Exhibit 13
The portions of the Abbott Laboratories Annual Report for the year ended
December 31, 1994 captioned Financial Review, Consolidated Balance Sheet,
Consolidated Statement of Earnings, Consolidated Statement of Cash Flows,
Consolidated Statement of Shareholders' Investment, Notes to Consolidated
Financial Statements, Report of Independent Public Accountants, and the
applicable portions of the section captioned Summary of Financial Data for the
Years 1990 through 1994.
Abbott Laboratories and Subsidiaries
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
ASSETS
December 31
------------------------------------
1994 1993 1992
---------- ---------- ----------
Current Assets:
Cash and cash equivalents...................... $ 290,272 $ 300,676 $ 116,576
Investment securities.......................... 25,056 78,149 141,601
Trade receivables, less allowances of -
1994: $128,929; 1993: $116,925; 1992: $106,857. 1,468,519 1,336,222 1,244,396
Inventories -
Finished products............................ 514,715 476,548 421,932
Work in process.............................. 218,643 216,493 190,163
Materials.................................... 284,833 247,492 251,713
---------- ---------- ----------
Total inventories.......................... 1,018,191 940,533 863,808
Prepaid income taxes........................... 549,091 458,026 477,387
Other prepaid expenses and receivables......... 525,199 471,929 387,970
---------- ---------- ----------
Total Current Assets........................... 3,876,328 3,585,535 3,231,738
---------- ---------- ----------
Investment Securities Maturing after One Year.... 316,195 221,815 270,639
---------- ---------- ----------
Property and Equipment, at Cost:
Land........................................... 145,634 137,636 120,617
Buildings...................................... 1,349,668 1,261,620 1,064,974
Equipment...................................... 4,764,296 4,169,279 3,735,259
Construction in progress....................... 794,006 652,611 576,291
---------- ---------- ----------
7,053,604 6,221,146 5,497,141
Less: accumulated depreciation
and amortization............................. 3,132,754 2,710,155 2,397,903
---------- ---------- ----------
Net Property and Equipment..................... 3,920,850 3,510,991 3,099,238
Deferred Charges and Other Assets................ 410,351 370,228 339,621
---------- ---------- ----------
$8,523,724 $7,688,569 $6,941,236
========== ========== ==========
The accompanying notes to consolidated financial statements are an integral part
of this statement.
Abbott Laboratories and Subsidiaries
CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
LIABILITIES AND SHAREHOLDERS' INVESTMENT
December 31
------------------------------------
1994 1993 1992
---------- ---------- ----------
Current Liabilities:
Short-term borrowings and current portion of
long-term debt............................... $ 772,503 $ 843,594 $ 916,263
Trade accounts payable......................... 671,100 638,509 597,226
Salaries, wages and commissions................ 270,539 215,432 196,259
Other accrued liabilities...................... 1,140,154 933,049 905,877
Dividends payable.............................. 152,515 139,600 125,300
Income taxes payable........................... 469,055 324,749 41,583
---------- ---------- ----------
Total Current Liabilities...................... 3,475,866 3,094,933 2,782,508
---------- ---------- ----------
Long-Term Debt................................... 287,091 306,840 110,018
---------- ---------- ----------
Other Liabilities and Deferrals:
Deferred income taxes.......................... 55,597 51,383 321,301
Other.......................................... 655,770 560,484 379,768
---------- ---------- ----------
Total Other Liabilities and Deferrals.......... 711,367 611,867 701,069
---------- ---------- ----------
Shareholders' Investment:
Preferred shares, one dollar 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: 813,046,602 shares; 1993: 830,941,614
shares; 1992: 846,017,815 shares............. 505,170 469,828 442,390
Earnings employed in the business................ 3,652,434 3,364,952 2,990,689
Cumulative translation adjustments............... (51,124) (100,716) (23,131)
---------- ---------- ----------
4,106,480 3,734,064 3,409,948
Less:
Common shares held in treasury, at cost -
1994: 9,766,880 shares; 1993: 9,811,930 shares;
1992: 9,965,386 shares......................... 51,545 51,783 52,593
Unearned compensation - restricted stock awards.. 5,535 7,352 9,714
---------- ---------- ----------
Total Shareholders' Investment................. 4,049,400 3,674,929 3,347,641
---------- ---------- ----------
$8,523,724 $7,688,569 $6,941,236
========== ========== ==========
Abbott Laboratories and Subsidiaries
CONSOLIDATED STATEMENT OF EARNINGS
(Dollars in Thousands Except Per Share Data)
Year Ended December 31
------------------------------------
1994 1993 1992
---------- ---------- ----------
Net Sales...................................... $9,156,009 $8,407,843 $7,851,912
---------- ---------- ----------
Cost of products sold.......................... 3,993,831 3,684,727 3,505,273
Research and development....................... 963,516 880,974 772,407
Selling, general and administrative............ 2,054,455 1,988,176 1,833,220
Provision for product withdrawal............... --- (70,000) 215,000
---------- ---------- ----------
Total Operating Cost and Expenses............ 7,011,802 6,483,877 6,325,900
---------- ---------- ----------
Operating Earnings............................. 2,144,207 1,923,966 1,526,012
Interest expense............................... 49,722 54,283 52,961
Interest and dividend income................... (36,907) (37,821) (42,250)
Other (income) expense, net.................... (35,298) (35,726) 48,534
Gain on sale of investment..................... --- --- (271,986)
---------- ---------- ----------
Earnings Before Taxes.......................... 2,166,690 1,943,230 1,738,753
Taxes on earnings.............................. 650,007 544,104 499,696
---------- ---------- ----------
Net Earnings................................... $1,516,683 $1,399,126 $1,239,057
========== ========== ==========
Earnings Per Common Share...................... $1.87 $1.69 $1.47
===== ===== =====
Average Number of Common Shares Outstanding.... 812,236,000 828,988,000 844,122,000
=========== =========== ===========
The accompanying notes to consolidated financial statements are an integral part
of this statement.
