FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 1-2189
ABBOTT LABORATORIES
An Illinois Corporation I.R.S. Employer Identification
No. 36-0698440
One Abbott Park Road
Abbott Park, Illinois 60064-3500
Telephone: (708) 937-6l00
Indicate by check mark whether the registrant (l) has filed all reports required
to be filed by Section l3 or l5(d) of the Securities Exchange Act of l934 during
the preceding l2 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X . No .
---- ----
As of April 30, 1994, the Corporation had 815,359,828 common shares without par
value outstanding.
PART 1 FINANCIAL INFORMATION
ABBOTT LABORATORIES AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1
ABBOTT LABORATORIES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
(Dollars in Thousands Except Per Share Data)
THREE MONTHS ENDED MARCH 31
---------------------------
1994 1993
---------- ----------
Net Sales................................... $2,215,248 $2,045,613
---------- ----------
Cost of products sold....................... 964,272 933,175
Research and development.................... 226,797 202,110
Selling, general and administrative......... 497,184 464,823
---------- ----------
Total Operating Cost and Expenses......... 1,688,253 1,600,108
---------- ----------
Operating Earnings.......................... 526,995 445,505
---------- ----------
Interest expense............................ 11,496 14,170
Interest and dividend income................ (8,430) (9,686)
Other (income) expense, net................. 738 (38,890)
---------- ----------
Earnings Before Taxes....................... 523,191 479,911
Taxes on earnings........................... 156,957 134,375
---------- ----------
Net Earnings................................ $ 366,234 $ 345,536
---------- ----------
---------- ----------
Net Earnings Per Common Share............... $.45 $.41
---------- ----------
---------- ----------
Cash Dividends Declared
Per Common Share.......................... $.19 $.17
---------- ----------
---------- ----------
The accompanying notes to condensed consolidated financial statements are an
integral part of this statement.
2
ABBOTT LABORATORIES AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
MARCH 31 DECEMBER 31
----------- -----------
1994 1993
----------- -----------
ASSETS (unaudited)
Current Assets:
Cash and cash equivalents....................................... $ 171,063 $ 300,676
Investment securities........................................... 36,543 78,149
Trade receivables, less allowances of $117,365 in 1994
and $116,925 in 1993.......................................... 1,350,307 1,336,222
Inventories:
Finished products............................................. 509,341 476,548
Work in process............................................... 224,006 216,493
Materials..................................................... 249,892 247,492
----------- -----------
Total Inventories........................................... 983,239 940,533
Prepaid income taxes............................................ 466,673 458,026
Other prepaid expenses and receivables.......................... 512,659 471,929
----------- -----------
Total Current Assets........................................ 3,520,484 3,585,535
----------- -----------
Investment Securities Maturing after One Year..................... 289,563 221,815
----------- -----------
Property and Equipment, at Cost................................... 6,407,647 6,221,146
Less: accumulated depreciation and amortization................ 2,823,906 2,710,155
----------- -----------
Net Property and Equipment.................................. 3,583,741 3,510,991
Deferred Charges and Other Assets................................. 353,628 370,228
----------- -----------
$ 7,747,416 $ 7,688,569
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Short-term borrowings and current portion of long-term debt..... $ 675,432 $ 843,594
Trade accounts payable.......................................... 602,829 638,509
Salaries, income taxes, dividends payable, and other accruals... 1,775,869 1,612,830
----------- -----------
Total Current Liabilities................................... 3,054,130 3,094,933
----------- -----------
Long-Term Debt.................................................... 306,855 306,840
----------- -----------
Other Liabilities and Deferrals................................... 634,673 611,867
----------- -----------
Shareholders' Investment:
Preferred shares, $1 par value
Authorized - 1,000,000 shares, none issued -- --
Common shares, without par value
Authorized - 1,200,000,000 shares
Issued at stated capital amount -
1994: 826,455,175 shares; 1993: 830,941,614 shares.......... 480,310 469,828
Earnings employed in the business................................. 3,422,903 3,364,952
Cumulative translation adjustments................................ (93,278) (100,716)
----------- -----------
3,809,935 3,734,064
Less:
Common shares held in treasury, at cost -
1994 and 1993: 9,811,930 shares................................. 51,783 51,783
Unearned compensation - restricted stock awards................... 6,394 7,352
----------- -----------
Total Shareholders' Investment.............................. 3,751,758 3,674,929
----------- -----------
$ 7,747,416 $ 7,688,569
----------- -----------
----------- -----------
The accompanying notes to condensed consolidated financial statements are an
integral part of this statement.
