UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): July 10, 2003
ABBOTT LABORATORIES
(Exact name of registrant as specified in its charter)
Illinois (State or other jurisdiction of incorporation) |
1-2189 (Commission File Number) |
36-0698440 (IRS Employer Identification No.) |
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100 Abbott Park Road Abbott Park, Illinois 60064-6400 (Address of principal executive offices)(Zip Code) |
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Registrant's telephone number, including area code: (847) 937-6100 |
Item 7. Financial Statements and Exhibits
This exhibit is furnished pursuant to Item 9 hereof and should not be deemed to be "filed" under the Securities Exchange Act of 1934.
Exhibit No. |
Exhibit |
|
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99.1 | Press Release, dated July 10, 2003 (furnished pursuant to Item 9). |
Item 9. Information Provided Under Item 12 (Results of Operations and Financial Condition)
On July 10, 2003, Abbott Laboratories announced its results of operations for the second quarter of 2003.
Furnished as Exhibit 99.1, and incorporated herein by reference, is the news release issued by Abbott announcing its second quarter results. In that news release, Abbott uses various non-GAAP financial measures including: net earnings excluding one-time charges, diluted earnings per share excluding one-time charges, gross margin excluding one-time charges, and sales excluding the impact of foreign exchange. These non-GAAP financial measures adjust for factors that are unusual or unpredictable. Abbott's management believes the presentation of these non-GAAP financial measures provides useful information to investors regarding Abbott's results of operations as these non-GAAP financial measures allow investors to better evaluate ongoing business performance. Abbott's management also uses these non-GAAP financial measures internally to monitor performance of the businesses. Abbott, however, cautions investors to consider these non-GAAP financial measures in addition to, and not as a substitute for, financial measures prepared in accordance with GAAP.
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, hereunto duly authorized.
ABBOTT LABORATORIES |
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By: | /s/ THOMAS C. FREYMAN Thomas C. Freyman Senior Vice President, Finance and Chief Financial Officer |
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Date: July 10, 2003 |
Exhibit No. |
Exhibit |
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99.1 | Press Release, dated July 10, 2003 (furnished pursuant to Item 9). |
For Immediate Release
ABBOTT REPORTS 9.5 PERCENT SALES INCREASE
IN THE SECOND QUARTER
Robust U.S. Pharmaceutical Sales Drive Growth
ABBOTT PARK, Ill., July 10, 2003Abbott Laboratories today announced financial results for the second quarter ended June 30, 2003.
"Our pharmaceutical business has been a top investment priority during the past few years, and we are extremely pleased with its very strong growth," said Miles D. White, chairman and chief executive officer. "We continue to project strong performance in pharmaceuticals, and we remain encouraged by the successful launch of HUMIRA. In Medical Products, we still have more work to do, and we have undertaken a number of initiatives to improve the performance of this group's businesses."
1
The following is a summary of second-quarter 2003 sales for each of Abbott's major operating divisions and its 50-percent-owned joint venture, TAP Pharmaceutical Products Inc.
Sales Summary
Quarter Ended 6/30/03
|
2Q03 ($ millions) |
Percent Change vs. 2Q02 |
Impact of Exchange on Percent Change |
|||||
---|---|---|---|---|---|---|---|---|
Total Sales | $ | 4,724 | 9.5 | 3.7 | ||||
U.S. Pharmaceutical Sales |
$ |
1,264 |
26.8 |
|
||||
TAP Pharmaceutical Products Sales* (not consolidated in Abbott's sales) |
$ |
996 |
(3.6 |
) |
|
|||
U.S. Hospital Products Sales |
$ |
748 |
(1.8 |
) |
|
|||
International Sales |
$ |
1,400 |
12.7 |
8.4 |
||||
International Pharmaceuticals |
$ |
841 |
14.9 |
10.5 |
||||
International Hospital Products |
$ |
226 |
13.1 |
8.3 |
||||
International Nutritionals |
$ |
333 |
7.2 |
3.4 |
||||
Ross Products (U.S.) Sales |
$ |
478 |
(7.1 |
) |
|
|||
Worldwide Diagnostics Sales |
$ |
756 |
2.9 |
7.3 |
||||
U.S. Diagnostics |
$ |
258 |
(12.8 |
) |
|
|||
International Diagnostics |
$ |
498 |
13.4 |
12.2 |
Note: See complete "Consolidated Statement of Earnings" for more information.
