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, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ________________
Commission File No. 1-2189
ABBOTT LABORATORIES
An Illinois Corporation I.R.S. Employer Identification
No. 36-0698440
100 Abbott Park Road
Abbott Park, Illinois 60064-3500
Telephone: (847) 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, 1997, the Corporation had 773,510,473 common shares without
par value outstanding.
PART 1 FINANCIAL INFORMATION
ABBOTT LABORATORIES AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
ABBOTT LABORATORIES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
(Dollars in thousands except per share data)
THREE MONTHS ENDED MARCH 31
---------------------------
1997 1996
---------- ----------
Net Sales. . . . . . . . . . . . . . . . . . . . $2,999,814 $2,672,177
---------- ----------
Cost of products sold. . . . . . . . . . . . . . 1,327,331 1,156,217
Research and development . . . . . . . . . . . . 280,074 268,616
Selling, general and administrative. . . . . . . 656,596 572,346
---------- ----------
Total Operating Cost and Expenses. . . . . . . 2,264,001 1,997,179
---------- ----------
Operating Earnings . . . . . . . . . . . . . . . 735,813 674,998
---------- ----------
Interest expense . . . . . . . . . . . . . . . . 32,754 17,607
Interest income. . . . . . . . . . . . . . . . . (11,723) (10,490)
Other (income) expense, net. . . . . . . . . . . (43,836) (13,124)
---------- ----------
Earnings Before Taxes. . . . . . . . . . . . . . 758,618 681,005
Taxes on Earnings. . . . . . . . . . . . . . . . 223,792 200,896
---------- ----------
Net Earnings . . . . . . . . . . . . . . . . . . $ 534,826 $ 480,109
---------- ----------
---------- ----------
Net Earnings Per Common Share. . . . . . . . . . $.69 $.61
---------- ----------
---------- ----------
Cash Dividends Declared
Per Common Share . . . . . . . . . . . . . . . $.27 $.24
---------- ----------
---------- ----------
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
1997 1996
----------- -----------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . . . $ 134,093 $ 110,209
Investment securities. . . . . . . . . . . . . . . . . . . . . . . . . 18,138 12,875
Trade Receivables, less allowances of $160,700 in 1997
and $153,424 in 1996 . . . . . . . . . . . . . . . . . . . . . . . . 1,731,197 1,708,807
Inventories:
Finished products. . . . . . . . . . . . . . . . . . . . . . . . . . 574,409 627,449
Work in process. . . . . . . . . . . . . . . . . . . . . . . . . . . 276,849 269,443
Materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 348,457 341,313
----------- -----------
Total Inventories . . . . . . . . . . . . . . . . . . . . . . . . 1,199,715 1,238,205
Prepaid expenses, income taxes, and other receivables. . . . . . . . . 1,544,295 1,410,806
----------- -----------
Total Current Assets. . . . . . . . . . . . . . . . . . . . . . . 4,627,438 4,480,902
----------- -----------
Investment Securities Maturing after One Year . . . . . . . . . . . . . . 644,894 665,553
----------- -----------
Property and Equipment, at Cost . . . . . . . . . . . . . . . . . . . . . 8,355,593 8,370,283
Less: accumulated depreciation and amortization. . . . . . . . . . . . 3,932,048 3,908,740
----------- -----------
Net Property and Equipment. . . . . . . . . . . . . . . . . . . . 4,423,545 4,461,543
Deferred Charges, Intangible and Other Assets . . . . . . . . . . . . . . 1,504,517 1,517,602
----------- -----------
$11,200,394 $11,125,600
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Short-term borrowings and current portion of long-term debt. . . . . . $ 1,201,912 $ 1,383,727
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . 966,853 923,018
Salaries, income taxes, dividends payable, and other accruals. . . . . 2,208,845 2,036,972
----------- -----------
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . 4,377,610 4,343,717
----------- -----------
Long-Term Debt. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 931,227 932,898
----------- -----------
Other Liabilities and Deferrals . . . . . . . . . . . . . . . . . . . . . 1,035,389 1,028,803
----------- -----------
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 -
Shares: 1997: 782,270,664; 1996: 784,037,858. . . . . . . . . . . 741,200 694,380
Earnings employed in the business . . . . . . . . . . . . . . . . . . . . 4,372,548 4,262,804
