<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, 1999
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: (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, 1999, Abbott Laboratories had 1,522,169,258 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
--------------------------- ----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales .......................................... $ 3,120,662 $ 3,035,767 $ 9,662,859 $ 9,147,433
----------- ----------- ----------- -----------
Cost of products sold .............................. 1,584,643 1,375,010 4,444,416 3,952,753
Research and development ........................... 276,240 292,078 858,361 879,086
Selling, general and administrative ................ 683,631 665,202 2,051,631 2,029,539
----------- ----------- ----------- -----------
Total Operating Cost and Expenses ............. 2,544,514 2,332,290 7,354,408 6,861,378
----------- ----------- ----------- -----------
Operating Earnings ................................. 576,148 703,477 2,308,451 2,286,055
Net interest expense ............................... 19,545 26,373 67,812 78,346
Income from TAP Holdings Inc. joint venture ........ (109,925) (69,271) (277,830) (189,907)
Net foreign exchange loss .......................... 3,441 5,551 21,922 20,575
Other (income) expense, net ........................ 15,689 2,322 30,775 6,375
----------- ----------- ----------- -----------
Earnings Before Taxes ........................... 647,398 738,502 2,465,772 2,370,666
Taxes on earnings .................................. 181,271 206,780 690,416 663,786
----------- ----------- ----------- -----------
Net Earnings ....................................... $ 466,127 $ 531,722 $ 1,775,356 $ 1,706,880
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Basic Earnings Per Common Share .................... $0.31 $0.35 $1.17 $1.12
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Diluted Earnings Per Common Share .................. $0.30 $0.34 $1.15 $1.10
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Cash Dividends Declared Per Common Share ........... $0.17 $0.15 $0.51 $0.45
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Average Number of Common Shares Outstanding
Used for Basic Earnings Per Common Share ........ 1,521,521 1,520,914 1,519,765 1,524,556
Dilutive Common Stock Options ...................... 18,112 23,766 21,243 22,052
----------- ----------- ----------- -----------
Average Number of Common Shares Outstanding
Plus Dilutive Common Stock Options .............. 1,539,633 1,544,680 1,541,008 1,546,608
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
Outstanding Common Stock Options Having No Dilutive
Effect........................................... 18,861 564 1,709 564
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
2
<PAGE>
Abbott Laboratories and Subsidiaries
Condensed Consolidated Statement of Cash Flows
(Unaudited)
(dollars in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30
--------------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash Flow From (Used in) Operating Activities:
Net earnings ............................................. $ 1,775,356 $ 1,706,880
Adjustments to reconcile net earnings to
net cash from operating activities -
Depreciation and amortization ............................ 631,893 591,032
Trade receivables ........................................ (7,327) 14,671
Inventories .............................................. (63,329) (135,017)
Other, net ............................................... 196,682 90,547
----------- -----------
Net Cash From Operating Activities ..................... 2,533,275 2,268,113
----------- -----------
Cash Flow From (Used in) Investing Activities:
Acquisitions of businesses, net of cash acquired ......... -- (242,713)
Acquisitions of property and equipment ................... (734,516) (703,677)
Investment securities transactions ....................... (43,209) (135,897)
Other .................................................... 7,763 11,040
----------- -----------
Net Cash Used in Investing Activities .................. (769,962) (1,071,247)
----------- -----------
Cash Flow From (Used in) Financing Activities:
Repayments of commercial paper, net ...................... (874,000) (301,000)
Proceeds from issuance of long-term debt ................. -- 400,000
Other borrowing transactions, net ........................ (6,445) (51,748)
Common share transactions ................................ 101,678 (581,419)
Dividends paid ........................................... (744,544) (663,824)
----------- -----------
Net Cash Used in Financing Activities .................. (1,523,311) (1,197,991)
----------- -----------
Effect of exchange rate changes on cash and
cash equivalents ......................................... (17,162) (5,429)
----------- -----------
Net Increase in Cash and Cash Equivalents .................. 222,840 (6,554)
Cash and Cash Equivalents, Beginning of Year ............... 308,230 230,024
----------- -----------
Cash and Cash Equivalents, End of Period ................... $ 531,070 $ 223,470
----------- -----------
----------- -----------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
3
<PAGE>
Abbott Laboratories and Subsidiaries
Condensed Consolidated Balance Sheet
(dollars in thousands)
<TABLE>
<CAPTION>
September 30 December 31
1999 1998
------------ ------------
(Unaudited)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents ................................................. $ 531,070 $ 308,230
Investment securities ..................................................... 99,310 75,087
Trade receivables, less allowances of $185,487 in 1999 and $190,952 in 1998 1,883,498 1,950,058
Inventories:
Finished products ....................................................... 713,404 697,494
Work in process ......................................................... 326,916 345,776
Materials................................................................ 376,985 367,339
------------ ------------
Total inventories ..................................................... 1,417,305 1,410,609
Prepaid expenses, income taxes, and other receivables ....................... 1,946,866 1,809,152
------------ ------------
Total Current Assets .................................................. 5,878,049 5,553,136
------------ ------------
Investment Securities Maturing after One Year ............................... 666,454 783,842
------------ ------------
Property and Equipment, at Cost ............................................. 9,654,073 9,396,236
Less: accumulated depreciation and amortization ........................... 4,937,539 4,657,393
------------ ------------
Net Property and Equipment ................................................ 4,716,534 4,738,843
Deferred Charges, Intangible and Other Assets............................... 2,313,188 2,140,392
------------ ------------
$ 13,574,225 $ 13,216,213
------------ ------------
------------ ------------
Liabilities and Shareholders' Investment
Current Liabilities:
Short-term borrowings and current portion of long-term debt ............... $ 872,791 $ 1,759,076
Trade accounts payable .................................................... 1,191,383 1,056,641
Salaries, income taxes, dividends payable, and other accruals ............. 2,264,833 2,146,409
------------ ------------
Total Current Liabilities ............................................. 4,329,007 4,962,126
------------ ------------
Long-Term Debt .............................................................. 1,336,425 1,339,694
------------ ------------
Other Liabilities and Deferrals ............................................ 1,239,140 1,200,732
------------ ------------
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: 1999: 1,539,606,033; 1998: 1,533,774,332 ........................ 1,516,933 1,231,079
Earnings employed in the business ......................................... 5,815,966 4,782,349
Accumulated other comprehensive income (loss) ............................. (380,528) (227,701)
Common shares held in treasury, at cost -
Shares: 1999: 17,671,334; 1998: 17,710,838 ............................. (258,055) (46,735)
Unearned compensation - restricted stock awards............................ (24,663) (25,331)
------------ ------------
Total Shareholders' Investment.......................................... 6,669,653 5,713,661
------------ ------------
$ 13,574,225 $ 13,216,213
------------ ------------
------------ ------------
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of this statement.
4
<PAGE>
Abbott Laboratories and Subsidiaries
Notes to Condensed Consolidated Financial Statements
September 30, 1999
(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, 1998.
Note 2 - Supplemental Financial Information
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
--------------------- --------------------
1999 1998 1999 1998
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
Net interest expense:
Interest expense .... $ 35,002 $ 41,027 $ 111,842 $ 119,388
Interest income ..... (15,457) (14,654) (44,030) (41,042)
--------- --------- --------- ----------
Total .................. $ 19,545 $ 26,373 $ 67,812 $ 78,346
--------- --------- --------- ----------
--------- --------- --------- ----------
</TABLE>
Note 3 - 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 4 - Litigation and Environmental Matters
Abbott is involved in various claims and legal proceedings including numerous
antitrust suits and investigations in connection with the pricing of
prescription pharmaceuticals. These suits and investigations allege that
various pharmaceutical manufacturers have conspired to fix prices for
prescription pharmaceuticals and/or to discriminate in pricing to retail
pharmacies by providing discounts to mail-order pharmacies, institutional
pharmacies and HMOs in violation of state and federal antitrust laws. The
suits have been brought on behalf of individuals and retail pharmacies and
name both Abbott and certain other pharmaceutical manufacturers and
pharmaceutical wholesalers and at least one mail-order pharmacy company as
defendants. The cases seek treble damages, civil penalties, injunctive and
other relief. During 1998, settlements were reached in the federal class
action lawsuit, whereby Abbott paid $57 million, and thirteen other separate
actions. Abbott has filed or intends to file a response to each of the
remaining complaints denying all substantive allegations.
In addition, Abbott has been identified as a potentially responsible
party for investigation and cleanup costs at a number of locations in the
United States and Puerto Rico under federal and state remediation laws and is
investigating potential contamination at a number of Abbott-owned locations.
The matters above are discussed more fully in Note 14 to the financial
statements included in Abbott's Annual Report on Form 10-K, which is available
upon request.
Subsequent to the end of the third quarter 1999, five lawsuits
were filed relating to the item discussed in Note 5. The lawsuits allege
failure to comply with the disclosure requirements of the Securities Exchange
Act of 1934, purport to be class actions brought on behalf of certain
purchasers of Abbott stock, and seek unspecified damages and other relief.
While it is not feasible to predict the outcome of such pending claims,
proceedings, investigations and remediation activities with certainty,
management is of the opinion that their ultimate disposition should not have
a material adverse effect on Abbott's financial position, cash flows, or
results of operations. Abbott expects that within the next year, legal
proceedings will occur which may result in a change in the estimated reserves
recorded by Abbott.