Abbott Laboratories and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in Thousands)
Year Ended December 31
------------------------------------
1994 1993 1992
---------- ---------- ----------
Cash Flow From (Used in) Operating Activities:
Net earnings.................................... $1,516,683 $1,399,126 $1,239,057
Adjustments to reconcile net earnings to
net cash from operating activities -
Depreciation and amortization................... 510,504 484,081 427,782
Exchange (gains) losses, net.................... 8,600 41,795 24,925
Investing and financing (gains) losses, net..... 21,834 (6,038) 36,511
Trade receivables............................... (109,623) (192,451) (181,085)
Inventories..................................... (52,293) (91,490) (109,087)
Prepaid expenses and other assets............... (183,705) (93,759) (114,009)
Trade accounts payable and other liabilities.... 360,216 96,095 276,617
Income taxes payable............................ 139,921 279,550 (154,876)
Provision for product withdrawal................ --- (70,000) 215,000
Gain on sale of investment...................... --- --- (271,986)
---------- ---------- ----------
Net Cash From Operating Activities............ 2,212,137 1,846,909 1,388,849
---------- ---------- ----------
Cash Flow From (Used in) Investing Activities:
Acquisitions of property, equipment and
businesses.................................... (929,488) (952,732) (1,007,247)
Purchases of investment securities.............. (226,728) (335,915) (178,727)
Proceeds from sales of investment securities.... 185,268 447,983 496,120
Other........................................... 26,863 46,826 22,277
---------- ---------- ----------
Net Cash Used in Investing Activities......... (944,085) (793,838) (667,577)
---------- ---------- ----------
Cash Flow From (Used in) Financing Activities:
Proceeds from borrowings with original
maturities of more than three months.......... 107,868 289,429 196,487
Repayments of borrowings with original
maturities of more than three months.......... (89,977) (197,090) (213,833)
Proceeds from (repayments of) other borrowings.. (115,725) 30,124 381,848
Purchases of common shares...................... (615,946) (465,822) (607,598)
Proceeds from stock options exercised........... 36,214 27,536 74,027
Dividends paid.................................. (602,356) (548,044) (488,413)
---------- ---------- ----------
Net Cash Used in Financing Activities......... (1,279,922) (863,867) (657,482)
---------- ---------- ----------
Abbott Laboratories and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(Dollars in Thousands)
Year Ended December 31
------------------------------------
1994 1993 1992
---------- ---------- ----------
Effect of exchange rate changes on cash and
cash equivalents................................. 1,466 (5,104) (7,609)
---------- ---------- ----------
Net Increase (Decrease) in Cash and Cash Equivalents (10,404) 184,100 56,181
Cash and Cash Equivalents, Beginning of Year....... 300,676 116,576 60,395
---------- ---------- ----------
Cash and Cash Equivalents, End of Year............. $ 290,272 $ 300,676 $ 116,576
========== ========== ==========
Supplemental Cash Flow Information:
Income taxes paid............................... $ 571,215 $ 332,834 $ 702,897
Interest paid................................... 50,157 52,477 58,709
The accompanying notes to consolidated financial statements are an integral part
of this statement.
Abbott Laboratories and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS' INVESTMENT
(Dollars in Thousands Except Per Share Data)
Year Ended December 31
------------------------------------
1994 1993 1992
---------- ---------- ----------
Common Shares:
Issued at Beginning of Year
Shares: 1994: 830,941,614; 1993: 846,017,815;
1992: 860,765,782............................ $ 469,828 $ 442,390 $ 361,008
Issued under incentive stock programs
Shares: 1994: 3,247,207; 1993: 2,602,920;
1992: 5,865,601.............................. 38,638 29,619 61,683
Tax benefit from sale of option shares and
vesting of restricted stock awards
(no share effect)............................ 9,800 8,300 29,800
Retired - Shares: 1994: 21,142,219;
1993: 17,679,121; 1992: 20,613,568........... (13,096) (10,481) (10,101)
---------- ---------- ----------
Issued at End of Year
Shares: 1994: 813,046,602; 1993: 830,941,614;
1992: 846,017,815............................ $ 505,170 $ 469,828 $ 442,390
========== ========== ==========
Earnings Employed in the Business:
Balance at Beginning of Year................... $3,364,952 $2,990,689 $2,867,857
Net earnings................................... 1,516,683 1,399,126 1,239,057
Cash dividends declared on common shares
(per share-1994: $.76; 1993: $.68; 1992: $.60) (615,271) (562,344) (507,416)
Cost of common shares and share rights
retired in excess of stated capital amount... (615,074) (465,724) (614,953)
Cost of treasury shares issued below market
value of restricted stock awards............. 1,144 3,205 6,144
---------- ---------- ----------
Balance at End of Year......................... $3,652,434 $3,364,952 $2,990,689
========== ========== ==========
Cumulative Translation Adjustments:
Balance at Beginning of Year................... $ (100,716) $ (23,131) $ 37,621
Translation adjustments........................ 49,592 (77,585) (60,752)
---------- ---------- ----------
Balance at End of Year......................... $ (51,124) $ (100,716) $ (23,131)
========== ========== ==========
Abbott Laboratories and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS' INVESTMENT (CONTINUED)
(Dollars in Thousands Except Per Share Data)
Year Ended December 31
------------------------------------
1994 1993 1992
---------- ---------- ----------
Common Shares Held in Treasury:
Balance at Beginning of Year
Shares: 1994: 9,811,930; 1993: 9,965,386;
1992: 10,236,556........................... $ 51,783 $ 52,593 $ 54,024
Issued under incentive stock programs
Shares: 1994: 45,050; 1993: 153,456;
1992: 271,170................................ (238) (810) (1,431)
---------- ---------- ----------
Balance at End of Year
Shares: 1994: 9,766,880; 1993: 9,811,930;
1992: 9,965,386.............................. $ 51,545 $ 51,783 $ 52,593
========== ========== ==========
Unearned Compensation - Restricted Stock Awards:
Balance at Beginning of Year................... $ 7,352 $ 9,714 $ 9,475
Issued at market value - Shares: 1994: 35,000;
1993: 144,000; 1992: 254,000................. 1,094 3,771 7,079
Lapses - Shares: 1994: 21,600; 1993: 42,800;
1992: 38,000................................. (575) (887) (637)
Amortization................................... (2,336) (5,246) (6,203)
---------- ---------- ----------
Balance at End of Year........................... $ 5,535 $ 7,352 $ 9,714
========== ========== ==========
The accompanying notes to consolidated financial statements are an integral part
of this statement.
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the parent
company and subsidiaries, after elimination of intercompany transactions. The
accounts of foreign subsidiaries are consolidated as of November 30.
CASH AND CASH EQUIVALENTS
Cash equivalents consist of time deposits and certificates of deposit with
original maturities of three months or less.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out basis) or
market. Cost includes material and conversion costs.
PROPERTY AND EQUIPMENT
Depreciation and amortization are provided on the straight-line method over
the estimated useful lives of the assets.
PRODUCT LIABILITY
Provisions are made for the portions of probable losses that are not
covered by product liability insurance.
TRANSLATION ADJUSTMENTS
For foreign operations in highly inflationary economies, translation gains
and losses are included in other (income) expense, net. For remaining foreign
operations, translation adjustments are included as a component of shareholders'
investment.
EARNINGS PER COMMON SHARE
Earnings per common share amounts are computed using the weighted average
number of common shares outstanding.
REVENUE RECOGNITION
The Company recognizes revenue from product sales upon shipment to
customers. Provisions for discounts and rebates to customers, and returns and
other adjustments are provided for in the same period the related sales are
recorded.
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 2 - Taxes on Earnings
(dollars in thousands)
Deferred income taxes reflect the tax consequences on future years of
temporary differences between the tax bases of assets and liabilities and their
financial reporting amounts. Prior to 1993, provisions were made for the
estimated amount of income taxes on reported earnings which were payable
currently and in the future. The effect of this change on income before taxes
and net income was not significant, and prior years' financial statements have
not been restated.
U.S. income taxes are provided on those earnings of foreign subsidiaries
and subsidiaries operating in Puerto Rico under tax incentive grants, which are
intended to be remitted to the parent company. Undistributed earnings
reinvested indefinitely in foreign subsidiaries as working capital and plant and
equipment aggregated $820,000 at December 31, 1994. Deferred income taxes not
provided on these earnings are not significant.
