<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(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, 1998
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 60064-3500
Telephone: (847) 937-6l00
Indicate by check mark whether the registrant (l) has filed all reports
required to be filed by Section l3 or l5(d) of the Securities Exchange Act of
l934 during the preceding l2 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 .
---- ----
As of October 31, 1998, the Corporation had 1,517,621,345 common shares
without par value outstanding.
<PAGE>
PART I. FINANCIAL INFORMATION
ABBOTT LABORATORIES AND SUBSIDIARIES
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
<PAGE>
ABBOTT LABORATORIES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
(Dollars and shares in thousands except per share data)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales .............................. $ 3,035,767 $ 2,865,184 $ 9,147,433 $ 8,765,406
----------- ----------- ----------- -----------
Cost of products sold .................. 1,375,010 1,241,842 3,952,753 3,786,216
Research and development ............... 292,078 326,797 879,086 927,019
Selling, general and administrative .... 665,202 675,062 2,029,539 1,982,663
----------- ----------- ----------- -----------
Total Operating Cost and Expenses .... 2,332,290 2,243,701 6,861,378 6,695,898
----------- ----------- ----------- -----------
Operating Earnings ..................... 703,477 621,483 2,286,055 2,069,508
----------- ----------- ----------- -----------
Interest expense ....................... 41,027 33,470 119,388 97,612
Interest income ........................ (14,654) (12,146) (41,042) (35,537)
Other (income) expense, net ............ (61,398) (53,301) (162,957) (144,403)
----------- ----------- ----------- -----------
Earnings Before Taxes .................. 738,502 653,460 2,370,666 2,151,836
Taxes on earnings ...................... 206,780 182,011 663,786 624,032
----------- ----------- ----------- -----------
Net Earnings ........................... $ 531,722 $ 471,449 $ 1,706,880 $ 1,527,804
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic Earnings Per Common Share ........ $ .35 $ .31 $ 1.12 $ .99
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted Earnings Per Common Share ...... $ .34 $ .30 $ 1.10 $ .97
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Cash Dividends Declared
Per Common Share ..................... $ .15 $ .135 $ .45 $ .405
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Average Number of Common Shares
Outstanding Used for Basic Earnings
Per Common Share ................... 1,520,914 1,536,674 1,524,556 1,542,934
Dilutive Common Stock Options .......... 23,766 22,106 22,052 22,197
----------- ----------- ----------- -----------
Average Number of Common Shares
Outstanding Plus Dilutive Common
Stock Options ...................... 1,544,680 1,558,780 1,546,608 1,565,131
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Outstanding Common Stock
Options Having No Dilutive Effect .... 564 319 564 319
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of this statement.
2
<PAGE>
ABBOTT LABORATORIES AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(Dollars in Thousands)
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1998 1997
------------- ------------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents............................................$ 223,470 $ 230,024
Investment securities................................................ 50,563 28,986
Trade receivables, less allowances of $183,555 in 1998
and $167,406 in 1997............................................... 1,732,647 1,782,326
Inventories:
Finished products.................................................. 680,950 667,355
Work in process.................................................... 329,138 287,653
Materials ........................................................ 384,026 324,892
----------- -----------
Total inventories............................................... 1,394,114 1,279,900
Prepaid expenses, income taxes, and other receivables................ 1,665,416 1,716,972
----------- -----------
Total Current Assets............................................ 5,066,210 5,038,208
----------- -----------
Investment Securities Maturing after One Year............................. 745,149 630,967
----------- -----------
Property and Equipment, at Cost........................................... 9,201,129 8,790,157
Less: accumulated depreciation and amortization...................... 4,555,362 4,220,466
----------- -----------
Net Property and Equipment...................................... 4,645,767 4,569,691
Deferred Charges, Intangible and Other Assets............................. 2,145,908 1,822,202
----------- -----------
$12,603,034 $12,061,068
----------- -----------
----------- -----------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current Liabilities:
Short-term borrowings and current portion of long-term debt..........$ 1,419,970 $ 1,781,352
Trade accounts payable............................................... 922,341 1,001,058
Salaries, income taxes, dividends payable, and other accruals........ 2,322,201 2,252,058
----------- -----------
Total Current Liabilities....................................... 4,664,512 5,034,468
----------- -----------
Long-Term Debt ........................................................ 1,340,845 937,983
----------- -----------
Other Liabilities and Deferrals........................................... 1,223,785 1,089,940
----------- -----------
Shareholders' Investment:
Preferred shares, $1 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: 1998: 1,536,366,561; 1997: 1,546,468,504................ 1,114,445 907,106
Earnings employed in the business......................................... 4,643,640 4,395,582
Accumulated other comprehensive income.................................... (307,152) (230,241)
----------- -----------
5,450,933 5,072,447
Less:
Common shares held in treasury, at cost -
Shares: 1998: 17,710,838; 1997: 18,280,398 .......................... 46,735 48,238
Unearned compensation - restricted stock awards........................... 30,306 25,532
----------- -----------
Total Shareholders' Investment.................................. 5,373,892 4,998,677
----------- -----------
$12,603,034 $12,061,068
----------- -----------
----------- -----------
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of this statement.
