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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
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FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 COMMISSION FILE NUMBER 1-2189
[LOGO] ABBOTT LABORATORIES
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<S> <C>
AN ILLINOIS CORPORATION 36-0698440
(I.R.S. employer identification
number)
100 ABBOTT PARK ROAD (847) 937-6100
ABBOTT PARK, ILLINOIS 60064-6400 (TELEPHONE NUMBER)
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
<S> <C>
Common Shares, Without Par Value New York Stock Exchange
Chicago Stock Exchange
Pacific Exchange
</TABLE>
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS REQUIRED
TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING
THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS
REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING
REQUIREMENTS FOR THE PAST 90 DAYS.
YES _X_ NO ____
INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405
OF REGULATION S-K IS NOT CONTAINED HEREIN AND WILL NOT BE CONTAINED, TO THE BEST
OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K. [ ]
THE AGGREGATE MARKET VALUE OF THE 1,402,593,853 SHARES OF VOTING STOCK HELD BY
NONAFFILIATES OF THE REGISTRANT, COMPUTED BY USING THE CLOSING PRICE AS REPORTED
ON THE CONSOLIDATED TRANSACTION REPORTING SYSTEM FOR ABBOTT LABORATORIES COMMON
SHARES WITHOUT PAR VALUE ON JANUARY 29, 1999, WAS APPROXIMATELY $65,132,952,049.
ABBOTT HAS NO NON-VOTING COMMON EQUITY.
NUMBER OF COMMON SHARES OUTSTANDING AS OF JANUARY 31, 1999: 1,517,068,371.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE ABBOTT LABORATORIES ANNUAL REPORT FOR THE YEAR ENDED DECEMBER
31, 1998 ARE INCORPORATED BY REFERENCE INTO PARTS I, II, AND IV.
PORTIONS OF THE 1999 ABBOTT LABORATORIES PROXY STATEMENT ARE INCORPORATED BY
REFERENCE INTO PART III.
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PART I
ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Abbott Laboratories is an Illinois corporation, incorporated in 1900.
Abbott's* principal business is the discovery, development, manufacture, and
sale of a broad and diversified line of health care products and services.
FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS,
GEOGRAPHIC AREAS, AND CLASSES OF SIMILAR PRODUCTS
Incorporated herein by reference is the footnote entitled "Segment and
Geographic Area Information" of the Consolidated Financial Statements in the
Abbott Laboratories Annual Report for the year ended December 31, 1998 (1998
Annual Report), filed as an exhibit to this report.
NARRATIVE DESCRIPTION OF BUSINESS
Abbott has six revenue segments: Pharmaceutical Products, Diagnostic
Products, Hospital Products, Ross Products, International, and Chemical and
Agricultural Products. Abbott also has a 50 percent owned joint venture, TAP
Holdings Inc.
PHARMACEUTICAL PRODUCTS
This segment's products include a broad line of adult and pediatric
pharmaceuticals which are sold primarily on the prescription or recommendation
of physicians.
The principal products included in this segment are the anti-infectives
clarithromycin, sold in the United States under the trademark
Biaxin-Registered Trademark-, and various forms of erythromycin, sold primarily
as PCE-Registered Trademark- or polymer coated erythromycin,
Erythrocin-Registered Trademark-, and E.E.S.-Registered Trademark-; agents for
the treatment of epilepsy, migraine and bipolar disorder, including
Depakote-Registered Trademark- and Gabitril-Registered Trademark-; a broad line
of cardiovascular products, including Hytrin-Registered Trademark-, used as an
anti-hypertensive and for the treatment of benign prostatic hyperplasia;
Abbokinase-Registered Trademark-, a thrombolytic drug; TriCor-TM- for the
treatment of elevated triglycerides; and the anti-viral
Norvir-Registered Trademark-, a protease inhibitor for the treatment of HIV
infection. In addition, this segment co-promotes the proton pump inhibitor
Prevacid-Registered Trademark- (lansoprazole), for the short-term treatment of
duodenal ulcers, gastric ulcers, and erosive esophagitis, under an agreement
with TAP Pharmaceuticals, Inc.
This segment markets its products in the United States. These products are
generally sold directly to wholesalers, government agencies, health care
facilities, and independent retailers from Abbott-owned distribution centers and
public warehouses. Primary marketing efforts for pharmaceutical products are
directed toward securing the prescription of Abbott's brand of products by
physicians. Managed care purchasers (for example, health maintenance
organizations and pharmacy benefit managers) are increasingly important
customers.
Competition is generally from other broad line pharmaceutical companies. A
significant aspect of competition is the search for technological innovations.
The introduction of new products by competitors and changes in medical practices
and procedures can result in product obsolescence. Price can also be a
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* As used throughout the text of this report on Form 10-K, the term "Abbott"
refers to Abbott Laboratories, an Illinois corporation, or Abbott
Laboratories and its consolidated subsidiaries, as the context requires.
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factor. In addition, the substitution of generic drugs for the brand prescribed
has increased competitive pressures on pharmaceutical products which are
off-patent.
DIAGNOSTIC PRODUCTS
This segment's products include diagnostic systems and tests for blood
banks, hospitals, commercial laboratories, alternate-care testing sites, and
consumers.
The principal products included in this segment are screening tests for
hepatitis B, HTLV-I/II, hepatitis B core, and hepatitis C; tests for detection
of HIV antibodies and antigens, and other infectious disease detection systems;
tests for determining levels of abused drugs; physiological diagnostic tests;
cancer monitoring tests including tests for prostate specific antigen;
laboratory tests and therapeutic drug monitoring systems such as
TDx-Registered Trademark-; clinical chemistry systems such as Abbott
Spectrum-Registered Trademark-, Abbott Aeroset-TM-, Abbott Alycon-TM-, and
Abbott Vision-Registered Trademark-; Quantum-TM-; AxSYM-Registered Trademark-,
Commander-Registered Trademark-, IMx-Registered Trademark-, and Abbott
PRISM-Registered Trademark- lines of diagnostic instruments and chemical
reagents used to perform immunoassay diagnostic tests; the
Murex-Registered Trademark- line of microtiter-based immunoassay test kits; the
LCx-Registered Trademark- amplified probe system and reagents; the Abbott
TestPack-Registered Trademark- system for rapid diagnostic testing; a full line
of hematology systems and reagents known as the Cell-Dyn-Registered Trademark-
series; the MediSense-Registered Trademark- line of blood glucose monitoring
meters and test strips for diabetics including Precision
Q.I.D.-Registered Trademark-, the Precision G-Registered Trademark- hospital
system, the ExacTech-Registered Trademark-, the MediSense II-TM-, and the
ExacTech RSG-TM-; and the Fact Plus-Registered Trademark- and Fact
Plus-Registered Trademark- One Step pregnancy tests. In addition, this segment
distributes the i-STAT-Registered Trademark- point-of-care testing system
through an exclusive long-term sales and marketing alliance with i-STAT
Corporation. In the second quarter of 1998, Abbott acquired, for cash, all of
the outstanding shares of International Murex Technologies Corporation, a
manufacturer of microtiter-based immunoassay test kits.
