UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2011

 

OR

 

o

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 60064-6400

 

Telephone:  (847) 937-6l00

 

Indicate by check mark whether the registrant: (l) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of l934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.      Yes x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes x  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.  (Check one):

 

Large Accelerated Filer x

 

Accelerated Filer o

 

 

 

Non-Accelerated Filer o

 

Smaller reporting company o

(Do not check if a smaller reporting company)

 

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

 

As of September 30, 2011, Abbott Laboratories had 1,557,795,578 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 and shares in thousands except per share data)

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30

 

September 30

 

 

 

2011

 

2010

 

2011

 

2010

 

Net Sales

 

$

9,816,665

 

$

8,674,505

 

$

28,473,806

 

$

25,198,873

 

 

 

 

 

 

 

 

 

 

 

Cost of products sold

 

3,973,250

 

3,741,116

 

11,702,705

 

10,620,152

 

Research and development

 

1,009,627

 

1,078,927

 

2,977,807

 

2,666,992

 

Acquired in-process research and development

 

 

 

272,500

 

75,000

 

Selling, general and administrative

 

4,238,910

 

2,673,277

 

9,851,314

 

7,579,095

 

Total Operating Cost and Expenses

 

9,221,787

 

7,493,320

 

24,804,326

 

20,941,239

 

 

 

 

 

 

 

 

 

 

 

Operating Earnings

 

594,878

 

1,181,185

 

3,669,480

 

4,257,634

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

124,339

 

149,102

 

404,055

 

401,791

 

Interest (income)

 

(20,816

)

(15,590

)

(61,400

)

(83,293

)

Net foreign exchange loss (gain)

 

(5,018

)

(20,956

)

(48,180

)

8,180

 

Other (income) expense, net

 

(5,222

)

4,519

 

130,068

 

(14,048

)

Earnings Before Taxes

 

501,595

 

1,064,110

 

3,244,937

 

3,945,004

 

Taxes on Earnings

 

198,414

 

173,450

 

135,156

 

759,679

 

Net Earnings

 

$

303,181

 

$

890,660

 

$

3,109,781

 

$

3,185,325

 

 

 

 

 

 

 

 

 

 

 

Basic Earnings Per Common Share

 

$

0.19

 

$

0.58

 

$

1.99

 

$

2.06

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Common Share

 

$

0.19

 

$

0.57

 

$

1.98

 

$

2.04

 

 

 

 

 

 

 

 

 

 

 

Cash Dividends Declared Per Common Share

 

$

0.48

 

$

0.44

 

$

1.44

 

$

1.32

 

 

 

 

 

 

 

 

 

 

 

Average Number of Common Shares Outstanding Used for Basic Earnings Per Common Share

 

1,558,556

 

1,545,413

 

1,555,482

 

1,546,147

 

Dilutive Common Stock Options and Awards

 

9,731

 

8,639

 

8,617

 

9,838

 

 

 

 

 

 

 

 

 

 

 

Average Number of Common Shares Outstanding Plus Dilutive Common Stock Options and Awards

 

1,568,287

 

1,554,052

 

1,564,099

 

1,555,985

 

 

 

 

 

 

 

 

 

 

 

Outstanding Common Stock Options Having No Dilutive Effect

 

61,201

 

66,479

 

60,653

 

29,403

 

 

The accompanying notes to condensed consolidated financial statements are an integral part of this statement.

 

2



 

Abbott Laboratories and Subsidiaries

 

Condensed Consolidated Statement of Cash Flows

 

(Unaudited)

 

(dollars in thousands)

 

 

 

Nine Months Ended
September 30

 

 

 

2011

 

2010

 

Cash Flow From (Used in) Operating Activities:

 

 

 

 

 

Net earnings

 

$

3,109,781

 

$

3,185,325

 

Adjustments to reconcile earnings to net cash from operating activities -

 

 

 

 

 

Depreciation

 

1,154,198

 

904,219

 

Amortization of intangibles

 

1,241,267

 

1,010,508

 

Share-based compensation

 

320,103

 

330,236

 

Acquired in-process research and development

 

272,500

 

 

Trade receivables

 

272,530

 

476,209

 

Inventories

 

47,521

 

(52,884

)

Other, net

 

1,150,828

 

565,849

 

Net Cash From Operating Activities

 

7,568,728

 

6,419,462

 

 

 

 

 

 

 

Cash Flow From (Used in) Investing Activities:

 

 

 

 

 

Acquisitions of property and equipment

 

(1,216,765

)

(723,742

)

Acquisitions of businesses and technologies, net of cash acquired

 

(672,500

)

(9,120,043

)

(Purchases of) proceeds from sales of investment securities, net

 

(1,093,548

)

1,973,697

 

Release of (deposit of) restricted funds

 

1,870,000

 

(1,870,000

)

Other

 

9,171

 

(7,838

)

Net Cash (Used in) Investing Activities

 

(1,103,642

)

(9,747,926

)

 

 

 

 

 

 

Cash Flow From (Used in) Financing Activities:

 

 

 

 

 

Repayments of short-term debt and other

 

(786,830

)

(1,419,671

)

Proceeds from issuance of long-term debt

 

 

3,000,000

 

Payment of long-term debt

 

(2,008,836

)

(1,254

)

Purchases of common shares

 

(74,428

)

(866,173

)

Proceeds from stock options exercised, including income tax benefit

 

317,463

 

272,045

 

Dividends paid

 

(2,186,006

)

(1,979,374

)

Net Cash (Used in) Financing Activities

 

(4,738,637

)

(994,427

)

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

(325,521

)

(668,303

)

 

 

 

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

 

1,400,928

 

(4,991,194

)

Cash and Cash Equivalents, Beginning of Year

 

3,648,371

 

8,809,339

 

Cash and Cash Equivalents, End of Period

 

$

5,049,299

 

$

3,818,145

 

 

The accompanying notes to condensed consolidated financial statements are an integral part of this statement.

 

3



 

Abbott Laboratories and Subsidiaries

 

Condensed Consolidated Balance Sheet

 

(Unaudited)

 

(dollars in thousands)

 

 

 

September 30
2011

 

December 31
2010

 

 

 

 

 

(As Adjusted

 

 

 

 

 

See Note 1)

 

Assets

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

5,049,299

 

$

3,648,371

 

Investments, primarily U.S. treasury bills, time deposits and certificates of deposit

 

2,927,203

 

1,803,079

 

Restricted funds, primarily U.S. treasury bills

 

 

1,872,490

 

Trade receivables, less allowances of $470,734 in 2011 and $388,564 in 2010

 

7,043,542

 

7,184,034

 

Inventories:

 

 

 

 

 

Finished products

 

2,295,831

 

2,058,735

 

Work in process

 

389,147

 

383,580

 

Materials

 

584,339

 

746,419

 

Total inventories

 

3,269,317

 

3,188,734

 

Prepaid expenses, deferred income taxes, and other receivables

 

4,805,055

 

4,620,821

 

Total Current Assets

 

23,094,416

 

22,317,529

 

Investments

 

392,788

 

302,049

 

Property and Equipment, at Cost

 

17,519,806

 

17,374,302

 

Less: accumulated depreciation and amortization

 

9,542,346

 

9,403,346

 

Net Property and Equipment

 

7,977,460

 

7,970,956

 

Intangible Assets, net of amortization

 

10,793,177

 

12,151,628

 

Goodwill

 

16,231,185

 

15,930,077

 

Deferred Income Taxes and Other Assets

 

1,139,150

 

790,027

 

 

 

$

59,628,176

 

$

59,462,266

 

Liabilities and Shareholders’ Investment

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Short-term borrowings

 

$

3,589,563

 

$

4,349,796

 

Trade accounts payable

 

1,601,998

 

1,535,759

 

Salaries, wages and commissions

 

1,323,356

 

1,328,665

 

Other accrued liabilities

 

7,649,429

 

6,014,772

 

Dividends payable

 

747,762

 

680,749

 

Income taxes payable

 

466,855

 

1,307,723

 

Current portion of long-term debt

 

34,998

 

2,044,970

 

Total Current Liabilities

 

15,413,961

 

17,262,434

 

Long-term Debt

 

13,096,767

 

12,523,517

 

Post-employment Obligations, Deferred Income Taxes and Other Long-term Liabilities

 

6,428,476

 

6,911,184

 

Commitments and Contingencies

 

 

 

 

 

Shareholders’ Investment:

 

 

 

 

 

Preferred shares, one dollar par value Authorized — 1,000,000 shares, none issued

 

 

 

Common shares, without par value Authorized - 2,400,000,000 shares Issued at stated capital amount - Shares: 2011: 1,626,357,001; 2010: 1,619,689,876

 

9,102,857

 

8,744,703

 

Common shares held in treasury, at cost - Shares: 2011: 68,561,423; 2010: 72,705,928

 

(3,691,223

)

(3,916,823

)

Earnings employed in the business

 

20,052,443

 

19,215,768

 

Accumulated other comprehensive income (loss)

 

(860,277

)

(1,366,846

)

Total Abbott Shareholders’ Investment

 

24,603,800

 

22,676,802

 

Noncontrolling Interests in Subsidiaries

 

85,172

 

88,329

 

Total Shareholders’ Investment

 

24,688,972

 

22,765,131

 

 

 

$

59,628,176

 

$

59,462,266

 

 

The accompanying notes to condensed consolidated financial statements are an integral part of this statement.