3
<PAGE>
ABBOTT LABORATORIES AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(Dollars in Thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
-------------------------------
1998 1997
----------- -----------
<S> <C> <C>
Cash Flow From (Used in) Operating Activities:
Net earnings ........................................... $ 1,706,880 $ 1,527,804
Adjustments to reconcile net earnings to
net cash from operating activities -
Depreciation and amortization .......................... 591,032 547,044
Trade receivables ...................................... 14,671 (120,783)
Inventories ............................................ (135,017) (64,723)
Other, net ............................................. 90,547 120,869
----------- -----------
Net Cash From Operating Activities ................ 2,268,113 2,010,211
----------- -----------
Cash Flow From (Used in) Investing Activities:
Acquisitions of businesses, net of cash acquired ....... (242,713) (201,030)
Acquisitions of property and equipment ................. (703,677) (732,388)
Investment securities transactions ..................... (135,897) 25,515
Other .................................................. 11,040 (14,088)
----------- -----------
Net Cash (Used in) Investing Activities ........... (1,071,247) (921,991)
----------- -----------
Cash Flow From (Used in) Financing Activities:
Proceeds from (repayment of) commercial paper, net ... (301,000) 252,000
Proceeds from issuance of long-term debt ............. 400,000 .
Other borrowing transactions, net .................... (51,748) 22,128
Common share transactions ............................ (581,419) (732,687)
Dividends paid ....................................... (663,824) (602,723)
----------- -----------
Net Cash (Used in) Financing Activities ........... (1,197,991) (1,061,282)
----------- -----------
Effect of exchange rate changes on cash and
cash equivalents ....................................... (5,429) (7,743)
----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents ....... (6,554) 19,195
Cash and Cash Equivalents, Beginning of Year ............... 230,024 110,209
----------- -----------
Cash and Cash Equivalents, End of Period ................... $ 223,470 $ 129,404
----------- -----------
----------- -----------
</TABLE>
The accompanying notes to condensed consolidated financial statements are an
integral part of this statement.
4
<PAGE>
ABBOTT LABORATORIES AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
NOTE 1 - BASIS OF PREPARATION:
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
the Company's Annual Report on Form 10-K for the year ended December 31, 1997.
NOTE 2 - TAXES ON EARNINGS:
Taxes on earnings reflect the estimated annual effective tax rates. The
effective tax rates are less than the statutory U. S. Federal income tax rate
principally due to tax incentive grants related to subsidiaries operating in
Puerto Rico, the Dominican Republic, Ireland, the Netherlands, and Italy.
NOTE 3 - LITIGATION AND ENVIRONMENTAL MATTERS:
The Company is involved in various claims and legal proceedings including
numerous antitrust suits and investigations in connection with the pricing of
prescription pharmaceuticals. On September 9, 1998 the federal court approved
the settlement of the independent retail pharmacy federal class action
lawsuit for $57 million.
In addition, the Company 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.
The matters above are discussed more fully in Note 10 to the financial
statements included in the Company's Annual Report on Form 10-K, which is
available upon request, and in Part II, Item 1, Legal Proceedings, in this
Form.
The Company expects that within the next year, progress in the legal
proceedings described above may cause a change in the estimated reserves
recorded by the Company. While it is not feasible to predict the outcome of
such pending claims, proceedings and investigations with certainty,
management is of the opinion that their ultimate disposition should not have
a material adverse effect on the Company's financial position, cash flows, or
results of operations.
5
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(Unaudited), Continued
NOTE 4 - ACQUISITIONS:
On April 17, 1998, the Company acquired the common stock of International
Murex Technologies Corporation for approximately $234 million in cash. A
substantial portion of the purchase price was allocated to intangible assets,
including goodwill, which is being amortized over 40 years. Had this
acquisition taken place on January 1, 1997, consolidated sales and net income
would not have been significantly different from reported amounts.
NOTE 5 - COMPREHENSIVE INCOME:
(Dollars in Thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
------------------------------- -------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Earnings $ 531,722 $ 471,449 $ 1,706,880 $ 1,527,804
----------- ----------- ----------- -----------
Other comprehensive income:
Foreign currency translation
adjustments (30,947) (63,346) (66,701) (171,442)
Unrealized (losses) gains on
marketable equity securities (850) 21,908 (16,245) 26,605
Tax benefit (expense) related to
items of other comprehensive
income (123) (8,763) 6,035 (10,641)
----------- ----------- ----------- -----------
Other comprehensive income
(loss), net of tax (31,920) (50,201) (76,911) (155,478)
----------- ----------- ----------- -----------
Comprehensive Income $ 499,802 $ 421,248 $ 1,629,969 $ 1,372,326
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
As of September 30, 1998, the cumulative net of tax balances for foreign
currency translation loss adjustments and the unrealized (gains) on
marketable equity securities were $329,820, and ($22,668), respectively.
NOTE 6 - STOCK SPLIT:
On February 13, 1998, the Board of Directors approved a two-for-one stock
split. Shareholders of record on May 1, 1998 were issued an additional share
of the Company's common stock on May 29, 1998 for each share owned on the
record date. All shares and per share data in the condensed consolidated
financial statements and notes have been adjusted to reflect the stock split.
NOTE 7 - RECENTLY ISSUED ACCOUNTING STANDARD:
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires the recognition
of derivatives as either assets or liabilities in the statement of financial
position at fair value. The statement is effective for fiscal years beginning
after June 15, 1999. The Company is assessing the impact this statement will
have on its financial statements.