5
<PAGE>
Notes to Condensed Consolidated Financial Statements
September 30, 1999
(Unaudited), continued
Note 5 - U.S. Food and Drug Administration Consent Decree
On September 28, 1999, Abbott announced that it had been notified by the
United States Government of alleged noncompliance with the Food and Drug
Administration's Quality System Regulation at Abbott's Diagnostics Division
facilities in Lake County, Ill. On November 2, 1999, Abbott announced that it
has reached agreement with the U.S. Food and Drug Administration to have a
consent decree entered which will settle issues involving Abbott's diagnostic
manufacturing operations in Lake County, Ill. The decree requires Abbott to
ensure its diagnostic manufacturing processes in Lake County, Ill. conform
with the FDA's current Quality System Regulation. The decree allows for the
continued manufacture and distribution of medically necessary diagnostic
products made in Lake County, Ill. However, Abbott is prohibited from
manufacturing or distributing certain diagnostic products until Abbott
ensures the processes in its Lake County, Ill., diagnostics manufacturing
operations conform with the current Quality System Regulation. Under the
terms of the consent decree, among other actions, Abbott has agreed to submit
to the FDA a proposed master compliance and validation plan to ensure its
processes conform with the current Quality System Regulation. The decree
requires Abbott to ensure its facilities are in conformance with the current
Quality System Regulation within one year. The consent decree allows Abbott
to export diagnostic products and components for sale and distribution
outside the United States if they meet the export requirements of the Federal
Food, Drug and Cosmetic Act. The consent decree resulted in a one-time charge
of $168.1 million, which includes charges associated with actions required by
the FDA, and a $100 million payment to the U.S. Government as follows (in
millions):
<TABLE>
<S> <C>
Payment to U.S. Government $100.0
Long-term asset impairments 24.4
Inventory exposures 22.7
Contractual obligations 21.0
------
$168.1
------
------
</TABLE>
Note 6 - Comprehensive Income
(dollars in thousands)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
--------------------------- -----------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Earnings ............................................... $ 466,127 $ 531,722 $ 1,775,356 $ 1,706,880
----------- ----------- ----------- -----------
Other comprehensive income (loss):
Foreign currency translation adjustments ................ (11,060) (30,947) (133,234) (66,701)
Tax (expense) benefit related to foreign
currency translation adjustments .................... 541 (463) 586 (463)
Unrealized gains (losses) on marketable equity securities (6,583) (850) (33,631) (16,245)
Tax (expense) benefit related to unrealized losses
on marketable equity securities ..................... 2,633 340 13,452 6,498
----------- ----------- ----------- -----------
Other comprehensive income (loss), net of tax .............. (14,469) (31,920) (152,827) (76,911)
----------- ----------- ----------- -----------
Comprehensive Income ....................................... $ 451,658 $ 499,802 $ 1,622,529 $ 1,629,969
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
As of September 30, 1999, the cumulative net of tax balances for foreign
currency translation loss adjustments and the unrealized (gains) on marketable
equity securities were $393,359, and ($12,831), respectively.
6
<PAGE>
Notes to Condensed Consolidated Financial Statements
September 30, 1999
(Unaudited), continued
Note 7 - Segment Information
(dollars in millions)
REVENUE SEGMENTS - Abbott's principal business is the discovery, development,
manufacture and sale of a broad line of health care products and services.
Abbott's products are generally sold directly to retailers, wholesalers,
hospitals, health care facilities, laboratories, physicians' offices and
government agencies throughout the world. Segments are identified as those
revenue divisions which report directly to the chief operating officer of
Abbott. Abbott's products are sold through six revenue segments as follows:
PHARMACEUTICAL PRODUCTS - U.S. sales of a broad line of pharmaceuticals.
DIAGNOSTIC PRODUCTS - Worldwide sales of diagnostic systems for blood
banks, hospitals, consumers, commercial laboratories and alternate-care sites.
HOSPITAL PRODUCTS - U.S. sales of 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.
ROSS PRODUCTS - U.S. sales of a broad line of adult and pediatric
nutritional products, pediatric pharmaceuticals and consumer products.
INTERNATIONAL - Non-U.S. sales of all Abbott's pharmaceutical, hospital
and nutritional products. Products sold by International are manufactured by
domestic segments and by international manufacturing locations.
CHEMICAL & AGRICULTURAL PRODUCTS - Worldwide sales of chemicals and
agricultural products for crop protection, forestry and animal health and a
supplier of bulk drugs for the Pharmaceutical Products, Hospital Products,
and International segments.
SEGMENT ACCOUNTING POLICIES - Abbott's underlying accounting records are
maintained on a legal entity basis for government and public reporting
requirements. Segment disclosures are on a performance basis consistent with
internal management reporting. Intersegment transfers of inventory are recorded
at standard cost and are not a measure of segment operating earnings. The cost
of some corporate functions and the cost of certain employee benefits are sold
to segments at predetermined rates which approximate cost. Remaining costs, if
any, are not allocated to revenue segments. The following segment information
has been prepared in accordance with the internal accounting policies of Abbott,
as described above, and may not be presented in accordance with generally
accepted accounting principles.
7
<PAGE>
Notes to Condensed Consolidated Financial Statements
September 30, 1999
(Unaudited), continued
Note 7 - Segment Information, continued
(dollars in millions)
<TABLE>
<CAPTION>
Net Sales to Operating
External Customers Earnings
--------------------------------------- --------------------------------------
Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended
September 30 September 30 September 30 September 30
------------------- ------------------ ------------------ ------------------
1999 1998 1999 1998 1999 1998 1999 1998
------- ------- ------ ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Pharmaceutical ....................... $ 565 $ 616 $ 1,778 $ 1,905 $ 269 $ 322 $ 923 $1,037
Diagnostics .......................... 752 691 2,227 2,018 (40) 114 211 314
Hospital ............................. 511 464 1,572 1,380 108 91 372 292
Ross ................................. 478 461 1,449 1,372 152 145 496 425
International ........................ 749 724 2,362 2,207 147 147 529 490
Chemical & Agricultural .............. 66 79 240 263 13 20 61 83
------- ------- ------- ------- ------- ------- ------- -------
Total Segments ....................... 3,121 3,035 9,628 9,145 649 839 2,592 2,641
Other................................. -- 1 35 2
------- ------- ------- -------
Net Sales ............................ $ 3,121 $ 3,036 $ 9,663 $ 9,147
------- ------- ------- -------
------- ------- ------- -------
Corporate and service functions .................................................. 38 35 102 108
Benefit plans costs .............................................................. 27 33 85 85
Net interest expense ............................................................. 20 26 68 78
Income from TAP Holdings Inc. .................................................... (110) (69) (278) (190)
Net foreign exchange (gain) loss ................................................. 3 6 22 21
Other expense (income), net ...................................................... 24 69 127 168
------- ------- ------- -------
Consolidated Earnings Before Taxes ............................................... $ 647 $ 739 $2,466 $2,371
------- ------- ------- -------
------- ------- ------- -------
</TABLE>
The three months and nine months ended September 30, 1999 operating
earnings for Diagnostics reflect the charge of $168.1 described in Note 5.
Note 8 - Pending Acquisitions
On June 21, 1999, Abbott and ALZA Corporation announced that the companies
entered into a definitive agreement for Abbott to acquire ALZA, a research-based
pharmaceutical company with a growing portfolio of urology and oncology products
and leading drug delivery technologies.
On July 8, 1999, Abbott and Perclose, Inc. announced that the companies
entered into a definitive agreement for Abbott to acquire Perclose, the leading
arterial closure device manufacturer.
Abbott expects to account for each transaction as a pooling of interests.
8
<PAGE>
FINANCIAL REVIEW
RESULTS OF OPERATIONS - THIRD QUARTER AND FIRST NINE MONTHS 1999 COMPARED WITH
SAME PERIODS IN 1998
The following table details sales by segment for the third quarter and first
nine months 1999:
(dollars in millions)
<TABLE>
<CAPTION>
Net Sales to Percentage Net Sales to Percentage
External Customers Change* External Customers Change*
------------------ ---------- ------------------ -----------
Three Months Ended September 30 Nine Months Ended September 30
------------------------------------ --------------------------------------------
1999 1998 1999 1998
------ ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
Pharmaceutical ........ $ 565 $ 616 (8.3) $1,778 $1,905 (6.7)
Diagnostics ........... 752 691 8.7 2,227 2,018 10.3
Hospital .............. 511 464 10.0 1,572 1,380 13.9
Ross .................. 478 461 3.9 1,449 1,372 5.6
International ......... 749 724 3.4 2,362 2,207 7.0
Chemical & Agricultural 66 79 (16.5) 240 263 (9.0)
------ ------ ------ ------
Total Segments ........ 3,121 3,035 2.8 9,628 9,145 5.3
Other ................. -- 1 35 2
------ ------ ------ ------
Net Sales ............. $3,121 $3,036 2.8 $9,663 $9,147 5.6
------ ------ ------ ------
------ ------ ------ ------
Total U.S. ............ $1,917 $1,894 1.2 $5,947 $5,667 4.9
------ ------ ------ ------
------ ------ ------ ------
Total International ... $1,204 $1,142 5.4 $3,716 $3,480 6.8
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
* Percentage changes are based on unrounded numbers.
Worldwide sales for the third quarter and first nine months reflect primarily
unit growth. Excluding the negative effect of the relatively stronger U.S.
dollar, sales increased 3.3 percent and 6.1 percent, respectively, over the
comparable 1998 periods. Pharmaceutical segment sales decreased primarily due
to volume shortfalls for Abbokinase, as the result of production issues more
fully described below, and Hytrin. Diluted earnings per common share
decreased 11.8 percent for the third quarter 1999 and increased 4.5 percent
for the first nine months 1999 over the same periods in 1998. Net earnings
decreased 12.3 percent for the third quarter 1999 and increased 4.0 percent
for the first nine months 1999, respectively, over the comparable 1998
periods. Earnings per share and net earnings were negatively affected 8 cents
and $121 million by the charges described in Note 5 relating to the FDA
consent decree.
Gross profit margin (sales less cost of products sold, including
freight and distribution expenses) was 49.2 percent for the 1999 third
quarter, compared to 54.7 percent for the 1998 third quarter. First nine
months 1999 gross profit margin was 54.0 percent, compared to 56.8 percent a
year earlier. Excluding the charges described in Note 5 relating to the FDA
consent decree, gross margins for the 1999 third quarter and first nine
months 1999 would have been 54.6 percent and 55.7 percent, respectively.