 

4



 

Abbott Laboratories and Subsidiaries

 

Notes to Condensed Consolidated Financial Statements

 

September 30, 2011

 

(Unaudited)

 

Note 1 — Basis of Presentation and Change in Accounting Principle

 

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 results of operations, financial position and cash flows have been made.  It is suggested that these statements be read in conjunction with the financial statements included in Abbott’s Annual Report on Form 10-K for the year ended December 31, 2010.

 

The consolidated financial statements include the accounts of the parent company and subsidiaries, after elimination of intercompany transactions.  Prior to January 1, 2011, the accounts of foreign subsidiaries were consolidated based on a fiscal year ended November 30 due to the time needed to consolidate these subsidiaries.  Effective January 1, 2011, the one month lag in the consolidation of the accounts of foreign subsidiaries was eliminated and the year-end of foreign subsidiaries was changed to December 31.  Abbott believes that the change in accounting principle related to the elimination of the one month reporting lag is preferable because it will result in more contemporaneous reporting of the results of foreign subsidiaries.  In accordance with applicable accounting literature, a change in subsidiaries’ year-end is treated as a change in accounting principle and requires retrospective application.  The cumulative effect of the change was an increase in retained earnings of $289 million as of January 1, 2009 and a corresponding decrease in other long-term liabilities.  The impact of the change was not material to the results of operations for the previously reported annual and interim periods after January 1, 2009, and thus, those results have not been revised.  A charge of $137 million was recorded to Other (income) expense, net in the three months ended March 31, 2011 to recognize the cumulative immaterial impacts to 2009 and 2010.  Had the financial statements been revised, net sales, operating earnings and net earnings in calendar 2009 would have increased by $211 million, $36 million and $38 million, respectively, and net sales, operating earnings and net earnings in calendar 2010 would have decreased by $21 million, $195 million and $175 million, respectively.  In addition, net sales, operating earnings and net earnings for the three months ended September 30, 2010 would have increased by $302 million, $25 million and $15 million, respectively, and net sales, operating earnings and net earnings for the nine months ended September 30, 2010 would have increased by $397 million, $63 million and $50 million, respectively.

 

Note 2 — Supplemental Financial Information

 

Unvested restricted stock units that contain non-forfeitable rights to dividends are treated as participating securities and are included in the computation of earnings per share under the two-class method.  Under the two-class method, net earnings are allocated between common shares and participating securities.  Net earnings allocated to common shares for the three months and nine months ended September 30, 2011 were $302 million and $3.102 billion, respectively, and net earnings allocated to common shares for the three months and nine months ended September 30, 2010 were $889 million and $3.177 billion, respectively.

 

Other, net in Net cash from operating activities for 2011 includes the non-cash impact of a litigation reserve of $1.5 billion which was partially offset by $570 million of tax benefits related to the favorable resolution of various tax positions pertaining to prior years.  In addition, Other, net in Net cash from operating activities for 2011 and 2010 includes the effects of contributions to defined benefit plans of $390 million and $510 million, respectively, and to the post-employment medical and dental benefit plans of $40 million and $66 million, respectively.

 

The judgment entered by the U.S. District Court for the Eastern District of Texas against Abbott in its litigation with New York University and Centocor, Inc. required Abbott to secure the judgment in the event that its appeal to the Federal Circuit court was unsuccessful in overturning the district court’s decision.  In the first quarter of 2010, Abbott deposited $1.87 billion with an escrow agent and considered these assets to be restricted. On February 23, 2011, the Federal Circuit reversed the district court’s final judgment and found Centocor’s patent invalid.  On April 25, 2011 Centocor petitioned the Federal Circuit to rehear and reconsider the decision. In June 2011 the Federal Circuit denied Centocor’s petition and the restrictions on the funds were lifted.

 

5



 

Notes to Condensed Consolidated Financial Statements

September 30, 2011

(Unaudited), continued

 

The components of long-term investments as of September 30, 2011 and December 31, 2010 are as follows:

 

 

 

September 30

 

December 31

 

(dollars in millions)

 

2011

 

2010

 

Equity securities

 

$

296

 

$

240

 

Debt obligations issued by various governments

 

97

 

62

 

Total

 

$

393

 

$

302

 

 

Note 3 — Taxes on Earnings

 

Taxes on earnings reflect the estimated annual effective rates and include charges for interest and penalties.  Taxes on earnings in 2011 reflect the effect of the tax rate applied to a litigation reserve in the third quarter and the recognition of $570 million of tax benefits in the first nine months as a result of the favorable resolution of various tax positions pertaining to prior years, which also decreased the gross amount of unrecognized tax benefits by approximately $1.2 billion.  Exclusive of these discrete items, the effective tax rates are less than the statutory U.S. federal income tax rate principally due to the benefit of lower statutory tax rates and tax exemptions in several foreign taxing jurisdictions.  Abbott believes that it is reasonably possible that the recorded amount of gross unrecognized tax benefits may decrease by up to $500 million, including cash adjustments, within the next twelve months as a result of concluding various tax matters.

 

As a result of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act which were signed into law in the first quarter of 2010, Abbott recorded a charge of approximately $60 million in the first quarter 2010 to reduce deferred tax assets associated with retiree health care liabilities related to the Medicare Part D retiree drug subsidy.

 

Note 4 — Litigation and Environmental Matters

 

Abbott 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 and state remediation laws and is investigating potential contamination at a number of company-owned locations.  Abbott has recorded an estimated cleanup cost for each site for which management believes Abbott has a probable loss exposure.  No individual site cleanup exposure is expected to exceed $3 million, and the aggregate cleanup exposure is not expected to exceed $15 million.

 

There are a number of patent disputes with third parties who claim Abbott’s products infringe their patents.  In April 2007, New York University (NYU) and Centocor, Inc. filed a lawsuit in the Eastern District of Texas asserting that HUMIRA infringes a patent co-owned by NYU and Centocor and exclusively licensed to Centocor.  In June 2009, a jury found that Abbott had willfully infringed the patent and awarded NYU and Centocor approximately $1.67 billion in past compensatory damages.  In December 2009, the district court issued a final judgment and awarded the plaintiffs an additional $175 million in prejudgment interest.  On February 23, 2011, the Federal Circuit reversed the district court’s final judgment and found Centocor’s patent invalid.  On April 25, 2011 Centocor petitioned the Federal Circuit to rehear and reconsider the decision.  In June 2011 the Federal Circuit denied Centocor’s request to reconsider.  Centocor has until November 10, 2011 to ask the U.S. Supreme Court to review the Federal Circuit’s decision.  Abbott is confident in the merits of its case and, as a result, no reserves have been recorded in this case.

 

The United States Department of Justice, through the United States Attorney for the Western District of Virginia, is investigating Abbott’s sales and marketing activities for Depakote.  The government is seeking to determine whether any of these activities violated civil and/or criminal laws, including the Federal False Claims Act, the Food and Drug Cosmetic Act, and the anti-Kickback Statute in connection with Medicare and/or Medicaid reimbursement to third parties.  Discussions to resolve potential civil and criminal claims arising from this matter have advanced to a point where Abbott believes a loss is probable and estimable and therefore, Abbott recorded a charge of $1.5 billion in the third quarter of 2011.  If the discussions are successfully concluded, Abbott expects the discussions to result in resolution of the Depakote-related federal claims, as well as similar state Medicaid-related claims.  However, the discussions are ongoing, and until concluded, there can be no certainty about definitive resolution.

 

Within the next year, legal proceedings may occur that may result in a change in the estimated reserves recorded by Abbott.  For its legal proceedings and environmental exposures Abbott estimates the range of possible loss to be from approximately $1.58 billion to $1.61 billion, which includes the $1.5 billion charge discussed above.  The recorded reserve balance at September 30, 2011 for these proceedings and exposures was approximately $1.6 billion.  These reserves represent management’s best estimate of probable loss, as defined by FASB ASC No. 450, “Contingencies.”

 

6



 

Notes to Condensed Consolidated Financial Statements

September 30, 2011

(Unaudited), continued

 

While it is not feasible to predict the outcome of all such proceedings and exposures with certainty, management believes that their ultimate disposition should not have a material adverse effect on Abbott’s financial position, cash flows, or results of operations except for the government investigation discussed in the third paragraph of this footnote, the resolution of which is expected to be material to cash flows in a given year.

 

Note 5 — Post-Employment Benefits

 

Retirement plans consist of defined benefit, defined contribution, and medical and dental plans.  Net cost for the three and nine months ended September 30 for Abbott’s major defined benefit plans and post-employment medical and dental benefit plans is as follows:

 

 

 

Defined Benefit Plans

 

Medical and Dental Plans

 

 

 

Three Months

 

Nine Months

 

Three Months

 

Nine Months

 

 

 

Ended Sept. 30

 

Ended Sept. 30

 

Ended Sept. 30

 

Ended Sept. 30

 

(dollars in millions)

 

2011

 

2010

 

2011

 

2010

 

2011

 

2010

 

2011

 

2010

 

Service cost — benefits earned during the period

 

$

95

 

$

77

 

$

251

 

$

234

 

$

14

 

$

17

 

$

41

 

$

45

 

Interest cost on projected benefit obligations

 

131

 

117

 

350

 

351

 

22

 

24

 

66

 

76

 

Expected return on plans’ assets

 

(171

)

(155

)

(471

)

(453

)

(9

)

(9

)

(25

)

(23

)

Settlement

 

36

 

 

36

 

 

 

 

 

 

Net amortization

 

43

 

28

 

125

 

83

 

(1

)

2

 

(3

)

13

 

Net Cost

 

$

134

 

$

67

 

$

291

 

$

215

 

$

26

 

$

34

 

$

79

 

$

111

 

 

Abbott funds its domestic defined benefit plans according to IRS funding limitations.  International pension plans are funded according to similar regulations.  In the first nine months of 2011 and 2010, $390 million and $510 million, respectively, was contributed to defined benefit plans and $40 million and $66 million, respectively, was contributed to the post-employment medical and dental benefit plans.