This segment markets its products worldwide. These products are generally
marketed and sold directly to hospitals, laboratories, and physicians' offices
from Abbott-owned distribution centers and public warehouses. Outside the United
States, sales are made either directly to customers or through distributors,
depending on the market served. Blood glucose monitoring meters and test strips
for diabetics and the Fact Plus-Registered Trademark- and Fact
Plus-Registered Trademark- One Step pregnancy tests are sold over the counter to
consumers.
This segment's products are subject to competition in technological
innovation, price, convenience of use, service, instrument warranty provisions,
product performance, long-term supply contracts, and product potential for
overall cost-effectiveness and productivity gains. Some products in this segment
can be subject to rapid product obsolescence. Abbott has benefited from
technological advantages of certain of its current products; however, these
advantages may be reduced or eliminated as competitors introduce new products.
HOSPITAL PRODUCTS
This segment's products include drugs and drug delivery systems,
perioperative and intensive care products, cardiovascular products, renal
products, oncology products, intravenous and irrigation solutions, related
manual and electronic administration equipment, and diagnostic imaging products
for hospitals and alternate-care sites.
The principal products included in this segment are hospital injectables
including Carpuject-Registered Trademark- and FirstChoice-Registered Trademark-
generics; premixed intravenous drugs in various containers;
ADD-Vantage-Registered Trademark- and Nutrimix-Registered Trademark- drug and
nutritional delivery systems; anesthetics, including
Pentothal-Registered Trademark-, Amidate-Registered Trademark-,
Ultane-Registered Trademark-, isoflurane and enflurane; products for anxiety,
nausea and pain associated with surgery; cardiovascular products including
Opticath-Registered Trademark- and OptiQ-TM- advanced sensor catheters,
Transpac-Registered Trademark- for hemodynamic monitoring, peripheral wires,
catheters and other specialty cardiac products; Calcijex-Registered Trademark-
and Zemplar-Registered Trademark-, injectable agents for treatment of bone
disease in hemodialysis patients; intravenous solutions and related
administration equipment sold as the LifeCare-Registered Trademark- line of
products, LifeShield-Registered Trademark- needleless products, and
Venoset-Registered Trademark- products; irrigating fluids; parenteral
nutritionals such as Aminosyn-Registered Trademark- and
Liposyn-Registered Trademark-; Plum-Registered Trademark-,
Omni-Flow-Registered Trademark- and Abbott
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AIM-Registered Trademark- electronic drug delivery systems; Abbott Pain
Manager-Registered Trademark-; patient-controlled analgesia systems;
venipuncture products; diagnostic imaging products used in MRI (magnetic
resonance imaging) and CT (computed tomography) imaging; and
Faultless-Registered Trademark- rubber sundry products.
This segment markets its products in the United States. They are generally
distributed to wholesalers and directly to hospitals from Abbott-owned
distribution centers and public warehouses. This segment also develops and
manufactures products for other companies.
This segment's products are subject to competition in technological
innovation, price, convenience of use, service, product performance, long-term
supply contracts, and product potential for overall cost effectiveness and
productivity gains. Some products in this segment can be subject to rapid
product obsolescence. Abbott has benefited from technological advantages of
certain of its current products; however, these advantages may be reduced or
eliminated as competitors introduce new products.
ROSS PRODUCTS
This segment's products include a broad line of adult and pediatric
nutritionals. These products are sold primarily on the recommendation of
physicians or other health care professionals. The segment also includes
specialty pharmaceuticals and consumer products.
Principal nutritional products include various forms of prepared infant
formula, including Similac-Registered Trademark-, Isomil-Registered Trademark-,
Alimentum-Registered Trademark-, and Similac NeoSure-TM-; and other adult and
pediatric products, including Ensure-Registered Trademark-, Ensure
Plus-Registered Trademark-, Ensure-Registered Trademark- High Protein,
Ensure-Registered Trademark-Light, Jevity-Registered Trademark-,
Glucerna-Registered Trademark-, PediaSure-Registered Trademark-,
Pedialyte-Registered Trademark-, and Pulmocare-Registered Trademark-. Principal
consumer products include the dandruff shampoo Selsun
Blue-Registered Trademark-; Murine-Registered Trademark- eye care and ear care
products; and Tronolane-Registered Trademark- hemorrhoid medication. The
principal pharmaceutical product is Survanta-Registered Trademark-. In addition,
this segment co-promotes Synagis-Registered Trademark- under an agreement with
Medimmune Incorporated.
This segment markets its products in the United States. Nutritional products
are generally sold directly to retailers, wholesalers, health care facilities,
and government agencies. In most cases, they are distributed from Abbott-owned
distribution centers or public warehouses. Primary marketing efforts for
nutritional products are directed toward securing the recommendation of Abbott's
brand of products by physicians or other health care professionals. Competition
is generally from other broad line and specialized health care manufacturers.
Nutritional products are subject to competition in price, formulation,
scientific innovation, and promotional initiatives.
This segment's pharmaceutical products are generally sold directly to
physicians, retailers, wholesalers, health care facilities, and government
agencies. In most cases, they are distributed from Abbott-owned distribution
centers or public warehouses. Primary marketing efforts for pharmaceutical
products are directed at securing the prescription of Abbott's brand of products
by physicians. Competition is generally from other broad line pharmaceutical
companies. A significant aspect of competition is the search for technological
innovations. The introduction of new products by competitors and changes in
medical practices and procedures can result in product obsolescence. Price can
also be a factor. In addition, the substitution of generic drugs for the brand
prescribed has increased competitive pressures on pharmaceutical products which
are off-patent.
Consumer products and Ensure-Registered Trademark- retail products are
promoted directly to the public by consumer advertising. These products are
generally sold directly to retailers and wholesalers. Competitive products are
sold by other diversified consumer and health care companies. Competitive
factors include consumer advertising, formulation, scientific innovation, price,
and availability of generic product forms.
Ensure-Registered Trademark- is the leading adult nutritional and
Similac-Registered Trademark- is a leading infant formula in the United States.
(Source: A. C. Nielsen Co.)
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INTERNATIONAL
This segment's products include a broad line of hospital, pharmaceutical and
adult and pediatric nutritional products marketed and primarily manufactured
outside the United States. These products are sold primarily on the prescription
or recommendation of physicians and other health care professionals. This
segment also includes consumer products.