Earnings before taxes, and the related provisions for taxes on earnings,
are as follows:
Earnings Before Taxes 1994 1993 1992
---------- ---------- ----------
Domestic................................. $1,595,279 $1,480,163 $1,418,335
Foreign.................................. 571,411 463,067 320,418
---------- ---------- ----------
Total...................................... $2,166,690 $1,943,230 $1,738,753
========== ========== ==========
Taxes on Earnings 1994 1993 1992
---------- ---------- ----------
Current:
U.S. Federal and Possessions........... $487,977 $355,813 $347,711
State.................................. 56,548 49,222 63,838
Foreign................................ 192,509 175,455 133,065
---------- ---------- ----------
Total current............................ 737,034 580,490 544,614
---------- ---------- ----------
Deferred:
Domestic............................... (96,679) (29,461) (35,739)
Foreign................................ 9,801 2,066 (9,179)
Enacted tax rate changes............... (149) (8,991) -
---------- ---------- ----------
Total deferred........................... (87,027) (36,386) (44,918)
---------- ---------- ----------
Total...................................... $650,007 $544,104 $499,696
========== ========== ==========
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Differences between the effective income tax rate and the U.S. statutory
tax rate were as follows:
1994 1993 1992
------ ------ ------
Statutory tax rate........................... 35.0% 35.0% 34.0%
Benefit of tax exemptions in
Puerto Rico, Italy, The Netherlands
and Ireland................................ (5.1) (6.7) (6.1)
State taxes, net of federal benefit.......... 1.7 1.7 2.1
All other, net............................... (1.6) (2.0) (1.3)
------ ------ ------
Effective tax rate........................... 30.0% 28.0% 28.7%
====== ====== ======
As of December 31, 1994 and 1993, total deferred tax assets were $767,857
and $632,112, respectively, and total deferred tax liabilities were $263,734 and
$211,839, respectively. Valuation allowances for deferred tax assets are not
significant. The temporary differences that give rise to deferred tax assets
and liabilities are as follows:
1994 1993
---------- ---------
Compensation and employee benefits........... $ 157,374 $ 113,927
Accounts receivable reserves................. 107,320 81,293
Inventory reserves........................... 77,787 81,201
Deferred intercompany profit................. 78,317 72,129
State income taxes........................... 37,394 30,715
Depreciation................................. (167,773) (145,767)
Other, primarily other accruals and
reserves not currently deductible.......... 203,075 173,145
---------- ---------
Total........................................ $ 493,494 $ 406,643
========== =========
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 3 - Financial Instruments
The Company enters into foreign currency forward exchange contracts to
hedge intercompany loans and trade accounts payable where the functional
currency of the lending and borrowing entities are not the same. Such contracts
are also used to hedge foreign currency denominated third party trade payables
and receivables. For intercompany loans, the contracts require the Company to
sell foreign currencies, primarily Japanese yen and European currencies, in
exchange for primarily U.S. dollars. For intercompany and trade payables and
receivables, the currencies hedged are primarily the U.S. dollar, Japanese yen
and European currencies. At December 31, 1994, 1993, and 1992, the Company held
$717 million, $477 million and $400 million, respectively, of foreign currency
forward exchange contracts. The contracts outstanding at December 31, 1994
mature in 1995. These contracts are marked to market each month. The resulting
gains or losses are reflected in income and are generally offset by losses or
gains on the exposures being hedged.
The Company purchases U.S. dollar call options as a hedge of anticipated
intercompany purchases by foreign subsidiaries whose functional currency is not
the U.S. dollar. These contracts give the Company the right, but not the
requirement, to purchase U.S. dollars in exchange for foreign currencies,
primarily Japanese yen and European currencies, at predetermined exchange rates.
At December 31, 1994, 1993, and 1992, the Company held $370 million, $59 million
and $28 million, respectively, of U.S. dollar call option contracts. The
contracts outstanding at December 31, 1994 mature in 1995. Realized and
unrealized gains and losses on contracts that qualify as hedges of anticipated
purchases by foreign subsidiaries are recognized in the same period that the
foreign currency exposure is recognized. Contracts that do not qualify for
hedge accounting are marked to market each month.
The Company purchases foreign currency put options as a hedge against the
effect of exchange rate fluctuations on income. These contracts give the
Company the right, but not the requirement, to sell foreign currencies,
primarily Japanese yen and European currencies, in exchange for U.S. dollars at
predetermined exchange rates. These contracts are marked to market each month.
The resulting gains or losses are reflected in income and are generally offset
by losses or gains on the exposures being hedged. There were no such contracts
outstanding at December 31, 1994, 1993, and 1992.
The Company manages its exposure to short-term interest rate changes by
entering into interest rate swap contracts which effectively convert the
floating interest rate on a portion of the Company's commercial paper borrowings
to fixed rates. At December 31, 1994 and 1993, the Company held a $200 million
contract which matures in August, 1995 and at December 31, 1992, held contracts
totaling $300 million. For 1994, the average floating rate received was 4.45%
and the fixed rate paid was 4.72%. Gains or losses are recognized in income in
the same period that the interest rate exposure is recognized.
The gross unrealized holding gains/(losses) on current investment
securities and those maturing after one year totalled $2.5 million and $(9.2)
million at December 31, 1994, respectively.
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The carrying values and fair values of certain of the Company's 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.
Fair value is the quoted market price of the instrument held or the quoted
market price of a similar instrument. The counterparties to financial
instruments consist of select major international financial institutions. The
Company does not expect any losses from nonperformance by these counterparties.
(dollars in thousands)
1994 1993 1992
------------------ ------------------- --------------------
Carrying Fair Carrying Fair Carrying Fair
Value Value Value Value Value Value
-------- -------- ------- -------- -------- ---------
Current Investment
Securities................ $ 25,056 $ 25,160 $ 78,149 $ 78,319 $141,601 $142,887
Investment Securities
Maturing after One Year... 316,195 309,362 221,815 231,879 270,639 285,763
Long-Term Debt.............. (308,750) (276,134) (308,920) (304,038) (117,165) (115,568)
Foreign Currency Forward
Exchange Contracts:
In a (payable) position. (1,564) (1,564) - - - -
In a receivable position 6,528 6,528 - - - -
In a net receivable
position.............. - - 7,830 7,830 11,572 11,572
Foreign Currency
Option Contracts.......... 14,660 744 2,014 0 (20,886) (21,903)
Interest Rate Swaps:
In a receivable position.. 0 3,150 - - 0 1,700
In a (payable) position... - - 0 (2,280) 0 (1,190)
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 4 - Benefit Plans
(dollars in thousands)
Retirement plans consist of defined benefit, defined contribution, and medical
and dental plans.
Pension benefits for the Company's defined benefit plans generally are
based on the employee's years of service and compensation near retirement.
Certain plan benefits would vest and certain restrictions on the use of plan
assets would take effect upon a change in control of the Company.
