Other (Income) Expense, net
Other (income) expense, net totaled $22 million of expense in the second quarter of 2020 compared to $38 million of income in 2019 and $21 million of expense in the first six months of 2020 compared to $85 million of income in 2019. The changes in Other (income) expense, net primarily reflect equity investment impairments that totaled approximately $60 million in the second quarter of 2020 and $110 million in the first six months of 2020.
Interest Expense, net
Interest expense, net decreased $21 million in the second quarter of 2020 and $48 million in the first six months of 2020 due to a reduction in interest expense resulting from the favorable impact of the euro debt financing in November of 2019, the repayment of debt in 2019 and a lower interest rate environment in 2020.
Taxes on Earnings from Continuing Operations
Taxes on earnings from continuing operations reflect the estimated annual effective rates and include charges for interest and penalties. In the first six months of 2020, taxes on earnings from continuing operations include approximately $81 million in tax benefits related to the settlement of the former St. Jude Medical consolidated group’s 2014 through 2016 federal income tax returns in the U.S. and $67 million in excess tax benefits associated with share-based compensation. Earnings from discontinued operations, net of tax, in the first six months of 2020 reflect the recognition of $20 million of net tax benefits primarily as a result of the resolution of various tax positions related to prior years. In the first six months of 2019, taxes on earnings from continuing operations include a $78 million reduction to the transition tax related to the Tax Cut and Jobs Act (TCJA) and approximately $90 million in excess tax benefits associated with share-based compensation. The $78 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 the first quarter of 2019.
Tax authorities in various jurisdictions regularly review Abbott’s income tax filings. Abbott believes that it is reasonably possible that the recorded amount of gross unrecognized tax benefits may decrease between $70 million and $410 million, including cash adjustments, within the next twelve months as a result of concluding various domestic and international tax matters. In the U.S., Abbott's federal income tax returns through 2016 are settled except for the federal income tax returns of the former Alere consolidated group which are settled through 2015.
Liquidity and Capital Resources June 30, 2020 Compared with December 31, 2019
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. Abbott intends to use the net proceeds from the notes offering to repay the approximately $1.3 billion of 0.00% Notes due September 2020.
The $903 million increase in cash and cash equivalents from $3.9 billion at December 31, 2019 to $4.8 billion at June 30, 2020 primarily reflects the proceeds from the issuance of $1.3 billion of debt and the favorable impact of cash generated by operating activities, partially offset by the payment of dividends and capital expenditures. Working capital was $6.3 billion at June 30, 2020 and $4.8 billion at December 31, 2019. The $1.5 billion increase was due in large part to the higher level of cash and cash equivalents noted above as well as an increase in inventory related to shifting demand dynamics.
In the Condensed Consolidated Statement of Cash Flows, Net cash from operating activities for the first six months of 2020 totaled $2.0 billion, an increase of $265 million over the prior year due primarily to a decrease in cash taxes paid, payment timing for various accrued expenses and lower interest payments, partially offset by lower earnings from operations. Other, net in Net cash from operating activities for the first six months of 2020 was a use of $205 million and includes the impact of the payment of cash taxes of approximately $285 million and $335 million of pension contributions, partially offset by payment timing for various accrued expenses and the impact of non-cash charges related to equity investment impairments. Other, net in Net cash from operating activities for the first six months of 2019 was a use of $875 million and includes $326 million of pension contributions and the payment of cash taxes of approximately $615 million. Abbott expects to fund cash dividends, capital expenditures and its other investments in its businesses with cash flow from operating activities, cash on hand, short-term investments and borrowings.
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. In December 2019, Abbott redeemed $2.850 billion of debt. After this redemption, $2.15 billion of the $5 billion debt redemption authorization remains available.
At June 30, 2020, Abbott’s long-term debt rating was A- by Standard & Poor’s Corporation and A3 by Moody’s Investors Service. Abbott expects to maintain an investment grade rating. Abbott has readily available financial resources, including lines of credit of $5.0 billion which expire in 2023.
In October 2019, the board of directors authorized the repurchase of up to $3 billion of Abbott’s common shares from time to time. This authorization is in addition to the $270 million unused portion of the share repurchase program authorized in 2014.
On April 27, 2016, the board of directors authorized the issuance and sale for general corporate purposes of up to 75 million common shares that would result in proceeds of up to $3 billion. No shares have been issued under this authorization.
In each of the first two quarters of 2020, Abbott declared a quarterly dividend of $0.36 per share on its common shares, which represents an increase of approximately 12.5 percent over the $0.32 per share quarterly dividend declared in each of the first two quarters of 2019.