SEC Filing | Abbott Laboratories

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2019

☐ 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: (224) 667-6100

Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class		Trading Symbol(s)		Name of Each Exchange on Which Registered
Common Shares, Without Par Value		ABT		New York Stock Exchange Chicago Stock Exchange, Inc.

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 ⌧ No ◻

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ⌧ No ◻

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


Large Accelerated Filer	☒	Accelerated Filer	☐
Non-Accelerated Filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻

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

As of September 30, 2019, Abbott Laboratories had 1,768,455,705 common shares without par value outstanding.

Table of Contents

Abbott Laboratories

Table of Contents

	Page

Part I - Financial Information

Item 1. Financial Statements and Supplementary Data

Condensed Consolidated Statement of Earnings	3
Condensed Consolidated Statement of Comprehensive Income	4
Condensed Consolidated Balance Sheet	5
Condensed Consolidated Statement of Shareholders’ Investment	6
Condensed Consolidated Statement of Cash Flows	8
Notes to the Condensed Consolidated Financial Statements	9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	21

Item 4. Controls and Procedures	26

Part II - Other Information

Item 1. Legal Proceedings	26

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	27

Item 6. Exhibits	28

Signature	29

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Abbott Laboratories and Subsidiaries

Condensed Consolidated Statement of Earnings

(Unaudited)

(dollars in millions except per share data; shares in thousands)


	Three Months Ended September 30				Nine Months Ended September 30
	2019		2018		2019		2018
Net sales	$	8,076	$	7,656	$	23,590	$	22,813

Cost of products sold, excluding amortization of intangible assets		3,358		3,166		9,797		9,515
Amortization of intangible assets		484		544		1,453		1,690
Research and development		596		574		1,845		1,738
Selling, general and administrative		2,440		2,377		7,352		7,385
Total operating cost and expenses		6,878		6,661		20,447		20,328

Operating earnings		1,198		995		3,143		2,485

Interest expense		167		203		506		640
Interest (income)		(24)		(22)		(69)		(71)
Net foreign exchange (gain) loss		7		11		9		2
Net loss on extinguishment of debt		—		67		—		81
Other (income) expense, net		(55)		18		(140)		(93)
Earnings from continuing operations before taxes		1,103		718		2,837		1,926
Taxes on earnings from continuing operations		143		166		199		247
Earnings from continuing operations		960		552		2,638		1,679

Earnings from discontinued operations, net of tax		—		11		—		35

Net Earnings	$	960	$	563	$	2,638	$	1,714

Basic Earnings Per Common Share —
Continuing operations	$	0.54	$	0.31	$	1.48	$	0.95
Discontinued operations		—		0.01		—		0.02
Net earnings	$	0.54	$	0.32	$	1.48	$	0.97

Diluted Earnings Per Common Share —
Continuing operations	$	0.53	$	0.31	$	1.47	$	0.94
Discontinued operations		—		0.01		—		0.02
Net earnings	$	0.53	$	0.32	$	1.47	$	0.96

Average Number of Common Shares Outstanding Used for Basic Earnings Per Common Share		1,771,521		1,759,585		1,767,985		1,757,018
Dilutive Common Stock Options		12,646		12,095		12,818		11,692
Average Number of Common Shares Outstanding Plus Dilutive Common Stock Options		1,784,167		1,771,680		1,780,803		1,768,710

Outstanding Common Stock Options Having No Dilutive Effect		61		44		61		44

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

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Abbott Laboratories and Subsidiaries

Condensed Consolidated Statement of Comprehensive Income

(Unaudited)

(dollars in millions)


	Three Months Ended September 30				Nine Months Ended September 30
	2019		2018		2019		2018
Net Earnings	$	960	$	563	$	2,638	$	1,714
Foreign currency translation gain (loss) adjustments		(478)		(153)		(265)		(1,179)
Net actuarial gains (losses) and amortization of net actuarial losses and prior service costs and credits, net of taxes of $7 and $21 in 2019 and $16 and $48 in 2018		31		22		80		106
Net gains (losses) for derivative instruments designated as cash flow hedges and other, net of taxes of $23 and $8 in 2019 and $16 and $44 in 2018		49		35		8		121
Other comprehensive (loss)		(398)		(96)		(177)		(952)
Comprehensive Income	$	562	$	467	$	2,461	$	762


	September 30,		December 31,
	2019		2018
Supplemental Accumulated Other Comprehensive Income (Loss) Information, net of tax:
Cumulative foreign currency translation (loss) adjustments	$	(5,177)	$	(4,912)
Net actuarial (losses) and prior service (costs) and credits		(2,646)		(2,726)
Cumulative gains (losses) on derivative instruments designated as cash flow hedges and other		60		52
Accumulated other comprehensive income (loss)	$	(7,763)	$	(7,586)

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

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Abbott Laboratories and Subsidiaries

Condensed Consolidated Balance Sheet

(Unaudited)

(dollars in millions)


