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 June 30, 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 July 31, 1997, the Corporation had 769,446,683 common shares
without par value outstanding.
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 SIX MONTHS ENDED
JUNE 30 JUNE 30
----------------------- ------------------------
1997 1996 1997 1996
---------- ---------- ---------- ------------
Net Sales............................. $2,900,408 $2,699,240 $5,900,222 $5,371,417
---------- ---------- ---------- -----------
Cost of products sold................. 1,217,043 1,143,947 2,544,374 2,300,164
Research and development.............. 320,148 304,846 600,222 573,462
Selling, general and administrative... 651,005 598,866 1,307,601 1,171,212
---------- ---------- ---------- ------------
Total Operating Cost and Expenses... 2,188,196 2,047,659 4,452,197 4,044,838
---------- ---------- ---------- ------------
Operating Earnings.................... 712,212 651,581 1,448,025 1,326,579
---------- ---------- ---------- ------------
Interest expense...................... 31,388 22,228 64,142 39,835
Interest income....................... (11,668) (10,186) (23,391) (20,676)
Other (income) expense, net........... (47,266) (27,728) (91,102) (40,852)
---------- ---------- ---------- ------------
Earnings Before Taxes................. 739,758 667,267 1,498,376 1,348,272
Taxes on Earnings..................... 218,229 196,844 442,021 397,740
---------- ---------- ---------- ------------
Net Earnings.......................... $ 521,529 $ 470,423 $1,056,355 $ 950,532
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
Net Earnings Per Common Share......... $.68 $.60 $1.37 $1.21
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
Cash Dividends Declared
Per Common Share.................... $.27 $.24 $.54 $.48
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
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)
JUNE 30 DECEMBER 31
1997 1996
----------- ------------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents................................... $ 126,521 $ 110,209
Investment securities....................................... 18,669 12,875
Trade Receivables, less allowances of $163,245 in 1997
and $153,424 in 1996....................................... 1,728,669 1,708,807
Inventories:
Finished products.......................................... 622,712 627,449
Work in process............................................ 282,346 269,443
Materials.................................................. 358,928 341,313
----------- -----------
Total Inventories......................................... 1,263,986 1,238,205
Prepaid expenses, income taxes, and other receivables 1,450,087 1,410,806
----------- -----------
Total Current Assets...................................... 4,587,932 4,480,902
----------- -----------
Investment Securities Maturing after One Year................. 640,454 665,553
----------- -----------
Property and Equipment, at Cost............................... 8,568,669 8,370,283
Less: accumulated depreciation and amortization............. 4,067,168 3,908,740
----------- -----------
Net Property and Equipment................................ 4,501,501 4,461,543
Deferred Charges, Intangible and Other Assets 1,703,639 1,517,602
----------- -----------
$11,433,526 $11,125,600
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Short-term borrowings and current portion of long-term debt $ 1,462,764 $ 1,383,727
Trade accounts payable....................................... 911,436 923,018
Salaries, income taxes, dividends payable, and other accruals 2,139,558 2,036,972
----------- -----------
Total Current Liabilities.................................. 4,513,758 4,343,717
----------- -----------
Long-Term Debt................................................. 931,055 932,898
----------- -----------
Other Liabilities and Deferrals................................ 1,051,543 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: 779,555,941; 1996: 784,037,858............... 783,063 694,380
Earnings employed in the business.............................. 4,418,199 4,262,804
Cumulative translation adjustments............................. (186,866) (78,770)
----------- -----------
5,014,396 4,878,414
Less:
Common shares held in treasury, at cost -
Shares: 1997: 9,150,902; 1996: 9,588,632................... 48,295 50,605
Unearned compensation - restricted stock awards................ 28,931 7,627
----------- -----------
Total Shareholders' Investment........................... 4,937,170 4,820,182
----------- -----------
$11,433,526 $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)
SIX MONTHS ENDED JUNE 30
------------------------------
1997 1996
---------- ---------
Cash Flow From (Used in) Operating Activities:
Net earnings............................................ $1,056,355 $ 950,532
Adjustments to reconcile net earnings to
net cash from operating activities -
Depreciation and amortization........................... 348,436 319,262
Trade receivables....................................... (95,310) (88,477)
Inventories............................................. (43,568) (83,521)
Other, net.............................................. 97,993 81,214
----------- -----------
Net Cash From Operating Activities.................... 1,363,906 1,179,010
----------- -----------
Cash Flow From (Used in) Investing Activities:
Acquisition of Sanofi's parenteral products
businesses in 1997, and MediSense in 1996,
net of cash acquired................................... (200,394) (806,738)
Acquisitions of property and equipment ................. (436,325) (460,908)
Investment securities transactions...................... 19,380 (50,757)
Other................................................... 11,363 13,787
----------- -----------
Net Cash (Used in) Investing Activities............... (605,976) (1,304,616)
----------- -----------
Cash Flow From (Used in) Financing Activities:
Borrowing transactions.................................. 84,886 620,517
Common share transactions............................... (421,409) (305,876)
Dividends paid.......................................... (394,671) (353,899)
----------- -----------
Net Cash (Used in) Financing Activities............... (731,194) (39,258)
----------- -----------
Effect of exchange rate changes on cash and
cash equivalents........................................ (10,424) (4,851)
----------- -----------
Net Increase/(Decrease) in Cash and Cash Equivalents..... 16,312 (169,715)
Cash and Cash Equivalents, Beginning of Year............. 110,209 281,197
----------- -----------
Cash and Cash Equivalents, End of Period................. $ 126,521 $ 111,482
----------- -----------
----------- -----------
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
JUNE 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 773,105,000 for
the six months ended June 30, 1997 and 784,547,000 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
JUNE 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 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 - ACQUISITIONS:
On April 29, 1997, the Company acquired certain parenteral products
businesses of Sanofi Pharmaceuticals, Inc., for approximately $200 million. 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 - SECOND QUARTER AND FIRST SIX MONTHS 1997 COMPARED WITH
SAME PERIODS IN 1996
Worldwide sales for the second quarter and first six months increased 7.5
percent and 9.8 percent, respectively, over the comparable 1996 periods. Net
earnings increased 10.9 percent and 11.1 percent, respectively, in the second
quarter and first six months 1997. Earnings per share increased 13.3 percent
and 13.2 percent, respectively, over the prior year periods.
Gross profit margin (sales less cost of products sold, including freight and
distribution expenses) was 58.0 percent for the 1997 second quarter, compared
to 57.6 percent for the 1996 second quarter. This increase is due primarily
to productivity and cost improvements. First half gross margin was 56.9
percent, compared to 57.2 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 $320.1 million and $600.2 million for
the second quarter and first six months 1997, respectively. Research and
development represented 11.0 percent and 10.2 percent of net sales, compared
to 11.3 percent and 10.7 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 second quarter and first
six months 1997 increased 8.7 percent and 11.6 percent, respectively, over
the comparable prior year periods. The increases reflect additional selling
and marketing support for new and existing products, primarily for
pharmaceutical and nutritional products, and due to the acquisition of
MediSense in the second quarter of 1996.