Net pension cost for the Company's significant defined benefit plans
includes the following components:
1994 1993 1992
-------- -------- --------
Service cost - benefits earned during the year... $ 67,768 $ 59,381 $ 52,128
Interest cost on projected benefit obligations... 85,414 84,864 76,355
Return on assets................................. 915 (128,221) (46,128)
Net amortization and deferral.................... (125,186) (729) (74,779)
-------- -------- --------
Net pension cost................................. $ 28,911 $ 15,295 $ 7,576
======== ======== ========
The plans' funded status at December 31 was as follows:
1994 1993 1992
-------- -------- --------
Actuarial present value of benefit obligations -
Vested benefits................................ $799,425 $791,435 $620,537
Nonvested benefits............................. 104,120 97,985 82,557
-------- -------- --------
Accumulated benefit obligations.................. $903,545 $889,420 $703,094
======== ======== ========
Plans' assets at fair value, principally
listed securities.............................. $1,321,051 $1,342,541 $1,244,881
Actuarial present value of projected
benefit obligations............................ 1,147,024 1,198,768 951,603
---------- ---------- ----------
Projected benefit obligations less
than plans' assets............................. 174,027 143,773 293,278
Unrecognized net transitional asset.............. (63,866) (74,710) (85,563)
Unrecognized prior service cost.................. 15,274 30,951 32,455
Unrecognized net gain............................ (101,139) (57,724) (199,779)
---------- ---------- ----------
Net prepaid pension cost......................... $ 24,296 $ 42,290 $ 40,391
========== ========== ==========
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Assumptions used for the Company's major defined benefit plan as of December 31
include:
1994 1993 1992
------ ------ ------
Discount rate for determining obligations
and interest cost............................. 8 1/2% 7 1/4% 9%
Expected aggregate average long-term change
in compensation............................... 4% 4% 6%
Expected long-term rate of return on assets..... 9% 9% 10%
The Stock Retirement Plan is the principal defined contribution plan. Company
contributions to this plan were $45,124 in 1994, $41,225 in 1993, and $37,055 in
1992, equal to 7.33 percent of dividends, as provided under the plan.
The Company also provides certain medical and dental benefits to qualifying
domestic retirees. Net post-retirement health care cost includes the following
components:
1994 1993 1992
-------- -------- --------
Service cost - benefits earned during the year... $27,605 $16,823 $14,681
Interest cost on accumulated post-retirement
benefit obligations............................ 35,578 29,266 25,355
Return on assets................................. 810 (9,239) (6,489)
Net amortization and deferral.................... (1,561) 2,393 (583)
------- ------- -------
Net post-retirement health care cost............. $62,432 $39,243 $32,964
======= ======= =======
The plans' funded status at December 31 was as follows:
1994 1993 1992
--------- --------- ---------
Actuarial present value of benefit obligations -
Retirees....................................... $ 164,153 $ 171,231 $ 115,463
Fully eligible active participants............. 113,128 117,158 72,659
Other active participants...................... 186,778 162,219 127,688
--------- --------- ---------
Accumulated post-retirement benefit obligations.. 464,059 450,608 315,810
Plans' assets at fair value, principally
listed securities.............................. 94,297 100,920 91,778
--------- --------- ---------
Accumulated post-retirement benefit obligations
in excess of plans' assets..................... (369,762) (349,688) (224,032)
Unrecognized net loss ........................... 129,477 161,692 58,125
--------- --------- ---------
Accrued post-retirement health care cost......... $(240,285) $(187,996) $(165,907)
========= ========= =========
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The discount rate and expected long-term rate of return on assets assumptions
are identical to those used for the Company's major defined benefit plan. A 9
percent annual rate of increase in the per capita cost of covered health care
benefits was assumed for 1995. This rate is assumed to decrease gradually to 5
percent in year 2000 and remain at that level thereafter. A one-percentage-
point increase in the assumed health care cost trend rates would increase the
accumulated post-retirement benefit obligations as of December 31, 1994 by
approximately $82,000 and the total of the service and interest cost components
of net post-retirement health care cost for the year then ended by approximately
$15,700.
The Company also provides certain other post-employment benefits, primarily
salary continuation plans, to qualifying domestic employees, and accrues for the
related cost over the service lives of the employees.
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 5 - Investment Securities
(dollars in thousands)
The following is a summary of investment securities at December 31:
Current Investment Securities 1994 1993 1992
-------- -------- --------
Time deposits and certificates of deposit........ $ 8,050 $ 32,350 $ 84,430
Corporate debt obligations....................... - 40,155 38,285
Debt obligations issued or guaranteed
by various governments or government agencies.. 17,006 5,644 18,886
-------- -------- --------
Total.............................................. $ 25,056 $ 78,149 $141,601
======== ======== ========
Investment Securities Maturing after One Year 1994 1993 1992
-------- -------- --------
Time deposits and certificates of deposit,
maturing through 1999.......................... $ 66,500 $ 34,500 $ 54,500
Corporate debt obligations, maturing through 2008 104,696 44,703 50,000
Debt obligations issued or guaranteed
by various governments or government agencies,
maturing through 2006.......................... 144,999 142,612 166,139
-------- -------- --------
Total.............................................. $316,195 $221,815 $270,639
======== ======== ========
The Company generally holds investment securities until maturity. All
investment securities classified as current as of December 31, 1994 mature
before January 1, 1996.
Of the investment securities listed above, $334,128, $293,888, and
$409,105, were held at December 31, 1994, 1993, and 1992, respectively, by
subsidiaries operating in Puerto Rico under tax incentive grants expiring from
2002 through 2007. In addition, these subsidiaries held cash equivalents of
$164,700, $197,200, and $33,800 at December 31, 1994, 1993, and 1992,
respectively.
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 6 - Incentive Stock Program
The 1991 Incentive Stock Program authorizes the granting of stock options,
stock appreciation rights, limited stock appreciation rights, restricted stock
awards, performance units, and foreign qualified benefits. Stock options,
limited stock appreciation rights, restricted stock awards, and foreign
qualified benefits have been granted and are currently outstanding under this
program and prior programs. The purchase price of the shares under option must
be at least 100 percent of the fair market value of the common stock on the date
of grant.
Limited stock appreciation rights have been granted to certain holders of
stock options and can be exercised, by surrendering related stock options, only
upon a change in control of the Company. At December 31, 1994, 4,388,359
options, with purchase prices from $6.31 to $32.69 per share, were subject to
limited stock appreciation rights. Upon a change in control of the Company, all
outstanding stock options become fully exercisable, and all terms and conditions
of all restricted stock awards are deemed satisfied.
At December 31, 1994, 12,116,674 shares were reserved for future grants
under the 1991 Program.
Data with respect to stock options under the 1991 Program and prior
programs are as follows:
Options Outstanding
-----------------------------
Shares Price per Share
---------- ----------------
January 1, 1994.......................... 30,077,038 $ 5.27 to $33.82
Granted.................................. 1,894,815 27.32 to 32.26
Exercised................................ (3,247,207) 5.27 to 32.69
Lapsed................................... (436,488) 16.83 to 33.47
---------- ----------------
December 31, 1994........................ 28,288,158 $ 6.31 to $33.82
========== ================
Exercisable at December 31, 1994......... 21,819,935 $ 6.31 to $33.82
========== ================
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 7 - Debt and Lines of Credit
(dollars in thousands)
The following is a summary of long-term debt at December 31:
1994 1993 1992
-------- -------- --------
5.6% debentures, due 2003................. $200,000 $200,000 $ -
Industrial revenue bonds at various
rates of interest, averaging 3.9%
at December 31, 1994, and due at
various dates through 2023.............. 82,600 82,600 82,600
Other, principally foreign affiliate
borrowings at various rates of
interest, averaging 3.7% at
December 31, 1994, and due at
various dates through 1998.............. 4,491 24,240 27,418
-------- -------- --------
Total, net of current maturities.......... $287,091 $306,840 $110,018
Current maturities of long-term debt...... 21,659 2,080 7,147
-------- -------- --------
Total..................................... $308,750 $308,920 $117,165
======== ======== ========
Payments required on long-term debt outstanding at December 31, 1994, are $1,483
in 1996, $4,308 in 1997, $2,500 in 1998, and $800 in 1999.