6
<PAGE>
FINANCIAL REVIEW
RESULTS OF OPERATIONS - THIRD QUARTER AND FIRST NINE MONTHS 1998 COMPARED
WITH SAME PERIODS IN 1997
Worldwide sales for the third quarter and first nine months increased 6.0
percent and 4.4 percent, respectively, over the comparable 1997 periods.
Excluding the negative effect of the relatively stronger U.S. dollar, sales
increased 9.3 percent and 7.7 percent, respectively, over the comparable 1997
periods. Net earnings increased 12.8 percent and 11.7 percent, respectively,
in the third quarter and first nine months 1998. Basic earnings per common
share increased 12.9 percent and 13.1 percent, respectively, over the prior
year periods. Diluted earnings per common share increased 13.3 percent and
13.4 percent, respectively, over the prior year periods.
Gross profit margin (sales less cost of products sold, including freight and
distribution expenses) was 54.7 percent for the 1998 third quarter, compared
to 56.7 percent for the 1997 third quarter, and was negatively affected by
the unfavorable effects of the stronger U.S. dollar. First nine months 1998
gross profit margin was 56.8 percent, the same as a year earlier.
Research and development expenses were $292.1 million for the third quarter
1998 and $879.1 million for the first nine months 1998. Research and
development represented 9.6 percent of net sales for both the third quarter
and first nine months 1998, compared to 11.4 percent and 10.6 percent,
respectively, for the third quarter and the first nine months 1997. The
majority of research and development expenditures continues to be
concentrated on pharmaceutical and diagnostic products.
Selling, general and administrative expenses for the third quarter and first
nine months 1998 decreased 1.5 percent and increased 2.4 percent,
respectively, over the comparable prior year periods, net of the favorable
effect of the relatively stronger U.S. dollar of 3.3 percent and 3.4 percent,
respectively. The net increases, exclusive of exchange impact, reflect
inflation, additional selling and marketing support for new and existing
products, primarily for pharmaceutical products, and litigation charges.
Other (income) expense, net, includes net foreign exchange losses of $5.6
million for the third quarter and $20.6 million for the first nine months
1998, compared to net foreign exchange gains of $4.3 million and $11.2
million, respectively, for the corresponding prior year periods. Other
(income) expense, net, also includes the Company's share of the net income
from its joint venture, TAP Holdings, Inc., of $69.3 million for the
third quarter and $189.9 million for the first nine months 1998, compared to
$51.7 million and $142.3 million for the respective prior year periods.
On July 27, 1998, the Company announced that it was experiencing
manufacturing difficulties with the capsule formulation of its protease
inhibitor Norvir. The manufacturing difficulties with Norvir will result in
shortages and interruption of the supply of capsules. The Company plans to
supply Norvir liquid formulation to provide continued Norvir therapy for
patients. During the first nine months
7
<PAGE>
FINANCIAL REVIEW
(Continued)
of 1998, the Company recorded sales of Norvir of $197.0 million. The Company
is unable to quantify the effect that the production problems will have on
sales in future periods.
INDUSTRY SEGMENTS
Industry segment sales for the third quarter and first nine months 1998 and
the related change from the comparable 1997 periods are shown in the table
below. The Pharmaceutical and Nutritional Products segment includes a broad
line of adult and pediatric pharmaceuticals and nutritionals, which are sold
primarily on the prescription or recommendation of physicians or other health
care professionals; consumer products; agricultural and chemical products;
and bulk pharmaceuticals. The Hospital and Laboratory Products segment
includes diagnostic systems for consumers, blood banks, hospitals, commercial
laboratories and alternate-care testing sites; intravenous and irrigation
fluids and related administration equipment; drugs and drug delivery systems;
anesthetics; critical care products; and other medical specialty products for
hospitals and alternate-care sites.
Domestic and international sales for the third quarter and first nine months
1998 primarily reflect unit growth. Total sales were unfavorably affected 3.3
percent and international sales were unfavorably affected 8.7 percent by the
relatively stronger U.S. dollar in the third quarter. On a year-to-date
basis, total sales were unfavorably affected 3.3 percent and international
sales were unfavorably affected 8.6 percent by the relatively stronger U.S.
dollar.
<TABLE>
<CAPTION>
Third Quarter Nine Months
- -------------------------------------------------------------------------------
SEGMENT SALES 1998 Percent 1998 Percent
(in millions of dollars) Sales Change Sales Change
- -------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Pharmaceutical and Nutritional Products:
Domestic $1,131.0 5.1 $3,455.0 2.7
- -------------------------------------------------------------------------------
International 585.2 6.4 1,801.7 2.1
- -------------------------------------------------------------------------------
1,716.2 5.5 5,256.7 2.5
Hospital and Laboratory Products:
Domestic 781.8 10.7 2,274.0 11.5
- -------------------------------------------------------------------------------
International 537.8 0.9 1,616.7 1.1
- -------------------------------------------------------------------------------
1,319.6 6.5 3,890.7 7.0
Total All Segments:
Domestic 1,912.8 7.3 5,729.0 6.0
- -------------------------------------------------------------------------------
International 1,123.0 3.7 3,418.4 1.7
- -------------------------------------------------------------------------------
$3,035.8 6.0 $9,147.4 4.4
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
FINANCIAL REVIEW
(Continued)
LIQUIDITY AND CAPITAL RESOURCES AT SEPTEMBER 30, 1998
COMPARED WITH DECEMBER 31, 1997
Net cash from operating activities for the first nine months 1998 totaled
$2.268 billion. The Company expects annual cash flow from operating
activities to continue to approximate or exceed the Company's capital
expenditures and cash dividends. The Company funded the acquisition of Murex
through commercial paper borrowings.
