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, 2008

 

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 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, 2008, Abbott Laboratories had 1,551,582,176 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

 

 

 

2008

 

2007

 

2008

 

2007

 

Net Sales

 

$

7,497,660

 

$

6,376,706

 

$

21,577,284

 

$

18,692,887

 

 

 

 

 

 

 

 

 

 

 

Cost of products sold

 

3,352,869

 

2,864,030

 

9,433,641

 

8,260,366

 

Research and development

 

680,360

 

640,718

 

1,957,180

 

1,843,248

 

Acquired in-process research and development

 

 

 

97,256

 

 

Selling, general and administrative

 

2,067,914

 

1,945,404

 

6,138,264

 

5,528,729

 

Total Operating Cost and Expenses

 

6,101,143

 

5,450,152

 

17,626,341

 

15,632,343

 

 

 

 

 

 

 

 

 

 

 

Operating Earnings

 

1,396,517

 

926,554

 

3,950,943

 

3,060,544

 

 

 

 

 

 

 

 

 

 

 

Interest expense

 

125,014

 

146,657

 

405,317

 

447,548

 

Interest (income)

 

(55,313

)

(40,433

)

(159,117

)

(92,303

)

(Income) from TAP Pharmaceutical Products Inc. joint venture

 

 

(114,084

)

(118,997

)

(376,442

)

Net foreign exchange loss (gain)

 

17,156

 

4,959

 

37,849

 

16,058

 

Other (income) expense, net

 

(63,376

)

36,036

 

(384,189

)

78,960

 

Earnings Before Taxes

 

1,373,036

 

893,419

 

4,170,080

 

2,986,723

 

Taxes on Earnings

 

288,424

 

176,414

 

825,587

 

583,436

 

 

 

 

 

 

 

 

 

 

 

Net Earnings

 

$

1,084,612

 

$

717,005

 

$

3,344,493

 

$

2,403,287

 

 

 

 

 

 

 

 

 

 

 

Basic Earnings Per Common Share

 

$

0.70

 

$

0.46

 

$

2.17

 

$

1.56

 

 

 

 

 

 

 

 

 

 

 

Diluted Earnings Per Common Share

 

$

0.69

 

$

0.46

 

$

2.14

 

$

1.54

 

 

 

 

 

 

 

 

 

 

 

Cash Dividends Declared Per Common Share

 

$

0.36

 

$

0.325

 

$

1.08

 

$

0.975

 

 

 

 

 

 

 

 

 

 

 

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

 

1,545,639

 

1,543,544

 

1,543,605

 

1,542,046

 

Dilutive Common Stock Options and Awards

 

18,091

 

14,214

 

16,081

 

17,028

 

 

 

 

 

 

 

 

 

 

 

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

 

1,563,730

 

1,557,758

 

1,559,686

 

1,559,074

 

 

 

 

 

 

 

 

 

 

 

Outstanding Common Stock Options Having No Dilutive Effect

 

3,720

 

30,267

 

3,720

 

4,639

 

 

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

 

 

 

2008

 

2007

 

Cash Flow From (Used in) Operating Activities:

 

 

 

 

 

Net earnings

 

$

3,344,493

 

$

2,403,287

 

Adjustments to reconcile earnings to net cash from operating activities –

 

 

 

 

 

Depreciation

 

830,844

 

773,066

 

Amortization of intangible assets

 

585,430

 

598,628

 

Share-based compensation

 

286,191

 

354,156

 

Gain on dissolution of TAP Pharmaceutical Products Inc. joint venture

 

(94,248

)

 

Acquired in-process research and development

 

97,256

 

 

Trade receivables

 

(3,396

)

94,663

 

Inventories

 

(116,950

)

(34,494

)

Other, net

 

832,417

 

(55,554

)

Net Cash From Operating Activities

 

5,762,037

 

4,133,752

 

 

 

 

 

 

 

Cash Flow From (Used in) Investing Activities:

 

 

 

 

 

Contingent consideration paid relating to a prior business acquisition

 

(250,000

)

 

Acquisitions of property and equipment

 

(1,023,132

)

(1,227,428

)

Proceeds from sales of Boston Scientific common stock

 

318,645

 

348,061

 

Purchases of other investment securities, net

 

(755,450

)

(12,353

)

Other

 

(25,369

)

(16,195

)

Net Cash (Used in) Investing Activities

 

(1,735,306

)

(907,915

)

 

 

 

 

 

 

Cash Flow From (Used in) Financing Activities:

 

 

 

 

 

Repayments of short-term debt and other

 

(1,379,968

)

(22,165

)

Repayments of long-term debt

 

(400,000

)

(346,005

)

Purchases of common shares

 

(1,073,127

)

(1,058,606

)

Proceeds from stock options exercised, including tax benefit

 

935,061

 

1,026,777

 

Dividends paid

 

(1,615,743

)

(1,456,853

)

Net Cash (Used in) Financing Activities

 

(3,533,777

)

(1,856,852

)

 

 

 

 

 

 

Effect of exchange rate changes on cash and cash equivalents

 

(138,995

)

20,654

 

 

 

 

 

 

 

Net Increase in Cash and Cash Equivalents

 

353,959

 

1,389,639

 

Cash and Cash Equivalents, Beginning of Year

 

2,456,384

 

521,192

 

Cash and Cash Equivalents, End of Period

 

$

2,810,343

 

$

1,910,831

 

 

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
2008

 

December 31
2007

 

Assets

 

 

 

 

 

Current Assets:

 

 

 

 

 

Cash and cash equivalents

 

$

2,810,343

 

$

2,456,384

 

Investments, including $307,500 of investments measured at fair value at December 31, 2007

 

956,127

 

364,443

 

Trade receivables, less allowances of $268,352 in 2008 and $258,288 in 2007

 

4,994,075

 

4,946,876

 

Inventories:

 

 

 

 

 

Finished products

 

1,793,142

 

1,677,083

 

Work in process

 

702,609

 

681,634

 

Materials

 

604,371

 

592,725

 

Total inventories

 

3,100,122

 

2,951,442

 

Prepaid expenses, deferred income taxes, and other receivables

 

3,366,066

 

3,323,588

 

Total Current Assets

 

15,226,733

 

14,042,733

 

Investments

 

1,081,999

 

1,125,262

 

Property and Equipment, at Cost

 

16,123,416

 

15,597,801

 

Less: accumulated depreciation and amortization

 

8,482,695

 

8,079,652

 

Net Property and Equipment

 

7,640,721

 

7,518,149

 

Intangible Assets, net of amortization

 

5,683,311

 

5,720,478

 

Goodwill

 

10,730,692

 

10,128,841

 

Deferred Income Taxes and Other Assets

 

1,389,556

 

1,178,461

 

 

 

$

41,753,012

 

$

39,713,924

 

 

 

 

 

 

 

Liabilities and Shareholders’ Investment

 

 

 

 

 

Current Liabilities:

 

 

 

 

 

Short-term borrowings

 

$

595,218

 

$

1,827,361

 

Trade accounts payable

 

1,223,848

 

1,219,529

 

Salaries, dividends payable, and other accruals

 

5,689,270

 

5,077,428

 

Income taxes payable

 

231,007

 

80,406

 

Obligation in connection with conclusion of TAP Pharmaceutical Products Inc. joint venture

 

318,852

 

 

Current portion of long-term debt

 

1,501,244

 

898,554

 

Total Current Liabilities

 

9,559,439

 

9,103,278

 

 

 

 

 

 

 

Long-term Debt

 

8,468,033

 

9,487,789

 

Post-employment Obligations and Other Long-term Liabilities

 

3,582,575

 

3,344,317

 

Long-term Obligation in Connection With Conclusion of TAP Pharmaceutical Products Inc. Joint Venture

 

797,130

 

 

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: 2008: 1,600,301,101; 2007: 1,580,854,677

 

7,309,276

 

6,104,102

 

Common shares held in treasury, at cost -
Shares: 2008: 48,718,925; 2007: 30,944,537

 

(2,240,285

)

(1,213,134

)

Earnings employed in the business

 

12,453,610

 

10,805,809

 

Accumulated other comprehensive income (loss)

 

1,823,234

 

2,081,763

 

Total Shareholders’ Investment

 

19,345,835

 

17,778,540

 

 

 

$

41,753,012

 

$

39,713,924

 

 

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, 2008

 

(Unaudited)

 

Note 1 – Basis of Presentation

 

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, 2007.