* Sales for TAP Pharmaceutical Products Inc., Abbott's joint venture with Takeda Chemical Industries, Ltd., of Osaka, Japan. While sales from the joint venture are not consolidated in Abbott's net sales, Abbott's portion of TAP's net income is included in a separate income line on the "Consolidated Statement of Earnings."
2
The following is a summary of sales for first-half 2003 for each of Abbott's major operating divisions and its 50-percent-owned joint venture, TAP Pharmaceutical Products Inc.
Sales Summary
First-Half Ended 6/30/03
|
1H03 ($ millions) |
Percent Change vs. 1H02 |
Impact of Exchange on Percent Change |
|||||
---|---|---|---|---|---|---|---|---|
Total Sales | $ | 9,304 | 9.4 | 3.3 | ||||
U.S. Pharmaceutical Sales |
$ |
2,339 |
20.1 |
|
||||
TAP Pharmaceutical Products Sales* (not consolidated in Abbott's sales) |
$ |
2,007 |
3.1 |
|
||||
U.S. Hospital Products Sales |
$ |
1,465 |
2.0 |
|
||||
International Sales |
$ |
2,739 |
11.0 |
7.6 |
||||
International Pharmaceuticals |
$ |
1,641 |
11.0 |
9.3 |
||||
International Hospital Products |
$ |
419 |
10.9 |
6.9 |
||||
International Nutritionals |
$ |
679 |
11.3 |
4.0 |
||||
Ross Products (U.S.) Sales |
$ |
1,079 |
(1.3 |
) |
|
|||
Worldwide Diagnostics Sales |
$ |
1,479 |
4.6 |
6.7 |
||||
U.S. Diagnostics |
$ |
528 |
(11.5 |
) |
|
|||
International Diagnostics |
$ |
951 |
16.3 |
11.5 |
Note: See complete "Consolidated Statement of Earnings" for more information.
* Sales for TAP Pharmaceutical Products Inc., Abbott's joint venture with Takeda Chemical Industries, Ltd., of Osaka, Japan. While sales from the joint venture are not consolidated in Abbott's net sales, Abbott's portion of TAP's net income is included in a separate income line on the "Consolidated Statement of Earnings."
3
Total second-quarter sales in U.S. markets were $2.791 billion, up 7.2 percent from $2.603 billion in the second quarter of 2002. Total international sales, including direct exports from the United States, were $1.933 billion, a 12.9 percent increase from $1.712 billion recorded one year ago. International sales were favorably impacted 9.2 percent due to the effect of exchange rates.
First-half results
Worldwide sales for the first-half 2003 were $9.304 billion, up 9.4 percent from $8.504 billion in 2002. Total sales were favorably impacted 3.3 percent due to the effect of exchange rates. Total first-half 2003 sales in U.S. markets were $5.555 billion, up 7.3 percent from $5.175 billion in first-half 2002. Total international sales, including direct exports from the United States, were $3.749 billion, a 12.6 percent increase from $3.329 billion recorded a year ago. International sales were favorably impacted 8.5 percent due to the effect of exchange rates.
Abbott maintains earnings-per-share guidance for full-year 2003 and issues earnings-per-share guidance for third-quarter 2003
Abbott maintains earnings-per-share guidance, excluding one-time charges, of $2.20 to $2.25 for the full-year 2003. The full-year earnings guidance excludes a one-time charge recorded in the second quarter of $0.34 per share for the anticipated settlement of the Ross enteral nutrition investigation, as well as a charge of $0.03 per share related to in-process research and development and integration costs associated with the previously announced acquisitions of JOMED's coronary and peripheral interventional business and Spinal Concepts, of which $0.02 per share was recorded in the second quarter. In accordance with the recently issued SEC Regulation G, Abbott notes that, including these one-time charges, projected earnings-per-share under GAAP for 2003 would be $1.83 to $1.88.
For the first time, Abbott is providing earnings-per-share guidance of $0.52 to $0.54 for the third-quarter 2003, excluding the remaining one-time charge of $0.01 per share associated with the second-quarter acquisitions noted above. Including this one-time charge, projected earnings-per-share under GAAP for the third-quarter 2003 would be $0.51 to $0.53.