3
ABBOTT LABORATORIES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(Dollars in Thousands)
THREE MONTHS ENDED MARCH 31
---------------------------
1994 1993
--------- ---------
Cash Flow from (Used in) Operating Activities:
Net earnings....................................... $ 366,234 $ 345,536
Adjustments to reconcile net earnings to
net cash from operating activities -
Depreciation and amortization...................... 132,340 119,292
Trade receivables.................................. (17,441) (126,252)
Inventories........................................ (39,850) (29,575)
Other, net......................................... 105,562 126,952
--------- ---------
Net Cash from Operating Activities............. 546,845 435,953
--------- ---------
Cash Flow from (Used in) Investing Activities:
Acquisitions of property, equipment and businesses. (212,163) (211,840)
Investment securities transactions................. (26,092) (57,807)
Other.............................................. 12,968 30,623
--------- ---------
Net Cash (Used in) Investing Activities........ (225,287) (239,024)
--------- ---------
Cash Flow from (Used in) Financing Activities:
Borrowing transactions............................. (169,232) (45,359)
Common share transactions.......................... (142,625) (89,581)
Dividends paid..................................... (139,552) (125,391)
--------- ---------
Net Cash (Used in) Financing Activities........ (451,409) (260,331)
--------- ---------
Effect of exchange rate changes on cash and
cash equivalents................................... 238 (1,658)
--------- ---------
Net (Decrease) in Cash and Cash Equivalents.......... (129,613) (65,060)
Cash and Cash Equivalents, Beginning of Year......... 300,676 116,576
--------- ---------
Cash and Cash Equivalents, End of Period............. $ 171,063 $ 51,516
--------- ---------
--------- ---------
The accompanying notes to condensed consolidated financial statements are an
integral part of this statement.
4
ABBOTT LABORATORIES AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1994
(UNAUDITED)
NOTE 1 - BASIS OF PREPARATION:
The accompanying unaudited, condensed consolidated financial statements have
been prepared pursuant to rules and regulations of the Securities and Exchange
Commission and, therefore, do not include all information and footnote
disclosures normally included in audited financial statements. However, in the
opinion of management, all adjustments (which include only normal adjustments)
necessary to present fairly the financial position, cash flows, and results of
operations have been made. It is suggested that these statements be read in
conjunction with the financial statements included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1993.
NOTE 2 - EARNINGS PER COMMON SHARE:
Earnings per common share amounts are computed by using the weighted average
number of common shares outstanding. These shares averaged 818,988,000 for the
three months ended March 31, 1994 and 834,693,000 for the same period in 1993.
NOTE 3 - TAXES ON EARNINGS:
Taxes on earnings reflect the estimated annual effective tax rates. The
effective tax rates are less than the statutory U.S. Federal income tax rate
principally due to tax incentive grants related to subsidiaries operating in
Puerto Rico and Ireland. The increase in the effective tax rate from 28 percent
in 1993 to 30 percent in 1994 is due primarily to the increase in the statutory
U.S. federal income tax rate and the reduction in the tax incentive grants for
operations in Puerto Rico.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1994
(Unaudited), Continued
NOTE 4 - LITIGATION AND ENVIRONMENTAL MATTERS:
The Company is involved in various claims and legal proceedings including
numerous antitrust suits and investigations in connection with the sale and
marketing of infant formula and pharmaceutical products.
The Company is also involved in numerous product liability cases, many of which
allege injuries to the offspring of women who ingested a synthetic estrogen
(DES) during pregnancy. In addition, the Company 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 remediation laws
and is voluntarily investigating potential contamination at a number of
Company-owned locations.
The matters above are discussed more fully in Item 1, Business - Environmental
Matters, and Item 3, Legal Proceedings, in the Annual Report on Form 10-K, which
is available upon request, and in Part II, Item 1, Legal Proceedings, in this
Form.
While it is not feasible to predict the outcome of such pending claims,
proceedings, investigations and remediation activities with certainty,
management is of the opinion that their ultimate disposition should not have a
material adverse effect on the Company's financial position.
6
FINANCIAL REVIEW
RESULTS OF OPERATIONS - FIRST QUARTER 1994 COMPARED WITH FIRST QUARTER 1993
Worldwide sales for the first quarter increased 8.3 percent to $2.215 billion
from $2.046 billion in 1993. Net earnings and earnings per share increased
6.0 percent and 9.8 percent, respectively, over the prior year quarter.
Gross profit margin (sales less cost of products sold, including freight and
distribution expenses) of 56.5 percent for the first quarter was up from
54.4 percent a year ago. This increase was primarily due to product mix and
continued productivity improvements.
Research and development expenses increased to $226.8 million in the first
quarter 1994. This represented 10.2 percent of net sales, compared to
9.9 percent in 1993. The majority of research and development expenditures
continues to be concentrated on pharmaceutical and diagnostic products.
