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Table of Contents

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 March 31, 2020

OR

           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 March 31, 2020, Abbott Laboratories had 1,768,845,326 common shares without par value outstanding.

Table of Contents

Abbott Laboratories

Table of Contents

Part I - Financial Information

Page

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

7

Notes to the Condensed Consolidated Financial Statements

8

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

17

Item 4. Controls and Procedures

22

Part II - Other Information

Item 1. Legal Proceedings

22

Item 1A. Risk Factors

22

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

23

Item 6. Exhibits

24

Signature

25

2

Table of Contents

Abbott Laboratories and Subsidiaries

Condensed Consolidated Statement of Earnings

(Unaudited)

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

Three Months Ended March 31

    

2020

    

2019

Net sales

$

7,726

$

7,535

Cost of products sold, excluding amortization of intangible assets

 

3,281

 

3,160

Amortization of intangible assets

 

561

 

486

Research and development

 

578

 

672

Selling, general and administrative

 

2,548

 

2,478

Total operating cost and expenses

 

6,968

 

6,796

Operating earnings

 

758

 

739

Interest expense

 

139

 

171

Interest (income)

 

( 18 )

 

( 23 )

Net foreign exchange (gain) loss

 

5

 

6

Other (income) expense, net

 

( 1 )

 

( 47 )

Earnings from continuing operations before tax

 

633

 

632

Tax expense (benefit) on earnings from continuing operations

 

89

 

( 40 )

Earnings from continuing operations

 

544

 

672

Earnings from discontinued operations, net of tax

20

Net Earnings

 

$

564

 

$

672

Basic Earnings Per Common Share —

Continuing operations

 

$

0.31

 

$

0.38

Discontinued operations

0.01

 

Net earnings

 

$

0.32

 

$

0.38

Diluted Earnings Per Common Share —

Continuing operations

 

$

0.30

 

$

0.38

Discontinued operations

 

0.01

 

Net earnings

 

$

0.31

 

$

0.38

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

 

1,768,901

 

1,763,278

Dilutive Common Stock Options

 

11,677

 

13,295

Average Number of Common Shares Outstanding Plus Dilutive Common Stock Options

 

1,780,578

 

1,776,573

Outstanding Common Stock Options Having No Dilutive Effect

 

4,035

 

4,011

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

3

Table of Contents

Abbott Laboratories and Subsidiaries

Condensed Consolidated Statement of Comprehensive Income

(Unaudited)

(dollars in millions)

Three Months Ended March 31

    

2020

    

2019

Net Earnings

$

564

$

672

Foreign currency translation gain (loss) adjustments

 

( 1,144 )

 

122

Net actuarial gains (losses) and amortization of net actuarial (losses) and prior service (cost) and credits, net of taxes of $ 15 in 2020 and $ 7 in 2019

 

57

 

23

Net gains (losses) for derivative instruments designated as cash flow hedges, net of taxes of $ 48 in 2020 and $( 8 ) in 2019

 

166

 

( 29 )

Other comprehensive income (loss)

 

( 921 )

 

116

Comprehensive Income (Loss)

 

$

( 357 )

 

$

788

March 31, 

December 31, 

    

2020

    

2019

Supplemental Accumulated Other Comprehensive Income (Loss) Information, net of tax:

Cumulative foreign currency translation (loss) adjustments

$

( 6,068 )

$

( 4,924 )

Net actuarial (losses) and prior service (cost) and credits

 

( 3,483 )

 

( 3,540 )

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

 

165

 

( 1 )

Accumulated Other Comprehensive Income (Loss)

$

( 9,386 )

$

( 8,465 )

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

4

Table of Contents

Abbott Laboratories and Subsidiaries

Condensed Consolidated Balance Sheet

(Unaudited)

(dollars in millions)

March 31, 

December 31, 

    

2020

    

2019

Assets

Current Assets:

Cash and cash equivalents

$

3,377

$

3,860

Short-term investments

 

291

 

280

Trade receivables, less allowances of $ 389 in 2020 and $ 384 in 2019

 

5,292

 

5,425

Inventories:

Finished products

 

2,873

 

2,784

Work in process

 

615

 

560

Materials

 

1,080

 

972

Total inventories

 

4,568

 

4,316

Prepaid expenses and other receivables

 

1,970

 

1,786

Total Current Assets

 

15,498

 

15,667

Investments

 

790

 

883

Property and equipment, at cost

 

16,707

 

16,799

Less: accumulated depreciation and amortization

 

8,800

 

8,761

Net property and equipment

 

7,907

 

8,038

Intangible assets, net of amortization

 

16,265

 

17,025

Goodwill

 

22,927

 

23,195

Deferred income taxes and other assets

 

3,390

 

3,079

 

$

66,777

 

$

67,887

Liabilities and Shareholders’ Investment

Current Liabilities:

Short-term borrowings

 