At December 31, 1994, the Company had $300,000 of unused domestic lines of
credit which support domestic commercial paper borrowing arrangements. Related
compensating balances, which are subject to withdrawal by the Company at its
option, and commitment fees are not material. The Company's weighted average
interest rate on short-term borrowings was 6.1%, 4.1%, and 5.0% at December 31,
1994, 1993, and 1992, respectively.
The Company may issue up to $300,000 of senior debt securities in the
future under a registration statement filed with the Securities and Exchange
Commission in 1993.
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 8 - Quarterly Results (Unaudited)
(dollars in millions
except per share data)
1994 1993 1992
-------- -------- --------
FIRST QUARTER
Net Sales................................. $2,215.2 $2,045.6 $1,877.9
Gross Profit.............................. 1,251.0 1,112.4 1,033.2
Net Earnings.............................. 366.2 345.5 294.2
Earnings Per Common Share................. .45 .41 .35
SECOND QUARTER
Net Sales................................. $2,204.1 $2,073.8 $1,908.7
Gross Profit.............................. 1,257.2 1,186.8 1,045.7
Net Earnings.............................. 376.6 346.1 317.1
Earnings Per Common Share................. .46 .42 .37
THIRD QUARTER
Net Sales................................. $2,254.8 $2,060.4 $1,968.8
Gross Profit.............................. 1,239.0 1,143.4 1,076.1
Net Earnings.............................. 351.3 316.2 278.8
Earnings Per Common Share................. .43 .38 .33
FOURTH QUARTER
Net Sales................................. $2,481.9 $2,228.0 $2,096.5
Gross Profit.............................. 1,415.0 1,280.5 1,191.6
Net Earnings.............................. 422.6 391.3 349.0
Earnings Per Common Share................. .53 .48 .42
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 9 - 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 products and the pricing of prescription
pharmaceuticals.
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.
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, cash flows, or
results of operations.
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 10 - Other Significant Events
In June 1992, the Company voluntarily withdrew from the worldwide market its
quinolone anti-infective, temafloxacin, and recorded a charge of $215 million
for costs associated with this withdrawal. In the second quarter 1993, the
Company resolved various contingencies relative to the temafloxacin withdrawal
and recorded a credit of $70 million for these items.
In the first quarter 1993, the Company sold its peritoneal dialysis
product line. The gain on the sale is reported in other (income) expense, net.
In May 1992, the Company sold its 20 percent investment in Boston Scientific
Corporation for a pretax gain of $272 million.
In December, 1994 a United Kingdom subsidiary of the Company purchased the
operating assets of the nutritional business of Puleva Union Industrial y
Agroganadera, S.A. for $106 million. Had this acquisition taken place on
January 1, 1994, consolidated sales and net income would not have been
significantly different from reported amounts.
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 11 - Industry Segment and Geographic Area Information
(dollars in millions)
The Company's principal business is the discovery, development, manufacture, and
sale of a broad and diversified line of health care products and services.
These products have been classified into the following industry segments:
PHARMACEUTICAL AND NUTRITIONAL PRODUCTS - Included are 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.
HOSPITAL AND LABORATORY PRODUCTS - Included are 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.
In the following tables, net sales by industry segment and geographic area
include both sales to customers, as reported in the Consolidated Statement of
Earnings, and inter-area sales (for geographic areas) at sales prices which
approximate market. Operating profit excludes corporate expenses.
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Industry Segments (a) 1994 1993 1992
------ ------ ------
Net Sales
Pharmaceutical and nutritional.............. $4,951 $4,389 $4,025
Hospital and laboratory..................... 4,205 4,019 3,827
------ ------ ------
Total ........................................ $9,156 $8,408 $7,852
====== ====== ======
Operating Profit
Pharmaceutical and nutritional (b).......... $1,385 $1,211 $ 879
Hospital and laboratory (c)................. 818 794 703
------ ------ ------
Operating Profit............................ 2,203 2,005 1,582
Corporate expenses, net (d)................. 23 46 104
Interest (income) expense, net.............. 13 16 11
Gain on sale of investment.................. - - (272)
------ ------ ------
Earnings Before Taxes......................... $2,167 $1,943 $1,739
====== ====== ======
Identifiable Assets
Pharmaceutical and nutritional.............. $3,415 $3,046 $2,616
Hospital and laboratory..................... 3,596 3,296 3,108
General corporate (e)....................... 1,513 1,347 1,217
------ ------ ------
Total ........................................ $8,524 $7,689 $6,941
====== ====== ======
Capital Expenditures
Pharmaceutical and nutritional.............. $ 478 $ 475 $ 502
Hospital and laboratory..................... 447 474 500
General corporate........................... 4 4 5
------ ------ ------
Total ........................................ $ 929 $ 953 $1,007
====== ====== ======
Depreciation and Amortization
Pharmaceutical and nutritional.............. $ 213 $ 189 $ 161
Hospital and laboratory..................... 295 292 264
General corporate........................... 3 3 3
------ ------ ------
Total ........................................ $ 511 $ 484 $ 428
====== ====== ======
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Geographic Areas (a) 1994 1993 1992
------ ------ ------
Net Sales
United States:
Domestic and export customers............. $5,758 $5,347 $4,918
Inter-area................................ 1,143 932 930
------ ------ ------
Total United States......................... 6,901 6,279 5,848
Latin America............................... 490 413 339
Europe, Mideast and Africa.................. 1,662 1,554 1,649
Pacific, Far East and Canada................ 1,246 1,094 946
Eliminations................................ (1,143) (932) (930)
------ ------ ------
Total......................................... $9,156 $8,408 $7,852
====== ====== ======
Operating Profit (b) and (c)
United States............................... $1,558 $1,390 $1,114
Latin America............................... 131 106 70
Europe, Mideast and Africa.................. 352 301 260
Pacific, Far East and Canada................ 182 189 143
Eliminations................................ (20) 19 (5)
------ ------ ------
Total......................................... $2,203 $2,005 $1,582
====== ====== ======
Identifiable Assets,
Excluding General Corporate Assets (e)
United States............................... $4,809 $4,492 $4,017
Latin America............................... 274 228 188
Europe, Mideast and Africa.................. 1,298 1,096 1,089
Pacific, Far East and Canada................ 827 703 627
Eliminations................................ (197) (177) (197)
------ ------ ------
Total......................................... $7,011 $6,342 $5,724
====== ====== ======
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(a) Net sales and operating profit were not significantly impacted by the
fluctuations in the U.S. dollar in 1994. In 1993, net sales and operating
profit were unfavorably affected by the relatively stronger U.S. dollar,
while 1992 was favorably affected by the relatively weaker U.S. dollar.
