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 September 30, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File No. 1-2189
ABBOTT LABORATORIES
An Illinois Corporation I.R.S. Employer Identification
No. 36-0698440
100 Abbott Park Road
Abbott Park, Illinois 60064-3500
Telephone: (708) 937-6l00
One Abbott Park Road
Abbott Park, Illinois 60064-3500
(Former address, changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 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 .
---- ----
As of October 31, 1994, the Corporation had 806,287,192 common shares
without par value outstanding.
PART 1 FINANCIAL INFORMATION
ABBOTT LABORATORIES AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
ABBOTT LABORATORIES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
(Dollars in thousands except per share data)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
-------------------------- --------------------------
1994 1993 1994 1993
----------- ----------- ----------- -----------
Net Sales............................. $2,254,817 $2,060,443 $6,674,095 $6,179,846
----------- ----------- ----------- -----------
Cost of products sold................. 1,015,831 917,072 2,926,919 2,737,235
Research and development.............. 239,390 225,159 711,176 639,611
Selling, general and administrative... 515,568 472,974 1,481,491 1,493,010
Provision for product withdrawal...... - - - (70,000)
----------- ----------- ----------- -----------
Total Operating Cost and Expenses... 1,770,789 1,615,205 5,119,586 4,799,856
----------- ----------- ----------- -----------
Operating Earnings.................... 484,028 445,238 1,554,509 1,379,990
----------- ----------- ----------- -----------
Interest expense...................... 12,776 13,292 36,525 41,455
Interest and dividend income.......... (9,131) (9,238) (25,857) (28,769)
Other (income) expense, net........... (21,535) 1,995 (19,204) (32,469)
----------- ----------- ----------- -----------
Earnings Before Taxes................. 501,918 439,189 1,563,045 1,399,773
Taxes on Earnings..................... 150,576 122,972 468,914 391,936
----------- ----------- ----------- -----------
Net Earnings.......................... $ 351,342 $ 316,217 $1,094,131 $1,007,837
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Net Earnings Per Common Share......... $.43 $.38 $1.34 $1.21
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Cash Dividends Declared
Per Common Share.................... $.19 $.17 $.57 $.51
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
The accompanying notes to condensed consolidated financial statements are an
integral part of this statement.
2
ABBOTT LABORATORIES AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
SEPTEMBER 30 DECEMBER 31
------------ -----------
1994 1993
------------ -----------
(unaudited)
ASSETS
Current Assets:
Cash and cash equivalents................................................... $ 222,031 $ 300,676
Investment securities....................................................... 96,656 78,149
Trade Receivables, less allowances of $118,064 in 1994
and $116,925 in 1993...................................................... 1,472,024 1,336,222
Inventories:
Finished products......................................................... 544,081 476,548
Work in process........................................................... 230,183 216,493
Materials................................................................. 282,847 247,492
----------- ----------
Total Inventories...................................................... 1,057,111 940,533
Prepaid income taxes........................................................ 487,124 458,026
Other prepaid expenses and receivables...................................... 525,334 471,929
----------- ----------
Total Current Assets................................................... 3,860,280 3,585,535
----------- ----------
Investment Securities Maturing after One Year.................................... 286,895 221,815
----------- ----------
Property and Equipment, at Cost.................................................. 6,904,109 6,221,146
Less: accumulated depreciation and amortization............................. 3,081,122 2,710,155
----------- ----------
Net Property and Equipment............................................. 3,822,987 3,510,991
Deferred Charges and Other Assets................................................ 385,996 370,228
----------- ----------
$8,356,158 $7,688,569
----------- ----------
----------- ----------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Short-term borrowings and current portion of long-term debt................. $ 764,265 $ 843,594
Trade accounts payable...................................................... 592,479 638,509
Salaries, income taxes, dividends payable, and other accruals............... 2,051,021 1,612,830
----------- ----------
Total Current Liabilities.............................................. 3,407,765 3,094,933
----------- ----------
Long-Term Debt................................................................... 307,920 306,840
----------- ----------
Other Liabilities and Deferrals.................................................. 681,984 611,867
----------- ----------
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 -
1994: 817,698,668 shares; 1993: 830,941,614 shares..................... 500,539 469,828
Earnings employed in the business................................................ 3,552,056 3,364,952
Cumulative translation adjustments............................................... (37,281) (100,716)
----------- ----------
4,015,314 3,734,064
Less:
Common shares held in treasury, at cost -
1994: 9,800,252 shares; 1993: 9,811,930 shares.............................. 51,721 51,783
Unearned compensation - restricted stock awards.................................. 5,104 7,352
----------- ----------
Total Shareholders' Investment................................................... 3,958,489 3,674,929
----------- ---------
8,356,158 $7,688,569
----------- ----------
----------- ----------
The accompanying notes to condensed consolidated financial statements are an
integral part of this statement.