 

Abbott’s core laboratory diagnostics business, including Point of Care, was accounted for as discontinued operations for the six months ended June 30, 2007.  Subsequently, a decision was made to retain the businesses.  The results for the six months ended June 30, 2007 included depreciation and amortization through January 17, 2007.  Depreciation and amortization that was discontinued in the amount of approximately $99 million was recorded in the third quarter of 2007.

 

In the third quarter of 2008, Abbott announced that it had reached an agreement to sell Abbott’s spine business for $360 million in cash.  The transaction closed in October 2008 and a pretax gain of approximately $150 million will be recorded in the fourth quarter of 2008.  The operations and financial position of the spine business are not presented as discontinued operations because the effects would not be significant.

 

Note 2 – Supplemental Financial Information

 

As described in Note 3, Abbott recorded a gain of approximately $94 million in connection with the dissolution of the TAP Pharmaceutical Products Inc. joint venture in the second quarter of 2008, which is included in Other (income) expense, net.  Other (income) expense, net for the nine months ended September 30, 2008 also includes a gain of approximately $52 million on the sale of an equity investment accounted for as an available-for-sale investment.  Other (income) expense, net for the third quarter of 2008 and the remainder of Other (income) expense, net for the nine months ended September 30, 2008 relates primarily to contractual payments based on specified development, approval and commercial events being achieved with respect to products retained by Takeda and payments from Takeda based on sales of products retained by Takeda.

 

Other (income) expense, net for the third quarter of 2007 includes a $35 million fair market value loss adjustment to Abbott’s investment in Boston Scientific common stock.  Other (income) expense, net for the first nine months of 2007 includes a $136 million fair market value loss adjustment to Abbott’s investment in Boston Scientific common stock and a realized gain of $37 million on the sales of Boston Scientific stock.

 

Supplemental Cash Flow Information – In connection with the dissolution of the TAP Pharmaceutical Products Inc. joint venture, Abbott recorded intangible assets of approximately $700 million, goodwill of approximately $350 million, net deferred tax assets of approximately $150 million and a contingent liability of approximately $1.1 billion and derecognized its investment in the TAP Pharmaceutical Products Inc. joint venture of approximately $280 million in the second quarter of 2008.  The increase in Other, net in Net cash from operating activities from 2007 to 2008 reflects primarily increased accruals for cost improvement initiatives and payroll related obligations.  Purchases of other investment securities, net in 2008 reflects the acquisition of short-term investments with original maturities of over three months.

 

Investments at September 30, 2008 and December 31, 2007 consist of the following:

(dollars in millions)

 

 

 

September 30

 

December 31

 

 

 

2008

 

2007

 

Current Investments:

 

 

 

 

 

Time deposits and certificates of deposit

 

$

956

 

$

57

 

Boston Scientific common stock

 

 

307

 

Total

 

$

956

 

$

364

 

 

5



 

Notes to Condensed Consolidated Financial Statements

September 30, 2008

(Unaudited), continued

 

 

 

September 30

 

December 31

 

 

 

2008

 

2007

 

Long-term Investments:

 

 

 

 

 

Equity securities

 

$

151

 

$

229

 

Note receivable from Boston Scientific, 4% interest, due in 2011

 

861

 

851

 

Other

 

70

 

45

 

Total

 

$

1,082

 

$

1,125

 

 

Note 3 – Conclusion of TAP Pharmaceutical Products Inc. Joint Venture

 

On April 30, 2008, Abbott and Takeda concluded their TAP Pharmaceutical Products Inc. (TAP) joint venture, evenly splitting the value and assets of the joint venture.  Abbott exchanged its 50 percent equity interest in TAP for the assets, liabilities and employees related to TAP’s Lupron business.  Subsequent to the conclusion of the joint venture, TAP was merged into two Takeda entities.  The exchange of Abbott’s investment in TAP for TAP’s Lupron business resulted in a gain at closing of approximately $94 million.  The Internal Revenue Service has issued a private letter ruling that the transaction qualifies as tax-free for U.S. income tax purposes.

 

Beginning on May 1, 2008, Abbott began recording U.S. Lupron net sales and costs in its operating results and no longer records income from the TAP joint venture.  TAP’s sales of Lupron were $182 million for the four months ended April 30, 2008 and $645 million for the full year 2007.  Abbott also receives payments based on specified development, approval and commercial events being achieved with respect to products retained by Takeda and payments from Takeda based on sales of products retained by Takeda, which are recorded by Abbott as Other (income) expense, net as earned.  Such payments, which are subject to tax, are expected to approximate $1.4 billion over the five-year period beginning on May 1, 2008.

 

The exchange transaction was accounted for as a sale of Abbott’s equity interest in TAP and as an acquisition of TAP’s Lupron business under SFAS No. 141 “Business Combinations.”  The sale of Abbott’s equity interest in TAP resulted in the recording of net assets related to the Lupron business, primarily cash, receivables, inventory and other assets, net of accounts payable and other accrued liabilities, offset by a credit to Abbott’s investment in TAP in the amount of approximately $280 million.

 

For the acquired Lupron business, Abbott recorded intangible assets, primarily Lupron product rights, of approximately $700 million, goodwill of approximately $350 million and deferred tax liabilities related primarily to the intangible assets of approximately $260 million.  The intangible assets are being amortized over 15 years.  Abbott has also agreed to remit cash to Takeda if certain research and development events are not achieved on the development assets retained by Takeda.  These amounts were recorded as a liability at closing in the amount of approximately $1.1 billion.  Related deferred tax assets of approximately $410 million were also recorded, resulting in an after-tax liability of approximately $700 million.  Of the $1.1 billion, Abbott will make tax-deductible payments of $200 million in the fourth quarter of 2008 and approximately $120 million in 2009.  If the remaining payments are not required, the liability would be reduced and a gain would be recorded.

 

The 50 percent-owned joint venture was accounted for under the equity method of accounting.  Summarized financial information for TAP follows below (in millions).  The results for 2008 include results through April 30.

 

 

 

Three Months Ended

 

Nine Months Ended
September 30

 

 

 

September 30, 2007

 

2008

 

2007

 

Net sales

 

$

741

 

$

853

 

$

2,257

 

Cost of sales

 

169

 

229

 

538

 

Income before taxes

 

359

 

356

 

1,186

 

Net earnings

 

228

 

238

 

753

 

 

Note 4 – Acquired In-process Research and Development

 

During 2008, technology investments and acquired product rights resulted in charges to acquired in-process research and development of approximately $97 million.

