for luteal phase support for in-vitro fertilization.• The launch of Heptral, a medicine for liver health, as an over-the-counter medicine in Russia. • Introducing Influvac Tetra, our quadrivalent influenza vaccine, in 12 markets and expanding our indication in 16 markets to cover children, adolescents and young adults from 3 to 17 years old.A B B O T T 2 0 2 0 A N N U A L R E P O R T 20202020 FINANCIAL FINANCIAL REPORT REPORT 32 33 Consolidated Statement of Earnings 33 Consolidated Statement of Earnings 34 Consolidated Statement of 34 Consolidated Statement of Comprehensive Income Comprehensive Income 35 Consolidated Statement of Cash Flows 35 Consolidated Statement of Cash Flows 36 Consolidated Balance Sheet 36 Consolidated Balance Sheet 38 Consolidated Statement of 38 Consolidated Statement of Shareholders’ Investment Shareholders’ Investment 39 Notes to Consolidated 39 Notes to Consolidated Financial Statements Financial Statements 58 Management Report on Internal 58 Management Report on Internal Control Over Financial Reporting Control Over Financial Reporting 58 Report of Independent Registered 58 Report of Independent Registered Public Accounting Firm Public Accounting Firm 60 Report of Independent Registered 60 Report of Independent Registered Public Accounting Firm Public Accounting Firm 61 Financial Instruments and 61 Financial Instruments and Risk Management Risk Management 62 Financial Review 62 Financial Review 75 Performance Graph 75 Performance Graph 77 Directors and Corporate Officers 77 Directors and Corporate Officers 78 Shareholder and Corporate Information 78 Shareholder and Corporate Information C O N S O L I D AT E D S TAT E M E N T O F E A R N I N G S (in millions except per share data) Year Ended December 31 Net Sales Cost of products sold, excluding amortization of intangible assets Amortization of intangible assets Research and development Selling, general and administrative Total Operating Cost and Expenses Operating Earnings Interest expense Interest income Net foreign exchange (gain) loss Debt extinguishment costs Other (income) expense, net Earnings from Continuing Operations Before Taxes Taxes on Earnings from Continuing Operations Earnings from Continuing Operations Net Earnings from Discontinued Operations, net of taxes 2020 $34,608 15,003 2,132 2,420 9,696 29,251 5,357 546 (46) (8) — (103) 4,968 497 4,471 24 2019 $31,904 13,231 1,936 2,440 9,765 27,372 4,532 670 (94) 7 63 (191) 4,077 390 3,687 — 2018 $30,578 12,706 2,178 2,300 9,744 26,928 3,650 826 (105) 28 167 (139) 2,873 539 2,334 34 Net Earnings $÷4,495 $÷3,687 $÷2,368 Basic Earnings Per Common Share — Continuing Operations Discontinued Operations Net Earnings Diluted Earnings Per Common Share — Continuing Operations Discontinued Operations Net Earnings Average Number of Common Shares Outstanding Used for Basic Earnings Per Common Share Dilutive Common Stock Options Average Number of Common Shares Outstanding Plus Dilutive Common Stock Options Outstanding Common Stock Options Having No Dilutive Effect $÷÷2.51 0.01 $÷÷2.52 $÷÷2.49 0.01 $÷÷2.50 1,773 13 1,786 9 $÷÷2.07 — $÷÷2.07 $÷÷2.06 — $÷÷2.06 1,768 13 1,781 61 The accompanying notes to consolidated financial statements are an integral part of this statement. $÷÷1.32 0.02 $÷÷1.34 $÷÷1.31 0.02 $÷÷1.33 1,758 12 1,770 — 33 ABBOTT 2020 ANNUAL REPORTC O N S O L I D AT E D S TAT E M E N T O F C O M P R E H E N S I V E I N C O M E (in millions) Year Ended December 31 Net Earnings Foreign currency translation gain (loss) adjustments Net actuarial gains (losses) and prior service cost and credits and amortization of net actuarial losses and prior service cost and credits, net of taxes of $(79) in 2020, $(238) in 2019 and $47 in 2018 Net (losses) gains on derivative instruments designated as cash flow hedges, net of taxes of $(87) in 2020, $(17) in 2019 and $50 in 2018 Other Comprehensive Income (Loss) Comprehensive Income Supplemental Accumulated Other Comprehensive Income (Loss) Information, net of tax as of December 31: Cumulative foreign currency translation (loss) adjustments Net actuarial (losses) and prior service (cost) and credits Cumulative (losses) gains on derivative instruments designated as cash flow hedges Accumulated other comprehensive income (loss) 2020 $«4,495 65 (331) (215) (481) $«4,014 $(4,859) (3,871) (216) $(8,946) The accompanying notes to consolidated financial statements are an integral part of this statement. 2019 $«3,687 (12) (814) (53) (879) $«2,808 $(4,924) (3,540) (1) $(8,465) 2018 $«2,368 (1,460) 132 136 (1,192) $«1,176 $(4,912) (2,726) 52 $(7,586) 34 ABBOTT 2020 ANNUAL REPORTC O N S O L I D AT E D S TAT E M E N T O F C A S H F L O W S (in millions) Year Ended December 31 2020 2019 2018 $«4,495 $«3,687 $«÷2,368 Cash Flow From (Used in) Operating Activities: Net earnings Adjustments to reconcile earnings to net cash from operating activities — Depreciation Amortization of intangible assets Share‑based compensation Amortization of inventory step‑up Investing and financing losses, net Loss on extinguishment of debt Trade receivables Inventories Prepaid expenses and other assets Trade accounts payable and other liabilities Income taxes Net Cash From Operating Activities Cash Flow From (Used in) Investing Activities: Acquisitions of property and equipment Acquisitions of businesses and technologies, net of cash acquired Proceeds from business dispositions Purchases of investment securities Proceeds from sales of investment securities Other Net Cash From (Used in) Investing Activities Cash Flow From (Used in) Financing Activities: Proceeds from issuance of (repayments of ) short‑term debt, net and other Proceeds from issuance of long‑term debt and debt with maturities over 3 months Repayments of long‑term debt and debt with maturities over 3 months Purchases of common shares Proceeds from stock options exercised Dividends paid Other Net Cash From (Used in) Financing Activities Effect of exchange rate changes on cash and cash equivalents Net Increase (Decrease) in Cash and Cash Equivalents Cash and Cash Equivalents, Beginning of Year Cash and Cash Equivalents, End of Year Supplemental Cash Flow Information: Income taxes paid Interest paid 1,195 2,132 546 — 425 — (924) (493) (627) 1,766 (614) 7,901 (2,177) (42) 58 (83) 10 19 (2,215) 2 1,281 (1,333) (403) 245 (2,560) (11) (2,779) 71 2,978 3,860 $«6,838 $÷÷970 549 1,078 1,936 519 — 184 63 (275) (593) (138) 220 (545) 6,136 (1,638) (170) 48 (103) 21 27 (1,815) — 1,842 (3,441) (718) 298 (2,270) — (4,289) (16) 16 3,844 $«3,860 $÷÷930 677 The accompanying notes to consolidated financial statements are an integral part of this statement. 1,100 2,178 477 32 126 167 (190) (514) 23 747 (214) 6,300 (1,394) (54) 48 (131) 73 102 (1,356) (26) 4,009 (12,433) (238) 271 (1,974) — (10,391) (116) (5,563) 9,407 $÷«3,844 $÷÷÷740 845 35 ABBOTT 2020 ANNUAL REPORTC O N S O L I D AT E D B A L A N C E S H E E T (dollars in millions) December 31 Assets Current assets: Cash and cash equivalents Investments, primarily bank time deposits and U.S. treasury bills Trade receivables, less allowances of — 2020: $460; 2019: $384 Inventories: Finished products Work in process Materials Total inventories Other prepaid expenses and receivables Total current assets Investments Property and equipment, at cost: Land Buildings Equipment Construction in progress Less: accumulated depreciation and amortization Net property and equipment Intangible assets, net of amortization Goodwill Deferred income taxes and other assets The accompanying notes to consolidated financial statements are an integral part of this statement. 2020 2019 $÷6,838 310 6,414 3,030 712 1,270 5,012 1,867 20,441 821 538 4,014 12,884 1,357 18,793 9,764 9,029 14,784 23,744 3,729 $72,548 $÷3,860 280 5,425 2,784 560 972 4,316 1,786 15,667 883 519 3,702 11,468 1,110 16,799 8,761 8,038 17,025 23,195 3,079 $67,887 36 ABBOTT 2020 ANNUAL REPORTC O N S O L I D AT E D B A L A N C E S H E E T (dollars in millions) December 31 Liabilities and Shareholders’ Investment Current liabilities: Short‑term borrowings Trade accounts payable Salaries, wages and commissions Other accrued liabilities Dividends payable Income taxes payable Current portion of long‑term debt Total current liabilities Long‑term debt Post‑employment obligations and other long‑term liabilities Commitments and contingencies Shareholders’ investment: Preferred shares, one dollar par value Authorized — 1,000,000 shares, none issued Common shares, without par value Authorized — 2,400,000,000 shares Issued at stated capital amount — Shares: 2020: 1,981,156,896; 2019: 1,976,855,085 Common shares held in treasury, at cost — Shares: 2020: 209,926,622; 2019: 214,351,838 Earnings employed in the business Accumulated other comprehensive income (loss) Total Abbott Shareholders’ Investment Noncontrolling interests in subsidiaries Total Shareholders’ Investment The accompanying notes to consolidated financial statements are an integral part of this statement. 2020 2019 $÷÷÷213 3,946 1,416 5,165 798 362 7 11,907 18,527 9,111 $÷÷÷201 3,252 1,237 4,035 635 226 1,277 10,863 16,661 9,062 — — 24,145 (10,042) 27,627 (8,946) 32,784 219 33,003 $«72,548 23,853 (10,147) 25,847 (8,465) 31,088 213 31,301 $«67,887 37 ABBOTT 2020 ANNUAL REPORTC O N S O L I D AT E D S TAT E M E N T O F S H A R E H O L D E R S ’ I N V E S T M E N T (in millions except shares and per share data) Year Ended December 31 2020 2019 2018 Common Shares: Beginning of Year Shares: 2020: 1,976,855,085; 2019: 1,971,189,465; 2018: 1,965,908,188 Issued under incentive stock programs Shares: 2020: 4,301,811; 2019: 5,665,620; 2018: 5,281,277 Share‑based compensation Issuance of restricted stock awards End of Year Shares: 2020: 1,981,156,896; 2019: 1,976,855,085; 2018: 1,971,189,465 Common Shares Held in Treasury: Beginning of Year Shares: 2020: 214,351,838; 2019: 215,570,043; 2018: 222,305,719 Issued under incentive stock programs Shares: 2020: 6,290,757; 2019: 7,796,030; 2018: 8,870,735 Purchased Shares: 2020: 1,865,541; 2019: 6,577,825; 2018: 2,135,059 End of Year Shares: 2020: 209,926,622; 2019: 214,351,838; 2018: 215,570,043 Earnings Employed in the Business: Beginning of Year Impact of adoption of new accounting standards Net earnings Cash dividends declared on common shares (per share — 2020: $1.53; 2019: $1.32; 2018: $1.16) Effect of common and treasury share transactions End of Year Accumulated Other Comprehensive Income (Loss): Beginning of Year Impact of adoption of new accounting standards Other comprehensive income (loss) End of Year Noncontrolling Interests in Subsidiaries: Beginning of Year Noncontrolling Interests’ share of income, business combinations, net of distributions and share repurchases End of Year $«23,853 $«23,512 $«23,206 181 548 (437) 209 521 (389) 163 479 (336) $«24,145 $«23,853 $«23,512 $(10,147) $÷(9,962) $(10,225) 298 (193) 361 (546) 408 (145) $(10,042) $(10,147) $÷(9,962) $«25,847 (5) 4,495 (2,722) 12 $«27,627 $÷(8,465) — (481) $÷(8,946) $÷÷÷213 6 $÷÷÷219 $«24,560 — 3,687 (2,343) (57) $«25,847 $÷(7,586) — (879) $÷(8,465) $÷÷÷198 15 $÷÷÷213 $«23,978 351 2,368 (2,047) (90) $«24,560 $÷(6,062) (332) (1,192) $÷(7,586) $÷÷÷201 (3) $÷÷÷198 The accompanying notes to consolidated financial statements are an integral part of this statement. 38 ABBOTT 2020 ANNUAL REPORTNOTE 1 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Nature of Business — Abbott’s principal business is the discovery, development, manufacture and sale of a broad line of health care products. Basis of Consolidation — The consolidated financial statements include the accounts of the parent company and subsidiaries, after elimination of intercompany transactions. Use of Estimates — The consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States and necessarily include amounts based on estimates and assumptions by management. Actual results could differ from those amounts. Significant estimates include amounts for sales rebates, income taxes, pension and other post‑employment benefits, valuation of intangible assets, litiga‑ tion, derivative financial instruments, and inventory and accounts receivable exposures. Foreign Currency Translation — The statements of earnings of foreign subsidiaries whose functional currencies are other than the U.S. dollar are translated into U.S. dollars using average exchange rates for the period. The net assets of foreign subsidiar‑ ies whose functional currencies are other than the U.S. dollar are translated into U.S. dollars using exchange rates as of the balance sheet date. The U.S. dollar effects that arise from translating the net assets of these subsidiaries at changing rates are recorded in the foreign currency translation adjustment account, which is included in equity as a component of Accumulated other compre‑ hensive income (loss). Transaction gains and losses are recorded on the Net foreign exchange (gain) loss line of the Consolidated Statement of Earnings. Revenue Recognition — Revenue from product sales is recognized upon the transfer of control, which is generally upon shipment or delivery, depending on the delivery terms set forth in the customer contract. Provisions for discounts, rebates and sales incentives to customers, and returns and other adjustments are provided for in the period the related sales are recorded. Sales incentives to cus‑ tomers are not material. Historical data is readily available and reliable, and is used for estimating the amount of the reduction in gross sales. Revenue from the launch of a new product, from an improved version of an existing product, or for shipments in excess of a customer’s normal requirements are recorded when the conditions noted above are met. In those situations, manage‑ ment records a returns reserve for such revenue, if necessary. In certain of Abbott’s businesses, primarily within diagnostics, Abbott participates in selling arrangements that include multiple performance obligations (e.g., instruments, reagents, procedures, and service agreements). The total transaction price of the con‑ tract is allocated to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obliga‑ tion. Sales of product rights for marketable products are recorded as revenue upon disposition of the rights. Income Taxes — Deferred income taxes are provided for the tax effect of differences between the tax bases of assets and liabilities and their reported amounts in the financial statements at the enacted statutory rate to be in effect when the taxes are paid. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax related to the U.S. Tax Cuts and Jobs Act (TCJA), or any additional outside basis differences that exist, as these amounts continue to be indefinitely reinvested in foreign operations. Effective for fiscal years beginning after December 31, 2017, the TCJA subjects tax‑ payers to tax on global intangible low‑taxed income (GILTI) earned by certain foreign subsidiaries. Abbott treats the GILTI tax as a period expense and provides for the tax in the year that the tax is incurred. Interest and penalties on income tax obligations are included in taxes on earnings. Earnings Per Share — Unvested restricted stock units and awards that contain non‑forfeitable rights to dividends are treated as participating securities and are included in the computation of earnings per share under the two‑class method. Under the two‑ class method, net earnings are allocated between common shares and participating securities. Earnings from Continuing Operations allocated to common shares in 2020, 2019 and 2018 were $4.449 billion, $3.666 billion and $2.320 billion, respectively. Net earnings allocated to common shares in 2020, 2019 and 2018 were $4.473 billion, $3.666 billion and $2.353 billion, respectively. Pension and Post-Employment Benefits — Abbott accrues for the actuarially determined cost of pension and post‑employment benefits over the service attribution periods of the employees. Abbott must develop long‑term assumptions, the most significant of which are the health care cost trend rates, discount rates and the expected return on plan assets. Differences between the expected long‑term return on plan assets and the actual return are amortized over a five‑year period. Actuarial losses and gains are amortized over the remaining service attribution periods of the employees under the corridor method. Fair Value Measurements — For assets and liabilities that are mea‑ sured using quoted prices in active markets, total fair value is the published market price per unit multiplied by the number of units held without consideration of transaction costs. Assets and liabili‑ ties that are measured using significant other observable inputs are valued by reference to similar assets or liabilities, adjusted for contract restrictions and other terms specific to that asset or liability. For these items, a significant portion of fair value is derived by reference to quoted prices of similar assets or liabilities in active markets. For all remaining assets and liabilities, fair value is derived using a fair value model, such as a discounted cash flow model or Black‑Scholes model. Purchased intangible assets are recorded at fair value. The fair value of significant purchased intangible assets is based on independent appraisals. Abbott uses a discounted cash flow model to value intangible assets. The discounted cash flow model requires assumptions about the timing and amount of future net cash flows, risk, the cost of capital, terminal values and market participants. Intangible assets are reviewed for impairment on a quarterly basis. Goodwill and indefinite‑lived intangible assets are tested for impairment at least annually. Share-Based Compensation — The fair value of stock options and restricted stock awards and units are amortized over their requisite service period, which could be shorter than the vesting period if an employee is retirement eligible, with a charge to compensation expense. 39 ABBOTT 2020 ANNUAL REPORTNOTES TO CONSOLIDATED FINANCIAL STATEMENTSLitigation — Abbott accounts for litigation losses in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) No. 450, “Contingencies.” Under ASC No. 450, loss contingency provisions are recorded for proba‑ ble losses at management’s best estimate of a loss, or when a best estimate cannot be made, a minimum loss contingency amount is recorded. Legal fees are recorded as incurred. Cash, Cash Equivalents and Investments — Cash equivalents consist of bank time deposits, U.S. government securities, money market funds and U.S. treasury bills with original maturities of three months or less. Abbott holds certain investments with a carrying value of $277 million that are accounted for under the equity method of accounting. Investments held in a rabbi trust and invest‑ ments in publicly traded equity securities are recorded at fair value and changes in fair value are recorded in earnings. Investments in equity securities that are not traded on public stock exchanges are recorded at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for identical or similar investments of the same issuer. Investments in debt securities are classified as held‑to‑maturity, as management has both the intent and ability to hold these securities to maturity, and are reported at cost, net of any unamortized premium or discount. Income relating to these securities is reported as interest income. Trade Receivable Valuations — Accounts receivable are stated at the net amount expected to be collected. The allowance for doubt‑ ful accounts reflects the current estimate of credit losses expected to be incurred over the life of the accounts receivable. Abbott considers various factors in establishing, monitoring, and adjust‑ ing its allowance for doubtful accounts, including the aging of the accounts and aging trends, the historical level of charge‑offs, and specific exposures related to particular customers. Abbott also monitors other risk factors and forward‑looking information, such as country risk, when determining credit limits for customers and establishing adequate allowances. Accounts receivable are charged off after all reasonable means to collect the full amount (including litigation, where appropriate) have been exhausted. Inventories — Inventories are stated at the lower of cost (first‑in, first‑out basis) or net realizable value. Cost includes material and conversion costs. Property and Equipment — Depreciation and amortization are provided on a straight‑line basis over the estimated useful lives of the assets. The following table shows estimated useful lives of property and equipment: Classification Buildings Equipment Estimated Useful Lives 10 to 50 years 2 to 20 years Product Liability — Abbott accrues for product liability claims when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on existing information. The liabilities are adjusted quarterly as additional information becomes available. Product liability losses are self‑insured. Research and Development Costs — Internal research and develop‑ ment costs are expensed as incurred. Clinical trial costs incurred by third parties are expensed as the contracted work is performed. Where contingent milestone payments are due to third parties under research and development arrangements, the milestone payment obligations are expensed when the milestone results are achieved. Acquired In-Process and Collaborations Research and Development (IPR&D) — The initial costs of rights to IPR&D projects obtained in an asset acquisition are expensed as IPR&D unless the project has an alternative future use. These costs include initial payments incurred prior to regulatory approval in connection with research and development collaboration agreements that provide rights to develop, manufacture, market and/or sell pharmaceutical or medi‑ cal device products. The fair value of IPR&D projects acquired in a business combination are capitalized and accounted for as indefi‑ nite‑lived intangible assets until completed and are then amortized over the remaining useful life. Collaborations are not significant. Concentration of Risk and Guarantees — Due to the nature of its operations, Abbott is not subject to significant concentration risks relating to customers, products or geographic locations. Product warranties are not significant. Abbott has no material exposures to off‑balance sheet arrange‑ ments; no special purpose entities; nor activities that include non‑exchange‑traded contracts accounted for at fair value. Abbott periodically acquires a business or product rights in which Abbott agrees to pay contingent consideration based on attaining certain thresholds or based on the occurrence of certain events. NOTE 2 — NEW ACCOUNTING STANDARDS RECENTLY ADOPTED ACCOUNTING STANDARDS In February 2018, the FASB issued Accounting Standards Update (ASU) 2018‑02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows companies to reclassify stranded tax effects resulting from the 2017 Tax Cuts and Jobs Act, from Accumulated other comprehen‑ sive income (loss) to retained earnings (Earnings employed in the business). Abbott adopted the new standard at the beginning of the fourth quarter of 2018. As a result of the adoption of the new standard, approximately $337 million of stranded tax effects were reclassified from Accumulated other comprehensive income (loss) to Earnings employed in the business. In October 2016, the FASB issued ASU 2016‑16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which requires the recognition of the income tax effects of intercom‑ pany sales and transfers of assets, other than inventory, in the period in which the transfer occurs. Abbott adopted the standard on January 1, 2018, using a modified retrospective approach and recorded a cumulative catch‑up adjustment to Earnings employed in the business in the Consolidated Balance Sheet that was not significant. 