 

Note 6 — Comprehensive Income, net of tax

 

 

 

Three Months Ended

 

Nine Months Ended

 

 

 

September 30

 

September 30

 

(dollars in millions) 

 

2011

 

2010

 

2011

 

2010

 

Foreign currency translation (loss) gain adjustments

 

$

(1,494

)

$

1,153

 

$

479

 

$

(2,573

)

Amortization of net actuarial losses and prior service cost and credits

 

28

 

4

 

81

 

1

 

Unrealized (loss) gains on marketable equity securities

 

(8

)

20

 

3

 

63

 

Net adjustments for derivative instruments designated as cash flow hedges

 

36

 

(30

)

(56

)

172

 

Other comprehensive (loss) income, net of tax

 

(1,438

)

1,147

 

507

 

(2,337

)

Net Earnings

 

303

 

891

 

3,110

 

3,185

 

Comprehensive (Loss) Income

 

$

(1,135

)

$

2,038

 

$

3,617

 

$

848

 

 

 

 

Sept. 30
2011

 

Dec. 31
2010

 

Supplemental Accumulated Other Comprehensive Income Information, net of tax:

 

 

 

 

 

Cumulative foreign currency translation (gain) adjustments

 

$

(1,223

)

$

(744

)

Net actuarial losses and prior service cost and credits

 

2,139

 

2,220

 

Cumulative unrealized (gains) on marketable equity securities

 

(27

)

(24

)

Cumulative (gains) on derivative instruments designated as cash flow hedges

 

(29

)

(85

)

 

7


 


 

Notes to Condensed Consolidated Financial Statements

September 30, 2011

(Unaudited), continued

 

Note 7 — Segment Information

 

Abbott’s principal business is the discovery, development, manufacture and sale of a broad line of health care products.  Abbott’s products are generally sold directly to retailers, wholesalers, hospitals, health care facilities, laboratories, physicians’ offices and government agencies throughout the world.  Effective January 1, 2011, Abbott’s segments were reorganized to reflect the shift of international branded generic pharmaceutical products to a newly formed division, Established Pharmaceuticals, and the combination of the domestic and international proprietary pharmaceuticals businesses into one global division.  The segment information below has been adjusted to reflect the reorganizations.  Abbott’s reportable segments are as follows:

 

Proprietary Pharmaceutical Products — Worldwide sales of a broad line of proprietary pharmaceutical products.

 

Established Pharmaceutical Products — International sales of a broad line of branded generic pharmaceutical products.

 

Nutritional Products — Worldwide sales of a broad line of adult and pediatric nutritional products.

 

Diagnostic Products — Worldwide sales of diagnostic systems and tests for blood banks, hospitals, commercial laboratories and alternate-care testing sites.  For segment reporting purposes, the Core Laboratories Diagnostics, Molecular Diagnostics, Point of Care and Ibis diagnostic divisions are aggregated and reported as the Diagnostic Products segment.

 

Vascular Products — Worldwide sales of coronary, endovascular, structural heart, vessel closure and other medical device products.

 

Non-reportable segments include the Diabetes Care and Medical Optics segments.

 

Abbott’s underlying accounting records are maintained on a legal entity basis for government and public reporting requirements.  Segment disclosures are on a performance basis consistent with internal management reporting.  Intersegment transfers of inventory are recorded at standard cost and are not a measure of segment operating earnings.  The cost of some corporate functions and the cost of certain employee benefits are charged to segments at predetermined rates that approximate cost.  Remaining costs, if any, are not allocated to segments.  For acquisitions prior to 2006, substantially all intangible assets and related amortization are not allocated to segments.  In addition, no intangible assets or related amortization are allocated to the Established Pharmaceutical Products segment.  The following segment information has been prepared in accordance with the internal accounting policies of Abbott, as described above, and are not presented in accordance with generally accepted accounting principles applied to the consolidated financial statements.

 

 

 

Net Sales to External Customers

 

Operating Earnings

 

 

 

Three Months

 

Nine Months

 

Three Months

 

Nine Months

 

 

 

Ended Sept. 30

 

Ended Sept. 30

 

Ended Sept. 30

 

Ended Sept. 30

 

(dollars in millions)

 

2011

 

2010

 

2011

 

2010

 

2011

 

2010

 

2011

 

2010

 

Proprietary Pharmaceutical Products

 

$

4,298

 

$

3,787

 

$

12,242

 

$

10,852

 

$

1,879

 

$

1,684

 

$

4,919

 

$

4,456

 

Established Pharmaceutical Products

 

1,389

 

1,133

 

4,023

 

3,063

 

311

 

233

 

933

 

648

 

Nutritional Products

 

1,537

 

1,365

 

4,450

 

4,099

 

205

 

164

 

540

 

591

 

Diagnostic Products

 

1,025

 

916

 

3,046

 

2,779

 

199

 

137

 

555

 

442

 

Vascular Products

 

828

 

790

 

2,507

 

2,372

 

257

 

261

 

700

 

686

 

Total Reportable Segments

 

9,077

 

7,991

 

26,268

 

23,165

 

2,851

 

2,479

 

7,647

 

6,823

 

Other

 

740

 

684

 

2,206

 

2,034

 

 

 

 

 

 

 

 

 

Net Sales

 

$

9,817

 

$

8,675

 

$

28,474

 

$

25,199

 

 

 

 

 

 

 

 

 

Corporate functions and benefit plans costs

 

 

 

 

 

 

 

 

 

(108

)

(114

)

(344

)

(455

)

Non-reportable segments

 

 

 

 

 

 

 

 

 

39

 

(20

)

173

 

211

 

Net interest expense

 

 

 

 

 

 

 

 

 

(104

)

(134

)

(343

)

(318

)

Share-based compensation (a)

 

 

 

 

 

 

 

 

 

(68

)

(73

)

(320

)

(330

)

Acquired in-process research and development

 

 

 

 

 

 

 

 

 

 

 

(273

)

(75

)

Other, net (b)

 

 

 

 

 

 

 

 

 

(2,108

)

(1,074

)

(3,295

)

(1,911

)

Consolidated Earnings Before Taxes

 

 

 

 

 

 

 

 

 

$

502

 

$

1,064

 

$

3,245

 

$

3,945

 

 


(a)          Approximately 40 to 45 percent of the annual net cost of share-based awards will typically be recognized in the first quarter due to the timing of the granting of share-based awards.

(b)         Other, net for the third quarter and nine months 2011 includes a charge of $1.5 billion related to a previously disclosed government investigation.

 

8



 

Notes to Condensed Consolidated Financial Statements

September 30, 2011

(Unaudited), continued

 

Note 8 — Incentive Stock Programs

 

In the first nine months of 2011, Abbott granted 1,757,339 stock options, 619,294 replacement stock options, 1,167,570 restricted stock awards and 6,523,222 restricted stock units under these programs.  At September 30, 2011, approximately 180 million shares were reserved for future grants.  Information regarding the number of options outstanding and exercisable at September 30, 2011 is as follows:

 

 

 

Outstanding

 

Exercisable

 

Number of shares

 

98,662,170

 

94,774,011

 

Weighted average remaining life (years)

 

4.4

 

4.2

 

Weighted average exercise price

 

$

50.61

 

$

50.61

 

Aggregate intrinsic value (in millions)

 

$

276

 

$

268

 

 

The total unrecognized share-based compensation cost at September 30, 2011 amounted to approximately $310 million which is expected to be recognized over the next three years.

 

Note 9 — Business Combinations and Technology Acquisitions

 

In February 2010, Abbott acquired Solvay’s pharmaceuticals business (Solvay Pharmaceuticals) for approximately $6.1 billion, in cash, plus additional payments of up to EUR 100 million per year if certain sales milestones are met in 2011, 2012 and 2013.  Contingent consideration of approximately $290 million was recorded.   The acquisition of Solvay Pharmaceuticals provides Abbott with a large and complementary portfolio of pharmaceutical products and expands Abbott’s presence in key global emerging markets.  Abbott acquired control of this business on February 15, 2010 and the financial results of the acquired operations are included in these financial statements beginning on that date.  The acquisition was funded with cash and short-term investments.  The allocation of the fair value of the acquisition is shown in the table below (in billions of dollars).

 

Goodwill, non-deductible

 

$

2.2

 

Acquired intangible assets, non-deductible

 

4.1

 

Acquired in-process research and development, non-deductible

 

0.5

 

Acquired net tangible assets

 

0.7

 

Deferred income taxes recorded at acquisition

 

(1.1

)

Total allocation of fair value

 

$

6.4

 

 

Acquired intangible assets consist primarily of product rights for currently marketed products and are amortized over 2 to 14 years (average of 11 years).  Acquired in-process research and development projects are accounted for as indefinite lived intangible assets until regulatory approval or discontinuation.  The net tangible assets acquired consist primarily of trade accounts receivable of approximately $675 million, inventory of approximately $390 million, property and equipment of approximately $725 million, net of assumed liabilities, primarily trade accounts payable, accrued compensation and other liabilities.