Cumulative translation adjustments. . . . . . . . . . . . . . . . . . . . (178,349) (78,770)
----------- -----------
4,935,399 4,878,414
Less:
Common shares held in treasury, at cost -
Shares: 1997: 9,154,632; 1996: 9,588,632 . . . . . . . . . . . . . . . 48,314 50,605
Unearned compensation - restricted stock awards . . . . . . . . . . . . . 30,917 7,627
----------- -----------
Total Shareholders' Investment. . . . . . . . . . . . . . . . . . 4,856,168 4,820,182
----------- -----------
$11,200,394 $11,125,600
----------- -----------
----------- -----------
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
------------------------------
1997 1996
---------- ----------
Cash Flow From (Used in) Operating Activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . $ 534,826 $ 480,109
Adjustments to reconcile net earnings to
net cash from operating activities -
Depreciation and amortization. . . . . . . . . . . . . . . . 176,076 163,308
Trade receivables. . . . . . . . . . . . . . . . . . . . . . (93,688) (4,861)
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . 4,445 (48,893)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . 162,967 94,503
---------- ----------
Net Cash From Operating Activities. . . . . . . . . . . 784,626 684,166
---------- ----------
Cash Flow From (Used in) Investing Activities:
Acquisitions of property, equipment, and businesses. . . . . (220,069) (229,823)
Investment securities transactions . . . . . . . . . . . . . 15,394 14,818
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,857 5,670
---------- ----------
Net Cash (Used in) Investing Activities . . . . . . . . (198,818) (209,335)
---------- ----------
Cash Flow From (Used in) Financing Activities:
Borrowing transactions . . . . . . . . . . . . . . . . . . . (175,842) (374,476)
Common share transactions. . . . . . . . . . . . . . . . . . (189,608) (126,639)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . (185,905) (165,395)
---------- ----------
Net Cash (Used in) Financing Activities . . . . . . . . (551,355) (666,510)
---------- ----------
Effect of exchange rate changes on cash and
cash equivalents . . . . . . . . . . . . . . . . . . . . . . (10,569) (1,596)
---------- ----------
Net Increase (Decrease) in Cash and Cash Equivalents . . . . . . 23,884 (193,275)
Cash and Cash Equivalents, Beginning of Year . . . . . . . . . . 110,209 281,197
---------- ----------
Cash and Cash Equivalents, End of Period . . . . . . . . . . . . $ 134,093 $ 87,922
---------- ----------
---------- ----------
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, 1997
(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, 1996.
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 773,983,000 for the
three months ended March 31, 1997 and 785,836,000 for the same period in 1996.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128 "Earnings per Share" in February 1997. The Company
will adopt the Standard beginning with the year ended 1997. The adoption of
this standard will not have a material effect on the Company's reported earnings
per share.
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, the Dominican Republic, Italy, Ireland, and the Netherlands.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
(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 products and the pricing of prescription
pharmaceuticals.
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.
The Company expects that within the next year, progress in the legal proceedings
described above may cause a change in the estimated reserves recorded by the
Company. 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.
NOTE 5 - SUBSEQUENT EVENT:
On April 29, 1997, the Company signed a definitive agreement to acquire, for
approximately $200 million, certain parenteral products businesses of Sanofi
Pharmaceuticals, Inc. Had this acquisition taken place on January 1, 1996,
consolidated sales and net income would not have been significantly different
from reported amounts.
6
FINANCIAL REVIEW
RESULTS OF OPERATIONS - FIRST QUARTER 1997 COMPARED WITH FIRST QUARTER 1996
Worldwide sales for the first quarter increased 12.3 percent to $3.000 billion
from $2.672 billion in 1996. Net earnings and earnings per share increased
11.4 percent and 13.1 percent, respectively, over the prior year quarter.