This segment's principal products include the anti-infectives
clarithromycin, sold under the trademarks Biaxin-Registered Trademark-,
Klacid-Registered Trademark- and Klaricid-Registered Trademark-, tosufloxacin,
sold in Japan under the trademark Tosuxacin-Registered Trademark-, various forms
of the antibiotic erythromycin, sold primarily as PCE-Registered Trademark- or
polymer-coated erythromycin, Erythrocin-Registered Trademark-, and
E.E.S.-Registered Trademark-, and Norvir-Registered Trademark-, a protease
inhibitor for the treatment of HIV infection; Lupron-Registered Trademark-, also
marketed as Lucrin-Registered Trademark-, used for the palliative treatment of
advanced prostate cancer, treatment of endometriosis and central precocious
puberty, and for the preoperative treatment of patients with anemia caused by
uterine fibroids; Prevacid-Registered Trademark- (lansoprazole), a proton pump
for the short-term treatment of duodenal ulcers, gastric ulcers, and erosive
esophagitis; various cardiovascular products, including
Loftyl-Registered Trademark-, a vasoactive agent; Hytrin-Registered Trademark-,
also marketed as Hitrin-Registered Trademark- and Flotrin-Registered Trademark-,
used as an anti-hypertensive and for the treatment of benign prostatic
hyperplasia, and candesartan, sold under the trademarks Blospress-TM- and
Tiadyl-TM-, an angiotension 2 antagonist; meloxicam, a preferential COX-2
inhibitor; various forms of infant formulas and follow-on formulas, including
Similac Advance-Registered Trademark-, Gain-Registered Trademark- and Abbott
Grow-TM-; various adult medical nutritionals, including
Ensure-Registered Trademark-, Glucerna-Registered Trademark- and
Jevity-Registered Trademark-; and a broad line of hospital products, including
the anesthesia products sevoflurane (sold outside of the United States primarily
under the trademark Sevorane-Registered Trademark- and in a few other markets as
Ultane-Registered Trademark-), isoflurane and enflurane; specialty generic
injectables such as Calcijex-Registered Trademark- and
Survanta-Registered Trademark-; and electronic drug delivery systems sold in
selective international markets.
This segment's pharmaceutical and nutritional products are generally sold
directly to government agencies, retailers, wholesalers, and health care
facilities. In most cases, they are distributed from Abbott-owned distribution
centers. Certain products are co-marketed with other companies. Some of these
products are marketed and distributed through distributors. Primary marketing
efforts for pharmaceutical products are directed toward securing the
prescription of Abbott's brand of products by physicians. Competition is
generally from other broad line and specialized pharmaceutical companies. A
significant aspect of competition is the search for technological innovations.
The introduction of new products by competitors and changes in medical practices
and procedures can result in product obsolescence. In addition, the substitution
of generic drugs for the brand prescribed has increased competitive pressures on
pharmaceutical products. Primary marketing efforts for nutritional products are
directed toward securing the recommendation of Abbott's brand of products by
physicians or other health care professionals. Competition is generally from
other broad line and specialized health care manufacturers and food companies.
Nutritional products are subject to competition in price, formulation and
promotional initiatives.
This segment's hospital products are generally distributed to wholesalers
and directly to hospitals from distribution centers maintained by Abbott. This
segment is subject to competition in technological innovation, price,
convenience of use, instrument warranty provisions, product performance,
long-term supply contracts, and product potential for overall cost effectiveness
and productivity gains. Products in this segment can be subject to rapid product
obsolescence. Abbott has benefited from technological advantages of certain of
its current products; however, these advantages may be reduced or eliminated as
competitors introduce new products.
CHEMICAL AND AGRICULTURAL PRODUCTS
This segment's products include agricultural and chemical products, bulk
pharmaceuticals, and animal health products.
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Principal agricultural and animal health products include plant growth
regulators, including ProGibb-Registered Trademark- and
ReTain-Registered Trademark-; herbicides; larvicides, including
VectoBac-Registered Trademark-; biologically derived insecticides, including
DiPel-Registered Trademark- and XenTari-Registered Trademark-; anti-infectives,
and medical surgical products, including Propoflo-TM-,
Isoflo-Registered Trademark- and LIFECARE-Registered Trademark-. Principal
chemical products include erythromycin, leuprolide, and terazosin hydrochloride.
This segment markets its products worldwide. Agricultural, animal health and
bulk pharmaceutical products are generally sold to agricultural distributors,
growers, companion animal health product distributors, veterinarians and
pharmaceutical companies from Abbott-owned distribution centers and public
warehouses. Outside the United States sales are made either directly to
customers or through distributors, depending on the market served. Competition
is primarily from chemical, animal health and agricultural companies.
Competition is based on numerous factors depending on the market served.
Competitive factors include product performance, quality, price, and
technological advantages.
TAP HOLDINGS INC.
Under an agreement between Abbott and Takeda Chemical Industries, Ltd. of
Japan (Takeda), TAP Holdings Inc. (owned 50 percent by Abbott and 50 percent by
an affiliate of Takeda), together with its subsidiary, TAP Pharmaceuticals Inc.
(TAP), develops and markets pharmaceutical products in the United States. TAP
markets Lupron-Registered Trademark-, an LH-RH analog, and Lupron
Depot-Registered Trademark-, a sustained release form of
Lupron-Registered Trademark-, in the United States. Lupron-Registered Trademark-
and Lupron Depot-Registered Trademark- are used principally for the palliative
treatment of advanced prostate cancer and the treatment of endometriosis. TAP
also markets Prevacid-Registered Trademark- (lansoprazole), a proton pump
inhibitor, and has a co-promotion arrangement with Abbott for
Prevacid-Registered Trademark-. Its principal indications are for heartburn and
other symptoms associated with gastroesophageal reflux disease (GERD), erosive
esophagitis, short-term treatment of duodenal ulcers, the maintenance of healed
erosive esophagitis and duodenal ulcers. Abbott has marketing rights to certain
Takeda products in select Latin American markets. Abbott also markets
Lupron-Registered Trademark-, Lupron Depot-Registered Trademark-, Lupron
Depot-Ped-Registered Trademark-, and Prevacid-Registered Trademark- in select
markets outside the United States.
TAP's products are generally sold directly to physicians, retailers,
wholesalers, health care facilities, and government agencies. In most cases,
they are distributed from Abbott-owned distribution centers. Primary marketing
efforts for pharmaceutical products are directed toward securing the
prescription of TAP's brand of products by physicians. Certain products are
co-marketed with Abbott. Managed care purchasers, for example, health
maintenance organizations (HMOs) and pharmacy benefit managers, are increasingly
important customers. Competition is generally from pharmaceutical companies. A
significant aspect of competition is the search for technological innovations.
The introduction of new products by competitors and changes in medical practices
and procedures can result in product obsolescence. In addition, the substitution
of generic drugs for the brand prescribed has increased competitive pressures on
pharmaceutical products which are off patent.
INFORMATION WITH RESPECT TO ABBOTT'S BUSINESS IN GENERAL
SOURCES AND AVAILABILITY OF RAW MATERIALS
Abbott purchases, in the ordinary course of business, necessary raw
materials and supplies essential to Abbott's operations from numerous suppliers
in the United States and overseas. There have been no recent significant
availability problems or supply shortages.
PATENTS, TRADEMARKS, AND LICENSES
Abbott is aware of the desirability for patent and trademark protection for
its products. Accordingly, where possible, patents and trademarks are sought and
obtained for Abbott's products in the United States and all countries of major
marketing interest to Abbott. Abbott owns, has applications pending for, and is
licensed under a substantial number of patents. Principal trademarks and the
products they cover are discussed in the Narrative Description of Business on
pages 1 through 5. These, and various patents which
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expire during the period 1999 to 2019, in the aggregate, are believed to be of
material importance in the operation of Abbott's business. Abbott believes that
no single patent, license, trademark (or related group of patents, licenses, or
trademarks), except for those related to clarithromycin, are material in
relation to Abbott's business as a whole. The original United States compound
patent covering clarithromycin is licensed from Taisho Pharmaceutical Co., Ltd.
of Tokyo, Japan, and will expire in 2005. In addition, the patents, licenses,
and trademarks related to Depakote-Registered Trademark- and
Hytrin-Registered Trademark- are significant for Abbott's Pharmaceutical
Products segment. The original United States product patents covering
Depakote-Registered Trademark- will expire in 2008. In the United States, the
original compound patent covering Hytrin-Registered Trademark- has expired.