(b) The 1992 operating profit was unfavorably impacted by the pretax charge
of $215 for costs associated with the voluntary withdrawal of temafloxacin
from the worldwide market. The 1993 operating profit was favorably
impacted by the $70 pretax credit resulting from resolution of various
contingencies related to the withdrawal. The operating profit for 1993
was unfavorably impacted by the $104 pretax charge reflecting the
settlement of certain claims and legal proceedings in connection with the
sale and marketing of infant formula products. In 1994, a similar pretax
amount was charged against earnings for other pending and settled
litigation.
(c) The 1993 operating profit was favorably impacted by the gain on the sale
of the peritoneal dialysis product line.
(d) Corporate expenses not allocated to segments include results from joint
ventures, minority interest expenses, net foreign exchange losses, and
other general corporate income and expense. Net foreign exchange losses
were $30.8 in 1994, $41.3 in 1993, and $93.2 in 1992.
(e) General corporate assets are principally prepaid income taxes, cash and
cash equivalents, investment securities, and investments in joint
ventures.
Abbott Laboratories and Subsidiaries
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Abbott Laboratories:
We have audited the accompanying consolidated balance sheet of Abbott
Laboratories (an Illinois corporation) and Subsidiaries as of December 31, 1994,
1993, and 1992, and the related consolidated statements of earnings,
shareholders' investment, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Abbott Laboratories and
Subsidiaries as of December 31, 1994, 1993, and 1992, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
Chicago, Illinois,
January 13, 1995 Arthur Andersen LLP
Abbott Laboratories and Subsidiaries
AUDIT COMMITTEE CHAIRMAN'S REPORT
The Audit Committee of the Board of Directors is composed of six non-
employee directors. The Audit Committee oversees the Company's financial
reporting process on behalf of the Board of Directors. The Committee held two
meetings during 1994. In fulfilling its responsibility, the Committee
recommended to the Board of Directors, subject to shareholder approval, the
selection of the Company's independent public accountants. The Audit Committee
discussed with the internal auditors and the independent public accountants the
overall scope and specific plans for their respective audits. The Committee
also discussed the Company's consolidated financial statements and the adequacy
of the Company's internal controls. During the Audit Committee meetings the
Committee met with the internal auditors and independent public accountants,
without management present, to discuss the results of their audits, their
evaluations of the Company's internal controls, and the overall quality of the
Company's financial reporting. The meetings also were designed to facilitate
any private communication with the Committee desired by the internal auditors or
independent public accountants.
John R. Walter
Chairman, Audit Committee
Abbott Laboratories and Subsidiaries
MANAGEMENT REPORT ON FINANCIAL STATEMENTS
Management has prepared and is responsible for the Company's consolidated
financial statements and related notes. They have been prepared in accordance
with generally accepted accounting principles and necessarily include amounts
based on judgments and estimates by management. All financial information in
this annual report is consistent with the consolidated financial statements.
The Company maintains internal accounting control systems and related
policies and procedures designed to provide reasonable assurance that assets are
safeguarded, that transactions are executed in accordance with management's
authorization and properly recorded, and that accounting records may be relied
upon for the preparation of consolidated financial statements and other
financial information. The design, monitoring, and revision of internal
accounting control systems involve, among other things, management's judgment
with respect to the relative cost and expected benefits of specific control
measures. The Company also maintains an internal auditing function which
evaluates and formally reports on the adequacy and effectiveness of internal
accounting controls, policies, and procedures.
The Company's consolidated financial statements have been audited by
independent public accountants who have expressed their opinion with respect to
the fairness of these statements.
Duane L. Burnham
Chairman and Chief Executive Officer
Gary P. Coughlan
Senior Vice President, Finance and Chief Financial Officer
Theodore A. Olson
Vice President and Controller
Abbott Laboratories and Subsidiaries
FINANCIAL REVIEW
RESULTS OF OPERATIONS
SALES
The following table details the components of sales growth by industry segment
and geographic area for the last three years:
Total % Components of Change (%)
Worldwide Sales Change Price Volume Exchange
--------------- ------- ----- ------ --------
Total Worldwide
1994 vs. 1993.......... 8.9 0.8 8.0 0.1
1993 vs. 1992.......... 7.1 0.9 8.6 (2.4)
1992 vs. 1991.......... 14.2 2.9 10.6 0.7
Domestic
1994 vs. 1993.......... 7.6 1.0 6.6 -
1993 vs. 1992.......... 8.7 0.6 8.1 -
1992 vs. 1991.......... 13.1 3.5 9.6 -
International
1994 vs. 1993.......... 11.1 0.5 10.4 0.2
1993 vs. 1992.......... 4.5 1.4 9.5 (6.4)
1992 vs. 1991.......... 16.0 1.8 12.5 1.7
Pharmaceutical and
Nutritional Products
- ----------------------
Total Worldwide
1994 vs. 1993.......... 12.8 1.8 11.1 (0.1)
1993 vs. 1992.......... 9.0 1.7 9.2 (1.9)
1992 vs. 1991.......... 14.6 5.3 9.2 0.1
Domestic
1994 vs. 1993.......... 10.8 1.8 9.0 -
1993 vs. 1992.......... 10.2 1.0 9.2 -
1992 vs. 1991.......... 14.5 5.6 8.9 -
International
1994 vs. 1993.......... 17.2 1.9 15.6 (0.3)
1993 vs. 1992.......... 6.5 3.4 9.2 (6.1)
1992 vs. 1991.......... 14.7 3.3 11.0 0.4
Abbott Laboratories and Subsidiaries
FINANCIAL REVIEW (CONTINUED)
Hospital and Total % Components of Change (%)
Laboratory Products Change Price Volume Exchange
- --------------------- ------- ----- ------ --------
Total Worldwide
1994 vs. 1993.......... 4.6 (0.4) 4.7 0.3
1993 vs. 1992.......... 5.0 - 8.0 (3.0)
1992 vs. 1991.......... 13.7 1.0 11.5 1.2
Domestic
1994 vs. 1993.......... 3.1 (0.2) 3.3 -
1993 vs. 1992.......... 6.6 0.1 6.5 -
1992 vs. 1991.......... 11.2 1.1 10.1 -
International
1994 vs. 1993.......... 6.5 (0.6) 6.5 0.6
1993 vs. 1992.......... 3.0 (0.1) 9.8 (6.7)
1992 vs. 1991.......... 17.0 0.8 13.5 2.7
Sales of new products in the pharmaceutical and nutritional segment and the
hospital and laboratory segment in 1994 are estimated to be $190 million and
$305 million, respectively. Sales in international markets represented
approximately 38 percent of worldwide sales.
Abbott Laboratories and Subsidiaries
FINANCIAL REVIEW
The classes of products which contributed at least 10 percent to
consolidated net sales in at least one of the last three years were:
(dollars in millions) 1994 1993 1992
------ ------ ------
Infant Formula................................... $1,180 $1,147 $1,075
Fluids and Equipment............................. 853 836 924
Medical Nutritionals............................. 1,011 864 760
Anti-Infectives.................................. 994 784 685
Worldwide sales of infant formula increased in 1994 primarily due to net price
increases, and in 1993 primarily due to unit growth. Fluids and equipment sales
increased in 1994 primarily due to unit growth, and decreased in 1993 due to the
sale of a product line. Increases in medical nutritionals and anti-infectives
were primarily due to unit increases.