$

204

$

201

Trade accounts payable

 

3,181

 

3,252

Salaries, wages and commissions

 

949

 

1,237

Other accrued liabilities

 

4,408

 

4,035

Dividends payable

 

637

 

635

Income taxes payable

 

165

 

226

Current portion of long-term debt

 

1,264

 

1,277

Total Current Liabilities

 

10,808

 

10,863

Long-term debt

 

16,804

 

16,661

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

 

8,738

 

9,062

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: 2020: 1,978,112,501 ; 2019: 1,976,855,085

 

23,731

 

23,853

Common shares held in treasury, at cost — Shares: 2020: 209,267,175 ; 2019: 214,351,838

 

( 9,913 )

 

( 10,147 )

Earnings employed in the business

 

25,786

 

25,847

Accumulated other comprehensive income (loss)

 

( 9,386 )

 

( 8,465 )

Total Abbott Shareholders’ Investment

 

30,218

 

31,088

Noncontrolling Interests in Subsidiaries

 

209

 

213

Total Shareholders’ Investment

 

30,427

 

31,301

 

$

66,777

$

67,887

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

5

Table of Contents

Abbott Laboratories and Subsidiaries

Condensed Consolidated Statement of Shareholders’ Investment

(Unaudited)

(in millions except shares and per share data)

Three Months Ended March 31

    

2020

    

2019

Common Shares:

 

  

 

  

Balance at January 1

 

  

 

  

Shares: 2020: 1,976,855,085 ; 2019: 1,971,189,465

$

23,853

$

23,512

Issued under incentive stock programs

 

  

 

  

Shares: 2020: 1,257,416 ; 2019: 2,283,041

 

53

 

76

Share-based compensation

 

245

 

237

Issuance of restricted stock awards

 

( 420 )

 

( 364 )

Balance at March 31

Shares: 2020: 1,978,112,501 ; 2019: 1,973,472,506

$

23,731

$

23,461

Common Shares Held in Treasury:

 

  

 

  

Balance at January 1

Shares: 2020: 214,351,838 ; 2019: 215,570,043

$

( 10,147 )

$

( 9,962 )

Issued under incentive stock programs

Shares: 2020: 5,333,626 ; 2019: 6,544,927

 

253

 

303

Purchased

Shares: 2020: 248,963 ; 2019: 266,128

 

( 19 )

 

( 20 )

Balance at March 31

Shares: 2020: 209,267,175 ; 2019: 209,291,244

$

( 9,913 )

$

( 9,679 )

Earnings Employed in the Business:

 

  

 

  

Balance at January 1

$

25,847

$

24,560

Impact of adoption of new accounting standard

( 5 )

Net earnings

 

564

 

672

Cash dividends declared on common shares (per share — 2020: $ 0.36 ; 2019: $ 0.32 )

 

( 641 )

 

( 568 )

Effect of common and treasury share transactions

 

21

 

( 51 )

Balance at March 31

$

25,786

$

24,613

Accumulated Other Comprehensive Income (Loss):

 

  

 

  

Balance at January 1

$

( 8,465 )

$

( 7,586 )

Other comprehensive income (loss)

 

( 921 )

 

116

Balance at March 31

$

( 9,386 )

$

( 7,470 )

Noncontrolling Interests in Subsidiaries:

 

  

 

  

Balance at January 1

$

213

$

198

Noncontrolling Interests’ share of income, business combinations, net of distributions
and share repurchases

 

( 4 )

 

6

Balance at March 31

$

209

$

204

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

6

Table of Contents

Abbott Laboratories and Subsidiaries

Condensed Consolidated Statement of Cash Flows

(Unaudited)

(dollars in millions)

Three Months Ended March 31

    

2020

    

2019

Cash Flow From (Used in) Operating Activities:

Net earnings

$

564

$

672

Adjustments to reconcile net earnings to net cash from operating activities -

Depreciation

 

267

 

267

Amortization of intangible assets

 

561

 

486

Share-based compensation

233

226

Trade receivables

 

( 104 )

 

( 170 )

Inventories

 

( 437 )

 

( 286 )

Other, net

 

( 369 )

 

( 483 )

Net Cash From Operating Activities

 

715

 

712

Cash Flow From (Used in) Investing Activities:

Acquisitions of property and equipment

 

( 360 )

 

( 335 )

Acquisitions of businesses and technologies, net of cash acquired

( 78 )

Sales (purchases) of other investment securities, net

 

( 36 )

 

2

Other

 

3

 

15

Net Cash (Used in) Investing Activities

 

( 393 )

 

( 396 )

Cash Flow From (Used in) Financing Activities:

Net borrowings (repayments) of short-term debt and other

 

51

 

13

Repayments of long-term debt

 

( 1 )

 

( 500 )

Purchases of common shares

 

( 236 )

 

( 217 )

Proceeds from stock options exercised

 