4
The following is a summary of second-quarter 2003 sales for selected products.
Quarter Ended 6/30/03
|
U.S. ($ millions) |
Percent Change vs. 2Q02 |
Rest of World ($ millions) |
Percent Change vs. 2Q02 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Pharmaceutical Products Group | |||||||||||
Depakote | $ | 216 | 18.7 | $ | 10 | 0.3 | |||||
Flomax | $ | 175 | 29.2 | $ | 8 | 52.7 | |||||
Synthroid | $ | 143 | (4.5 | ) | $ | 9 | 2.7 | ||||
TriCor | $ | 132 | 54.0 | | | ||||||
Biaxin (clarithromycin) | $ | 100 | 27.3 | $ | 167 | 14.0 | (a) | ||||
Kaletra | $ | 102 | 28.5 | $ | 99 | 74.1 | (b) | ||||
Mobic | $ | 74 | 22.0 | | | ||||||
Omnicef | $ | 44 | 48.8 | | | ||||||
HUMIRA | $ | 54 | n/m | $ | 3 | n/m | |||||
Meridia/Reductil | $ | 17 | 4.3 | $ | 49 | 2.4 | (c) | ||||
Leuprolide | | | $ | 46 | 2.0 | (d) | |||||
Lansoprazole | | | $ | 33 | 27.5 | (e) | |||||
Medical Products Group |
|||||||||||
Pediatric Nutritionals | $ | 246 | (5.0 | ) | $ | 137 | 1.3 | ||||
Adult Nutritionals | $ | 186 | (11.9 | ) | $ | 144 | 12.3 | (f) | |||
Ultane/Sevorane | $ | 65 | 12.4 | $ | 109 | 23.9 | (g) | ||||
MediSense Products | $ | 50 | (2.8 | ) | $ | 78 | 5.9 | (h) | |||
Vascular Pharma and Devices | $ | 55 | 33.1 | | | ||||||
TAP Pharmaceutical Products |
|||||||||||
(not consolidated in Abbott's sales) | |||||||||||
Prevacid | $ | 797 | (2.1 | ) | | | |||||
Lupron | $ | 199 | (9.5 | ) | | |
(a) | Without the positive impact of exchange of 12.5 percent, clarithromycin sales increased 1.5 percent internationally. |
(b) | Without the positive impact of exchange of 18.9 percent, Kaletra sales increased 55.2 percent internationally. |
(c) | Without the positive impact of exchange of 6.4 percent, Reductil sales decreased 4.0 percent internationally. |
(d) | Without the positive impact of exchange of 5.4 percent, leuprolide sales decreased 3.4 percent internationally. |
(e) | Without the positive impact of exchange of 5.4 percent, lansoprazole sales increased 22.1 percent internationally. |
(f) | Without the positive impact of exchange of 7.2 percent, adult nutritional sales increased 5.1 percent internationally. |
(g) | Without the positive impact of exchange of 10.7 percent, Sevorane sales increased 13.2 percent internationally. |
(h) | Without the positive impact of exchange of 12.2 percent, MediSense product sales decreased 6.3 percent internationally. |
n/m = Percent change is not meaningful. |
5
The following is a summary of first-half 2003 sales for selected products.