	September 30,		December 31,
	2019		2018
Assets
Current Assets:
Cash and cash equivalents	$	4,091	$	3,844
Short-term investments		244		242
Trade receivables, less allowances of $354 in 2019 and $314 in 2018		5,450		5,182
Inventories:
Finished products		2,846		2,407
Work in process		584		499
Materials		962		890
Total inventories		4,392		3,796
Prepaid expenses and other receivables		1,942		1,568
Total Current Assets		16,119		14,632
Investments		874		897
Property and equipment, at cost		16,343		15,706
Less: accumulated depreciation and amortization		8,518		8,143
Net property and equipment		7,825		7,563
Intangible assets, net of amortization		17,465		18,942
Goodwill		23,046		23,254
Deferred income taxes and other assets		3,210		1,885
	$	68,539	$	67,173
Liabilities and Shareholders’ Investment
Current Liabilities:
Short-term borrowings	$	204	$	200
Trade accounts payable		3,029		2,975
Salaries, wages and commissions		1,258		1,182
Other accrued liabilities		4,112		3,780
Dividends payable		567		563
Income taxes payable		67		305
Current portion of long-term debt		1,254		7
Total Current Liabilities		10,491		9,012
Long-term debt		17,639		19,359
Post-employment obligations, deferred income taxes and other long-term liabilities		8,390		8,080
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: 2019: 1,976,705,285; 2018: 1,971,189,465		23,771		23,512
Common shares held in treasury, at cost — Shares: 2019: 208,249,580; 2018: 215,570,043		(9,631)		(9,962)
Earnings employed in the business		25,440		24,560
Accumulated other comprehensive income (loss)		(7,763)		(7,586)
Total Abbott Shareholders’ Investment		31,817		30,524
Noncontrolling Interests in Subsidiaries		202		198
Total Shareholders’ Investment		32,019		30,722
	$	68,539	$	67,173

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

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Abbott Laboratories and Subsidiaries

Condensed Consolidated Statement of Shareholders’ Investment

(Unaudited)

(in millions except shares and per share data)


	Three Months Ended September 30
	2019		2018
Common Shares:
Balance at June 30
Shares: 2019: 1,976,248,129; 2018: 1,969,575,366	$	23,665	$	23,317
Issued under incentive stock programs
Shares: 2019: 457,156; 2018: 1,015,106		18		33
Share-based compensation		93		83
Issuance of restricted stock awards		(5)		(5)
Balance at September 30
Shares: 2019: 1,976,705,285; 2018: 1,970,590,472	$	23,771	$	23,428

Common Shares Held in Treasury:
Balance at June 30
Shares: 2019: 208,850,514; 2018: 215,256,082	$	(9,659)	$	(9,907)
Issued under incentive stock programs
Shares: 2019: 605,458; 2018: 1,002,519		28		49
Purchased
Shares: 2019: 4,524; 2018: 3,877		—		—
Balance at September 30
Shares: 2019: 208,249,580; 2018: 214,257,440	$	(9,631)	$	(9,858)

Earnings Employed in the Business:
Balance at June 30	$	25,045	$	24,080
Net earnings		960		563
Cash dividends declared on common shares (per share — 2019: $0.32; 2018: $0.28)		(570)		(495)
Effect of common and treasury share transactions		5		(4)
Balance at September 30	$	25,440	$	24,144

Accumulated Other Comprehensive Income (Loss):
Balance at June 30	$	(7,365)	$	(6,913)
Other comprehensive income (loss)		(398)		(96)
Balance at September 30	$	(7,763)	$	(7,009)

Noncontrolling Interests in Subsidiaries:
Balance at June 30	$	208	$	197
Noncontrolling Interests’ share of income, business combinations, net of distributions and share repurchases		(6)		(4)
Balance at September 30	$	202	$	193

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

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Abbott Laboratories and Subsidiaries

Condensed Consolidated Statement of Shareholders’ Investment

(Unaudited)

(in millions except shares and per share data)


	Nine Months Ended September 30
	2019		2018
Common Shares:
Balance at January 1
Shares: 2019: 1,971,189,465; 2018: 1,965,908,188	$	23,512	$	23,206
Issued under incentive stock programs
Shares: 2019: 5,515,820; 2018: 4,682,284		205		145
Share-based compensation		436		398
Issuance of restricted stock awards		(382)		(321)
Balance at September 30
Shares: 2019: 1,976,705,285; 2018: 1,970,590,472	$	23,771	$	23,428

Common Shares Held in Treasury:
Balance at January 1
Shares: 2019: 215,570,043; 2018: 222,305,719	$	(9,962)	$	(10,225)
Issued under incentive stock programs
Shares: 2019: 7,591,844; 2018: 8,296,855		352		382
Purchased
Shares: 2019: 271,381; 2018: 248,576		(21)		(15)
Balance at September 30
Shares: 2019: 208,249,580; 2018: 214,257,440	$	(9,631)	$	(9,858)

Earnings Employed in the Business:
Balance at January 1	$	24,560	$	23,978
Impact of adoption of new accounting standards		—		15
Net earnings		2,638		1,714
Cash dividends declared on common shares (per share — 2019: $0.96; 2018: $0.84)		(1,706)		(1,483)
Effect of common and treasury share transactions		(52)		(80)
Balance at September 30	$	25,440	$	24,144