Other (income) expense, net, includes a net foreign exchange loss of $4.0
million for the second quarter and gain of $6.8 million for the first six
months 1997 compared with net foreign exchange losses of $3.8 million and
$13.2 million for the corresponding prior year periods.
7
FINANCIAL REVIEW
(Continued)
INDUSTRY SEGMENTS
Industry segment sales for the second quarter and first six 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 second quarter and first six months
1997 primarily reflect unit growth. International sales were unfavorably
affected 7.2 percent by the relatively stronger dollar in the second quarter.
On a year-to-date basis, international sales were unfavorably affected 6.4
percent by the relatively stronger U.S. dollar.
Second Quarter Six Months
- ----------------------------------------------------------------------------------------
SEGMENT SALES 1997 Percent 1997 Percent
(in millions of dollars) Sales Change Sales Change
- ---------------------------------------------------------------------------------------
Pharmaceutical and Nutritional Products:
Domestic $1,088.7 9.4 $2,288.2 12.4
- ---------------------------------------------------------------------------------------
International 586.8 9.5 1,213.6 10.8
- ---------------------------------------------------------------------------------------
1,675.5 9.4 3,501.8 11.9
Hospital and Laboratory Products:
Domestic 680.8 9.8 1,332.5 11.5
- ---------------------------------------------------------------------------------------
International 544.1 (0.7) 1,065.9 1.9
- ---------------------------------------------------------------------------------------
1,224.9 4.9 2,398.4 7.0
Total All Segments:
Domestic 1,769.5 9.5 3,620.7 12.1
- ---------------------------------------------------------------------------------------
International 1,130.9 4.3 2,279.5 6.5
- ---------------------------------------------------------------------------------------
$2,900.4 7.5 $5,900.2 9.8
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
8
FINANCIAL REVIEW
(continued)
LIQUIDITY AND CAPITAL RESOURCES AT JUNE 30, 1997
COMPARED WITH DECEMBER 31, 1996
- -------------------------------------------------
Net cash from operating activities for the first six months 1997 totaled
$1.364 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 June 30, 1997. These lines of credit back up
domestic commercial paper borrowing arrangements.
During the first six months 1997, the Company continued its program to
purchase its common shares. The Company purchased and retired 8,027,000
shares during this period at a cost of $489 million. As of June 30, 1997, an
additional 7,638,000 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-Q for the fiscal quarter ended March 31, 1997,
described 5 antitrust suits and 5 investigations (as of April 29, 1997) 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 3 cases
pending in Alabama, Louisiana and Nevada and that the settlement was subject
to approval by the individual state courts. On May 30, 1997, the Nevada
Court gave its final approval. The Alabama court has not yet given its final
approval. 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. This
agreement is subject to court approval. As of June 30, 1997, 4 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 March 31, 1997,
described 144 antitrust suits and two investigations (as of March 31, 1997)
in connection with the Company's pricing of prescription pharmaceuticals.
Two additional cases have been filed. One case was filed on March 14, 1997,
in state court in Prentiss County, Mississippi. The Company was notified of
its filing in June, 1997. The other was filed on June 27, 1997, in state
court in Mecklenburg County, North Carolina. In addition, the case pending
in Davidson County, Tennessee was removed to the U.S. District Court. As of
July 28, 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. 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 these appeals.
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.
10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 Abbott Laboratories 1986 Management Incentive Plan
amended April 25, 1997 - attached hereto.
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
Date: August 12, 1997 /s/ Theodore A. Olson
----------------------------------
Theodore A. Olson, Vice President
and Controller (Principal
Accounting Officer)
11
1986
ABBOTT LABORATORIES
MANAGEMENT INCENTIVE PLAN
SECTION 1
INTRODUCTION
1.1 BACKGROUND AND PURPOSES. This 1986 ABBOTT LABORATORIES MANAGEMENT
INCENTIVE PLAN (the "Plan") is a successor Plan to the 1961, 1971 and 1981
Management Incentive Plans (the "Predecessor Plans"). This Plan is being
established by ABBOTT LABORATORIES ("Abbott") for the following purposes:
(a) To provide greater incentive for participants in the Plan to attain
and maintain the highest standards of managerial performance by
rewarding them for services rendered with compensation, in addition to
their base salaries, in proportion to the success of Abbott and to the
participants' respective contribution to such success; and
(b) To attract and retain in the employ of Abbott and its subsidiaries
persons of outstanding competence.
1.2 EFFECTIVE DATE AND FISCAL YEAR. The Plan shall be effective as of
January 1, 1986. The term "fiscal year," as used in this Plan, means the fiscal
period from time to time employed by Abbott for the purpose of reporting
earnings to shareholders.
1.3 ADMINISTRATION. The Plan will be administered by the Compensation
Committee (the "Committee") appointed by the Board of Directors of Abbott.
SECTION 2
ELIGIBILITY AND PARTICIPATION
2.1 PERSONS ELIGIBLE FOR PARTICIPATION. Participation in the Plan will be
limited to those Officers and managerial employees of Abbott and its
subsidiaries who, from time to time, shall be selected as participants by the
Committee.
2.2 PARTICIPANTS. The term "participant," as used in the Plan, shall
include both active participants and inactive participants.
2.3 ACTIVE PARTICIPANTS. For each fiscal year, there shall be a group
of active participants which, except as provided below, shall not exceed
forty-five persons and shall consist of those persons eligible for
participation who shall have been designated as active participants and
notified of that fact by the Committee at any time before or during the
fiscal year. If, as a result of the growth of Abbott and its subsidiaries or
changes in Abbott's organization, the Board of Directors deems it
appropriate, the Board of Directors may, in its discretion, from time to
time, increase the number of persons who may be designated as active
participants for any fiscal year beyond the limit of forty-five persons
provided for above. Selection as an active participant for any fiscal year
shall not confer upon any person a right to be an active participant in any
subsequent fiscal year, nor shall it confer upon him the right to receive any
allocation under the Plan, other than amounts allocated to him by the
Committee pursuant to the Plan, and all such allocations shall be subject to
all of the terms and conditions of the Plan.
2.4 INACTIVE PARTICIPANTS. Inactive participants shall consist of
those persons, including beneficiaries of deceased participants, if any, for
whom an allocation shall have been made for a prior fiscal year under this
Plan or a Predecessor Plan, the payment of which was deferred and remains
unpaid. Status as an inactive participant shall not preclude a person from
also being an active participant during any fiscal year.