First-Half Ended 6/30/03
|
U.S. ($ millions) |
Percent Change vs. 1H02 |
Rest of World ($ millions) |
Percent Change vs. 1H02 |
|||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Pharmaceutical Products Group | |||||||||||
Depakote | $ | 364 | 1.8 | $ | 19 | 4.8 | |||||
Flomax | $ | 316 | 29.1 | $ | 15 | 52.1 | |||||
Synthroid | $ | 251 | (1.2 | ) | $ | 17 | 9.6 | ||||
TriCor | $ | 250 | 37.6 | | | ||||||
Biaxin (clarithromycin) | $ | 218 | 5.6 | $ | 369 | 10.4 | (a) | ||||
Kaletra | $ | 181 | 29.6 | $ | 168 | 67.0 | (b) | ||||
Mobic | $ | 137 | 19.2 | | | ||||||
Omnicef | $ | 95 | 37.2 | | | ||||||
HUMIRA | $ | 78 | n/m | $ | 5 | n/m | |||||
Meridia/Reductil | $ | 31 | (22.6 | ) | $ | 84 | (14.6) | (c) | |||
Leuprolide | | | $ | 86 | (2.4 | ) | |||||
Lansoprazole | | | $ | 60 | 24.2 | ||||||
Medical Products Group |
|||||||||||
Pediatric Nutritionals | $ | 519 | 1.4 | $ | 252 | 1.0 | |||||
Adult Nutritionals | $ | 380 | (10.2 | ) | $ | 276 | 11.7 | (d) | |||
Ultane/Sevorane | $ | 118 | 21.7 | $ | 194 | 18.9 | (e) | ||||
MediSense Products | $ | 102 | 0.6 | $ | 154 | 11.1 | (f) | ||||
Vascular Pharma and Devices | $ | 114 | 33.8 | | | ||||||
TAP Pharmaceutical Products |
|||||||||||
(not consolidated in Abbott's sales) | |||||||||||
Prevacid | $ | 1,592 | 4.9 | | | ||||||
Lupron | $ | 412 | (3.9 | ) | | |
(a) | Without the positive impact of exchange of 12.0 percent, clarithromycin sales decreased 1.6 percent internationally. |
(b) | Without the positive impact of exchange of 17.1 percent, Kaletra sales increased 49.9 percent internationally. |
(c) | Without the positive impact of exchange of 4.8 percent, Reductil sales decreased 19.4 percent internationally. |
(d) | Without the positive impact of exchange of 6.8 percent, adult nutritional sales increased 4.9 percent internationally. |
(e) | Without the positive impact of exchange of 8.8 percent, Sevorane sales increased 10.1 percent internationally. |
(f) | Without the positive impact of exchange of 12.0 percent, MediSense product sales decreased 0.9 percent internationally. |
n/m = Percent change is not meaningful. |
6
Business highlights
7
Abbott declares quarterly dividend
On June 20, 2003, the board of directors of Abbott declared the company's quarterly common dividend of 24.5 cents per share. The cash dividend is payable Aug. 15, 2003, to shareholders of record at the close of business on July 15, 2003. This marks the 318th consecutive dividend paid by Abbott since 1924.
Abbott Laboratories is a global, broad-based health care company devoted to the discovery, development, manufacture and marketing of pharmaceuticals, nutritionals and medical products, including devices and diagnostics. The company employs more than 70,000 people and markets its products in more than 130 countries.
Abbott's news releases and other information are available on the company's Web site at www.abbott.com. Abbott will webcast its live second-quarter earnings conference call through its Investor Relations Web site at www.abbottinvestor.com at 9 a.m. Central time. An archived edition of the call will be available after 1 p.m. Central time.
Private Securities Litigation Reform Act of 1995
A Caution Concerning Forward-Looking Statements
Some statements in this news release may be forward-looking statements for purposes of the Private Securities Litigation Reform Act of 1995. Abbott cautions that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. Economic, competitive, governmental, technological and other factors that may affect Abbott's operations are discussed in Exhibit 99.1 of our 2002 Annual Report on Securities and Exchange Commission Form 10-K and are incorporated by reference. Abbott undertakes no obligation to release publicly any revisions to forward-looking statements as the result of subsequent events or developments.