40 ABBOTT 2020 ANNUAL REPORTNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 3 — REVENUE Abbott’s revenues are derived primarily from the sale of a broad line of health care products under short‑term receivable arrangements. Patent protection and licenses, technological and performance features, and inclusion of Abbott’s products under a contract most impact which products are sold; price controls, competition and rebates most impact the net selling prices of products; and foreign currency translation impacts the measure‑ ment of net sales and costs. Abbott’s products are generally sold directly to retailers, wholesalers, distributors, hospitals, health care facilities, laboratories, physicians’ offices and government agencies throughout the world. Abbott has four reportable seg‑ ments: Established Pharmaceutical Products, Diagnostic Products, Nutritional Products, and Medical Devices. 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 meth‑ odology 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 December 2019, the FASB issued ASU 2019‑12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which among other things, eliminates certain exceptions in the current rules regarding the approach for intraperiod tax allocations and the methodology for calculating income taxes in an interim period, and clarifies the accounting for transactions that result in a step‑up in the tax basis of goodwill.  The standard becomes effec‑ tive for Abbott in the first quarter of 2021. Adoption of this new standard will not have a material impact on Abbott’s consolidated financial statements. The following tables provide detail by sales category: (in millions) Established Pharmaceutical Products — Key Emerging Markets Other Total Nutritionals — Pediatric Nutritionals Adult Nutritionals Total Diagnostics — Core Laboratory Molecular Point of Care Rapid Diagnostics Total Medical Devices — Rhythm Management Electrophysiology Heart Failure Vascular Structural Heart Neuromodulation Diabetes Care Total Other Total U.S. Int’l 2020 Total U.S. Int’l 2019 Total U.S. Int’l 2018 Total $÷÷÷÷— — — $÷3,209 1,094 4,303 $÷3,209 1,094 4,303 $÷÷÷÷— — — $÷3,392 1,094 4,486 $÷3,392 1,094 4,486 $÷÷÷÷— — — $÷3,363 1,059 4,422 $÷3,363 1,059 4,422 1,987 1,292 3,279 1,166 621 369 2,618 4,774 903 660 547 853 540 564 864 4,931 38 $13,022 2,140 2,228 4,368 3,309 817 147 1,758 6,031 1,011 918 193 1,486 707 138 2,403 6,856 28 $21,586 4,127 3,520 7,647 4,475 1,438 516 4,376 10,805 1,914 1,578 740 2,339 1,247 702 3,267 11,787 66 $34,608 1,879 1,231 3,110 1,086 149 438 1,214 2,887 1,057 742 574 1,047 616 660 678 5,374 27 $11,398 2,282 2,017 4,299 3,570 293 123 840 4,826 1,087 979 195 1,803 784 171 1,846 6,865 30 $20,506 4,161 3,248 7,409 4,656 442 561 2,054 7,713 2,144 1,721 769 2,850 1,400 831 2,524 12,239 57 $31,904 1,843 1,232 3,075 985 152 432 1,148 2,717 1,105 678 467 1,126 488 690 457 5,011 36 $10,839 2,254 1,900 4,154 3,401 332 121 924 4,778 1,093 883 179 1,803 751 174 1,476 6,359 26 $19,739 4,097 3,132 7,229 4,386 484 553 2,072 7,495 2,198 1,561 646 2,929 1,239 864 1,933 11,370 62 $30,578 41 ABBOTT 2020 ANNUAL REPORTNOTES TO CONSOLIDATED FINANCIAL STATEMENTSAbbott recognizes revenue from product sales upon the transfer of control, which is generally upon shipment or delivery, depend‑ ing on the delivery terms set forth in the customer contract. For maintenance agreements that provide service beyond Abbott’s standard warranty and other service agreements, revenue is recognized ratably over the contract term. A time‑based measure of progress appropriately reflects the transfer of services to the customer. Payment terms between Abbott and its customers vary by the type of customer, country of sale, and the products or services offered. The term between invoicing and the payment due date is not significant. Management exercises judgment in estimating variable consider‑ ation. Provisions for discounts, rebates and sales incentives to customers, and returns and other adjustments are provided for in the period the related sales are recorded. Sales incentives to customers are not material. Historical data is readily available and reliable, and is used for estimating the amount of the reduc‑ tion in gross sales. Abbott provides rebates to government agencies, wholesalers, group purchasing organizations and other private entities. Rebate amounts are usually based upon the volume of purchases using contractual or statutory prices for a product. Factors used in the rebate calculations include the identification of which products have been sold subject to a rebate, which customer or government agency price terms apply, and the estimated lag time between sale and payment of a rebate. Using historical trends, adjusted for current changes, 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. Abbott regularly analyzes the historical rebate trends and makes adjustments to reserves for changes in trends and terms of rebate programs. Historically, adjustments to prior years’ rebate accruals have not been material to net income. Other allowances charged against gross sales include cash dis‑ counts and returns, which are not significant. 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 return terms and other sales terms have remained relatively unchanged for several periods. Product warranties are also not significant. Abbott also applies judgment in determining the timing of revenue recognition related to contracts that include multiple performance obligations. The total transaction price of the con‑ tract is allocated to each performance obligation in an amount based on the estimated relative standalone selling prices of the promised goods or services underlying each performance obliga‑ tion. For goods or services for which observable standalone selling prices are not available, Abbott uses an expected cost plus a mar‑ gin approach to estimate the standalone selling price of each performance obligation. REMAINING PERFORMANCE OBLIGATIONS As of December 31, 2020, the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) was approximately $3.8 billion in the Diagnostic Products segment and approximately $430 million in the Medical Devices segment. Abbott expects to recognize revenue on approximately 60 percent of these remaining performance obligations over the next 24 months, approximately 17 percent over the subsequent 12 months and the remainder thereafter. These performance obligations primarily reflect the future sale of reagents/consumables in contracts with minimum purchase obligations, extended warranty or service obligations related to previously sold equipment, and remote monitoring services related to previously implanted devices. Abbott has applied the practical expedient described in ASC 606‑10‑50‑14 and has not included remaining performance obligations related to contracts with original expected durations of one year or less in the amounts above. ASSETS RECOGNIZED FOR COSTS TO OBTAIN A CONTRACT WITH A CUSTOMER Abbott has applied the practical expedient in ASC 340‑40‑25‑4 and records as an expense the incremental costs of obtaining contracts with customers in the period of occurrence when the amortization period of the asset that Abbott otherwise would have recognized is one year or less. Upfront commission fees paid to sales personnel as a result of obtaining or renewing contracts with customers are incremental to obtaining the contract. Abbott capi‑ talizes these amounts as contract costs. Capitalized commission fees are amortized based on the contract duration to which the assets relate which ranges from two to ten years. The amounts as of December 31, 2020 and 2019 were not significant. Additionally, the cost of transmitters provided to customers that use Abbott’s remote monitoring service with respect to certain medical devices are capitalized as contract costs. Capitalized transmitter costs are amortized based on the timing of the transfer of services to which the assets relate, which typically ranges from eight to ten years. The amounts as of December 31, 2020 and 2019 were not significant. OTHER CONTRACT ASSETS AND LIABILITIES Abbott discloses Trade receivables separately in the Consolidated Balance Sheet at the net amount expected to be collected. Contract assets primarily relate to Abbott’s conditional right to consider‑ ation for work completed but not billed at the reporting date. Contract assets at the beginning and end of the period, as well as the changes in the balance, were not significant. Contract liabilities primarily relate to payments received from customers in advance of performance under the contract. Abbott’s contract liabilities arise primarily in the Medical Devices report‑ able segment when payment is received upfront for various multi‑period extended service arrangements. Changes in the contract liabilities during the period are as follows: (in millions) Contract Liabilities: Balance at December 31, 2018 Unearned revenue from cash received during the period Revenue recognized related to contract liability balance Balance at December 31, 2019 Unearned revenue from cash received during the period Revenue recognized related to contract liability balance Balance at December 31, 2020 $«259 411 (376) 294 505 (394) $«405 42 ABBOTT 2020 ANNUAL REPORTNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 4 — DISCONTINUED OPERATIONS AND BUSINESS DISPOSITIONS The net earnings of discontinued operations include income tax benefits of $24 million in 2020 and $39 million in 2018. The 2020 tax benefits primarily relate to the resolution of various tax positions related to Abbott’s developed markets branded generic pharmaceuticals business which was sold to Mylan Inc. (Mylan) in 2015. The tax positions relate to years prior to the sale to Mylan. The 2018 tax benefits primarily relate to the resolution of various tax positions related to the operations of AbbVie Inc. (AbbVie) for years prior to the separation. Abbott completed the separation of AbbVie, which was formed to hold Abbott’s research‑based proprietary pharmaceuticals business, in January 2013. Abbott retained all liabilities for all U.S. federal and foreign income taxes on income prior to the separation. NOTE 5 — SUPPLEMENTAL FINANCIAL INFORMATION Other (income) expense, net, for 2020, 2019 and 2018 includes approximately $205 million, $225 million and $160 million of income, respectively, related to the non‑service cost components of the net periodic benefit costs associated with the pension and post‑retirement medical plans. The following summarizes the activity for 2020 related to the allowance for doubtful accounts as of December 31, 2020: (in millions) Allowance for Doubtful Accounts: Balance at December 31, 2019 Impact of adopting ASU 2016‑13 Provisions/charges to income Amounts charged off and other deductions Balance at December 31, 2020 $228 7 88 (35) $288 The allowance for doubtful accounts reflects the current estimate of credit losses expected to be incurred over the life of the accounts receivable. Abbott considers various factors in establish‑ ing, monitoring, and adjusting its allowance for doubtful accounts, including the aging of the accounts and aging trends, the historical level of charge‑offs, and specific exposures related to particular customers. Abbott also monitors other risk factors and forward‑ looking information, such as country risk, when determining credit limits for customers and establishing adequate allowances. The detail of various balance sheet components is as follows: (in millions) December 31 Long‑term Investments: Equity securities Other Total 2020 2019 $776 45 $821 $836 47 $883 Abbott’s long‑term investments as of December 31, 2020 declined versus the balance as of December 31, 2019 due primarily to investment impairments totaling approximately $115 million, recorded in Other (income) expense, net within the Consolidated Statement of Earnings, which was partially offset by approxi‑ mately $35 million of additional investments during 2020. Abbott’s equity securities as of December 31, 2020 and December 31, 2019, include $366 million and $346 million, respectively, of investments in mutual funds that are held in a rabbi trust acquired as part of the St. Jude Medical, Inc. (St. Jude Medical) business acquisition. These investments, which are specifically designated as available for the purpose of paying benefits under a deferred compensation plan, are not available for general corporate purposes and are subject to creditor claims in the event of insolvency. Abbott also holds certain investments as of December 31, 2020 with a carrying value of $277 million that are accounted for under the equity method of accounting and other equity investments with a carrying value of $113 million that do not have a readily determinable fair value. The $113 million carrying value is net of an approximately $60 million impairment of an investment in 2020 for which Abbott had previously recorded an unrealized gain of approximately $50 million in 2018. In 2019, in conjunction with the acquisition of Cephea Valve Technologies, Inc., Abbott acquired a research & development (R&D) asset valued at $102 million, which was immediately expensed. The $102 million of expense was recorded in the R&D line of Abbott’s Consolidated Statement of Earnings. (in millions) December 31 Other Accrued Liabilities: Accrued rebates payable to government agencies Accrued other rebates (a) All other Total 2020 2019 $÷«316 805 4,044 $5,165 $÷«212 655 3,168 $4,035 (a) Accrued wholesaler chargeback rebates of $178 million and $175 million at December 31, 2020 and 2019, respectively, are netted in trade receivables because Abbott’s customers are invoiced at a higher catalog price but only remit to Abbott their contract price for the products. (in millions) December 31 Post‑employment Obligations and Other Long‑term Liabilities: Defined benefit pension plans and post‑employment medical and dental plans for significant plans Deferred income taxes Operating lease liabilities All other (b) Total 2020 2019 $3,119 1,406 902 3,684 $9,111 $2,817 1,546 755 3,944 $9,062 (b) Includes approximately $740 million and $580 million of net unrecognized tax benefits in 2020 and 2019, respectively. 43 ABBOTT 2020 ANNUAL REPORTNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 6 — ACCUMUL ATED OTHER COMPREHENSIVE INCOME (LOSS) The components of the changes in accumulated other comprehensive income (loss) from continuing operations, net of income taxes, are as follows: (in millions) Balance at December 31, 2018 Other comprehensive income (loss) before reclassifications (Income) loss amounts reclassified from accumulated other comprehensive income (a) Net current period other comprehensive income (loss) Balance at December 31, 2019 Other comprehensive income (loss) before reclassifications (Income) loss amounts reclassified from accumulated other comprehensive income (a) Net current period other comprehensive income (loss) Balance at December 31, 2020 Cumulative Foreign Currency Translation Adjustments $(4,912) (12) Net Actuarial (Losses) and Prior Service (Costs) and Credits $(2,726) (719) Cumulative Gains (Losses) on Derivative Instruments Designated as Cash Flow Hedges $÷«52 2 — (12) (4,924) 65 — 65 $(4,859) (95) (814) (3,540) (523) 192 (331) $(3,871) (55) (53) (1) (140) (75) (215) $(216) Total $(7,586) (729) (150) (879) (8,465) (598) 117 (481) $(8,946) (a) (Income) loss amounts reclassified from accumulated other comprehensive income related to cash flow hedges are recorded as Cost of products sold. Net actuarial losses and prior service cost is included as a component of net periodic benefit cost – see Note 14 for additional information. NOTE 7 — GOODWILL AND INTANGIBLE ASSETS NOTE 8 — RESTRUCTURING PL ANS From 2017 to 2020, Abbott management approved restructuring plans as part of the integration of the acquisitions of St. Jude Medical into the Medical Devices segment, and Alere Inc. (Alere) into the Diagnostic Products segment, in order to leverage econo‑ mies of scale and reduce costs. As of December 31, 2017, the accrued balance associated with these actions was $68 million. From 2018 to 2020, Abbott recorded employee related severance and other charges totaling approximately $137 million, comprised of $13 million in 2020, $72 million in 2019 and $52 million in 2018. Approximately $30 million was recorded in Cost of products sold, approximately $15 million was recorded in Research and develop‑ ment, and approximately $92 million was recorded in Selling, general and administrative expense over the last three years. As of December 31, 2020, the accrued liabilities remaining in the Consolidated Balance Sheet related to these actions total $25 million and primarily represent severance obligations. From 2016 to 2020, Abbott management approved plans to stream‑ line operations in order to reduce costs and improve efficiencies in various Abbott businesses including the nutritional, established pharmaceuticals and vascular businesses. Abbott recorded employee related severance and other charges of approximately $36 million in 2020, $66 million in 2019 and $28 million in 2018. Approximately $6 million in 2020, $16 million in 2019 and $10 million in 2018 are recorded in Cost of products sold, approxi‑ mately $2 million in 2020, $28 million in 2019 and $2 million in 2018 are recorded in Research and development, and approxi‑ mately $28 million in 2020, $22 million in 2019 and $16 million in 2018 are recorded in Selling, general and administrative expense. The total amount of goodwill reported was $23.7 billion at December 31, 2020 and $23.2 billion at December 31, 2019. Foreign currency translation adjustments increased goodwill by approximately $550 million in 2020 and decreased goodwill by $103 million in 2019. The amount of goodwill related to reportable segments at December 31, 2020 was $3.0 billion for the Established Pharmaceutical Products segment, $286 million for the Nutritional Products segment, $3.8 billion for the Diagnostic Products segment, and $16.6 billion for the Medical Devices seg‑ ment. There was no reduction of goodwill relating to impairments in 2020 and 2019. The gross amount of amortizable intangible assets, primarily product rights and technology, was $27.8 billion and $27.6 billion as of December 31, 2020 and 2019, respectively, and accumulated amortization was $14.2 billion and $11.9 billion as of December 31, 2020 and 2019, respectively. Foreign currency translation adjust‑ ments increased intangible assets by approximately $67 million in 2020 and decreased intangible assets by $71 million in 2019. In 2020, asset impairments related to the Medical Devices segment decreased intangible assets by $148 million. The impairment was recorded in the Cost of products sold, excluding amortization of intangible assets line of Abbott’s Consolidated Statement of Earnings. The estimated annual amortization expense for intangi‑ ble assets recorded at December 31, 2020 is approximately $2.0 billion in 2021, $2.0 billion in 2022, $1.9 billion in 2023, $1.9 billion in 2024 and $1.9 billion in 2025. Amortizable intangible assets are amortized over 2 to 20 years. Indefinite‑lived intangible assets, which relate to IPR&D acquired in a business combination, were approximately $1.2 billion and $1.3 billion at December 31, 2020 and 2019, respectively. The decrease is due to an IPR&D intangible asset related to the Medical Devices segment that became amortizable in 2020 and a $55 million impairment of an IPR&D intangible asset related to the Medical Devices segment that was recorded in the Research and development line of Abbott’s Consolidated Statement of Earnings in 2020. 44 ABBOTT 2020 ANNUAL REPORTNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe following summarizes the activity for these restructurings: (in millions) Accrued balance at December 31, 2017 Restructuring charges Payments and other adjustments Accrued balance at December 31, 2018 Restructuring charges Payments and other adjustments Accrued balance at December 31, 2019 Restructuring charges Payments and other adjustments Accrued balance at December 31, 2020 $119 28 (77) 70 66 (57) 79 36 (45) $÷70 NOTE 9 — INCENTIVE STOCK PROGRAM The 2017 Incentive Stock Program authorizes the granting of nonqualified stock options, restricted stock awards, restricted stock units, performance awards, foreign benefits and other share‑based awards. Stock options and restricted stock awards and units com‑ prise the majority of benefits that have been granted and are currently outstanding under this program and a prior program. In 2020, Abbott granted 4,015,420 stock options, 569,961 restricted stock awards and 5,239,575 restricted stock units under this program. (intrinsic values in millions) Outstanding at December 31, 2019 Granted Exercised Lapsed Outstanding at December 31, 2020 Exercisable at December 31, 2020 Under Abbott’s stock incentive programs, the purchase price of shares under option must be at least equal to the fair market value of the common stock on the date of grant, and the maximum term of an option is 10 years. Options generally vest equally over three years. Restricted stock awards generally vest over 3 years, with no more than one‑third of the award vesting in any one year upon Abbott reaching a minimum return on equity target. Restricted stock units vest over three years and upon vesting, the recipient receives one share of Abbott stock for each vested restricted stock unit. The aggregate fair market value of options and restricted stock awards and units is recognized as expense over the requisite service period, which may be shorter than the vesting period if an employee is retirement eligible. Forfeitures are estimated at the time of grant. Restricted stock awards and settlement of vested restricted stock units are issued out of treasury shares. Abbott generally issues new shares for exercises of stock options. As a policy, Abbott does not purchase its shares relating to its share‑based programs. In April 2017, Abbott’s shareholders authorized the 2017 Incentive Stock Program under which a maximum of 170 million shares were available for issuance. At December 31, 2020, approximately 113 million shares remained available for future issuance. The following table summarizes stock option activity for the year ended December 31, 2020 and the outstanding stock options as of December 31, 2020. Weighted Average Exercise Price $48.78 87.84 39.62 75.22 $55.65 $46.16 Options 29,877,915 4,015,420 (4,872,830) (100,619) 28,919,886 20,390,745 Weighted Average Remaining Life (Years) 6.2 Aggregate Intrinsic Value $1,138 6.0 5.0 $1,557 $1,291 45 ABBOTT 2020 ANNUAL REPORTNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe following table summarizes restricted stock awards and units activity for the year ended December 31, 2020. NOTE 10 — DEBT AND LINES OF CREDIT The following is a summary of long‑term debt at December 31: Outstanding at December 31, 2019 Granted Vested Forfeited Outstanding at December 31, 2020 Weighted Average Grant‑Date Fair Value $65.51 87.83 60.67 75.16 $78.19 Share Units 14,463,314 5,809,536 (7,167,631) (612,351) 12,492,868 The fair market value of restricted stock awards and units vested in 2020, 2019 and 2018 was $631 million, $588 million and $458 million, respectively. The total intrinsic value of options exercised in 2020, 2019 and 2018 was $279 million, $315 million and $249 million, respectively. The total unrecognized compensation cost related to all share‑based compensation plans at December 31, 2020 amounted to approximately $407 million, which is expected to be recognized over the next three years. Total non‑cash stock compensation expense charged against income from continuing operations in 2020, 2019 and 2018 for share‑based plans totaled approximately $546 million, $519 million and $477 million, respectively, and the tax benefit recognized was approximately $200 million, $197 million and $185 million, respectively. Stock compensation cost capitalized as part of inventory is not significant. The table below summarizes the fair value of an option granted in 2020, 2019 and 2018 and the assumptions included in the Black‑Scholes option‑pricing model used to estimate the fair value: Fair value Risk‑free interest rate Average life of options (years) Volatility Dividend yield 2020 $14.39 1.3% 6.0 19.4% 1.6% 2019 $14.50 2.5% 6.0 19.8% 1.7% 2018 $10.93 2.7% 6.0 19.0% 1.9% The risk‑free interest rate is based on the rates available at the time of the grant for zero‑coupon U.S. government issues with a remaining term equal to the option’s expected life. The average life of an option is based on both historical and projected exercise and lapsing data. Expected volatility is based on implied volatilities from traded options on Abbott’s stock and historical volatility of Abbott’s stock over the expected life of the option. Dividend yield is based on the option’s exercise price and annual dividend rate at the time of grant. (in millions) 0.00% Notes, due 2020 2.55% Notes, due 2022 0.875% Notes, due 2023 3.40% Notes, due 2023 5‑year term loan due 2024 0.10% Notes, due 2024 3.875% Notes, due 2025 2.95% Notes, due 2025 1.50% Notes, due 2026 3.75% Notes, due 2026 0.375% Notes, due 2027 1.15% Notes, due 2028 1.40% Notes, due 2030 4.75% Notes, due 2036 6.15% Notes, due 2037 6.00% Notes, due 2039 5.30% Notes, due 2040 4.75% Notes, due 2043 4.90% Notes, due 2046 Unamortized debt issuance costs Other, including fair value adjustments relating to interest rate hedge contracts designated as fair value hedges Total carrying amount of long‑term debt Less: Current portion Total long‑term portion 2020 $÷÷÷÷— 750 1,398 1,050 577 724 500 1,000 1,398 1,700 724 650 650 1,650 547 515 694 700 3,250 (87) 144 18,534 7 $18,527 2019 $÷1,272 750 1,272 1,050 546 658 500 1,000 1,272 1,700 658 — — 1,650 547 515 694 700 3,250 (90) (6) 17,938 1,277 $16,661 On June 24, 2020, Abbott completed the issuance of $1.3 billion aggregate principal amount of senior notes, consisting of $650 million of its 1.15% Notes due 2028 and $650 million of its 1.40% Notes due 2030. On September 28, 2020, Abbott repaid the €1.140 billion outstand‑ ing principal amount of its 0.00% Notes due 2020 upon maturity. The repayment equated to approximately $1.3 billion. Abbott has readily available financial resources, including unused lines of credit that support commercial paper borrowing arrange‑ ments and provide Abbott with the ability to borrow up to $5 billion on an unsecured basis. 