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
OR
For the quarterly period ended September 30, 1997
/ / 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) 937-6100
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 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 October 31, 1997, the Corporation had 764,882,531 common shares without
par value standing.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company's 10-Q for the fiscal quarter ended June 30, 1997,
described 4 antitrust suits and 5 investigations that had been brought in
connection with the Company's marketing and sale of infant formula products.
The Company has previously reported that it has entered into a settlement
agreement with plaintiffs involving the cases pending in Alabama and
Louisiana and that the settlement was subject to approval by the individual
state courts. The Alabama court gave its final approval on October 6, 1997.
The Louisiana court has denied final approval and that case will proceed. An
infant formula case is also pending in state court in St. Louis, Missouri.
It purports to be a statewide consumer class action. The case seeks treble
damages, civil penalties, injunctive and other relief. Another infant
formula antitrust case is pending in U.S. District Court in Massachusetts.
It also purports to be a statewide consumer class action. An agreement has
been reached to resolve this case for $1.5 million. The court is considering
final approval of the settlement. As of October 6, 1997, 3 antitrust suits
and 5 investigations are pending in connection with the Company's sale and
marketing of infant formula products.
The Company's 10-Q for the fiscal quarter ended June 30, 1997,
described 146 antitrust suits and two investigations (as of July 28, 1997) in
connection with the Company's pricing of prescription pharmaceuticals. As of
October 23, 1997, 122 prescription pharmaceutical pricing antitrust cases
were pending in federal court, 23 were pending in various 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. State courts in Maine, Michigan and Minnesota
have refused to certify those cases as consumer class actions. The plaintiffs
in Maine and Michigan have appealed those decisions. The plantiffs in
Minnesota sought appellate review of the class certification decision and
such review was denied. The Company has previously reported that a number of
appeals to the Seventh Circuit Court of Appeals had been filed arising out of
the MDL 997 litigation. These appeals were decided by the Court of Appeals
on August 15, 1997. The Court of Appeals reversed the trial court's
dismissals of defendants Du Pont Merck and the wholesalers. The manufacturers'
appeal of the trial court's decision not to dismiss the damage claims for
indirect purchases was granted. As a result of this ruling and the decision
regarding the wholesalers, the plaintiffs must prove at trial that the
wholesalers were members of the alleged conspiracy before the plaintiffs can
recover damages for indirect purchases. The Court of Appeals also ruled that
the HUGGINS case, orginally filed in Alabama state court, but removed to
federal court and consolidated into the multidistrict litigation, should be
returned to Alabama state court. The stay of the litigation, pending appeal,
has now been eliminated.
On October 24, 1997, after having been notified that TorPharm, a
division of Apotex, Inc. ("TorPharm") had applied to the Federal Food and
Drug Administration (the "FDA") for approval for a generic version of
divalproex sodium, a drug that the Company sells under the trade name
DEPAKOTE-Registered Trademark-, the Company sued TorPharm in the United
States District Court for the Northern District of Illinois alleging patent
infringement. TorPharm contends that its product does not infringe the
Company's patents and that one of the patents is invalid. The Company is
involved in one other proceeding involving the Company's patents for
divalproex sodium. On August 28, 1992, after having been notfied that Alra
Laboratories, Inc. ("Alra") had applied to the FDA for approval for a generic
version of divalproex sodium, the Company sued Alra in the United States
District Court for the Northern District of Illinois alleging patent
infringement. Alra filed counterclaims alleging that the Company fraudulently
delayed Alra's entry into the market for divalproex sodium and seeking
millions of dollars in damages. Alra contended that its product did not
infringe the Company's patents and that, in any event, those patents were
invalid. Alra filed motions for summary judgement on the issues of
infringement and validity. The Company filed a motion for summary judgment on
the issue of infringement. On October 20, 1997, the court granted the
Company's motion for summary judgment and found that Alra's product infringes
the Company's patents. The court denied Alra's motions for summary judgment
on the issues of infringement and patent invalidity.