Gross profit margin (sales less cost of products sold, including freight and
distribution expenses) of 55.8 percent for the first quarter was down from
56.7 percent one year ago. This decrease was primarily due to higher royalties
and project expense for new products and the effects of inflation; partially
offset by favorable product mix, especially sales of pharmaceuticals, and
productivity improvements.
Research and development expenses increased to $280.1 million in the first
quarter 1997. This represented 9.3 percent of net sales, compared to
10.1 percent in 1996. The majority of research and development expenditures
continues to be concentrated on pharmaceutical and diagnostic products.
Selling, general, and administrative expenses for the first quarter increased
14.7 percent from the prior year as the result of additional selling and
marketing to support new product launches in the pharmaceutical and nutritional
segment, and due to the acquisition of MediSense in the second quarter of 1996.
Other (income) expense, net, includes net foreign exchange gains of
$10.9 million in the 1997 first quarter, compared with net foreign exchange
losses of $9.3 million in the same quarter last year.
7
FINANCIAL REVIEW
(Continued)
INDUSTRY SEGMENTS
Industry segment sales for the first quarter 1997 and the related change from
the comparable 1996 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
consumers, 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 primarily reflect unit
growth. International sales were unfavorably affected 5.5 percent by the
relatively stronger U. S. dollar in the first quarter.
First Quarter
- -------------------------------------------------------------------------------
SEGMENT SALES 1997 Percent
(in millions of dollars) Sales Increase
- -------------------------------------------------------------------------------
Pharmaceutical and Nutritional Products:
Domestic $1,199.4 15.3
- -------------------------------------------------------------------------------
International 626.9 12.1
- -------------------------------------------------------------------------------
1,826.3 14.2
Hospital and Laboratory Products:
Domestic 651.8 13.3
- -------------------------------------------------------------------------------
International 521.7 4.9
- -------------------------------------------------------------------------------
1,173.5 9.4
Total All Segments:
Domestic 1,851.2 14.6
- -------------------------------------------------------------------------------
International 1,148.6 8.7
- -------------------------------------------------------------------------------
$2,999.8 12.3
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
8
FINANCIAL REVIEW
(Continued)
LIQUIDITY AND CAPITAL RESOURCES AT MARCH 31, 1997
COMPARED WITH DECEMBER 31, 1996
Net cash from operating activities for the first quarter 1997 totaled
$785 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
$1.5 billion at March 31, 1997. These lines of credit support domestic
commercial paper borrowing arrangements.
During the first quarter 1997, the Company continued its program to purchase its
common shares. The Company purchased and retired 3,995,000 shares during this
period at a cost of $228 million. As of March 31, 1997, an additional
11,670,000 shares may be purchased in future periods under authorization granted
by the Board of Directors in October 1996.
LEGISLATIVE ISSUES
The Company's primary markets are highly competitive and subject to substantial
government regulation. The Company expects debate to continue at both the
federal and the state levels 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 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.
9
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
- ------- -----------------
The Company's 10-K for the fiscal year ended December 31, 1996,
described 6 antitrust suits and 5 investigations that had been brought in
connection with the Company's marketing and sale of infant formula products.
In its 10-Q for the quarter ended March 31, 1996, the Company reported that
it had entered into a settlement agreement with plaintiffs involving 4 of
these cases and that the settlement was subject to approval by the individual
state courts. On April 29, 1997, the Michigan Court gave final approval to
the settlement. Courts have not yet given their final approval for the cases
pending in Alabama and Nevada. The Louisiana court denied final approval. The
case in Louisiana will proceed. One infant formula antitrust case is also
pending in U.S. District Court in Massachusetts. It purports to be a
statewide consumer class action. An agreement has been reached to resolve
this case for $1.5 million. This agreement is subject to court approval. On
June 19, 1995, a jury in U.S. District Court in Los Angeles, California found
in favor of the Company and the American Academy of Pediatrics in the infant
formula antitrust case brought by Nestle Food Company. The Ninth Circuit
Court of Appeals affirmed the jury's verdict on January 9, 1997, and the
verdict was entered by the U.S. District Court on March 21, 1997. On April
10, 1997, a case was filed in state court in St. Louis, Missouri. It also
purports to be a statewide consumer class action. The case seeks treble
damages, civil penalties, injunctive and other relief. As of April 29, 1997,
5 antitrust suits and 5 investigations are 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, 1996,
described 142 antitrust suits and two investigations (as of January 31, 1997)
in connection with the Company's pricing of prescription pharmaceuticals.