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 agree‑ ment 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. 46 ABBOTT 2020 ANNUAL REPORTNOTES TO CONSOLIDATED FINANCIAL STATEMENTSIn 2019, Abbott’s long‑term borrowings and debt issuance included the following: • On November 19, 2019, Abbott’s wholly owned subsidiary, Abbott Ireland Financing DAC, completed an offering of €1.180 billion of long‑term debt consisting of €590 million of 0.10% Notes due 2024 and €590 million of 0.375% Notes due 2027. 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 approx‑ imately $550 million. In 2019, Abbott’s repayment of long‑term debt included the following: • $0.500 billion outstanding principal amount of its 2.80% Notes due 2020 – redeemed on February 24, 2019 • $2.850 billion principal amount of its 2.9% Notes due 2021 – redeemed on December 19, 2019. Abbott incurred a charge of $63 million related to the early repayment of this debt. The 2.80% Notes were redeemed under the board of directors’ 2018 bond redemption authorization discussed below. The 2.9% Notes were redeemed under a bond redemption authorization approved by the board of directors in September 2019 for the early redemption of up to $5 billion of outstanding long‑term notes. The 2019 bond redemption authorization superseded the board’s 2018 authorization. $2.15 billion of the $5 billion authorization remains available as of December 31, 2020. On January 5, 2018, Abbott repaid $2.8 billion under a 5‑year term loan agreement and $1.15 billion of borrowings under its lines of credit. On February 16, 2018, the board of directors authorized the early redemption of up to $5 billion of outstanding long‑term notes. 2018 redemptions under this authorization include the following: • $0.947 billion principal amount of its 5.125% Notes due 2019 – redeemed on March 22, 2018 • $1.055 billion of the $2.850 billion principal amount of its 2.35% Notes due 2019 – redeemed on March 22, 2018 • $1.300 billion of the $1.795 billion outstanding principal amount of its 2.35% Notes due 2019 – redeemed on June 22, 2018 • $0.495 billion outstanding principal amount of its 2.35% Notes due 2019 – redeemed on September 28, 2018 Abbott incurred a net charge of $14 million related to the March 22, 2018 early repayment of debt. On September 17, 2018, Abbott repaid upon maturity the $500 million aggregate principal amount outstanding of the 2.00% Senior Notes due 2018. On September 27, 2018, Abbott’s wholly owned subsidiary, Abbott Ireland Financing DAC, completed a euro debt offering of €3.420 billion of long‑term debt consisting of €1.140 billion of non‑interest bearing Senior Notes due 2020 at 99.727% of par value; €1.140 billion of 0.875% Senior Notes due 2023 at 99.912% of par value; and €1.140 billion of 1.50% Senior Notes due 2026 at 99.723% of par value. The proceeds equated to approximately $4 billion. The notes are guaranteed by Abbott. On October 28, 2018, Abbott redeemed approximately $4 billion of debt, which included $750 million principal amount of its 2.00% Notes due 2020; $597 million principal amount of its 4.125% Notes due 2020; $900 million principal amount of its 3.25% Notes due 2023; $450 million principal amount of its 3.4% Notes due 2023; and $1.300 billion principal amount of its 3.75% Notes due 2026. These amounts were in addition to the $5 billion authorization in 2018 discussed above. In conjunction with the redemption, Abbott unwound approximately $1.1 billion in interest rate swaps relating to the 3.40% Note due in 2023 and the 3.75% Note due in 2026. Abbott incurred a net charge of $153 million related to the early repayment of this debt and the unwinding of related inter‑ est rate swaps. Principal payments required on long‑term debt outstanding at December 31, 2020 are $7 million in 2021, $753 million in 2022, $2.4 billion in 2023, $1.3 billion in 2024, $1.5 billion in 2025 and $12.5 billion in 2026 and thereafter. At December 31, 2020, Abbott’s long‑term debt rating was A by Standard & Poor’s Corporation and A3 by Moody’s. Abbott’s weighted‑average interest rate on short‑term borrowings was 0.4% at December 31, 2020, 2019 and 2018. NOTE 11 — LEASES LEASES WHERE ABBOTT IS THE LESSEE Abbott has entered into operating leases as the lessee for office space, manufacturing facilities, R&D laboratories, warehouses, vehicles and equipment. Finance leases are not significant. Abbott’s operating leases generally have remaining lease terms of 1 to 10 years. Some leases include options to extend beyond the original lease term, generally up to 10 years and some include options to terminate early. These options have been included in the determination of the lease liability when it is reasonably certain that the option will be exercised. For all of its asset classes, Abbott elected the practical expedient allowed under FASB ASC No. 842, “Leases” to account for each lease component (e.g., the right to use office space) and the associ‑ ated non‑lease components (e.g., maintenance services) as a single lease component. Abbott also elected the short‑term lease account‑ ing policy for all asset classes; therefore, Abbott is not recognizing a lease liability or right of use (ROU) asset for any lease that, at the commencement date, has a lease term of 12 months or less and does not include an option to purchase the underlying asset that Abbott is reasonably certain to exercise. As Abbott’s leases typically do not provide an implicit rate, the interest rate used to determine the present value of the payments under each lease typically reflects Abbott’s incremental borrowing rate based on information available at the lease commencement date. Abbott’s incremental borrowing rates at January 1, 2019 were used for operating leases that commenced prior to January 1, 2019 when ASC 842 was adopted. 47 ABBOTT 2020 ANNUAL REPORTNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe following table provides information related to Abbott’s operating leases: (in millions, except weighted averages) Operating lease cost (a) Cash paid for amounts included in the measurement of operating lease liabilities ROU assets arising from entering into new operating lease obligations Weighted average remaining lease term at December 31 (in years) Weighted average discount rate at December 31 2020 $329 264 396 8 3.2% 2019 $314 253 310 8 3.9% (a) Includes short‑term lease expense and variable lease costs, which were immaterial in the years ended December 31, 2020 and 2019. Future minimum lease payments under non‑cancellable operating leases as of December 31, 2020 were as follows: (in millions) 2021 2022 2023 2024 2025 Thereafter Total future minimum lease payments – undiscounted Less: imputed interest Present value of lease liabilities $÷«272 228 177 131 100 407 1,315 (172) $1,143 The following table summarizes the amounts and location of operating lease ROU assets and lease liabilities: (in millions) December 31 Operating Lease – ROU Asset Operating Lease Liability: Current Non‑current 2020 $1,101 2019 $934 Balance Sheet Caption Deferred income taxes and other assets $÷«241 902 755 $205 Other accrued liabilities Post‑employment obligations and other long‑term liabilities Total Liability $1,143 $960 LEASES WHERE ABBOTT IS THE LESSOR Certain assets, primarily diagnostics instruments, are leased to customers under contractual arrangements that typically include an operating or sales‑type lease as well as performance obligations for reagents and other consumables. Sales‑type leases are not significant. Contract terms vary by customer and may include options to terminate the contract or options to extend the contract. Where instruments are provided under operating lease arrange‑ ments, some portion or the entire lease revenue may be variable and subject to subsequent non‑lease component (e.g., reagent) sales. The allocation of revenue between the lease and non‑lease components is based on stand‑alone selling prices. Operating lease revenue represented less than 3 percent of Abbott’s total net sales in the years ended December 31, 2020 and 2019. Assets related to operating leases are reported within Net property and equipment on the Consolidated Balance Sheet. The original cost and the net book value of such assets were $3.3 billion and $1.4 billion, respectively, as of December 31, 2020 and $2.8 billion and $1.2 billion, respectively, as of December 31, 2019. NOTE 12 — FINANCIAL INSTRUMENTS, DERIVATIVES AND FAIR VALUE MEASURES Certain Abbott foreign subsidiaries enter into foreign currency forward exchange contracts to manage exposures to changes in foreign exchange rates primarily for anticipated intercompany purchases by those subsidiaries whose functional currencies are not the U.S. dollar. These contracts, with gross notional amounts totaling $8.1 billion at December 31, 2020, and $6.8 billion at December 31, 2019, are designated as cash flow hedges of the variability of the cash flows due to changes in foreign exchange rates and are recorded at fair value. Accumulated gains and losses as of December 31, 2020 will be included in Cost of products sold at the time the products are sold, generally through the next twelve to eighteen months. Abbott enters into foreign currency forward exchange contracts to manage currency exposures for foreign currency denominated third‑party trade payables and receivables, and for intercompany loans and trade accounts payable where the receivable or payable is denominated in a currency other than the functional currency of the entity. For intercompany loans, the contracts require Abbott to sell or buy foreign currencies, primarily European currencies, in exchange for primarily U.S. dollars and European currencies. For intercompany and trade payables and receivables, the currency exposures are primarily the U.S. dollar and European currencies. At December 31, 2020 and 2019, Abbott held gross notional amounts of $11.0 billion and $9.1 billion, respectively, of such foreign currency forward exchange contracts. In November 2019, Abbott borrowed ¥59.8 billion under a 5‑year term loan and designated the yen‑denominated loan as a hedge of the net investment in certain foreign subsidiaries. The proceeds equated to approximately $550 million. The value of this long‑ term debt was approximately $577 million and $546 million as of December 31, 2020 and December 31, 2019, respectively. The change in the value of the debt, which is due to changes in foreign exchange rates, was recorded in Accumulated other comprehen‑ sive income (loss), net of tax. Abbott is a party to interest rate hedge contracts totaling approxi‑ mately $2.9 billion at December 31, 2020 and 2019, to manage its exposure to changes in the fair value of fixed‑rate debt. These contracts are designated as fair value hedges of the variability of the fair value of fixed‑rate debt due to changes in the long‑term benchmark interest rates. The effect of the hedge is to change a fixed‑rate interest obligation to a variable rate for that portion of the debt. Abbott records the contracts at fair value and adjusts the carrying amount of the fixed‑rate debt by an offsetting amount. In October 2018, Abbott unwound approximately $1.1 billion in interest rate swaps relating to the 3.40% Note due in 2023 and the 3.75% Note due in 2026. As a part of the unwinding, Abbott paid approximately $90 million in cash, which was included in the Financing Activities section of the Consolidated Statement of Cash Flows in 2018. 48 ABBOTT 2020 ANNUAL REPORTNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe following table summarizes the amounts and location of certain derivative financial instruments as of December 31: (in millions) Interest rate swaps designated as fair value hedges Foreign currency forward exchange contracts: Hedging instruments Others not designated as hedges Debt designated as a hedge of net investment in a foreign subsidiary Fair Value—Assets 2020 $210 2019 $÷48 Balance Sheet Caption Deferred income taxes and other assets 2020 $÷÷÷— Fair Value—Liabilities 2019 $÷«— Balance Sheet Caption Post‑employment obligations and other long‑term liabilities 30 60 — 110 38 — Other prepaid expenses and receivables Other prepaid expenses and receivables n/a 433 65 56 33 577 546 Other accrued liabilities Other accrued liabilities Long‑term debt $300 $196 $1,075 $635 The following table summarizes the activity for foreign currency forward exchange contracts designated as cash flow hedges, debt designated as a hedge of net investment in a foreign subsidiary and certain other derivative financial instruments, as well as the amounts and location of income (expense) and gain (loss) reclassified into income. (in millions) Foreign currency forward exchange contracts designated as cash flow hedges Debt designated as a hedge of net investment in a foreign subsidiary Interest rate swaps designated as fair value hedges Gain (loss) Recognized in Other Comprehensive Income (loss) 2018 2019 2020 $73 $9 $(207) Income (expense) and Gain (loss) Reclassified into Income 2018 $(114) 2020 $102 2019 $÷79 Income Statement Caption Cost of products sold (31) n/a 4 n/a — n/a n/a 162 n/a 148 n/a (97) n/a Interest expense A loss of $171 million, a gain of $75 million and a loss of $100 million were recognized in 2020, 2019 and 2018, respectively, related to foreign currency forward exchange contracts not desig‑ nated as hedges. These amounts are reported in the Consolidated Statement of Earnings on the Net foreign exchange (gain) loss line. The interest rate swaps are designated as fair value hedges of the variability of the fair value of fixed‑rate debt due to changes in the long‑term benchmark interest rates. The hedged debt is marked to market, offsetting the effect of marking the interest rate swaps to market. The carrying values and fair values of certain financial instruments as of December 31 are shown in the table below. The carrying values of all other financial instruments approximate their estimated fair values. The counterparties to financial instruments consist of select major international financial institutions. Abbott does not expect any losses from nonperformance by these counterparties. (in millions) Long‑term Investment Securities: Equity securities Other Total Long‑term debt Foreign Currency Forward Exchange Contracts: Receivable position (Payable) position Interest Rate Hedge Contracts: Receivable position (Payable) position Carrying Value $÷÷÷776 45 (18,534) 90 (498) 210 — 2020 Fair Value $÷÷÷776 45 (22,809) 90 (498) 210 — Carrying Value $÷÷÷836 47 (17,938) 148 (89) 48 — The fair value of the debt was determined based on significant other observable inputs, including current interest rates. 2019 Fair Value $÷÷÷836 47 (20,772) 148 (89) 48 — 49 ABBOTT 2020 ANNUAL REPORTNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe following table summarizes the bases used to measure certain assets and liabilities at fair value on a recurring basis in the balance sheet: (in millions) December 31, 2020: Equity securities Interest rate swap derivative financial instruments Foreign currency forward exchange contracts Total Assets Fair value of hedged long‑term debt Foreign currency forward exchange contracts Contingent consideration related to business combinations Total Liabilities December 31, 2019: Equity securities Interest rate swap derivative financial instruments Foreign currency forward exchange contracts Total Assets Fair value of hedged long‑term debt Foreign currency forward exchange contracts Contingent consideration related to business combinations Total Liabilities The fair value of foreign currency forward exchange contracts is determined using a market approach, which utilizes values for comparable derivative instruments. The fair value of the debt was determined based on the face value of the debt adjusted for the fair value of the interest rate swaps, which is based on a dis‑ counted cash flow analysis using significant other observable inputs. Contingent consideration relates to businesses acquired by Abbott. The fair value of the contingent consideration was determined based on an independent appraisal adjusted for the time value of money and other changes in fair value. The maximum amount for certain contingent consideration is not determinable as it is based on a percent of certain sales. Excluding such contingent consider‑ ation, the maximum amount estimated to be due is approximately $200 million, which is dependent upon attaining certain sales thresholds or based on the occurrence of certain events, such as regulatory approvals. Outstanding Balances Quoted Prices in Active Markets Basis of Fair Value Measurement Significant Unobservable Inputs Significant Other Observable Inputs $÷«386 210 90 $÷«686 $3,049 498 68 $3,615 $÷«357 48 148 $÷«553 $2,890 89 68 $3,047 $386 — — $386 $÷«— — — $÷«— $357 — — $357 $÷«— — — $÷«— $÷÷÷— 210 90 $÷«300 $3,049 498 — $3,547 $÷÷÷— 48 148 $÷«196 $2,890 89 — $2,979 $«— — — $«— $«— — 68 $68 $«— — — $«— $«— — 68 $68 NOTE 13 — LITIGATION AND ENVIRONMENTAL MATTERS Abbott has been identified as a potentially responsible party for investigation and cleanup costs at a number of locations in the United States and Puerto Rico under federal and state remediation laws and is investigating potential contamination at a number of company‑owned locations. Abbott has recorded an estimated cleanup cost for each site for which management believes Abbott has a probable loss exposure. No individual site cleanup exposure is expected to exceed $4 million, and the aggregate cleanup expo‑ sure is not expected to exceed $10 million. Abbott is involved in various claims and legal proceedings, and Abbott estimates the range of possible loss for its legal proceedings and environmental exposures to be from approximately $90 million to $120 million. The recorded accrual balance at December 31, 2020 for these proceedings and exposures was approximately $105 million. This accrual represents management’s best estimate of probable loss, as defined by FASB ASC No. 450, “Contingencies.” Within the next year, legal proceedings may occur that may result in a change in the estimated loss accrued by Abbott. While it is not feasible to predict the outcome of all such proceedings and expo‑ sures with certainty, management believes that their ultimate disposition should not have a material adverse effect on Abbott’s financial position, cash flows, or results of operations. 