 

6



 

Notes to Condensed Consolidated Financial Statements

September 30, 2008

(Unaudited), continued

 

Note 5 – Taxes on Earnings

 

Taxes on earnings reflect the estimated annual effective rates and include charges for interest and penalties.  The effective tax rates are less than the statutory U.S. federal income tax rate principally due to the domestic dividend exclusion in 2007 and the benefit of lower statutory tax rates and tax exemptions in several taxing jurisdictions.  In the second quarter of 2008, Abbott’s federal income tax returns for 2004 and 2005 were settled, resulting in a net reduction of income taxes of approximately $30 million.

 

Note 6 – 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 one of those disputes, filed in April 2007, Abbott is unable to estimate a range of possible loss, if any, and no reserve has been recorded.  Abbott’s acquisition of Kos Pharmaceuticals Inc. resulted in the assumption of various cases and investigations and Abbott has recorded reserves related to several of those cases and investigations.

 

There are several civil actions pending brought by individuals or entities that allege generally that Abbott and numerous pharmaceutical companies reported false or misleading pricing information relating to the average wholesale price of certain pharmaceutical products in connection with federal, state and private reimbursement.  Civil actions have also been brought against Abbott, and in some cases other members of the pharmaceutical industry, by state attorneys general seeking to recover alleged damages on behalf of state Medicaid programs.  In May 2006, Abbott was notified that the U.S. Department of Justice intervened in a civil whistle-blower lawsuit alleging that Abbott inflated prices for Medicaid and Medicare reimbursable drugs.  Abbott has recorded reserves for its estimated losses in a few of the cases, however, Abbott is unable to estimate the range or amount of possible loss for the majority of the cases, and no loss reserves have been recorded for them.  Many of the products involved in these cases are Hospira products.  Hospira, Abbott’s former hospital products business, was spun off to Abbott’s shareholders in 2004.  Abbott retained liability for losses that result from these cases and investigations to the extent any such losses both relate to the sale of Hospira’s products prior to the spin-off of Hospira and relate to allegations that were made in such pending and future cases and investigations that were the same as allegations existing at the date of the spin-off.

 

There are several civil actions pending brought by state attorneys general and private entities alleging antitrust and unfair competition claims in connection with the sales of TriCor. Abbott licenses TriCor from a third party and the licensor has also been named as a defendant.  Abbott is unable to estimate a range of loss, if any, and no loss reserves have been recorded. There are several civil actions pending brought by private payers and others alleging antitrust claims in connection with the pricing of Norvir.

 

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, except as noted above, Abbott estimates the range of possible loss to be from approximately $145 million to $355 million.  The recorded reserve balance at September 30, 2008 for these proceedings and exposures was approximately $205 million.  These reserves represent management’s best estimate of probable loss, as defined by Statement of Financial Accounting Standards No. 5, “Accounting for Contingencies.”

 

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 cases and investigations discussed in the third paragraph and the patent case discussed in the second paragraph of this footnote, the resolution of which could be material to cash flows or results of operations for a quarter.

 

7



 

Notes to Condensed Consolidated Financial Statements

September 30, 2008

(Unaudited), continued

 

Note 7 – Post-Employment Benefits

(dollars in millions)

 

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
Ended
September 30

 

Nine Months
Ended
September 30

 

Three Months
Ended
September 30

 

Nine Months
Ended
September 30

 

 

 

2008

 

2007

 

2008

 

2007

 

2008

 

2007

 

2008

 

2007

 

Service cost — benefits earned during the period

 

$

55

 

$

55

 

$

170

 

$

176

 

$

10

 

$

14

 

$

33

 

$

44

 

Interest cost on projected benefit obligations

 

86

 

73

 

256

 

224

 

21

 

24

 

69

 

73

 

Expected return on plans’ assets

 

(120

)

(102

)

(359

)

(307

)

(9

)

(6

)

(25

)

(19

)

Net amortization

 

7

 

19

 

25

 

63

 

(1

)

8

 

5

 

25

 

Net Cost

 

$

28

 

$

45

 

$

92

 

$

156

 

$

21

 

$

40

 

$

82

 

$

123

 

 

Abbott funds its domestic defined benefit plans according to IRS funding limitations.  In the first quarters of 2008 and 2007, $200 was contributed to the main domestic defined benefit plan and $65 and $75, respectively, was contributed to the post-employment medical and dental benefit plans.

 

Note 8 – Comprehensive Income, net of tax

(dollars in millions)

 

 

 

Three Months Ended
September 30

 

Nine Months Ended
September 30

 

 

 

2008

 

2007

 

2008

 

2007

 

Foreign currency translation (loss) gain adjustments

 

$

(690

)

$

16

 

$

(257

)

$

279

 

Unrealized gains (losses) on marketable equity securities

 

1

 

26

 

(26

)

27

 

Amortization of net actuarial losses and prior service cost and credits

 

6

 

17

 

22

 

58

 

Net adjustments for derivative instruments designated as cash flow hedges

 

6

 

(21

)

2

 

(31

)

Other comprehensive income, net of tax

 

(677

)

38

 

(259

)

333

 

Net Earnings

 

1,085

 

717

 

3,344

 

2,403

 

Comprehensive Income

 

$

408

 

$

755

 

$

3,085

 

$

2,736

 

 

 

 

 

 

 

 

 

 

 

Supplemental Accumulated Other Comprehensive Income Information, net of tax:

 

 

 

 

 

 

 

 

 

Cumulative foreign currency translation (gain) adjustments

 

 

 

 

 

$

(2,692

)

$

(2,074

)

Net actuarial losses and prior service cost and credits

 

 

 

 

 

893

 

1,200

 

Cumulative unrealized (gains) on marketable equity securities

 

 

 

 

 

(40

)

(39

)

Cumulative losses on derivative instruments designated as cash flow hedges

 

 

 

 

 

16

 

9

 

 

8



 

Notes to Condensed Consolidated Financial Statements

September 30, 2008

(Unaudited), continued

 

Note 9 – Segment Information

(dollars in millions)

 

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.  Abbott’s reportable segments are as follows:

 

Pharmaceutical Products — Worldwide sales of a broad line of pharmaceuticals.  For segment reporting purposes, two pharmaceutical divisions are aggregated and reported as the Pharmaceutical Products segment.

 

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, three diagnostic divisions are aggregated and reported as the Diagnostic Products segment.

 

Vascular Products — Worldwide sales of coronary, endovascular, vessel closure and other products.

 

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.  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 (Loss)

 

 

 

Three Months
Ended
September 30

 

Nine Months
Ended
September 30

 

Three Months
Ended
September 30

 

Nine Months
Ended
September 30

 

 

 

2008

 

2007

 

2008

 

2007

 

2008

 

2007

 

2008

 

2007

 

Pharmaceuticals

 

$

4,121

 

$

3,531

 

$

12,098

 

$

10,435

 

$

1,513

 

$

1,267

 

$

4,400

 

$

3,760

 

Nutritionals (a)

 

1,262

 

1,102

 

3,606

 

3,201

 

200

 

186

 

576

 

595

 

Diagnostics

 

911

 

790

 

2,679

 

2,299

 

99

 

79

 

253

 

174

 

Vascular

 

636

 

403

 

1,578

 

1,246

 

91

 

(52

)

107

 

(104

)

Total Reportable Segments

 

6,930

 

5,826

 

19,961

 

17,181

 

1,903

 

1,480

 

5,336

 

4,425

 

Other

 

568

 

551

 

1,616

 

1,512

 

 

 

 

 

 

 

 

 

Net Sales

 

$

7,498

 

$

6,377

 

$

21,577

 

$

18,693

 

 

 

 

 

 

 

 

 

Corporate functions and benefit plans costs

 

 

 

 

 

 

 

 

 

(70

)

(94

)

(280

)

(320

)

Non-reportable segments

 

 

 

 

 

 

 

 

 

37

 

79

 

150

 

257

 

Net interest expense

 

 

 

 

 

 

 

 

 

(70

)

(106

)

(246

)

(355

)

Acquired in-process research and development

 

 

 

 

 

 

 

 

 

 

 

(97

)

 

Income from TAP Pharmaceutical Products Inc. joint venture

 

 

 

 

 

 

 

 

 

 

114

 

119

 

376

 

Share-based compensation (b)

 

 

 

 

 

 

 

 

 

(66

)

(104

)

(286

)

(354

)

Other, net (c)

 

 

 

 

 

 

 

 

 

(361

)

(476

)

(526

)

(1,042

)

Consolidated Earnings Before Taxes

 

 

 

 

 

 

 

 

 

$

1,373

 

$

893

 

$

4,170

 

$

2,987

 

 


(a)         Operating earnings in 2008 for the Nutritional products segment were impacted by higher commodity costs.