Litigation involving Abbott's patents covering Depakote-Registered Trademark-
and Hytrin-Registered Trademark- is discussed in Legal Proceedings on pages 11
and 12.
While it is not feasible to predict with certainty the date on which a
generic form of terazosin hydrochloride, the drug which Abbott sells under the
trademark Hytrin-Registered Trademark-, could become available in the United
States, management currently does not expect a generic form of terazosin
hydrochloride to become available before the end of the second quarter of 1999.
Abbott believes generic competition would adversely impact sales of
Hytrin-Registered Trademark-. In 1998, Abbott recorded United States sales of
Hytrin-Registered Trademark- of $542 million. Pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995, Abbott
cautions investors that the foregoing statements regarding generic terazosin
hydrochloride are forward-looking statements or projections and are subject to
risks and uncertainties that may cause actual results to differ materially from
those projected. These include developments in the pending litigation. Economic,
competitive, governmental, technological and other factors that may affect
Abbott's operations are discussed in Exhibit 99.1.
SEASONAL ASPECTS, CUSTOMERS, BACKLOG, AND RENEGOTIATION
There are no significant seasonal aspects to Abbott's business. The
incidence of certain infectious diseases which occur at various times in
different areas of the world does, however, affect the demand for Abbott's
anti-infective products. Orders for Abbott's products are generally filled on a
current basis, and order backlog is not material to Abbott's business. No single
customer accounted for sales equaling 10 percent or more of Abbott's
consolidated net sales. No material portion of Abbott's business is subject to
renegotiation of profits or termination of contracts at the election of the
government.
RESEARCH AND DEVELOPMENT
Abbott spent $1,221,593,000 in 1998, $1,302,403,000 in 1997, and
$1,204,841,000 in 1996 on research to discover and develop new products and
processes and to improve existing products and processes. Abbott continues to
concentrate research expenditures on pharmaceutical and diagnostic products.
ENVIRONMENTAL MATTERS
Abbott believes that its operations comply in all material respects with
applicable laws and regulations concerning environmental protection. Regulations
under federal and state environmental laws impose stringent limitations on
emissions and discharges to the environment from various manufacturing
operations. Abbott's capital and operating expenditures for pollution control in
1998 were approximately $28 million and $49 million, respectively. Capital and
operating expenditures for pollution control are estimated to approximate $19
million and $54 million, respectively, in 1999.
Abbott has been identified as one of many potentially responsible parties in
investigations and/or remediations at 21 locations in the United States and
Puerto Rico under the Comprehensive Environmental Response, Compensation, and
Liability Act, commonly known as Superfund. The aggregate costs of remediation
at these sites by all identified parties are uncertain but have been subject to
widely ranging estimates totaling as much as several hundred million dollars. In
many cases, Abbott believes that the actual costs will be lower than these
estimates, and the fraction for which Abbott may be responsible is
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anticipated to be considerably less and will be paid out over a number of years.
Abbott may participate in the investigation or cleanup at these sites. Abbott is
also voluntarily investigating potential contamination at two Abbott-owned
sites, and has initiated remediation at four sites, in cooperation with the
Environmental Protection Agency (EPA) or similar state agencies.
While it is not feasible to predict with certainty the costs related to the
previously described investigation and cleanup activities, Abbott believes that
such costs, together with other expenditures to maintain compliance with
applicable laws and regulations concerning environmental protection, should not
have a material adverse effect on Abbott's financial position, cash flows, or
results of operations.
EMPLOYEES
Abbott employed 56,236 persons as of December 31, 1998.
REGULATION
The development, manufacture, sale, and distribution of Abbott's products
are subject to comprehensive government regulation. Government regulation by
various federal, state, and local agencies, which includes detailed inspection
of and controls over research and laboratory procedures, clinical
investigations, and manufacturing, marketing, sampling, distribution,
recordkeeping, storage, and disposal practices, substantially increases the
time, difficulty, and costs incurred in obtaining and maintaining the approval
to market newly developed and existing products. Government regulatory actions
can result in delay in the release of products, seizure or recall of products,
suspension or revocation of the authority necessary for their production and
sale, and other civil or criminal sanctions.
In late 1998, the United States 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. The FDA subsequently
established new criteria for the release of additional lots. Abbott is
instituting changes to its procedures in response to the FDA. Abbott cannot
predict whether these changes will resolve 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.
Continuing studies of the utilization, safety, and efficacy of health care
products and their components are being conducted by industry, government
agencies, and others. Such studies, which employ increasingly sophisticated
methods and techniques, can call into question the utilization, safety, and
efficacy of previously marketed products and in some cases have resulted, and
may in the future result, in the discontinuance of marketing of such products
and may give rise to claims for damages from persons who believe they have been
injured as a result of their use.
The cost of human health care products continues to be a subject of
investigation and action by governmental agencies, legislative bodies, and
private organizations in the United States and other countries. In the United
States, most states have enacted generic substitution legislation requiring or
permitting a dispensing pharmacist to substitute a different manufacturer's
version of a pharmaceutical product for the one prescribed. Federal and state
governments continue to press efforts to reduce costs of Medicare and Medicaid
programs, including restrictions on amounts agencies will reimburse for the use
of products. In addition, the federal government follows a diagnosis-related
group (DRG) payment system for certain institutional services provided under
Medicare or Medicaid. The DRG system entitles a health care facility to a fixed
reimbursement based on discharge diagnoses rather than actual costs incurred in
patient treatment, thereby increasing the incentive for the facility to limit or
control expenditures for many health care products. Manufacturers must pay
certain statutorily-prescribed rebates on Medicaid purchases for reimbursement
on prescription drugs under state Medicaid plans. The Veterans Health Care Act
of
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1992 requires manufacturers to extend additional discounts on pharmaceutical
products to various federal agencies, including the Department of Veterans
Affairs, Department of Defense, and Public Health Service entities and
institutions.
In the United States, governmental cost-containment efforts have extended to
the federally funded Special Supplemental Nutrition Program for Women, Infants,
and Children (WIC). All states participate in WIC and have sought and obtained
rebates from manufacturers of infant formula whose products are used in the
program. Over the last five years, all of the states have conducted competitive
bidding for infant formula contracts which require the use of specific infant
formula products by the state WIC program. The Child Nutrition and WIC
Reauthorization Act of 1989 requires all states participating in WIC to engage
in competitive bidding or to use any other cost containment measure that yields
savings equal to or greater than the savings generated by a competitive bidding
system.
Governmental regulatory agencies require prescription drug manufacturers to
pay fees. The FDA imposes substantial fees on various aspects of the approval,
manufacture, and sale of proprietary prescription drugs. The FDA's authority to
impose these fees was reauthorized by the Food and Drug Administration
Modernization Act of 1997.
