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, 1995
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: (708) 937-6100
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, 1995, the Corporation had 798,081,281 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
---------------------------
1995 1994
---------- ----------
Net Sales..................................... $2,524,397 $2,215,248
---------- ----------
Cost of products sold......................... 1,088,911 964,272
Research and development...................... 247,175 226,797
Selling, general and administrative........... 598,832 497,184
---------- ----------
Total Operating Cost and Expenses........... 1,934,918 1,688,253
---------- ----------
Operating Earnings............................ 589,479 526,995
---------- ----------
Interest expense.............................. 13,952 11,496
Interest and dividend income.................. (11,010) (8,430)
Other (income) expense, net................... (5,313) 738
---------- ----------
Earnings Before Taxes......................... 591,850 523,191
Taxes on Earnings............................. 174,596 156,957
---------- ----------
Net Earnings.................................. $ 417,254 $ 366,234
---------- ----------
---------- ----------
Net Earnings Per Common Share................. $.52 $.45
---------- ----------
---------- ----------
Cash Dividends Declared
Per Common Share............................ $.21 $.19
---------- ----------
---------- ----------
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
------------- -----------
1995 1994
------------- -----------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents................................................... $ 184,210 $ 290,272
Investment securities....................................................... 65,842 25,056
Trade Receivables, less allowances of $135,957 in 1995
and $128,929 in 1994...................................................... 1,548,935 1,468,519
Inventories:
Finished products......................................................... 519,553 514,715
Work in process........................................................... 221,106 218,643
Materials................................................................. 264,763 284,833
----------- -----------
Total Inventories...................................................... 1,005,422 1,018,191
Other prepaid expenses, income taxes, and receivables....................... 1,085,426 1,074,290
----------- -----------
Total Current Assets................................................... 3,889,835 3,876,328
----------- -----------
Investment Securities Maturing after One Year.................................... 394,796 316,195
----------- -----------
Property And Equipment, at Cost.................................................. 7,300,354 7,053,604
Less: accumulated depreciation and amortization............................. 3,246,977 3,132,754
----------- -----------
Net Property and Equipment............................................. 4,053,377 3,920,850
Deferred Charges and Other Assets................................................ 413,084 410,351
----------- -----------
$ 8,751,092 $ 8,523,724
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Short-term borrowings and current portion of long-term debt................. $ 883,548 $ 772,503
Trade accounts payable...................................................... 678,807 671,100
Salaries, income taxes, dividends payable, and other accruals............... 2,028,253 2,032,263
----------- -----------
Total Current Liabilities.............................................. 3,590,608 3,475,866
----------- -----------
Long-Term Debt................................................................... 285,548 287,091
----------- -----------
Other Liabilities and Deferrals.................................................. 744,965 711,367
----------- -----------
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 -
1995: 809,010,769 shares; 1994: 813,046,602 shares..................... 524,913 505,170
Earnings employed in the business................................................ 3,715,003 3,652,434
Cumulative translation adjustments............................................... (53,409) (51,124)
----------- -----------
4,186,507 4,106,480
Less:
Common shares held in treasury, at cost -
1995 and 1994: 9,766,880 shares.............................................. 51,545 51,545
Unearned compensation - restricted stock awards.................................. 4,991 5,535
----------- -----------
Total Shareholders' Investment......................................... 4,129,971 4,049,400
----------- -----------
$ 8,751,092 $ 8,523,724
----------- -----------
----------- -----------
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
---------------------------
1995 1994
--------- ---------
Cash Flow From (Used in) Operating Activities:
Net earnings....................................... $ 417,254 $ 366,234
Adjustments to reconcile net earnings to
net cash from operating activities -
Depreciation and amortization...................... 137,083 132,340
Trade receivables.................................. (74,377) (17,441)
Inventories........................................ 16,549 (39,850)
Other, net......................................... 11,820 105,562
---------- ---------
Net Cash From Operating Activities............ 508,329 546,845
---------- ---------
Cash Flow From (Used in) Investing Activities:
Acquisitions of property, equipment, and businesses (280,568) (212,163)
Investment securities transactions................. (119,487) (26,092)
Other.............................................. 3,930 12,968
---------- ---------
Net Cash (Used in) Investing Activities....... (396,125) (225,287)
---------- ---------
Cash Flow From (Used in) Financing Activities:
Borrowing transactions............................. 104,179 (169,232)
Common share transactions.......................... (167,091) (142,625)
Dividends paid..................................... (152,616) (139,552)
---------- ---------
Net Cash (Used in) Financing Activities....... (215,528) (451,409)
---------- ---------
Effect of exchange rate changes on cash and
cash equivalents................................... (2,738) 238
---------- ---------
Net (Decrease) in Cash and Cash Equivalents............ (106,062) (129,613)
Cash and Cash Equivalents, Beginning of Year........... 290,272 300,676
---------- ---------
Cash and Cash Equivalents, End of Period............... $ 184,210 $ 171,063
---------- ---------
---------- ---------
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, 1995
(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, 1994.