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

(c)         Other, net for the nine months ended September 30, 2008, includes the gain from the closing of the TAP joint venture and contractual payments from Takeda associated with the closing of the TAP Pharmaceutical Products Inc. joint venture.  Other, net for nine months ended September 30, 2007, includes acquisition integration expenses related to the acquisitions of Guidant’s vascular intervention and endovascular solutions businesses and Kos Pharmaceuticals Inc., fair market value loss adjustments to Abbott’s investment in Boston Scientific common stock and the cost of terminating a contract.

 

9



 

Notes to Condensed Consolidated Financial Statements

September 30, 2008

(Unaudited), continued

 

Note 10 – Incentive Stock Programs

 

In the first nine months of 2008, Abbott granted 20,420,452 stock options, 4,211,294 replacement stock options, 809,650 restricted stock awards and 570,974 restricted stock units under this program.  At September 30, 2008, approximately 32 million shares were reserved for future grants.  Information regarding the number of options outstanding and exercisable at September 30, 2008 is as follows:

 

 

 

Outstanding

 

Exercisable

 

Number of shares

 

130,785,860

 

88,809,974

 

Weighted average remaining life (years)

 

6.6

 

5.6

 

Weighted average exercise price

 

$

49.07

 

$

47.26

 

Aggregate intrinsic value (in millions)

 

$

1,117

 

$

920

 

 

The total unrecognized share-based compensation cost at September 30, 2008 amounted to approximately $282 million which is expected to be recognized over the next three years.

 

Note 11 – Goodwill and Intangible Assets

(dollars in millions)

 

In the third quarter of 2008, Abbott paid $250 to Boston Scientific as a result of the FDA’s approval to market the Xience V drug-eluting stent in the U.S., resulting in an increase in goodwill.  In connection with the dissolution of the TAP Pharmaceutical Products Inc. joint venture, Abbott recorded approximately $350 of goodwill in the second quarter of 2008.  Foreign currency translation adjustments and other adjustments increased goodwill in the first nine months of 2008 and 2007 by approximately $2 and $222, respectively.  There were no reductions of goodwill relating to impairments or disposal of all or a portion of a business.  The amount of goodwill related to reportable segments at September 30, 2008 was $6,576 for the Pharmaceutical Products segment, $206 for the Nutritional Products segment, $264 for the Diagnostic Products segment and $2,329 for the Vascular Products segment.

 

The gross amount of amortizable intangible assets, primarily product rights and technology was $9,617 as of September 30, 2008 and $9,043 as of December 31, 2007, and accumulated amortization was $3,934 as of September 30, 2008 and $3,323 as of December 31, 2007.  The estimated annual amortization expense for intangible assets is approximately $775 in 2008, $785 in 2009 and approximately $770 in 2010, 2011 and 2012.  Intangible assets are amortized over 4 to 25 years (average 11 years).

 

Note 12 – Restructuring Plans

(dollars in millions)

 

In the third quarter of 2008, Abbott management approved a plan to streamline global manufacturing operations, reduce overall costs, and improve efficiencies in Abbott’s core diagnostic business.  This plan will result in pre-tax charges of approximately $370 over the next several years.  These charges include employee-related costs of approximately $110, accelerated depreciation of approximately $75, and other related exit costs of approximately $185, mainly related to product transfers. In the third quarter 2008, Abbott recorded charges to Cost of products sold of approximately $129 under the plan.  Additional charges of approximately $7 were subsequently recorded in the third quarter of 2008 relating to this restructuring, primarily for accelerated depreciation.  The remainder of the charges will occur through 2011 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:

 

 

 

2008

 

2008 restructuring charges

 

$

129

 

Payments and other adjustments

 

(16

)

Accrued balance at September 30

 

$

113

 

 

10



 

Notes to Condensed Consolidated Financial Statements

September 30, 2008

(Unaudited), continued

 

In 2008, 2007 and 2006, Abbott management approved plans to realign its worldwide pharmaceutical manufacturing operations and selected domestic and international commercial and research and development operations in order to reduce costs.  Additional charges of $61 and $77 were subsequently recorded in the first nine months of 2008 and 2007, respectively, relating to these restructurings, primarily for accelerated depreciation.  In addition, Abbott implemented facilities restructuring plans in the second quarter of 2007 related to the acquired operations of Kos Pharmaceuticals Inc., which resulted in an increase to goodwill of approximately $52.  The following summarizes the activity for restructurings:

 

 

 

2008

 

2007

 

Accrued balance at January 1

 

$

194

 

$

193

 

Restructuring charges

 

36

 

45

 

Payments and other adjustments

 

(85

)

(106

)

Accrued balance at September 30

 

$

145

 

$

132

 

 

Note 13 – Fair Value Measures

(dollars in millions)

 

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

 

 

 

Outstanding
Balances

 

Quoted
Prices in
Active
Markets

 

Significant
Other
Observable
Inputs

 

Significant
Unobservable
Inputs

 

September 30, 2008:

 

 

 

 

 

 

 

 

 

Equity and other securities

 

$

199

 

$

151

 

$

16

 

$

32

 

Foreign currency forward exchange contracts

 

79

 

 

79

 

 

Financial assets relating to TAP employees’ stock options

 

22

 

 

 

22

 

Total Assets

 

$

300

 

$

151

 

$

95

 

$

54

 

Fair value of hedged long-term debt

 

$

2,466

 

$

 

$

2,466

 

$

 

Foreign currency forward exchange contracts

 

47

 

 

47

 

 

Interest rate swap financial instruments

 

34

 

 

34

 

 

Financial liabilities relating to TAP employees’ stock options

 

34

 

 

 

34

 

Total Liabilities

 

$

2,581

 

$

 

$

2,547

 

$

34

 

 

 

 

 

 

 

 

 

 

 

December 31, 2007:

 

 

 

 

 

 

 

 

 

Trading securities

 

$

308

 

$

308

 

$

 

$

 

Marketable available-for-sale securities

 

193

 

193

 

 

 

Foreign currency forward exchange contracts

 

24

 

 

24

 

 

Total Assets

 

$

525

 

$

501

 

$

24

 

$

 

Interest rate swap financial instruments

 

$

25

 

$

 

$

25

 

$

 

Fair value of hedged long-term debt

 

1,475

 

 

1,475

 

 

Foreign currency forward exchange contracts

 

45

 

 

45

 

 

Total Liabilities

 

$

1,545

 

$

 

$

1,545

 

$

 

 

In connection with the conclusion of the TAP Pharmaceutical Products Inc. joint venture, Abbott recorded derivative financial assets and liabilities related to stock options previously granted to TAP’s employees.  The amounts of these assets and liabilities were calculated using both the Black-Scholes option–pricing model and the intrinsic value of the options.  From April 30, 2008 to September 30, 2008 both the assets and liabilities decreased by approximately $18.  The effect of the changes in these assets and liabilities substantially offset each other.  In addition, Abbott received investments that are valued using significant unobservable inputs.  The recorded value of these investments did not change significantly.