Abbott expects debate to continue during 1999 at both the federal and the
state level 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. Many countries, directly or indirectly through
reimbursement limitations, control the selling price of most health care
products. Furthermore, many developing countries limit the importation of raw
materials and finished products. International regulations are having an impact
on United States regulations, as well. The International Organization for
Standardization (ISO) provides the criteria for meeting the regulations for
medical devices within the European Union. Abbott has made significant strides
in gaining ISO 9000 and European Norm 46000 certification for facilities that
manufacture devices for European markets. The FDA recently adopted regulations
governing the manufacture of medical devices that appear to encompass and exceed
the ISO's approach to regulating medical devices. The FDA's adoption of the
ISO's approach to regulation and other changes to the manner in which the FDA
regulates medical devices will increase the cost of compliance with those
regulations.
Efforts to reduce health care costs are also being made in the private
sector. Health care providers have responded by instituting various cost
reduction and containment measures.
It is not possible to predict the extent to which Abbott or the health care
industry in general might be affected by the matters discussed above.
INTERNATIONAL OPERATIONS
Abbott markets products in approximately 130 countries through affiliates
and distributors. Most of the products discussed in the preceding sections of
this report are also sold outside the United States. In addition, certain
products of a local nature and variations of product lines to meet local
regulatory requirements and marketing preferences are manufactured and marketed
to customers outside the United States. International operations are subject to
certain additional risks inherent in conducting business outside the United
States, including price and currency exchange controls, changes in currency
exchange rates, limitations on foreign participation in local enterprises,
expropriation, nationalization, and other governmental action.
8
<PAGE>
ITEM 2. PROPERTIES
Abbott's corporate offices are located at 100 Abbott Park Road, Abbott Park,
Illinois 60064-6400. The locations of Abbott's principal plants are listed
below.
<TABLE>
<CAPTION>
LOCATION INDUSTRY SEGMENTS OF PRODUCTS PRODUCED
- -------------------------------------------------------- --------------------------------------------------------
<S> <C>
Abbott Park, Illinois Pharmaceutical Products, Diagnostic Products, and
Hospital Products
Abingdon, England Diagnostic Products
Altavista, Virginia Ross Products
Ashland, Ohio Hospital Products
Austin, Texas Hospital Products
Barceloneta, Puerto Rico Pharmaceutical Products, Diagnostic Products, and
Chemical and Agricultural Products
Bedford, Massachusetts Diagnostic Products
Brockville, Canada International
Campoverde, Italy International
Casa Grande, Arizona Ross Products
Columbus, Ohio Ross Products
Delkenheim, Germany Diagnostic Products
Haina, San Cristoba, Dominican Republic Hospital Products
Irving, Texas Diagnostic Products
Laurinburg, North Carolina Hospital Products
McPherson, Kansas Hospital Products
Montreal, Canada International
Morgan Hill, California Hospital Products
North Chicago, Illinois Pharmaceutical Products, Hospital Products, and Chemical
and Agricultural Products
Queenborough, England International
Rocky Mount, North Carolina Hospital Products
Salt Lake City, Utah Hospital Products
Santa Clara, California Diagnostic Products
Sligo/Donegal/Cootehill/Finisklin, Ireland Diagnostic Products and International
Sturgis, Michigan Ross Products
St. Remy, France International
Tokyo, Japan Diagnostic Products
Zwolle, The Netherlands International
</TABLE>
9
<PAGE>
In addition to the above, Abbott has manufacturing facilities in five other
locations in the United States, including Puerto Rico. Outside the United States
manufacturing facilities are located in 14 other countries. Abbott's facilities
are deemed suitable, provide adequate productive capacity, and are utilized at
normal and acceptable levels.
In the United States, including Puerto Rico, Abbott owns 11 distribution
centers. Abbott also has 14 United States research and development facilities
located at: Abbott Park, Illinois; Ashland, Ohio; Bedford, Massachusetts;
Columbus, Ohio (two locations); Irving, Texas; Long Grove, Illinois; Madera,
California; McPherson, Kansas; Morgan Hill, California; Norcross, Georgia; North
Chicago, Illinois; Santa Clara, California; and San Diego, California. Outside
the United States, Abbott has research and development facilities in Argentina,
Australia, Canada, France, Germany, Ireland, Japan, The Netherlands, South
Africa, Spain and the United Kingdom.
The corporate offices, and those principal plants in the United States that
are listed above, are owned by Abbott or subsidiaries of Abbott. The remaining
manufacturing plants and all other facilities are owned or leased by Abbott or
subsidiaries of Abbott. There are no material encumbrances on the properties.
ITEM 3. LEGAL PROCEEDINGS
Abbott is involved in various claims and legal proceedings, including (as of
January 31, 1999), one antitrust suit and five investigations in connection with
Abbott's sale and marketing of infant formula products, 134 antitrust suits and
two investigations in connection with Abbott's pricing of prescription
pharmaceuticals, two cases involving Abbott's patents for divalproex sodium, a
drug that Abbott sells under the trademark Depakote-Registered Trademark-, five
cases involving Abbott's patents for terazosin hydrochloride, a drug that Abbott
sells under the trademark Hytrin-Registered Trademark-, and one antitrust suit
involving Hytrin-Registered Trademark-.
The infant formula antitrust cases allege that Abbott conspired with one or
more of its competitors to fix prices, restrain trade and monopolize the market
for infant formula in violation of state antitrust laws. The suits have been
brought on behalf of individuals and name Abbott and certain other infant
formula manufacturers as defendants. The cases sought treble damages, civil
penalties, and other relief. On November 7, 1997, the Louisiana District Court
dismissed the plaintiff's complaint in the case that was pending in Louisiana.
The plaintiffs have appealed that decision. The appellate court has certified
the questions raised in the appeal to the state supreme court for its
consideration. In 1997, a case purporting to be a statewide consumer class
action was filed in state court in St. Louis, Missouri. It was voluntarily
dismissed in December 1998. Investigations are being conducted by the Attorneys
General of the states of California, Connecticut, New York, Pennsylvania, and
Wisconsin. These matters are no longer considered a possible material legal
proceeding and, therefore, no further information will be given with respect to
them.
As of January 31, 1999, 116 prescription pharmaceutical pricing antitrust
cases were pending in federal court and 18 were 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; Alameda County, California;
Monterey County, California; San Francisco County, California (eight cases); San
Joaquin County, California; Johnson County, Kansas;
10
<PAGE>
Prentiss County, Mississippi; Mecklenburg County, North Carolina; and Cocke
County and Davidson County, Tennessee. Abbott entered into settlement agreements
in twelve consumer lawsuits pending in the following jurisdictions: Arizona,
Florida, Kansas, Maine, Michigan, Minnesota (2), New York, North Carolina,
Tennessee, Washington, D.C., and Wisconsin. The court in each jurisdiction must
approve the agreement before it becomes final. Courts in Arizona, Florida,
Maine, Michigan, Minnesota (2), New York, Washington, D.C. and Wisconsin have
approved the settlement agreement. The investigations are being conducted by the
Attorney General of Illinois and the Federal Trade Commission.