50 ABBOTT 2020 ANNUAL REPORTNOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 14 — POST-EMPLOYMENT BENEFITS Retirement plans consist of defined benefit, defined contribution and medical and dental plans. Information for Abbott’s major defined benefit plans and post‑employment medical and dental benefit plans is as follows: (in millions) Projected benefit obligations, January 1 Service cost — benefits earned during the year Interest cost on projected benefit obligations (Gains) losses, primarily changes in discount rates, plan design changes, law changes and differences between actual and estimated health care costs Benefits paid Other, including foreign currency translation Projected benefit obligations, December 31 Plan assets at fair value, January 1 Actual return (loss) on plan assets Company contributions Benefits paid Other, including foreign currency translation Plan assets at fair value, December 31 Projected benefit obligations greater than plan assets, December 31 Long‑term assets Short‑term liabilities Long‑term liabilities Net liability Amounts Recognized in Accumulated Other Comprehensive Income (loss): Actuarial losses, net Prior service cost (credits) Total The $1.3 billion and $1.9 billion of defined benefit plan losses in 2020 and 2019, respectively, that increased the projected bene‑ fit obligations in those years, primarily reflect the year‑over‑year decline in the discount rates used to measure the obligations. The projected benefit obligations for non‑U.S. defined benefit plans were $4.1 billion and $3.3 billion at December 31, 2020 and 2019, respectively. The accumulated benefit obligations for all defined benefit plans were $11.9 billion and $10.2 billion at December 31, 2020 and 2019, respectively. For plans where the projected benefit obligations exceeded plan assets at December 31, 2020 and 2019, the projected benefit obliga‑ tions and the aggregate plan assets were as follows: (in millions) Projected benefit obligation Fair value of plan assets 2020 $8,946 7,010 2019 $7,585 5,936 Defined Benefit Plans 2019 2020 $÷9,093 $11,238 250 336 337 300 Medical and Dental Plans 2019 $«1,292 23 52 2020 $«1,556 46 42 1,305 (327) 277 $13,129 $10,277 1,463 400 (327) 205 $12,018 $«(1,111) $÷÷«824 (29) (1,906) $«(1,111) $÷4,559 (5) $÷4,554 1,856 (302) 4 $11,238 $÷8,553 1,622 382 (302) 22 $10,277 $÷÷(961) $÷÷«687 (26) (1,622) $÷÷(961) $«4,131 (2) $«4,129 (5) (73) 1 $«1,567 $÷÷360 46 12 (65) — $÷÷353 $(1,214) $÷÷÷«— (1) (1,213) $(1,214) $÷÷486 (67) $÷÷419 228 (76) 37 $«1,556 $÷÷351 65 12 (68) — $÷÷360 $(1,196) $÷÷÷«— (1) (1,195) $(1,196) $÷÷529 (95) $÷÷434 For plans where the accumulated benefit obligations exceeded plan assets at December 31, 2020 and 2019, the aggregate accumu‑ lated benefit obligations, the projected benefit obligations and the aggregate plan assets were as follows: (in millions) Accumulated benefit obligation Projected benefit obligation Fair value of plan assets 2020 $2,459 2,773 965 2019 $1,985 2,266 821 51 ABBOTT 2020 ANNUAL REPORTNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe components of the net periodic benefit cost were as follows: (in millions) Service cost — benefits earned during the year Interest cost on projected benefit obligations Expected return on plans’ assets Amortization of actuarial losses Amortization of prior service cost (credits) Total net cost 2020 $«336 300 (770) 255 1 $«122 Defined Benefit Plans 2018 2019 $«293 $«250 308 337 (680) (710) 205 132 1 1 $«127 $÷«10 2020 $«46 42 (28) 21 (28) $«53 Medical and Dental Plans 2018 $«26 48 (33) 33 (45) $«29 2019 $«23 52 (27) 22 (32) $«38 Other comprehensive income (loss) for each respective year includes the amortization of actuarial losses and prior service costs (credits) as noted in the previous table. Other comprehensive income (loss) for each respective year also includes: net actuarial losses of $611 million for defined benefit plans and a gain of $23 million for medical and dental plans in 2020, net actuarial losses of $944 million for defined benefit plans and a loss of $190 million for medical and dental plans in 2019; net actuarial losses of $86 million for defined benefit plans and a gain of $53 million for medical and dental plans in 2018. The net actuarial losses in 2020 and 2019 are primarily due to the year‑over‑year decline in discount rates partially offset by the impact of actual asset returns in excess of expected returns in each of the periods. The weighted average assumptions used to determine benefit obligations for defined benefit plans and medical and dental plans are as follows: Discount rate Expected aggregate average long‑term change in compensation 2020 2.3% 4.3% 2019 3.0% 4.3% 2018 4.0% 4.3% The weighted average assumptions used to determine the net cost for defined benefit plans and medical and dental plans are as follows: Discount rate Expected return on plan assets Expected aggregate average long‑term change in compensation 2020 3.0% 7.5% 4.3% 2019 4.0% 7.5% 4.3% 2018 3.4% 7.7% 4.4% The assumed health care cost trend rates for medical and dental plans at December 31 were as follows: Health care cost trend rate assumed for the next year Rate that the cost trend rate gradually declines to Year that rate reaches the assumed ultimate rate 2020 2019 2018 8% 5% 9% 5% 9% 5% 2025 2025 2025 The discount rates used to measure liabilities were determined based on high‑quality fixed income securities that match the duration of the expected retiree benefits. The health care cost trend rates represent Abbott’s expected annual rates of change in the cost of health care benefits and are forward projections of health care costs as of the measurement date. 52 ABBOTT 2020 ANNUAL REPORTNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe following table summarizes the bases used to measure the defined benefit and medical and dental plan assets at fair value: (in millions) December 31, 2020: Equities: U.S. large cap (a) U.S. mid and small cap (b) International (c) Fixed income securities: U.S. government securities (d) Corporate debt instruments (e) Non‑U.S. government securities (f ) Other (g) Absolute return funds (h) Cash and Cash Equivalents Other (i) December 31, 2019: Equities: U.S. large cap (a) U.S. mid and small cap (b) International (c) Fixed income securities: U.S. government securities (d) Corporate debt instruments (e) Non‑U.S. government securities (f ) Other (g) Absolute return funds (h) Cash and Cash Equivalents Other (i) Outstanding Balances Quoted Prices in Active Markets Significant Other Observable Inputs Significant Unobservable Inputs Measured at NAV ( j) Basis of Fair Value Measurement $÷3,410 775 2,654 475 1,408 523 503 1,618 281 724 $12,371 $÷2,873 648 2,202 562 1,266 445 320 1,557 182 582 $10,637 $2,202 721 542 23 425 16 159 462 77 9 $4,636 $1,647 548 464 52 362 3 69 424 84 8 $3,661 $÷÷÷— — — 289 908 — 72 — — — $1,269 $÷÷÷— 4 — 357 724 2 27 — — — $1,114 $— 3 — — — — — — — — $«3 $— 2 — — — — — — — 1 $«3 $1,208 51 2,112 163 75 507 272 1,156 204 715 $6,463 $1,226 94 1,738 153 180 440 224 1,133 98 573 $5,859 (a) A mix of index funds and actively managed equity accounts that are benchmarked to various large cap indices. (b) A mix of index funds and actively managed equity accounts that are benchmarked to various mid and small cap indices. (c) A mix of index funds and actively managed pooled investment funds that are benchmarked to various non‑U.S. equity indices in both developed and emerging markets. (d) A mix of index funds and actively managed accounts that are benchmarked to various U.S. government bond indices. (e) A mix of index funds and actively managed accounts that are benchmarked to various corporate bond indices. (f ) Primarily United Kingdom, Japan and Eurozone government bonds. (g) Primarily asset backed securities and an actively managed, diversified fixed income vehicle benchmarked to the one‑month Libor / Euribor. (h) Primarily funds invested by managers that have a global mandate with the flexibility to allocate capital broadly across a wide range of asset classes and strategies including, but not limited to equities, fixed income, commodities, interest rate futures, currencies and other securities to outperform an agreed upon benchmark with specific return and volatility targets. (i) Primarily investments in private funds, such as private equity, private credit, private real estate and private energy funds. ( j) Investments measured at fair value using the net asset value (NAV) practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated balance sheet. 53 ABBOTT 2020 ANNUAL REPORTNOTES TO CONSOLIDATED FINANCIAL STATEMENTSEquities that are valued using quoted prices are valued at the published market prices. Equities in a common collective trust or a registered investment company are valued at the NAV provided by the fund administrator. The NAV is based on the value of the underlying assets owned by the fund minus its liabilities. For approximately half of these funds, investments may be redeemed once per month, with a required 7 to 30 day notice period. For the remaining funds, daily redemption of an investment is allowed. Fixed income securities that are valued using significant other observable inputs are valued at prices obtained from independent financial service industry recognized vendors. Abbott did not have any unfunded commitments related to fixed income funds at December 31, 2020 and 2019. Fixed income securities in a common collective trust or a registered investment company are valued at the NAV provided by the fund administrator. For the majority of these funds, investments may be redeemed either weekly or monthly, with a required 2 to 14 day notice period. For the remain‑ ing funds, investments may be generally redeemed daily. Absolute return funds are valued at the NAV provided by the fund administrator. All private funds are valued at the NAV provided by the fund on a one‑quarter lag adjusted for known cash flows and significant events through the reporting date. Abbott did not have any unfunded commitments related to absolute return funds at December 31, 2020 and 2019. Investments in these funds may be generally redeemed monthly or quarterly with required notice periods ranging from 5 to 90 days. For approximately $245 million and $110 million of the absolute return funds, redemptions are subject to a 33 percent gate and a 25 percent gate, respectively, and $60 million is subject to a lock until 2022. Investments in the private funds cannot be redeemed but the funds will make distri‑ butions through liquidation. The estimate of the liquidation period for each fund ranges from 2021 to 2030. Abbott’s unfunded com‑ mitment in these funds was $523 million and $579 million as of December 31, 2020 and 2019, respectively. The investment mix of equity securities, fixed income and other asset allocation strategies is based upon achieving a desired return, as well as balancing higher return, more volatile equity securities with lower return, less volatile fixed income securities. Investment allocations are made across a range of markets, indus‑ try sectors, capitalization sizes, and in the case of fixed income securities, maturities and credit quality. The plans do not directly hold any securities of Abbott. There are no known significant concentrations of risk in the plans’ assets. Abbott’s medical and dental plans’ assets are invested in a similar mix as the pension plan assets. The actual asset allocation percentages at year end are consistent with the company’s targeted asset allocation percentages. The plans’ expected return on assets, as shown above is based on management’s expectations of long‑term average rates of return to be achieved by the underlying investment portfolios. In establishing this assumption, management considers historical and expected returns for the asset classes in which the plans are invested, as well as current economic and capital market conditions. Abbott funds its domestic pension plans according to IRS funding limitations. International pension plans are funded according to similar regulations. Abbott funded $400 million in 2020 and $382 million in 2019 to defined pension plans. Abbott expects to contribute approximately $410 million to its pension plans in 2021. Total benefit payments expected to be paid to participants, which includes payments funded from company assets, as well as paid from the plans, are as follows: (in millions) 2021 2022 2023 2024 2025 2026 to 2030 Defined Benefit Plans $÷«340 355 373 395 415 2,410 Medical and Dental Plans $÷72 73 74 75 76 394 The Abbott Stock Retirement Plan is the principal defined contribution plan. Abbott’s contributions to this plan were $164 million in 2020, $158 million in 2019 and $146 million in 2018. The 2018 contributions include amounts related to partici‑ pants of the St. Jude Medical Retirement Plan which was terminated in January 2018. NOTE 15 — TAXES ON EARNINGS FROM CONTINUING OPERATIONS Taxes on earnings from continuing operations reflect the annual effective rates, including charges for interest and penalties. Deferred income taxes reflect the tax consequences on future years of differences between the tax bases of assets and liabilities and their financial reporting amounts. In 2020, taxes on earnings from continuing operations include the recognition of approximately $170 million of tax benefits asso‑ ciated with the impairment of certain assets, approximately $140 million of net tax benefits as a result of the resolution of various tax positions related to prior years, and approximately $100 million in excess tax benefits associated with share‑based compensation. In 2020, taxes on earnings from continuing opera‑ tions also include a $26 million increase to the transition tax associated with the 2017 TCJA. The $26 million increase to the transition tax liability was the result of the resolution of various tax positions related to prior years. This adjustment increased the cumulative net tax expense related to the TCJA to $1.53 billion. The one‑time transition tax is based on Abbott’s total post‑1986 earnings and profits (E&P) that were previously deferred from U.S. income taxes. The tax computation also requires the determination of the amount of post‑1986 E&P considered held in cash and other specified assets. As of December 31, 2020, the remaining balance of Abbott’s transition tax obligation is approximately $805 million, which will be paid over the next six years as allowed by the TCJA. In 2019, taxes on earnings from continuing operations included an $86 million reduction of the transition tax and $68 million of tax expense resulting from tax legislation enacted in the fourth quar‑ ter of 2019 in India. The $86 million reduction to the transition tax liability was the result of the issuance of final transition tax regula‑ tions by the U.S. Department of Treasury in 2019. In 2018, taxes on earnings from continuing operations included $98 million of net tax expense related to the settlement of Abbott’s 2014‑2016 federal income tax audit in the U.S., partial settlement of the former St. Jude Medical consolidated group’s 2014 and 2015 federal income tax returns in the U.S. and audit settlements in various countries. In 2018, Abbott also recorded $130 million of additional tax expense related to the TCJA; the $130 million reflected a 54 ABBOTT 2020 ANNUAL REPORTNOTES TO CONSOLIDATED FINANCIAL STATEMENTS$120 million increase in the transition tax from $2.89 billion to $3.01 billion and a $10 million reduction in the net benefit related to the remeasurement of deferred tax assets and liabilities. Impact of foreign operations is primarily derived from operations in Puerto Rico, Switzerland, Ireland, the Netherlands, Costa Rica, Singapore, and Malta. Undistributed foreign earnings remain indefinitely reinvested in foreign operations. Determining the amount of unrecognized deferred tax liability related to any remaining undistributed foreign earnings not subject to the transition tax and additional outside basis difference in its foreign entities is not practicable. In the U.S., Abbott’s federal income tax returns through 2016 are settled. There are numerous other income tax jurisdictions for which tax returns are not yet settled, none of which are individually significant. Reserves for interest and penalties are not significant. Earnings from continuing operations before taxes, and the related provisions for taxes on earnings from continuing opera‑ tions, were as follows: (in millions) Earnings From Continuing Operations Before Taxes: Domestic Foreign Total (in millions) Taxes on Earnings From Continuing Operations: Current: Domestic Foreign Total current Deferred: Domestic Foreign Total deferred Total 2020 2019 2018 $1,588 3,380 $4,968 $÷«889 3,188 $4,077 $÷(430) 3,303 $2,873 2020 2019 2018 $÷«39 566 605 (18) (90) (108) $«497 $«291 590 881 (305) (186) (491) $«390 $(812) 606 (206) 832 (87) 745 $«539 Differences between the effective income tax rate and the U.S. statutory tax rate were as follows: Statutory tax rate on earnings from continuing operations Impact of foreign operations Impact of TCJA and other related items Foreign‑derived intangible income benefit Domestic impairment loss Excess tax benefits related to stock compensation Research tax credit Resolution of certain tax positions pertaining to prior years Intercompany restructurings and integration State taxes, net of federal benefit All other, net Effective tax rate on earnings from continuing operations 2020÷ 2019÷ 2018÷ 21.0% (3.3)÷« 21.0% (5.0)÷« 21.0% (5.4)÷« 0.5÷« (2.1)÷« 6.3÷« (1.0)÷« (2.7)÷« (1.9)÷« (1.0)÷« (2.8)÷« 0.5÷« 0.5÷« 0.2÷« (2.0)÷« —÷« (2.5)÷« (1.2)÷« —÷« —÷« 0.8÷« 0.6÷« (1.9)÷« (2.1)÷« (3.1)÷« (1.8)÷« 3.4÷« —÷« 0.4÷« 2.0÷« 10.0% 9.6% 18.8% The tax effect of the differences that give rise to deferred tax assets and liabilities were as follows: (in millions) Deferred tax assets: Compensation and employee benefits Other, primarily reserves not currently deductible, and NOL’s and credit carryforwards Trade receivable reserves Inventory reserves Lease liabilities Deferred intercompany profit Total deferred tax assets before valuation allowance Valuation allowance Total deferred tax assets Deferred tax liabilities: Depreciation Right of Use lease assets Other, primarily the excess of book basis over tax basis of intangible assets Total deferred tax liabilities Total net deferred tax assets (liabilities) 2020 2019 $«1,003 $÷÷982 2,383 196 146 259 254 4,241 (1,060) 3,181 (297) (251) (2,876) (3,424) $÷«(243) 2,378 190 110 209 259 4,128 (978) 3,150 (219) (209) (3,258) (3,686) $÷«(536) Abbott has incurred losses in a foreign jurisdiction where realiza‑ tion of the future economic benefit is so remote that the benefit is not reflected as a deferred tax asset. The following table summarizes the gross amounts of unrecog‑ nized tax benefits without regard to reduction in tax liabilities or additions to deferred tax assets and liabilities if such unrecognized tax benefits were settled: (in millions) January 1 Increase due to current year tax positions Increase due to prior year tax positions Decrease due to prior year tax positions Settlements Lapse of statute December 31 2020 $1,175 190 97 (144) (27) (81) $1,210 2019 $1,120 137 75 (117) (32) (8) $1,175 The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate is approximately $1.08 billion. Abbott believes that it is reasonably possible that the recorded amount of gross unrecognized tax benefits may decrease within a range of $70 million to $430 million, including cash adjustments, within the next twelve months as a result of concluding various domestic and international tax matters. 55 ABBOTT 2020 ANNUAL REPORTNOTES TO CONSOLIDATED FINANCIAL STATEMENTSThe following segment information has been prepared in accor‑ dance with the internal accounting policies of Abbott, as described above, and are not presented in accordance with generally accepted accounting principles applied to the consolidated finan‑ cial statements. (in millions) Established Pharmaceutical Products Nutritional Products Diagnostic Products Medical Devices Total Reportable Segments Other Total Net Sales to External Customers (a) 2018 2019 2020 Operating Earnings (a) 2018 2019 2020 $÷4,303 $÷4,486 $÷4,422 $÷«794 $÷«904 $÷«894 7,647 7,409 7,229 1,751 1,705 1,652 10,805 11,787 7,713 12,239 7,495 11,370 3,725 3,038 1,912 3,769 1,868 3,500 34,542 31,847 30,516 $9,308 $8,290 $7,914 66 62 $34,608 $31,904 $30,578 57 (a) Net sales and operating earnings were unfavorably affected by the impact of foreign exchange in 2020, 2019 and 2018. (in millions) Total Reportable Segment Operating Earnings Corporate functions and benefit plan costs Net interest expense Loss on extinguishment of debt Share‑based compensation Amortization of intangible assets Other, net (b) Earnings from Continuing Operations Before Taxes 2020 2019 2018 $«9,308 $«8,290 $«7,914 (518) (500) — (546) (2,132) (644) (468) (576) (63) (519) (1,936) (651) (618) (721) (167) (477) (2,178) (880) $«4,968 $«4,077 $«2,873 (b) Other, net includes integration costs associated with the acquisition of St. Jude Medical and Alere and restructuring charges in 2020, 2019 and 2018. Other, net in 2020 also includes costs related to asset impairments, partially offset by income from the settlement of litiga‑ tion. Other, net in 2018 also includes inventory step‑up amortization associated with the acquisition of Alere. Charges for restructuring actions and other cost reduction initiatives were approximately $125 million in 2020, $215 million in 2019 and $153 million in 2018. NOTE 16 — SEGMENT AND GEOGRAPHIC AREA INFORMATION Abbott’s principal business is the discovery, development, manu‑ facture and sale of a broad line of health care products. Abbott’s products are generally sold directly to retailers, wholesalers, hospitals, health care facilities, laboratories, physicians’ offices and government agencies throughout the world. Abbott’s reportable segments are as follows: Established Pharmaceutical Products — International sales of a broad line of branded generic pharmaceutical products. Nutritional Products — Worldwide sales of a broad line of adult and pediatric nutritional products. Diagnostic Products — Worldwide sales of diagnostic systems and tests for blood banks, hospitals, commercial laboratories and alternate‑care testing sites. For segment reporting purposes, the Core Laboratories Diagnostics, Rapid Diagnostics, Molecular Diagnostics and Point of Care divisions are aggregated and reported as the Diagnostic Products segment. Medical Devices — Worldwide sales of rhythm management, electrophysiology, heart failure, vascular, structural heart, neuro‑ modulation and diabetes care products. For segment reporting purposes, the Cardiac Rhythm Management, Electrophysiology and Heart Failure, Vascular, Neuromodulation, Structural Heart and Diabetes Care divisions are aggregated and reported as the Medical Devices segment. Abbott’s underlying accounting records are maintained on a legal entity basis for government and public reporting require‑ ments. Segment disclosures are on a performance basis consistent with internal management reporting. The cost of some corporate functions and the cost of certain employee benefits are charged to segments at predetermined rates that approximate cost. Remaining costs, if any, are not allocated to segments. In addition, intangible asset amortization is not allocated to operating seg‑ ments, and intangible assets and goodwill are not included in the measure of each segment’s assets. 56 ABBOTT 2020 ANNUAL REPORTNOTES TO CONSOLIDATED FINANCIAL STATEMENTS(in millions) Established Pharmaceuticals Nutritionals Diagnostics Medical Devices Total Reportable Segments Other Total (in millions) Total Reportable Segment Assets Cash and investments Goodwill and intangible assets All other Total Assets 2020 $÷÷«88 143 488 281 1,000 195 $1,195 2020 $20,955 7,969 38,528 5,096 $72,548 Depreciation 2018 $÷÷«92 150 397 294 2019 $÷÷«98 139 403 266 906 172 $1,078 2019 $18,007 5,023 40,220 4,637 $67,887 933 167 $1,100 2018 $16,085 4,983 42,196 3,909 $67,173 Additions to Property and Equipment 2018 $÷«131 86 609 408 2019 $÷«109 141 726 532 1,508 160 $1,668 1,234 160 $1,394 2020 $÷«109 201 1,263 402 1,975 218 $2,193 2020 $÷2,888 3,478 7,696 6,893 $20,955 Total Assets 2018 $÷2,664 3,071 4,464 5,886 $16,085 2019 $÷2,858 3,274 5,235 6,640 $18,007 (in millions) United States Germany China Japan India Switzerland The Netherlands All Other Countries Consolidated Net Sales to External Customers (c) 2018 $10,839 1,619 2,311 1,326 1,333 1,005 930 11,215 $30,578 2019 $11,398 1,751 2,346 1,435 1,397 1,068 975 11,534 $31,904 2020 $13,022 2,108 1,965 1,386 1,323 1,140 1,084 12,580 $34,608 (c) Sales by country are based on the country that sold the product. Long‑lived assets on a geographic basis primarily include property and equipment. It excludes goodwill, intangible assets, deferred tax assets, and financial instruments. At December 31, 2020 and 2019, long‑lived assets totaled $11.7 billion and $10.2 billion, respectively, and in the United States such assets totaled $6.1 billion and $5.1 billion, respectively. Long‑lived asset balances associated with other countries were not material on an individual country basis in either of the two years. 