OPERATING EARNINGS
Gross profit margins (sales less cost of products sold, including freight and
distribution expenses) were 56.4 percent of sales in 1994, 56.2 percent in 1993,
and 55.4 percent in 1992. Productivity improvements, favorable product mix and
net price increases in some product lines offset the impacts of inflation and
competitive pricing pressures in other product lines. Fluctuations in the U.S.
dollar had an insignificant impact on gross profit margins in 1994. In 1993,
gross profit margins were unfavorably impacted by the relatively stronger U.S.
dollar while 1992 was favorably affected by the relatively weaker U.S. dollar.
In the U.S., states receive price rebates from manufacturers of infant formula
under the federally subsidized Special Supplemental Food Program for Women,
Infants, and Children (WIC). The WIC rebate programs continue to have a
negative effect on the gross profit margins of this portion of the infant
formula business.
Research and development expense increased to $964 million in 1994, and
represented 10.5 percent of net sales in 1994 and 1993, and 9.8 percent of net
sales in 1992. Research and development expenditures continue to be
concentrated on diagnostic and pharmaceutical products.
Abbott Laboratories and Subsidiaries
FINANCIAL REVIEW (CONTINUED)
Selling, general and administrative expenses increased 3.3 percent in 1994,
compared to increases of 8.5 percent in 1993, and 21.1 percent in 1992. The
1994 increase reflects a higher level of selling and marketing to support
pharmaceutical and nutritional new product launches. The 1993 increase reflects
a pretax charge to earnings of approximately $104 million for the settlement of
certain claims and legal proceedings in connection with the sale and marketing
of infant formula products. A similar amount was charged against earnings in
1994 for other pending and settled litigation. The 1992 increase resulted from
higher levels of selling and marketing expenditures for support of
pharmaceutical and diagnostic new product launches.
In June 1992, the Company voluntarily withdrew from the worldwide market
its quinolone anti-infective, temafloxacin, and recorded a pretax charge of
$215 million for costs associated with this withdrawal. In 1993, the Company
resolved various contingencies relative to the temafloxacin withdrawal and
recorded a pretax credit to earnings of $70 million for these items.
NON-OPERATING (INCOME) EXPENSE
Other (income) expense, net, includes net foreign exchange losses of $30.8
million in 1994, $41.3 million in 1993, and $93.2 million in 1992, including net
exchange (gains) losses on foreign currency contracts. These contracts were
purchased to manage the Company's exposure to foreign currency rate changes.
Other (income) expense, net, also includes the Company's share of the income
from joint ventures, primarily TAP Pharmaceuticals Inc., and, in 1993, the gain
on the sale of the Company's peritoneal dialysis product line.
In May 1992, the Company sold its 20 percent investment in Boston Scientific
Corporation for a pretax gain of $272 million. Net proceeds from the sale were
used toward the purchase of eight million shares of the Company's common stock.
Abbott Laboratories and Subsidiaries
FINANCIAL REVIEW (CONTINUED)
TAXES ON EARNINGS
The Company's effective income tax rate for 1994 was 30.0 percent, compared to
28.0 percent for 1993 and 28.7 percent for 1992. The 1994 tax rate was impacted
by the reduction in tax incentive grants for Puerto Rico operations. The 1993
tax rate was impacted by the increase in the statutory U.S. Federal income tax
rate.
FINANCIAL CONDITION
CASH FLOW
The Company expects positive cash flow from operating activities to continue to
approximate or exceed the Company's capital expenditures and cash dividends.
DEBT AND CAPITAL
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 December 31, 1994. These lines of credit support domestic
commercial paper borrowing arrangements.
Abbott Laboratories and Subsidiaries
FINANCIAL REVIEW (CONTINUED)
In 1993, the Company filed a registration statement with the Securities and
Exchange Commission for the issuance of $500 million of senior debt securities
and issued $200 million of 5.6% notes due 2003. Net proceeds were used to
retire short-term borrowings and for the purchase of the Company's common
shares. The Company may issue up to an additional $300 million of debt
securities in the future under this registration statement.
During the last three years, the Company purchased 58,080,000 of its common
shares at a cost of $1.689 billion, including 6,630,000 shares of the 20,000,000
shares authorized for purchase by the Board of Directors in September 1994.
CAPITAL EXPENDITURES
Capital expenditures of $929 million in 1994, $953 million in 1993, and $1.0
billion in 1992, were principally for upgrading and expanding manufacturing and
research and development facilities in both segments and for administrative
support facilities. This level of capital expenditures is expected to continue
over the next few years, with a relatively equal proportion dedicated to each
segment.
BUSINESS ACQUISITION
In December, 1994 a United Kingdom subsidiary of the Company purchased the
operating assets of the nutritional business of Puleva Union Industrial y
Agroganadera, S.A. for $106 million. This acquisition will allow the Company to
strengthen its market position in Spain and in other countries in southern
Europe. Had this acquisition taken place on January 1, 1994, consolidated sales
and income would not have been significantly different from reported amounts.
Abbott Laboratories and Subsidiaries
FINANCIAL REVIEW (CONTINUED)
LEGISLATIVE ISSUES
The Company's primary markets are highly competitive and subject to substantial
government regulation and the trend is toward more stringent regulation. The
Company expects debate to continue during 1995 at both the federal and the state
level over the availability, method of delivery, and payment for health care
products and services. The Company believes that if legislation is enacted, it
could have the effect of reducing prices, or reducing the rate of price
increases, for health and medical insurance and medical 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.