Selling, general and administrative expenses increased 7.0 percent over the
comparable 1993 quarter. The increase reflects additional selling and marketing
support for new and existing products, primarily for pharmaceutical and
nutritional products, and litigation expenses.
Other (income) expense, net, includes exchange losses of $12.2 million in the
1994 first quarter, compared with net losses of $4.3 million in the same quarter
last year. Also included in the 1993 first quarter is the gain on the sale of
the Company's peritoneal dialysis product line.
The effective income tax rate increased from 28 percent in 1993 to 30 percent in
1994 due primarily to the increase in the statutory U.S. federal income tax rate
and the reduction in tax incentive grants for Puerto Rico operations.
7
FINANCIAL REVIEW
(continued)
INDUSTRY SEGMENTS
Industry segment sales for the first quarter 1994 and the related change from
the comparable 1993 period are shown in the table below. The Pharmaceutical and
Nutritional Products segment includes a broad line of adult and pediatric
pharmaceuticals and nutritionals, which are sold primarily on the prescription
or recommendation of physicians or other health care professionals; consumer
products; agricultural and chemical products; and bulk pharmaceuticals. The
Hospital and Laboratory Products segment includes diagnostic systems for blood
banks, hospitals, commercial laboratories and alternate-care testing sites;
intravenous and irrigation fluids and related administration equipment; drugs
and drug delivery systems; anesthetics; critical care products; and other
medical specialty products for hospitals and alternate-care sites.
Domestic and international sales for the first quarter reflect unit growth, and
international sales were adversely affected 4.3 percent due to the relatively
stronger U.S. dollar.
First Quarter
- - ---------------------------------------------------------------------------
SEGMENT SALES 1994 Percent
(in millions of dollars) Sales Increase
- - ---------------------------------------------------------------------------
Pharmaceutical and Nutritional Products:
Domestic $ 845.1 15.7
- - ---------------------------------------------------------------------------
International 379.1 7.6
- - ---------------------------------------------------------------------------
1,224.2 13.1
Hospital and Laboratory Products:
Domestic 563.4 2.8
- - ---------------------------------------------------------------------------
International 427.6 3.1
- - ---------------------------------------------------------------------------
991.0 2.9
Total All Segments:
Domestic 1,408.5 10.2
- - ---------------------------------------------------------------------------
International 806.7 5.2
- - ---------------------------------------------------------------------------
$2,215.2 8.3
- - ---------------------------------------------------------------------------
- - ---------------------------------------------------------------------------
8
FINANCIAL REVIEW
(continued)
LIQUIDITY AND CAPITAL RESOURCES AT MARCH 31, 1994
COMPARED WITH DECEMBER 31, 1993
Net cash from operating activities for the first quarter 1994 totaled
$547 million. The Company expects annual cash flow from operating activities to
continue to approximate or exceed the Company's capital expenditures and cash
dividends.
The Company has maintained its favorable bond ratings (AAA by Standard & Poor's
Corporation and Aa1 by Moody's Investors Service) and continues to have readily
available financial resources, including unused domestic lines of credit of
$300 million at March 31, 1994.
During the first quarter 1994, the Company continued its program to purchase its
common shares. The Company purchased and retired 5,355,000 shares during this
period at a cost of $154 million. As of March 31, 1994, an additional 8,746,000
shares may be purchased in future periods under authorization granted by the
Board of Directors in September 1993.
LEGISLATIVE ISSUES
The Company's primary markets are highly competitive and subject to substantial
government regulation. In the U.S., comprehensive legislation may be enacted
that could make significant changes to the availability, delivery and payment
for health care products and services. International operations are also
subject to a significant degree of government regulation. It is not possible to
predict the extent to which the Company 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 contained in Item 1, Business, in the Annual
Report on Form 10-K, which is available upon request.
9
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company's 10-K for the fiscal year ended December 31, 1993
described 7 antitrust suits and 6 investigations (as of January 31, 1994)
regarding the Company's marketing and sale of infant formula products. Five new
antitrust suits regarding the Company's marketing and sale of infant formula
products have commenced since January 31, 1994: on February 11, 1994, a case
was filed in the District Court of Harrison County, Texas; on March 2, 1994, a
case was filed in the Circuit Court for Okaloosa County, Florida; on March 2,
1994, a case was filed in the Circuit Court for Milwaukee County, Wisconsin (the
defendants have removed this case to federal court in Milwaukee); on March 9,
1994, a case was filed in the Circuit Court for the County of Calhoun, Michigan;
and on March 10, 1994, a case was filed in the Eighteenth Judicial District
court for Sedgwick County, Kansas. Each purports to be a state consumer class
action; alleges violation of state antitrust and trade practices laws; asks for
unspecified actual and punitive damages, injunctive relief, and declaratory
judgment; and names the Company and certain other infant formula manufacturers
as defendants. In addition, a purported class action filed on behalf Texas
consumers, which had been originally brought as a part of a case filed by the
State of Texas and which had been severed for appeal of the defendants'
successful motion for summary judgment, has been reinstated as a separate case,
SEGURA V. ABBOTT LABORATORIES, ET. AL., and is now pending in state court in
Travis County, Texas. The Company intends to defend itself in these suits and
to deny all substantive allegations. As of March 31, 1994 there are 13
antitrust suits and 6 investigations pending in connection with the Company's
sale and marketing of infant formula products.