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 801,262,000 for the
three months ended March 31, 1995 and 818,988,000 for the same period in 1994.
NOTE 3 - TAXES ON EARNINGS:
Taxes on earnings reflect the estimated annual effective tax rates. The
effective tax rates are less than the statutory U.S. Federal income tax rate
principally due to tax incentive grants related to subsidiaries operating in
Puerto Rico and Ireland.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995
(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.
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 - OTHER SIGNIFICANT EVENTS:
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 in 1994 would not have been
significantly different from reported amounts.
6
FINANCIAL REVIEW
RESULTS OF OPERATIONS - FIRST QUARTER 1995 COMPARED WITH FIRST QUARTER 1994
Worldwide sales for the first quarter increased 14.0 percent to $2.524 billion
from $2.215 billion in 1994. Net earnings and earnings per share increased
13.9 percent and 15.6 percent, respectively, over the prior year quarter.
Gross profit margin (sales less cost of products sold, including freight and
distribution expenses) of 56.9 percent for the first quarter was up from
56.5 percent one year ago. This increase was primarily due to product mix,
especially higher worldwide sales of pharmaceuticals, and productivity
improvements.
Research and development expenses increased to $247.2 million in the first
quarter 1995. This represented 9.8 percent of net sales, compared to
10.2 percent in 1994. 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
20.4 percent over the prior year, including the adverse effect of the relatively
weaker U.S. dollar of 1.9 percent. The remaining increase reflects additional
selling and marketing expenses for new and existing products, primarily in the
pharmaceutical and nutritional segment. The increase also reflects a
contribution to the company's charitable foundation and charges against earnings
for certain settled and pending litigation.
Other (income) expense, net, includes net foreign exchange losses of
$8.4 million in the 1995 first quarter, compared with net foreign exchange
losses of $12.2 million in the same quarter last year.
7
FINANCIAL REVIEW
(Continued)
INDUSTRY SEGMENTS
Industry segment sales for the first quarter 1995 and the related change from
the comparable 1994 period are shown in the table below. The Pharmaceutical and
Nutritional Products segment includes a broad line of adult and pediatric
pharmaceuticals and nutritionals, which are sold primarily on the prescription
or recommendation of physicians or other health care professionals; consumer
products; agricultural and chemical products; and bulk pharmaceuticals. The
Hospital and Laboratory Products segment includes diagnostic systems for blood
banks, hospitals, commercial laboratories and alternate-care testing sites;
intravenous and irrigation fluids and related administration equipment; drugs
and drug delivery systems; anesthetics; critical care products; and other
medical specialty products for hospitals and alternate-care sites.
Domestic and international sales for the first quarter primarily reflect unit
growth. International sales were favorably affected 4.9 percent by the
relatively weaker dollar in the first quarter.
First Quarter
- ----------------------------------------------------------------------
SEGMENT SALES 1995 Percent
(in millions of dollars) Sales Increase
- ----------------------------------------------------------------------
Pharmaceutical and Nutritional Products:
Domestic $ 979.7 15.9
- ----------------------------------------------------------------------
International 495.7 30.8
- ----------------------------------------------------------------------
1,475.4 20.5
Hospital and Laboratory Products:
Domestic 574.5 2.0
- ----------------------------------------------------------------------
International 474.5 10.9
- ----------------------------------------------------------------------
1,049.0 5.8
Total All Segments:
Domestic 1,554.2 10.3
- ----------------------------------------------------------------------
International 970.2 20.3
- ----------------------------------------------------------------------
$2,524.4 14.0
- ----------------------------------------------------------------------
- ----------------------------------------------------------------------
8
FINANCIAL REVIEW
(Continued)
LIQUIDITY AND CAPITAL RESOURCES AT MARCH 31, 1995
COMPARED WITH DECEMBER 31, 1994
Net cash from operating activities for the first quarter 1995 totaled
$508 million. The Company expects annual cash flow from operating activities to
continue to approximate or exceed the Company's capital expenditures and cash
dividends.