As of January 31, 1999, two cases were pending involving Abbott's patents
for divalproex sodium, a drug that Abbott sells under the trademark
Depakote-Registered Trademark-. On October 24, 1997, after having been notified
that TorPharm, a division of Apotex, Inc. ("TorPharm") had applied to the
Federal Food and Drug Administration (the "FDA") for approval for a generic
version of divalproex sodium, Abbott sued TorPharm in the United States District
Court for the Northern District of Illinois alleging patent infringement.
TorPharm contends that its product does not infringe Abbott's patents and that,
in any event, the patents are invalid and unenforceable. On August 28, 1992,
after having been notified that Alra Laboratories, Inc. ("Alra") had applied to
the FDA for approval for a generic version of divalproex sodium, Abbott sued
Alra in the United States District Court for the Northern District of Illinois
alleging patent infringement. Alra filed counterclaims alleging that Abbott
fraudulently delayed Alra's entry into the market for divalproex sodium and
seeking money damages. Alra contended that its product did not infringe Abbott's
patents and that, in any event, those patents were invalid and unenforceable.
Alra filed motions for summary judgment on the issues of infringement and
validity. Abbott filed a motion for summary judgment on the issue of
infringement. On October 20, 1997, the court granted Abbott's motion for summary
judgment and found that Alra's product infringes Abbott's patents. The court
denied Alra's motions for summary judgment on the issues of infringement and
patent invalidity and dismissed the lawsuit. Alra filed a motion for
reconsideration of the court's ruling. That motion was granted in part and
denied in part. The court has stayed its earlier rulings on validity and
infringement pending further proceedings.
As of January 31, 1999, five cases involving Abbott's patents for terazosin
hydrochloride, a drug that Abbott sells under the trademark
Hytrin-Registered Trademark-, were pending in the United States District Court
for the Northern District of Illinois. Abbott has been separately notified first
by Geneva Pharmaceuticals, Inc. ("Geneva") in April 1996, and then by Novopharm
Limited ("Novopharm"), Invamed, Inc. ("Invamed"), Mylan Pharmaceuticals, Inc.
("Mylan"), and Warner Chilcott, Inc. ("Warner") that these corporations had
applied to the Federal Food and Drug Administration for approval for a generic
version of terazosin hydrochloride. Abbott sued each of these corporations
alleging patent infringement. These lawsuits were filed on June 4, 1996, against
Geneva, on September 13, 1996, against Novopharm, on August 1, 1997, against
Mylan, on October 28, 1997, against Invamed and on April 6, 1998, against
Warner. These corporations contend that Abbott's patent which covers their
version of terazosin hydrochloride is invalid and unenforceable. Additionally,
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 will 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 may enter the market for terazosin hydrochloride under their
agreements. Both Zenith and Geneva would be free to enter the market for
terazosin hydrochloride
11
<PAGE>
in the United States, if certain of Abbott's patents for terazosin hydrochloride
were determined to be invalid and if another company legally enters the generic
market in the United States. 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 has appealed these rulings. On November 19, 1998, the judge
hearing the Warner case granted Warner's motion for summary judgment applying
the ruling issued September 1 in the Geneva, Novopharm and Invamed cases to the
Warner case as well. Abbott has appealed this ruling. Warner has voluntarily
dismissed its counterclaims that had alleged that Abbott's conduct with respect
to Hytrin-Registered Trademark- violated the antitrust laws. Mylan has also
filed a motion for summary judgment seeking to have the ruling issued September
1 in the Geneva, Novopharm and Invamed cases applied in its case, as well.
On December 18, 1998, Louisiana Wholesale Drug Co. sued Abbott, Geneva and
Zenith in the United States District Court for the Southern District of Florida
alleging that Abbott's agreements with Geneva and Zenith regarding terazosin
hydrochloride violate the federal antitrust laws. The case purports to be a
class action and seeks actual damages, treble damages, civil penalties, and
other relief. Abbott intends to file a response denying all substantive
allegations.
While it is not feasible to predict the outcome of such pending claims,
proceedings, and investigations with certainty, management is of the opinion
that their ultimate disposition should not have a material adverse effect on
Abbott's financial position, cash flows, or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
12
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
Officers of Abbott are elected annually by the board of directors at the
first meeting held after the annual shareholders meeting. Each officer holds
office until a successor has been duly elected and qualified or until the
officer's death, resignation, or removal. Vacancies may be filled at any meeting
of the board. Any officer may be removed by the board of directors when, in its
judgment, removal would serve the best interests of Abbott.
Current corporate officers, and their ages as of March 1, 1999, are listed
below. The officers' principal occupations and employment from January 1994 to
March 1, 1999 and the dates of their first election as officers of Abbott are
also shown. Unless otherwise stated, employment was by Abbott for the period
indicated. There are no family relationships between any corporate officers or
directors.
MILES D. WHITE**, 43
1994 -- Vice President, Diagnostic Systems and Operations.
1994 to 1998 -- Senior Vice President, Diagnostics Operations.
1998 to 1999 -- Executive Vice President and Director.
1999 to present -- Chief Executive Officer and Director.
Elected Corporate Officer -- 1993.
ROBERT L. PARKINSON, JR.** 48
1994 to 1995 -- Senior Vice President, Chemical and Agricultural Products.
1995 to 1998 -- Senior Vice President, International Operations.
1998 to 1999 -- Executive Vice President and Director.
1999 to present -- President, Chief Operating Officer and Director.
Elected Corporate Officer -- 1989.
JOY A. AMUNDSON**, 44
1994 -- Vice President, Corporate Hospital Marketing.
1994 to 1995 -- Vice President, Abbott HealthSystems.
1995 to 1998 -- Senior Vice President, Chemical and Agricultural Products.
1998 to present -- Senior Vice President, Ross Products.
Elected Corporate Officer -- 1990.
13
<PAGE>
THOMAS D. BROWN**, 50
1994 to 1998 -- Vice President, Diagnostics Commercial Operations.
1998 to present -- Senior Vice President, Diagnostics Operations.
Elected Corporate Officer -- 1993.
GARY P. COUGHLAN**, 55
1994 to present -- Senior Vice President, Finance and Chief Financial
Officer.
Elected Corporate Officer -- 1990.
JOSE M. DE LASA**, 57
1994 -- Vice President and Associate General Counsel, Bristol-Myers Squibb
Company (Health and personal care products company).
1994 -- Vice President, Secretary and Associate General Counsel,
Bristol-Myers Squibb Company.
1994 to present -- Senior Vice President, Secretary and General Counsel.
Elected Corporate Officer -- 1994.
WILLIAM G. DEMPSEY **, 47
1994 to 1995 -- Divisional Vice President and General Manager, Abbott
Critical Care Systems.
1995 to 1996 -- Divisional Vice President, Hospital Products Business Sector
Sales.
1996 to 1998 -- Vice President, Hospital Products Business Sector.
1998 to present -- Senior Vice President, Chemical and Agricultural
Products.
Elected Corporate Officer -- 1996.
RICHARD A. GONZALEZ**, 45
1994 to 1995 -- Divisional Vice President and General Manager, U.S. and
Canada, Diagnostic Products.
1995 to 1998 -- Vice President, Abbott HealthSystems.
1998 to present -- Senior Vice President, Hospital Products.
Elected Corporate Officer -- 1995.