SECTION 3
MANAGEMENT INCENTIVE PLAN FUND
3.1 BASE FOR MANAGEMENT INCENTIVE PLAN FUND. The "base earnings" for
determining whether any portion of consolidated net income for any fiscal year
may be allocated to the Management Incentive Plan Fund for such year shall be
that amount of consolidated net income (as defined in subsection 3.2) which is
equal to 15 percent of the
2
Abbott Common Shareholder's Equity for such fiscal year. For this purpose,
"Abbott Common Shareholders' Equity" for any fiscal year shall mean the
Shareholders' Investment, as reflected in the consolidated balance sheet of
Abbott as of the close of the next preceding fiscal year, plus or minus such
adjustments thereof as may be determined by the Committee in order to
reflect:
(a) The existence, issuance, sale, exchange, conversion or retirement
of any securities, other than common shares, of Abbott (whether
involving preferred stock, debt, convertible preferred stock or
convertible debt securities); and
(b) The issuance or retirement of any common shares or any changes in
accounting methods or period adopted by Abbott since the close of such
next preceding fiscal year.
Any adjustments to be made in accordance with (a) and (b) above in determining
Abbott Common Shareholders' Equity for any fiscal year shall be determined by
the Committee after consultation with Abbott's independent auditors, and any
determination made by the Committee after such consultation shall be conclusive
upon all persons.
3.2 CONSOLIDATED NET INCOME. For the purposes of this Plan, for any
fiscal year or period, the "consolidated net income" shall be the consolidated
net income of Abbott and its subsidiaries, prepared in accordance with generally
accepted accounting principles, consistently applied, after provision for any
interest accrued with respect to such period on account of deferred payments
under this Plan or a Predecessor Plan, but before allowances for any amount to
be allocated to the Management Incentive Plan Fund, both net of applicable
income taxes, and after such adjustments for the following, as may be determined
by the Committee after consultation with Abbott's independent auditors (all net
of applicable income taxes):
(a) The exclusion of any charges for amortization of goodwill arising out
of acquisitions made for securities which, as a result of adjustments
made in determining Abbott Common Shareholders' Equity pursuant to
subsection 3.1, are treated as common share equivalents; and
3
(b) The exclusion of any interest on debt securities which are convertible
into common shares of Abbott and which shall have been considered as
common share equivalents in determining Abbott Common Shareholders'
Equity pursuant to subsection 3.1 hereof; and
(c) The deduction of any dividend requirement for preferred shares which
has not been considered as common share equivalents in determining
Common Shareholders' Equity pursuant to subsection 3.1 hereof.
In the sole discretion of the Committee there shall also be excluded in the
calculation of "consolidated net income" unusual gains and losses and the tax
effects thereof, changes in generally accepted accounting principles and the tax
effects thereof and extraordinary gains and losses.
3.3 DETERMINATION OF MANAGEMENT INCENTIVE PLAN AMOUNT FOR ANY YEAR. For
each fiscal year that consolidated net income exceeds base earnings, and as soon
as practicable after ascertainment of that fact, the Committee shall determine a
tentative amount as the Management Incentive Plan Amount for that year, which
tentative amount shall not exceed the lesser of:
(a) an amount which, when treated as an expense currently deductible
for income tax purposes in such year, would cause a 5 percent
reduction in such year's excess of consolidated net income over
the base earnings for such year; and
(b) an amount which, when treated as an expense currently deductible
for income tax purposes in such year, would cause a 1-1/2 percent
reduction in such year's consolidated net income; and
(c) an amount which equals 200 percent of the aggregate base salaries
of all active participants for such year.
For purposes of the Plan "base salary" means the amount of salary paid to each
active participant by Abbott and its subsidiaries for such year plus the
includible portion (as described below) of any "Eligible Restricted Stock
Award," as defined in Section 5-2 of the Abbott Laboratories Supplemental
Pension Plan and does not include bonuses, other awards or any other
compensation of any kind. The includible portion of a participant's Eligible
Restricted Stock Award shall be the portion of the participant's Eligible
Restricted
4
Stock Award that is included in the participant's final earnings under the
Abbott Laboratories Supplemental Pension Plan for such year. Following
determination of such tentative Management Incentive Plan Amount, the
Committee shall report in writing the amount of such tentative amount to the
Board of Directors. At the meeting of the Board of Directors coincident with
or next following receipt by it of the Committee's determination, the Board
of Directors shall have the power to approve or reduce, but not to increase,
the tentative amount reported to it by the Committee. The amount approved by
the Board of Directors shall be the Management Incentive Plan Amount for such
year.
3.4 THE MANAGEMENT INCENTIVE PLAN FUND. The Management Incentive Plan
Fund at any time shall consist of an amount equal to the aggregate of the
Management Incentive Plan Amounts established pursuant to subsection 3.3 of
this Plan for all fiscal years during which this Plan shall have been
operative, plus the amounts established as Management Incentive Plan Amounts
for any prior fiscal year pursuant to a Predecessor Plan, reduced by an
amount equal to the aggregate of the amounts of awards which shall have been
allocated to participants in accordance with this Plan or a Predecessor Plan,
and awards, or any other compensation of any kind. Following determination
of such tentative Management Incentive Plan Amount, the Committee shall
report in writing the amount of such tentative amount to the Board of
Directors. At the meeting of the Board of Directors coincident with or next
following receipt by it of the Committee's determination, the Board of
Directors shall have the power to approve or reduce, but not to increase, the
tentative amount reported to it by the Committee. The amount approved by the
Board of Directors shall be the Management Incentive Plan Amount for such
year.
5
SECTION 4
ALLOCATION OF MANAGEMENT INCENTIVE FUND
4.1 ANNUAL ALLOCATION OF MANAGEMENT INCENTIVE FUND. As soon as
practicable after the close of each fiscal year, part or all of the amount
then in the Management Incentive Plan Fund (including the Management
Incentive Plan Amount for such fiscal year) will be allocated by the
Committee among active participants in the Plan for such fiscal year, having
due regard for the purposes for which the Plan was established, in the
following manner and order:
(a) First, if the Chairman of the Board of Abbott shall be an active
participant for such year, the members of the Committee, other than
the Chairman of the Board, shall determine the amount, if any, to be
allocated to the Chairman of the Board from such Fund for such year;
and
(b) Next, all or a part of the balance of such Fund may be allocated among
the active participants (other than the Chairman of the Board) for
such year, in such amounts and proportions as the Committee shall
determine
provided, however, that the amount allocated to any active participant for any
year shall not exceed 200 percent of such participant's base salary for that
year.
4.2 COMMITTEE'S DISCRETION IN ALLOCATIONS. In making any allocations in
accordance with subsection 4.1 for any year, the discretion of the Committee
shall be absolute, and no active participants for any year, by reason of their
designation as such, shall be entitled to any particular amounts or any amount
whatsoever.
SECTION 5
PAYMENT OF AMOUNTS ALLOCATED TO PARTICIPANTS
5.1 TIME OF PAYMENT. For fiscal years beginning after December 31, 1988,
a participant shall direct the payment or deferral of an allocation made to him
pursuant to subsection 4.1 (subject to such conditions relating to the right of
the participant to receive Payment of such amount as established by the
Committee) by one or more of the following methods:
6
(a) current payment in cash to the participant;
(b) current payment of a portion of the allocation in cash for the
participant directly to a "Grantor Trust" established by the
participant, provided such trust is in a form which the Committee
determines is substantially similar to the trust attached to this Plan
as Exhibit A; and current payment of the balance of the allocation in
cash directly to the participant, provided that the payment made
directly to the participant shall approximate the aggregate federal,
state and local individual income taxes (determined in accordance with
subsection 6.7) attributable to the allocation paid pursuant to this
paragraph (b); or
(c) deferral of payment until such time and in such manner as determined
in accordance with subsection 5.11.