 

Had the acquisition of Solvay Pharmaceuticals taken place on January 1, 2010, unaudited pro forma net sales, net earnings and diluted earnings per share for the three months and nine months ended September 30, 2010 would have been $8.7 billion and $25.8 billion, $900 million and $3.2 billion and $0.57 and $2.04, respectively.  The pro forma information includes adjustments for amortization of intangible assets and fair value adjustments to acquisition-date inventory as well as acquisition and integration expenses.  The pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transaction been effected on the assumed date.

 

In March 2010, Abbott acquired STARLIMS Technologies for approximately $100 million, in cash, net of cash held by STARLIMS, providing Abbott with leading products and expertise to build its position in laboratory informatics.   A substantial portion of the fair value of the acquisition has been allocated to amortizable intangible assets and goodwill.

 

9



 

Notes to Condensed Consolidated Financial Statements

September 30, 2011

(Unaudited), continued

 

In April 2010, Abbott acquired the outstanding shares of Facet Biotech Corporation for approximately $430 million, in cash, net of cash held by Facet.   The acquisition enhances Abbott’s early- and mid-stage pharmaceutical pipeline, including a biologic for multiple sclerosis and compounds that complement Abbott’s oncology program.  A substantial portion of the fair value of the acquisition has been allocated to acquired in-process research and development that is accounted for as an indefinite-lived intangible asset until regulatory approval or discontinuation.

 

On September 8, 2010, Abbott acquired Piramal Healthcare Limited’s Healthcare Solutions business, a leader in the Indian branded generics market, for $2.2 billion, in cash, plus additional payments of $400 million annually in 2011, 2012, 2013 and 2014.  Abbott recorded a $1.6 billion liability for the present value of the additional payments at the acquisition date.  The acquisition was financed with cash.  The allocation of the fair value of the acquisition resulted in the recording of $2.7 billion of deductible acquired intangible assets and $1.0 billion of deductible goodwill.  Acquired intangible assets consist primarily of trade names, customer relationships and associated rights and are amortized over an average of 19 years.

 

In 2010, Abbott entered into an agreement to acquire licensing rights outside the U.S., excluding certain Asian markets, to a product in development for the treatment of chronic kidney disease.  In the first and second quarters of 2011, certain milestones were achieved and charges to acquired in-process research and development of $100 million and $88 million were recorded.  In addition, Abbott also acquired an equity interest of approximately $62 million in the second quarter of 2011.

 

In the second quarter of 2011, Abbott entered into an agreement to develop and commercialize a treatment for rheumatoid arthritis and psoriasis resulting in a charge to acquired in-process research and development of $85 million.  In the second quarter of 2010, Abbott entered into an agreement to develop and commercialize a product for the treatment of endometriosis resulting in a charge to acquired in-process research and development of $75 million.

 

Note 10 — Financial Instruments, Derivatives and Fair Value Measures

 

Certain Abbott foreign subsidiaries enter into foreign currency forward exchange contracts to manage exposures to changes in foreign exchange rates for anticipated intercompany purchases by those subsidiaries whose functional currencies are not the U.S. dollar.  These contracts, totaling $603 million and $1.3 billion at September 30, 2011 and December 31, 2010, respectively, are designated as cash flow hedges of the variability of the cash flows due to changes in foreign exchange rates and are recorded at fair value.  Accumulated gains and losses as of September 30, 2011 will be included in Cost of products sold at the time the products are sold, generally through the next twelve months.  The amount of hedge ineffectiveness was not significant in 2011 and 2010.

 

Abbott enters into foreign currency forward exchange contracts to manage currency exposures for foreign currency denominated third-party trade payables and receivables, and for intercompany loans and trade accounts payable where the receivable or payable is denominated in a currency other than the functional currency of the entity.  For intercompany loans, the contracts require Abbott to sell or buy foreign currencies, primarily European currencies and Japanese yen, in exchange for primarily U.S. dollars and other European currencies.  For intercompany and trade payables and receivables, the currency exposures are primarily the U.S. dollar, European currencies and Japanese yen.  At September 30, 2011 and December 31, 2010, Abbott held $14.7 billion and $10.8 billion, respectively, of such foreign currency forward exchange contracts.

 

Abbott has designated foreign denominated short-term debt as a hedge of the net investment in a foreign subsidiary of approximately $690 million and approximately $650 million as of September 30, 2011 and December 31, 2010, respectively.  Accordingly, changes in the fair value of this debt due to changes in exchange rates are recorded in Accumulated other comprehensive income (loss), net of tax.

 

Abbott is a party to interest rate swap contracts totaling $6.8 billion at September 30, 2011 and $7.3 billion at December 31, 2010 to manage its exposure to changes in the fair value of fixed-rate debt.  These contracts are designated as fair value hedges of the variability of the fair value of fixed-rate debt due to changes in the long-term benchmark interest rates.  The effect of the hedge is to change a fixed-rate interest obligation to a variable rate for that portion of the debt.  Abbott records the contracts at fair value and adjusts the carrying amount of the fixed-rate debt by an offsetting amount.  No hedge ineffectiveness was recorded in income in 2011 or 2010 for these hedges.

 

10



 

Notes to Condensed Consolidated Financial Statements

September 30, 2011

(Unaudited), continued

 

The following table summarizes the amounts and location of certain derivative financial instruments as of September 30, 2011 and December 31, 2010:

 

 

 

Fair Value - Assets

 

Fair Value - Liabilities

 

(dollars in millions)

 

Sept. 30
2011

 

Dec. 31
2010

 

Balance Sheet Caption

 

Sept. 30
2011

 

Dec. 31
2010

 

Balance Sheet Caption

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps designated as fair value hedges

 

$

616

 

$

138

 

Deferred income taxes and other assets

 

$

 

$

36

 

Post-employment obligations, deferred income taxes and other long-term liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps designated as fair value hedges

 

 

8

 

Prepaid expenses, deferred income taxes, and other receivables

 

 

 

n/a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency forward exchange contracts —

 

 

 

 

 

 

 

 

 

 

 

 

 

Hedging instruments

Others not designated as hedges

 

19

60

 

16

109

 

Prepaid expenses, deferred income taxes, and other receivables

 

6

72

 

10

120

 

Other accrued liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt designated as a hedge of net investment in a foreign subsidiary

 

 

 

n/a

 

690

 

650

 

Short-term borrowings

 

 

 

$

695

 

$

271

 

 

 

$

768

 

$

816

 

 

 

 

11



 

Notes to Condensed Consolidated Financial Statements

September 30, 2011

(Unaudited), continued

 

The following table summarizes the activity for foreign currency forward exchange contracts designated as cash flow hedges, debt designated as a hedge of net investment in a foreign subsidiary and the amounts and location of income (expense) and gain (loss) reclassified into income in the third quarter and first nine months of 2011 and 2010 and for certain other derivative financial instruments.  The amount of hedge ineffectiveness was not significant in 2011 and 2010 for these hedges.

 

 

 

Gain (loss) Recognized in Other
Comprehensive Income (loss)

 

Income (expense) and Gain (loss)
Reclassified into Income

 

 

 

 

 

Three Months
Ended Sept. 30

 

Nine Months
Ended Sept. 30

 

Three Months
Ended Sept. 30

 

Nine Months
Ended Sept. 30

 

Income Statement

 

(dollars in millions)

 

2011

 

2010

 

2011

 

2010

 

2011

 

2010

 

2011

 

2010

 

Caption

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency forward exchange contracts designated as cash flow hedges

 

$

(22

)

$

69

 

$

(98

)

$

130

 

$

(29

)

$

26

 

$

14

 

$

26

 

Cost of products sold

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt designated as a hedge of net investment in a foreign subsidiary

 

(30

)

(34

)

(40

)

(60

)

n/a

 

n/a

 

n/a

 

n/a

 

n/a

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate swaps designated as fair value hedges

 

n/a

 

n/a

 

n/a

 

n/a

 

415

 

272

 

506

 

598

 

Interest expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency forward exchange contracts not designated as hedges

 

n/a

 

n/a

 

n/a

 

n/a

 

60

 

(22

)

(30

)

62

 

Net foreign exchange loss (gain)

 

 

The interest rate swaps are designated as fair value hedges of the variability of the fair value of fixed-rate debt due to changes in the long-term benchmark interest rates.  The hedged debt is marked to market, offsetting the effect of marking the interest rate swaps to market.

 

The carrying values and fair values of certain financial instruments as of September 30, 2011 and December 31, 2010 are shown in the table below. The carrying values of all other financial instruments approximate their estimated fair values.  The counterparties to financial instruments consist of select major international financial institutions.  Abbott does not expect any losses from nonperformance by these counterparties.