 

11



 

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.

(dollars in millions)

 

 

 

Three Months Ended September 30

 

Nine Months Ended September 30

 

 

 

2008

 

Percent
Change

 

2007

 

Percent
Change

 

2008

 

Percent
Change

 

2007

 

Percent
Change

 

Pharmaceutical Products

 

$

4,121

 

16.7

 

$

3,531

 

19.6

 

$

12,098

 

15.9

 

$

10,435

 

17.8

 

Nutritional Products

 

1,262

 

14.5

 

1,102

 

4.4

 

3,606

 

12.7

 

3,201

 

(1.4

)

Diagnostic Products

 

911

 

15.3

 

790

 

9.8

 

2,679

 

16.5

 

2,299

 

10.5

 

Vascular Products

 

636

 

57.9

 

403

 

14.9

 

1,578

 

26.6

 

1,246

 

80.0

 

Total Reportable Segments

 

6,930

 

19.0

 

5,826

 

14.7

 

19,961

 

16.2

 

17,181

 

15.5

 

Other

 

568

 

2.9

 

551

 

10.9

 

1,616

 

6.9

 

1,512

 

9.6

 

Net Sales

 

$

7,498

 

17.6

 

$

6,377

 

14.4

 

$

21,577

 

15.4

 

$

18,693

 

15.0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total U.S

 

$

3,683

 

17.9

 

$

3,125

 

10.2

 

$

10,135

 

9.2

 

$

9,283

 

12.5

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total International

 

$

3,815

 

17.3

 

$

3,252

 

18.8

 

$

11,442

 

21.6

 

$

9,410

 

17.5

 

 

Worldwide sales for the third quarter and nine months 2008 compared to 2007 reflects unit growth and the positive effect of the relatively weaker U.S. dollar.  The relatively weaker U.S. dollar increased third quarter 2008 consolidated net sales by 4.7 percent, Total International sales by 9.2 percent, Pharmaceutical Products segment sales by 4.8 percent, Diagnostic Products segment sales by 7.5 percent and Vascular Products segment sales by 5.4 percent over the third quarter of 2007.  The relatively weaker U.S. dollar also increased the first nine months 2008 consolidated net sales by 5.4 percent, Total International sales by 10.7 percent, Pharmaceutical Products segment sales by 5.6 percent, Diagnostic Products segment sales by 8.2 percent and Vascular Products segment sales by 5.6 percent over the first nine months of 2007.  The relatively weaker U.S. dollar increased third quarter 2007 consolidated net sales by 2.8 percent, Total International sales by 5.7 percent, Pharmaceutical Products segment sales by 3.0 percent, Diagnostic Products segment sales by 3.9 percent and Vascular Products segment sales by 2.4 percent over the third quarter of 2006.  The relatively weaker U.S. dollar also increased the first nine months 2007 consolidated net sales by 2.7 percent, Total International sales by 5.5 percent, Pharmaceutical Products segment sales by 2.8 percent, Diagnostic Products segment sales by 3.9 percent and Vascular Products segment sales by 2.4 percent over the first nine months of 2006.  Sales growth in 2008 for the Vascular Products segment was favorably impacted by the U.S. launch of the Xience V drug-eluting stent in the third quarter of 2008.  Sales growth in 2007 for the Nutritional Products segment was unfavorably impacted by the completion of the co-promotion of Synagis in 2006.

 

12



 

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.

(dollars in millions)

 

 

 

Nine Months Ended September 30

 

 

 

2008

 

Percent
Change

 

2007

 

Percent
Change

 

Pharmaceutical Products —

 

 

 

 

 

 

 

 

 

U.S. Specialty

 

$

3,691

 

21.2

 

$

3,046

 

24.0

 

U.S. Primary Care

 

2,166

 

(4.8

)

2,275

 

33.8

 

International Pharmaceuticals

 

5,521

 

25.5

 

4,400

 

16.5

 

 

 

 

 

 

 

 

 

 

 

Nutritional Products —

 

 

 

 

 

 

 

 

 

U.S. Pediatric Nutritionals

 

935

 

2.9

 

908

 

8.9

 

International Pediatric Nutritionals

 

984

 

24.3

 

791

 

18.5

 

U.S. Adult Nutritionals

 

866

 

8.7

 

797

 

(0.9

)

International Adult Nutritionals

 

800

 

18.1

 

677

 

12.4

 

 

 

 

 

 

 

 

 

 

 

Diagnostics —

 

 

 

 

 

 

 

 

 

Immunochemistry

 

2,135

 

16.3

 

1,835

 

10.5

 

 

Increased sales of HUMIRA and the addition of Lupron sales in 2008 accounted for the majority of the sales increase for U.S. Specialty products in 2008.  Increased sales of HUMIRA and Depakote accounted for the majority of the sales increase for U.S. Specialty products in 2007. U.S. sales of HUMIRA were $1.5 billion, $1.1 billion and $806 million for the nine months ended September 30, 2008, 2007 and 2006, respectively.  U.S. Primary Care sales in 2008 were impacted by a significant decrease in sales of Omnicef due to generic competition, partially offset by increased sales of Niaspan and TriCor.  U.S. Primary Care sales in 2007 were favorably impacted by sales of Niaspan, a new product from the acquisition of Kos Pharmaceuticals Inc. in the fourth quarter of 2006, and TriCor and were unfavorably impacted by decreased sales of Biaxin.  Increased sales of HUMIRA favorably impacted International Pharmaceutical sales in both 2008 and 2007.  International sales of HUMIRA were $1.666 billion, $986 million and $617 million for the nine months ended September 30, 2008, 2007 and 2006, respectively.  International Pediatric Nutritionals sales increases in 2008 and 2007 were due primarily to volume growth in developing countries.  The favorable effect of the relatively weaker U.S. dollar favorably impacted international product sales growth in both years.

 

The gross profit margin was 55.3 percent for the third quarter 2008, compared to 55.1 percent for the third quarter 2007.  First nine months 2008 gross profit margin was 56.3 percent, compared to 55.8 percent for the first nine months 2007.  The increases in the gross profit margins in 2008 were due primarily to favorable product and business mix.

 

Research and development expenses increased 6.2 percent in the third quarter 2008 and the first nine months 2008 over comparable 2007 periods.  These increases reflect increased spending to support pipeline programs, including oncology, immunology, hepatitis C, neuroscience and drug eluting stents.  The majority of research and development expenditures is concentrated on pharmaceutical products.

 

Selling, general and administrative expenses for the third quarter and first nine months 2008 increased 6.3 percent and 11.0 percent, respectively, over the comparable 2007 periods.  These increases reflect increased selling and marketing support for new and existing products, including continued spending for HUMIRA and the U.S. launch of Xience V, as well as spending on other marketed pharmaceutical products.

 

13



 

FINANCIAL REVIEW

(continued)

 

Conclusion of TAP Pharmaceutical Products Inc. Joint Venture

 

On April 30, 2008, Abbott and Takeda concluded their TAP Pharmaceutical Products Inc. (TAP) joint venture, evenly splitting the value and assets of the joint venture.  Abbott exchanged its 50 percent equity interest in TAP for the assets, liabilities and employees related to TAP’s Lupron business.  Subsequent to the conclusion of the joint venture, TAP was merged into two Takeda entities.  The exchange of Abbott’s investment in TAP for TAP’s Lupron business resulted in a gain at closing of approximately $94 million.  The Internal Revenue Service has issued a private letter ruling that the transaction qualifies as tax-free for U.S. income tax purposes.