A participant shall make the preceding direction within 30 days of the date he
is notified of his eligibility to participate in the Plan. A participant may
change such direction with respect to any future allocation, provided that the
change is made prior to the beginning of the fiscal year to which such
allocation relates. Payment of a participant's allocation for the 1988 fiscal
year and of any allocations deferred under the Plan prior to such year shall be
made in accordance with the provisions of either or both of paragraphs (a) and
(b) above. The Committee shall establish and maintain a Trust Account in
accordance with subsection 5.2 and for purposes of subsection 5.4, shall treat
such payment as if it were an allocation made for that fiscal year.
5.2 SEPARATE ACCOUNTS. The Committee will maintain two separate Accounts,
a "Deferred Account" and a "Trust Account," in the name of each participant.
The Deferred Account shall be comprised of any allocations the payment of which
is deferred pursuant to subsection 5.1(c) and any adjustments made pursuant to
subsection 5.3. The Trust Account shall be comprised of any allocations paid in
cash to a participant (including amounts paid to a participant's Grantor Trust)
pursuant to subsection 5.1(b) and any adjustments made pursuant to subsection
5.4.
5.3 ADJUSTMENT OF DEFERRED ACCOUNTS. As of the end of each fiscal year,
the Committee shall adjust each participant's Deferred Account as follows:
7
(a) FIRST, charge an amount equal to any payments made to the participant
during that year pursuant to subsections 5.11 or 5.12;
(b) NEXT, credit an amount equal to the allocation for that year that is
deferred pursuant to subsection 5.1(c); and
(c) FINALLY, credit an amount equal to the Interest Accrual earned for
that year pursuant to subsection 5.5.
5.4 ADJUSTMENT OF TRUST ACCOUNTS. As of the end of each fiscal year, the
Committee shall adjust each participant's Trust Account as follows:
(a) FIRST, charge an amount equal to the product of: (i) any payments
made to the participant during that year from the participant's
Grantor Trust (other than distributions of trust earnings in excess of
the Net Interest Accrual authorized by the administrator of the trust
to provide for the Tax Gross Up under subsection 6.6); multiplied by
(ii) a fraction, the numerator of which is the balance in the
participant's Trust Account as of the end of the prior fiscal year and
the denominator of which is the balance of the participant's Grantor
Trust (as determined by the administrator of the trust) as of that
same date;
(b) NEXT, credit an amount equal to the allocation for that year that is
paid to the Participant (including the amount paid to the
participant's Grantor Trust) pursuant to subsection 5.l(b); and
(c) FINALLY, credit an amount equal to the Interest Accrual earned for
that Year pursuant to subsection 5.5.
5.5 INTEREST ACCRUALS ON ACCOUNTS. As of the end of each fiscal year, a
participant's Deferred Account and Trust Account shall be credited with interest
equal to: (a) the average of the prime rates of interest charged by the two
largest banks located in the City of Chicago on loans made by them as of January
1 and the end of each month of the fiscal year; plus (b) two hundred twenty-five
(225) basis points. Such interest shall be credited on the conditions
established by the Committee, provided that any allocation of an award from the
Management Incentive Plan Fund shall be considered to have been made and
credited to a participant's Deferred Account and Trust Account as of the first
day of the fiscal year in which such award is made regardless of the date upon
which the Committee actually makes the determination to award such allocation.
8
5.6 GUARANTEED RATE PAYMENTS. In addition to any allocation made to a
participant for any fiscal year pursuant to subsection 4.1 which is paid or
deferred pursuant to subsection 5.1, Abbott shall also make a payment to a
participant's Grantor Trust (a "Guaranteed Rate Payment") for any year in which
the net earnings of such trust do not equal or exceed the participant's Net
Interest Accrual for that year. A participant's "Net Interest Accrual" for a
year is an amount equal to: (a) the Interest Accrual credited to the
participant's Trust Account for that year; less (b) the product of (i) the
amount of such Interest Accrual, multiplied by (ii) the aggregate of the
federal, state and local individual income tax rates (determined in accordance
with subsection 6.7). The Guaranteed Rate Payment shall equal the difference
between the participant's Net Interest Accrual and the net earnings of the
participant's Grantor Trust for the year, and shall be paid within 90 days of
the end of the fiscal year.
5.7 DESIGNATION OF BENEFICIARIES. Subject to the conditions and
limitations set forth below, each participant, and after a participant's death,
each primary beneficiary designated by a participant in accordance with the
provisions of this subsection 5.7, shall have the right from time to time to
designate a primary beneficiary or beneficiaries and, successive or contingent
beneficiary or beneficiaries to receive unpaid amounts from the participant's
Deferred Account under the Plan and the Predecessor Plans. Beneficiaries may be
a natural person or persons or a fiduciary, such as a trustee of a trust or the
legal representative of an estate. Any such designation shall take effect upon
the death of the participant or such beneficiary, as the case may be, or in the
case of any fiduciary beneficiary, upon the termination of all of its duties
(other than the duty to dispose of the right to receive amounts remaining to be
paid under the Plan or a Predecessor Plan). The conditions and limitations
relating to the designation of beneficiaries are as follows:
9
(a) A nonfiduciary beneficiary shall have the right to designate a further
beneficiary or beneficiaries only if the original participant or the
next preceding primary beneficiary, as the case may be, shall have
expressly so provided in writing; and
(b) A fiduciary beneficiary shall designate as a further beneficiary or
beneficiaries only those persons or other fiduciaries who are entitled
to receive the amounts payable from the participant's account under
the trust or estate of which it is a fiduciary.
Any beneficiary designation or grant of any power to any beneficiary under this
subsection may be exercised only by an instrument in writing, executed by the
person making the designation or granting such power and filed with the
Secretary of Abbott during such person's lifetime or prior to the termination of
a fiduciary's duties. If a deceased participant or a deceased nonfiduciary
beneficiary who had the right to designate a beneficiary as provided above dies
without having designated a further beneficiary, or if no beneficiary designated
as provided above is living or qualified and acting, the Committee, in its
discretion, may direct distribution of the amount remaining from time to time to
either:
(i) any one or more or all of the next of kin (including the surviving
spouse) of the participant or the deceased beneficiary, as the case
may be, and in such proportions as the Committee determines; or
(ii) the legal representative of the estate of the deceased participant or
deceased beneficiary as the case may be.
5.8 STATUS OF BENEFICIARIES. Following a participant's death, the
participant's beneficiary or beneficiaries will be considered and treated as an
inactive participant for all purposes of this Plan.