 

 

 

September 30 2011

 

December 31 2010

 

(dollars in millions)

 

Carrying
Value

 

Fair
Value

 

Carrying
Value

 

Fair
Value

 

Investment Securities:

 

 

 

 

 

 

 

 

 

Current

 

$

30

 

$

30

 

$

 

$

 

Long-term:

 

 

 

 

 

 

 

 

 

Equity securities

 

296

 

296

 

240

 

240

 

Debt obligations issued by various governments

 

97

 

74

 

62

 

43

 

Total Long-term Debt

 

(13,133

)

(15,160

)

(14,568

)

(15,723

)

Foreign Currency Forward Exchange Contracts:

 

 

 

 

 

 

 

 

 

Receivable position

 

79

 

79

 

125

 

125

 

(Payable) position

 

(78

)

(78

)

(130

)

(130

)

Interest Rate Hedge Contracts:

 

 

 

 

 

 

 

 

 

Receivable position

 

616

 

616

 

146

 

146

 

(Payable) position

 

 

 

(36

)

(36

)

 

12



 

Notes to Condensed Consolidated Financial Statements

September 30, 2011

(Unaudited), continued

 

The following table summarizes the bases used to measure certain assets and liabilities at fair value on a recurring basis in the balance sheet:

 

 

 

 

 

Basis of Fair Value Measurement

 

(dollars in millions)

 

Outstanding
Balances

 

Quoted
Prices in
Active
Markets

 

Significant
Other
Observable
Inputs

 

Significant
Unobservable
Inputs

 

September 30, 2011:

 

 

 

 

 

 

 

 

 

Available for sale equity securities

 

$

76

 

$

76

 

$

 

$

 

Debt obligations issued by various governments

 

97

 

 

97

 

 

Interest rate swap derivative financial instruments

 

616

 

 

616

 

 

Foreign currency forward exchange contracts

 

79

 

 

79

 

 

Total Assets

 

$

868

 

$

76

 

$

792

 

$

 

 

 

 

 

 

 

 

 

 

 

Fair value of hedged long-term debt

 

$

7,483

 

$

 

$

7,483

 

$

 

Foreign currency forward exchange contracts

 

78

 

 

78

 

 

Contingent consideration related to business combinations

 

395

 

 

 

395

 

Total Liabilities

 

$

7,956

 

$

 

$

7,561

 

$

395

 

 

 

 

 

 

 

 

 

 

 

December 31, 2010:

 

 

 

 

 

 

 

 

 

Available for sale equity securities

 

$

75

 

$

75

 

$

 

$

 

Interest rate swap derivative financial instruments

 

146

 

 

146

 

 

Foreign currency forward exchange contracts

 

125

 

 

125

 

 

Total Assets

 

$

346

 

$

75

 

$

271

 

$

 

 

 

 

 

 

 

 

 

 

 

Fair value of hedged long-term debt

 

$

7,444

 

$

 

$

7,444

 

$

 

Interest rate swap derivative financial instruments

 

36

 

 

36

 

 

Foreign currency forward exchange contracts

 

130

 

 

130

 

 

Contingent consideration related to business combinations

 

365

 

 

 

365

 

Total Liabilities

 

$

7,975

 

$

 

$

7,610

 

$

365

 

 

The fair value of the debt was determined based on the face value of the debt adjusted for the fair value of the interest rate swaps, which is based on a discounted cash flow analysis.  The fair value of the contingent consideration was determined based on an independent appraisal adjusted for the time value of money, exchange and other changes in fair value.

 

Note 11 — Goodwill and Intangible Assets

 

Abbott recorded goodwill of approximately $3.3 billion in the first nine months of 2010 related to the acquisitions of Solvay Pharmaceuticals, Piramal Healthcare Limited’s Healthcare Solutions business, STARLIMS Technologies and Facet Biotech.  In addition, in the first quarter of 2010, Abbott paid $250 million to Boston Scientific as a result of the approval to market the Xience V drug-eluting stent in Japan, resulting in an increase in goodwill. In 2010 goodwill related to the Solvay Pharmaceuticals and Piramal acquisitions was allocated to the Pharmaceuticals Products segment and goodwill related to the Boston Scientific payment was allocated to the Vascular Products segment.  Foreign currency translation adjustments and other adjustments increased goodwill in the first nine months of 2011 by approximately $300 million and decreased goodwill in the first nine months of 2010 by approximately $920 million.  The amount of goodwill related to pharmaceutical segments at September 30, 2011 was $9.6 billion and will be allocated to the Proprietary Products and Established Products segments using a relative fair value approach after additional analysis is completed.  Goodwill was $208 million for the Nutritional Products segment, $383 million for the Diagnostic Products segment and $2.7 billion for the Vascular Products segment.  There were no significant reductions of goodwill relating to impairments or disposal of all or a portion of a business.

 

13



 

Notes to Condensed Consolidated Financial Statements

September 30, 2011

(Unaudited), continued

 

The gross amount of amortizable intangible assets, primarily product rights and technology was $17.7 billion as of September 30, 2011 and $17.3 billion as of December 31, 2010, and accumulated amortization was $7.8 billion as of September 30, 2011 and $6.5 billion as of December 31, 2010.  Indefinite-lived intangible assets, which relate to in-process research and development acquired in a business combination, was approximately $900 million and $1.4 billion at September 30, 2011 and December 31, 2010, respectively.  In the second quarter of 2011, Abbott recorded an impairment charge of $125 million for certain research and development intangible assets related to a non-reportable segment due to changes in the projected development and regulatory timeframes for the project.  The charge was based on a discounted cash flow analysis and is included in research and development expenses. The estimated annual amortization expense for intangible assets is approximately $1.6 billion in 2011, $1.2 billion in 2012, $1.1 billion in 2013, $945 million in 2014 and $825 million in 2015.  Amortizable intangible assets are amortized over 2 to 30 years (average 12 years).

 

Note 12 — Restructuring Plans

 

In 2011 and prior years, Abbott management approved plans to realign its worldwide pharmaceutical and vascular manufacturing operations and selected domestic and international commercial and research and development operations in order to reduce costs.  In the first quarter of 2011, Abbott recorded $49 million to Cost of products sold, $18 million to Research and development and $49 million to Selling, general and administrative.  Charges of $12 million and $7 million were recorded in the first nine months of 2011 and 2010, respectively, relating to these restructurings, primarily for accelerated depreciation and product transfer costs.  The following summarizes the activity for these restructurings: (dollars in millions)

 

 

 

2011

 

2010

 

Accrued balance at January 1

 

$

77

 

$

145

 

Restructuring charges

 

116

 

 

Payments and other adjustments

 

(71

)

(96

)

Accrued balance at September 30

 

$

122

 

$

49

 

 

In the third quarter of 2010, Abbott management approved a restructuring plan primarily related to the acquisition of Solvay Pharmaceuticals.  This plan streamlines operations, improves efficiencies and reduces costs in certain Solvay sites and functions as well as in certain Abbott and Solvay commercial organizations in various countries.  Under this plan, Abbott recorded charges to Cost of products sold, Research and Development and Selling, General and Administrative of approximately $81 million, $133 million and $222 million, respectively. Charges of approximately $95 million were recorded in the first nine months of 2011 relating to this restructuring, primarily for accelerated depreciation.  Additional charges will occur through 2012 primarily related to additional employee-related and asset disposal costs.  The following summarizes the activity for this restructuring: (dollars in millions)

 

 

 

2011

 

2010

 

Accrued balance at January 1

 

$

410

 

$

 

Restructuring charges

 

 

436

 

Payments and other adjustments

 

(179

)

(37

)

Accrued balance at September 30

 

$

231

 

$

399

 

 

In 2011 and 2008, Abbott management approved plans to streamline global manufacturing operations, reduce overall costs, and improve efficiencies in Abbott’s core diagnostic business.  A charge of $31 million was recorded in Cost of products sold for the 2011 restructuring.  Additional charges of approximately $28 million and $45 million were recorded in the first nine months of 2011 and 2010, respectively, relating to these restructurings, primarily for accelerated depreciation and product transfer costs.  Additional charges will occur through 2015 as a result of product re-registration timelines required under manufacturing regulations in a number of countries and product transition timelines.  The following summarizes the activity for this restructuring: (dollars in millions)

 

 

 

2011

 

2010

 

Accrued balance at January 1

 

$

88

 

$

98

 

Restructuring charges

 

31

 

 

Payments and other adjustments

 

(27

)

(9

)

Accrued balance at September 30

 

$

92

 

$

89

 

 

14


 


 

Notes to Condensed Consolidated Financial Statements

September 30, 2011

(Unaudited), continued

 

Note 13 — Separation into Two Publicly Traded Companies

 

In October 2011, Abbott announced a plan to separate into two publicly traded companies, one in diversified medical products and the other in research-based pharmaceuticals.  To accomplish the separation, Abbott plans to create a new company for its research-based pharmaceuticals business which will include Abbott’s Proprietary Pharmaceutical Products segment.  The transaction is expected to take the form of a tax-free distribution to Abbott shareholders of the stock of the newly created research-based pharmaceutical company and is expected to be completed by the end of 2012.

 

15



 

FINANCIAL REVIEW

 

Results of Operations

 

The following table details sales by reportable segment for the three months and nine months ended September 30.  Percent changes are versus the prior year and are based on unrounded numbers.