The Company has maintained its favorable bond ratings (AAA by Standard &
Poor's Corporation and Aa1 by Moody's Investors Service) and continues to
have readily available financial resources, including unused domestic lines
of credit of $2.505 billion at September 30, 1998. These lines of credit
support domestic commercial paper borrowing arrangements.
During the first nine months 1998, the Company issued $400 million of debt
securities under a registration statement filed with the Securities and
Exchange Commission in 1996. The Company may issue up to $750 million of
senior debt securities in the future under a registration statement filed
with the Securities and Exchange Commission in September 1998.
During the first nine months 1998, the Company continued its program to
purchase its common shares. The Company purchased and retired 17,248,000
shares during this period at a cost of $673.7 million. As of September 30,
1998, an additional 10,152,000 shares may be purchased in future periods
under authorization granted by the Board of Directors in December 1997.
LEGISLATIVE ISSUES
The Company's primary markets are highly competitive and subject to
substantial government regulation. The Company expects debate to continue at
both the federal and the state levels over the availability, method of
delivery, and payment for health care products and services. The Company
believes that if legislation is enacted, it could have the effect of reducing
prices, or reducing the rate of price increases for medical products and
services. International operations are also subject to a significant degree
of government regulation. It is not possible to predict the extent to which
the Company 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 1, Business, in the Annual Report on Form 10-K,
which is available upon request.
RECENTLY ISSUED ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement requires the recognition
of derivatives as either assets or liabilities in the statement of financial
position at fair value. The statement is effective for fiscal years beginning
after June 15, 1999. The Company is assessing the impact this statement will
have on its financial statements.
9
<PAGE>
FINANCIAL REVIEW
(Continued)
YEAR 2000
The Year 2000 ("Y2K") issue results from the inability of some computer
programs to identify the Year 2000 properly, potentially leading to errors or
system failure.
The Company has organized its efforts to resolve the Y2K issue as follows:
internal information systems; landlord and embedded systems; electronic
products currently marketed or in the field; and suppliers providing products
and services to the Company. Progress goals have been established in each area.
Internal information systems were inventoried and assessed, and remediation
started in 1992. Virtually all remediation is scheduled to be completed by
the end of 1998, and testing completed by mid-1999. Current progress is
slightly better than plan.
Landlord and embedded systems were inventoried and Y2K assessment completed
by May 1998. The Company's goal is to resolve 75 percent of critical systems
by year-end 1998, and 100 percent of critical systems by July 1999. Current
progress is according to plan.
The Company has assessed the ability of its medical electronic and software
products to cope with the Y2K issue. Customers may access the Company's
assessment on the Company's internet web page. Most of the Company's products
are not affected by the Y2K issue. For those products requiring remediation,
the Company's goal is to provide solutions by June 1999. Current progress is
according to plan.
Beginning in March 1998 key suppliers were requested to certify that they
were Y2K compliant or, if not, to provide their plans to become compliant.
Fifty-four percent of suppliers responded; 39 percent of those responding
certified compliance currently and 61 percent forwarded action plans.
Follow-up with all key suppliers is being conducted according to plan.
Each of the above areas will begin developing contingency plans by the end of
1998, and will continue to develop and update those plans throughout 1999.
The Company's policy is to expense Y2K remediation costs as incurred. Future
expenditures to remediate the Company's systems for the Y2K issue are not
material to the Company's results of operations, financial position or cash
flows.
10
<PAGE>
FINANCIAL REVIEW
(Continued)
EURO CONVERSION
On January 1, 1999, the European Economic and Monetary Union will take
effect and introduce the euro as the official single currency of the
eleven participating member countries. On that date the currency exchange
rates of the participating countries will be fixed against the euro.
There will be a three year transition to the euro, and at the end of 2001
the legacy currencies will be eliminated. In 1997 the Company organized
an internal cross-functional task force to address the euro issues and
expects to be ready for the conversion to the euro. Costs required to
prepare for the euro are not material to the Company's financial
position, results of operations or cash flows. The impact, if any, of the
euro on the Company's competitive position is unknown.
11
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As reported in the Company's 10-K for the fiscal year ended
December 31, 1997, the Company is involved in numerous antitrust suits and
two investigations regarding the Company's pricing of pharmaceutical
products. As of September 30, 1998, 117 antitrust suits are pending in the
United States District Court for the Northern District of Illinois as "In re:
Brand Name Prescription Drug Antitrust Litigation, MDL 997." A portion of
the MDL 997 litigation has been certified as a class action on behalf of
certain retail pharmacies. In July 1998, the Company entered into an
agreement to settle the class action portion of the MDL 997 litigation for
$57 million. On September 9, 1998, the United States District Court for the
Northern District of Illinois approved that settlement agreement. In
addition, during the third quarter of 1998, three other lawsuits pending in
the MDL 997 litigation, ALBERTSON'S V. ABBOTT, AMERICAN DRUG V. ABBOTT, and
ECKERD V. ABBOTT, were settled and have now been dismissed.