Media Contact: |
Financial Analyst Contacts: |
|
Melissa Brotz (847) 935-3456 |
John Thomas (847) 938-2655 Larry Peepo (847) 935-6722 Christy Wistar (847) 938-4475 |
8
Abbott Laboratories and Subsidiaries
Consolidated Statement of Earnings
Second Quarter Ended June 30, 2003 and 2002
(unaudited)
|
2003 |
2002 |
Percent Change |
||||||
---|---|---|---|---|---|---|---|---|---|
Net Sales | $ | 4,723,635,000 | $ | 4,314,889,000 | 9.5 | ||||
Cost of products sold |
2,270,855,000 |
2,166,590,000 |
4.8 |
||||||
Research & development | 402,753,000 | 379,492,000 | 6.1 | ||||||
Acquired in-process R&D | 39,000,000 | 107,700,000 | (63.8 | ) | |||||
Selling, general & administrative(1) | 1,685,886,000 | 978,008,000 | 72.4 | ||||||
Total Operating Cost and Expenses(1) | 4,398,494,000 | 3,631,790,000 | 21.1 | ||||||
Operating earnings(1) |
325,141,000 |
683,099,000 |
(52.4 |
) |
|||||
Net interest expense |
38,384,000 |
52,221,000 |
(26.5 |
) |
|||||
Net foreign exchange loss | 9,064,000 | 18,369,000 | (50.7 | ) | |||||
(Income) from TAP Pharmaceutical Products Inc. joint venture | (132,542,000 | ) | (177,251,000 | ) | (25.2 | ) | |||
Other (income)/expense, net | (6,998,000 | ) | 5,303,000 | n/m | |||||
Earnings Before Taxes | 417,233,000 | 784,457,000 | (46.8 | ) | |||||
Taxes on earnings | 170,590,000 | 192,192,000 | (11.2 | ) | |||||
Net Earnings |
$ |
246,643,000 |
$ |
592,265,000 |
(58.4 |
) |
|||
Net Earnings Excluding One-Time Charges, as described below(2) |
$ |
819,804,000 |
$ |
770,973,000 |
6.3 |
||||
Diluted Earnings Per Common Share |
$ |
0.16 |
$ |
0.38 |
(57.9 |
) |
|||
Diluted Earnings Per Common Share Excluding One-Time Charges, as described below(2) |
$ |
0.52 |
$ |
0.49 |
6.1 |
||||
Average Number of Common Shares Outstanding Plus Dilutive Common Stock Options |
1,572,310,000 |
1,573,960,000 |
NOTE: See attached Q&A on second-quarter 2003 results for further explanation of Consolidated Statement of Earnings line items.
n/m = Percent change is not meaningful.
9
Abbott Laboratories and Subsidiaries
Consolidated Statement of Earnings
Six Months Ended June 30, 2003 and 2002
(unaudited)
|
2003 |
2002 |
Percent Change |
||||||
---|---|---|---|---|---|---|---|---|---|
Net Sales | $ | 9,304,098,000 | $ | 8,504,178,000 | 9.4 | ||||
Cost of products sold |
4,468,596,000 |
4,062,667,000 |
10.0 |
||||||
Research & development | 808,780,000 | 736,173,000 | 9.9 | ||||||
Acquired in-process R&D | 39,000,000 | 107,700,000 | (63.8 | ) | |||||
Selling, general & administrative(1) | 2,682,091,000 | 1,869,694,000 | 43.5 | ||||||
Total Operating Cost and Expenses(1) | 7,998,467,000 | 6,776,234,000 | 18.0 | ||||||
Operating earnings(1) |
1,305,631,000 |
1,727,944,000 |
(24.4 |
) |
|||||
Net interest expense |
75,674,000 |
105,107,000 |
(28.0 |
) |
|||||
Net foreign exchange loss | 44,260,000 | 43,092,000 | 2.7 | ||||||
(Income) from TAP Pharmaceutical Products Inc. joint venture | (264,630,000 | ) | (335,713,000 | ) | (21.2 | ) | |||
Other (income)/expense, net | (20,829,000 | ) | (496,000 | ) | n/m | ||||
Earnings Before Taxes | 1,471,156,000 | 1,915,954,000 | (23.2 | ) | |||||
Taxes on earnings | 423,532,000 | 469,409,000 | (9.8 | ) | |||||
Net Earnings |
$ |
1,047,624,000 |
$ |
1,446,545,000 |
(27.6 |
) |
|||
Net Earnings Excluding One-Time Charges, as described below(2) |
$ |
1,620,785,000 |
$ |
1,625,254,000 |
(0.3 |
) |
|||
Diluted Earnings Per Common Share |
$ |
0.67 |
$ |
0.92 |
(27.2 |
) |
|||
Diluted Earnings Per Common Share Excluding One-Time Charges, as described below(2) |
$ |
1.03 |
$ |
1.03 |
|
||||
Average Number of Common Shares Outstanding Plus Dilutive Common Stock Options |
1,570,364,000 |
1,576,541,000 |
n/m = Percent change is not meaningful.
