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Discontinued Operations | 6 Months Ended
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Jun. 30, 2016
Discontinued Operations. |
Discontinued Operations | Note 2 — Discontinued Operations On February 27, 2015, Abbott completed the sale of its developed markets branded generics pharmaceuticals business to Mylan Inc. (Mylan) for 110 million shares (or approximately 22%) of a newly formed entity (Mylan N.V.) that combined Mylan’s existing business and Abbott’s developed markets branded generics pharmaceuticals business. Mylan N.V. is publicly traded. Historically, this business was included in Abbott’s Established Pharmaceutical Products segment. Abbott retained its branded generics pharmaceuticals business in emerging markets. At the date of closing, the 110 million Mylan N.V. shares that Abbott received were valued at $5.77 billion and Abbott recorded an after-tax gain on the sale of the business of approximately $1.6 billion. The shareholder agreement with Mylan N.V. includes voting and other restrictions that prevent Abbott from exercising significant influence over the operating and financial policies of Mylan N.V. At the close of this transaction, Abbott and Mylan entered into a transition services agreement pursuant to which Abbott and Mylan are providing various back office support services to each other on an interim transitional basis. Transition services may be provided for up to 2 years. Charges by Abbott under this transition services agreement are recorded as a reduction of the costs to provide the respective service in the applicable expense category in the Condensed Consolidated Statement of Earnings. This transition support does not constitute significant continuing involvement in Mylan’s operations. Abbott also entered into manufacturing supply agreements with Mylan related to certain products, with the supply term ranging from 3 to 10 years and requiring a 2 year notice prior to termination. The cash flows associated with these transition services and manufacturing supply agreements are not expected to be significant, and therefore, these cash flows are not direct cash flows of the disposed component under Accounting Standards Codification 205. In April 2015, Abbott sold 40.25 million of the 110 million ordinary shares of Mylan N.V. received in the sale of the developed markets branded generics pharmaceuticals business to Mylan. In the second quarter of 2015, Abbott recorded a pretax gain of $207 million on $2.29 billion in net proceeds from the sale of these shares. The gain was recognized in the Other (income) expense line of the Condensed Consolidated Statement of Earnings. As a result of this sale, Abbott’s ownership interest in Mylan N.V. decreased to approximately 14%. On February 10, 2015, Abbott completed the sale of its animal health business to Zoetis Inc. Abbott received cash proceeds of $230 million and reported an after-tax gain on the sale of approximately $130 million in the first quarter of 2015. In the first quarter of 2016, Abbott received an additional $25 million of proceeds related to the expiration of a holdback agreement associated with the sale of this business and reported an after-tax gain on the sale of discontinued operations of $16 million. As a result of the disposition of the above businesses, the operating results of these businesses up to the date of sale are reported as part of discontinued operations on the Earnings from Discontinued Operations, net of tax line in the Condensed Consolidated Statement of Earnings. The cash flows associated with the developed markets branded generics pharmaceuticals and animal health businesses up to the date of disposition are included in Abbott’s Condensed Consolidated Statement of Cash Flows. On January 1, 2013, Abbott completed the separation of AbbVie Inc. (AbbVie), which was formed to hold Abbott’s research-based proprietary pharmaceuticals business. For a small portion of AbbVie’s operations, the legal transfer of AbbVie’s assets (net of liabilities) did not occur with the separation of AbbVie on January 1, 2013 due to the time required to transfer marketing authorizations and other regulatory requirements in each of these countries. Under the terms of the separation agreement with Abbott, AbbVie is subject to the risks and entitled to the benefits generated by these operations and assets. The majority of these operations were transferred to AbbVie in 2013 and 2014. These assets and liabilities have been presented as held for disposition in the Condensed Consolidated Balance Sheet. Abbott has recorded a prepaid asset of $293 million for its obligation to transfer these net liabilities held for disposition to AbbVie. Abbott has retained all liabilities for all U.S. federal and foreign income taxes on income prior to the separation, as well as certain non-income related taxes attributable to AbbVie’s business prior to the separation. AbbVie generally will be liable for all other taxes attributable to its business. Net earnings from discontinued operations in the first six months of 2016 and 2015 reflect the recognition of $263 million and $17 million, respectively, of net tax benefits as a result of the resolution of various tax positions related to AbbVie’s operations for years prior to the separation. The following table summarizes the components of discontinued operations:
|  | Three Months Ended June 30 |  | Six Months Ended June 30 |
(in millions) |  | 2016 |  | 2015 |  | 2016 |  | 2015 |
Net Sales |  |  |  |  |  |  |  |  |
Developed markets generics pharmaceuticals and animal health businesses |  | $ | — |  | $ | — |  | $ | — |  | $ | 256 |
AbbVie |  | — |  | — |  | — |  | — |
Total |  | $ | — |  | $ | — |  | $ | — |  | $ | 256 |
Earnings (Loss) Before Tax |  |  |  |  |  |  |  |  |
Developed markets generics pharmaceuticals and animal health businesses |  | $ | (3 | ) | $ | (5 | ) | $ | (6 | ) | $ | 20 |
AbbVie |  | — |  | — |  | — |  | — |
Total |  | $ | (3 | ) | $ | (5 | ) | $ | (6 | ) | $ | 20 |
Income Tax Expense (Benefit) |  |  |  |  |  |  |  |  |
Developed markets generics pharmaceuticals and animal health businesses |  | $ | — |  | $ | — |  | $ | (3 | ) | $ | 12 |
AbbVie |  | (19 | ) | (4 | ) | (263 | ) | (17 | )
Total |  | $ | (19 | ) | $ | (4 | ) | $ | (266 | ) | $ | (5 | )
Net Earnings (Loss) |  |  |  |  |  |  |  |  |
Developed markets generics pharmaceuticals and animal health businesses |  | $ | (3 | ) | $ | (5 | ) | $ | (3 | ) | $ | 8 |
AbbVie |  | 19 |  | 4 |  | 263 |  | 17 |
Total |  | $ | 16 |  | $ | (1 | ) | $ | 260 |  | $ | 25 |
The sale of the developed markets branded generics pharmaceuticals and animal health businesses in the first six months of 2015 resulted in the recognition of a pretax gain of $2.820 billion, tax expense of $1.084 billion and an after-tax gain of $1.736 billion. The assets and liabilities held for disposition as of June 30, 2016 and December 31, 2015, relate to the AbbVie businesses. The following is a summary of the assets and liabilities held for disposition:
(in millions) |  | June 30, 2016 |  | December 31, 2015 |
Cash and Trade receivables, net |  | $ | 41 |  | $ | 54 |
Total inventories |  | 20 |  | 43 |
Prepaid expenses and other receivables |  | 5 |  | 8 |
Current assets held for disposition |  | 66 |  | 105 |
Net property and equipment |  | 1 |  | 1 |
Deferred income taxes and other assets |  | 1 |  | 1 |
Non-current assets held for disposition |  | 2 |  | 2 |
Total assets held for disposition |  | $ | 68 |  | $ | 107 |
Trade accounts payable |  | $ | 360 |  | $ | 359 |
Salaries, wages, commissions and other accrued liabilities |  | 1 |  | 14 |
Current liabilities held for disposition |  | 361 |  | 373 |
Post-employment obligations, deferred income taxes and other long-term liabilities |  | — |  | — |
Total liabilities held for disposition |  | $ | 361 |  | $ | 373 |

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