Exhibit 13
Abbott Laboratories and Subsidiaries
SUMMARY OF SELECTED FINANCIAL DATA
Year Ended December 31
(Dollars in Millions Except Per Share Data)
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
Summary of Operations:
Net sales................................ $9,156.0 8,407.8 7,851.9 6,876.6 6,158.7
Cost of products sold.................... $3,993.8 3,684.7 3,505.3 3,140.0 2,910.1
Research and development................. $ 963.5 881.0 772.4 666.3 567.0
Selling, general and administrative...... $2,054.5 1,988.2 1,833.2 1,513.3 1,275.6
Operating earnings (1)................... $2,144.2 1,924.0 1,526.0 1,557.0 1,406.0
Interest expense......................... $ 49.7 54.3 53.0 63.8 91.4
Interest and dividend income............. $ (36.9) (37.8) (42.3) (45.1) (51.6)
Other (income) expense, net.............. $ (35.3) (35.7) 48.5 (5.9) 15.5
Earnings before taxes (2)................ $2,166.7 1,943.2 1,738.8 1,544.2 1,350.7
Taxes on earnings........................ $ 650.0 544.1 499.7 455.5 384.9
Earnings before extraordinary gain and
accounting change (3).................. $1,516.7 1,399.1 1,239.1 1,088.7 965.8
Earnings per common share before extra-
ordinary gain and accounting change (3) $ 1.87 1.69 1.47 1.27 1.11
Financial Position:
Working capital.......................... $ 400.5 490.6 449.2 661.7 460.0
Investment securities maturing
after one year......................... $ 316.2 221.8 270.6 340.2 314.0
Net property and equipment............... $3,920.9 3,511.0 3,099.2 2,662.1 2,375.8
Total assets............................. $8,523.7 7,688.6 6,941.2 6,255.3 5,563.2
Long-term debt........................... $ 287.1 306.8 110.0 125.1 134.8
Shareholders' investment................. $4,049.4 3,674.9 3,347.6 3,203.0 2,833.6
Return on shareholders' investment....... % 39.3 39.8 37.8 36.1 34.7
Book value per share..................... $ 5.04 4.48 4.00 3.77 3.30
Other Statistics:
Gross profit margin...................... % 56.4 56.2 55.4 54.3 52.7
Research and development to net sales.... % 10.5 10.5 9.8 9.7 9.2
Capital expenditures..................... $ 929.5 952.7 1,007.2 732.8 629.5
Cash dividends declared per common share. $ .76 .68 .60 .50 .42
Common shares outstanding (in thousands). 803,280 821,130 836,052 850,530 858,282
Number of common shareholders............ 86,324 82,947 75,703 56,541 49,827
Number of employees...................... 49,464 49,659 48,118 45,694 43,770
Sales per employee (in dollars).......... $185,105 169,312 163,180 150,492 140,706
Market price per share-high.............. $ 34 30 7/8 34 1/8 34 3/4 23 1/8
Market price per share-low............... $ 25 3/8 22 5/8 26 1/8 19 5/8 15 5/8
Market price per share-close............. $ 32 5/8 29 5/8 30 3/8 34 3/8 22 1/2
Abbott Laboratories and Subsidiaries
SUMMARY OF SELECTED FINANCIAL DATA (CONTINUED)
Year Ended December 31
(Dollars in Millions Except Per Share Data)
1989 1988 1987 1986 1985
-------- -------- -------- -------- --------
Summary of Operations:
Net sales................................ $5,379.8 4,937.0 4,387.9 3,807.6 3,360.3
Cost of products sold.................... $2,556.7 2,353.2 2,101.9 1,868.4 1,694.9
Research and development................. $ 501.8 454.6 361.3 284.9 240.6
Selling, general and administrative...... $1,100.2 1,027.2 919.0 775.7 687.7
Operating earnings....................... $1,221.1 1,102.0 1,005.7 878.6 737.1
Interest expense......................... $ 74.4 85.0 77.6 86.3 98.1
Interest and dividend income............. $ (73.8) (69.4) (56.7) (63.1) (76.0)
Other (income) expense, net.............. $ 26.3 30.9 47.7 36.7 20.5
Earnings before taxes.................... $1,194.2 1,055.5 937.1 818.7 694.5
Taxes on earnings........................ $ 334.4 303.5 304.5 278.2 229.2
Earnings before extraordinary gain and
accounting change...................... $ 859.8 752.0 632.6 540.5 465.3
Earnings per common share before extra-
ordinary gain and accounting change.... $ .96 .83 .69 .58 .48
Financial Position:
Working capital.......................... $ 719.2 913.3 668.7 585.4 891.9
Investment securities maturing
after one year......................... $ 300.0 285.7 292.9 254.2 281.1
Net property and equipment............... $2,090.2 1,952.6 1,741.6 1,543.3 1,368.5
Total assets............................. $4,851.6 4,825.1 4,385.7 3,865.6 3,468.4
Long-term debt........................... $ 146.7 349.3 271.0 297.4 443.0
Shareholders' investment................. $2,726.4 2,464.6 2,093.5 1,778.9 1,870.7
Return on shareholders' investment....... % 33.1 33.0 32.7 29.6 26.8
Book value per share..................... $ 3.08 2.74 2.31 1.94 1.96
Other Statistics:
Gross profit margin...................... % 52.5 52.3 52.1 50.9 49.6
Research and development to net sales.... % 9.3 9.2 8.2 7.5 7.2
Capital expenditures..................... $ 501.5 521.2 432.7 383.4 292.9
Cash dividends declared per common share. $ .35 .30 .25 .21 .175
Common shares outstanding (in thousands). 884,958 899,384 906,924 915,356 956,764
Number of common shareholders............ 45,361 46,324 45,822 40,387 34,923
Number of employees...................... 40,929 38,751 37,828 35,754 34,742
Sales per employee (in dollars).......... $131,441 127,403 115,995 106,495 96,721
Market price per share-high.............. $ 17 5/8 13 1/8 16 3/4 13 3/4 9
Market price per share-low............... $ 11 1/2 10 3/4 10 7 7/8 5
Market price per share-close............. $ 17 12 12 11 3/8 8 1/2
Abbott Laboratories and Subsidiaries
SUMMARY OF SELECTED FINANCIAL DATA (CONTINUED)
Year Ended December 31
(Dollars in Millions Except Per Share Data)
1984
--------
Summary of Operations:
Net sales................................ $3,104.0
Cost of products sold.................... $1,565.4
Research and development................. $ 218.7
Selling, general and administrative...... $ 643.4
Operating earnings ...................... $ 676.5
Interest expense......................... $ 94.2
Interest and dividend income............. $ (70.5)
Other (income) expense, net.............. $ 6.6
Earnings before taxes ................... $ 646.2
Taxes on earnings........................ $ 243.6
Earnings before extraordinary gain and
accounting change ..................... $ 402.6
Earnings per common share before extra-
ordinary gain and accounting change ... $ .42
Financial Position:
Working capital.......................... $ 743.3
Investment securities maturing
after one year......................... $ 327.4
Net property and equipment............... $1,236.6
Total assets............................. $3,170.4
Long-term debt........................... $ 470.2
Shareholders' investment................. $1,602.7
Return on shareholders' investment....... % 26.7
Book value per share..................... $ 1.67
OTHER STATISTICS:
Gross profit margin...................... % 49.6
Research and development to net sales.... % 7.0
Capital expenditures..................... $ 334.8
Cash dividends declared per common share. $ .15
Common shares outstanding (in thousands). 961,876
Number of common shareholders............ 34,963
Number of employees...................... 33,668
Sales per employee (in dollars).......... $ 92,193
Market price per share-high.............. $ 6 1/8
Market price per share-low............... $ 4 5/8
Market price per share-close............. $ 5 1/8
Abbott Laboratories and Subsidiaries
SUMMARY OF SELECTED FINANCIAL DATA (CONTINUED)
Year Ended December 31
(Dollars in Millions Except Per Share Data)
(1) In 1992, the Company recorded a pretax charge of $215 for costs associated
with the voluntary withdrawal of temafloxacin from the worldwide market.
In 1993, the Company resolved various contingencies related to the
withdrawal and recorded a pretax credit of $70.
(2) In 1992, the Company recorded a pretax gain of $272 on the sale of its
investment in Boston Scientific Corporation.
(3) In 1991, the Company realized an after-tax gain of $128, or $.15 per share,
on the sale of an investment. The Company also adopted Statement of
Financial Accounting Standards No. 106, which resulted in an after-tax
transition expense of $128, or $.15 per share.