 

Beginning on May 1, 2008, Abbott began recording U.S. Lupron net sales and costs in its operating results and no longer records income from the TAP joint venture.  TAP’s sales of Lupron were $182 million for the four months ended April 30, 2008 and $645 million for the full year 2007.  Abbott also receives payments based on specified development, approval and commercial events being achieved with respect to products retained by Takeda and payments from Takeda based on sales of products retained by Takeda, which are recorded by Abbott as Other (income) expense, net as earned.  Such payments, which are subject to tax, are expected to approximate $1.4 billion over the five-year period beginning on May 1, 2008.

 

The exchange transaction was accounted for as a sale of Abbott’s equity interest in TAP and as an acquisition of TAP’s Lupron business under SFAS No. 141 “Business Combinations.”  The sale of Abbott’s equity interest in TAP resulted in the recording of net assets related to the Lupron business, primarily cash, receivables, inventory and other assets, net of accounts payable and other accrued liabilities, offset by a credit to Abbott’s investment in TAP in the amount of approximately $280 million.

 

For the acquired Lupron business, Abbott recorded intangible assets, primarily Lupron product rights, of approximately $700 million, goodwill of approximately $350 million and deferred tax liabilities related primarily to the intangible assets of approximately $260 million.  The intangible assets are being amortized over 15 years.  Abbott has also agreed to remit cash to Takeda if certain research and development events are not achieved on the development assets retained by Takeda.  These amounts were recorded as a liability at closing in the amount of approximately $1.1 billion.  Related deferred tax assets of approximately $410 million were also recorded, resulting in an after-tax liability of approximately $700 million.  Of the $1.1 billion, Abbott will make tax-deductible payments of $200 million in the fourth quarter of 2008 and approximately $120 million in 2009.  If the remaining payments are not required, the liability would be reduced and a gain would be recorded.

 

The 50 percent-owned joint venture was accounted for under the equity method of accounting.  Summarized financial information for TAP follows below (in millions).  The results for 2008 include results through April 30.

 

 

 

Three Months Ended

 

Nine Months Ended
September 30

 

 

 

September 30, 2007

 

2008

 

2007

 

Net sales

 

$

741

 

$

853

 

$

2,257

 

Cost of sales

 

169

 

229

 

538

 

Income before taxes

 

359

 

356

 

1,186

 

Net earnings

 

228

 

238

 

753

 

 

14



 

FINANCIAL REVIEW

(continued)

 

Restructurings

(dollars in millions)

 

In the third quarter of 2008, Abbott management approved a plan to streamline global manufacturing operations, reduce overall costs, and improve efficiencies in Abbott’s core diagnostic business.  This plan will result in pre-tax charges of approximately $370 over the next several years.  These charges include employee-related costs of approximately $110, accelerated depreciation of approximately $75, and other related exit costs of approximately $185, mainly related to product transfers. In the third quarter 2008, Abbott recorded charges to Cost of products sold of approximately $129 under the plan.  Additional charges of approximately $7 were subsequently recorded in the third quarter of 2008 relating to this restructuring, primarily for accelerated depreciation.  The remainder of the charges will occur through 2011 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:

 

 

 

2008

 

 

 

 

 

 

 

2008 restructuring charges

 

$

129

 

 

 

 

 

 

 

Payments and other adjustments

 

(16

)

 

 

 

 

 

 

Accrued balance at September 30

 

$

113

 

 

 

 

 

 

 

 

In 2008, 2007 and 2006, Abbott management approved plans to realign its worldwide pharmaceutical manufacturing operations and selected domestic and international commercial and research and development operations in order to reduce costs.  Additional charges of $61 and $77 were subsequently recorded in the first nine months of 2008 and 2007, respectively, relating to these restructurings, primarily for accelerated depreciation.  In addition, Abbott implemented facilities restructuring plans in the second quarter of 2007 related to the acquired operations of Kos Pharmaceuticals Inc., which resulted in an increase to goodwill of approximately $52.  The following summarizes the activity for restructurings:

 

 

 

2008

 

2007

 

 

 

 

 

Accrued balance at January 1

 

$

194

 

$

193

 

 

 

 

 

Restructuring charges

 

36

 

45

 

 

 

 

 

Payments and other adjustments

 

(85

)

(106

)

 

 

 

 

Accrued balance at September 30

 

$

145

 

$

132

 

 

 

 

 

 

Basis of Presentation

 

Abbott’s core laboratory diagnostics business, including Point of Care, was accounted for as discontinued operations for the six months ended June 30, 2007.  Subsequently, a decision was made to retain the businesses.  The results for the six months ended June 30, 2007 included depreciation and amortization through January 17, 2007.  Depreciation and amortization that was discontinued in the amount of approximately $99 million was recorded in the third quarter of 2007.

 

In the third quarter of 2008, Abbott announced that it had reached an agreement to sell Abbott’s spine business for $360 million in cash.  The transaction closed in October 2008 and a pretax gain of approximately $150 million will be recorded in the fourth quarter of 2008.  The operations and financial position of the spine business are not presented as discontinued operations because the effects would not be significant.

 

Acquired In-process Research and Development

 

In the first half of 2008, technology investments and acquired product rights resulted in charges to acquired in-process research and development of approximately $97 million.

 

Interest (Income)

 

Interest income increased in the third quarter and first nine months of 2008 over 2007 primarily as the result of higher investment balances.

 

15



 

FINANCIAL REVIEW

(continued)

 

Other (income) expense, net

 

As described above, Abbott recorded a gain of approximately $94 million in connection with the dissolution of the TAP Pharmaceutical Products Inc. joint venture in the second quarter of 2008, which is included in Other (income) expense, net.  Other (income) expense, net for the nine months ended September 30, 2008 also includes a gain of approximately $52 million on the sale of an equity investment accounted for as an available-for-sale investment.  Other (income) expense, net for the third quarter of 2008 and the remainder of Other (income) expense, net for the nine months ended September 30, 2008 relates primarily to contractual payments based on specified development, approval and commercial events being achieved with respect to products retained by Takeda and payments from Takeda based on sales of products retained by Takeda.

 

Other (income) expense, net for the third quarter of 2007 includes a $35 million fair market value loss adjustment to Abbott’s investment in Boston Scientific common stock.  Other (income) expense, net for the first nine months of 2007 includes a $136 million fair market value loss adjustment to Abbott’s investment in Boston Scientific common stock and a realized gain of $37 million on the sales of Boston Scientific stock.

 

Taxes on Earnings

 

Taxes on earnings reflect the estimated annual effective rates.  The effective tax rates are less than the statutory U.S. federal income tax rate principally due to the domestic dividend exclusion in 2007 and the benefit of lower statutory tax rates and tax exemptions in several taxing jurisdictions. In the second quarter of 2008, Abbott’s federal income tax returns for 2004 and 2005 were settled, resulting in a net reduction of income taxes of approximately $30 million.  On October 3, 2008, President Bush signed into law H.R.1424, the Emergency Economic Stabilization Act of 2008, which among other things extended the research and development tax credit.  As a result of the extension of the research and development tax credit, the annual effective tax rate will be slightly lower than the effective tax rate for the nine months ended September 30, 2008.