The Company has maintained its favorable bond ratings (AAA by Standard & Poor's
Corporation and Aa1 by Moody's Investors Service) and continues to have readily
available financial resources, including unused domestic lines of credit of
$300 million at March 31, 1995. These lines of credit support domestic
commercial paper borrowing arrangements.
During the first three months 1995, the Company continued its program to
purchase its common shares. The Company purchased and retired 5,355,000 shares
during this period at a cost of $186 million. As of March 31, 1995, an
additional 8,015,000 shares may be purchased in future periods under
authorization granted by the Board of Directors in September 1994.
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.
9
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company's 10-K for the fiscal year ended December 31, 1994
described 24 antitrust suits, one shareholder derivative suit, and 7
investigations (as of January 31,1995) that had been brought in connection with
the Company's marketing and sale of infant formula products. During the first
quarter, three of these cases were certified as state consumer class actions.
The two cases that are pending in state court in Milwaukee, Wisconsin were
certified on February 28, 1995. The case that is pending in state court in
Sedgwick County, Kansas was certified on March 2, 1995. In addition, on April
3, 1995, the court dismissed the case which had been pending in federal court in
Reno, Nevada. As of March 31, 1995 23 antitrust suits, one shareholder
derivative suit and 7 investigations are pending in connection with the
Company's marketing of infant formula products.
The Company's 10-K for the fiscal year ended December 31, 1994
described 62 antitrust suits (as of January 31, 1995) in connection with the
Company's pricing of prescription pharmaceuticals. During the first quarter, 44
new antitrust suits regarding the Company's pricing of prescription
pharmaceuticals commenced and were consolidated in the litigation that is
pending in federal court in Chicago, Illinois and is known as IN RE: BRAND NAME
PRESCRIPTION DRUG ANTITRUST LITIGATION, MDL 997. In addition on February 9,
1995, a case was filed in the Circuit Court for Crow Wing County, Minnesota.
Each of these cases alleges 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 other pharmaceutical manufacturers as
well as pharmaceutical wholesalers and at least one mail-order pharmacy company
as defendants. The plaintiffs in these cases seek treble damages in an
unspecified amount, civil penalties and other relief. The Company has filed or
intends to file a response to each of the complaints denying all substantive
allegations. As of March 31, 1995, 107 antitrust suits are pending in
connection with the Company's pricing of prescription pharmaceuticals.
On March 31, 1995 the Illinois Attorney General informed the Company
that it proposed the assessment of a civil penalty of $750,000 in connection
with an administrative enforcement action initiated in May of 1993 by the
Illinois Environmental Protection Agency against the Company. The enforcement
action alleges that the Company violated its waste water discharge permits and
certain Illinois environmental laws at its North Chicago, Illinois facility.
The Company intends to defend itself in this matter and to deny all substantive
allegations.
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 28, 1995.
The following is a summary of the matters voted on at that meeting.
(a) The shareholders elected the Company's entire Board of Directors.
The persons elected to the Company's Board of Directors and the number of shares
cast for, and the number of shares withheld, with respect to each of these
persons were as follows:
DIRECTOR FOR WITHHELD
- -------- --- --------
K. Frank Austen, M.D. 691,923,667 2,703,005
Duane L.Burnham 690,740,137 3,886,535
H. Laurance Fuller 692,141,634 2,485,038
The Lord Hayhoe PC 691,875,255 2,751,417
Thomas R. Hodgson 692,134,629 2,492,043
Allen F. Jacobson 691,325,273 3,301,399
David A. Jones 690,806,427 3,820,245
Boone Powell, Jr. 692,209,238 2,417,434
Addison Barry Rand 692,074,407 2,552,265
W. Ann Reynolds, Ph.D. 690,769,821 3,856,851
William D. Smithburg 692,077,361 2,549,311
John R. Walter 691,202,767 3,423,905
William L. Weiss 691,393,945 3,232,727
(b) The shareholders ratified the appointment of Arthur Andersen LLP
as auditors of the Company.