5.9 NON-ASSIGNABILITY AND FACILITY OF PAYMENT. Amounts payable to
participants and their beneficiaries under the Plan are not in any way subject
to their debts and other obligations, and may not be voluntarily or
involuntarily sold, transferred or assigned; provided that the preceding
provisions of this section shall not be construed as restricting in any way a
designation right granted to a beneficiary pursuant to the terms of subsection
5.7. When a participant or the beneficiary of a participant is under legal
disability, or in the
10
Committee's opinion is in any way incapacitated so as to be unable to manage
his or her financial affairs, the Committee may direct that payments shall be
made to the participant's or beneficiary's legal representative, or to a
relative or friend of the participant or beneficiary for the benefit of the
participant or beneficiary, or the Committee may direct the payment or
distribution for the benefit of the participant or beneficiary in any manner
that the Committee determines.
5.10 PAYER OF AMOUNTS ALLOCATED TO PARTICIPANTS. Any amount allocated
to a participant in the Plan and any interest credited thereto will be paid
by the employer (or such employer's successor) by whom the participant was
employed during the fiscal year for which any amount was allocated, and for
that purpose, if a participant shall have been employed by two or more
employers during any fiscal year the amount allocated under this Plan for
that year shall be an obligation of each of the respective employers in
proportion to the respective amounts of base salary paid by each of them in
that fiscal year.
5.11 MANNER OF PAYMENT. Subject to subsections 5.12, a participant
shall elect the timing and manner of payment of his Deferred Account at the
time of his deferral election under subsection 5.l. The participant may
select a payment method from among alternative payment methods established by
the Committee.
5.12 PAYMENT UPON TERMINATION FOLLOWING CHANGE IN CONTROL.
Notwithstanding any other provisions of this Plan or the Predecessor Plans,
or the provisions of any award made under this Plan or the Predecessor Plans,
if employment of any participant with Abbott and its subsidiaries should
terminate for any reason within five (5) years after the date of a Change in
Control, the aggregate unpaid balance of all awards previously made to such
participant under this Plan and all Predecessor Plans, plus any unpaid
interest credited thereon, shall be paid to the participant in a lump sum
within thirty (30) days following the date of such termination.
11
5.13 CHANGE IN CONTROL. A "Change in Control" shall be deemed to have
occurred on the earliest of the following dates:
(i) The date any entity or person (including a "group" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934 (the
"Exchange Act")) shall have become the beneficial owner of, or
shall have obtained voting control over thirty percent (30%) or
more of the outstanding common shares of Abbott;
(ii) The date the shareholders of Abbott approve a definitive
agreement (A) to merge or consolidate Abbott with or into another
corporation, in which Abbott is not the continuing or surviving
corporation or pursuant to which any common shares of Abbott
would be converted into cash, securities or other property of
another corporation, other than a merger of Abbott in which
holders of common shares immediately prior to the merger have the
same proportionate ownership of common stock of the surviving
corporation immediately after the merger as immediately before,
or (B) to sell or otherwise dispose of substantially all the
assets of Abbott; or
(iii) The date there shall have been a change in a majority of the
Board of Directors of Abbott within a twelve (12) month
period unless the nomination for election by Abbott's
shareholders of each new director was approved by the vote
of two-thirds of the directors then still in office who were
in office at the beginning of the twelve (12) month period.
5.14 PROHIBITION AGAINST AMENDMENT. The provisions of subsections 5.12,
5.13 and this subsection 5.14 may not be amended or deleted, nor superseded by
any other provision of this Plan, during the period beginning on the date of a
Change in Control and ending on the date five (5) years following such Change in
Control.
SECTION 6
MISCELLANEOUS
6.1 RULES. The Committee may establish such rules and regulations as it
may consider necessary or desirable for the effective and efficient
administration of the Plan.
6.2 MANNER OF ACTION BY COMMITTEE. A majority of the members of the
Committee qualified to act on any particular question may act by meeting or by
writing signed without meeting, and may execute any instrument or document
required or delegate to one of its members authority to sign. The Committee
from time to time may delegate
12
the performance of certain ministerial functions in connection with the Plan,
such as the keeping of records, to such person or persons as the Committee
may select. Except as otherwise expressly provided in the Plan, the costs of
administration of the Plan will be paid by Abbott. Any notice required to be
given to, or any document required to be filed with the Committee, will be
properly given or filed if mailed or delivered in writing to the Secretary of
Abbott.
6.3 RELIANCE UPON ADVICE. The Board of Directors and the Committee may
rely upon any information or advice furnished to it by any Officer of Abbott or
by Abbott's independent auditors, or other consultants, and shall be fully
protected in relying upon such information or advice. No member of the Board of
Directors or the Committee shall be liable for any act or failure to act on
their part, excepting only any acts done or omitted to be done in bad faith, nor
shall they be liable for any act or failure to act of any other member.
6.4 TAXES. Any employer shall be entitled, if necessary or desirable, to
pay, or withhold the amount of any federal, state or local tax, attributable to
any amounts payable by it under the Plan after giving the person entitled to
receive such amount notice as far in advance as practicable, and may defer
making payment of any amount with respect to which any such tax question may be
pending unless and until indemnified to its satisfaction.
6.5 RIGHTS OF PARTICIPANTS. Employment rights of participants with Abbott
and its subsidiaries shall not be enlarged or affected by reason of
establishment of or inclusion as a participant in the Plan. Nothing contained
in the Plan shall require Abbott or any subsidiary to segregate or earmark any
assets, funds or property for the purpose of payment of any amounts which may
have been deferred. The Deferred and Trust Accounts established pursuant to
subsection 5.2 are for the convenience of the administration of the
13
Plan and no trust relationship with respect to such Accounts is intended or
should be implied. Participant's rights shall be limited to payment to them
at the time or times and in such amounts as are contemplated by the Plan.
Any decision made by the Board of Directors or the Committee, which is within
the sole and uncontrolled discretion of either, shall be conclusive and
binding upon the other and upon all other persons whomsoever.
6.6 TAX GROSS UP. In addition to the allocations provided under
subsection 4.1, each participant (or, if the participant is deceased, the
beneficiary designated under the participant's Grantor Trust) shall be entitled
to a Tax Gross Up payment for each year there is a balance in his or her Trust
Account. The "Tax Gross Up" shall approximate: (a) the amount necessary to
compensate the participant (or beneficiary) for the net increase in the
participant's (or beneficiary's) federal, state and local income taxes as a
result of the inclusion in his or her taxable income of the income of the
participant's Grantor Trust and any Guaranteed Rate Payment for that year; less
(b) any distribution to the participant (or beneficiary) of his or her Grantor
Trust's net earnings for that year; plus (c) an amount necessary to compensate
the participant (or beneficiary) for the net increase in the taxes described in
(a) above as a result of the inclusion in his or her taxable income of any
payment made pursuant to this subsection 6.6. Payment of the Tax Gross Up shall
be made by the employers (in such proportions as Abbott shall designate)
directly from their general corporate assets.