 

 

 

Net Sales to External Customers

 

 

 

Three Months Ended September 30

 

Nine Months Ended September 30

 

(dollars in millions)

 

2011

 

Percent
Change

 

2010

 

2011

 

Percent
Change

 

2010

 

Proprietary Pharmaceutical Products

 

$

4,298

 

13.5

 

$

3,787

 

$

12,242

 

12.8

 

$

10,852

 

Established Pharmaceutical Products

 

1,389

 

22.6

 

1,133

 

4,023

 

31.3

 

3,063

 

Nutritional Products

 

1,537

 

12.6

 

1,365

 

4,450

 

8.6

 

4,099

 

Diagnostic Products

 

1,025

 

11.9

 

916

 

3,046

 

9.6

 

2,779

 

Vascular Products

 

828

 

4.7

 

790

 

2,507

 

5.7

 

2,372

 

Total Reportable Segments

 

9,077

 

13.6

 

7,991

 

26,268

 

13.4

 

23,165

 

Other

 

740

 

8.3

 

684

 

2,206

 

8.4

 

2,034

 

Net Sales

 

$

9,817

 

13.2

 

$

8,675

 

$

28,474

 

13.0

 

$

25,199

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total U.S.

 

$

4,088

 

5.8

 

$

3,862

 

$

11,543

 

5.8

 

$

10,906

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total International

 

$

5,729

 

19.1

 

$

4,813

 

$

16,931

 

18.5

 

$

14,293

 

 

The net sales growth for the third quarter and first nine months of 2011 reflects unit growth, the acquisition of Piramal Healthcare Limited’s Healthcare Solution business in September 2010 and the effect of exchange.  The net sales growth for the first nine months of 2011 also reflects the acquisition of Solvay’s pharmaceuticals business in February 2010.  Excluding 5.3 percent and 3.8 percent of favorable exchange for the third quarter and first nine months of 2011, net sales increased 7.9 percent and 9.2 percent, respectively.  The relatively weaker U.S. dollar increased third quarter 2011 Total International sales by 9.5 percent, Proprietary Pharmaceutical Products segment sales by 4.6 percent, Established Pharmaceutical Products segment sales by 9.5 percent, Nutritional Product segment sales by 3.1 percent, Diagnostic Products segment sales by 6.5 percent and Vascular Products segment sales by 5.3 percent over the third quarter of 2010.  The relatively weaker U.S. dollar increased the first nine months 2011 Total International sales by 6.7 percent, Proprietary Pharmaceutical Products segment sales by 3.2 percent, Established Pharmaceutical Products segment sales by 7.0 percent, Nutritional Product segment sales by 2.7 percent, Diagnostic Products segment sales by 4.6 percent and Vascular Products segment sales by 3.8 percent over the first nine months of 2010.  Sales growth in the Proprietary Pharmaceutical Products segment was impacted by the acquisition of Solvay Pharmaceuticals in February 2010.  Sales growth in the Established Pharmaceutical Products segment and in Total International sales was impacted by the acquisition of Solvay Pharmaceuticals in February 2010 and Piramal Healthcare Limited’s Healthcare Solutions business in September 2010.

 

16



 

FINANCIAL REVIEW

(continued)

 

A comparison of significant product group sales for the nine months ended September 30 is as follows.  Percent changes are versus the prior year and are based on unrounded numbers.

 

 

 

Nine Months Ended September 30

 

(dollars in millions)

 

2011

 

Percent
Change

 

2010

 

Proprietary Pharmaceutical Products —

 

 

 

 

 

 

 

U.S. Proprietary

 

$

6,649

 

9.2

 

$

6,088

 

International Proprietary

 

5,593

 

17.4

 

4,764

 

 

 

 

 

 

 

 

 

Nutritional Products —

 

 

 

 

 

 

 

U.S. Pediatric Nutritionals

 

931

 

2.9

 

905

 

International Pediatric Nutritionals

 

1,420

 

14.8

 

1,237

 

U.S. Adult Nutritionals

 

1,030

 

1.9

 

1,011

 

International Adult Nutritionals

 

1,055

 

15.4

 

914

 

 

 

 

 

 

 

 

 

Diagnostics —

 

 

 

 

 

 

 

Immunochemistry

 

2,331

 

8.9

 

2,140

 

 

The increase in U.S. Proprietary product sales in 2011 is due to the acquisition of Solvay Pharmaceuticals in February 2010 and to increased sales of HUMIRA, Niaspan, Synthroid and Lupron and was partially offset by decreased sales of Zemplar.  Increased sales of HUMIRA favorably impacted International Proprietary products sales in 2011.  Abbott expects to exceed its previous forecast of growth in the high teens for worldwide HUMIRA sales in 2011.  International Pediatric and Adult Nutritionals sales increased in 2011 due primarily to volume growth in developing countries.  The relatively weaker U.S. dollar increased International Pediatric sales, International Adult Nutritional and Immunochemistry sales in 2011 by 4.2 percent, 6.2 percent and 5.1 percent, respectively.

 

The gross profit margin was 59.5 percent for the third quarter 2011, compared to 56.9 percent for the third quarter 2010.  First nine months 2011 gross profit margin was 58.9 percent compared to 57.9 percent for the first nine months 2010.  Excluding charges for the impairment of an intangible asset and for restructuring, the gross profit margins for the third quarter and first nine months of 2010 were 60.0 percent and 58.9 percent, respectively.  Gross profit margins in 2011 were impacted by additional rebates under health care reform, the carryover effect of 2010 pharmaceutical pricing actions by European governments, and an unfavorable impact from foreign exchange rates.

 

Research and development expenses decreased 6.4 percent in the third quarter 2011 and increased 11.7 percent for the first nine months 2011 over comparable 2010 periods.  Excluding impairment charges and integration expenses in both 2011 and 2010, research and development expensed increased 8.2 percent in the third quarter 2011 and 10.2 percent for the nine months ended September 30, 2011.  The increase for the first nine months 2011 reflects the acquisitions of Solvay Pharmaceuticals in February 2010 and Facet Biotech in April 2010.  These increases also reflect continued pipeline spending, including programs in vascular devices, biologics, neuroscience, oncology and hepatitis C.  The majority of research and development expenditures are concentrated on pharmaceutical products.

 

Selling, general and administrative expenses for the third quarter and first nine months 2011 includes a litigation reserve of $1.5 billion related to ongoing settlement discussions in the previously disclosed government investigation related to Depakote.  Excluding the effect of this item, Selling, general and administrative expenses for the third quarter and first nine months 2011 increased 2.5 percent and 10.2 percent, respectively, over the comparable 2010 periods.  The increases reflect the acquisitions of Solvay Pharmaceuticals in February of 2010 and Piramal Healthcare in September of 2010 and the impact of the pharmaceutical fees associated with U.S. health care reform.   2011 also reflects increased selling and marketing support for new and existing products, including spending for HUMIRA and inflation.

 

17



 

FINANCIAL REVIEW

(continued)

 

Business Combinations and Technology Acquisitions

 

In February 2010, Abbott acquired Solvay’s pharmaceuticals business (Solvay Pharmaceuticals) for approximately $6.1 billion, in cash, plus additional payments of up to EUR 100 million per year if certain sales milestones are met in 2011, 2012 and 2013.  Contingent consideration of approximately $290 million was recorded.   The acquisition of Solvay Pharmaceuticals provides Abbott with a large and complementary portfolio of pharmaceutical products and expands Abbott’s presence in key global emerging markets.  Abbott acquired control of this business on February 15, 2010 and the financial results of the acquired operations are included in these financial statements beginning on that date.  The acquisition was funded with cash and short-term investments.  The allocation of the fair value of the acquisition is shown in the table below (in billions of dollars).

 

Goodwill, non-deductible

 

$

2.2

 

Acquired intangible assets, non-deductible

 

4.1

 

Acquired in-process research and development, non-deductible

 

0.5

 

Acquired net tangible assets

 

0.7

 

Deferred income taxes recorded at acquisition

 

(1.1

)

Total allocation of fair value

 

$

6.4

 

 

Acquired intangible assets consist primarily of product rights for currently marketed products and are amortized over 2 to 14 years (average of 11 years).  Acquired in-process research and development projects are accounted for as indefinite lived intangible assets until regulatory approval or discontinuation.  The net tangible assets acquired consist primarily of trade accounts receivable of approximately $675 million, inventory of approximately $390 million, property and equipment of approximately $725 million, net of assumed liabilities, primarily trade accounts payable, accrued compensation and other liabilities.

 

Had the acquisition of Solvay Pharmaceuticals taken place on January 1, 2010, unaudited pro forma net sales, net earnings and diluted earnings per share for the three months and nine months ended September 30, 2010 would have been $8.7 billion and $25.8 billion, $900 million and $3.2 billion and $0.57 and $2.04, respectively.  The pro forma information includes adjustments for amortization of intangible assets and fair value adjustments to acquisition-date inventory as well as acquisition and integration expenses.  The pro forma financial information is not necessarily indicative of the results of operations as they would have been had the transaction been effected on the assumed date.

 

In March 2010, Abbott acquired STARLIMS Technologies for approximately $100 million, in cash, net of cash held by STARLIMS, providing Abbott with leading products and expertise to build its position in laboratory informatics.   A substantial portion of the fair value of the acquisition has been allocated to amortizable intangible assets and goodwill.

 

In April 2010, Abbott acquired the outstanding shares of Facet Biotech Corporation for approximately $430 million, in cash, net of cash held by Facet.   The acquisition enhances Abbott’s early- and mid-stage pharmaceutical pipeline, including a biologic for multiple sclerosis and compounds that complement Abbott’s oncology program.  A substantial portion of the fair value of the acquisition has been allocated to acquired in-process research and development that is accounted for as an indefinite-lived intangible asset until regulatory approval or discontinuation.