10
Q&A on second-quarter 2003 results
Enthusiasm for HUMIRA among patients and physicians remains very high, and we continue to be pleased with the U.S. launch progress. As a result of strong prescription growth, 2003 worldwide sales expectations were raised from more than $200 million to more than $250 million at the Abbott R&D Update investor meeting in May. We continue to project worldwide sales in excess of $500 million in 2004 and peak-year sales of more than $1 billion for the rheumatoid arthritis indication alone.
Sales from Abbott's international division grew 12.7 percent during the quarter. Pharmaceuticals led this growth (up 14.9 percent), driven by sales of Kaletra and clarithromycin, offset by lower-than-expected sales of Reductil. In Abbott International's hospital and nutritional segments, sevoflurane and adult nutritionals also experienced solid growth. The international division's sales were favorably impacted 8.4 percent due to exchange rates.
Sales of U.S. hospital products decreased during the quarter due in part to lower hospital admissions compared to the second quarter of 2002. As Abbott is a major supplier of hospital products, this decrease in demand impacted several business segments, including I.V. therapies and acute-care injectables. Renal pharmaceutical sales declined due in part to a difficult comparison with the second quarter of 2002, when sales increased more than 20 percent. With the vast majority of the market using Zemplar, growth rates for the renal pharmaceutical business are moderating, with full-year sales projected to grow in the high-single digits.
Abbokinase is currently available in more than 1,000 hospitals as a therapeutic option. However, given the product's uptake, the division is now projecting Abbokinase sales this year of approximately $25 million to $35 million.
Looking ahead, based on continuing growth of Ultane and the vascular business, a moderate recovery expected in hospital volumes, and the additional sales from newly acquired assets (JOMED and Spinal Concepts), the U.S. hospital products division is expected to return to double-digit growth in the second half of 2003.
Ross continues to be impacted by soft economic conditions and pricing pressures in the institutional segment of medical nutritionals. In addition, the sales growth comparison in the quarter was negatively impacted by last year's divestitures of nonstrategic consumer businesses.
Ross will begin shipping Ensure in new, break-resistant and re-closable bottles in July, which is expected to drive category expansion and increase market share. The depletion of retail inventories in anticipation of this launch negatively affected Ensure sales in the quarter. For the second half of
11
2003, Ross expects overall sales to be flat to slightly up, due to continuing soft economic conditions as well as comparisons resulting from the aforementioned 2002 divestitures.
Global diagnostics sales increased 2.9 percent, including a 7.3 percent benefit from exchange. U.S. diagnostic product sales continue to be impacted by the discontinuation of two lower-margin LCx products as well as market share erosion in the immunoassay business. MediSense performance was negatively impacted by a backorder situation that resulted during the transition of the older G2 strip manufacturing process to newer, updated manufacturing processes and procedures. As we emerge from this product availability situation, we project MediSense will deliver strong double-digit revenue growth in the third quarter. For the second half of 2003, the diagnostics division expects revenue to grow in the low- to mid-single-digit range.
|
2Q03 |
2Q02 |
|||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Earnings |
|
Earnings |
|
|||||||||||||||
|
Pretax |
After Tax |
EPS |
Pretax |
After Tax |
EPS |
|||||||||||||
As reported | $ | 417 | $ | 247 | $ | 0.16 | $ | 784 | $ | 592 | $ | 0.38 | |||||||
Add back one-time items: | |||||||||||||||||||
In-Process R&D | $ | 39 | $ | 37 | $ | 0.02 | $ | 108 | $ | 82 | $ | 0.05 | |||||||
Diagnostics GMP compliance | | | | $ | 129 | $ | 97 | $ | 0.06 | ||||||||||
Anticipated Ross settlement | $ | 622 | $ | 536 | $ | 0.34 | | | | ||||||||||
Excluding one-time items | $ | 1,078 | $ | 820 | $ | 0.52 | $ | 1,021 | $ | 771 | $ | 0.49 |
Pretax impact of the one-time charges by Consolidated Statement of Earnings line item is as follows (dollars in millions):
|
2Q03 |
2Q02 |
|||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
|
Cost of Goods Sold |
In-Process R&D |
SG&A |
Total |
Cost of Goods Sold |
In-Process R&D |
Total |
||||||||||||||
In-Process R&D | | $ | 39 | | $ | 39 | | $ | 108 | $ | 108 | ||||||||||
Diagnostics GMP compliance | | | | | $ | 129 | | $ | 129 | ||||||||||||
Anticipated Ross settlement | $ | 8 | | $ | 614 | $ | 622 | | | | |||||||||||
Total | $ | 8 | $ | 39 | $ | 614 | $ | 661 | $ | 129 | $ | 108 | $ | 237 |
As mentioned in their respective announcements, the acquisitions of JOMED's coronary and peripheral interventional business and Spinal Concepts resulted in a one-time charge for estimated in-process R&D, which is subject to the completion of an external appraisalexpected to be concluded in the third quarter. Also, as previously disclosed, second-quarter results were impacted by charges related to the anticipated settlement of the Ross enteral nutrition investigation.