57 ABBOTT 2020 ANNUAL REPORTNOTES TO CONSOLIDATED FINANCIAL STATEMENTSM A N A G E M E N T R E P O R T O N I N T E R N A L R E P O R T O F I N D E P E N D E N T R E G I S T E R E D C O N T R O L O V E R F I N A N C I A L R E P O R T I N G P U B L I C A C C O U N T I N G F I R M The management of Abbott Laboratories is responsible for estab‑ lishing and maintaining adequate internal control over financial reporting. Abbott’s internal control system was designed to pro‑ vide reasonable assurance to the company’s management and board of directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Abbott’s management assessed the effectiveness of the company’s internal control over financial reporting as of December 31, 2020. In making this assessment, it used the criteria set forth in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, we believe that, as of December 31, 2020, the company’s internal control over financial reporting was effective based on those criteria. Abbott’s independent registered public accounting firm has issued an audit report on their assessment of the effectiveness of the company’s internal control over financial reporting. This report appears on page 60. Robert B. Ford President and Chief Executive Officer Robert E. Funck, Jr. Executive Vice President, Finance and Chief Financial Officer Philip P. Boudreau Vice President, Finance and Controller February 19, 2021 To the Shareholders and Board of Directors of Abbott Laboratories OPINION ON THE FINANCIAL STATEMENTS We have audited the accompanying consolidated balance sheets of Abbott Laboratories and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of earnings, comprehensive income, shareholders’ investment and cash flows for each of the three years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 19, 2021 expressed an unqualified opinion thereon. BASIS FOR OPINION These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regula‑ tions of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. 58 ABBOTT 2020 ANNUAL REPORTWith the support of our tax professionals, among other audit procedures performed, we evaluated the reasonableness of man‑ agement’s judgement with respect to the interpretation of tax laws of multiple jurisdictions by reading and evaluating manage‑ ment’s documentation, including relevant accounting policies, and by considering how tax law, including statutes, regulations and case law, affected management’s judgments. We tested the completeness of management’s assessment of the identification of unrecognized tax benefits and possible outcomes related to it including evaluation of technical merits of the unrecognized tax benefits. We also tested, with the support of our valuation special‑ ists, appropriateness and consistency of management’s methods and significant assumptions associated with the measurement of unrecognized tax benefits, including assessing the estimated amount of tax liability that may be incurred should the tax posi‑ tion not be sustained upon inspection by a tax authority. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2013. Chicago, Illinois February 19, 2021 CRITICAL AUDIT MATTERS The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit com‑ mittee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communica‑ tion of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Income taxes – Unrecognized tax benefits Description of the Matter As described in Note 15 to the consolidated financial statements, unrecognized tax benefits were approximately $1.2 billion at December 31, 2020. Unrecognized tax benefits are assessed by management quarterly for identification and measurement, or more frequently if there are any indicators suggesting change in unrecognized tax benefits. Assessing tax positions involves judge‑ ment including interpreting tax laws of multiple jurisdictions and assumptions relevant to the measurement of an unrecognized tax benefit, including the estimated amount of tax liability that may be incurred should the tax position not be sustained upon inspection by a tax authority. These judgements and assumptions can significantly affect unrecognized tax benefits. How We Addressed the Matter in our Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s identi‑ fication and measurement of unrecognized tax benefits, as well as its process for the assessment of events that may indicate a change in unrecognized tax benefits is warranted. For example, we tested controls over management’s review of the completeness of identified unrecognized tax benefits, as well as controls over management’s review of significant assumptions used within the measurement of unrecognized tax benefits. 59 ABBOTT 2020 ANNUAL REPORTDEFINITION AND LIMITATIONS OF INTERNAL CONTROL OVER FINANCIAL REPORTING A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of manage‑ ment and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unautho‑ rized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projec‑ tions of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Chicago, Illinois February 19, 2021 R E P O R T O F I N D E P E N D E N T R E G I S T E R E D P U B L I C A C C O U N T I N G F I R M To the Shareholders and Board of Directors of Abbott Laboratories OPINION ON INTERNAL CONTROL OVER FINANCIAL REPORTING We have audited Abbott Laboratories and subsidiaries’ internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Abbott Laboratories and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of earnings, comprehensive income, shareholders’ investment and cash flows for each of the three years in the period ended December 31, 2020, and the related notes and our report dated February 19, 2021 expressed an unqualified opinion thereon. BASIS FOR OPINION The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over finan‑ cial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. 60 ABBOTT 2020 ANNUAL REPORTF I N A N C I A L I N S T R U M E N T S A N D R I S K M A N A G E M E N T MARKET PRICE SENSITIVE INVESTMENTS FOREIGN CURRENCY SENSITIVE FINANCIAL INSTRUMENTS The fair value of equity securities held by Abbott with a readily determinable fair value was approximately $20 million and $11 million as of December 31, 2020 and 2019, respectively. These equity securities are subject to potential changes in fair value. A hypothetical 20 percent decrease in the share prices of these investments would decrease their fair value at December 31, 2020 by approximately $4 million. Changes in the fair value of these securities are recorded in earnings. The fair value of investments in mutual funds that are held in a rabbi trust for the purpose of paying benefits under a deferred compensation plan was approxi‑ mately $366 million and $346 million as of December 31, 2020 and 2019, respectively. Changes in the fair value of these invest‑ ments, as well as an offsetting change in the benefit obligation, are recorded in earnings. NON-PUBLICLY TRADED EQUIT Y SECURITIES Abbott holds equity securities that are not traded on public stock exchanges. The carrying value of these investments was $113 million and $158 million as of December 31, 2020 and 2019, respectively. No individual investment is recorded at a value in excess of $15 million. Abbott measures these investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. INTEREST RATE SENSITIVE FINANCIAL INSTRUMENTS At December 31, 2020 and 2019, Abbott had interest rate hedge contracts totaling $2.9 billion to manage its exposure to changes in the fair value of debt. The effect of these hedges is to change the fixed interest rate to a variable rate for the portion of the debt that is hedged. Abbott does not use derivative financial instru‑ ments, such as interest rate swaps, to manage its exposure to changes in interest rates for its investment securities. The fair value of long‑term debt at December 31, 2020 and 2019 amounted to $22.8 billion and $20.8 billion, respectively (average interest rates of 3.3% as of December 31, 2020 and 2019) with maturities through 2046. At December 31, 2020 and 2019, the fair value of current and long‑term investment securities amounted to approxi‑ mately $1.1 billion and $1.2 billion, respectively. A hypothetical 100‑basis point change in the interest rates would not have a material effect on cash flows, income or fair values. Certain Abbott foreign subsidiaries enter into foreign currency forward exchange contracts to manage exposures to changes in foreign exchange rates for anticipated intercompany purchases by those subsidiaries whose functional currencies are not the U.S. dollar. These contracts are designated as cash flow hedges of the variability of the cash flows due to changes in foreign currency exchange rates and are marked‑to‑market with the resulting gains or losses reflected in Accumulated other compre‑ hensive income (loss). Gains or losses will be included in Cost of products sold at the time the products are sold, generally within the next twelve to eighteen months. At December 31, 2020 and 2019, Abbott held $8.1 billion and $6.8 billion, respectively, of such contracts. Contracts held at December 31, 2020 will mature in 2021 or 2022 depending upon the contract. Contracts held at December 31, 2019 matured in 2020 or will mature in 2021 depending upon the contract. Abbott enters into foreign currency forward exchange contracts to manage its exposure to foreign currency denominated inter‑ company loans and trade payables and third‑party trade payables and receivables. The contracts are marked‑to‑market, and result‑ ing gains or losses are reflected in income and are generally offset by losses or gains on the foreign currency exposure being man‑ aged. At December 31, 2020 and 2019, Abbott held $11.0 billion and $9.1 billion, respectively, of such contracts, which mature in the next 13 months. In November 2019, Abbott borrowed ¥59.8 billion under a 5‑year term loan and designated the yen‑denominated loan as a hedge of the net investment in certain foreign subsidiaries. The proceeds equated to approximately $550 million. The value of this long‑ term debt was approximately $577 million and $546 million as of December 31, 2020 and December 31, 2019, respectively. The change in the value of the debt, which is due to changes in foreign exchange rates, was recorded in Accumulated other comprehen‑ sive income (loss), net of tax. The following table reflects the total foreign currency forward exchange contracts outstanding at December 31, 2020 and 2019: (dollars in millions) Primarily U.S. Dollars to be exchanged for the following currencies: Euro Chinese Yuan Japanese Yen All other currencies Total Weighted Average Exchange Rate 1.1821 6.4900 105.3861 n/a 2020 Fair and Carrying Value Receivable/ (Payable) $÷(91) (99) (20) (198) $(408) Contract Amount $÷7,781 2,401 1,589 7,369 $19,140 Weighted Average Exchange Rate 1.1189 7.0216 106.8530 n/a Contract Amount $÷7,085 2,177 1,092 5,532 $15,886 2019 Fair and Carrying Value Receivable/ (Payable) $«65 4 13 (23) $«59 61 ABBOTT 2020 ANNUAL REPORTAbbott’s revenues are derived primarily from the sale of a broad line of health care products under short‑term receivable arrangements. Patent protection and licenses, technological and performance features, and inclusion of Abbott’s products under a contract most impact which products are sold; price controls, competition and rebates most impact the net selling prices of products; and foreign currency translation impacts the measure‑ ment of net sales and costs. Abbott’s primary products are medical devices, diagnostic testing products, nutritional products and branded generic pharmaceuticals. Sales in international markets comprise approximately 62 percent of consolidated net sales. In 2020, the coronavirus (COVID‑19) pandemic affected Abbott’s diversified health care businesses in various ways. As is further described below, some businesses have performed at the levels required to successfully meet new demands, others have faced challenges, and still others have been relatively less impacted by the pandemic. Abbott’s Diagnostics business experienced the most significant change in sales from 2019 to 2020 as sales from new tests and other related products to detect COVID‑19 more than outweighed the negative impact of COVID‑19 on routine diagnostic testing volumes. Abbott mobilized its teams across multiple fronts to develop and launch the following new diagnostic tests for COVID‑19 in 2020: • In March, Abbott launched a molecular test using polymerase chain reaction (PCR) methods on its m2000™ RealTime lab‑ based platform to detect COVID‑19 pursuant to an Emergency Use Authorization (EUA) in the U.S. and CE Mark. • In March, Abbott also launched a molecular test to detect COVID‑19 on its ID NOW™ rapid point‑of‑care platform in the U.S. pursuant to an EUA. • In April, Abbott launched an IgG (Immunoglobulin G) lab‑ based serology blood test on its ARCHITECT® i1000SR and i2000SR® laboratory instruments for the detection of an anti‑ body to determine if someone was previously infected with the virus. The serology test was granted an EUA in the U.S. and CE Mark in April. • In May, Abbott launched a lab‑based serology blood test on its Alinity® i system pursuant to an EUA in the U.S. and CE Mark. • In May, Abbott also launched a molecular PCR test on its Alinity m system to detect COVID‑19 pursuant to an EUA in the U.S. Abbott received CE Mark for this test in June. • In June, Abbott launched a lateral flow COVID‑19 rapid anti‑ body test on its Panbio™ system in select countries pursuant to a CE Mark. This serology test detects an antibody to determine if someone was previously infected with the virus. • In August, Abbott launched its AdviseDx SARS‑CoV‑2 IgM (Immunoglobulin M) lab‑based serology test for use on its ARCHITECT and Alinity platforms pursuant to a CE Mark. Abbott was granted an EUA in the U.S. for this test in October. • In August, Abbott launched its BinaxNOW™ COVID‑19 Ag Card test, a portable, lateral flow rapid test to detect COVID‑19 pur‑ suant to an EUA in the U.S. • In September, Abbott launched its Panbio rapid antigen test to detect COVID‑19 pursuant to a CE Mark. In October, Abbott received approval by the World Health Organization for emer‑ gency use listing for the Panbio antigen test. • In December, Abbott received CE Mark and launched its SARS‑CoV‑2‑IgG II quantitative lab‑based serology blood test for use on its ARCHITECT and Alinity i platforms. • In December, Abbott received an EUA in the U.S. for virtually guided at‑home use of its BinaxNOW COVID‑19 Ag Card rapid test to detect COVID‑19 and launched the product for at‑home use. • In December, Abbott launched its multiplex molecular test on its Alinity m system to detect COVID‑19, flu A, flu B, and respi‑ ratory syncytial virus (RSV) pursuant to a CE Mark. In 2020, Abbott’s COVID‑19 testing related sales totaled approxi‑ mately $3.884 billion, led by sales related to Abbott’s BinaxNOW, Panbio and ID NOW rapid testing platforms. In addition to negatively impacting routine core diagnostic test‑ ing volumes, the pandemic negatively affected the number of cardiovascular and neuromodulation procedures performed by health care providers globally, thereby reducing the demand for Abbott’s cardiovascular and neuromodulation devices and routine diagnostic tests in 2020. The decrease began in February in China as that country implemented quarantine restrictions and post‑ poned 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 num‑ ber of procedures and routine testing in a particular country or geographic region depended upon the progression of COVID‑19 cases in the country or region. The recovery in procedures and routine testing volumes in China began in March. In other parts of the world, such as the U.S. and Europe, volumes improved across Abbott’s hospital‑based businesses as the second quarter progressed and the improvement continued in the third quarter. However, in the fourth quarter, the improving trends in the demand for procedures and routine testing flattened or were negatively impacted depending upon the business and the region as many countries experienced an increase in the number of COVID‑19 cases and hospitalizations. Abbott’s branded generic pharmaceuticals business was also negatively affected by the pandemic in 2020 as COVID‑19 spread across emerging market countries in the second and third quarters of 2020. Abbott’s nutritional and diabetes care businesses were the least affected by the pandemic as is further discussed below. Abbott is continually implementing business continuity plans in the face of the pandemic. Due to the critical nature of its products and services, Abbott was generally exempt from governmental orders issued during the first quarter of 2020 in the U.S. and other countries requiring businesses to cease operations. The majority of its office‑based work was conducted remotely during the period of such governmental orders and the company implemented strict 62 FINANCIAL REVIEWABBOTT 2020 ANNUAL REPORTtravel restrictions. As some governmental orders were lifted in May and June 2020, Abbott entered a new phase in its operations whereby some office‑based employees started working at Abbott’s offices on a rotational basis. As various governmental orders and guidelines were modified in the fourth quarter to put in place new restrictions, Abbott continued to ensure that its guidance was aligned with such restrictions. Abbott has taken aggressive steps to limit exposure and enhance the safety of facilities for its employees. Due to the unpredictability of the duration and impact of the current COVID‑19 pandemic, the extent to which the COVID‑19 pandemic will have a material effect on its business, financial condition or results of operations is uncertain. While Abbott’s 2020 sales were most significantly affected by the COVID‑19 pandemic, the increase in total sales over the last three years also reflects volume growth due to the introduction of new products across various businesses as well as higher sales of vari‑ ous existing products. Sales in emerging markets, which represent approximately 37 percent of total company sales, increased 2.0 percent in 2020 and 8.2 percent in 2019, 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 percent‑ age of sales increased from 11.9 percent in 2018 to 14.2 percent in 2019 and 15.5 percent in 2020. 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 2018 to 2020. In 2019, the increase in Abbott’s operating margin also reflects margin improvement in various businesses and lower intangible amortiza‑ tion expense compared to 2018. With respect to the performance of each reportable segment over the last three years, sales in the Medical Devices segment exclud‑ ing the impact of foreign exchange decreased 3.8 percent in 2020 and increased 10.5 percent in 2019. The sales decrease in 2020 was driven by Abbott’s cardiovascular and neuromodulation busi‑ nesses due primarily to reduced procedure volumes as a result of the COVID‑19 pandemic. These decreases were partially offset by double‑digit growth in Diabetes Care. The sales increase in 2019 was driven primarily by higher Diabetes Care, Structural Heart, Electrophysiology and Heart Failure sales. In 2020, operating earnings for the Medical Devices segment decreased 19.4 percent. The operating margin profile decreased from 30.8 percent of sales in 2019 to 25.8 percent in 2020 primarily due to lower sales and manufacturing volumes as a result of the pandemic and pricing pressures on drug eluting stents (DES) as a result of market competition in the U.S. and other major markets. In 2020, key product approvals in the Medical Devices seg‑ ment included: • CE Mark for Abbott’s Tendyne™ Transcatheter Mitral Valve Implantation system for the treatment of significant mitral regurgitation (MR) in patients requiring a heart valve replace‑ ment who are not candidates for open‑heart surgery or transcatheter mitral valve repair, • CE Mark for Abbott’s TriClip® heart valve repair system, the world’s first minimally invasive, clip‑based device for repair of a leaky tricuspid heart valve, • U.S. Food and Drug Administration (FDA) clearance of FreeStyle® Libre 2 as an integrated continuous glucose monitoring (iCGM) system for adults and children ages 4 and older with diabetes, • CE Mark for Abbott’s FreeStyle Libre 3 system, which automati‑ cally delivers real time, up‑to‑the‑minute glucose readings, 14‑day accuracy and real‑time glucose alarms, • CE Mark for the Libre Sense™ Glucose Sport Biosensor that provides continuous glucose monitoring to help athletes better understand the efficacy of their nutrition choices on training and athletic performance, • U.S. FDA approval of the next‑generation Gallant™ implantable cardioverter defibrillator and cardiac resynchronization therapy defibrillator devices which help manage heart rhythm disorders and offer Bluetooth technology and a new patient smartphone app for improved remote monitoring and enhanced patient‑ physician engagement, • CE Mark for MitraClip® G4, Abbott’s next‑generation MitraClip mitral valve repair device, • CE Mark of EnSite™ X EP System, a next‑generation 3D cardiac mapping platform used for ablation therapy to treat abnormal heart rhythms, • U.S. FDA clearance and CE Mark of the IonicRF™ Generator, a non‑surgical, minimally invasive device that uses heat to target specific nerves for the management of chronic pain, and • U.S. FDA approval of updated labeling to allow Abbott’s HeartMate 3™ heart pump to be used in pediatric patients with advanced refractory left ventricular heart failure. In Abbott’s worldwide diagnostics business, sales increased 40.6 percent in 2020 and 5.9 percent in 2019, excluding the impact of foreign exchange. As was discussed above, sales growth in 2020 was driven by demand for Abbott’s portfolio of COVID‑19 diagnostics tests across its rapid and lab‑based platforms, partially offset by lower volumes of routine laboratory testing due to the pandemic. Growth in 2019 reflected continued market penetration by the core laboratory business in the U.S. and internationally. The 2019 growth included the continued adoption by customers of Alinity, which is Abbott’s integrated family of next‑generation diagnostic systems and solutions that are designed to increase efficiency by running more tests in less space, generating test results faster and minimizing human errors while continuing to provide quality results. Abbott has regulatory approvals in the U.S., Europe, China, and other markets for the “Alinity c” and “Alinity i” instruments and has continued to build out its test menu for clinical chemistry and immunoassay diagnostics. Abbott has obtained regulatory approval for the “Alinity h” instrument for hematology in Europe and Japan. Abbott has also obtained regulatory approvals in the U.S. and Europe for the “Alinity s” (blood screening) and “Alinity m” (molecular) instruments and several testing assays. 63 FINANCIAL REVIEWABBOTT 2020 ANNUAL REPORTIn 2020, operating earnings for the Diagnostics segment increased 94.8 percent. The operating margin profile increased from 24.9 percent of sales in 2018 to 34.5 percent in 2020 primarily due to higher sales in 2020 in Rapid Diagnostics and Molecular Diagnostics, partially offset by lower volumes of routine testing in Core Laboratory. In Abbott’s worldwide nutritional products business, sales over the last three years were positively impacted by numerous new product introductions, including the roll‑outs of human milk oligosaccharide, or HMO, in infant formula and of high‑protein Ensure®, that leveraged Abbott’s strong brands. Sales were also positively affected by demographics such as an aging population and an increasing rate of chronic disease in developed markets and the rise of a middle class in many emerging markets. Excluding the impact of foreign exchange, total adult nutrition sales increased 10.3 percent in 2020 and 6.6 percent in 2019 led by the continued growth of Ensure, Abbott’s market‑leading complete and balanced nutrition brand, and Glucerna®, Abbott’s market‑leading diabetes‑ specific nutrition brand, across several countries. The 2019 sales growth was partially offset by the unfavorable impact of the dis‑ continuation of a non‑core product line in the U.S. Excluding the impact of foreign exchange, total pediatric nutrition sales increased 0.3 percent in 2020 and 3.4 percent in 2019 driven by the PediaSure® and Pedialyte® brands in the U.S. as well as infant and toddler product growth across several markets in Asia and Latin America, partially offset by challenging market dynamics in the infant category in Greater China. The 2020 increase was also driven by higher Similac® sales in the U.S. 