As of October 15, 1998, 24 pharmaceutical pricing cases were
pending in various state courts and one case was pending in a District of
Columbia court. As reported in the Company's 10-K for the fiscal year ended
December 31, 1997, the Company has entered into settlement agreements in
twelve consumer lawsuits pending in the following jurisdictions: Arizona,
Florida, Kansas, Maine, Michigan, Minnesota (2), New York, North Carolina,
Tennessee, Washington, D.C., and Wisconsin. The court in each jurisdiction
must approve the agreement before it becomes final. Courts in Michigan and
Wisconsin have approved the settlement agreement.
The Company has previously disclosed that cases are pending in the
United States District Court for the Northern District of Illinois between
the Company and Geneva Pharmaceuticals, Inc. ("Geneva"), Invamed, Inc.
("Invamed"), Novopharm Limited ("Novopharm"), Mylan Pharmaceuticals, Inc.
("Mylan"), and Warner Chilcott, Inc. ("Warner") in which the validity of the
Company's patent claim covering the form of terazosin hydrochloride used by
those companies has been contested. The Geneva, Invamed, and Novopharm cases
are all pending before the same judge, who, on September 1, 1998, entered a
judgment in each of those cases ruling that the Company's patent claim is
invalid. The Company has appealed those judgments. Both Mylan and Warner
have filed motions seeking to have the September 1 ruling applied in their
cases.
While it is not feasible to predict the outcome of such pending
claims, proceedings, and investigations with certainty, management is of the
opinion that their ultimate dispositions should not have a material adverse
effect on the Company's results of operations, financial position or cash
flows.
<PAGE>
Item 5. NOTICE OF DEADLINES FOR SUBMITTING SHAREHOLDER PROPOSALS.
DATE FOR RECEIPT OF 1999 SHAREHOLDER PROPOSALS
Shareholder proposals for presentation at the 1999 Annual Meeting
must be received by the corporation no later than November 10, 1998 and must
otherwise comply with the applicable requirements of the Securities and
Exchange Commission to be considered for inclusion in the proxy statement and
proxy for the 1999 meeting.
PROCEDURE FOR RECOMMENDATION AND NOMINATION OF DIRECTORS AND TRANSACTION OF
BUSINESS AT ANNUAL MEETINGS
A shareholder may recommend persons as potential nominees for
director by submitting the names of such persons in writing to the chairman
of the nominations and board affairs committee or the secretary of the
corporation. Recommendations should be accompanied by a statement of
qualifications and confirmation of the person's willingness to serve.
A shareholder may directly nominate persons for director only by
complying with the following procedure: the shareholder must submit the names
of such persons in writing to the secretary of the corporation not earlier
than the October 1 nor later than the first business day of January prior to
the date of the Annual Meeting. The nominations must be accompanied by a
statement setting forth the name, age, business address, residence address,
principal occupation, qualifications, and number of shares of the corporation
owned by the nominee and the name, record address, and number of shares of
the corporation owned by the shareholder making the nomination.
A shareholder may properly bring business before the Annual Meeting
of Shareholders only by complying with the following procedure: the
shareholder must submit to the secretary of the corporation, not earlier than
the October 1 nor later than the first business day of January prior to the
date of the Annual Meeting, a written statement describing the business to be
discussed, the reasons for conducting such business at the Annual Meeting,
the name, record address, and number of shares of the corporation owned by
the shareholder making the submission, and a description of any material
interest of the shareholder in such business.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
3. By-Laws of Abbott Laboratories, as amended effective as
of October 9, 1998, filed as Exhibit 3.1 to Registration
Statement on Form S-3, file number 333-65601*.
4.1 Resolution of the Company's Board of Directors relating to
the 5.40% Note filed as Exhibit 4.12 to the 1996 Abbott
Laboratories Annual Report on Form 10-K*.
4.2 Form of $200,000,000 5.40% Note issued pursuant to
Indenture - attached hereto.
4.3 Actions of Authorized Officers with respect to the Company's
5.40% Note - attached hereto.
4.4 Officers' Certificate and Company Order with respect to the
Company's 5.40% Note - attached hereto.
12. Statement re: computation of ratio of earnings to fixed
charges - attached hereto.
27. Financial Data Schedule - attached hereto.
* Incorporated herein by reference
b) Reports on Form 8-K
None
SIGNATURE
Pursuant to the requirements of the Securities and 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
/s/ Theodore A. Olson
--------------------------------------------
Date: November 11, 1998 Theodore A. Olson, Vice President
and Controller (Principal Accounting Officer)
<PAGE>
ABBOTT LABORATORIES
5.40% NOTE DUE SEPTEMBER 15, 2008
NO. 1001 $200,000,000
CUSIP NO. 002824 AK6
This Security is a Security in a global form within the meaning of
the Indenture hereinafter referred to and is registered in the name of the
Depositary or a nominee of a Depositary. This global Security is
exchangeable for Securities registered in the name of a Person other than the
Depositary or its nominee only in the limited circumstances described in the
Indenture, and no transfer of this Security (other than a transfer of this
Security as a whole by the Depositary to a nomine of the Depositary or by a
nominee of the Depositary to the Depositary or another nominee of the
Depositary) may be registered except in such limited circumstances.
Unless this Security is presented by an authorized representative
of The Depositary Trust Company (55 Water Street, New York, New York) to the
issuer or its agent for registration of transfer, exchange or payment, and
any Security issued upon registration of transfer of, or in exchange for, or
in lieu of, this Security is registered in the name of Cede & Co. or such
other name as requested by an authorized representative of The Depository
Trust Company and any payment hereon is made to Cede & Co., ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL since the registered owner hereof, Cede & Co., has an interest
herein.