Plaintiffs have filed two additional cases. One of the cases was filed on
January 8, 1997, in federal court. The Company was notified of its filing in
March of 1997. The other was filed on February 24, 1997, in state court in
Davidson County, Tennessee. In addition, the cases pending in Dade County,
Florida and Johnson County, Kansas were removed to the U.S. District Court
for the Northern District of Illinois. As of March 31, 1997, 121 prescription
pharmaceutical pricing antitrust cases were pending in federal court, 22 were
pending in state courts, and 1 was pending in a District of Columbia court.
The prescription pharmaceutical pricing antitrust suits allege that various
pharmaceutical manufacturers have conspired to fix prices for prescription
pharmaceuticals and/or to discriminate in pricing to retail pharmacies by
providing discounts to mail-order pharmacies, institutional pharmacies and
HMOs in violation of state and federal antitrust laws. The suits have been
brought on behalf of individuals and retail pharmacies and name both the
Company and certain other pharmaceutical manufacturers and pharmaceutical
wholesalers and at least one mail-order pharmacy company as defendants. The
cases seek treble damages, civil penalties, injunctive and other relief. The
Company has filed or intends to file a response to each of the complaints
denying all substantive allegations. The federal cases are pending in the
United States District Court for the Northern District of Illinois under the
Multidistrict Litigation Rules as IN RE: BRAND NAME PRESCRIPTION DRUG
ANTITRUST LITIGATION, MDL 997. One of the cases pending in the MDL 997
litigation has been certified as a class action on behalf of certain retail
pharmacies. The cases pending in California and the District of Columbia have
also been certified as class actions. A number of appeals to the Seventh
Circuit Court of Appeals have been filed arising out of the MDL 997
litigation. All litigation in the U.S. District Court for the Northern
District of Illinois is stayed pending the resolution of the appeals.
10
While it is not feasible to predict the outcome of such pending
claims, proceedings, and investigations 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
The Company held its Annual Meeting of Shareholders on April 25, 1997.
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:
Name Votes For Votes Withheld
- ---- --------- --------------
K. Frank Austen, M.D. 667,021,293 3,242,420
Duane L. Burnham 666,168,478 4,095,235
H. Laurance Fuller 667,354,566 2,909,147
Thomas R. Hodgson 667,286,907 2,976,806
David A. Jones 665,603,563 4,660,150
The Lord Owen CH 667,082,744 3,180,969
Boone Powell, Jr. 664,477,110 5,786,603
Addison Barry Rand 667,219,169 3,044,544
W. Ann Reynolds, Ph.D. 665,797,212 4,466,501
William D. Smithburg 666,769,205 3,494,508
John R. Walter 666,366,531 3,897,182
William L. Weiss 666,578,000 3,685,713
(b) The Shareholders ratified the Appointment of Arthur Andersen LLP as
auditors of the Company.
FOR 666,880,250 AGAINST 1,665,296 ABSTAIN 1,718,167
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
- ------- --------------------------------
(a) Exhibits
3. By-Laws of Abbott Laboratories as amended and effective
April 25, 1997.
11. Statement re: computation of per share earnings - attached
hereto.
12. Statement re: computation of ratio of earnings to fixed
charges - attached hereto.
27. Financial Data Schedule - attached hereto.
(b) Reports on Form 8-K
None
11
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 12, 1997 /s/ Theodore A. Olson
---------------------------------
Theodore A. Olson, Vice President
and Controller (Principal
Accounting Officer)
12