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 1.9 percent in 2020 and 7.3 percent in 2019. The sales increases in 2020 and 2019 reflect higher sales in several geographies including India, China, Brazil and Russia. Operating margins decreased from 20.2 percent of sales in 2018 to 18.5 percent in 2020 primarily due to the unfavorable impact of foreign exchange, product mix and lower gross margins. With respect to Abbott’s financial position, at December 31, 2020, Abbott’s cash and cash equivalents and short‑term investments total approximately $7.1 billion compared to $4.1 billion at December 31, 2019. Abbott’s long‑term debt and short‑term bor‑ rowings total $18.7 billion and $18.1 billion at December 31, 2020 and 2019, respectively. Abbott declared dividends of $1.53 per share in 2020 compared to $1.32 per share in 2019, an increase of approximately 16 percent. Dividends paid totaled $2.560 billion in 2020 compared to $2.270 billion in 2019. The year‑over‑year change in the amount of dividends paid primarily reflects the increase in the dividend rate. In December 2020, Abbott increased the company’s quarterly dividend by 25 percent to $0.45 per share from $0.36 per share, effective with the dividend paid in February 2021. In 2021, Abbott will focus on continuing to meet the demand for COVID‑19 tests and will continue to invest in product develop‑ ment 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 instru‑ ments. In the medical devices business, Abbott will continue to focus on expanding its market position in various areas including diabetes care, structural heart, electrophysiology, and heart failure. In its nutritionals business, Abbott will continue to focus on driv‑ ing growth globally and further enhancing its portfolio with the introduction of line extensions of its science‑based products. 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. CRITICAL ACCOUNTING POLICIES Sales Rebates — In 2020, approximately 41 percent of Abbott’s consolidated gross revenues were subject to various forms of rebates and allowances that Abbott recorded as reductions of revenues at the time of sale. Most of these rebates and allowances in 2020 are in the Nutritional Products and Diabetes Care busi‑ nesses. Abbott provides rebates to state agencies that administer the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), wholesalers, group purchasing organizations, and other government agencies and private entities. Rebate amounts are usually based upon the volume of purchases using contractual or statutory prices for a product. Factors used in the rebate calculations include the identification of which products have been sold subject to a rebate, which customer or government agency price terms apply, and the estimated lag time between sale and payment of a rebate. Using historical trends, adjusted for current changes, 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. Abbott regularly analyzes the historical rebate trends and makes adjust‑ ments to reserves for changes in trends and terms of rebate programs. Rebates and chargebacks charged against gross sales in 2020, 2019 and 2018 amounted to approximately $3.3 billion, $3.1 billion and $3.0 billion, respectively, or 20.1 percent, 19.1 percent and 19.0 percent of gross sales, respectively, based on gross sales of approximately $16.6 billion, $16.3 billion and $16.0 billion, respectively, subject to rebate. A one‑percentage point increase in the percentage of rebates to related gross sales would decrease net sales by approximately $166 million in 2020. Abbott considers a one‑percentage point increase to be a reason‑ ably likely increase in the percentage of rebates to related gross sales. Other allowances charged against gross sales were approxi‑ mately $207 million, $169 million and $175 million for cash discounts in 2020, 2019 and 2018, respectively, and $232 million, $192 million and $191 million for returns in 2020, 2019 and 2018, respectively. Cash discounts are known within 15 to 30 days of sale, and therefore can be reliably estimated. Returns can be reli‑ ably estimated because Abbott’s historical returns are low, and because sales returns terms and other sales terms have remained relatively unchanged for several periods. 64 FINANCIAL REVIEWABBOTT 2020 ANNUAL REPORTManagement analyzes the adequacy of ending rebate accrual balances each quarter. In the domestic nutritional business, man‑ agement uses both internal and external data available to estimate the accruals. In the WIC business, estimates are required for the amount of WIC sales within each state where Abbott holds the WIC contract. The state where the sale is made, which is the determining factor for the applicable rebated price, is reliably determinable. Rebated prices are based on contractually obligated agreements generally lasting a period of two to four years. Except for a change in contract price or a transition period before or after a change in the supplier for the WIC business in a state, accruals are based on historical redemption rates and data from the U.S. Department of Agriculture (USDA) and the states submitting rebate claims. The USDA, which administers the WIC program, has been making its data available for many years. Management also estimates the states’ processing lag time based on sales and claims data. Inventory in the retail distribution channel does not vary substantially. Management has access to several large customers’ inventory management data, which allows management to make reliable estimates of inventory in the retail distribution channel. At December 31, 2020, Abbott had WIC business in 27 states. Historically, adjustments to prior years’ rebate accruals have not been material to net income. Abbott employs various techniques to verify the accuracy of claims submitted to it, and where possible, works with the organizations submitting claims to gain insight into changes that might affect the rebate amounts. For government agency programs, the calculation of a rebate involves interpreta‑ tions of relevant regulations, which are subject to challenge or change in interpretation. Income Taxes — Abbott operates in numerous countries where its income tax returns are subject to audits and adjustments. Because Abbott operates globally, the nature of the audit items is often very complex, and the objectives of the government auditors can result in a tax on the same income in more than one country. Abbott employs internal and external tax professionals to mini‑ mize audit adjustment amounts where possible. In accordance with the accounting rules relating to the measurement of tax contingencies, in order to recognize an uncertain tax benefit, the taxpayer must be more likely than not of sustaining the position, and the measurement of the benefit is calculated as the largest amount that is more than 50 percent likely to be realized upon resolution of the benefit. Application of these rules requires a significant amount of judgment. In the U.S., Abbott’s federal income tax returns through 2016 are settled. Undistributed for‑ eign earnings remain indefinitely reinvested in foreign operations. Determining the amount of unrecognized deferred tax liability related to any remaining undistributed foreign earnings not sub‑ ject to the transition tax and additional outside basis difference in its foreign entities is not practicable. Pension and Post-Employment Benefits — Abbott offers pension benefits and post‑employment health care to many of its employees. Abbott engages outside actuaries to assist in the determination of the obligations and costs under these programs. Abbott must develop long‑term assumptions, the most significant of which are the health care cost trend rates, discount rates and the expected return on plan assets. The discount rates used to measure liabilities were determined based on high‑quality fixed income securities that match the duration of the expected retiree benefits. The health care cost trend rates represent Abbott’s expected annual rates of change in the cost of health care benefits and are a forward projection of health care costs as of the measurement date. A dif‑ ference between the assumed rates and the actual rates, which will not be known for years, can be significant in relation to the obliga‑ tions and the annual cost recorded for these programs. Low interest rates have significantly increased actuarial losses for these plans. At December 31, 2020, pretax net actuarial losses and prior service costs and (credits) recognized in Accumulated other comprehensive income (loss) were net losses of $4.6 billion for Abbott’s defined benefit plans and net losses of $419 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. Differences between the expected long‑term return on plan assets and the actual annual return are amortized over a five‑year period. Valuation of Intangible Assets — Abbott has acquired and contin‑ ues to acquire significant intangible assets that Abbott records at fair value at the acquisition date. Transactions involving the purchase or sale of intangible assets occur with some frequency between companies in the health care field and valuations are usually based on a discounted cash flow analysis. The discounted cash flow model requires assumptions about the timing and amount of future net cash flows, risk, cost of capital, terminal values and market participants. Each of these factors can signifi‑ cantly affect the value of the intangible asset. Abbott engages independent valuation experts who review Abbott’s critical assumptions and calculations for acquisitions of significant intan‑ gibles. Abbott reviews definite‑lived intangible assets for impairment each quarter using an undiscounted net cash flows approach. If the undiscounted cash flows of an intangible asset are less than the carrying value of an intangible asset, the intangible asset is written down to its fair value, which is usually the dis‑ counted cash flow amount. Where cash flows cannot be identified for an individual asset, the review is applied at the lowest group level for which cash flows are identifiable. Goodwill and indefi‑ nite‑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, 2020, goodwill amounted to $23.7 billion and net intangibles amounted to $14.8 billion. Amortization expense in continuing operations for intangible assets amounted to $2.1 billion in 2020, $1.9 billion in 2019 and $2.2 billion in 2018. There was no reduction of goodwill relating to impairments in 2020, 2019 and 2018. 65 FINANCIAL REVIEWABBOTT 2020 ANNUAL REPORTThe increase in Total Net Sales in 2020 reflects volume growth in the Diagnostics and Nutritional Products segments. In Medical Devices, the impact of COVID‑19 on Abbott’s cardiovascular and neuromodulation businesses was partially offset by double‑digit volume growth in Diabetes Care. The increase in Total Net Sales in 2019 reflects volume growth across all of Abbott’s segments. The price declines related to the Medical Devices segment in 2020 and 2019 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. Percent changes are versus the prior year and are based on unrounded numbers. (dollars in millions) Total Established Pharmaceuticals — Key Emerging Markets Other Nutritionals — International Pediatric Nutritionals U.S. Pediatric Nutritionals International Adult Nutritionals U.S. Adult Nutritionals Diagnostics — Core Laboratory Molecular Point of Care Rapid Diagnostics Medical Devices — Rhythm Management Electrophysiology Heart Failure Vascular (a) Structural Heart Neuromodulation Diabetes Care (a) Vascular Product Lines: Coronary and Endovascular 2020 2019 Total Change Impact of Exchange Total Change Excl. Exchange $3,209 1,094 $3,392 1,094 (5)«% —÷÷ (8)«% 1÷÷ 3% (1)÷« 2,140 2,282 1,987 1,879 (6)«÷« 6÷÷ 2,228 2,017 11÷÷ 1,292 1,231 5÷÷ 4,475 1,438 516 4,376 1,914 1,578 740 2,339 1,247 702 3,267 4,656 442 561 2,054 2,144 1,721 769 2,850 1,400 831 2,524 (4)÷÷ 225÷÷ (8)÷÷ 113÷÷ (11)÷÷ (8)÷÷ (4)÷÷ (18)÷÷ (11)÷÷ (16)÷÷ 29÷÷ (2)÷÷ —÷÷ (3)÷÷ —÷÷ (1)÷÷ (1)÷÷ —÷÷ 1÷÷ —÷÷ 1÷÷ —÷÷ —÷÷ —÷÷ —÷÷ —÷÷ (4)÷« 6÷« 14÷« 5÷« (3)÷« 226÷« (8)÷« 112÷« (11)÷« (9)÷« (4)÷« (18)÷« (11)÷« (16)÷« 29÷« 2,263 2,740 (17)÷÷ —÷÷ (17)÷« Litigation — Abbott accounts for litigation losses in accordance with Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) No. 450, “Contingencies.” Under ASC No. 450, loss contingency provisions are recorded for proba‑ ble losses at management’s best estimate of a loss, or when a best estimate cannot be made, a minimum loss contingency amount is recorded. These estimates are often initially developed substan‑ tially earlier than the ultimate loss is known, and the estimates are refined each accounting period as additional information becomes known. Accordingly, Abbott is often initially unable to develop a best estimate of loss, and therefore the minimum amount, which could be zero, is recorded. As information becomes known, either the minimum loss amount is increased, resulting in additional loss provisions, or a best estimate can be made, also resulting in addi‑ tional loss provisions. Occasionally, a best estimate amount is changed to a lower amount when events result in an expectation of a more favorable outcome than previously expected. Abbott estimates the range of possible loss to be from approximately $90 million to $120 million for its legal proceedings and environ‑ mental exposures. Accruals of approximately $105 million have been recorded at December 31, 2020 for these proceedings and exposures. These accruals represent management’s best estimate of probable loss, as defined by FASB ASC No. 450, “Contingencies.” RESULTS OF OPERATIONS SALES The following table details the components of sales growth by reportable segment for the last two years: Total % Change Components of % Change Price Volume Exchange 10.2 7.3 15.3 5.6 7.2 8.3 (0.8) 4.3 3.9 3.9 41.4 6.4 (1.9) 11.4 (1.3) (3.2) — — (2.0) (4.9) (6.0) (5.9) (1.5) (2.3) (0.5) (3.0) 0.1 (2.9) Total Net Sales 2020 vs. 2019 2019 vs. 2018 Total U.S. 2020 vs. 2019 2019 vs. 2018 Total International 2020 vs. 2019 2019 vs. 2018 8.5 4.3 14.2 5.2 5.3 3.9 (0.4) 0.2 (1.1) (0.4) 0.1 0.5 Established Pharmaceutical Products Segment 2020 vs. 2019 2019 vs. 2018 (4.1) 1.4 2.7 3.0 Nutritional Products Segment 2020 vs. 2019 2019 vs. 2018 3.2 2.5 Diagnostic Products Segment 2020 vs. 2019 2019 vs. 2018 Medical Devices Segment 2020 vs. 2019 2019 vs. 2018 40.1 2.9 (3.7) 7.6 0.8 0.9 (0.8) (0.5) (1.9) (0.9) 66 FINANCIAL REVIEWABBOTT 2020 ANNUAL REPORT(dollars in millions) Total Established Pharmaceuticals — Key Emerging Markets Other Nutritionals — International Pediatric Nutritionals U.S. Pediatric Nutritionals International Adult Nutritionals U.S. Adult Nutritionals Diagnostics — Core Laboratory Molecular Point of Care Rapid Diagnostics Medical Devices — Rhythm Management Electrophysiology Heart Failure Vascular (a) Structural Heart Neuromodulation Diabetes Care (a) Vascular Product Lines: Coronary and Endovascular 2019 2018 Total Change Impact of Exchange Total Change Excl. Exchange $3,392 1,094 $3,363 1,059 2,282 2,254 1,879 1,843 2,017 1,900 1% 3÷« 1÷« 2÷« 6÷« 1,231 1,232 —÷« 4,656 442 561 2,054 2,144 1,721 769 2,850 1,400 831 2,524 4,386 484 553 2,072 2,198 1,561 646 2,929 1,239 864 1,933 6÷« (9)÷« 2÷« (1)÷« (3)÷« 10÷« 19÷« (3)÷« 13÷« (4)÷« 31÷« (7)«% (3)÷÷ (4)÷÷ —÷÷ (5)÷÷ —÷÷ (4)÷÷ (3)÷÷ —÷÷ (2)÷÷ (3)÷÷ (3)÷÷ (1)÷÷ (3)÷÷ (3)÷÷ (2)÷÷ (5)÷÷ 8% 6÷« 5÷« 2÷« 11÷« —÷« 10÷« (6)«÷ 2÷« 1÷« —÷« 13÷« 20÷« —÷« 16÷« (2)«÷ 36÷« 2,740 2,778 (1)÷« (2)÷÷ 1÷« In order to compute results excluding the impact of exchange rates, current year U.S. dollar sales are multiplied or divided, as appropriate, by the current year average foreign exchange rates and then those amounts are multiplied or divided, as appropriate, by the prior year average foreign exchange rates. Total Established Pharmaceutical Products sales increased 1.9 percent in 2020 and 7.3 percent in 2019, excluding the unfavor‑ able impact of foreign exchange. The Established Pharmaceutical Products segment is focused on several key emerging markets including India, Russia, China and Brazil. Excluding the impact of foreign exchange, total sales in these key emerging markets increased 2.6 percent in 2020 and 7.9 percent in 2019 due to higher sales in several geographies including China, Brazil, India and Russia. Excluding the impact of foreign exchange, sales in Established Pharmaceuticals’ other emerging markets decreased 0.5 percent in 2020 and increased 5.6 percent in 2019. Total Nutritional Products sales increased 4.7 percent in 2020 and 4.8 percent in 2019, excluding the impact of foreign exchange. In 2020, International Pediatric Nutritional sales, excluding the effect of foreign exchange, decreased 4.1 percent as growth across Abbott’s pediatric products in various countries in Southeast Asia was more than offset by challenging market dynamics in the infant category in Greater China. The 4.6 percent increase in 2019 International Pediatric Nutritional sales, excluding the effect of foreign exchange, was driven by growth across Abbott’s portfolio, including Similac and PediaSure in various countries in Asia and Latin America and Pedialyte in Latin America. This growth was partially offset by challenging market dynamics in the infant cate‑ gory in Greater China. In the U.S. Pediatric Nutritional business, sales increased 5.8 percent in 2020 and 1.9 percent in 2019, reflect‑ ing growth in Similac in 2020 and growth in PediaSure and Pedialyte in both years. In the International Adult Nutritional business, sales increased 13.6 percent and 10.9 percent in 2020 and 2019, respectively, excluding the effect of foreign exchange, due to continued growth of Ensure and Glucerna in several countries. In 2020, U.S. Adult Nutritional sales increased 4.9 percent, primarily due to growth of Ensure. In 2019, U.S. Adult Nutritional sales were unchanged from 2018 due to the impact of Abbott’s discontinuation of a non‑core product line during the third quarter of 2018 that was offset by growth in other areas of the business. In the Diagnostics segment, Core Laboratory sales decreased 2.8 percent in 2020, excluding the effect of foreign exchange, as the lower volume of routine testing performed in hospital and other laboratories due to COVID‑19 was partially offset by sales of Abbott’s COVID‑19 laboratory‑based tests for the detection of the IgG and IgM antibodies, which determine if someone was previ‑ ously infected with the virus. Core Laboratory antibody testing‑ related sales on Abbott’s ARCHITECT and Alinity i platforms were $268 million in 2020. The 225.7 percent increase in Molecular Diagnostics sales in 2020, excluding the effect of foreign exchange, reflects higher volumes due to demand for Abbott’s laboratory‑ based molecular tests for COVID‑19 on its m2000 and Alinity m platforms. Abbott received U.S. FDA approval in March 2020 for its Alinity m molecular diagnostics system. Molecular Diagnostics COVID‑19 testing‑related sales were $1.023 billion in 2020. In Rapid Diagnostics, sales increased 112.3 percent in 2020, excluding the effect of foreign exchange, due to strong demand for Abbott’s point‑of‑care COVID‑19 molecular test on its ID NOW platform and its BinaxNOW COVID‑19 Ag Card test in the U.S. as well as international demand for COVID‑19 rapid tests on its Panbio system and increased testing in the first quarter for the flu in the U.S. These increases were partially offset by the unfavorable impact of COVID‑19 on routine diagnostic testing. Rapid Diagnostics COVID‑19 testing‑related sales were $2.593 billion in 2020. 67 FINANCIAL REVIEWABBOTT 2020 ANNUAL REPORTIn the Diagnostics segment, the sales increase in 2019 was driven by above‑market growth in Core Laboratory in the U.S. and internationally, where Abbott achieved continued adoption of its Alinity family of diagnostic instruments. The 6.3 percent decrease in 2019 Molecular sales, excluding the effect of foreign exchange, reflects the negative impact of lower non‑governmental organiza‑ tion purchases in Africa. In Rapid Diagnostics, sales growth in 2019 in various areas, including infectious disease testing in devel‑ oped markets and cardio‑metabolic testing, was mostly offset by lower than expected infectious disease testing sales in Africa. Excluding the effect of foreign exchange, total Medical Devices sales decreased 3.8 percent and increased 10.5 percent in 2020 and 2019, respectively. In 2020, double‑digit growth in Diabetes Care was more than offset by decreases in Abbott’s cardiovascular and neuromodulation businesses due to the impact of COVID‑19 and lower vascular sales in China in the fourth quarter of 2020 as a result of a new national tender program. The 2019 sales increase was driven by double‑digit growth in Diabetes Care, Structural Heart, Electrophysiology and Heart Failure. The 2020 and 2019 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 2020, FreeStyle Libre sales totaled $2.635 billion, which reflected a 42.6 percent increase over 2019, excluding the effect of foreign exchange. FreeStyle Libre sales in 2019 were $1.842 billion, which reflected a 69.8 percent increase, excluding the effect of foreign exchange, over 2018 when sales totaled $1.128 billion. In 2019, growth in Structural Heart revenue was broad‑based across several areas of the business, including MitraClip, Abbott’s market‑leading device for the minimally invasive treatment of mitral regurgitation (MR), a leaky heart valve. 