Gross margins, excluding the consent decree charges, for both periods were
affected by unfavorable product mix, primarily lower sales of
pharmaceuticals, partially offset by net payments related to the Hytrin
patent dispute.
Research and development expenses were $276.2 million for the third
quarter 1999 and $858.4 million for the first nine months 1999. Research and
development expenses represented 8.9 percent of net sales for both the third
quarter and first nine months 1999, compared to 9.6 percent in the comparable
1998 periods. 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 1999 increased 2.8 percent and 1.1 percent, respectively, over
the comparable 1998 periods, due primarily to increased selling and marketing
support for new and existing products.
Abbott holds patents on Hytrin in the United States and several major
markets throughout the world. Abbott is facing a number of patent challenges
from generic manufacturers in the United States, and the ultimate outcome of
litigation cannot be predicted with certainty. In August 1999, Geneva
Pharmaceuticals, Inc. began shipments of generic Hytrin in the United States.
Abbott believes that the resulting generic competition will adversely impact
Abbott's Hytrin sales. For the first nine months of 1999, Abbott recorded U.S.
sales of Hytrin of $388 million and U.S. sales of Hytrin in 1998 amounted to
$542 million.
9
<PAGE>
FINANCIAL REVIEW
(continued)
In late 1998, the U.S. Food and Drug Administration (FDA) suspended its
approval of the release of production lots of Abbott's pharmaceutical product
Abbokinase due to current Good Manufacturing Practice concerns raised by the FDA
following inspections of Abbott and its raw material supplier. In January 1999,
after Abbott revised the product's labeling to add additional warnings and the
FDA issued a health care provider information sheet, the FDA released certain
lots that were under its review. Since January, the FDA has established new
criteria for the release of additional lots. In a letter dated July 14, 1999,
the FDA raised additional concerns regarding these criteria and identified
several additional criteria which Abbott must address as part of its corrective
actions. Abbott continues to work with the FDA to resolve the remaining issues.
No additional lots have been released. Abbott cannot predict whether it will be
able to resolve the FDA's concerns or the effect of this matter on future sales
of Abbokinase. During 1998, Abbott sold approximately $277 million of
Abbokinase, primarily in the United States.
On September 28, 1999, Abbott announced that it had been notified by
the United States Government of alleged noncompliance with the Food and Drug
Administration's Quality System Regulation at Abbott's Diagnostics Division
facilities in Lake County, Ill. On November 2, 1999, Abbott announced that it
has reached agreement with the U.S. Food and Drug Administration to have a
consent decree entered which will settle issues involving Abbott's diagnostic
manufacturing operations in Lake County, Ill. The decree requires Abbott to
ensure its diagnostic manufacturing processes in Lake County, Ill. conform
with the FDA's current Quality System Regulation. The decree allows for the
continued manufacture and distribution of medically necessary diagnostic
products made in Lake County, Ill. However, Abbott is prohibited from
manufacturing or distributing certain diagnostic products until Abbott
ensures the processes in its Lake County, Ill., diagnostics manufacturing
operations conform with the current Quality System Regulation. Under the
terms of the consent decree, among other actions, Abbott has agreed to submit
to the FDA a proposed master compliance and validation plan to ensure its
processes conform with the current Quality System Regulation. The decree
requires Abbott to ensure its facilities are in conformance with the current
Quality System Regulation wihtin one year. The consent decree allows Abbott
to export diagnostic products and components for sale and distribution
outside the United States if they meet the export requirements of the Federal
Food, Drug and Cosmetic Act. The consent decree resulted in a one-time charge
of $168.1 million, which includes charges associated with actions required by
the FDA, and a $100 million payment to the U.S. Government as follows (in
millions):
<TABLE>
<S> <C>
Payment to U.S. Government $100.0
Long-term asset impairments 24.4
Inventory exposures 22.7
Contractual obligations 21.0
------
$168.1
------
------
</TABLE>
Abbott believes fourth quarter 1999 earnings may be negatively impacted by as
much as two cents per share. For the full-year 2000, sales may be negatively
impacted up to $250 million and earnings per share may be negatively impacted
up to 10 cents per share.
LIQUIDITY AND CAPITAL RESOURCES AT SEPTEMBER 30, 1999 COMPARED WITH DECEMBER 31,
1998
Net cash from operating activities for the first nine months 1999 totaled $2.533
billion. Abbott expects annual cash flow from operating activities to continue
to approximate or exceed Abbott's capital expenditures and cash dividends.
Abbott 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, 1999. These lines of credit support domestic
commercial paper borrowing arrangements.
Abbott may issue up to $1.350 billion of senior debt securities in the
future under a registration statement filed with the Securities and Exchange
Commission on July 23, 1999. Of the $1.350 billion total, Abbott may issue up to
$600 million either in the form of debt securities or additional common shares
without par value. The remaining $750 million may only be issued in the form of
debt securities.
In December 1998, Abbott suspended purchases of its common shares and in
June 1999, the Board of Directors revoked its resolutions authorizing future
purchases of common shares. Abbott's short-term borrowings have decreased by
approximately $886 million since December 31, 1998, due, in part, to the
cessation of the common stock purchases.
10
<PAGE>
FINANCIAL REVIEW
(continued)
LEGISLATIVE ISSUES
Abbott's primary markets are highly competitive and subject to substantial
government regulation. Abbott 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. Abbott 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 Abbott or the health care industry in
general might be adversely affected by these factors in the future. A more
complete discussion of these factors is contained in Item 1, Business, in the
Annual Report on Form 10-K, which is available upon request.
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.
Abbott 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 Abbott. Progress goals have been established in each area.
Internal information systems were inventoried and assessed, and
remediation started in 1992. All remediation and testing has been completed.
Landlord and embedded systems were inventoried and Y2K assessment
completed by May 1998. All critical systems were resolved by July 1999.
Abbott has assessed the ability of its medical electronic and software
products to cope with the Y2K issue. Customers may access Abbott's assessment on
Abbott's Web site. For i-STAT products and the recently acquired Murex product
line, a referral source for customers to contact the manufacturer is provided on
the Web site. Most of Abbott's products are not affected by the Y2K issue. For
those products requiring remediation, all have solutions available and Abbott is
working with customers to complete remediation that remains 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.
Ninety-eight percent of suppliers responded; Seventy-three percent of those
responding certified compliance currently and twenty-seven percent have stated
they have action plans for compliance in place. Follow-up with all key suppliers
is being conducted according to plan.
Each of the above areas began developing business continuity plans during
1998. All business continuity plans were completed by September 30, 1999.
Abbott has been working with customers to ensure that the supply chain is
capable of handling Y2K-related demand fluctuations. The amount of sales which
might occur in 1999 due to Y2K that would otherwise occur in 2000 is currently
estimated to be immaterial.
The most likely worst-case Y2K scenarios are subject to a wide range of
speculation. However, the business continuity plans assume Y2K failures are
primarily third party, are intermittent, are of relatively short duration, or
are localized at one site or region, primarily outside the United States.
Abbott's policy is to expense Y2K remediation costs as incurred. Y2K
remediation costs from inception through the end of 1999 are expected to
approximate $100 million, of which approximately one-third is expected to be
spent in 1999.
11
<PAGE>
FINANCIAL REVIEW
(continued)
EURO CONVERSION
On January 1, 1999, the European Economic and Monetary Union took effect and
introduced the euro as the official single currency of the eleven
participating member countries. On that date the currency exchange rates of
the participating countries were fixed against the euro. There is a
three-year transition to the euro, and at the end of 2001, the legacy
currencies will be eliminated. In 1997, Abbott organized an internal
cross-functional task force to address the euro issues and expects to be
ready for the full conversion to the euro. Costs required to prepare for the
euro are not material to Abbott's financial position, results of operations
or cash flows. The impact, if any, of the euro on Abbott's competitive
position is unknown.
PENDING ACQUISITIONS
On June 21, 1999, Abbott and ALZA Corporation announced that the companies
entered into a definitive agreement for Abbott to acquire ALZA, a research-based
pharmaceutical company with a growing portfolio of urology and oncology products
and leading drug delivery technologies.
On July 8, 1999, Abbott and Perclose, Inc. announced that the companies
entered into a definitive agreement for Abbott to acquire Perclose, the leading
arterial closure device manufacturer.
Abbott expects to account for each transaction as a pooling of interests.
Abbott remains committed to the ALZA and Perclose acquisitions. Both
companies have been advised of Abbott's recent consent decree with the U.S.
Government regarding Abbott's diagnostic manufacturing operations in Lake
County, Ill. Abbott understands that ALZA is analyzing the information and
its implications. Abbott and ALZA have informed the plaintiffs, in the
lawsuits brought by ALZA stockholders described in Part II, Item I below,
that Abbott and ALZA will not close the proposed merger before December 30,
1999, absent a new vote of the ALZA stockholders. Perclose has advised Abbott
that it intends to distribute to its stockholders a supplement to the proxy
statement/prospectus dated August 26, 1999, relating to the proposed merger
with Abbott and that its stockholders meeting to vote upon the merger is
scheduled for November 19, 1999.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995--A CAUTION CONCERNING
FORWARD-LOOKING STATEMENTS
Any statements made in this Form 10-Q that deal with information that
is not historical, such as statements concerning Abbott's anticipated
financial results, are forward-looking statements. As such, they are subject
to the occurrence of many events outside Abbott's control and to various risk
factors that could cause results to differ materially from those expressed in
such forward-looking statements. The risk factors include those described in
Abbott's reports filed with the Securities and Exchange Commission including
Form 10-K and include, without limitation, the risk factors associated with
complying with the consent decree described above and returning products to
market successfully.