Earnings results from the second quarter of 2002 were impacted by in-process R&D related to the acquisition of Biocompatibles' stent business and the Medtronic alliance, as well as charges related to the Good Manufacturing Practices (GMP) compliance enhancements in the diagnostics division.
12
|
2Q03 |
2Q02 |
|||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
|
Cost of Products Sold |
Gross Margin % |
Cost of Products Sold |
Gross Margin % |
|||||||
As reported (GAAP) | $ | 2,271 | 51.9 | % | $ | 2,167 | 49.8 | % | |||
Anticipated Ross settlement | $ | (8 | ) | 0.2 | % | | | ||||
Diagnostics GMP compliance | | | $ | (129 | ) | 3.0 | % | ||||
Excluding one-time items | $ | 2,263 | 52.1 | % | $ | 2,038 | 52.8 | % |
Excluding one-time charges in both periods, the gross margin ratio was down primarily due to ongoing costs associated with our Good Manufacturing Practices (GMP) compliance enhancements related to the diagnostics division. We expect the gross margin ratio to improve by the fourth quarter from improved sales mix. The full-year average is expected to be in the low 50s as a percentage of sales, consistent with previous forecasts.
13
R&D investment this quarter increased more than 6 percent to support pipeline programs, such as the follow-on indications for HUMIRA, Phase III development of atrasentan and our neuroscience clinical programs. As discussed during the Abbott R&D Update investor meeting, we are investing in the development of a number of promising compounds in each of our major therapeutic areas of focus. R&D spending growth is expected to accelerate in the third and fourth quarters of 2003.
|
2Q03 |
||||||||
---|---|---|---|---|---|---|---|---|---|
|
Pretax Income |
Income Tax |
Tax Rate |
||||||
As reported | $ | 417 | $ | 171 | 40.9 | % | |||
One-time charges | 661 | 88 | 13.3 | % | |||||
Excluding one-time charges | $ | 1,078 | $ | 259 | 24.0 | % |
The income recorded on the Income from TAP Joint Venture line of the Consolidated Statement of Earnings declined due to lower sales and increased SG&A spending related to Prevacid. TAP continues to invest in sales and marketing to ensure longer-term Prevacid growth. Abbott's income contribution from TAP is expected to substantially increase from current levels in the second half of 2003, due to sales growth and slower growth in spending.
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The Net Foreign Exchange Loss line of the earnings statement was $9 million in the second quarter of 2003, compared to $18 million in the second quarter of 2002, due to lower losses in Latin America, partially offset by costs of 2003 hedging programs, as discussed above.
For the first time, Abbott is providing earnings-per-share guidance of $0.52 to $0.54 for the third-quarter 2003, excluding the remaining one-time charge of $0.01 per share associated with the second-quarter acquisitions noted above. Including this one-time charge, projected earnings-per-share under GAAP for the third-quarter 2003 would be $0.51 to $0.53. Third-quarter 2003 guidance reflects a higher rate of overall sales growth than in the first six months, partially offset by continuing high R&D and SG&A investments, primarily in the pharmaceutical business. Growth in R&D investment is expected to increase significantly in the third quarter.
As we have previously discussed, earnings growth is expected to be stronger in the second half of 2003, and particularly in the fourth quarter, due to the following: the continued ramp up of HUMIRA sales, including the international launch; accelerated sales growth across a number of marketed pharmaceutical products, molecular diagnostics and glucose monitoring products; the positive impact of foreign exchange; and improvements in TAP performance from increased sales and slower growth in spending.
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