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, 2020

☐ 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, 2020, Abbott Laboratories had 1,772,361,581 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	8
Notes to the Condensed Consolidated Financial Statements	9

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

Item 4. Controls and Procedures	23

Part II - Other Information

Item 1. Legal Proceedings	23

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	23

Item 6. Exhibits	24

Signature	25

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 September 30				Nine Months Ended September 30
	2020		2019		2020		2019
Net sales	$	8,853	$	8,076	$	23,907	$	23,590
Cost of products sold, excluding amortization of intangible assets		3,966		3,358		10,510		9,797
Amortization of intangible assets		510		484		1,624		1,453
Research and development		580		596		1,722		1,845
Selling, general and administrative		2,302		2,440		7,126		7,352
Total operating cost and expenses		7,358		6,878		20,982		20,447
Operating earnings		1,495		1,198		2,925		3,143
Interest expense		137		167		410		506
Interest (income)		(10)		(24)		(37)		(69)
Net foreign exchange (gain) loss		(7)		7		(3)		9
Other (income) expense, net		(46)		(55)		(25)		(140)
Earnings from continuing operations before taxes		1,421		1,103		2,580		2,837
Tax expense on earnings from continuing operations		189		143		267		199
Earnings from continuing operations		1,232		960		2,313		2,638

Earnings from discontinued operations, net of tax		—		—		20		—

Net Earnings	$	1,232	$	960	$	2,333	$	2,638

Basic Earnings Per Common Share —
Continuing operations	$	0.69	$	0.54	$	1.30	$	1.48
Discontinued operations		—		—		0.01		—
Net earnings	$	0.69	$	0.54	$	1.31	$	1.48

Diluted Earnings Per Common Share —
Continuing operations	$	0.69	$	0.53	$	1.29	$	1.47
Discontinued operations		—		—		0.01		—
Net earnings	$	0.69	$	0.53	$	1.30	$	1.47

Average Number of Common Shares Outstanding Used for Basic Earnings Per Common Share		1,774,475		1,771,521		1,772,166		1,767,985
Dilutive Common Stock Options		13,378		12,646		12,381		12,818
Average Number of Common Shares Outstanding Plus Dilutive Common Stock Options		1,787,853		1,784,167		1,784,547		1,780,803
Outstanding Common Stock Options Having No Dilutive Effect		—		61		—		61

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
	2020		2019		2020		2019
Net Earnings	$	1,232	$	960	$	2,333	$	2,638
Foreign currency translation gain (loss) adjustments		112		(478)		(677)		(265)
Net actuarial gains (losses) and amortization of net actuarial losses and prior service costs and credits, net of taxes of $14 and $42 in 2020 and $7 and $21 in 2019		28		31		122		80
Net gains (losses) for derivative instruments designated as cash flow hedges and other, net of taxes of $(43) and $(24) in 2020 and $23 and $8 in 2019		(104)		49		(24)		8
Other comprehensive income (loss)		36		(398)		(579)		(177)
Comprehensive Income	$	1,268	$	562	$	1,754	$	2,461


	September 30,		December 31,
	2020		2019
Supplemental Accumulated Other Comprehensive Income (Loss) Information, net of tax:
Cumulative foreign currency translation (loss) adjustments	$	(5,601)	$	(4,924)
Net actuarial (losses) and prior service (costs) and credits		(3,418)		(3,540)
Cumulative gains (losses) on derivative instruments designated as cash flow hedges and other		(25)		(1)
Accumulated other comprehensive income (loss)	$	(9,044)	$	(8,465)

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,
	2020		2019
Assets
Current Assets:
Cash and cash equivalents	$	4,480	$	3,860
Short-term investments		251		280
Trade receivables, less allowances of $446 in 2020 and $384 in 2019		5,649		5,425
Inventories:
Finished products		3,173		2,784
Work in process		721		560
Materials		1,258		972
Total inventories		5,152		4,316
Prepaid expenses and other receivables		1,858		1,786
Total Current Assets		17,390		15,667
Investments		803		883
Property and equipment, at cost		17,972		16,799
Less: accumulated depreciation and amortization		9,352		8,761
Net property and equipment		8,620		8,038
Intangible assets, net of amortization		15,208		17,025
Goodwill		23,338		23,195
Deferred income taxes and other assets		3,684		3,079
	$	69,043	$	67,887



Liabilities and Shareholders’ Investment
Current Liabilities:
Short-term borrowings	$	208	$	201
Trade accounts payable		3,189		3,252
Salaries, wages and commissions		1,439		1,237
Other accrued liabilities		4,659		4,035
Dividends payable		639		635
Income taxes payable		117		226
Current portion of long-term debt		6		1,277
Total Current Liabilities		10,257		10,863
Long-term debt		18,349		16,661
Post-employment obligations, deferred income taxes and other long-term liabilities		8,842		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: 1,980,767,223; 2019: 1,976,855,085		24,037		23,853
Common shares held in treasury, at cost — Shares: 2020: 208,405,642; 2019: 214,351,838		(9,873)		(10,147)
Earnings employed in the business		26,266		25,847
Accumulated other comprehensive income (loss)		(9,044)		(8,465)
Total Abbott Shareholders’ Investment		31,386		31,088
Noncontrolling Interests in Subsidiaries		209		213
Total Shareholders’ Investment		31,595		31,301
	$	69,043	$	67,887