ARTHUR J. HIGGINS**, 42
1994 -- Regional Director, Europe, Africa, and Middle East.
1994 to 1995 -- Divisional Vice President, Commercial Operations, Abbott
International Division.
1995 to 1996 -- Divisional Vice President, Pacific, Asia, and Africa
Operations.
1996 to 1998 -- Vice President, Pacific, Asia, and Africa Operations.
1998 to present -- Senior Vice President, Pharmaceutical Operations.
Elected Corporate Officer -- 1996.
14
<PAGE>
THOMAS M. WASCOE**, 52
1994 to 1999 -- Divisional Vice President, Human Resources, Diagnostics
Operations.
1999 to present -- Senior Vice President, Human Resources.
Elected Corporate Officer -- 1999.
JOSEF WENDLER**, 49
1994 to 1995 -- Vice President, Pacific, Asia, and Africa Operations.
1995 to 1998 -- Vice President, European Operations.
1998 to present -- Senior Vice President, International Operations.
Elected Corporate Officer -- 1993.
CATHERINE V. BABINGTON**, 46
1994 to 1995 -- Director, Corporate Communications.
1995 to present -- Vice President, Investor Relations and Public Affairs.
Elected Corporate Officer -- 1995.
PATRICK J. BALTHROP, 42
1994 to 1995 -- Divisional Vice President and Sector General Manager,
Diagnostic Products.
1995 to 1996 -- Divisional Vice President and General Manager, U.S. and
Canada, Diagnostic Products.
1996 to 1998 -- Vice President, Diagnostics Operations, U.S. and Canada.
1998 to present -- Vice President, Diagnostics Commercial Operations.
Elected Corporate Officer -- 1996.
MARK E. BARMAK, 57
1994 to 1995 -- Divisional Vice President and Associate General Counsel,
Litigation.
1995 to present -- Vice President, Litigation and Government Affairs.
Elected Corporate Officer -- 1995.
CHRISTOPHER B. BEGLEY**, 46
1994 to 1996 -- Vice President, Hospital Products Business Sector.
1996 to 1998 -- Vice President, MediSense Operations.
1998 to present -- Vice President, Abbott HealthSystems.
Elected Corporate Officer -- 1993.
15
<PAGE>
DOUGLAS C. BRYANT, 41
1994 to 1995 -- Regional Sales Manager, Diagnostics Division.
1995 to 1997 -- General Manager, United Kingdom and Ireland, Diagnostics
Division.
1997 to 1998 -- Commercial Director, Asia and Pacific, Diagnostics Division.
1998 to present -- Vice President, Diagnostics Operations, Asia and Pacific.
Elected Corporate Officer -- 1998.
GARY R. BYERS**, 57
1994 to present -- Vice President, Internal Audit.
Elected Corporate Officer -- 1993.
THOMAS F. CHEN, 49
1994 -- General Manager, Korea and Taiwan.
1994 to 1996 -- General Manager Taiwan and People's Republic of China Task
Force.
1996 to 1998 -- Regional Director, Taiwan and People's Republic of China.
1998 to present -- Vice President, Pacific, Asia, and Africa Operations.
Elected Corporate Officer -- 1998.
KENNETH W. FARMER**, 54
1994 to present -- Vice President, Management Information Services and
Administration.
Elected Corporate Officer -- 1985.
EDWARD J. FIORENTINO, 40
1994 -- Business Unit Director, Antimicrobials, Pharmaceuticals Division.
1994 to 1998 -- Divisional Vice President, Marketing, Pharmaceuticals
Division.
1998 to present -- Vice President, Pharmaceutical Products, Marketing and
Sales.
Elected Corporate Officer -- 1998.
THOMAS C. FREYMAN**, 44
1994 to present -- Vice President and Treasurer.
Elected Corporate Officer -- 1991.
STEPHEN R. FUSSELL, 41
1994 to 1996 -- Vice President, Total Compensation, Nestle USA (diversified
food company).
1996 to 1999 -- Divisional Vice President, Compensation and Benefits.
1999 to present -- Vice President, Compensation and Development.
Elected Corporate Officer -- 1999.
16
<PAGE>
DAVID B. GOFFREDO, 44
1994 to 1995 -- Divisional Vice President, Pharmaceutical Products Sales and
Marketing.
1995 to 1998 -- Vice President, Pharmaceutical Products, Marketing and
Sales.
1998 to present -- Vice President, European Operations.
Elected Corporate Officer -- 1995.
GUILLERMO A. HERRERA, 45
1994 -- Regional Director, Europe, Abbott International.
1994 -- General Manager, Abbott Spain and Portugal.
1994 to 1996 -- Area Vice President, Latin America.
1996 to 1998 -- Vice President, Latin America Operations.
1998 to present -- Vice President, Latin America and Canada Operations.
Elected Corporate Officer -- 1996.
JAY B. JOHNSTON, 55
1994 to present -- Vice President, Diagnostic Assays and Systems.
Elected Corporate Officer -- 1993.
JAMES J. KOZIARZ, 50
1994 to present -- Vice President, Diagnostic Products Research and
Development.
Elected Corporate Officer -- 1993.
JOHN M. LEONARD, 41
1994 to 1996 -- Venture Head, Pharmaceutical Products Research and
Development.
1996 to 1997 -- Therapeutic Area Venture Head, Pharmaceutical Products
Research and Development.
1997 to 1999 -- Divisional Vice President, Pharmaceutical Development,
Pharmaceutical Products Research and Development.
1999 to present -- Vice President, Pharmaceutical Development.
Elected Corporate Officer -- 1999.
JOHN F. LUSSEN**, 57
1994 to present -- Vice President, Taxes.
Elected Corporate Officer -- 1985.
17
<PAGE>
EDWARD L. MICHAEL, 42
1994 -- Business Unit Manager, Diagnostics Division.
1995 to 1996 -- Director, Area Operations and Scientific Development.
1997 to present -- Vice President, Diagnostics Operations, Europe, Africa,
and Middle East.
Elected Corporate Officer -- 1997.
DANIEL W. NORBECK, 40
1994 to 1995 -- Senior Project Leader, Pharmaceutical Products Research and
Development.
1995 to 1998 -- Divisional Vice President, Area Head, Pharmaceutical
Products Research and Development.
1998 to 1999 -- Divisional Vice President, Discovery, Pharmaceutical
Products Research and Development.
1999 to present -- Vice President, Pharmaceutical Discovery.
Elected Corporate Officer -- 1999.
THEODORE A. OLSON**, 60
1994 to present -- Vice President and Controller.
Elected Corporate Officer -- 1988.
WILLIAM H. STADTLANDER, 53
1994 to present -- Vice President, Ross Medical Nutritional Products.
Elected Corporate Officer -- 1993.
MARCIA A. THOMAS **, 51
1994 to 1995 -- Divisional Vice President and General Manager, Infectious
Diseases Diagnostics.
1995 to 1996 -- Divisional Vice President, Quality Assurance and Regulatory
Affairs, Diagnostics Division.
1996 to present -- Vice President, Quality Assurance and Regulatory Affairs.
Elected Corporate Officer -- 1996.
STEVEN J. WEGER, JR.**, 54
1994 to 1996 -- Divisional Vice President, Strategic Planning and Technology
Assessment, Diagnostics Division.