3
ABBOTT LABORATORIES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
(Dollars in thousands)
NINE MONTHS ENDED SEPTEMBER 30
------------------------------
1994 1993
---------- -----------
Cash Flow From (Used in) Operating Activities:
Net earnings....................................... $1,094,131 $1,007,837
Adjustments to reconcile net earnings to
net cash from operating activities -
Depreciation and amortization...................... 391,049 376,251
Trade receivables.................................. (100,140) (135,841)
Inventories........................................ (87,128) (74,632)
Provision for product withdrawal................... - (70,000)
Other, net......................................... 322,531 271,234
---------- ----------
Net Cash From Operating Activities............ 1,620,443 1,374,849
---------- ----------
Cash Flow From (Used in) Investing Activities:
Acquisitions of property and equipment............. (689,270) (697,042)
Investment securities transactions................. (83,754) (34,209)
Other.............................................. 21,425 39,178
---------- ----------
Net Cash (Used in) Investing Activities....... (751,599) (692,073)
---------- ----------
Cash Flow From (Used in) Financing Activities:
Borrowing transactions............................. (85,855) 47,432
Common share transactions.......................... (413,802) (297,112)
Dividends paid..................................... (448,899) (407,779)
---------- ----------
Net Cash (Used in) Financing Activities....... (948,556) (657,459)
---------- ----------
Effect of exchange rate changes on cash and
cash equivalents................................... 1,067 (4,120)
---------- ----------
Net Increase/(Decrease) in Cash and Cash Equivalents... (78,645) 21,197
Cash and Cash Equivalents, Beginning of Year........... 300,676 116,576
---------- ----------
Cash and Cash Equivalents, End of Period............... $ 222,031 $ 137,773
---------- ----------
---------- ----------
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, 1994
(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, 1993.
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 814,480,000 for the
nine months ended September 30, 1994 and 830,898,000 for the same period
in 1993.
NOTE 3 - TAXES ON EARNINGS:
Taxes on earnings reflect the estimated annual effective tax rates. The
effective tax rates are less than the statutory U.S. Federal income tax rate
principally due to tax incentive grants related to subsidiaries operating in
Puerto Rico and Ireland. The increase in the effective tax rate from 28 percent
in 1993 to 30 percent in 1994 is due primarily to the increase in the statutory
U.S. Federal income tax rate and the reduction in the tax incentive grants for
operations in Puerto Rico.
5
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
(Unaudited), Continued
NOTE 4 - LITIGATION AND ENVIRONMENTAL MATTERS:
The Company is involved in various claims and legal proceedings including
numerous antitrust suits and investigations in connection with the sale and
marketing of infant formula and the pricing of prescription pharmaceutical
products.
The Company is also involved in numerous product liability cases, many of which
allege injuries to the offspring of women who ingested a synthetic estrogen
(DES) during pregnancy. In addition, the Company has been identified as a
potentially responsible party for investigation and cleanup costs at a number of
locations in the United States and Puerto Rico under Federal remediation laws
and is voluntarily investigating potential contamination at a number of
Company-owned locations.
The matters above are discussed more fully in Item 1, Business - Environmental
Matters, and Item 3, Legal Proceedings, in the Annual Report on Form 10-K, which
is available upon request, and in Part II, Item 1, Legal Proceedings, in this
Form.
While it is not feasible to predict the outcome of such pending claims,
proceedings, investigations and remediation activities with certainty,
management is of the opinion that their ultimate disposition should not have a
material adverse effect on the Company's financial position, cash flows, or
results of operations.
NOTE 5 - OTHER SIGNIFICANT EVENTS:
In June 1992, the Company voluntarily withdrew from the worldwide market its
quinolone anti-infective, temafloxacin, and recorded a charge for costs
associated with this withdrawal. In the second quarter 1993, the Company
resolved various contingencies relative to the temafloxacin withdrawal and
recorded a credit for these items.
6
FINANCIAL REVIEW
RESULTS OF OPERATIONS - THIRD QUARTER AND FIRST NINE MONTHS 1994 COMPARED WITH
SAME PERIODS IN 1993
Worldwide sales for the third quarter and first nine months increased
9.4 percent and 8.0 percent, respectively, over the comparable 1993 periods.