6.7 INCOME TAX ASSUMPTIONS. For purposes of Sections 5 and 6, a
participant's federal income tax rate shall be deemed to be the highest marginal
rate of federal income individual tax in effect in the calendar year in which a
calculation under those Sections is to be made, and state and local tax rates
shall be deemed to be the highest marginal rates of individual income tax in
effect in the state and locality of the participant's residence on the date such
a calculation is made, net of any federal tax benefits.
14
6.8 PAYMENT OF PRIOR DEFERRALS. Notwithstanding any other provision of
this Plan, the Committee, in its absolute discretion, may direct that all or a
portion of the balance in a participant's Deferred Account be paid in accordance
with the provisions of subsection 5.1(b). In such event, the Committee shall
establish and maintain a Trust Account in accordance with subsection 5.2 and,
for purposes of subsection 5.4, shall treat such payment as if it were an
allocation made for that fiscal year.
SECTION 7
AMENDMENT, TERMINATION AND CHANGE OF
CONDITIONS RELATING TO PAYMENTS
7.1 AMENDMENT AND TERMINATION. The Plan will be effective from its
effective date until terminated by the Board of Directors. During the fifth
year after the Plan's effective date and during every fifth year thereafter, the
Committee may recommend to the Board of Directors whether the Plan should be
amended or terminated. The Board of Directors reserves the right to amend the
Plan from time to time and to terminate the Plan at any time, except that no
such amendment or any termination of the Plan shall reduce any fixed or
contingent obligations which shall have arisen under the Plan prior to the date
of such amendment or termination, or change the terms and conditions of payment
of any allocation theretofore made without the consent of the participant
concerned.
7.2 CHANGE OF CONDITIONS RELATING TO PAYMENTS. Following the
establishment by the Committee of any conditions relating to the payment of any
amount allocated to a participant for any fiscal year and any interest credited
thereon (including the time of payment or the time of commencement of payment
and any period over which payment shall be made), neither the Committee nor the
participant concerned, acting unilaterally, shall have the power to change the
conditions originally established by the Committee.
15
However, in order to effectuate the purposes of the Plan, any conditions
initially established by the Committee may be changed thereafter by mutual
agreement of the Committee and the participant concerned.
16
Exhibit A
IRREVOCABLE GRANTOR TRUST AGREEMENT
THIS AGREEMENT, made this__________day of_________________, 1991, by and
between _____________________of_______________, Illinois (the "grantor"), and
The Northern Trust Company located at Chicago, Illinois, as trustee (the
"trustee"),
WITNESSETH THAT:
WHEREAS, the grantor desires to establish and maintain a trust to hold
certain benefits received by the grantor under the 1986 Abbott Laboratories
Management Incentive Plan, as it may be amended from time to time;
NOW, THEREFORE, IT IS AGREED as follows:
ARTICLE I
INTRODUCTION
I-1. NAME. This agreement and the trust hereby evidenced (the "trust")
may be referred to as the "________________________ 1991 Grantor Trust".
I-2. THE TRUST FUND The "trust fund" as at any date means all property
then held by the trustee under this agreement.
I-3. STATUS OF THE TRUST. The trust shall be irrevocable. The trust is
intended to constitute a grantor trust under Sections 671-678 of the Internal
Revenue Code, as amended, and shall be construed accordingly.
I-4. THE ADMINISTRATOR. Abbott Laboratories ("Abbott") shall act as the
"administrator" of the trust, and as such shall have certain powers, rights and
duties under this agreement as described below. Abbott will certify to the
trustee from time to time the person or persons authorized to act on behalf of
Abbott as the administrator. The trustee may rely on the latest certificate
received without further inquiry or verification.
I-5. ACCEPTANCE. The trustee accepts the duties and obligations of the
"trustee" hereunder, agrees to accept funds delivered to it by the grantor or
the administrator, and agrees to hold such funds (and any proceeds from the
investment of such funds) in trust in accordance with this agreement.
ARTICLE II
DISTRIBUTION OF THE TRUST FUND
II-1. SEPARATE ACCOUNTS. The administrator shall maintain two separate
accounts under the trust, a "rollout account" and a "deferred account." Funds
delivered to the trustee shall be allocated between the accounts by the trustee
as directed by the administrator. As of the end of each calendar year, the
administrator shall charge each account with all distributions made from such
account during that year; and credit each account with its share of income and
realized gains and charge each account with its share of expenses and
realized losses for the year. The trustee shall not be required to make any
separate investment of the trust fund for the accounts, and may administer
and invest all funds delivered to it under the trust as one trust fund.
II-2. DISTRIBUTIONS FROM THE ROLLOUT ACCOUNT PRIOR TO THE GRANTOR'S DEATH.
The trustee shall distribute principal and accumulated income credited to the
rollout account to the grantor, if then living, at such times and in such
amounts as the administrator shall direct.
II-3. DISTRIBUTIONS FROM THE DEFERRED ACCOUNT PRIOR TO THE GRANTOR'S
DEATH. Principal and accumulated income credited to the deferred account shall
not be distributed from the trust prior to the grantor's retirement or other
termination of employment with Abbott or a subsidiary of Abbott (the grantor's
"settlement date"); provided that, each year the administrator may direct the
trustee to distribute to the grantor a portion of the income of the deferred
account for that year, with the balance of such income to be accumulated in that
account. The administrator shall inform the trustee of the grantor's settlement
date. Thereafter, the trustee shall distribute the amounts from time to time
credited to the deferred account to the grantor, if then living, in a series of
annual installments, with the amount of each installment computed by one of the
following methods:
(a) The amount of each installment shall be equal to the sum of: (i) the
amount credited to the deferred account as of the end of the year in
which the grantor's settlement date occurs, divided by the number of
years over which installments are to be distributed; plus (ii) the net
earnings credited to the deferred account for the preceding year
(excluding the year in which the grantor's settlement date occurs).
(b) The amount of each installment shall be determined by dividing the
amount credited to the deferred account as of the end of the preceding
year by the difference between (i) the total number of years over
which installments are to be distributed, and (ii) the number of
annual installment distributions previously made from the deferred
account.
(c) Each installment (after the first installment) shall be approximately
equal, with the amount comprised of the sum of: (i) the amount of the
first installment, plus interest thereon at the rate determined under
the 1986 Abbott Laboratories Management Incentive Plan, compounded
annually; and (ii) the net earnings credited to the deferred account
for the preceding year.
Notwithstanding the foregoing, the final installment distribution made to the
grantor under this paragraph II-3 shall equal the total principal and
accumulated income then held in the trust fund. The grantor, by writing filed
with the trustee and the administrator on or before the end of the calendar year
in which the grantor's settlement date occurs (or the end of the calendar year
in which this trust is established, if the grantor's settlement date has already
occurred), may select both the period (which may not be less than ten years from
the end of the calendar year in which the grantor's settlement date occurred)
over which the installment distributions are to be made and the method of
computing the amount of each installment. In the absence of such a written
direction by the grantor, installment distributions shall be made over a period
of ten years, and the amount of each installment
2
shall be computed by using the method described in subparagraph (a) next above.