<PAGE>
ABBOTT LABORATORIES
ABBOTT LABORATORIES, a corporation duly organized and existing
under the laws of Illinois (herein called the "Company," which term includes
any successor Person under the Indenture hereinafter referred to), for value
received, hereby promises to pay to Cede & Co., as nominee for The Depository
Trust Company, or registered assigns, the principal sum of Two Hundred
Million Dollars ($200,000,000) on September 15, 2008 and to pay interest
thereon from September 15, 1998 or from the most recent Interest Payment Date
to which interest has been paid or duly provided for, semi-annually on
March 15 and September 15 in each year, commencing March 15, 1999, at the
rate of 5.40% per annum, until the principal hereof is paid or made available
for payment. The interest so payable, and punctually paid or duly provided
for, on any Interest Payment Date will, as provided in such Indenture, be paid
to the Person in whose name this Security (or one or more Predecessor
Securities) is registered at the close of business on the Regular Record Date
for such interest, which shall be the March 1 or September 1 (whether or not
a Business Day), as the case may be, next preceding such Interest Payment
Date. Any such interest not so punctually paid or duly provided for will
forthwith cease to be payable to the Holder on such Regular Record Date and
may either be paid to the Person in whose name this Security (or one or more
Predecessor Securities) is registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest to be fixed by the
Trustee, notice whereof shall be given to Holders of Securities of this
series not less than 10 days prior to such Special Record Date, or be paid at
any time in any other lawful manner not inconsistent with the requirements of
any securities exchange on which the Securities of this series may be listed,
and upon such notice as may be required by such exchange, all as more fully
provided in said Indenture.
Payment of the principal of (and premium, if any) and any such
interest on this Security will be made at the office or agency of the Company
maintained for that purpose in Chicago, Illinois, in such coin or currency of
the United States of America as at the time of payment is legal tender for
payment of public and private debts; PROVIDED, HOWEVER, that at the option of
the Company payment of interest may be made by check mailed to the address of
the Person entitled thereto as such address shall appear in the Security
Register.
Unless the certificate of authentication hereon has been executed
by the Trustee referred to herein by manual signature, this Security shall
not be entitled to any benefit under the Indenture or be valid or obligatory
for any purpose.
This Security is one of a duly authorized issue of securities of
the Company (herein called the "Securities"), issued and to be issued in one
or more series under an Indenture, dated as of October 1, 1993 (herein called
the "Indenture"), between the Company and Harris Trust and Savings Bank, as
Trustee (herein called the "Trustee," which term includes any successor
trustee under the Indenture), to which Indenture and all indentures
supplemental thereto reference is hereby made for a statement of the
respective rights,
-2-
<PAGE>
limitations of rights, duties and immunities thereunder of the Company, the
Trustee and the Holders of the Securities and of the terms upon which the
Securities are, and are to be, authenticated and delivered. This Security is
one of the series designated on the face hereof, limited in aggregate
principal amount to $200,000,000.
The Securities of this Series are not redeemable prior to maturity
and do not provide for a sinking fund.
If an Event of Default with respect to Securities of this series
shall occur and be continuing, the principal of the Securities of this series
may be declared due and payable in the manner and with the effect provided in
the Indenture.
The Indenture contains provisions for defeasance at any time of the
entire indebtedness of this Security or certain restrictive covenants and
Events of Default with respect to this Security, in each case upon compliance
with certain conditions set forth therein.
The Indenture permits, with certain exceptions as therein provided,
the amendment thereof and the modification of the rights and obligations of
the Company and the rights of the Holders of the Securities of each series to
be affected under the Indenture at any time by the Company and the Trustee
with the consent of the Holders of a majority in principal amount of the
Securities at the time Outstanding of each series to be affected. The
Indenture also contains provisions permitting the Holders of specified
percentages in principal amount of the Securities of each series at the time
Outstanding, on behalf of the Holders of all Securities of such series, to
waive compliance by the Company with certain provisions of the Indenture and
certain past defaults under the Indenture and their consequences. Any such
consent or waiver by the Holder of this Security shall be conclusive and
binding upon such Holder and upon all future Holders of this Security and of
any Security issued upon the registration of transfer hereof or in exchange
herefor or in lieu hereof, whether or not notation of such consent or waiver
is made upon this Security.
No reference herein to the Indenture and no provision of this
Security or of the Indenture shall alter or impair the obligation of the
Company, which is absolute and unconditional, to pay the principal of and any
premium and interest on this Security at the times, place and rate, and in
the coin or currency, herein prescribed.
As provided in the Indenture and subject to certain limitations
therein set forth, the transfer of this Security is registerable in the
Security Register, upon surrender of this Security for registration of
transfer at the office or agency of the Company in any place where the
principal of and any premium and interest on this Security are payable, duly
endorsed by, or accompanied by a written instrument of transfer in form
satisfactory to the Company and the Security Registrar duly executed by, the
Holder hereof or his attorney duly authorized in writing, and thereupon one
or more new Securities of this series and of like
-3-
<PAGE>
tenor, of authorized denominations and for the same aggregate principal
amount, will be issued to the designated transferee or transferees.
The Securities of this series are issuable only in registered form
without coupons in denominations of $1,000 and any integral multiple thereof.