89

 

127

Dividends paid

 

( 638 )

 

( 565 )

Net Cash (Used in) Financing Activities

 

( 735 )

 

( 1,142 )

Effect of exchange rate changes on cash and cash equivalents

 

( 70 )

 

4

Net Decrease in Cash and Cash Equivalents

 

( 483 )

 

( 822 )

Cash and Cash Equivalents, Beginning of Year

 

3,860

 

3,844

Cash and Cash Equivalents, End of Period

 

$

3,377

 

$

3,022

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

7

Table of Contents

Abbott Laboratories and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

March 31, 2020

(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, 2019.  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 June 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (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.  Abbott adopted the standard on January 1, 2020 and recorded a cumulative adjustment that was not significant to Earnings employed in the business in the Condensed Consolidated Balance Sheet.

Recent Accounting Standards Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes , which among other things, eliminates certain exceptions in the current rules regarding the approach for intraperiod tax allocations and the methodology for calculating income taxes in an interim period, and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill.  The standard becomes effective for Abbott  in the first quarter of 2021 and early adoption is permitted.  Abbott does not expect adoption of this new standard to have a material impact on its condensed 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 Medical Devices.

8

Table of Contents

Abbott Laboratories and Subsidiaries

Notes to the Condensed Consolidated Financial Statements

March 31, 2020

(Unaudited)

The following table provides revenues by sales category:

Three Months Ended March 31, 2020

Three Months Ended March 31, 2019

(in millions)

    

U.S.

    

Int’l

    

Total

    

U.S.

    

Int’l

    

Total

Established Pharmaceutical Products —

 

  

 

  

 

  

 

  

 

  

 

  

Key Emerging Markets

$

$

813

$

813

$

$

752

$

752

Other

 

 

231

 

231

 

 

240

240

Total

 

 

1,044

 

1,044

 

 

992

 

992

Nutritionals —

 

  

 

  

 

  

 

  

 

  

 

  

Pediatric Nutritionals

 

518

 

571

 

1,089

 

453

 

576

 

1,029

Adult Nutritionals

 

294

 

521

 

815

 

294

 

469

 

763

Total

 

812

 

1,092

 

1,904

 

747

 

1,045

 

1,792

Diagnostics —

 

  

 

  

 

  

 

  

 

  

 

  

Core Laboratory

 

267

 

722

 

989

 

249

 

812

 

1,061

Molecular

 

65

 

74

 

139

 

40

 

68

 

108

Point of Care

 

103

 

35

 

138

 

109

 

26

 

135

Rapid Diagnostics

 

368

 

192

 

560

 

326

 

211

 

537

Total

 

803

 

1,023

 

1,826

 

724

 

1,117

 

1,841

Medical Devices -

 

  

 

  

 

  

 

  

 

  

 

  

Rhythm Management

 

228

 

246

 

474

 

252

 

262

 

514

Electrophysiology

 

164

 

224

 

388

 

174

 

231

 

405

Heart Failure

 

152

 

51

 

203

 

143

 

41

 

184

Vascular

 

230

 

395

 

625

 

266

 

443

 

709

Structural Heart

 

136

 

182

 

318

 

136

 

188

 

324

Neuromodulation

 

137

 

40

 

177

 

152

 

41

 

193

Diabetes Care

186

566

752

152

414

566

Total

 

1,233

 

1,704

 

2,937

 

1,275

 

1,620

 

2,895

Other

 

8

 

7

 

15

 

8

 

7

 

15

Total

$

2,856

$

4,870

$

7,726

$

2,754

$

4,781

$

7,535

Remaining Performance Obligations

As of March 31, 2020, the estimated revenue expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) was approximately $ 3.4 billion in the Diagnostics segment and approximately $ 400 million in the Medical Devices segment.  Abbott expects to recognize revenue on approximately 60 percent of these remaining performance obligations over the next 24 months , approximately 17 percent over the subsequent 12 months and the remainder thereafter.  

These performance obligations primarily reflect the future sale of reagents/consumables in contracts with minimum purchase obligations, extended warranty or service obligations related to previously sold equipment, and remote monitoring services related to previously implanted devices.  Abbott has applied the practical expedient described in Accounting Standards Codification (ASC) 606-10-50-14 and has not included remaining performance obligations related to contracts with original expected durations of one year or less in the amounts above.

Other Contract Assets and Liabilities

Abbott discloses Trade receivables separately in the Condensed Consolidated Balance Sheet at the net amount expected to be collected.  Contract assets primarily relate to Abbott’s conditional right to consideration for work completed but not billed at the reporting date. Contract assets at the beginning and end of the period, as well as the changes in the balance, were not significant.

Contract liabilities primarily relate to payments received from customers in advance of performance under the contract. Abbott’s contract liabilities arise primarily in the Medical Devices reportable segment when payment is received upfront for various multi-period extended service arrangements.