 

Liquidity and Capital Resources at September 30, 2008 Compared with December 31, 2007

 

Net cash from operating activities for the first nine months 2008 totaled approximately $5.8 billion. The increase in Other, net in Net cash from operating activities from 2007 to 2008 reflects primarily increased accruals for cost improvement initiatives and payroll related obligations.  Abbott expects annual cash flow from operating activities to continue to exceed Abbott’s capital expenditures and cash dividends.

 

Working capital was $5.7 billion at September 30, 2008 and $4.9 billion at December 31, 2007.

 

For the acquired Lupron business, Abbott recorded intangible assets, primarily Lupron product rights, of approximately $700 million, goodwill of approximately $350 million and deferred tax liabilities related to the intangible assets of approximately $260 million.  Abbott also recorded a liability of approximately $1.1 billion relating to an agreement to remit cash to Takeda if certain research and development events are not achieved on the development assets retained by Takeda.  Related deferred tax assets of approximately $410 million were also recorded, resulting in an after-tax liability of approximately $700 million.  Of the $1.1 billion, Abbott will make tax-deductible payments of $200 million in the fourth quarter of 2008 and approximately $120 million in 2009.  If the remaining payments are not required, the liability would be reduced and a gain would be recorded.

 

At September 30, 2008, 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 $4.0 billion that support commercial paper borrowing arrangements.  Abbott’s access to short-term financing has not been affected by the current credit market conditions.

 

16



 

FINANCIAL REVIEW

(continued)

 

In 2006, the board of directors authorized the purchase of $2.5 billion of Abbott’s common shares from time to time.  During the first nine months of 2008 and 2007, Abbott purchased approximately 19.0 million of its common shares in each period at a cost of approximately $1.1 billion and $1.0 billion, respectively under this authorization.  Effective in the fourth quarter no more purchases of common shares will be made from this authorization.  In October 2008, the board of directors authorized the purchase of up to $5 billion of Abbott’s common shares from time to time.

 

Under a registration statement filed with the Securities and Exchange Commission in February 2006, Abbott may offer and sell from time to time debt securities in one or more offerings through February 2009.

 

Legislative Issues

 

Abbott’s primary markets are highly competitive and subject to substantial government regulation throughout the world.  Abbott expects debate to continue over the availability, method of delivery, and payment for health care products and services.  Abbott believes that if legislation is enacted, it could have the effect of reducing access to health care products and services, or reducing prices or the rate of price increases 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 1A, Risk Factors, Item 1, Business, and Item 1A, Risk Factors on Form 10-K for the year ended December 31, 2007 and in Item 1A, Risk Factors on Form 10-Q for the quarter ended June 30, 2008.

 

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, Item 1A, Risk Factors to the Annual Report on Form 10-K for the year ended December 31, 2007 and in Item 1A, Risk Factors on Form 10-Q for the quarter ended June 30, 2008.

 

17



 

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, 2008, 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.

 

18



 

PART II.    OTHER INFORMATION

 

Item 1.     Legal Proceedings

 

Abbott is involved in various claims, legal proceedings and investigations, including, (as of September 30, 2008, except where a different date is indicated) those described below.

 

In its 2007 Form 10-K, Abbott reported that several lawsuits are pending against Abbott, Fournier Industrie et Sante, and Laboratoires Fournier, S.A., alleging antitrust and unfair competition claims in connection with the sale of fenofibrate formulations.  During the third quarter of 2008, the United States District Court for the District of Delaware certified a class of direct purchasers and a class of indirect purchasers of fenofibrate formulations.

 

In its Form 10-Q for the quarter ended June 30, 2008, Abbott reported that the case Patrick Warren Proffitt, et. al. was filed against Abbott in the Circuit Court for Cocke County, Tennessee alleging antitrust and consumer fraud claims in connection with the sale of fenofibrate formulations.  During the third quarter of 2008, the court granted Abbott’s motion to transfer this case to the United States District Court for the District of Delaware.

 

In its Form 10-Q for the quarter ended June 30, 2008, Abbott reported that a number of cases are pending that allege generally that Abbott and numerous other pharmaceutical companies reported false pricing information in connection with certain drugs that are reimbursable under Medicare and Medicaid and by private payors and that the federal cases have been consolidated in the United States District Court for the District of Massachusetts as In re: Pharmaceutical Industry Average Wholesale Price Litigation, MDL 1456.  During the third quarter of 2008, Abbott settled four cases brought by the State Attorneys General on behalf of, respectively, Montana, Nevada, Pennsylvania, and Texas.

 

In its 2007 Form 10-K, Abbott reported that several lawsuits are pending against Abbott in the United States District Court for the Northern District of California that allege generally antitrust violations in connection with the 2003 Norvir re-pricing.  During the third quarter of 2008, Abbott entered into a settlement of the consolidated class action filed on behalf of individual consumers, John Doe 1 (filed April 2004), and the lawsuit brought by third-party payors, Service Employees International Health and Welfare Fund (filed October 2004), contingent upon the Ninth Circuit Court of Appeals accepting Abbott’s appeal of a ruling by the court.  In Louisiana Wholesale Drug Company, Inc. (filed December 2007), Meijer, Inc. (filed November 2007) and Rochester Drug Co-Operative, Inc. (filed November 2007), the court certified a class of direct purchasers.

 

In its 2007 Form 10-K, Abbott reported that litigation was pending in Germany in which Evysio Medical Devices ULC (Evysio) sued Abbott for infringement of one of its stent design patents by the original designs of Abbott’s Multi-Link Vision ® and Xience V™ stents.  In July 2008, the German Federal Patent Court revoked the Evysio patent in Germany.

 

19



 

In its 2007 Form 10-K, Abbott reported that its subsidiary Advanced Cardiovascular Systems, Inc. filed a motion seeking to enjoin Medtronic Vascular, Inc. (Medtronic), from infringing activities related to Medtronic’s stent designs and that Medtronic filed a motion to stay proceedings related to the injunction.  Abbott also reported that Medtronic’s motion to stay was denied with respect to the named bare metal stents, and was granted with respect to the Endeavor stent.  In September 2008, the court lifted the stay with respect to the Endeavor stent, but denied Abbott’s motion for an injunction.  Medtronic has filed a notice of appeal with respect to the underlying liability findings.

 

While it is not feasible to predict with certainty the outcome of the pending claims, proceedings and investigations in which Abbott is involved, including those previously disclosed, management is of the opinion that their ultimate dispositions should not have a material adverse effect on Abbott’s financial position, cash flows, or results of operations, except for the case filed in April 2007 referred to in the second paragraph of Note 6 to Abbott’s financial statements above and the cases described in the third paragraph of such note.

 

20



 

Item 1A.     Risk Factors

 

There have been no material changes in our risk factors from those disclosed in Abbott’s 2007 Form 10-K and Form 10-Q for the quarter ended June 30, 2008, except for the following:

 

Other factors can have a material adverse effect on Abbott’s future profitability and financial condition.

 

Many other factors can affect Abbott’s profitability and its financial condition, including:

 

·                  Differences between the fair value measurement of assets and liabilities and their actual value, particularly for pensions, retiree health care, stock compensation, intangibles and goodwill; and for contingent liabilities such as litigation, the absence of a recorded amount, or an amount recorded at the minimum, compared to the actual amount.

 

·                  Changes in or interpretations of laws and regulations including changes in accounting standards, taxation requirements and environmental laws in domestic or foreign jurisdictions.

 

·                  Changes in the rate of inflation (including the cost of raw materials, commodities and supplies), interest rates, market value of Abbott’s equity investments, and the performance of investments held by Abbott or Abbott’s employee benefit trusts.

 

·                  Changes in the creditworthiness of counterparties that transact business with or provide services to Abbott or Abbott’s employee benefit trusts.