Accumulated Other Comprehensive Income (Loss):
Balance at January 1	$	(7,586)	$	(6,062)
Impact of adoption of new accounting standard		—		5
Other comprehensive income (loss)		(177)		(952)
Balance at September 30	$	(7,763)	$	(7,009)

Noncontrolling Interests in Subsidiaries:
Balance at January 1	$	198	$	201
Noncontrolling Interests’ share of income, business combinations, net of distributions and share repurchases		4		(8)
Balance at September 30	$	202	$	193

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

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Abbott Laboratories and Subsidiaries

Condensed Consolidated Statement of Cash Flows

(Unaudited)

(dollars in millions)


	Nine Months Ended September 30
	2019		2018
Cash Flow From (Used in) Operating Activities:
Net earnings	$	2,638	$	1,714
Adjustments to reconcile net earnings to net cash from operating activities -
Depreciation		805		825
Amortization of intangible assets		1,453		1,690
Share-based compensation		434		396
Amortization of inventory step-up		—		32
Trade receivables		(357)		(280)
Inventories		(730)		(450)
Other, net		(523)		608
Net Cash From Operating Activities		3,720		4,535

Cash Flow From (Used in) Investing Activities:
Acquisitions of property and equipment		(1,204)		(927)
Acquisitions of businesses and technologies, net of cash acquired		(171)		(43)
Proceeds from business dispositions		48		48
Sales (purchases) of other investment securities, net		(22)		(23)
Other		23		85
Net Cash (Used in) Investing Activities		(1,326)		(860)

Cash Flow From (Used in) Financing Activities:
Net borrowings (repayments) of short-term debt and other		52		22
Proceeds from issuance of long-term debt		—		4,011
Repayments of long-term debt		(523)		(8,279)
Purchases of common shares		(222)		(134)
Proceeds from stock options exercised		291		244
Dividends paid		(1,702)		(1,479)
Net Cash (Used in) Financing Activities		(2,104)		(5,615)

Effect of exchange rate changes on cash and cash equivalents		(43)		(98)

Net Increase (Decrease) in Cash and Cash Equivalents		247		(2,038)
Cash and Cash Equivalents, Beginning of Year		3,844		9,407
Cash and Cash Equivalents, End of Period	$	4,091	$	7,369

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

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Abbott Laboratories and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

September 30, 2019

(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, 2018. The condensed consolidated financial statements include the accounts of the parent company and subsidiaries, after elimination of intercompany transactions.

Note 2 — New Accounting Standards

Recently Adopted Accounting Standards

In February 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2016-02, Leases, which requires lessees to measure and recognize a lease asset and liability on the balance sheet for most leases, including operating leases. Abbott adopted the new standard as of January 1, 2019 using the modified retrospective approach and applied the standard’s transition provisions as of January 1, 2019. As a result, no changes were made to the December 31, 2018 Consolidated Balance Sheet. Abbott elected to apply the package of practical expedients related to transition. These practical expedients allowed Abbott to carry forward its historical assessments of whether any existing contracts are or contain leases, the lease classification for each lease existing at January 1, 2019, and whether any initial direct costs for such leases qualified for capitalization.

The new lease accounting standard does not have a material impact on the amounts reported in the Condensed Consolidated Statement of Earnings but does have a material impact on the amounts reported in the Condensed Consolidated Balance Sheet. Adoption of the new standard resulted in the recording of approximately $850 million of new right of use (ROU) assets and additional liabilities for operating leases on the Condensed Consolidated Balance Sheet as of January 1, 2019.

Recent Accounting Standards Not Yet Adopted

In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses which changes the methodology to be used to measure credit losses for certain financial instruments and financial assets, including trade receivables. The new methodology requires the recognition of an allowance that reflects the current estimate of credit losses expected to be incurred over the life of the financial asset. The new standard will be effective for Abbott at the beginning of 2020, with early adoption permitted. Abbott is currently assessing the impact of this new standard on its consolidated financial statements.

Note 3 — Revenue

Abbott’s revenues are derived primarily from the sale of a broad line of health care products under short-term receivable arrangements. Abbott has four reportable segments: Established Pharmaceutical Products, Diagnostic Products, Nutritional Products, and Cardiovascular and Neuromodulation Products. Diabetes Care is a non-reportable segment and is included in Other.

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Abbott Laboratories and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

September 30, 2019

(Unaudited)

The following tables provide detail by sales category:


	Three Months Ended September 30, 2019						Three Months Ended September 30, 2018
(in millions)	U.S.		Int’l		Total		U.S.		Int’l		Total
Established Pharmaceutical Products —
Key Emerging Markets	$	—	$	891	$	891	$	—	$	866	$	866
Other		—		321		321		—		293		293
Total		—		1,212		1,212		—		1,159		1,159

Nutritionals —
Pediatric Nutritionals		478		566		1,044		459		580		1,039
Adult Nutritionals		310		520		830		315		484