FOR AGAINST ABSTAINING
--- ------- ----------
690,807,241 1,877,508 1,941,923
(c) The shareholders rejected a shareholder proposal regarding infant
formula.
FOR AGAINST ABSTAIN BROKER NON-VOTES
--- ------- ------- ----------------
41,384,802 538,991,067 43,606,332 70,644,471
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
No reports on Form 8-K were filed during the quarter
ended March 31, 1995.
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 9, 1995 /s/ Theodore A. Olson
---------------------------------------------
Theodore A. Olson, Vice President
and Controller (Principal Accounting
Officer)
EXHIBIT 11
ABBOTT LABORATORIES AND SUBSIDIARIES
CALCULATION OF FULLY DILUTED EARNINGS PER SHARE
(Dollars and Shares in Millions Except Per Share Amounts)
THREE MONTHS ENDED MARCH 31
---------------------------
1995 1994
-------- --------
1. Net earnings $ 417.3 $ 366.2
--------- ---------
2. Average number of shares outstanding 801.3 819.0
--------- ---------
3. Earnings per share based upon average
outstanding shares (1 divided by 2) $ .52 $ .45
--------- ---------
--------- ---------
4. Fully diluted earnings per share:
a. Stock options granted and outstanding for
which the market price at quarter-end
exceeds the option price 26.8 17.4
--------- ---------
--------- ---------
b. Aggregate proceeds to the Company from
the exercise of options in 4.a. $ 652.4 $ 278.6
--------- ---------
--------- ---------
c. Market price of the Company's common
stock at quarter-end $ 35.75 $ 26.625
--------- ---------
--------- ---------
d. Shares which could be repurchased
under the treasury stock
method (4.b. divided by 4.c.) 18.2 10.5
--------- ---------
--------- ---------
e. Addition to average outstanding shares
(4.a. - 4.d.) 8.6 6.9
--------- ---------
--------- ---------
f. Shares for fully diluted earnings per
share calculation (2. + 4.e.) 809.9 825.9
--------- ---------
--------- ---------
g. Fully diluted earnings per share
(1. divided by 4.f.) $ .52 $ .44
--------- ---------
--------- ---------
EXHIBIT 12
ABBOTT LABORATORIES
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
(Millions of Dollars)
THREE MONTHS ENDED
MARCH 31, 1995
------------------
Net Earnings $ 417
Add (deduct):
Income taxes 175
Capitalized interest cost, net
of amortization (2)
Minority interest 5
--------
Net earnings as adjusted $ 595
--------
Fixed Charges:
Interest on long-term and
short-term debt $ 14
Capitalized interest cost 5
Rental expense representative
of an interest factor 6
--------
Total Fixed Charges 25
--------
Total adjusted earnings available for
payment of fixed charges $ 620
--------
--------
Ratio of earnings to fixed charges 24.8
--------
--------
NOTE: For the purpose of calculating this ratio, (i) earnings have been
calculated by adjusting net earnings for taxes on earnings; interest
expense; capitalized interest cost, net of amortization; minority
interest; and the portion of rentals representative of the interest
factor, (ii) the Company considers one-third of rental expense to be the
amount representing return on capital, and (iii) fixed charges comprise
total interest expense, including capitalized interest and such portion of
rentals.
5
1,000
U.S. DOLLAR
3-MOS
DEC-31-1995
JAN-01-1995
MAR-31-1995
1
184,210
65,842
1,684,892
135,957
1,005,422
3,889,835
7,300,354
3,246,977
8,751,092
3,590,608
285,548
524,913
0
0
3,605,058
8,751,092
2,524,397
2,524,397
1,088,911
1,088,911
247,175
25,393
13,952
591,850
174,596
417,254
0
0
0
417,254
.52
.52
OTHER EXPENSES CONSIST OF RESEARCH AND DEVELOPMENT EXPENSES