12
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
As reported in Abbott's 10-K for the fiscal year ended December
31, 1998, Abbott is involved in numerous antitrust suits and two
investigations regarding Abbott's pricing of pharmaceutical products. As of
October 29, 1999, 116 antitrust suits are pending in federal court and 15 are
pending in state courts. The prescription pharmaceutical pricing antitrust
suits allege that various pharmaceutical manufacturers and pharmaceutical
wholesalers have conspired to fix prices for prescription pharmaceuticals
and/or to discriminate in pricing to retail pharmacies by providing discounts
to mail-order pharmacies, institutional pharmacies, and HMOs in violation of
state and federal antitrust laws. The suits have been brought on behalf of
individual consumers and retail pharmacies and name both Abbott and certain
other pharmaceutical manufacturers and pharmaceutical wholesalers and at
least one mail-order pharmacy company as defendants. The cases seek treble
damages, civil penalties and injunctive and other relief. Abbott has filed or
intends to file a response to each of the complaints denying all substantive
allegations. The federal cases are pending in the United States District
Court for the Northern District of Illinois under the Multidistrict
Litigation Rules as In re: Brand Name Prescription Drug Antitrust Litigation,
MDL 997. The state cases are pending in the following state courts:
Tuscaloosa County and Clarke County, Alabama; Monterey County, California;
San Francisco County, California (five cases); San Joaquin County,
California; Prentiss County, Mississippi; San Miguel County, New Mexico;
Burleigh County, North Dakota; Hughes County, South Dakota; Cocke County,
Tennessee; and Marshall County, West Virginia. As previously reported, a
settlement agreement for the four consumer cases pending in Alameda County,
California and San Francisco County, California was approved by the court on
April 21, 1999. The amount to be paid in settlement is $6.2 million. An
appeal was filed challenging this settlement agreement. The appeal has been
withdrawn.
As previously reported, five cases involving Abbott's patents
for terazosin hydrochloride, a drug that Abbott sells under the trademark
Hytrin -Registered Trademark-, has been filed in the United States District
Court for the Northern District of Illinois. The other parties to these cases
were Geneva Pharmaceuticals, Inc. ("Geneva"), Novopharm Limited ("Novopharm"),
Invamed, Inc. ("Invamed"), Mylan Pharmaceuticals, Inc. ("Mylan"), and Warner
Chilcott, Inc.("Warner Chilcott"). Abbott sued each of these five other
corporations alleging patent infringement after learning that they had
applied to the Federal Food and Drug Administration for approval for a
generic version of terazosin hydrochloride. Each of these corporations
contends that Abbott's patent which covers their version of terazosin
hydrochloride is invalid and unenforceable. The Geneva, Invamed, and
Novopharm cases were all pending before the same judge, who, on September 1,
1998, entered a judgment in each of those cases ruling that the Abbott patent
at issue in those cases is invalid. Abbott appealed this ruling and on July
1, 1999, the appellate court affirmed the lower court's decision. Abbott
filed a petition for rehearing which was denied on August 5, 1999. Abbott has
filed a petition for a writ of certiorari in the United States Supreme Court.
On October 4, 1999, Mylan's motion in the appellate court for Summary
Affirmance, based on the September 1, 1998 ruling in the Geneva case, was
granted.
<PAGE>
In April 1996, Zenith Laboratories, Inc. ("Zenith") sued Abbott
in the United States District Court for the District of New Jersey alleging
that Abbott had engaged in unfair competition, abuse of process, tortious
interference with prospective economic advantage, and fraud in attempting to
protect Hytrin from generic competition. Zenith sought money damages and a
declaration that certain of Abbott's patents covering terazosin hydrochloride
are invalid. Abbott filed counterclaims alleging patent infringement. On
March 31, 1998, Abbott and Zenith reached an agreement that resolved the
litigation between the parties. In the settlement, Zenith acknowledged the
validity of Abbott's terazosin hydrochloride patents and agreed to refrain
from selling a generic version of terazosin hydrochloride until the
expiration of one of Abbott's patents for terazosin hydrochloride (U.S.
Patent No. 4,251,532). On April 1, 1998, Abbott and Geneva reached an
agreement under which Geneva would not market its Food and Drug
Administration approved generic terazosin hydrochloride products until
resolution of the pending litigation between the parties. Abbott agreed to
make quarterly payments to Zenith and monthly payments to Geneva until the
date on which they could enter the market for terazosin hydrochloride under
their agreements. Under the agreements, both Zenith and Geneva would have
been free to enter the market for terazosin hydrochloride in the United
States if certain of Abbott's patents for terazosin hydrochloride were
determined to be invalid and if another company legally entered the generic
market in the United States. On August 12, 1999, Abbott and Geneva terminated
their April 1, 1998 agreement, and Geneva returned to Abbott a portion of the
payments held in escrow under the agreement. On August 13, 1999, Geneva
entered the market with its product.
In addition to the lawsuits Abbott has previously reported,
five new lawsuits have been brought concerning Abbott's agreements regarding
terazosin hydrochloride. On August 19, 1999, Drug Mart Pharmacy Corp. sued
Abbott, Geneva, and Zenith in the Supreme Court of New York, Kings County,
alleging that Abbott's agreements with Geneva and Zenith regarding terazosin
hydrochloride violate New York's antitrust laws. The case purports to be a
class action brought on behalf of indirect purchasers of terazosin
hydrochloride and seeks actual damages, treble damages, and other relief. On
August 30, 1999, Valley Drug Co. sued Abbott and Geneva in the United States
District Court for the Southern District of Florida, alleging Abbott's
agreement with Geneva regarding terazosin hydrochloride violates the federal
antitrust laws. It purports to be a class action and seeks actual damages,
treble damages, and other relief. On October 5, 1999, United Wisconsin
Services, Inc., Blue Cross & Blue Shield of Wisconsin, Inc., Compare Health
Insurance Corp., Unity Health Plans Insurance Corp., and Valley Health Plan
Inc. sued Abbott in the Circuit Court of Cook County, Illinois. The
plaintiffs allege Abbott violated the Illinois Fraud and Deceptive Trade
Practices Act by filing lawsuits based on allegedly "irrelevant" or "invalid"
terazosin hydrochloride patents and by entering into agreements with Geneva
and Zenith that had an adverse effect on competition. The case purports to be
a class action and seeks actual damages, punitive damages, interest, and
other relief. On October 19, 1999, Char-Mar Pharmacy, Inc. sued Abbott, Geneva,
and Zenith in the United States District Court for the Eastern District of
New York alleging that Abbott's agreements with Geneva and Zenith regarding
terazosin hydrochloride violate federal antitrust laws. The case purports to be
a class action and seeks actual damages, treble damages, and other relief.
Finally, on October 29, 1999, Ewald and Lavera Grosskrueger sued Abbott in
the Circuit Court of Cook County, Illinois. The plaintiffs allege Abbott
violated the Illinois Fraud and Deceptive Trade Practices Act by filing
lawsuits based on allegedly "irrelevant" or "invalid" terazosin hydrochloride
patents and by entering into agreements with Geneva and Zenith that had an
adverse effect on competition. The case purports to be a class action and
seeks actual damages, punitive damages, interest, and other relief. Abbott has
filed or intends to file a response to each complaint denying all substantive
allegations.
On September 28, 1999, Abbott announced that it had been
notified by the United States government of alleged noncompliance with the
Food and Drug Administration's Quality System Regulation at Abbott's
Diagnostics Division facilities in Lake County, Illinois. On
November 2, 1999, a consent decree was entered in the United States District
Court for the Northern District of Illinois which settles the issues
involving Abbott's diagnostic manufacturing operations in Lake County,
Illinois. The decree requires Abbott to make a payment of $100 million to
the United States government and to ensure its diagnostic manufacturing
processes in Lake County, Illinois conform with the Food and Drug
Administration's current Quality System Regulation. The consent decree does
not represent an admission by Abbott of any violation of the Federal Food,
Drug and Cosmetic Act or its regulations. The decree allows for the continued
manufacture and distribution of medically necessary diagnostic products made
in Lake County, Illinois, such as assays for hepatitis, retrovirus,
cardiovascular disease, cancer, thyroid disorders, fertility, drug
monitoring, and congenital and respiratory conditions. However, Abbott is
prohibited from manufacturing or distributing certain diagnostic products
until Abbott ensures the processes in its Lake County, Illinois diagnostics
manufacturing operations conform with the current Quality System Regulation.
Under the terms of the consent decree, among other actions, Abbott has agreed
to submit to the Food and Drug Administration a proposed master compliance
and validation plan to ensure its processes conform with the current Quality
System Regulation. The decree requires Abbott to ensure its facilities are
in conformance with the current Quality System Regulation within one year.
The consent decree does not affect Abbott's MediSense, i-STAT, hematology or
Murex products; the clinical chemistry products Abbott Spectrum -Registered
Trademark-, Aeroset -Registered Trademark-, and Alcyon -Registered
Trademark-; or any other Abbott divisions or products. The consent decree
allows Abbott to export diagnostic products and components for sale and
distribution outside the United States if they meet the export requirements
of the Federal Food, Drug and Cosmetic Act. Abbott believes that fourth quarter
1999 earnings may be negatively impacted by as much as two cents per share.
For the full-year 2000, sales may be negatively impacted up to $250 million
and earnings may be negatively impacted up to 10 cents per share.