 

On September 8, 2010, Abbott acquired Piramal Healthcare Limited’s Healthcare Solutions business, a leader in the Indian branded generics market, for $2.2 billion, in cash, plus additional payments of $400 million annually in 2011, 2012, 2013 and 2014.  Abbott recorded a $1.6 billion liability for the present value of the additional payments at the acquisition date.  The acquisition was financed with cash.  The allocation of the fair value of the acquisition resulted in the recording of $2.7 billion of deductible acquired intangible assets and $1.0 billion of deductible goodwill.  Acquired intangible assets consist primarily of trade names, customer relationships and associated rights and are amortized over an average of 19 years.

 

18



 

FINANCIAL REVIEW

(continued)

 

In 2010, Abbott entered into an agreement to acquire licensing rights outside the U.S., excluding certain Asian markets, to a product in development for the treatment of chronic kidney disease.  In the first and second quarters of 2011, certain milestones were achieved and charges to acquired in-process research and development of $100 million and $88 million were recorded.  In addition, Abbott also acquired an equity interest of approximately $62 million in the second quarter of 2011.

 

In the second quarter of 2011, Abbott entered into an agreement to develop and commercialize a treatment for rheumatoid arthritis and psoriasis resulting in a charge to acquired in-process research and development of $85 million.  In the second quarter of 2010, Abbott entered into an agreement to develop and commercialize a product for the treatment of endometriosis resulting in a charge to acquired in-process research and development of $75 million.

 

Restructuring Plans

 

In 2011 and prior years, Abbott management approved plans to realign its worldwide pharmaceutical and vascular manufacturing operations and selected domestic and international commercial and research and development operations in order to reduce costs.  In the first quarter of 2011, Abbott recorded $49 million to Cost of products sold, $18 million to Research and development and $49 million to Selling, general and administrative.  Charges of $12 million and $7 million were recorded in the first nine months of 2011 and 2010, respectively, relating to these restructurings, primarily for accelerated depreciation and product transfer costs.  The following summarizes the activity for these restructurings: (dollars in millions)

 

 

 

2011

 

2010

 

Accrued balance at January 1

 

$

77

 

$

145

 

Restructuring charges

 

116

 

 

Payments and other adjustments

 

(71

)

(96

)

Accrued balance at September 30

 

$

122

 

$

49

 

 

In the third quarter of 2010, Abbott management approved a restructuring plan primarily related to the acquisition of Solvay Pharmaceuticals.  This plan streamlines operations, improves efficiencies and reduces costs in certain Solvay sites and functions as well as in certain Abbott and Solvay commercial organizations in various countries.  Under this plan, Abbott recorded charges to Cost of products sold, Research and Development and Selling, General and Administrative of approximately $81 million, $133 million and $222 million, respectively.   Charges of approximately $95 million were recorded in the first nine months of 2011 relating to this restructuring, primarily for accelerated depreciation.  Additional charges will occur through 2012 primarily related to additional employee-related and asset disposal costs.  The following summarizes the activity for this restructuring: (dollars in millions)

 

 

 

2011

 

2010

 

Accrued balance at January 1

 

$

410

 

$

 

Restructuring charges

 

 

436

 

Payments and other adjustments

 

(179

)

(37

)

Accrued balance at September 30

 

$

231

 

$

399

 

 

In 2011 and 2008, Abbott management approved plans to streamline global manufacturing operations, reduce overall costs, and improve efficiencies in Abbott’s core diagnostic business. A charge of $31 million was recorded in Cost of products sold for the 2011 restructuring. Additional charges of approximately $28 million and $45 million were recorded in the first nine months of 2011 and 2010, respectively, relating to these restructurings, primarily for accelerated depreciation and product transfer costs. Additional charges will occur through 2015 as a result of product re-registration timelines required under manufacturing regulations in a number of countries and product transition timelines. The following summarizes the activity for this restructuring: (dollars in millions)

 

 

 

2011

 

2010

 

Accrued balance at January 1

 

$

88

 

$

98

 

Restructuring charges

 

31

 

 

Payments and other adjustments

 

(27

)

(9

)

Accrued balance at September 30

 

$

92

 

$

89

 

 

19



 

FINANCIAL REVIEW

(continued)

 

Interest Expense (Income)

 

Interest expense decreased in the third quarter 2011 compared to 2010 due to lower interest rates.  Interest income decreased in the first nine months 2011 compared to 2010 primarily as a result of lower rates and investment levels.

 

Change in Accounting Principle, Other (income) expense, net

 

Prior to January 1, 2011, the accounts of foreign subsidiaries were consolidated based on a fiscal year ended November 30 due to the time needed to consolidate these subsidiaries.  Effective January 1, 2011, the one month lag in the consolidation of the accounts of foreign subsidiaries was eliminated and the year-end of foreign subsidiaries was changed to December 31.  Abbott believes that the change in accounting principle related to the elimination of the one month reporting lag is preferable because it will result in more contemporaneous reporting of the results of foreign subsidiaries.  In accordance with applicable accounting literature, a change in subsidiaries’ year-end is treated as a change in accounting principle and requires retrospective application.  The cumulative effect of the change was an increase in retained earnings of $289 million as of January 1, 2009 and a corresponding decrease in other long-term liabilities.  The impact of the change was not material to the results of operations for the previously reported annual and interim periods after January 1, 2009, and thus, those results have not been revised.  A charge of $137 million was recorded to Other (income) expense, net in the three months ended March 31, 2011 to recognize the cumulative immaterial impacts to 2009 and 2010.  Had the financial statements been revised, net sales, operating earnings and net earnings in calendar 2009 would have increased by $211 million, $36 million and $38 million, respectively, and net sales, operating earnings and net earnings in calendar 2010 would have decreased by $21 million, $195 million and $175 million, respectively.  In addition, net sales, operating earnings and net earnings for the three months ended September 30, 2010 would have increased by $302 million, $25 million and $15 million, respectively, and net sales, operating earnings and net earnings for the nine months ended September 30, 2010 would have increased by $397 million, $63 million and $50 million, respectively.

 

Taxes on Earnings

 

Taxes on earnings reflect the estimated annual effective rates and include charges for interest and penalties.  Taxes on earnings in 2011 reflect the effect of the tax rate applied to a litigation reserve in the third quarter and the recognition of $570 million of tax benefits in the first nine months as a result of the favorable resolution of various tax positions pertaining to prior years, which also decreased the gross amount of unrecognized tax benefits by approximately $1.2 billion.  Exclusive of these discrete items, the effective tax rates are less than the statutory U.S. federal income tax rate principally due to the benefit of lower statutory tax rates and tax exemptions in several foreign taxing jurisdictions.  Abbott believes that it is reasonably possible that the recorded amount of gross unrecognized tax benefits may decrease by up to $500 million, including cash adjustments, within the next twelve months as a result of concluding various tax matters.

 

As a result of the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act which were signed into law in the first quarter of 2010, Abbott recorded a charge of approximately $60 million in the first quarter 2010 to reduce deferred tax assets associated with retiree health care liabilities related to the Medicare Part D retiree drug subsidy.

 

Separation into Two Publicly Traded Companies

 

In October 2011, Abbott announced a plan to separate into two publicly traded companies, one in diversified medical products and the other in research-based pharmaceuticals.  To accomplish the separation, Abbott plans to create a new company for its research-based pharmaceuticals business which will include Abbott’s Proprietary Pharmaceutical Products segment.  The transaction is expected to take the form of a tax-free distribution to Abbott shareholders of the stock of the newly created research-based pharmaceutical company and is expected to be completed by the end of 2012.

 

20



 

FINANCIAL REVIEW

(continued)

 

Liquidity and Capital Resources September 30, 2011 Compared with December 31, 2010

 

Net cash from operating activities for the first nine months 2011 totaled approximately $7.6 billion. Other, net in Net cash from operating activities for 2011 includes the non-cash impact of a litigation reserve of $1.5 billion which was partially offset by $570 million of tax benefits related to the favorable resolution of various tax positions pertaining to prior years.  In addition, Other, net in Net cash from operating activities for 2011 and 2010 includes the effects of contributions to defined benefit plans of $390 million and $510 million, respectively, and to the post-employment medical and dental benefit plans of $40 million and $66 million, respectively.  Abbott expects annual cash flow from operating activities to continue to exceed Abbott’s capital expenditures and cash dividends.

 

For the nine months ended September 30, 2011 and 2010, the reductions in cash and cash equivalents due to the effect of exchange rate changes was primarily driven by the impact of changes in the value of the U.S. dollar compared to the euro on non-dollar denominated cash and cash equivalents.  While future fluctuations in the strength of the U.S. dollar against foreign currencies could have a substantial effect on the dollar value of Abbott’s cash and cash equivalents, such fluctuations are not expected to materially impact Abbott’s liquidity.

 

As discussed in Note 4 to the consolidated financial statements, the United States Department of Justice, through the United States Attorney for the Western District of Virginia, is investigating Abbott’s sales and marketing activities for Depakote.  Abbott recorded a non-cash charge of $1.5 billion in the third quarter of 2011 related to this investigation.  However, the discussions to resolve potential civil and criminal claims related to this matter are ongoing, and until concluded, there can be no certainty about definitive resolution.  The ultimate resolution of this matter in any reporting period is expected to have a material impact on Abbott’s cash flows for that year.