Installment distributions under this Paragraph II-3 shall be made as of
January 1 of each year, beginning with the calendar year following the year
in which the grantor's settlement date occurs. The administrator shall
inform the trustee of the amount of each installment distribution under this
paragraph II-3, and the trustee shall be fully protected in relying on such
information received from the administrator.
II-4. DISTRIBUTIONS FROM THE TRUST FUND AFTER THE GRANTOR'S DEATH. The
grantor, from time to time may name any person or persons (who may be named
contingently or successively and who may be natural persons or fiduciaries) to
whom the principal of the trust fund and all accrued or undistributed income
thereof shall be distributed in a lump sum or, if the beneficiary is the
grantor's spouse, in installments, as directed by the grantor, upon the
grantor's death. If the grantor directs an installment method of distribution,
any amounts remaining at the death of the spouse beneficiary shall be
distributed in a lump sum. Each designation shall revoke all prior
designations, shall be in writing and shall be effective only when filed by the
grantor with the administrator during the grantor's lifetime. If the grantor
fails to direct a method of distribution, the distribution shall be made in a
lump sum. If the grantor fails to designate a beneficiary as provided above,
then on the grantor's death, the trustee shall distribute the balance of the
trust fund in a lump sum to the executor or administrator of the grantor's
estate.
II-5. FACILITY OF PAYMENT. When a person entitled to a distribution
hereunder is under legal disability, or, in the trustee's opinion, is in any way
incapacitated so as to be unable to manage his or her financial affairs, the
trustee may make such distribution to such person's legal representative, or to
a relative or friend of such person for such person's benefit. Any distribution
made in accordance with the preceding sentence shall be a full and complete
discharge of any liability for such distribution hereunder.
II-6. PERPETUITIES. Notwithstanding any other provisions of this
agreement, on the day next preceding the end of 21 years after the death of the
last to die of the grantor and the grantor's descendants living on the date of
this instrument, the trustee shall immediately distribute any remaining balance
in the trust to the beneficiaries then entitled to distributions hereunder.
ARTICLE III
MANAGEMENT OF THE TRUST FUND
III-1. GENERAL POWERS. The trustee shall, with respect to the trust fund,
have the following powers, rights and duties in addition to those provided
elsewhere in this agreement or by law:
(a) Subject to the limitations of subparagraph (b) next below, to sell,
contract to sell, purchase, grant or exercise options to purchase, and
otherwise deal with all assets of the trust fund, in such way, for
such considerations, and on such terms and conditions as the trustee
decides.
(b) To retain in cash such amounts as the trustee considers advisable; and
to invest and reinvest the balance of the trust fund, without
distinction between principal and income, in obligations of the United
States Government and its agencies or which are backed by the full
faith and
3
credit of the United States Government or in any mutual
fund, common trust fund or collective investment fund which invests
solely in such obligations; and any such investment made or retained
by the trustee in good faith shall be proper despite any resulting
risk or lack of diversification or marketability.
(c) To deposit cash in any depositary (including the banking department of
the bank acting as trustee) without liability for interest, and to
invest cash in savings accounts or time certificates of deposit
bearing a reasonable rate of interest in any such depositary.
(d) To invest, subject to the limitations of subparagraph (b) above, in
any common or commingled trust fund or funds maintained or
administered by the trustee solely for the investment of trust funds.
(e) To borrow from anyone, with the administrator's approval, such sum or
sums from time to time as the trustee considers desirable to carry out
this trust, and to mortgage or pledge all or part of the trust fund as
security.
(f) To retain any funds or property subject to any dispute without
liability for interest and to decline to make payment or delivery
thereof until final adjudication by a court of competent jurisdiction
or until an appropriate release is obtained.
(g) To begin, maintain or defend any litigation necessary in connection
with the administration of this trust, except that the trustee shall
not be obliged or required to do so unless indemnified to the
trustee's satisfaction.
(h) To compromise, contest, settle or abandon claims or demands.
(i) To give proxies to vote stocks and other voting securities, to join in
or oppose (alone or jointly with others) voting trusts, mergers,
consolidations, foreclosures, reorganizations, liquidations, or other
changes in the financial structure of any corporation, and to exercise
or sell stock subscription or conversion rights.
(j) To hold securities or other property in the name of a nominee, in a
depositary, or in any other way, with or without disclosing the trust
relationship.
(k) To divide or distribute the trust fund in undivided interests or
wholly or partly in kind.
(l) To pay any tax imposed on or with respect to the trust; to defer
making payment of any such tax if it is indemnified to its
satisfaction in the premises; and to require before making any payment
such release or other document from any lawful taxing authority and
such indemnity from the intended payee as the trustee considers
necessary for its protection.
4
(m) To deal without restriction with the legal representative of the
grantor's estate or the trustee or other legal representative of any
trust created by the grantor or a trust or estate in which a
beneficiary has an interest, even though the trustee, individually,
shall be acting in such other capacity, without liability for any loss
that may result.
(n) To appoint or remove by written instrument any bank or corporation
qualified to act as successor trustee, wherever located, as special
trustee as to part or all of the trust fund, including property as to
which the trustee does not act, and such special trustee, except as
specifically limited or provided by this or the appointing instrument,
shall have all of the rights, titles, powers, duties, discretions and
immunities of the trustee, without liability for any action taken or
omitted to be taken under this or the appointing instrument.
(o) To appoint or remove by written instrument any bank, wherever located,
as custodian of part or all of the trust fund, and each such custodian
shall have such rights, powers, duties and discretions as are
delegated to it by the trustee.
(p) To employ agents, attorneys, accountants or other persons, and to
delegate to them such powers as the trustee considers desirable, and
the trustee shall be protected in acting or refraining from acting on
the advice of persons so employed without court action.
(q) To perform any and all other acts which in the trustee's judgment are
appropriate for the proper management, investment and distribution of
the trust fund.
III-2. PRINCIPAL AND INCOME. Any income earned on the trust fund which is
not distributed as provided in Article II shall be accumulated and from time to
time added to the principal of the trust. The grantor's interest in the trust
shall include all assets or other property held by the trustee hereunder,
including principal and accumulated income.
III-3. STATEMENTS. The trustee shall prepare and deliver monthly to the
administrator and annually to the grantor, if then living, otherwise to each
beneficiary then entitled to distributions under this agreement, a statement (or
series of statements) setting forth (or which taken together set forth) all
investments, receipts, disbursements and other transactions effected by the
trustee during the reporting period; and showing the trust fund and the value
thereof at the end of such period.
III-4. COMPENSATION AND EXPENSES. All reasonable costs, charges and
expenses incurred in the administration of this trust, including compensation to
the trustee, any compensation to agents, attorneys, accountants and other
persons employed by the trustee, and expenses incurred in connection with the
sale, investment and reinvestment of the trust fund shall be paid from the trust
fund.