 

·                  Changes in business and political conditions, including (i) war, political instability, terrorist attacks in the U.S. and other parts of the world, the threat of future terrorist activity in the U.S. and other parts of the world and related military action, (ii) natural disasters, (iii) the cost and availability of insurance due to any of the foregoing events, (iv) labor disputes, strikes, slow-downs or other forms of labor or union activity, and (v) pressure from third-party interest groups.

 

·                  Changes in Abbott’s business units and investments and changes in the relative and absolute contribution of each to earnings and cash flow resulting from evolving business strategies, changing product mix, changes in tax rates both in the U.S. and abroad and opportunities existing now or in the future.

 

·                  Changes in the buying patterns of a major distributor, retailer, or wholesale customer resulting from buyer purchasing decisions, pricing, seasonality, or other factors, or other problems with licensors, suppliers, distributors and business partners.

 

·                  Difficulties related to Abbott’s information technology systems, any of which could adversely affect business operations, including any significant breakdown, invasion, destruction or interruption of these systems.

 

21



 

·                  In connection with Abbott’s acquisition of the vascular intervention and endovascular solutions businesses of Guidant Corporation, Abbott loaned BSC International Holding, Limited (a wholly-owned subsidiary of Boston Scientific) $900 million on a subordinated basis. As long as the loan is outstanding, Abbott will be a creditor of Boston Scientific with respect to the $900 million loan and, as such, is subject to credit risk.

 

·                  Legal difficulties, any of which could preclude or delay commercialization of products or adversely affect profitability, including claims asserting statutory or regulatory violations, adverse litigation decisions, and issues regarding compliance with any governmental consent decree or corporate integrity agreement.

 

22



 

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, 2008 – July 31, 2008

 

1,429,399

(1)

$

57.372

 

0

 

$

430,351,656

(2)

August 1, 2008 – August 31, 2008

 

765,847

(1)

$

58.781

 

0

 

$

430,351,656

(2)

September 1, 2008 – September 30, 2008

 

279,686

(1)

$

58.883

 

0

 

$

430,351,656

(2)

Total

 

2,474,932

(1)  

$

57.979

 

0

 

$

430,351,656

(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 1,415,399 in July, 751,847 in August, and 265,686 in September; and

 

(ii)     the shares purchased on the open market for the benefit of participants in the Abbott Canada Stock Retirement Plan 14,000 in July, 14,000 in August, and 14,000 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 18, 2006, Abbott announced that its board of directors approved the purchase of up to $2.5 billion of its common shares (the “2006 Plan”).  The 2006 Plan was in effect during the periods indicated in this table.  The $430,351,656 amount represents the unused portion of the 2006 Plan.  Abbott will not make further purchases under the 2006 Plan.  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.

 

23



 

Item 6.                             Exhibits

 

Incorporated by reference to the Exhibit Index included herewith.

 

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 3, 2008

 

24



 

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.

 

25


Exhibit 12

 

Abbott Laboratories

 

Computation of Ratio of Earnings to Fixed Charges

 

(Unaudited)

 

(dollars in millions)

 

 

 

Nine Months Ended

 

 

 

September 30, 2008

 

Net Earnings

 

$

3,344

 

Add (deduct):

 

 

 

Taxes on earnings

 

825

 

Capitalized interest cost, net of amortization

 

(7

)

Minority interest

 

6

 

 

 

 

 

Earnings from Operations as adjusted

 

4,168

 

 

 

 

 

Fixed Charges:

 

 

 

Interest on long-term and short-term debt

 

405

 

Capitalized interest cost

 

16

 

Rental expense representative of an interest factor

 

57

 

 

 

 

 

Total Fixed Charges

 

478

 

 

 

 

 

Total adjusted earnings available for payment of fixed charges

 

$

4,646

 

 

 

 

 

Ratio of earnings to fixed charges

 

9.7

 

 

NOTE:  For the purpose of calculating this ratio, (i) earnings have been calculated by adjusting 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) Abbott 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.

 


Exhibit 31.1
 

Certification of Chief Executive Officer

Required by Rule 13a-14(a) (17 CFR 240.13a-14(a))

 

I, Miles D. White, certify that:

 

1.                                       I have reviewed this quarterly report on Form 10-Q of Abbott Laboratories;

 

2.                                       Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.                                       Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of Abbott as of, and for, the periods presented in this report;

 

4.                                       Abbott’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for Abbott and have:

 

a)              Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to Abbott, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)             Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)              Evaluated the effectiveness of Abbott’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)             Disclosed in this report any change in Abbott’s internal control over financial reporting that occurred during Abbott’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Abbott’s internal control over financial reporting; and

 



 

5.                                       Abbott’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to Abbott’s auditors and the audit committee of Abbott’s board of directors:

 

a)              All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect Abbott’s ability to record, process, summarize and report financial information; and

 

b)             Any fraud, whether or not material, that involves management or other employees who have a significant role in Abbott’s internal control over financial reporting.

 

 

Date: November 3, 2008

 

/s/ Miles D. White

 

 

Miles D. White, Chairman of the Board

 

 

and Chief Executive Officer

 

2


Exhibit 31.2
 

Certification of Chief Financial Officer

Required by Rule 13a-14(a) (17 CFR 240.13a-14(a))

 

I, Thomas C. Freyman, certify that:

 

1.                                       I have reviewed this quarterly report on Form 10-Q of Abbott Laboratories;

 

2.                                       Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3.                                       Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of Abbott as of, and for, the periods presented in this report;

 

4.                                       Abbott’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for Abbott and have:

 

a)              Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to Abbott, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b)             Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c)              Evaluated the effectiveness of Abbott’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d)             Disclosed in this report any change in Abbott’s internal control over financial reporting that occurred during Abbott’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, Abbott’s internal control over financial reporting; and

 



 

5.                                       Abbott’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to Abbott’s auditors and the audit committee of Abbott’s board of directors:

 

a)              All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect Abbott’s ability to record, process, summarize and report financial information; and

 

b)             Any fraud, whether or not material, that involves management or other employees who have a significant role in Abbott’s internal control over financial reporting.

 

 

Date: November 3, 2008

 

 

 

 

/s/ Thomas C. Freyman

 

 

Thomas C. Freyman, Executive Vice President, Finance

 

 

and Chief Financial Officer

 

2


Exhibit 32.1

 

Certification Pursuant To

18 U.S.C. Section 1350

As Adopted Pursuant To

Section 906 of the Sarbanes-Oxley Act of 2002

 

In connection with the Quarterly Report of Abbott Laboratories (the “Company”) on Form 10-Q for the period ended September 30, 2008 as filed with the Securities and Exchange Commission (the “Report”), I, Miles D. White, Chairman of the Board and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1)          The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)          The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

/s/ Miles D. White

 

 

Miles D. White

 

 

Chairman of the Board and
 
 

Chief Executive Officer

 

 

November 3, 2008

 

 

 

A signed original of this written statement required by Section 906 has been provided to Abbott Laboratories and will be retained by Abbott Laboratories and furnished to the Securities and Exchange Commission or its staff upon request.

 


Exhibit 32.2

 

Certification Pursuant To

18 U.S.C. Section 1350

As Adopted Pursuant To

Section 906 of the Sarbanes-Oxley Act of 2002

 

In connection with the Quarterly Report of Abbott Laboratories (the “Company”) on Form 10-Q for the period ended September 30, 2008 as filed with the Securities and Exchange Commission (the “Report”), I, Thomas C. Freyman, Executive Vice President, Finance and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

 

(1)          The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

(2)          The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

 

/s/ Thomas C. Freyman