As of November 3, 1999, Abbott had knowledge of nine lawsuits
naming Abbott as a defendant and claiming violations of the securities laws
in connection with alleged regulatory noncompliance described above. All of
these lawsuits were filed in the United States District Court for the
Northern District of Illinois. On October 20, 1999, Tom Anderson sued Abbott
and Miles White, its chief executive officer. Abbott and White were also
sued by Adele Brody on October 26, 1999; Solomon Glazer also on October 26,
1999; Deborah Isaac on October 29, 1999; and, on November 3, 1999, Feivel
Alter. Each of these cases (i) alleges that the defendants violated Sections
10(b) and 20(a) of the Securities Exchange Act of 1934 by misrepresenting or
omitting material information about the alleged regulatory noncompliance,
(ii) purports to be a class action brought on behalf of purchasers of Abbott
stock between March 17, 1999, and September 29, 1999, and (iii) seeks
unspecified monetary damages and other relief. Abbott denies all of the
substantive allegations of these lawsuits and will vigorously defend against
them. The four other lawsuits all purport to be class action lawsuits filed
on behalf of a class of holders of ALZA Corporation ("ALZA") stock as of
August 16, 1999. On October 7, 1999, Gayle Stahl sued Abbott, Miles White,
ALZA, and ALZA's Chief Executive Officer, Ernest Mario. On October 13, 1999,
Galina Mikhailova sued Abbott, Miles White, ALZA, Ernest Mario, Gary Coughlan
(who is Abbott's Chief Financial Officer), Gary Flynn (who is Abbott's
Controller), and Abbott's board of directors. Abbott, Miles White, ALZA, and
Ernest Mario also were sued by Ted Dellas on October 15, 1999, and Sylvia
Piven on October 25, 1999. Each of these cases alleges the defendants
violated Sections 14(a) and 20(a) of the Securities Exchange Act of 1934 by
soliciting the approval of ALZA's shareholders for a merger of ALZA with
Abbott by means of a proxy statement/prospectus, which the plaintiffs allege
contained materially false and misleading statements or omissions concerning
the alleged regulatory non-compliance described in the preceding paragraph.
Each of these four cases requests, in addition to unspecified damages and
other relief, a preliminary and permanent injunction stopping the pending
merger of ALZA with Abbott and requiring that the ALZA shareholders be given
another opportunity to vote on the merger. Abbott intends to oppose these
requests for an injunction, and denies all of the substantive allegations of
these suits. Abbott will vigorously defend these suits.
<PAGE>
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 Abbott's financial position, cash flows, or results of operations.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On July 8, 1999, Abbott Laboratories exchanged 4,985,475 shares of
its common stock for the 5,099,720 shares of Abbott Laboratories common stock
owned by MSI, Inc., a Utah corporation. No underwriters were involved and no
commission or other remuneration was paid or given directly or indirectly for
soliciting the exchange. The exchange was exempt from registration under Section
3(a)(9) of the Securities Act of 1933.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
3.1 By-Laws of Abbott Laboratories, as amended and
effective October 8, 1999 - attached hereto.
12. Statement re: computation of ratio of earnings to
fixed charges - attached hereto.
27. Financial Data Schedule - attached hereto.
<PAGE>
b) Reports on Form 8-K
One report on Form 8-K was filed during the quarter ended
September 30, 1999. In a Form 8-K dated September 29, 1999,
Abbott reported that on September 28, 1999, it announced
that it has been notified by the government of alleged
noncompliance with the Food and Drug Administration's
Quality System Regulation at Abbott's Diagnostics Division
facilities in Lake County, Illinois. In addition, in a Form
8-K dated November 4, 1999, Abbott reported that a consent
decree was entered in the United States District Court for
the Northern District of Illinois which settles the issues
involving Abbott's diagnostics manufacturing operations
in Lake County, Illinois.
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/ Gary L. Flynn
-------------------------------------------
Date: November 5, 1999 Gary L. Flynn, Vice President
and Controller (Principal Accounting Officer)
<PAGE>
BY-LAWS
OF
ABBOTT LABORATORIES
Adopted by the Board of Directors
of Abbott Laboratories at the
Annual Meeting, April 11, 1963
as amended and restated, effective October 8, 1999
<PAGE>
BY-LAWS OF ABBOTT LABORATORIES
ARTICLE I
OFFICES
The principal office of the Corporation in the State of Illinois shall be
located at the intersection of State Routes 43 and 137 in the County of Lake.
The Corporation may have such other offices either within or without the State
of Illinois as the business of the Corporation may require from time to time.
The registered office of the Corporation may be, but need not be, identical
with the principal office in the State of Illinois. The address of the
registered office may be changed from time to time by the Board of Directors.
ARTICLE II
SHAREHOLDERS
SECTION 1. ANNUAL MEETING; TRANSACTION OF BUSINESS, NOMINATION OF
DIRECTORS. The annual meeting of the shareholders shall be held in the month of
April in each year on such date and at such time as the Board of Directors shall
provide. The meeting shall be held for the purpose of electing Directors and
for the transaction of such other business as is properly brought before the
meeting in accordance with these By-Laws. If the election of Directors shall
not be held on the day designated for any annual meeting, or at any adjournment
thereof, the Board of Directors shall cause the election to be held at a meeting
of the shareholders as soon thereafter as conveniently may be.
To be properly brought before the meeting, business must be either (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors, (b) otherwise properly brought before
the meeting by or at the direction of the Board of Directors or (c) otherwise
properly brought before the meeting by a shareholder. In addition to any other
applicable requirements, for business to be properly brought before an annual
meeting by a shareholder, the shareholder must have given timely notice thereof
in writing to the Secretary. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal office of the Corporation,
not earlier than October 1 nor later than the first business day of January
immediately prior to the date of the meeting; PROVIDED, HOWEVER, that in the
event that the date of such meeting is not in the month of April and less than
sixty-five days' notice or prior public disclosure of the date of the meeting is
given or made to shareholders, notice by the shareholder to be timely must be so
received not later than the close of business on the fifteenth day following the
day on which such notice of the date of the annual meeting was mailed or such
public disclosure was made, whichever first occurs. A shareholder's notice to
the Secretary shall set forth as to each matter the shareholder proposes to
bring before the annual meeting (i) a brief
<PAGE>
BY-LAWS Page 2
description of the business desired to be brought before the annual meeting
and the reasons for conducting such business at the annual meeting, (ii) the
name and record address of the shareholder proposing such business, (iii) the
class and number of shares of the Corporation which are beneficially owned by
the shareholder and (iv) any material interest of the shareholder in such
business.
Notwithstanding anything in these By-Laws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 1, PROVIDED, HOWEVER, that nothing in this
Section 1 shall be deemed to preclude discussion by any shareholder of any
business properly brought before the annual meeting.
The Chairman of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section 1, and if he should so
determine, he shall so declare to the meeting and such business not properly
brought before the meeting shall not be transacted.
Only persons who are nominated in accordance with the following
procedures shall be eligible for election as directors. Nominations of
persons for election to the Board of Directors of the Corporation at the
annual meeting may be made at such annual meeting of shareholders by or at
the direction of the Board of Directors, by any nominating committee or
person appointed by the Board of Directors, or by any shareholder of the
Corporation entitled to vote for the election of directors at such meeting
who complies with the notice procedures set forth in this Section 1. Such
nominations, other than those made by or at the direction of the Board of
Directors or by a committee or person appointed by the Board of Directors,
shall be made pursuant to timely notice in writing to the Secretary. To be
timely, a shareholder's notice shall be delivered to or mailed and received
at the principal office of the Corporation not earlier than October 1 nor
later than the first business day of January immediately prior to the date of
the meeting; PROVIDED, HOWEVER, that in the event that the date of such
meeting is not in the month of April and less than sixty-five days' notice or
prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder to be timely must be so received not
later than the close of business on the fifteenth day following the day on
which such notice of the date of the meeting was mailed or such public
disclosure was made, whichever first occurs. Such shareholder's notice to
the Secretary shall set forth: (a) as to each person whom the shareholder
proposes to nominate for election or re-election as a director, (i) the name,
age, business address and residence address of the person, (ii) the principal
occupation or employment of the person, (iii) the class and number of shares
of capital stock of the Corporation which are beneficially owned by the
person and (iv) any other information relating to the person that is required
to be disclosed in solicitations for proxies for election of directors
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended; and (b) as to the shareholder giving the notice, (i) the name and
record address of such shareholder and (ii) the class and number of shares of
the Corporation which are beneficially owned by such shareholder. The
Corporation may require any proposed nominee to furnish such other
information as may reasonably be required by the Corporation to determine the
eligibility of such proposed nominee to serve as
<PAGE>
BY-LAWS Page 3
director of the Corporation. No person shall be eligible for election as a
director of the Corporation unless nominated in accordance with the
procedures set forth herein.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders may be
called by the Chairman of the Board, the Chief Executive Officer, the President,
the Board of Directors or by the holders of not less than one-fifth of all the
outstanding shares entitled to vote on the matter for which the meeting is
called.
SECTION 3. PLACE OF MEETING. The Board of Directors may designate any
place, either within or without the State of Illinois, as the place of meeting
for any annual meeting or for any special meeting called by the Board of
Directors. If no designation is made, or if a special meeting be otherwise
called, the place of meeting shall be the principal office of the Corporation in
the State of Illinois.
SECTION 4. NOTICE OF MEETINGS. Written notice stating the place, day and
hour of the meeting and, in the case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
nor more than sixty days before the date of the meeting, or in the cases of a
merger, consolidation, share exchange, dissolution or sale, lease or exchange of
assets not less than twenty nor more than sixty days before the meeting, either
personally or by mail, by or at the direction of the Chairman of the Board, the
Chief Executive Officer, the President, or the Secretary or the persons calling
the meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the United
States mail, addressed to the shareholder at his or her address as it appears on
the records of the Corporation, with postage thereon prepaid.
SECTION 5. FIXING RECORD DATE. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders, or
shareholders entitled to receive payment of any dividend, or in order to make a
determination of shareholders for any other proper purpose, the Board of
Directors of the Corporation may fix in advance a date as the record date for
any such determination of shareholders, such date in any case to be not more
than sixty days and, for a meeting of shareholders, not less than ten days, or
in the case of a merger, consolidation, share exchange, dissolution or sale,
lease or exchange of assets not less than twenty days, immediately preceding
such meeting.