5
ARTICLE IV
GENERAL PROVISIONS
IV-1. INTERESTS NOT TRANSFERABLE. The interests of the grantor or other
persons entitled to distributions hereunder are not subject to their debts or
other obligations and may not be voluntarily or involuntarily sold, transferred,
alienated, assigned or encumbered.
IV-2. DISAGREEMENT AS TO ACTS. If there is a disagreement between the
trustee and anyone as to any act or transaction reported in any accounting, the
trustee shall have the right to a settlement of its account by any proper court.
IV-3. TRUSTEE'S OBLIGATIONS. No power, duty or responsibility is imposed
on the trustee except as set forth in this agreement. The trustee is not
obliged to determine whether funds delivered to or distributions from the trust
are proper under the trust, or whether any tax is due or payable as a result of
any such delivery or distribution. The trustee shall be protected in making any
distribution from the trust as directed pursuant to Article II without inquiring
as to whether the distributee is entitled thereto; and the trustee shall not be
liable for any distribution made in good faith without written notice or
knowledge that the distribution is not proper under the terms of this agreement.
IV-4. GOOD FAITH ACTIONS. The trustee's exercise or non-exercise of its
powers and discretions in good faith shall be conclusive on all persons. No one
shall be obliged to see to the application of any money paid or property
delivered to the trustee. The certificate of the trustee that it is acting
according to this agreement will fully protect all persons dealing with the
trustee.
IV-5. WAIVER OF NOTICE. Any notice required under this agreement may be
waived by the person entitled to such notice.
IV-6. CONTROLLING LAW. The laws of the State of Illinois shall govern the
interpretation and validity of the provisions of this agreement and all
questions relating to the management, administration, investment and
distribution of the trust hereby created.
IV-7. SUCCESSORS. This agreement: shall be binding on all persons
entitled to distributions hereunder and their respective heirs and legal
representatives, and on the trustee and its successors.
ARTICLE V
CHANGES IN TRUSTEE
V-1. RESIGNATION OR REMOVAL OF TRUSTEE. The trustee may resign at any
time by giving thirty days' advance written notice to the administrator and the
grantor. The administrator may remove a trustee by written notice to the
trustee and the grantor.
V-2. APPOINTMENT OF SUCCESSOR TRUSTEE. The administrator shall fill any
vacancy in the office of trustee as soon as practicable by written notice to the
successor trustee; and shall give prompt written notice thereof to the grantor,
if then living, otherwise to each beneficiary then entitled to payments or
distributions under this agreement. A successor trustee shall be a bank (as
defined in Section 581 of the Internal Revenue Code, as amended).
6
V-3. DUTIES OF RESIGNING OR REMOVED TRUSTEE AND OF SUCCESSOR TRUSTEE. A
trustee that resigns or is removed shall furnish promptly to the administrator
and the successor trustee an account of its administration of the trust from the
date of its last account. Each successor trustee shall succeed to the title to
the trust fund vested in its predecessor without the signing or filing of any
instrument, but each predecessor trustee shall execute all documents and do all
acts necessary to vest such title of record in the successor trustee. Each
successor trustee shall have all the powers conferred by this agreement as if
originally named trustee. No successor trustee shall be personally liable for
any act or failure to act of a predecessor trustee. With the approval of the
administrator, a successor trustee may accept the account furnished and the
property delivered by a predecessor trustee without incurring any liability for
so doing, and such acceptance will be complete discharge to the predecessor
trustee.
ARTICLE VI
AMENDMENT AND TERMINATION
VI-1. AMENDMENT. With the consent of the administrator, this trust may be
amended from time to time by the grantor, if then living, otherwise by a
majority of the beneficiaries then entitled to payments or distributions
hereunder, except as follows:
(a) The duties and liabilities of the trustee cannot be changed
substantially without its consent.
(b) This trust may not be amended so as to make the trust revocable.
VI-2. TERMINATION THIS TRUST SHALL NOT TERMINATE, and all rights, titles,
powers, duties, discretions and immunities imposed on or reserved to the
trustee, the administrator, the grantor and the beneficiaries shall continue in
effect, until all assets of the trust have been distributed by the trustee as
provided in Article II.
* * *
IN WITNESS WHEREOF, the grantor and the trustee have executed this
agreement as of the day and year first above written.
---------------------------------------
Grantor
The Northern Trust Company as Trustee
By
-------------------------------------
Its
------------------------------------
7
EXHIBIT 11
ABBOTT LABORATORIES AND SUBSIDIARIES
CALCULATION OF FULLY DILUTED EARNINGS PER SHARE
(Dollars and Shares in Millions Except Per Share Amounts)
SIX MONTHS ENDED JUNE 30
-----------------------
1997 1996
-------- -------
1. Net earnings $ 1,056.4 $ 950.5
-------- -------
2. Average number of shares outstanding 773.1 784.5
-------- -------
3. Earnings per share based upon average
outstanding shares (1 divided by 2) $ 1.37 $ 1.21
-------- -------
-------- -------
4. Fully diluted earnings per share:
a. Stock options granted and outstanding for
which the market price at quarter-end
exceeds the option price 32.0 26.9
-------- -------
-------- -------
b. Aggregate proceeds to the Company from
the exercise of options in 4.a. $ 1,225.3 $771.7
-------- -------
-------- -------
c. Market price of the Company's common
stock at quarter-end $ 66.75 $43.50
-------- -------
-------- -------
d. Shares which could be repurchased
under the treasury stock
method (4.b. divided by 4.c.) 18.4 17.7
-------- -------
-------- -------
e. Addition to average outstanding shares
(4.a. - 4.d.) 13.6 9.2
-------- -------
-------- -------
f. Shares for fully diluted earnings per
share calculation (2. + 4.e.) 786.7 793.7
-------- -------
-------- -------
g. Fully diluted earnings per share
(1. divided by 4.f.) $ 1.34 $1.20
-------- -------
-------- -------
EXHIBIT 12
ABBOTT LABORATORIES
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
(Millions of Dollars)
SIX MONTHS ENDED
JUNE 30, 1997
-----------------
Net Earnings $ 1,056
Add (deduct):
Income taxes 442
Minority interest 6
---------
Net earnings as adjusted $ 1,504
---------
Fixed Charges:
Interest on long-term and
short-term debt 64
Capitalized interest cost 6
Rental expense representative
of an interest factor 14
---------
Total Fixed Charges 84
---------
Total adjusted earnings available for
payment of fixed charges $ 1,588
---------
---------
Ratio of earnings to fixed charges 18.9
---------
---------
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
6-MOS
DEC-31-1997
JAN-01-1997
JUN-30-1997
126,521
18,669
1,891,914
163,245
1,263,986
4,587,932
8,568,669
4,067,168
11,433,526
4,513,758
931,055
0
0
783,063
4,154,107
11,433,526
5,900,222
5,900,222
2,544,374
2,544,374
600,222
14,755
64,142
1,498,376
442,021
1,056,355
0
0
0
1,056,355
1.37
1.34
OTHER EXPENSES CONSIST OF RESEARCH AND DEVELOPMENT EXPENSES.