Net earnings increased 11.1 percent and 8.6 percent, respectively, in the third
quarter and first nine months 1994. Earnings per share increased 13.2 percent
and 10.7 percent, respectively, in the third quarter and first nine months 1994.
Gross profit margin (sales less cost of products sold, including freight and
distribution expenses) of 56.1 percent for the first nine months of 1994 was up
from 55.7 percent one year ago primarily due to product mix. Gross margin of
54.9 percent for the third quarter 1994 was down from 55.5 percent in the third
quarter of 1993. This decrease was due to timing of certain expenses incurred
in the third quarter of 1994 which were incurred in earlier quarters in 1993,
partially offset by product mix.
Research and development expenses were $239.4 million and $711.2 million for the
third quarter and first nine months 1994, respectively. This represented
10.6 percent and 10.7 percent of net sales, compared to 10.9 percent and
10.3 percent in 1993. The majority of research and development expenditures
continues to be concentrated on pharmaceutical and diagnostic products.
Selling, general, and administrative expenses for the third quarter increased
9.0 percent over the prior year and decreased 0.8 percent for the nine months
ended September 30. The first nine month decrease reflects the settlement in
1993 of certain claims and legal proceedings in connection with the sale and
marketing of infant formula products. In the second quarter of 1993, the
Company recorded a pre-tax charge to earnings of approximately $104 million in
connection with these settlements.
During the second quarter of 1993, the Company resolved various contingencies
relative to the temafloxacin withdrawal. The Company recorded a pre-tax credit
to earnings of $70 million for these items.
Other (income) expense, net, includes net foreign exchange losses of
$1.9 million and $29.5 million, respectively, for the third quarter and first
nine months 1994 compared with net foreign exchange losses of $11.8 million and
$31.0 million for the corresponding prior year periods. Also included in the
first nine months of 1993 is the gain on the sale of the Company's peritoneal
dialysis product line.
The effective income tax rate increased from 28 percent in 1993 to 30 percent in
1994 due primarily to the increase in the statutory U.S. Federal income tax rate
and the reduction in tax incentive grants for Puerto Rico operations.
7
FINANCIAL REVIEW
(Continued)
INDUSTRY SEGMENTS
Industry segment sales for the third quarter and first nine months 1994 and the
related change from the comparable 1993 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 blood banks, hospitals, commercial laboratories and
alternate-care testing sites; intravenous and irrigation fluids and related
administration equipment; drugs and drug delivery systems; anesthetics; critical
care products; and other medical specialty products for hospitals and
alternate-care sites.
Domestic and international sales for the third quarter and first nine months
1994 primarily reflect unit growth. International sales were favorably affected
1.8 percent by the relatively weaker dollar in the third quarter. On a year-to-
date basis, international sales were adversely affected 1.8 percent due to the
relatively stronger U.S. dollar.
Third Quarter Nine Months
- - --------------------------------------------------------------------------------
SEGMENT SALES 1994 Percent 1994 Percent
(in millions of dollars) Sales Increase Sales Increase
- - --------------------------------------------------------------------------------
Pharmaceutical and Nutritional Products:
Domestic $ 834.9 13.1 $2,466.0 11.7
- - --------------------------------------------------------------------------------
International 374.6 17.1 1,136.5 13.2
- - --------------------------------------------------------------------------------
1,209.5 14.3 3,602.5 12.2
Hospital and Laboratory Products:
Domestic 566.2 2.3 1,704.3 2.8
- - --------------------------------------------------------------------------------
International 479.1 6.8 1,367.3 4.2
- - --------------------------------------------------------------------------------
1,045.3 4.3 3,071.6 3.5
Total All Segments:
Domestic 1,401.1 8.4 4,170.3 7.9
- - --------------------------------------------------------------------------------
International 853.7 11.1 2,503.8 8.1
- - --------------------------------------------------------------------------------
$2,254.8 9.4 $6,674.1 8.0
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
8
FINANCIAL REVIEW
(continued)
LIQUIDITY AND CAPITAL RESOURCES AT SEPTEMBER 30, 1994
COMPARED WITH DECEMBER 31, 1993
Net cash from operating activities for the first nine months 1994 totaled
$1.620 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 has maintained its favorable bond ratings (AAA by Standard & Poor's
Corporation and Aa1 by Moody's Investors Service) and continues to have readily
available financial resources, including unused domestic lines of credit of
$300 million at September 30, 1994.
During the first nine months 1994, the Company continued its program to purchase
its common shares. The Company purchased and retired 15,376,000 shares during
this period at a cost of $446 million. As of September 30, 1994, an additional
18,725,000 shares may be purchased in future periods under authorization granted
by the Board of Directors in September 1994.