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 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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
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
/s/ Theodore A. Olson
Date: November 12 , 1997 --------------------------------
Theodore A. Olson, Vice President
and Controller (Principal
Accounting Officer)
PART I 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 NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------- -------------------------
1997 1996 1997 1996
--------- ---------- ---------- ----------
Net Sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,865,184 $2,646,194 $8,765,406 $8,017,611
---------- ---------- ---------- ----------
Cost of products sold. . . . . . . . . . . . . . . . . . . . . . 1,241,842 1,177,247 3,786,216 3,477,411
Research and development . . . . . . . . . . . . . . . . . . . . 326,797 278,970 927,019 852,432
Selling, general and administrative. . . . . . . . . . . . . . . 675,062 615,269 1,982,663 1,786,481
---------- ---------- ---------- ----------
Total Operating Cost and Expenses. . . . . . . . . . . . . . . 2,243,701 2,071,486 6,695,898 6,116,324
---------- ---------- ---------- ----------
Operating Earnings . . . . . . . . . . . . . . . . . . . . . . . 621,483 574,708 2,069,508 1,901,287
---------- ---------- ---------- ----------
Interest expense. . . . . . . . . . . . . . . . . . . . . . . . 33,470 28,195 97,612 68,030
Interest income . . . . . . . . . . . . . . . . . . . . . . . . (12,146) (10,930) (35,537) (31,606)
Other (income) expense, net. . . . . . . . . . . . . . . . . . . (53,301) (39,560) (144,403) (80,412)
---------- ---------- ---------- ----------
Earnings Before Taxes. . . . . . . . . . . . . . . . . . . . . . 653,460 597,003 2,151,836 1,945,275
Taxes on Earnings. . . . . . . . . . . . . . . . . . . . . . . . 182,011 176,116 624,032 573,856
---------- ---------- ---------- ----------
Net Earnings . . . . . . . . . . . . . . . . . . . . . . . . . . $ 471,449 $ 420,887 $1,527,804 $1,371,419
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net Earnings Per Common Share. . . . . . . . . . . . . . . . . . $.61 $.54 $1.98 $1.75
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Cash Dividends Declared
Per Common Share . . . . . . . . . . . . . . . . . . . . . . . $.27 $.24 $.81 $.72
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
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)
SEPTEMBER 30 DECEMBER 31
1997 1996
------------ -----------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 129,404 $ 110,209
Investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36,180 12,875
Trade Receivables, less allowances of $166,768 in 1997
and $153,424 in 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,700,113 1,708,807
Inventories:
Finished products. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 610,444 627,449
Work in process. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 288,986 269,443
Materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352,991 341,313
----------- -----------
Total Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,252,421 1,238,205
Prepaid expenses, income taxes, and other receivables . . . . . . . . . . . . . . . . . . 1,534,975 1,410,806
----------- -----------
Total Current Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,653,093 4,480,902
----------- -----------
Investment Securities Maturing after One Year. . . . . . . . . . . . . . . . . . . . . . . . . 616,802 665,553
----------- -----------
Property and Equipment, at Cost. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,656,445 8,370,283
Less: accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . 4,153,953 3,908,740
----------- -----------
Net Property and Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,502,492 4,461,543
Deferred Charges, Intangible and Other Assets. . . . . . . . . . . . . . . . . . . . . . . . . 1,803,610 1,517,602
----------- -----------
$11,575,997 $11,125,600
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Short-term borrowings and current portion of long-term debt . . . . . . . . . . . . . . . $ 1,637,794 $ 1,383,727
Trade accounts payable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 819,885 923,018
Salaries, income taxes, dividends payable, and other accruals . . . . . . . . . . . . . 2,263,473 2,036,972
----------- -----------
Total Current Liabilities. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,721,152 4,343,717
----------- -----------
Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 939,485 932,898
----------- -----------
Other Liabilities and Deferrals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,073,068 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: 775,061,356; 1996: 784,037,858 . . . . . . . . . . . . . . . . . . . . 802,682 694,380
Earnings employed in the business. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,365,629 4,262,804
Cumulative translation adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (250,212) (78,770)
----------- -----------
4,918,099 4,878,414
Less:
Common shares held in treasury, at cost -
Shares: 1997: 9,140,902; 1996: 9,588,632. . . . . . . . . . . . . . . . . . . . . . . . . 48,242 50,605
Unearned compensation - restricted stock awards. . . . . . . . . . . . . . . . . . . . . . . . 27,565 7,627
----------- -----------
Total Shareholders' Investment. . . . . . . . . . . . . . . . . . . . . . . . . . 4,842,292 4,820,182
----------- -----------
$11,575,997 $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)
NINE MONTHS ENDED SEPTEMBER 30
1997 1996
---------- ----------
Cash Flow From (Used in) Operating Activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,527,804 $1,371,419
Adjustments to reconcile net earnings to
net cash from operating activities -
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 547,044 508,059
Trade receivables. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (120,783) 18,495
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (64,723) (105,848)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120,869 19,419
---------- ----------
Net Cash From Operating Activities. . . . . . . . . . . . . . . . . . . . . . . . . . 2,010,211 1,811,544
---------- ----------
Cash Flow From (Used in) Investing Activities:
Acquisitions of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . (732,388) (681,573)
Acquisition of Sanofi's parenteral products
businesses in 1997, and Medisense in 1996,
net of cash acquired. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (201,030) (815,290)
Investment securities transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,515 (85,186)
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,088) 19,118
---------- ----------
Net Cash (Used in) Investing Activities . . . . . . . . . . . . . . . . . . . . . . . (921,991) (1,562,931)
---------- ----------
Cash Flow From (Used in) Financing Activities:
Borrowing transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 274,128 649,052
Common share transactions. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (732,687) (493,058)
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (602,723) (541,439)
---------- ----------
Net Cash (Used in) Financing Activities . . . . . . . . . . . . . . . . . . . . . . . (1,061,282) (385,445)
---------- ----------
Effect of exchange rate changes on cash and
cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,743) (4,469)
---------- ----------
Net Increase (Decrease) in Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . . . . 19,195 (141,301)
Cash and Cash Equivalents, Beginning of Year . . . . . . . . . . . . . . . . . . . . . . . . . 110,209 281,197
---------- ----------
Cash and Cash Equivalents, End of Period . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 129,404 $ 139,896
---------- ----------
---------- ----------
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
SEPTEMBER 30, 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 771,467,000 for the
nine months ended September 30, 1997 and 782,915,000 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.