2019 growth in Electrophysiology revenue reflects higher sales of cardiac diagnos‑ tic and ablation catheters in both the U.S. and internationally. The growth in Heart Failure revenue in 2019 was driven by rapid market adoption in the U.S. of Abbott’s HeartMate 3® Left Ventricular Assist Device (LVAD) following FDA approval in October 2018 as a destination (long‑term use) therapy for people living with advanced heart failure as well as higher sales of Abbott’s CardioMEMS® heart failure monitoring system. In Vascular, excluding the effect of foreign exchange, sales in 2019 were flat as the 1.3 percent increase in coronary and endovascular product sales, which includes drug‑eluting stents, balloon cathe‑ ters, guidewires, vascular imaging/diagnostics products, vessel closure, carotid and other coronary and peripheral products, was offset by reductions in royalty and contract manufacturing reve‑ nue. In Rhythm Management, higher 2019 international sales, excluding the effect of foreign exchange, were offset by a 4.4 percent decrease in U.S. revenue. In 2019, the 2.4 percent decline in Neuromodulation sales, excluding the effect of foreign exchange, reflects a 4.2 percent decline in U.S. sales. Abbott has periodically sold product rights to non‑strategic prod‑ ucts 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 2020, 2019 and 2018. The expiration of licenses and patent protection can affect the future revenues and operating income of Abbott. There are no significant patent or license expirations in the next three years that are expected to materially affect Abbott. In April 2017, Abbott received a warning letter from the U.S. FDA related to its manufacturing facility in Sylmar, CA which was acquired by Abbott on January 4, 2017 as part of the acquisition of St. Jude Medical, Inc. (St. Jude Medical). This facility manu‑ factures implantable cardioverter defibrillators, cardiac resynchronization therapy defibrillators, and monitors. Abbott prepared and executed a comprehensive plan of corrective actions. On April 28, 2020, Abbott received a letter from the FDA indicat‑ ing that, based on the FDA’s evaluation, it appeared that Abbott had addressed the items in the warning letter. As a result, the warning letter is considered closed. OPERATING EARNINGS Gross profit margins were 50.5 percent of net sales in 2020, 52.5 percent in 2019 and 51.3 percent in 2018. In 2020, the decrease primarily reflects the mix of sales across Abbott’s various businesses and operational inefficiencies due to the impact of COVID‑19, as well as the increase in intangible asset amortization, the impairment of intangible assets and the unfavorable effect of foreign exchange on gross margin in 2020. In 2019, the increase primarily reflects lower intangible amortization expense and lower integration and restructuring costs. Research and development (R&D) expenses were $2.4 billion in 2020 and 2019, and $2.3 billion in 2018. R&D spending in 2020 was relatively flat compared to 2019 as the impact of the immediate expensing in 2019 of an R&D asset valued at $102 million that was acquired in conjunction with the acquisition of Cephea Valve Technologies, Inc. (Cephea) was partially offset by the $55 million impairment of an in‑process R&D intangible asset in 2020. R&D expense in 2020 also reflects lower integration and restructuring costs in 2020 related to R&D, partially offset by higher spending on various projects. R&D expenses in 2019 increased 6.1 percent, primarily reflecting the immediate expensing of the Cephea R&D asset as well as higher R&D spending in various businesses, pri‑ marily in Medical Devices, partially offset by the favorable effect of foreign exchange. In 2020, R&D expenditures totaled $1.3 billion for the Medical Devices segment, $608 million for the Diagnostic Products segment, $189 million for the Nutritional Products seg‑ ment and $177 million for the Established Pharmaceutical Products segment. Selling, general and administrative (SG&A) expenses were basi‑ cally flat in 2020 and 2019 versus the respective prior years. In 2020, the favorable effect of foreign exchange, income of approxi‑ mately $100 million from a litigation settlement in 2020, lower spending due to COVID‑19 travel restrictions, and the impact of various cost saving initiatives were offset by higher spending to drive growth in various businesses. In 2019, the favorable effect of foreign exchange and lower acquisition‑related integration costs offset higher selling and marketing costs to drive continued growth across various businesses. 68 FINANCIAL REVIEWABBOTT 2020 ANNUAL REPORTRESTRUCTURINGS OTHER (INCOME) EXPENSE, NET From 2017 to 2020, Abbott management approved restructuring plans as part of the integration of the acquisitions of St. Jude Medical into the Medical Devices segment, and Alere Inc. (Alere) into the Diagnostic Products segment, in order to leverage econo‑ mies of scale and reduce costs. As of December 31, 2017, the accrued balance associated with these actions was $68 million. From 2018 to 2020, Abbott recorded employee related severance and other charges totaling approximately $137 million, comprised of $13 million in 2020, $72 million in 2019 and $52 million in 2018. Approximately $30 million was recorded in Cost of products sold, approximately $15 million was recorded in Research and development, and approximately $92 million was recorded in Selling, general and administrative expense over the last three years. As of December 31, 2020, the accrued liabilities remaining in the Consolidated Balance Sheet related to these actions total $25 million and primarily represent severance obligations. From 2016 to 2020, Abbott management approved plans to streamline operations in order to reduce costs and improve efficiencies in various Abbott businesses including the nutritional, established pharmaceuticals and vascular businesses. Abbott recorded employee related severance and other charges of approx‑ imately $36 million in 2020, $66 million in 2019 and $28 million in 2018. Approximately $6 million in 2020, $16 million in 2019 and $10 million in 2018 are recorded in Cost of products sold, approxi‑ mately $2 million in 2020, $28 million in 2019 and $2 million in 2018 are recorded in Research and development, and approxi‑ mately $28 million in 2020, $22 million in 2019 and $16 million in 2018 are recorded in Selling, general and administrative expense. INTEREST EXPENSE AND INTEREST (INCOME) Interest expense, net decreased $76 million in 2020 due to a reduction in interest expense resulting from the favorable impact of the euro debt financing in November 2019, the repayment of debt in December 2019 and a lower interest rate environment in 2020. In 2019, interest expense, net decreased $145 million due to the favorable impact of the euro debt financing in September 2018, as well as the repayment of debt in 2018 and the first quarter of 2019. DEBT EXTINGUISHMENT COSTS On December 19, 2019, Abbott redeemed the $2.850 billion princi‑ pal amount of its 2.9% Notes due 2021. Abbott incurred a charge of $63 million related to the early repayment of this debt. On October 28, 2018, Abbott redeemed approximately $4 billion of debt, which included $750 million principal amount of its 2.00% Notes due 2020; $597 million principal amount of its 4.125% Notes due 2020; $900 million principal amount of its 3.25% Notes due 2023; $450 million principal amount of its 3.4% Notes due 2023; and $1.300 billion principal amount of its 3.75% Notes due 2026. Abbott incurred a net charge of $153 million related to the early repayment of this debt and the unwinding of related interest rate swaps. On March 22, 2018, Abbott redeemed all of the $947 million prin‑ cipal amount of its 5.125% Notes due 2019, as well as $1.055 billion of the $2.850 billion principal amount of its 2.35% Notes due 2019. Abbott incurred a net charge of $14 million related to the early repayment of this debt. Other (income) expense, net, for 2020, 2019 and 2018 includes approximately $205 million, $225 million, and $160 million of income in each year, respectively, related to the non‑service cost components of the net periodic benefit costs associated with the pension and post‑retirement medical plans. Other (income) expense, net for 2020 also includes equity investment impair‑ ments that totaled approximately $115 million. TAXES ON EARNINGS The income tax rates on earnings from continuing operations were 10.0 percent in 2020, 9.6 percent in 2019 and 18.8 percent in 2018. In 2020, taxes on earnings from continuing operations include the recognition of approximately $170 million of tax benefits associated with the impairment of certain assets, approximately $140 million of net tax benefits as a result of the resolution of various tax positions related to prior years, and approximately $100 million in excess tax benefits associated with share‑based compensation. In 2020, taxes on earnings from continuing opera‑ tions also include a $26 million increase to the transition tax associated with the 2017 Tax Cuts and Jobs Act (TCJA). The $26 million increase to the transition tax liability was the result of the resolution of various tax positions related to prior years. This adjustment increased the cumulative net tax expense related to the TCJA to $1.53 billion. 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. In 2018, taxes on earnings from continuing operations included $98 million of net tax expense related to the settlement of Abbott’s 2014‑2016 federal income tax audit in the U.S., partial settlement of the former St. Jude Medical consolidated group’s 2014 and 2015 federal income tax returns in the U.S. and audit settlements in various countries as well as approximately $90 million in excess tax benefits associated with share‑based compensation. In 2018, Abbott also recorded $130 million of additional tax expense related to the TCJA; the $130 million reflected a $120 million increase in the transition tax from $2.89 billion to $3.01 billion and a $10 million reduction in the net benefit related to the remeasurement of deferred tax assets and liabilities. Exclusive of these discrete items, tax expense was favorably impacted by lower tax rates and tax exemptions on foreign income primarily derived from operations in Puerto Rico, Switzerland, Ireland, the Netherlands, Costa Rica, Singapore, and Malta. Abbott benefits from a combination of favorable statutory tax rules, tax rulings, grants, and exemptions in these tax jurisdictions. See Note 15 to the consolidated financial statements for a full reconcil‑ iation of the effective tax rate to the U.S. federal statutory rate. 69 FINANCIAL REVIEWABBOTT 2020 ANNUAL REPORTDISCONTINUED OPERATIONS The net earnings of discontinued operations include income tax benefits of $24 million in 2020 and $39 million in 2018. The 2020 tax benefits primarily relate to the resolution of various tax posi‑ tions related to Abbott’s developed markets branded generic pharmaceuticals business which was sold to Mylan Inc. (Mylan) in 2015. The tax positions relate to years prior to the sale to Mylan. The 2018 tax benefits primarily relate to the resolution of various tax positions related to the operations of AbbVie Inc. (AbbVie) for years prior to the separation. Abbott completed the separation of AbbVie, which was formed to hold Abbott’s research‑based proprietary pharmaceuticals business, in January 2013. Abbott retained all liabilities for all U.S. federal and foreign income taxes on income prior to the separation. In the Diagnostics segment, the phases of the research and devel‑ opment process include: • Discovery which focuses on identification of a product that will address a specific therapeutic area, platform, or unmet clinical need. • Concept/Feasibility during which the materials and manufac‑ turing processes are evaluated, testing may include product characterization and analysis is performed to confirm clinical utility. • Development during which extensive testing is performed to demonstrate that the product meets specified design require‑ ments and that the design specifications conform to user needs and intended uses. RESEARCH AND DEVELOPMENT PROGRAMS Abbott currently has numerous pharmaceutical, medical devices, diagnostic and nutritional products in development. RESEARCH AND DEVELOPMENT PROCESS In the Established Pharmaceuticals segment, the development process focuses on the geographic expansion and continuous improvement of the segment’s existing products to provide bene‑ fits to patients and customers. As Established Pharmaceuticals does not actively pursue primary research, development usually begins with work on existing products or after the acquisition of an advanced stage licensing opportunity. Depending upon the product, the phases of development may include: • Drug product development. • Phase I bioequivalence studies to compare a future Established Pharmaceutical’s brand with an already marketed compound with the same active pharmaceutical ingredient (API). • Phase II studies to test the efficacy of benefits in a small group of patients. • Phase III studies to broaden the testing to a wider population that reflects the actual medical use. • Phase IV and other post‑marketing studies to obtain new clini‑ cal use data on existing products within approved indications. The specific requirements (e.g., scope of clinical trials) for obtaining regulatory approval vary across different countries and geographic regions. The process may range from one year for a bioequivalence study project to 6 or more years for complex for‑ mulations, new indications, or geographic expansion in specific countries, such as China. The regulatory requirements for diagnostic products vary across different countries and geographic regions. In the U.S., the FDA classifies diagnostic products into classes (I, II, or III) and the classification determines the regulatory process for approval. While the Diagnostics segment has products in all three classes, the vast majority of its products are categorized as Class I or Class II. Submission of a separate regulatory filing is not required for Class I products. Class II devices typically require pre‑market notification to the FDA through a regulatory filing known as a 510(k) submission. Most Class III products are subject to the FDA’s Premarket Approval (PMA) requirements. Other Class III products, such as those used to screen blood, require the submis‑ sion and approval of a Biological License Application (BLA). In the European Union (EU), diagnostic products are also catego‑ rized into different categories and the regulatory process, which has been governed by the European In Vitro Diagnostic Medical Device Directive, depends upon the category, with certain product categories requiring review and approval by an independent com‑ pany, known as a Notified Body, before the manufacturer can affix a CE mark to the product to declare conformity to the Directive. Other products only require a self‑certification process. In the second quarter of 2017, the EU adopted the new In Vitro Diagnostic Regulation (IVDR) which replaces the existing direc‑ tive in the EU for in vitro diagnostic products. The IVDR will apply after a five‑year transition period and imposes additional premarket and postmarket regulatory requirements on manufac‑ turers of such products. In the Medical Devices segment, the research and development process begins with research on a specific technology that is evaluated for feasibility and commercial viability. If the research program passes that hurdle, it moves forward into development. The development process includes evaluation, selection and quali‑ fication of a product design, completion of applicable clinical trials to test the product’s safety and efficacy, and validation of the manufacturing process to demonstrate its repeatability and ability to consistently meet pre‑determined specifications. 70 FINANCIAL REVIEWABBOTT 2020 ANNUAL REPORTSimilar to the diagnostic products discussed above, in the U.S., medical devices are classified as Class I, II, or III. Most of Abbott’s medical device products are classified as Class II devices that follow the 510(k) regulatory process or Class III devices that are subject to the PMA process. In the EU, medical devices are also categorized into different classes and the regulatory process, which has been governed by the European Medical Device Directive and the Active Implantable Medical Device Directive, varies by class. Each prod‑ uct must bear a CE mark to show compliance with the Directive. In the second quarter of 2017, the EU adopted the new Medical Devices Regulation (MDR) which replaces the existing directives in the EU for medical devices and imposes additional premarket and postmarket regulatory requirements on manufacturers of such products. While the MDR was previously adopted to apply after a three year transition period, in 2020 the European Parliament postponed the date of application by one year. Some products require submission of a design dossier to the appropriate regulatory authority for review and approval prior to CE marking of the device. For other products, the company is required to prepare a technical file which includes testing results and clinical evaluations but can self‑certify its ability to apply the CE mark to the product. Outside the U.S. and the EU, the regula‑ tory requirements vary across different countries and regions. After approval and commercial launch of some medical devices, post‑market trials may be conducted either due to a conditional requirement of the regulatory market approval or with the objec‑ tive of proving product superiority. In the Nutritional segment, the research and development process generally focuses on identifying and developing ingredients and products that address the nutritional needs of particular popula‑ tions (e.g., infants and adults) or patients (e.g., people with diabetes). Depending upon the country and/or region, if claims regarding a product’s efficacy will be made, clinical studies typically must be conducted. In the U.S., the FDA requires that it be notified of proposed new formulations and formulation or packaging changes related to infant formula products. Prior to the launch of an infant for‑ mula or product packaging change, the company is required to obtain the FDA’s confirmation that it has no objections to the proposed product or packaging. For other nutritional products, notification or pre‑approval from the FDA is not required unless the product includes a new food additive. In some countries, regulatory approval may be required for certain nutritional prod‑ ucts, including infant formula and medical nutritional products. AREAS OF FOCUS In 2021 and beyond, Abbott’s significant areas of therapeutic focus will include the following: 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. 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™. Depending on the product, the activities focus on development of new data, markets, formulations, delivery systems, or indications. One example includes the launch of Abbott’s quad‑ rivalent influenza vaccination Influvac® Tetra in 12 markets and an expanded indication in 16 markets to cover children, adolescents and young adults from 3 to 17 years old. Medical Devices — Abbott’s research and development programs focus on: • Cardiac Rhythm Management – Development of next‑generation rhythm management technologies, including advanced commu‑ nication capabilities and leadless pacing therapies. • Heart Failure – Continued enhancements to Abbott’s mechani‑ cal circulatory support and pulmonary artery pressure systems, including enhanced clinical performance and usability. • Electrophysiology – Development of next‑generation technolo‑ gies in the areas of ablation, diagnostic, mapping, and visualization and recording. • Vascular – Development of next‑generation technologies for use in coronary and peripheral vascular procedures. • Structural Heart – Development of minimally‑invasive transcath‑ eter and surgical devices for the repair and replacement of heart valves and other structural heart conditions. • 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. • Diabetes Care – Develop enhancements and additional indica‑ tions for the FreeStyle Libre platform of continuous glucose monitoring products to help patients improve their ability to manage diabetes and for use beyond diabetes. 71 FINANCIAL REVIEWABBOTT 2020 ANNUAL REPORT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. Numerous new products that build on advances in these platforms are currently under development, including clinical outcome testing, and are expected to be launched over the coming years. Core Laboratory Diagnostics — Abbott continues to commercialize its next‑generation blood screening, immunoassay, clinical chemis‑ try 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 solu‑ tions to help optimize diagnostics laboratory performance and automation solutions to increase efficiency in laboratories. Molecular Diagnostics — Several new molecular in vitro diagnostic (IVD) tests are in various stages of development and launch. Rapid Diagnostics — Abbott’s research and development programs focus on the development of diagnostic products for infectious disease, cardiometabolic disease and toxicology. In addition, the Diagnostics Divisions are pursuing the FDA’s customary regulatory process for various COVID‑19 tests for which an EUA was obtained in 2020. Given the diversity of Abbott’s business, its intention to remain a broad‑based health care company and the numerous sources for potential future growth, no individual project is expected to be material to cash flows or results of operations over the next five years. Factors considered included research and development expenses projected to be incurred for the project over the next year relative to Abbott’s total research and development expenses, as well as qualitative factors, such as marketplace perceptions and impact of a new product on Abbott’s overall market position. There were no delays in Abbott’s 2020 research and development activi‑ ties that are expected to have a material impact on operations. While the aggregate cost to complete the numerous projects cur‑ rently in development is expected to be material, the total cost to complete will depend upon Abbott’s ability to successfully finish each project, the rate at which each project advances, and the ulti‑ mate timing for completion. Given the potential for significant delays and the risk of failure inherent in the development of medical device, diagnostic and pharmaceutical products and technologies, it is not possible to accurately estimate the total cost to complete all projects currently in development. Abbott plans to manage its portfolio of projects to achieve research and development spending that will be competitive in each of the businesses in which it partici‑ pates, and such spending is expected to approximate 7.0 percent of total Abbott sales in 2021. Abbott does not regularly accumulate or make management decisions based on the total expenses incurred for a particular development phase in a given period. GOODWILL At December 31, 2020, goodwill recorded as a result of business combinations totaled $23.7 billion. Goodwill is reviewed for impairment annually in the third quarter or when an event that could result in an impairment occurs, using a quantitative assess‑ ment to determine whether it is more likely than not that the fair value of any reporting unit is less than its carrying amount. The income and market approaches are used to calculate the fair value of each reporting unit. The results of the last impairment test indicated that the fair value of each reporting unit was substan‑ tially in excess of its carrying value. FINANCIAL CONDITION CASH FLOW Net cash from operating activities amounted to $7.9 billion, $6.1 billion and $6.3 billion in 2020, 2019 and 2018, respectively. The increase in Net cash from operating activities in 2020 was primarily due to the favorable cash flow impact of higher segment operating earnings, lower payments related to interest, integration expenses, and restructuring actions, and the proceeds from a litigation settlement partially offset by an increased investment in working capital and higher income tax payments. The decrease in Net cash from operating activities in 2019 was primarily due to an increased investment in working capital, timing of pension contri‑ butions relative to 2018 and higher income tax payments, partially offset by the favorable cash flow impact of improved segment operating earnings and lower interest and acquisition‑ related expenses. While a significant portion of Abbott’s cash and cash equivalents at December 31, 2020, are reinvested in foreign subsidiar‑ ies, Abbott does not expect such reinvestment to affect its liquidity and capital resources. Due to the enactment of the TCJA, if these funds were needed for operations in the U.S., Abbott does not expect to incur significant additional income taxes in the future to repatriate these funds. Abbott funded $400 million in 2020, $382 million in 2019 and $114 million in 2018 to defined benefit pension plans. Abbott expects pension funding of approximately $410 million in 2021 for its pension plans. Abbott expects annual cash flow from operating activities to continue to exceed Abbott’s capital expenditures and cash dividends. DEBT AND CAPITAL At December 31, 2020, Abbott’s long‑term debt rating was A by Standard & Poor’s Corporation and A3 by Moody’s. Abbott expects to maintain an investment grade rating. Abbott has readily available financial resources, including unused lines of credit that support commercial paper borrowing arrange‑ ments and provide Abbott with the ability to borrow up to $5 billion on an unsecured basis. The lines of credit are part of a Five Year Credit Agreement (Revolving Credit Agreement) that 72 FINANCIAL REVIEWABBOTT 2020 ANNUAL REPORT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 agree‑ ment 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. In 2020, financing activities related to the issuance and repayment of long‑term debt included the following: • On June 24, 2020, Abbott completed the issuance of $1.3 billion aggregate principal amount of senior notes, consisting of $650 million of its 1.15% Notes due 2028 and $650 million of its 1.40% Notes due 2030. • On September 28, 2020, Abbott repaid the €1.140 billion out‑ standing principal amount of its 0.00% Notes due 2020 upon maturity. The repayment equated to approximately $1.3 billion. As of December 31, 2020, Abbott’s total debt is $18.7 billion. In 2018 and 2019, Abbott committed to reducing its debt levels which had increased as part of the acquisitions of St. Jude Medical and Alere in 2017. In 2018, net repayments totaled approximately $8.3 billion of debt. On February 24, 2019, Abbott redeemed the $500 million out‑ standing 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. $2.15 billion of the 2019 $5 billion redemption authorization remains available as of December 31, 2020. 