As provided in the Indenture and subject to certain limitations therein set
forth, Securities of this series are exchangeable for a like aggregate
principal amount of Securities of this series and of like tenor of a
different authorized denomination, as requested by the Holder surrendering
the same.
No service charge shall be made for any such registration of
transfer or exchange, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge payable in connection therewith.
Prior to due presentment of this Security for registration of
transfer, the Company, the Trustee and any agent of the Company or the
Trustee may treat the Person in whose name this Security is registered as the
owner hereof for all purposes, whether or not this Security be overdue, and
neither the Company, the Trustee nor any such agent shall be affected by
notice to the contrary.
All terms used in this Security which are defined in the Indenture
shall have the meanings assigned to them in the Indenture.
* * *
-4-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be
duly executed under its corporate seal.
Dated: September 15, 1998
ABBOTT LABORATORIES
By: /s/ Thomas C. Freyman
---------------------------------
Name: Thomas C. Freyman
Title: Vice President and Treasurer
Attest:
/s/ Jose M. de Lasa
- -------------------
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
HARRIS TRUST AND SAVINGS BANK,
as Trustee, certifies that this is one of the
Securities referred to in the within-mentioned
Indenture.
By /s/ C. Potter
- -------------------------
Authorized Signature
-5-
<PAGE>
ABBOTT LABORATORIES
ACTIONS OF THE AUTHORIZED OFFICERS
Pursuant to the authority granted by the Board of Directors of Abbott
Laboratories ("Corporation") in its June 14, 1996 resolutions, the
undersigned agree as follows:
1. The Corporation shall issue $200,000,000 aggregate principal amount
of the Corporation's 5.40% Notes due September 15, 2008 ("Notes").
2. The Corporation shall issue and sell Notes to Goldman, Sachs & Co.,
ABN AMRO Incorporated, BancAmerica Securities, Inc., Morgan Stanley & Co.
Incorporated and Salomon Smith Barney Inc. (collectively, "Underwriters")
pursuant to an Underwriting Agreement dated December 4, 1996 and a Pricing
Agreement dated September 10, 1998 ("Pricing Agreement") between the
Corporation and the Underwriters, upon the terms and conditions set forth
therein, to be issued under and in accordance with an Indenture dated as of
October 1, 1993, between the Corporation and the Harris Trust and Savings
Bank, as Trustee ("Trustee"), relating to the Corporation's Notes and other
obligations ("Indenture").
3. In addition to the other terms provided in the Indenture with
respect to securities issued thereunder, all as more particularly described
in the Pricing Agreement, the Prospectus and the Prospectus Supplement
relating to the Notes and the form of Note referred to below, the Notes shall
contain the following terms:
(a) The Notes shall be entitled "5.40% Notes due
September 15, 2008";
(b) The Notes shall be limited in aggregate principal amount to
$200,000,000;
(c) Interest shall be payable to the persons in whose names the Notes are
registered at the close of business on the applicable Regular Record Date
(as defined below);
(d) The principal of the Notes is payable on September 15, 2008;
(e) The Notes shall bear interest at the rate of 5.40% per annum beginning
September 15, 1998. Interest on the Notes will be payable semi-annually on
the fifteenth day of March and September of each year (each an "Interest
Payment Date"), commencing on March 15, 1999. Interest shall be paid to
persons in whose names the Notes are registered on
<PAGE>
the March 1 or September 1 preceding the Interest Payment Date (each a
"Regular Record Date");
(f) Payment of the principal of, and any premium and interest on, the
Notes will be made at the office or agency of the Corporation maintained
for that purpose in Chicago, Illinois;
(g) The Notes shall not be redeemable or repayable prior to maturity;
(h) The Notes shall not provide for any sinking fund;
(i) The Notes are issuable only in registered form without coupons in
denominations of $1,000 and any integral multiple thereof;
(j) The payment of the principal of, and any premium and interest on, the
Notes shall be made in such coin or currency of the United States of
America as at the time of payment is legal tender for payment of public and
private debts;
(k) The payment of principal of, and any premium and interest on, the
Notes shall not be determined with reference to an index or formula;
(l) There shall be no optional currency or currency unit in which the
payment of principal of, and any premium and interest on, the Notes shall
be payable;
(m) Both Section 13.2 and 13.3 of the Indenture shall apply to the Notes;
(n) The Notes shall be in the form of Book-Entry Securities as set forth
in the Indenture;
(o) The principal amount of the Notes shall be payable upon declaration of
acceleration pursuant to Section 5.2 of the Indenture; and
(p) The other terms and conditions of the Notes shall be substantially as
set forth in the Indenture and in the Prospectus and the Prospectus
Supplement relating to the Notes.
4. The form of the Notes shall be substantially as attached hereto as
EXHIBIT A.
5. The price at which the Notes shall be sold by the Corporation to the
Underwriters pursuant to the Pricing Agreement
-2-
<PAGE>
shall be 99.151% of the principal amount thereof, plus accrued interest, if
any, from September 15, 1998 to the time of Delivery;
6. The Notes initially will be offered to the public by the Underwriters
at 99.801% of the principal amount thereof, plus accrued interest, if any, from
September 15, 1998 to the time of Delivery;
7. The execution and delivery of the Pricing Agreement, dated September
10, 1998, and substantially in the form attached hereto as EXHIBIT B, is hereby
approved.