During the third quarter, the effective income tax rate was reduced from 29.5%
to 29%, primarily as a result of provisions of The Taxpayer Relief Act of 1997.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 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 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 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 - ACQUISITIONS:
On April 29, 1997, the Company acquired certain parenteral products
businesses of Sanofi Pharmaceuticals, Inc., for approximately $200 million in
cash. A substantial portion of the purchase price was allocated to
intangible assets, including goodwill, which will be amortized on a
straight-line basis over 15 years. Had this acquisition taken place on
January 1, 1996, consolidated sales and net income would not have been
significantly different from reported amounts.
In May 1996, the Company acquired all of the outstanding shares of MediSense,
Inc., a manufacturer of blood glucose self-testing products, for approximately
$867 million in cash. A substantial portion of the purchase price was allocated
to intangible assets which are being amortized over 25 to 40 years.
6
FINANCIAL REVIEW
RESULTS OF OPERATIONS - THIRD QUARTER AND FIRST NINE MONTHS 1997 COMPARED WITH
SAME PERIODS IN 1996
Worldwide sales for the third quarter and first nine months increased
8.3 percent and 9.3 percent, respectively, over the comparable 1996 periods.
Net earnings increased 12.0 percent and 11.4 percent, respectively, in the third
quarter and first nine months 1997. Earnings per share increased 13.0 percent
and 13.1 percent, respectively, over the prior year periods.
Gross profit margin (sales less cost of products sold, including freight and
distribution expenses) was 56.7 percent for the 1997 third quarter, compared to
55.5 percent for the 1996 third quarter. This increase is due primarily to
productivity and cost improvements. First nine months gross margin was
56.8 percent, compared to 56.6 percent a year earlier. Higher royalties,
project expense, and the effect of the relatively stronger U. S. dollar had a
negative effect on gross profit margins for both periods.
Research and development expenses were $326.8 million and $927.0 million for the
third quarter and first nine months 1997, respectively. Research and
development represented 11.4 percent and 10.6 percent of net sales in the third
quarter and first nine months 1997, compared to 10.5 percent and 10.6 percent
for the same periods 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 third quarter and first
nine months 1997 increased 9.7 percent and 11.0 percent, respectively, over the
comparable prior year periods, net of the favorable effect of the relatively
stronger U. S. dollar of 3.4% and 3.0%, respectively. The net increases reflect
additional selling and marketing support for new and existing products,
primarily for pharmaceutical and nutritional products, and for the nine months
1997, due to the acquisition of MediSense in the second quarter of 1996.
Other (income) expense, net, includes net foreign exchange gains of $4.3 million
and $11.2 million for the third quarter and first nine months 1997,
respectively, compared with net foreign exchange losses of $4.5 million and
$17.7 million for the corresponding prior year periods.
7
FINANCIAL REVIEW
(Continued)
INDUSTRY SEGMENTS
Industry segment sales for the third quarter and first nine months 1997 and the
related change from the comparable 1996 periods 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 third quarter and first nine months
1997 primarily reflect unit growth. International sales were unfavorably
affected 7.9 percent by the relatively stronger U.S. dollar in the third
quarter. On a year-to-date basis, international sales were unfavorably
affected 6.9 percent by the relatively stronger U.S. dollar.
Third Quarter Nine Months
- -------------------------------------------------------------------------------
SEGMENT SALES 1997 Percent 1997 Percent
(in millions of dollars) Sales Change Sales Change
- -------------------------------------------------------------------------------
Pharmaceutical and Nutritional Products:
Domestic $1,075.9 12.5 $3,364.1 12.4
- -------------------------------------------------------------------------------
International 550.2 10.2 1,763.8 10.6
- -------------------------------------------------------------------------------
1,626.1 11.7 5,127.9 11.8
Hospital and Laboratory Products:
Domestic 706.3 9.0 2,038.8 10.6
- -------------------------------------------------------------------------------
International 532.8 (1.7) 1,598.7 0.7
- -------------------------------------------------------------------------------
1,239.1 4.1 3,637.5 6.0
Total All Segments:
Domestic 1,782.2 11.1 5,402.9 11.7
- -------------------------------------------------------------------------------
International 1,083.0 4.0 3,362.5 5.7
- -------------------------------------------------------------------------------
$2,865.2 8.3 $8,765.4 9.3
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
8
FINANCIAL REVIEW
(continued)
LIQUIDITY AND CAPITAL RESOURCES AT SEPTEMBER 30, 1997
COMPARED WITH DECEMBER 31, 1996
Net cash from operating activities for the first nine months 1997 totaled
$2.0 billion. 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 funded the acquisition of Sanofi through commercial
paper borrowings.
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 September 30, 1997. These lines of credit back up domestic
commercial paper borrowing arrangements.
During the first nine months 1997, the Company continued its program to purchase
its common shares. The Company purchased and retired 13,307,000 shares during
this period at a cost of $820 million. As of September 30, 1997, an additional
2,358,000 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