SECTION 6. VOTING LISTS. The Secretary shall make, or cause to have
made, within twenty days after the record date for a meeting of shareholders
or ten days before such meeting, whichever is earlier, a complete list of the
shareholders entitled to vote at such meeting, arranged in alphabetical
order, with the address of and the number of shares held by each, which list,
for a period of ten days prior to such meeting, shall be kept on file at the
registered office of the
<PAGE>
BY-LAWS Page 4
Corporation and shall be subject to inspection by any shareholder and to
copying at the shareholder's expense, at any time during usual business
hours. Such list shall also be produced and kept open at the time and place
of the meeting and shall be subject to the inspection of any shareholder
during the whole time of the meeting. The original share ledger or transfer
book, or a duplicate thereof kept in this State, shall be prima facie
evidence as to who are the shareholders entitled to examine such list or
share ledger or transfer book or to vote at any meeting of shareholders.
SECTION 7. QUORUM. A majority of the outstanding shares of the
Corporation entitled to vote on a matter, represented in person or by proxy,
shall constitute a quorum for consideration of such matter at a meeting of
shareholders. If a quorum is present, the affirmative vote of the majority of
the shares represented at the meeting and entitled to vote on a matter shall be
the act of the shareholders, unless the vote of a greater number or voting by
classes is required by The Business Corporation Act of 1983 or the Articles of
Incorporation, as in effect on the date of such determination. If a quorum is
not present, a majority of the shares of the Corporation entitled to vote on a
matter and represented in person or by proxy at such meeting may adjourn the
meeting from time to time without further notice.
SECTION 8. PROXIES. A shareholder may appoint a proxy to vote or
otherwise act for the shareholder by delivering a valid appointment to the
person so appointed or such person's agent; PROVIDED, HOWEVER, no shareholder
may name more than three persons as proxies to attend and to vote the
shareholder's shares at any meeting of shareholders. Without limiting the
manner in which a shareholder may appoint such a proxy pursuant to these
By-Laws, the following shall constitute valid means by which a shareholder may
make such an appointment:
(a) A shareholder may sign a proxy appointment form. The shareholder's
signature may be affixed by any reasonable means, including, but not
limited to, by facsimile signature.
(b) A shareholder may transmit or authorize the transmission of a
telegram, cablegram, or other means of electronic transmission;
provided that any such transmission must either set forth or be
submitted with information from which it can be determined that the
telegram, cablegram, or other electronic transmission was authorized
by the shareholder. If it is determined that the telegram, cablegram,
or other electronic transmission is valid, the inspectors or, if there
are no inspectors, such other persons making that determination shall
specify the information upon which they relied.
No proxy shall be valid after the expiration of eleven months from the date
thereof unless otherwise provided in the proxy. Each proxy continues in full
force and effect until revoked by the person appointing the proxy prior to
the vote pursuant thereto, except as otherwise provided by law. Such
revocation may be effected by a writing delivered to the secretary of the
Corporation stating that the proxy is revoked or by a subsequent delivery of
a valid proxy by, or
<PAGE>
BY-LAWS Page 5
by the attendance at the meeting and voting in person by the person
appointing the proxy. The dates of the proxy shall presumptively determine
the order of appointment.
SECTION 9. VOTING OF SHARES. Each outstanding share, regardless of
class, shall be entitled to one vote in each matter submitted to a vote at a
meeting of shareholders and, in all elections for Directors, every
shareholder shall have the right to vote the number of shares owned by such
shareholder for as many persons as there are Directors to be elected, or to
cumulate such votes and give one candidate as many votes as shall equal the
number of Directors multiplied by the number of such shares or to distribute
such cumulative votes in any proportion among any number of candidates;
provided that, vacancies on the Board of Directors may be filled as provided
in Section 9, Article III of these By-Laws. A shareholder may vote either in
person or by proxy.
SECTION 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares of this
Corporation held by the Corporation in a fiduciary capacity may be voted and
shall be counted in determining the total number of outstanding shares
entitled to vote at any given time.
Shares registered in the name of another corporation, domestic or
foreign, may be voted by any officer, agent, proxy or other legal
representative authorized to vote such shares under the law of incorporation
of such corporation.
Shares registered in the name of a deceased person, a minor ward or a
person under legal disability may be voted by his or her administrator,
executor, or court appointed guardian, either in person or by proxy without a
transfer of such shares into the name of such administrator, executor, or court
appointed guardian. Shares registered in the name of a trustee may be voted by
him or her, either in person or by proxy.
Shares registered in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be voted
by such receiver without the transfer thereof into his or her name if
authority so to do is contained in an appropriate order of the court by which
such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee,
and thereafter the pledgee shall be entitled to vote the shares so
transferred.
SECTION 11. VOTING BY BALLOT. Voting on any question or in any
election may be viva voce unless the presiding officer shall order that
voting be by ballot.
SECTION 12. INSPECTORS OF ELECTION. The Board of Directors in advance
of any meeting of shareholders may appoint inspectors to act at such meeting
or any adjournment thereof. If inspectors of election are not so appointed,
the officer or person acting as chairman at any such meeting may, and on the
request of any shareholder or his proxy, shall make such appointment. In
case any person appointed as inspector shall fail to appear or to act, the
vacancy may
<PAGE>
BY-LAWS Page 6
be filled by appointment made by the Board of Directors in advance of the
meeting or at the meeting by the officer or person acting as chairman.
Such inspectors shall ascertain and report the number of shares represented
at the meeting, based upon their determination of the validity and effect of
proxies; count all votes and report the results; and do such other acts as are
proper to conduct the election and voting with impartiality and fairness to all
the shareholders.
Each report of an inspector shall be in writing and signed by him or her or
by a majority of them if there be more than one inspector acting at such
meeting. If there is more than one inspector, the report of a majority shall be
the report of the inspectors. The report of the inspector or inspectors on the
number of shares represented at the meeting and the results of the voting shall
be prima facie evidence thereof.
ARTICLE III
DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed under the direction of the Board of Directors.
SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of Directors of
the Corporation shall be thirteen. The terms of all Directors shall expire at
the next annual meeting of shareholders following their election. Despite the
expiration of a Director's term, he or she shall continue to serve until the
next meeting of shareholders at which Directors are elected. Directors need not
be residents of Illinois or shareholders of the Corporation.
SECTION 3. REGULAR MEETINGS. A regular annual meeting of the Board of
Directors shall be held without other notice than this By-Law, immediately
after, and at the same place as, the annual meeting of shareholders. Other
regular meetings of the Board of Directors shall be held at the principal office
of the Corporation on the second Friday of every month at 9:00 a.m. without
other notice than this By-Law. The Board of Directors may provide, by
resolution, for the holding of the regular monthly meetings at a different time
and place, either within or without the State of Illinois, or for the omission
of the regular monthly meeting altogether. Where the Board of Directors has, by
resolution, changed or omitted regular meetings, no other notice than such
resolution shall be given.
SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of Directors
may be called by or at the request of the Chairman of the Board, the Chairman of
the Executive Committee, the Chief Executive Officer, the President, or of any
four Directors. The persons authorized to call special meetings of the Board of
Directors may fix any place, either within or without the State of Illinois, as
the place for holding any special meeting of the Board of Directors.
<PAGE>
BY-LAWS Page 7
SECTION 5. NOTICE. Notice of any special meeting shall be given: (i) at
least one day prior thereto if the notice is given personally or by an
electronic transmission, (ii) at least two business days prior thereto if the
notice is given by having it delivered by a third party entity that provides
delivery services in the ordinary course of business and guarantees delivery of
the notice to the Director no later than the following business day, and
(iii) at least seven days prior thereto if the notice is given by mail. For
this purpose, the term "electronic transmission" may include, but shall not be
limited to, a telex, facsimile, or other electronic means. Notice shall be
delivered to the Director's business address and/or telephone number and shall
be deemed given upon electronic transmission, upon delivery to the third party
delivery service, or upon being deposited in the United States mail with postage
thereon prepaid. Any Director may waive notice of any meeting by signing a
written waiver of notice either before or after the meeting. Attendance of a
Director at any meeting shall constitute a waiver of notice of such meeting,
except where a Director attends a meeting for the express purpose of objecting
to the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the Board of Directors need to be specified in the
notice or waiver of notice of such meeting.
SECTION 6. QUORUM. A majority of the number of Directors fixed by these
By-Laws shall constitute a quorum for transaction of business at any meeting of
the Board of Directors; provided, that if less than a majority of such number of
Directors are present at said meeting, a majority of the Directors present may
adjourn the meeting from time to time without further notice.
SECTION 7. MANNER OF VOTING. The act of the majority of the Directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors.
SECTION 8. INFORMAL ACTION BY DIRECTORS. Any action required to be taken
at a meeting of the Board of Directors, or any other action which may be taken
at a meeting of the Board of Directors or a committee thereof, may be taken
without a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the Directors entitled to vote with respect to the
subject matter thereof, or by all the members of such committee, as the case may
be.
The consent shall be evidenced by one or more written approvals, each of
which sets forth the action taken and bears the signature of one or more
Directors. All the approvals evidencing the consent shall be delivered to the
Secretary of the Corporation to be filed in the corporate records. The action
taken shall be effective when all the Directors have approved the consent unless
the consent specifies a different effective date.
Any such consent signed by all the Directors or all the members of a
committee shall have the same effect as a unanimous vote.
SECTION 9. VACANCIES. Any vacancy occurring in the Board of Directors
and any directorship to be filled by
<PAGE>
BY-LAWS Page 8
reason of an increase in the number of Directors, may be filled by election
at an annual meeting or at a special meeting of shareholders called for that
purpose. A Director elected to fill a vacancy shall serve until the next
annual meeting of shareholders. A majority of Directors then in office may
also fill one or more vacancies arising between meetings of shareholders by
reason of an increase in the number of Directors or otherwise, and any
Director so selected shall serve until the next annual meeting of
shareholders, provided that at no time may the number of Directors selected
to fill vacancies in this manner during any interim period between meetings
of shareholders exceed 33-1/3 per cent of the total membership of the Board
of Directors.