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
	2020		2019
Common Shares:
Balance at June 30
Shares: 2020: 1,979,594,379; 2019: 1,976,248,129	$	23,893	$	23,665
Issued under incentive stock programs
Shares: 2020: 1,172,844; 2019: 457,156		48		18
Share-based compensation		101		93
Issuance of restricted stock awards		(5)		(5)
Balance at September 30
Shares: 2020: 1,980,767,223; 2019: 1,976,705,285	$	24,037	$	23,771

Common Shares Held in Treasury:
Balance at June 30
Shares: 2020: 209,064,380; 2019: 208,850,514	$	(9,904)	$	(9,659)
Issued under incentive stock programs
Shares: 2020: 664,727; 2019: 605,458		32		28
Purchased
Shares: 2020: 5,989; 2019: 4,524		(1)		—
Balance at September 30
Shares: 2020: 208,405,642; 2019: 208,249,580	$	(9,873)	$	(9,631)

Earnings Employed in the Business:
Balance at June 30	$	25,669	$	25,045
Net earnings		1,232		960
Cash dividends declared on common shares (per share — 2020: $0.36; 2019: $0.32)		(641)		(570)
Effect of common and treasury share transactions		6		5
Balance at September 30	$	26,266	$	25,440

Accumulated Other Comprehensive Income (Loss):
Balance at June 30	$	(9,080)	$	(7,365)
Other comprehensive income (loss)		36		(398)
Balance at September 30	$	(9,044)	$	(7,763)

Noncontrolling Interests in Subsidiaries:
Balance at June 30	$	220	$	208
Noncontrolling Interests’ share of income, business combinations, net of distributions and share repurchases		(11)		(6)
Balance at September 30	$	209	$	202

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
	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: 3,912,138; 2019: 5,515,820		167		205
Share-based compensation		451		436
Issuance of restricted stock awards		(434)		(382)
Balance at September 30
Shares: 2020: 1,980,767,223; 2019: 1,976,705,285	$	24,037	$	23,771

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: 6,211,326; 2019: 7,591,844		295		352
Purchased
Shares: 2020: 265,130; 2019: 271,381		(21)		(21)
Balance at September 30
Shares: 2020: 208,405,642; 2019: 208,249,580	$	(9,873)	$	(9,631)

Earnings Employed in the Business:
Balance at January 1	$	25,847	$	24,560
Impact of adoption of new accounting standard		(5)		—
Net earnings		2,333		2,638
Cash dividends declared on common shares (per share — 2020: $1.08; 2019: $0.96)		(1,922)		(1,706)
Effect of common and treasury share transactions		13		(52)
Balance at September 30	$	26,266	$	25,440

Accumulated Other Comprehensive Income (Loss):
Balance at January 1	$	(8,465)	$	(7,586)
Other comprehensive income (loss)		(579)		(177)
Balance at September 30	$	(9,044)	$	(7,763)

Noncontrolling Interests in Subsidiaries:
Balance at January 1	$	213	$	198
Noncontrolling Interests’ share of income, business combinations, net of distributions and share repurchases		(4)		4
Balance at September 30	$	209	$	202

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
	2020		2019
Cash Flow From (Used in) Operating Activities:
Net earnings	$	2,333	$	2,638
Adjustments to reconcile net earnings to net cash from operating activities -
Depreciation		837		805
Amortization of intangible assets		1,624		1,453
Share-based compensation		448		434
Trade receivables		(343)		(357)
Inventories		(838)		(730)
Other, net		42		(523)
Net Cash From Operating Activities		4,103		3,720

Cash Flow From (Used in) Investing Activities:
Acquisitions of property and equipment		(1,498)		(1,204)
Acquisitions of businesses and technologies, net of cash acquired		(32)		(171)
Proceeds from business dispositions		48		48
Sales (purchases) of other investment securities, net		(15)		(22)
Other		13		23
Net Cash (Used in) Investing Activities		(1,484)		(1,326)

Cash Flow From (Used in) Financing Activities:
Net borrowings (repayments) of short-term debt and other		3		52
Proceeds from issuance of long-term debt		1,280		—
Repayments of long-term debt		(1,332)		(523)
Purchases of common shares		(242)		(222)
Proceeds from stock options exercised		229		291
Dividends paid		(1,919)		(1,702)
Other		(11)		—
Net Cash (Used in) Financing Activities		(1,992)		(2,104)

Effect of exchange rate changes on cash and cash equivalents		(7)		(43)

Net Increase in Cash and Cash Equivalents		620		247
Cash and Cash Equivalents, Beginning of Year		3,860		3,844
Cash and Cash Equivalents, End of Period	$	4,480	$	4,091

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, 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.

The following tables provide detail by sales category:


	Three Months Ended September 30, 2020						Three Months Ended September 30, 2019
(in millions)	U.S.		Int’l		Total		U.S.		Int’l		Total
Established Pharmaceutical Products —
Key Emerging Markets	$	—	$	799	$	799	$	—	$	891	$	891
Other		—		300		300		—		321		321
Total		—		1,099