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 approxi‑ mately $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 approxi‑ mately $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 repur‑ chase of up to $3.0 billion of Abbott’s common shares from time to time. Under the program authorized in 2014, Abbott repurchased 36.2 million shares at a cost of $1.666 billion in 2015, 10.4 million shares at a cost of $408 million in 2016, 1.9 million shares at a cost of $130 million in 2018, 6.3 million shares at a cost of $525 million in 2019, and 1.6 million shares at a cost of $173 million in 2020 for a total of approximately $2.9 billion. In October 2019, the board of directors authorized the repurchase of up to $3 billion of Abbott’s common shares from time to time. The 2019 authorization is in addition to the approximately $100 million unused portion of the share repurchase program authorized in 2014. On April 27, 2016, the board of directors authorized the issuance and sale for general corporate purposes of up to 75 million com‑ mon shares that would result in proceeds of up to $3 billion. No shares have been issued under this authorization. Abbott declared dividends of $1.53 per share in 2020 compared to $1.32 per share in 2019, an increase of approximately 16 percent. Dividends paid were $2.560 billion in 2020 compared to $2.270 billion in 2019. The year‑over‑year change in dividends paid primarily reflects the impact of the increase in the dividend rate. WORKING CAPITAL Working capital was $8.5 billion at December 31, 2020 and $4.8 billion at December 31, 2019. The increase was due in large part to the higher level of cash and cash equivalents, which was due primarily to the increase in cash generated from operating activities, and the repayment of the current portion of long term debt after the issuance of new long term notes in 2020. Working capital also increased due to the higher levels of accounts receiv‑ able and inventory partially offset by an increase in accounts payable associated with the growth of the business. Abbott monitors the credit worthiness of customers and estab‑ lishes an allowance that reflects the current estimate of credit losses expected to be incurred over the life of the financial asset. Abbott considers various factors in establishing, monitoring, and adjusting its allowance for doubtful accounts, including the aging of the accounts and aging trends, the historical level of charge‑ offs, and specific exposures related to particular customers. Abbott also monitors other risk factors and forward‑looking information, such as country risk, when determining credit limits for customers and establishing adequate allowances. CAPITAL EXPENDITURES Capital expenditures of $2.2 billion in 2020, $1.6 billion in 2019 and $1.4 billion in 2018 were principally for upgrading and expanding manufacturing and research and development facilities and equip‑ ment 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. 73 FINANCIAL REVIEWABBOTT 2020 ANNUAL REPORTCONTRACTUAL OBLIGATIONS The table below summarizes Abbott’s estimated contractual obligations as of December 31, 2020. (in millions) Long‑term debt, including current maturities Interest on debt obligations Operating lease obligations Purchase commitments (a) Other long‑term liabilities (b) Total (c) Total $18,490 9,011 1,315 4,757 3,845 $37,418 2021 $÷÷÷«7 596 272 4,192 — $5,067 2022‑2023 $3,203 1,152 405 478 1,959 $7,197 Payments Due By Period 2026 and Thereafter $12,478 6,239 407 10 620 $19,754 2024‑2025 $2,802 1,024 231 77 1,266 $5,400 (a) Purchase commitments are for purchases made in the normal course of business to meet operational and capital expenditure requirements. (b) Other long‑term liabilities include estimated payments for the transition tax under the TCJA, net of applicable credits. (c) Net unrecognized tax benefits totaling approximately $740 million are excluded from the table above as Abbott is unable to reasonably estimate the period of cash settlement with the respec‑ tive taxing authorities on such items. See Note 15 – Taxes on Earnings from Continuing Operations for further details. The company has employee benefit obligations consisting of pensions and other post‑employment benefits, including medical and life, which have been excluded from the table. A discussion of the company’s pension and post‑retirement plans, including funding matters is included in Note 14 – Post‑employment Benefits. CONTINGENT OBLIGATIONS Abbott periodically acquires a business or product rights in which Abbott agrees to pay contingent consideration based on attaining certain thresholds or based on the occurrence of certain events. LEGISL ATIVE ISSUES Abbott’s primary markets are highly competitive and subject to substantial government regulations throughout the world. Abbott expects debate to continue over the availability, method of deliv‑ ery, and payment for health care products and services. It is not possible to predict the extent to which Abbott or the health care industry in general might be adversely affected by these factors in the future. A more complete discussion of these factors is con‑ tained in Item 1, Business, and Item 1A, Risk Factors. RECENTLY ISSUED ACCOUNTING STANDARDS In December 2019, the FASB issued Accounting Standards Update (ASU) 2019‑12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes, which among other things, eliminates certain exceptions in the current rules regarding the approach for intraperiod tax allocations and the methodology for calculating income taxes in an interim period, and clarifies the accounting for transactions that result in a step‑up in the tax basis of goodwill.  The standard becomes effective for Abbott in the first quarter of 2021. Adoption of this new standard will not have a material impact on Abbott’s consolidated financial statements. In February 2018, the FASB issued ASU 2018‑02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, which allows companies to reclassify stranded tax effects resulting from the 2017 Tax Cuts and Jobs Act, from Accumulated other comprehensive income (loss) to retained earnings (Earnings employed in the business). Abbott adopted the new standard at the beginning of the fourth quarter of 2018. As a result of the adoption of the new standard, approximately $337 million of stranded tax effects were reclassified from Accumulated other comprehensive income (loss) to Earnings employed in the business. In October 2016, the FASB issued ASU 2016‑16, Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory, which requires the recognition of the income tax effects of inter‑ company sales and transfers of assets, other than inventory, in the period in which the transfer occurs. Abbott adopted the standard on January 1, 2018, using a modified retrospective approach and recorded a cumulative catch‑up adjustment to Earnings employed in the business in the Consolidated Balance Sheet that was not significant. 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 instru‑ ments 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. 74 FINANCIAL REVIEWABBOTT 2020 ANNUAL REPORTPRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 — A CAUTION CONCERNING FORWARD-LOOKING STATEMENTS Under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Abbott cautions investors that any forward‑looking statements or projections made by Abbott, including those made in this document, are subject to risks and uncertainties that may cause actual results to differ materially from those projected. Economic, competitive, governmental, technological and other factors that may affect Abbott’s operations are discussed in Item 1A, Risk Factors. P E R F O R M A N C E G R A P H $300 $250 $200 $150 $100 $50 $0 2015 2016 2017 2018 2019 2020 Assuming $100 invested on December 31, 2015 with dividends reinvested. This graph compares the change in Abbott’s cumulative total shareholder return on its common shares with the Standard & Poor’s 500 Index and the Standard & Poor’s 500 Health Care Index. Abbott Laboratories S&P 500 Index S&P 500 Health Care 75 FINANCIAL REVIEWABBOTT 2020 ANNUAL REPORTS U M M A R Y O F S E L E C T E D F I N A N C I A L D ATA (Dollars in millions except per share data) Year Ended December 31 2020 2019 2018 2017 2016 Summary of Operations: Net Sales Cost of products sold Research & development Selling, general, and administrative Operating earnings Interest expense Interest income Other (income) expense, net (a) Earnings before taxes Taxes on earnings from continuing operations Earnings from continuing operations Net earnings Basic earnings per common share from continuing operations Basic earnings per common share Diluted earnings per common share from continuing operations Diluted earnings per common share Financial Positions: Working capital (b) Long‑term investment securities Net property & equipment Total assets Long‑term debt, including current portion Shareholders’ investment Book value per share Other Statistics: Gross profit margin Research and development to net sales Net cash from operating activities Capital expenditures Cash dividends declared per common share Common shares outstanding (in thousands) Number of common shareholders Market price per share ‑ high Market price per share ‑ low Market price per share ‑ close $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 34,608 17,135 2,420 9,696 5,357 546 (46) (111) 4,968 497 4,471 4,495 2.51 2.52 2.49 2.50 8,534 821 9,029 72,548 18,534 33,003 18.63 31,904 15,167 2,440 9,765 4,532 670 (94) (121) 4,077 390 3,687 3,687 2.07 2.07 2.06 2.06 4,804 883 8,038 67,887 17,938 31,301 17.76 30,578 14,884 2,300 9,744 3,650 826 (105) 56 2,873 539 2,334 2,368 1.32 1.34 1.31 1.33 5,620 897 7,563 67,173 19,366 30,722 17.50 27,390 14,384 2,260 9,182 1,564 904 (124) (1,447) 2,231 1,878 353 477 0.20 0.27 0.20 0.27 11,235 883 7,607 76,250 27,718 31,098 17.84 20,853 9,644 1,447 6,736 3,026 431 (99) 1,281 1,413 350 1,063 1,400 0.71 0.94 0.71 0.94 20,116 2,947 5,705 52,666 20,684 20,717 14.07 % % $ $ $ $ $ $ 50.5 7.0 7,901 2,177 1.53 1,771,230 37,450 115.14 61.61 109.49 52.5 7.6 6,136 1,638 1.32 1,762,503 38,990 89.24 65.50 86.80 51.3 7.5 6,300 1,394 1.16 1,755,619 42,827 74.92 55.58 72.33 47.5 8.3 5,570 1,135 1.075 1,743,602 44,581 57.77 38.34 57.07 53.8 6.9 3,203 1,121 1.045 1,472,869 45,545 45.79 36.00 38.41 (a) These amounts include debt extinguishment costs and net foreign exchange (gain) loss. (b) In 2016, working capital includes $13.6 billion of cash that was used to fund the cash portion of the St. Jude Medical acquisition on January 4, 2017. 76 ABBOTT 2020 ANNUAL REPORTD I R E C T O R S A N D C O R P O R AT E O F F I C E R S D I R EC TO R S Robert J. Alpern, M.D. Ensign Professor of Medicine and Physiology and Professor of Internal Medicine and Cellular and Molecular Physiology, and Former Dean of Yale School of Medicine, New Haven, Conn. Roxanne S. Austin President and Chief Executive Officer Austin Investment Advisors, Newport Coast, Calif. Sally E. Blount, Ph.D. Chief Executive Officer, Catholic Charities of the Archdiocese of Chicago, Michael L. Nemmers Professor of Strategy, and Former Dean of the J.L. Kellogg Graduate School of Management at Northwestern University, Evanston, Ill. Robert B. Ford President and Chief Executive Officer, Abbott Laboratories Michelle A. Kumbier Former Senior Vice President and Chief Operating Officer, Harley-Davidson Motor Company, Milwaukee, Wisc. Edward M. Liddy Retired Chairman and CEO, The Allstate Corporation, Northbrook, Ill. Darren W. McDew Retired General, United States Air Force, and Former Commander of U.S. Transportation Command, Scott Air Force Base, Ill. Nancy McKinstry Chief Executive Officer and Chairman of the Executive Board of Wolters Kluwer N.V., Alphen aan den Rijn, The Netherlands Phebe N. Novakovic Chairman and Chief Executive Officer, General Dynamics Corporation, Falls Church, Va. William A. Osborn Retired Chairman and Chief Executive Officer of Northern Trust Corporation and The Northern Trust Company, Chicago, Ill. Daniel J. Starks Retired Chairman, President and Chief Executive Officer of St. Jude Medical, Inc., St. Paul, Minn. John G. Stratton Retired Executive Vice President and President of Global Operations, Verizon Communications Inc., New York, NY Glenn F. Tilton Retired Chairman, President and Chief Executive Officer of UAL Corporation, Chicago, Ill. Miles D. White Executive Chairman of the Board, Abbott Laboratories S E N I O R M A N AG E M E N T Miles D. White* Executive Chairman Robert B. Ford* President and Chief Executive Officer Hubert L. Allen* Executive Vice President, General Counsel and Secretary John M. Capek, Ph.D.* Executive Vice President, Ventures Lisa D. Earnhardt* Executive Vice President, Medical Devices Robert E. Funck, Jr.* Executive Vice President, Finance and Chief Financial Officer John F. Ginascol* Executive Vice President, Core Diagnostics Andrew H. Lane* Executive Vice President, Established Pharmaceuticals Mary K. Moreland* Executive Vice President, Human Resources Daniel Salvadori* Executive Vice President, Nutritional Products Andrea Wainer* Executive Vice President, Rapid and Molecular Diagnostics Gregory A. Ahlberg* Senior Vice President, Core Laboratory Diagnostics, Commercial Operations Roger M. Bird* Senior Vice President, U.S. Nutrition Charles R. Brynelsen* Senior Vice President, Abbott Vascular Michael D. Dale* Senior Vice President, Structural Heart J. Scott House Senior Vice President, Quality Assurance, Regulatory and Engineering Services Sammy G. Karam* Senior Vice President, Established Pharmaceuticals, Emerging Markets Joseph Manning* Senior Vice President, International Nutrition Michael J. Pederson* Senior Vice President, Electrophysiology and Heart Failure Christoper J. Scoggins* Senior Vice President, Rapid Diagnostics Jared L. Watkin* Senior Vice President, Diabetes Care Alejandro D. Wellisch* Senior Vice President, Established Pharmaceuticals, Latin America Randel W. Woodgrift* Senior Vice President, CRM CO R P O R AT E V I C E P R E S I D E N T S Venu Ambati Vice President, Established Pharmaceuticals, India Kathryn S. Collins Vice President, Commercial Legal Operations Thomas C. Evers Vice President, U.S. Government Affairs Sabina A. Ewing Vice President, Business and Technology Services John S. Frels Vice President, Research and Development, Immunoassay/Clinical Chemistry Renaud Gabay Vice President, Nutrition, North Asia Jeffrey N. Haas II Vice President, Infectious Disease, Developed Markets, Rapid Diagnostics Keith Boettiger Vice President, Neuromodulation Philip P. Boudreau* Vice President, Finance and Controller Melissa D. Brotz Vice President, Public Affairs and Corporate Marketing P. Claude Burcky Vice President, Government Affairs Christopher J. Calamari Vice President, Pediatric Nutrition Tony K. Chan Vice President, Abbott Diagnostics Division, China *Denotes executive officer Damian P. Halloran Vice President, Infectious Disease, Emerging Markets, Rapid Diagnostics Gene Huang, Ph.D. Vice President, Chief Economist Gary C. Johnson Vice President, Clinical, Regulatory and Health Economics Outcomes Research, Cardiovascular and Neuromodulation Daman Kowalski Vice President, Molecular Diagnostics Robert R. Kunkler Vice President, Diabetes Care, Commercial Operations Brian Lehman Vice President, Commercial Operations, Electrophysiology and Heart Failure Scott M. Leinenweber Vice President, Investor Relations, Licensing and Acquisitions Karen M. Peterson Vice President, Controller, Rapid and Molecular Diagnostics David P. Mark Vice President, Internal Audit John McCoy Vice President, Treasurer Louis H. Morrone Vice President, Transfusion Medicine John M. Murphy Vice President, Nutrition Supply Chain Martin G. Nordenstahl Vice President, Nutrition, Asia Pacific Joseph L. Novak Vice President, Taxes William R. Phillips Vice President, Commercial Operations, CRM Eric Shroff Vice President, Abbott Point of Care Harvinder Singh Vice President, Commercial Operations, Abbott Vascular Frank Weitekamper Vice President, Abbott Transition Organization Monica J. Wilkins Vice President, Regulatory and Quality James E. Young Vice President, Chief Ethics and Compliance Officer 77 ABBOTT 2020 ANNUAL REPORT S H A R E H O L D E R A N D C O R P O R AT E I N F O R M AT I O N S H A R E S L I S T I N G The ticker symbol for Abbott’s common shares is ABT. The principal market for Abbott’s common shares is the New York Stock Exchange. Shares are also listed on the Chicago Stock Exchange and traded on various regional and electronic exchanges. Outside the United States, Abbott’s shares are listed on the Swiss Stock Exchange. Q UA R T E R LY D I V I D E N D DAT E S Dividends are expected to be declared, recorded, and paid on the following schedule in 2021, pending approval by the Board of Directors: Quarter Declared Recorded Paid First Second Third 2/19 6/11 9/16 4/15 7/15 10/15 5/17 8/16 11/15 Fourth 12/10 1/14/22 2/15/22 TA X INFORM ATION FOR SHAREHOLDERS Abbott is an Illinois High Impact Business and is located in a U.S. federal Foreign Trade Sub-Zone (Sub-Zone 22F). Dividends may be eligible for a subtraction from base income for Illinois income- tax purposes. If you have any questions, please contact your tax advisor. D I V I D E N D R E I N V E S TM E N T P L A N The Abbott Dividend Reinvestment Plan offers registered shareholders an opportunity to purchase additional shares, commission-free, through automatic dividend reinvestment and/or optional cash investments. Interested persons may contact the transfer agent, or call Abbott’s Investor Newsline, as listed in the right-hand column. Abbott trademarks and products in-licensed by Abbott are shown in italics in the text of this report. © 2021 Abbott Laboratories 78 D I V I D E N D D I R EC T D E P O S I T Shareholders may have quarterly dividends deposited directly into a checking or savings account at any financial institution that participates in the Automated Clearing House system. For more information, please contact the transfer agent, listed below, right. D I R EC T R EG I S T R AT I O N S Y S T E M In August 2008, Abbott implemented a Direct Registration System (DRS) for all registered shareholder transactions. Shareholders will be sent a statement in lieu of a physical stock certificate for Abbott Laboratories common shares. Please contact the transfer agent with any questions. A N N UA L M E E T I N G The Annual Meeting of Shareholders will be held at 9 a.m. on Friday, April 23, 2021, at Abbott’s corporate headquarters. In light of restrictions and guidelines on group gatherings issued by government and public health officials regarding the ongoing coronavirus pandemic, and to support the health and safety of Abbott’s shareholders, employees, and communities, shareholders may only attend the Annual Meeting virtually. Questions regarding the annual meeting may be directed to the Corporate Secretary. A copy of Abbott’s 2020 Form 10-K Annual Report, as filed with the Securities and Exchange Commission, is available on Abbott’s Web site at www. abbott.com or by calling the Investor Newsline (above, right). C EO A N D C FO C E R T I FI C AT I O N S In 2020, Abbott’s chief executive officer (CEO) provided to the New York Stock Exchange the annual CEO certification regarding Abbott’s compliance with the New York Stock Exchange’s corporate- governance listing standards. In addition, Abbott’s CEO and chief financial officer (CFO) filed with the U.S. Securities and Exchange Commission all required certifications regarding the quality of Abbott’s public disclosures in its fiscal 2020 reports. Some statements in this annual report may be forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. Abbott cautions that these forward-looking statements are subject to risks and uncertainties, including the impact of the COVID-19 pandemic on Abbott’s operations and financial results, that may cause actual results to differ materially from those indicated in the forward-looking statements. Economic, competitive, governmental, technological and other factors that may affect Abbott’s operations are discussed in Item 1A, “Risk Factors,” in our Securities and Exchange Commission 2020 Form 10-K and are incorporated by reference. We undertake no obligation to release publicly any revisions to forward-looking statements as the result of subsequent events or developments, except as required by law. I N V E S TO R N E W S L I N E 224-667-7300 I N V E S TO R R E L AT I O N S Dept. 362, AP6D2 Abbott 100 Abbott Park Road Abbott Park, IL 60064-6400 U.S.A. 224-667-6100 S H A R E H O L D E R S E R V I C E S , T R A N S FE R AG E N T A N D R EG I S T R A R Computershare P.O. Box 43078 Providence, RI 02940-3078 888-332-2268 (U.S. or Canada) 781-575-3910 (outside U.S. or Canada) www.computershare.com CO R P O R AT E S EC R E TA RY Dept. 364, AP6D2 Abbott 100 Abbott Park Road Abbott Park, IL 60064-6400 U.S.A. 224-667-6100 WE B S I T E www.abbott.com A B B OT T O N L I N E A N N UA L R E P O R T www.abbott.com/annualreport G LO B A L S U S TA I N A B I L I T Y R E P O R T www.abbott.com/sustainability S H A R E H O L D E R I N FO R M AT I O N Shareholders with questions about their accounts may contact the transfer agent, listed above. Individuals who would like to receive additional information, or have questions regarding Abbott’s business activities, may call the Investor Newsline, write Abbott Investor Relations, or visit Abbott’s website, www.abbott.com. The Abbott 2020 Annual Report was printed with the use of renewable wind power resulting in nearly zero carbon emissions, keeping 16,425 pounds of CO2 from the atmosphere. This amount of wind-generated electricity is equivalent to 14,251 miles not driven in an automobile or 1,187 trees planted. The Abbott Annual Report cover and text is printed on recycled paper that contains a minimum of 10% post-consumer fiber and the financial pages on 30% post-consumer fiber. ABBOTT 2020 ANNUAL REPORT

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