SECTION 10. PRESUMPTION OF ASSENT. A Director of the Corporation who is
present at a meeting of the Board of Directors or any committee thereof at which
action on any corporate matter is taken is conclusively presumed to have
assented to the action taken unless his or her dissent is entered in the minutes
of the meeting or unless he or she files his or her written dissent to such
action with the person acting as the secretary of the meeting before the
adjournment thereof or forwards such dissent by registered or certified mail to
the Secretary of the Corporation immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a Director who voted in favor
of such action.
SECTION 11. APPOINTMENT OF AUDITORS. Upon the recommendation of the Audit
Committee, the Board of Directors shall appoint annually a firm of independent
public accountants as auditors of the Corporation. Such appointment shall be
submitted to the shareholders for ratification at the Annual Meeting next
following such appointment. Should the holders of a majority of the shares
represented at the meeting fail to ratify the appointment of any firm as
auditors of the Corporation, or should the Board of Directors for any reason
determine that such appointment be terminated, the Board of Directors shall
appoint another firm of independent public accountants to act as auditors of the
Corporation and such appointment shall be submitted to the shareholders for
ratification at the Annual or Special Shareholders Meeting next following such
appointment.
ARTICLE IV
COMMITTEES
SECTION 1. APPOINTMENT. A majority of the Board of Directors may create
one or more committees and appoint members of the Board to serve on the
committee or committees. Each committee shall have three or more members, who
serve at the pleasure of the Board. The Board shall designate one member of
each committee to be chairman of the committee. The Board shall designate a
secretary of each committee who may be, but need not be, a member of the
committee or the Board.
SECTION 2. COMMITTEE MEETINGS. A majority of any committee shall
constitute a quorum and a majority of the committee is necessary for
committee action. A committee may act by unanimous consent in writing
without a meeting. Committee meetings may be called by the Chairman of the
Board, the chairman of the committee, or any two of the committee's
<PAGE>
BY-LAWS Page 9
members. The time and place of committee meetings shall be designated in the
notice of such meeting. Notice of each committee meeting shall be given to
each committee member. Each Committee shall keep minutes of its proceedings
and such minutes shall be distributed to the Board of Directors.
SECTION 3. EXECUTIVE COMMITTEE. The Board shall appoint an Executive
Committee. A majority of the members of the Committee shall be selected from
those Directors who are not then serving as full-time employees of the
Corporation or any of its subsidiaries.
SECTION 4. DUTIES OF THE EXECUTIVE COMMITTEE. The Executive Committee
may, when the Board of Directors is not in session, exercise the authority of
the Board in the management of the business and affairs of the Corporation;
provided, however, the Committee may not:
(1) authorize distributions;
(2) approve or recommend to shareholders any act the Business
Corporation Act of 1983 requires to be approved by shareholders.
(3) fill vacancies on the Board or on any of its committees;
(4) elect or remove Officers or fix the compensation of any member of
the Committee;
(5) adopt, amend or repeal the By-Laws;
(6) approve a plan of merger not requiring shareholder approval;
(7) authorize or approve reacquisition of shares, except according to
a general formula or method prescribed by the Board;
(8) authorize or approve the issuance or sale, or contract for sale,
of shares or determine the designation and relative rights,
preferences, and limitations of a series of shares, except that
the Board may direct the Committee to fix the specific terms of
the issuance or sale or contract for sale or the number of shares
to be allocated to particular employees under an employee benefit
plan; or
(9) amend, alter, repeal, or take action inconsistent with any
resolution or action of the Board of Directors when the
resolution or action of the Board of Directors provides by its
terms that it shall not be amended, altered or repealed by action
of the Committee.
<PAGE>
BY-LAWS Page 10
SECTION 5. AUDIT COMMITTEE. The Board of Directors shall appoint an Audit
Committee. All of the members of the Committee shall be selected from those
Directors who are not then serving as full-time employees of the Corporation or
any of its subsidiaries.
SECTION 6. DUTIES OF THE AUDIT COMMITTEE. The Audit Committee shall:
(1) recommend to the Board of Directors annually a firm of
independent public accountants to act as auditors of the
Corporation;
(2) review with the auditors in advance the scope of and fees for
their annual audit;
(3) review with the auditors and the management, from time to time,
the Corporation's accounting principles, policies, and practices
and its reporting policies and practices;
(4) review with the auditors annually the results of their audit; and
(5) review from time to time with the auditors and the Corporation's
financial personnel the adequacy of the Corporation's accounting,
financial and operating controls.
SECTION 7. COMPENSATION COMMITTEE. The Board of Directors shall appoint a
Compensation Committee. The members of the Committee shall be selected from
those Directors who are not then serving as full-time employees of the
Corporation or any of its subsidiaries and who are "non-employee directors"
under Rule 16b-3 promulgated under the Securities Exchange Act of 1934, or any
similar successor rule.
SECTION 8. DUTIES OF THE COMPENSATION COMMITTEE. The Compensation
Committee shall:
(1) administer the stock option plans of the Corporation;
(2) review, at least annually, the compensation of Directors who are
not then serving as full-time employees of the Corporation or any
of its subsidiaries and recommend for approval by the Board any
change in the compensation of such Directors;
(3) review, at least annually, the compensation of all Officers of
the Corporation. The committee shall have the authority to
approve changes in the base compensation, and any proposed
special separation arrangements of Officers, except the Chairman
of the Board of Directors, the Chief Executive Officer, and the
President, whose base compensation,
<PAGE>
BY-LAWS Page 11
and any special separation arrangements, shall be subject to
approval by the Board of Directors.
SECTION 9. NOMINATIONS AND BOARD AFFAIRS COMMITTEE. The Board of
Directors shall appoint a Nominations and Board Affairs Committee. A majority
of the members of the Committee shall be selected from those Directors who are
not then serving as full-time employees of the Corporation or any of its
subsidiaries.
SECTION 10. DUTIES OF THE NOMINATIONS AND BOARD AFFAIRS COMMITTEE. The
Nominations and Board Affairs Committee shall:
(1) develop general criteria for selection of and qualifications
desirable in members of the Board of Directors and Officers of
the Corporation and aid the Board in identifying and attracting
qualified candidates to stand for election to such positions;
(2) recommend to the Board annually a slate of nominees to be
proposed by the Board to the shareholders as nominees for
election as Directors, and, from time to time, recommend persons
to fill any vacancy on the Board;
(3) review annually, or more often if appropriate, the performance of
individual members of the management of the Corporation and the
membership and performance of committees of the Board and make
recommendations deemed necessary or appropriate to the Board;
(4) recommend to the Board persons to be elected as Officers of the
Corporation; and
(5) serve in an advisory capacity to the Board of Directors and
Chairman of the Board on matters of organization, management
succession plans, major changes in the organizational structure
of the Corporation, and the conduct of Board activities,
including assisting in the evaluation of the Board's own
performance.
SECTION 11. PUBLIC POLICY COMMITTEE. The Board of Directors shall appoint
a Public Policy Committee. A majority of the members of the Committee shall be
selected from those Directors who are not then serving as full time employees of
the Corporation or any of its subsidiaries.
SECTION 12. DUTIES OF THE PUBLIC POLICY COMMITTEE. The Public Policy
Committee shall have an advisory role with respect to public policy, regulatory
and government affairs issues that affect the Corporation.
<PAGE>
BY-LAWS Page 12
ARTICLE V
OFFICERS
SECTION 1. NUMBER. The Officers of the Corporation shall be the Chairman
of the Board, the Chief Executive Officer, the President, one or more Executive,
Group or Senior Vice Presidents, one or more Vice Presidents, a Treasurer, a
Secretary, a Controller, a General Counsel and such Assistant Treasurers and
Assistant Secretaries as the Board of Directors may elect. Any two or more
offices may be held by the same person.
SECTION 2. ELECTION AND TERM OF OFFICE. The Officers of the Corporation
shall be elected annually by the Board of Directors at the first meeting of the
Board of Directors held after each annual meeting of shareholders. If the
election of Officers shall not be held at such meeting, such election shall be
held as soon thereafter as conveniently may be. Vacancies or new offices may be
filled at any meeting of the Board of Directors. Each Officer shall hold office
until his or her successor shall have been duly elected and shall have qualified
or until his or her death or until he or she shall resign or shall have been
removed in the manner hereinafter provided.
SECTION 3. REMOVAL OF OFFICERS. Any Officer may be removed by the Board
of Directors whenever in its judgment the best interests of the Corporation will
be served thereby.
SECTION 4. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or otherwise, may be filled by the Board
of Directors for the unexpired portion of the term.
SECTION 5. CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER.
The Chairman shall preside at all meetings of the Board of Directors and the
shareholders. The Chief Executive Officer shall be responsible for the overall
management of the Corporation subject to the direction of the Board of
Directors.
SECTION 6. PRESIDENT. The President shall be the Chief Operating Officer.
The President shall perform such duties as may be prescribed by the Board of
Directors or by the Chief Executive Officer.
SECTION 7. EXECUTIVE, GROUP AND SENIOR VICE PRESIDENTS. Each Executive,
Group, or Senior Vice President shall be responsible for supervising and
coordinating a major area of the Corporation's activities subject to the
direction of the Chief Executive Officer or the President.
SECTION 8. VICE PRESIDENTS. Each of the Vice Presidents shall be
responsible for those activities designated by an Executive, Group, or Senior
Vice President, the President, the Chief Executive Officer or by the Board of
Directors.
<PAGE>
BY-LAWS Page 13
SECTION 9. TREASURER. The Treasurer shall administer the investment,
financing, insurance and credit activities of the Corporation.