The Company's 10-K for the fiscal year ended December 31, 1993
described 22 antitrust suits (as of January 31, 1994) regarding the Company's
sale of prescription pharmaceuticals. Additional lawsuits were filed in various
federal courts after January 31, 1994. On February 4, 1994 all pending federal
cases were consolidated in the United States District Court for the Northern
District of Illinois under Multidistrict Litigation rules. All of the federal
class action cases, except for BACON-NORMANDI V. ABBOTT LABORATORIES, ET AL.,
were withdrawn and refiled on March 7, 1994 in the United States District Court
for the Northern District of Illinois as a single purported class action known
as HJB, ET AL. V. ABBOTT LABORATORIES, ET AL.. Plaintiffs seek unspecified
treble damages, attorneys' fees, and declaratory and injunctive relief. As of
March 31, 1994, there are 16 antitrust suits pending in connection with the
Company's sale of prescription pharmaceuticals. The Company intends to defend
itself in these suits and to deny all substantive allegations.
On February 23, 1994, the United States Environmental Protection
Agency (the "EPA") instituted a civil administrative proceeding by filing a
complaint alleging that the Company burned hazardous waste at its North Chicago
facility in violation of the Resource Conservation and Recovery Act ("RCRA").
The complaint seeks penalties of $991,775. The EPA simultaneously issued an
Administrative Order requiring the Company to take certain actions to ensure
future compliance with the RCRA. The Company filed an answer to the complaint
denying all substantive allegations.
10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on April 29, 1994.
The following is a summary of the matters voted on at that meeting.
(a) The shareholders elected the Company's entire Board of Directors.
The persons elected to the Company's Board of Directors and the number of shares
cast for, and the number of shares withheld, with respect to each of these
persons were as follows:
Director For Withheld
- - -------- --- --------
K. Frank Austen, M.D. 703,219,794 2,946,586
Duane L. Burnham 701,988,161 4,178,219
H. Laurance Fuller 703,311,909 2,854,471
The Lord Hayhoe PC 703,169,923 2,996,457
Thomas R. Hodgson 703,182,785 2,983,595
Allen F. Jacobson 702,405,668 3,760,712
David A. Jones 702,162,220 4,004,160
Boone Powell, Jr. 703,332,637 2,833,743
Addison Barry Rand 703,250,380 2,916,000
W. Ann Reynolds, Ph.D. 701,744,361 4,422,019
William D. Smithburg 703,303,070 2,863,310
John R. Walter 702,335,593 3,830,787
William L. Weiss 701,585,671 4,580,709
(b) The shareholders ratified the appointment of Arthur Andersen &
Co. as auditors of the Company.
For Against Abstaining
--- ------- ----------
701,969,583 2,016,938 2,179,859
(c) The shareholders approved the Amendment of the Company's Articles
of Incorporation which limits certain liabilities of directors and provides for
the indemnification of the Company's directors, officers and employees to the
extent permitted by Illinois law.
For Against Abstaining
--- ------- ----------
673,596,537 27,969,380 4,600,463
(d) The shareholders rejected a shareholder proposal that requested
the Company's Board of Directors to create and adopt a price policy for its
pharmaceutical products and to report to the shareholders on such policy.
For Against Abstain Broker Non-Vote
--- ------- ------- ---------------
16,569,362 602,533,406 11,735,125 75,328,487
11
(e) The shareholders rejected a shareholder proposal regarding infant
formula supply to hospitals.
For Against Abstain Broker Non-Votes
--- ------- ------- ----------------
23,076,687 551,757,669 56,003,537 75,328,487
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
3.1 Articles of Incorporation
3.2 Amendment to Articles of Incorporation
11 Statement re: computation of per share earnings - attached
hereto.
12 Statement re: computation of ratio of earnings to fixed
charges.
b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
March 31, 1994.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ABBOTT LABORATORIES
Date: May 13, 1994 /s/Theodore A. Olson
---------------------------------------
Theodore A. Olson, Vice President
and Controller (Principal
Accounting Officer)
12