LEGISLATIVE ISSUES
The Company's primary markets are highly competitive and subject to substantial
government regulation. In the U.S., comprehensive legislation may be enacted
that could make significant changes to the availability, delivery and payment
for health care 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 quarter ended June 30, 1994 described 19
antitrust suits (as of June 30, 1994) regarding the pricing of prescription
pharmaceuticals. Nine additional lawsuits have been filed since June 30, 1994.
Five of these lawsuits were filed in federal court in the Northern District of
Illinois. These five cases were filed on July 1, August 1, August 18, August 31
and September 16, 1994, respectively. In addition, on July 7, 1994, a case was
filed in federal court in the Eastern District of Pennsylvania; on July 12,
1994, a case was filed in state court in San Francisco County, California; on
July 28, 1994, a case was filed in state court in Dane County, Wisconsin; and,
on July 28, 1994, a case was filed in federal court in the Eastern District of
Missouri. The cases that were filed in Pennsylvania and in California both
purport to be statewide class actions on behalf of retail pharmacies. The
plaintiffs in these nine cases seek unspecified treble damages, attorneys' fees,
and declaratory and injunctive relief and have named the Company and numerous
other pharmaceutical manufacturers and wholesalers as defendants. As of
September 30, 1994, the Company has been named as a defendant in 28 pending
antitrust suits regarding the pricing of prescription pharmaceuticals. The
Company intends to defend itself in these lawsuits and to deny all substantive
allegations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
11 Statement re: computation of per share earnings - attached
hereto.
12 Statement re: computation of ratio of earnings to fixed
charges - attached hereto.
27 Financial Data Schedule - attached hereto.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 1994.
10
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: November 10, 1994 /S/ Theodore A. Olson
-----------------------------------------
Theodore A. Olson, Vice President and
Controller (Principal Accounting Officer)
11
EXHIBIT 11
ABBOTT LABORATORIES AND SUBSIDIARIES
CALCULATION OF FULLY DILUTED EARNINGS PER SHARE
(Dollars and Shares in Millions Except Per Share Amounts)
NINE MONTHS ENDED SEPTEMBER 30
------------------------------
1994 1993
----------- -----------
1. Net earnings $ 1,094.1 $ 1,007.8
--------- ---------
2. Average number of shares outstanding 814.5 830.9
--------- ---------
3. Earnings per share based upon average
outstanding shares (1 divided by 2) $ 1.34 $ 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 18.1 19.3
--------- ---------
--------- ---------
b. Aggregate proceeds to the Company from
the exercise of options in 4.a. $ 321.7 $ 299.6
--------- ---------
--------- ---------
c. Market price of the Company's common
stock at quarter-end $ 31.375 $ 27.375
--------- ---------
--------- ---------
d. Shares which could be repurchased
under the treasury stock
method (4.b. divided by 4.c.) 10.3 10.9
--------- ---------
--------- ---------
e. Addition to average outstanding shares
(4.a. - 4.d.) 7.8 8.4
--------- ---------
--------- ---------
f. Shares for fully diluted earnings per
share calculation (2. + 4.e.) 822.3 839.3
--------- ---------
--------- ---------
g. Fully diluted earnings per share
(1. divided by 4.f.) $ 1.33 $ 1.21
--------- ---------
--------- ---------
EXHIBIT 12
ABBOTT LABORATORIES
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
(Millions of Dollars)
NINE MONTHS ENDED
SEPTEMBER 30, 1994
------------------
Net Earnings $ 1,094
Add (deduct):
Income taxes 469
Capitalized interest cost, net
of amortization (5)
Minority interest 8
--------
Net earnings as adjusted $ 1,566
--------
Fixed Charges:
Interest on long-term and
short-term debt 37
Capitalized interest cost 13
Rental expense representative
of an interest factor 19
--------
Total Fixed Charges 69
--------
Total adjusted earnings available for
payment of fixed charges $ 1,635
--------
--------
Ratio of earnings to fixed charges 23.7
--------
--------
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
9-MOS
DEC-31-1994
JAN-01-1994
SEP-30-1994
222,031
96,656
1,590,088
118,064
1,057,111
3,860,280
6,904,109
3,081,122
8,356,158
3,407,765
307,920
500,539
0
0
3,457,950
8,356,158
6,674,095
6,674,095
2,926,919
2,926,919
711,176
6,659
36,525
1,563,045
468,914
1,094,131
0
0
0
1,094,131
1.34
1.33
OTHER EXPENSES ARE RESEARCH AND DEVELOPMENT EXPENSES