SECTION 10. SECRETARY. The Secretary will be the custodian of the
corporate records and of the seal of the Corporation, will countersign
certificates for shares of the Corporation, and in general will perform all
duties incident to the office of the Secretary. The Secretary shall have the
authority to certify the By-Laws, resolutions of the shareholders and the Board
of Directors and committees thereof, and other documents of the Corporation as
true and correct copies hereof.
SECTION 11. CONTROLLER. The Controller will conduct the accounting
activities of the Corporation, including the maintenance of the Corporation's
general and supporting ledgers and books of account, operating budgets, and the
preparation and consolidation of financial statements.
SECTION 12. GENERAL COUNSEL. The General Counsel will be the chief
consultant of the Corporation on legal matters. He or she will supervise all
matters of legal import concerning the interests of the Corporation.
SECTION 13. ASSISTANT TREASURER. The Assistant Treasurer shall, in the
absence or incapacity of the Treasurer, perform the duties and exercise the
powers of the Treasurer, and shall perform such other duties as shall from time
to time be given to him or her by the Treasurer.
SECTION 14. ASSISTANT SECRETARY. The Assistant Secretary shall, in the
absence or incapacity of the Secretary, perform the duties and exercise the
powers of the Secretary, and shall perform such other duties as shall from time
to time be given to him or her by the Secretary. The Assistant Secretary shall
be, with the Secretary, keeper of the books, records, and the seal of the
Corporation, and shall have the authority to certify the By-Laws, resolutions
and other documents of the Corporation.
SECTION 15. GENERAL POWERS OF OFFICERS. The Chairman of the Board, the
Chief Executive Officer, the President, and any Executive, Group or Senior Vice
President, may sign without countersignature any deeds, mortgages, bonds,
contracts, reports to public agencies, or other instruments whether or not the
Board of Directors has expressly authorized execution of such instruments,
except in cases where the signing and execution thereof shall be expressly
delegated by the Board of Directors or by these By-Laws solely to some other
Officer or agent of the Corporation, or shall be required by law to be otherwise
signed or executed. Any other Officer of this Corporation may sign contracts,
reports to public agencies, or other instruments which are in the regular course
of business and within the scope of his or her authority, except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors or by these By-Laws to some other Officer or agent of the Corporation,
or shall be required by law to be otherwise signed or executed.
<PAGE>
BY-LAWS Page 14
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 1. CERTIFICATES FOR SHARES. Certificates representing
shares of the Corporation shall be in such form as may be determined by the
Board of Directors. Such certificates shall be signed by any one of the
Chairman of the Board, the Chief Executive Officer, the President or an
Executive Vice President, and shall be countersigned by the Secretary or an
Assistant Secretary and shall be sealed with the seal, or a facsimile of the
seal, of the Corporation. If a certificate is countersigned by a Transfer
Agent or Registrar, other than the Corporation itself or its employee, any
other signatures or countersignature on the certificate may be facsimiles.
In case any Officer of the Corporation, or any officer or employee of the
Transfer Agent or Registrar who has signed or whose facsimile signature has
been placed upon such certificate ceases to be an Officer of the Corporation,
or an officer or employee of the Transfer Agent or Registrar before such
certificate is issued, the certificate may be issued by the Corporation with
the same effect as if the Officer of the Corporation, or the officer or
employee of the Transfer Agent or Registrar had not ceased to be such at the
date of its issue. Each certificate representing shares shall state: that
the Corporation is organized under the laws of the State of Illinois; the
name of the person to whom issued; the number and class of shares; and the
designation of the series, if any, which such certificate represents. Each
certificate shall be consecutively numbered or otherwise identified. The
name of the person to whom the shares represented thereby are issued, with
the number of shares and date of issue, shall be entered on the books of the
Corporation. All certificates surrendered to the Corporation for transfer
shall be canceled, and no new certificate shall be issued in replacement
until the former certificate for a like number of shares shall have been
surrendered and canceled, except in the case of lost, destroyed or mutilated
certificates.
SECTION 2. TRANSFER AGENT AND REGISTRAR. The Board of Directors may
from time to time appoint such Transfer Agents and Registrars in such locations
as it shall determine, and may, in its discretion, appoint a single entity to
act in the capacity of both Transfer Agent and Registrar in any one location.
SECTION 3. TRANSFER OF SHARES. Transfers of shares of the Corporation
shall be made only on the books of the Corporation at the request of the holder
of record thereof or of his attorney, lawfully constituted in writing, and on
surrender for cancellation of the certificate for such shares. The person in
whose name shares stand on the books of the Corporation shall be deemed the
owner thereof for all purposes as regards the Corporation.
SECTION 4. LOST, DESTROYED OR MUTILATED CERTIFICATES. In case of lost,
destroyed or mutilated certificates, duplicate certificates shall be issued to
the person claiming the loss, destruction or mutilation, provided:
(a) That the claimant furnishes an affidavit stating the facts of such
loss, destruction or mutilation so far as known to him or her and
further stating that the affidavit is
<PAGE>
BY-LAWS Page 15
made to induce the Corporation to issue a duplicate certificate or
certificates; and that issuance of the duplicate certificate or
certificates is approved:
(i) in a case involving a certificate or certificates for more than
1,000 shares, by the Chairman of the Board, the Chief Executive
Officer, the President, an Executive Vice President, or the
Secretary; or
(ii) in a case involving a certificate or certificates for 1,000
shares or less, by the Transfer Agent appointed by the Board of
Directors for the transfer of the shares represented by such
certificate or certificates;
upon receipt of a bond, with one or more sureties, in the amount to be
determined by the party giving such approval; or
(b) that issuance of the said duplicate certificate or certificates is
approved by the Board of Directors upon such terms and conditions as
it shall determine.
ARTICLE VII
FISCAL YEAR
The fiscal year of the Corporation shall begin on the first day of January
in each year and end on the last day of December in each year.
ARTICLE VIII
VOTING SHARES OR INTERESTS IN OTHER CORPORATIONS
The Chairman of the Board, the Chief Executive Officer, the President, an
Executive, Group, or Senior Vice President and each of them, shall have the
authority to act for the Corporation by voting any shares or exercising any
other interest owned by the Corporation in any other corporation or other
business association, including wholly or partially owned subsidiaries of the
Corporation, such authority to include, but not be limited to, power to attend
any meeting of any such corporation or other business association, to vote
shares in the election of directors and upon any other matter coming before any
such meeting, to waive notice of any such meeting and to consent to the holding
thereof without notice, and to appoint a proxy or proxies to represent the
Corporation at any such meeting with all the powers that the said Officer would
have under this section if personally present.
<PAGE>
BY-LAWS Page 16
ARTICLE IX
DISTRIBUTIONS TO SHAREHOLDERS
The Board of Directors may authorize, and the Corporation may make,
distributions to its shareholders, subject to any restriction in the Articles of
Incorporation and subject also to the limitations prescribed by law.
ARTICLE X
SEAL
The Corporate Seal of the Corporation shall be in the form of a circle in
the center of which is the insignia "a" and shall have inscribed thereon the
name of the Corporation and the words "an Illinois Corporation."
ARTICLE XI
WAIVER OF NOTICE
Whenever any notice whatever is required to be given under the provisions
of these By-Laws or under the provisions of the Articles of Incorporation or
under the provisions of The Business Corporation Act of 1983, a waiver thereof
in writing, signed by the person or persons entitled to such notice, whether
before or after the time stated therein, shall be deemed equivalent to the
giving of such notice. Attendance at any meeting shall constitute waiver of
notice thereof unless the person at the meeting objects to the holding of the
meeting because proper notice was not given.
ARTICLE XII
AMENDMENTS
These By-Laws may be made, altered, amended or repealed by the shareholders
or the Board of Directors.
<PAGE>
Exhibit 12
Abbott Laboratories
Computation of Ratio of Earnings to Fixed Charges
(Unaudited)
(dollars in millions except ratios)
Nine Months Ended
September 30, 1999
------------------
Net Earnings ................................................. $1,775
Add (deduct):
Taxes on earnings ....................................... 690
Minority interest ....................................... 5
--------
Net Earnings as adjusted ..................................... $2,470
--------
Fixed Charges:
Interest on long-term and short-term debt ............... 112
Capitalized interest cost ............................... 4
Rental expense representative of an interest factor ..... 29
--------
Total Fixed Charges .......................................... 145
--------
Total adjusted earnings available for payment of
fixed charges ............................................ $2,615
--------
--------
Ratio of earnings to fixed charges .......................... 18.0
--------
--------
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) Abbott
considers one-third of rental expense to be the amount representing return on
capital, and (iii) fixed charges comprise total interest expense, including
capitalized interest and such portion of rentals.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ABBOTT
LABORATORIES' 1999 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 531,070
<SECURITIES> 99,310
<RECEIVABLES> 2,068,985
<ALLOWANCES> 185,487
<INVENTORY> 1,417,305
<CURRENT-ASSETS> 5,878,049
<PP&E> 9,654,073
<DEPRECIATION> 4,937,539
<TOTAL-ASSETS> 13,574,225
<CURRENT-LIABILITIES> 4,329,007
<BONDS> 1,336,425
0
0
<COMMON> 1,516,933
<OTHER-SE> 5,152,720
<TOTAL-LIABILITY-AND-EQUITY> 13,574,225
<SALES> 9,662,859
<TOTAL-REVENUES> 9,662,859
<CGS> 4,444,416
<TOTAL-COSTS> 4,444,416
<OTHER-EXPENSES> 858,361<F1>
<LOSS-PROVISION> 10,401
<INTEREST-EXPENSE> 111,842
<INCOME-PRETAX> 2,465,772
<INCOME-TAX> 690,416
<INCOME-CONTINUING> 1,775,356
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,775,356
<EPS-BASIC> 1.17
<EPS-DILUTED> 1.15
<FN>
<F1>Other expenses consist of research and development expenses.
</FN>
</TABLE>