8. Any officer of this Corporation is hereby authorized and empowered to
execute the Notes of this Corporation in the form he or she deems appropriate,
and to deliver such Notes to the Trustee with a written order directing the
Trustee to have the Notes authenticated and delivered to such persons as such
officer designates.
9. The Harris Trust and Savings Bank is hereby designated and appointed
as Paying Agent and Securities Registrar with respect to the Notes.
-3-
<PAGE>
Dated: September 10, 1998
Authorized Officers of
Abbott Laboratories
By /s/ Thomas C. Freyman
----------------------
Name: Thomas C. Freyman
Title: Vice President and
Treasurer
By /s/ Gary P. Coughlan
--------------------------
Name: Gary P. Coughlan
Title: Senior Vice President,
Finance and Chief
Financial Officer
-4-
<PAGE>
ABBOTT LABORATORIES
OFFICERS' CERTIFICATE
AND
COMPANY ORDER
With respect to the issuance by Abbott Laboratories (the "Company") of
$200,000,000 in aggregate principal amount of 5.40% Notes due September 15,
2008 (the "Notes"), Jose M. de Lasa and Thomas C. Freyman, officers of the
Company, certify pursuant to Sections 3.1 and 3.3 of the Indenture, dated as
of October 1, 1993 (the "Indenture"), between the Company and Harris Trust
and Savings Bank, as Trustee (the "Trustee"), as follows:
1. We have read Sections 2.1, 3.1 and 3.3 of the Indenture and the
definitions therein relating hereto, reviewed the resolutions of
the Board of Directors of the Company adopted on June 14, 1996
(attached as Exhibit B to the Secretary's Certificate of even date
herewith), the Action of Authorized Officers of September 10, 1998
(attached as Exhibit C to the Secretary's Certificate of even date
herewith), conferred with executive officers of the Company and, in
our opinion, made such other examinations and investigations as are
necessary to enable us to express an informed opinion as to whether
Sections 2.1, 3.1 and 3.3 of the Indenture have been complied with.
2. Based on the above-described examinations and investigations, in
our opinion, all conditions precedent relating to the
authentication and delivery of the Notes, including those
conditions under Sections 2.1, 3.1 and 3.3 of the Indenture, have
been complied with.
3. The terms of the Notes are set forth in the Action of Authorized
Officers, dated September 10, 1998 (attached as Exhibit C to the
Secretary's Certificate of even date herewith).
4. In accordance with the provisions of Section 3.3 of the Indenture,
the Trustee is hereby authorized and requested to authenticate the
Notes and to deliver the Notes to or at the direction of Goldman,
Sachs & Co., ABN AMRO Incorporated, BancAmerica Securities, Inc.,
Morgan Stanley & Co. Incorporated and Salomon Smith Barney Inc.
Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings assigned thereto in the Indenture.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Officers'
Certificate as of this 15th day of September, 1998.
ABBOTT LABORATORIES
By:/s/ Jose M. de Lasa
----------------------------
Jose M. de Lasa, Senior Vice
President, Secretary and
General Counsel
By:/s/ Thomas C. Freyman
------------------------
Thomas C. Freyman, Vice
President and Treasurer
-2-
<PAGE>
EXHIBIT 12
ABBOTT LABORATORIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
(Millions of Dollars)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30, 1998
------------------
<S> <C>
Net Earnings $1,707
Add (deduct):
Income taxes 664
Minority interest 5
------
Net earnings as adjusted $2,376
------
Fixed Charges:
Interest on long-term and
short-term debt $ 119
Capitalized interest cost 10
Rental expense representative
of an interest factor 30
------
Total Fixed Charges 159
------
Total adjusted earnings available for
payment of fixed charges $2,535
------
------
Ratio of earnings to fixed charges 15.9
------
------
</TABLE>
NOTE: For the purpose of calculating this ratio, (i) earnings have
been calculated by adjusting net 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) the Company
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.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ABBOTT
LABORATORIES' 1998 THIRD QUARTER FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-Q FILING.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 223,470
<SECURITIES> 50,563
<RECEIVABLES> 1,916,202
<ALLOWANCES> 183,555
<INVENTORY> 1,394,114
<CURRENT-ASSETS> 5,066,210
<PP&E> 9,201,129
<DEPRECIATION> 4,555,362
<TOTAL-ASSETS> 12,603,034
<CURRENT-LIABILITIES> 4,664,112
<BONDS> 1,340,845
0
0
<COMMON> 1,114,445
<OTHER-SE> 4,259,447
<TOTAL-LIABILITY-AND-EQUITY> 12,603,034
<SALES> 9,147,433
<TOTAL-REVENUES> 9,147,433
<CGS> 3,952,753
<TOTAL-COSTS> 3,952,753
<OTHER-EXPENSES> 879,086<F1>
<LOSS-PROVISION> 27,294
<INTEREST-EXPENSE> 119,388
<INCOME-PRETAX> 2,370,666
<INCOME-TAX> 663,786
<INCOME-CONTINUING> 1,706,880
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,706,880
<EPS-PRIMARY> 1.12<F2>
<EPS-DILUTED> 1.10<F2>
<FN>
<F1>Other expenses consist of research and development expenses.
<F2>The EPS information in this exhibit has been prepared in accordance with SFAS
No. 128 and basic and diluted EPS have been entered in place of primary and
fully diluted EPS, respectively.
</FN>
</TABLE>