 

Working capital was $7.7 billion at September 30, 2011 and $5.1 billion at December 31, 2010.

 

At September 30, 2011 Abbott’s long-term debt rating was AA by Standard & Poor’s Corporation and A1 by Moody’s Investors Service.  Abbott has readily available financial resources, including unused lines of credit of $6.7 billion that support commercial paper borrowing arrangements of which a $3.0 billion facility expires in October 2012 and a $3.7 billion facility expires in 2013.

 

Under a registration statement filed with the Securities and Exchange Commission in February 2009, Abbott issued $3.0 billion of long-term debt in the second quarter of 2010 that matures in 2015, 2020 and 2040 with interest rates of 2.7 percent, 4.125 percent and 5.3 percent, respectively.  Proceeds from this debt were used to pay down short-term borrowings.  In addition, Abbott repaid $1.5 billion and $500 million of long-term notes that were due in May and March of 2011 using primarily short-term borrowings.

 

In October 2008, the board of directors authorized the purchase of up to $5 billion of Abbott’s common shares from time to time and no shares were purchased under this authorization in the first nine months of 2011.  In the first nine months of 2010, 14.8 million shares were purchased under this authorization at a cost of approximately $800 million.

 

Legislative Issues

 

In the first quarter 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act (collectively referred to herein as “health care reform legislation”) were signed into law in the U.S.  Health care reform legislation includes an increase in the basic Medicaid rebate rate from 15.1% to 23.1% and extends the rebate to drugs provided through Medicaid managed care organizations.  As a result, Abbott recorded an additional provision of approximately $60 million against gross sales in the first quarter 2010 for the impact of the rebate charges on first quarter sales as well as other products in the distribution channel.  In 2011, Abbott also began incurring additional rebates related to the Medicare Part D coverage gap “donut hole.”  These rebate changes will continue to have a negative effect on the gross profit margin of the Proprietary Pharmaceutical Products segment in future quarters.

 

Beginning in 2013, health care reform legislation will eliminate the federal income tax deduction for prescription drug expenses of retirees for which Abbott receives reimbursement under the Medicare Part D retiree drug subsidy program.  As a result, Abbott recorded a charge of approximately $60 million in the first quarter 2010 to reduce deferred tax assets associated with retiree health care liabilities.

 

21



 

FINANCIAL REVIEW

(continued)

 

In 2011, Abbott began recording the annual fee imposed by health care reform legislation on companies that sell branded prescription drugs to specified government programs.  The amount of the annual fee is based on the ratio of certain of Abbott’s sales as compared to the total such sales of all covered entities multiplied by a fixed dollar amount specified in the legislation by year.  Beginning in 2013, Abbott will record the 2.3% excise tax imposed by health care reform legislation on the sale of certain medical devices.

 

Abbott’s primary markets are highly competitive and subject to substantial government regulations throughout the world.  Abbott expects debate to continue over the availability, method of delivery, and payment for health care products and services.  It is not possible to predict the extent to which Abbott 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, and Item 1A, Risk Factors, in the 2010 Annual Report on Form 10-K.

 

Private Securities Litigation Reform Act of 1995 — A Caution Concerning Forward-Looking Statements

 

Under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Abbott cautions investors that any forward-looking statements or projections made by Abbott, including those made in this document, are subject to risks and uncertainties that may cause actual results to differ materially from those projected. Economic, competitive, governmental, technological and other factors that may affect Abbott’s operations are discussed in Item 1A, Risk Factors, in the 2010 Annual Report on Form 10-K.

 

22


 


 

PART I.          FINANCIAL INFORMATION

 

Item 4.            Controls and Procedures

 

(a)          Evaluation of disclosure controls and procedures.  The Chief Executive Officer, Miles D. White, and Chief Financial Officer, Thomas C. Freyman, evaluated the effectiveness of Abbott Laboratories’ disclosure controls and procedures as of the end of the period covered by this report, and concluded that Abbott Laboratories’ disclosure controls and procedures were effective to ensure that information Abbott is required to disclose in the reports that it files or submits with the Securities and Exchange Commission under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and to ensure that information required to be disclosed by Abbott in the reports that it files or submits under the Exchange Act is accumulated and communicated to Abbott’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

 

(b)         Changes in internal control over financial reporting.  During the quarter ended September 30, 2011, there were no changes in Abbott’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, Abbott’s internal control over financial reporting.

 

PART II.        OTHER INFORMATION

 

Item 1.            Legal Proceedings

 

Abbott is involved in various claims, legal proceedings and investigations, including (as of September 30, 2011) those described below.  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 resolution should not have a material adverse effect on Abbott’s financial position, cash flows, or results of operations, except for the investigation discussed in the third paragraph of Note 4 to Abbott’s financial statements, the resolution of which is expected to be material to cash flows in a given year.

 

In its 2010 Form 10-K, Abbott reported that litigation is pending in The Netherlands in which Medinol Limited (Medinol) asserts that Abbott’s Vision, Xience V, Xience Prime and Multi-Link 8 stent systems infringe one of Medinol’s European stent design patents, and that in December 2009, the Dutch court found that Abbott’s stent systems do not infringe Medinol’s patent.  In July 2011, Medinol appealed to The Hague Court of Appeal.

 

In its 2010 Form 10-K, Abbott reported that litigation is pending in the High Court of Justice in the United Kingdom in which Abbott asserts that its stent systems do not infringe three Medinol European patents and that these patents are invalid.  Abbott also reported that, in

 

23



 

October 2010, the High Court found that Abbott’s products do not infringe the three Medinol patents and that one of the patents was invalid in the United Kingdom.  Both parties have appealed aspects of this decision.  In a separate proceeding, the European Patent Office (EPO) revoked the patent that had also been found invalid by the High Court.  In September 2011, Medinol withdrew its appeal of the EPO’s decision, which caused the patent’s revocation to become final in all the countries that are members of the EPO, including the United Kingdom.

 

In September 2011, Abbott filed a lawsuit in the United States District Court for the District of New Jersey in which Abbott and its subsidiary, Laboratoires Fournier, S.A. (Fournier), the patent owner, allege infringement of three patents relating to fenofibrate tablets (a drug Abbott sells under the trademark Tricor®) and seek injunctive relief against Mylan Inc. and Mylan Pharmaceuticals Inc. (Mylan).  Abbott’s subsidiary, Fournier Laboratories Ireland Ltd., also filed a lawsuit with joint patent owner, EDT Pharma Holdings Ltd., alleging infringement of two jointly-owned patents relating to fenofibrate tablets and seeking injunctive relief against Mylan.

 

Item 2.            Unregistered Sales of Equity Securities and Use of Proceeds

 

(c)                                  Issuer Purchases of Equity Securities

 

Period

 

(a) Total
Number
of Shares
(or Units)
Purchased

 

(b) Average
Price Paid per
Share (or Unit)

 

(c) Total Number
of Shares (or
Units) Purchased
as Part of
Publicly
Announced Plans
or Programs

 

(d) Maximum
Number (or
Approximate
Dollar Value) of
Shares (or Units)
that May Yet Be
Purchased Under
the Plans or
Programs

 

July 1, 2011 – July 31, 2011

 

24,000

(1)

$

52.842

 

0

 

$

3,392,180,505

(2)

August 1, 2011 – August 31, 2011

 

64,833

(1)

$

50.948

 

0

 

$

3,392,180,505

(2)

September 1, 2011 – September 30, 2011

 

66,016

(1)

$

51.566

 

0

 

$

3,392,180,505

(2)

Total

 

154,849

(1)

$

51.505

 

0

 

$

3,392,180,505

(2)

 


1.                           These shares include:

 

(i)             the shares deemed surrendered to Abbott to pay the exercise price in connection with the exercise of employee stock options -  24,000 in July, 41,833 in August, and 43,016 in September; and

 

24



 

(ii)          the shares purchased on the open market for the benefit of participants in the Abbott Laboratories, Limited Employee Stock Purchase Plan - 0 in July, 23,000 in August, and 23,000 in September.

 

These shares do not include the shares surrendered to Abbott to satisfy tax withholding obligations in connection with the vesting of restricted stock or restricted stock units.

 

2.                       On October 13, 2008, Abbott announced that its board of directors approved the purchase of up to $5 billion of its common shares, from time to time.

 

Item 6.            Exhibits

 

Incorporated by reference to the Exhibit Index included herewith.

 

25



 

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

 

 

 

 

 

 

 

By:

/s/ Thomas C. Freyman

 

 

Thomas C. Freyman

 

 

Executive Vice President,

 

 

Finance and Chief Financial Officer

 

Date: November 4, 2011

 

26



 

EXHIBIT INDEX

 

Exhibit No.

 

Exhibit

 

 

 

12

 

Statement re: computation of ratio of earnings to fixed charges.

 

 

 

31.1

 

Certification of Chief Executive Officer Required by Rule 13a-14(a) (17 CFR 240.13a-14(a)).

 

 

 

31.2

 

Certification of Chief Financial Officer Required by Rule 13a-14(a) (17 CFR 240.13a-14(a)).

 

 

 

Exhibits 32.1 and 32.2 are furnished herewith and should not be deemed to be “filed” under the Securities Exchange Act of 1934.

 

 

 

32.1

 

Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

32.2

 

Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

101