1996 to present -- Vice President, Corporate Planning and Development.
Elected Corporate Officer -- 1996.
18
<PAGE>
SUSAN M. WIDNER, 42
1994 to 1995 -- Business Unit Manager, Diagnostics Division.
1995 to 1996 -- Director, Venture Marketing, Diagnostics Division.
1996 to 1998 -- Divisional Vice President, Worldwide Marketing, Diagnostics
Division.
1998 to present -- Vice President, Diagnostics Operations, U.S. and Canada.
Elected Corporate Officer -- 1998.
LANCE B. WYATT**, 54
1994 to 1995 -- Divisional Vice President, Quality Assurance and Regulatory
Affairs, Pharmaceutical Division.
1995 to present -- Vice President, Corporate Engineering.
Elected Corporate Officer -- 1995.
- ------------------------
** Pursuant to Item 401(b) of Regulation S-K, Abbott has identified these
persons as "executive officers" within the meaning of Item 401(b).
19
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
PRINCIPAL MARKET
The principal market for Abbott's common shares is the New York Stock
Exchange. Shares are also listed on the Chicago Stock Exchange and the Pacific
Exchange and are traded on the Boston, Cincinnati, and Philadelphia Exchanges.
Outside the United States, Abbott's shares are listed on the London Stock
Exchange and the Swiss Stock Exchange.
<TABLE>
<CAPTION>
MARKET PRICE PER SHARE
-------------------------------------
<S> <C> <C> <C> <C>
1998 1997
----------------- -----------------
HIGH LOW HIGH LOW
------- ------- ------- -------
First Quarter................... 39 7/16 32 1/2 30 1/4 24 7/8
Second Quarter.................. 42 11/16 34 7/8 34 7/16 26 7/16
Third Quarter................... 45 11/16 36 5/8 34 1/4 29 3/8
Fourth Quarter.................. 50 1/16 39 34 5/8 28 1/2
</TABLE>
Market prices are as reported by the New York Stock Exchange composite
transaction reporting system. Pre-split prices have been adjusted to reflect the
May 1998 stock split.
SHAREHOLDERS
There were 107,209 shareholders of record of Abbott common shares as of
December 31, 1998.
DIVIDENDS
Quarterly dividends of $.15 per share and $.135 per share were declared on
common shares in 1998 and 1997, respectively after reflecting the May 1998 stock
split.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated herein by reference for the years 1994 through 1998 are the
applicable portions of the section captioned "Summary of Selected Financial
Data" of the 1998 Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Incorporated herein by reference is management's discussion and analysis of
financial condition and results of operations for the years 1998, 1997, and 1996
found under the section captioned "Financial Review" of the 1998 Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Incorporated herein by reference is the section captioned "Financial
Instruments and Risk Management" of the 1998 Annual Report.
20
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated herein by reference are the portions of the 1998 Annual Report
captioned Consolidated Statement of Earnings, Consolidated Statement of Cash
Flows, Consolidated Balance Sheet, Consolidated Statement of Shareholders'
Investment, Notes to Consolidated Financial Statements, and Report of
Independent Public Accountants (which contains the related report of Arthur
Andersen LLP dated January 14, 1999.) Data relating to quarterly results are
found in Note 11.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference are "Committees of the Board of Directors"
and "Information Concerning Nominees for Directors" found in the 1999 Abbott
Laboratories Proxy Statement ("1999 Proxy Statement"). Also incorporated herein
by reference is the text found under the caption, Executive Officers of The
Registrant on pages 13 through 19.
ITEM 11. EXECUTIVE COMPENSATION
The material in the 1999 Proxy Statement under the heading "Executive
Compensation," other than the Report of the Compensation Committee, the
Performance Graph, and Security Ownership of Executive Officers and Directors is
hereby incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference is the text found under the caption
"Information Concerning Security Ownership" and the material under the heading
"Security Ownership of Executive Officers and Directors" in the 1999 Proxy
Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS FORM 10-K.
1. FINANCIAL STATEMENTS: The Consolidated Financial Statements for the
years ended December 31, 1998, 1997, and 1996 and the related report of Arthur
Andersen LLP dated January 14, 1999, appearing under the portions of the 1998
Annual Report captioned Consolidated Statement of Earnings, Consolidated
Statement of Cash Flows, Consolidated Balance Sheet, Consolidated Statement of
Shareholders' Investment, Notes to Consolidated Financial Statements, and Report
of Independent Public Accountants, respectively, are incorporated by reference
in response to Item 14(a)1. With the exception of the portions of the 1998
Annual Report specifically incorporated herein by reference, such Report shall
not be deemed filed as part of this Annual Report on Form 10-K or otherwise
deemed subject to the liabilities of Section 18 of the Securities Exchange Act
of 1934.
21
<PAGE>
2. FINANCIAL STATEMENT SCHEDULES: The required financial statement
schedules are found on the pages indicated below. These schedules should be read
in conjunction with the Consolidated Financial Statements in the 1998 Annual
Report:
<TABLE>
<CAPTION>
SCHEDULES PAGE NO.
- ---------------------------------------------------------------------------------------------- -------------
<S> <C>
Valuation and Qualifying Accounts (Schedule II) 25
Schedules I, III, IV, and V are not submitted because they are not applicable or not required.
Supplemental Report of Independent Public Accountants 26
Individual Financial Statements of the registrant have been omitted pursuant to Rule 3.05,
paragraph (1) of Regulation S-X.
</TABLE>
3. EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K: The information called
for by this paragraph is incorporated herein by reference to the Exhibit Index
on pages 28, 29 and 30 of this Form 10-K.
(b) REPORTS ON FORM 8-K DURING THE QUARTER ENDED DECEMBER 31, 1998:
No reports on Form 8-K were filed during the quarter ended December 31,
1998.
(c) EXHIBITS FILED (SEE EXHIBIT INDEX ON PAGES 28, 29 AND 30).
(d) FINANCIAL STATEMENT SCHEDULES FILED (PAGE 25).
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Abbott Laboratories has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
ABBOTT LABORATORIES
By /s/ MILES D. WHITE
------------------------------------
Miles D. White
Chief Executive Officer
Date: February 12, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of Abbott
Laboratories on February 12, 1999 in the capacities indicated below.
/s/ DUANE L. BURNHAM
- -------------------------------------------
Duane L. Burnham
Chairman of the Board
and Director
/s/ MILES D. WHITE
- -------------------------------------------
Miles D. White
Chief Executive Officer and Director
(principal executive officer)
/s/ ROBERT L. PARKINSON, JR.
- -------------------------------------------
Robert L. Parkinson, Jr.
President, Chief Operating Officer
and Director
/s/ GARY P. COUGHLAN
- -------------------------------------------
Gary P. Coughlan
Senior Vice President, Finance and
Chief Financial Officer
(principal financial officer)
/s/ THEODORE A. OLSON
- -------------------------------------------
Theodore A. Olson
Vice President and Controller
(principal accounting officer)
/s/ K. FRANK AUSTEN, M.D.
- -------------------------------------------
K. Frank Austen, M.D.
Director
/s/ H. LAURANCE FULLER
- -------------------------------------------
H. Laurance Fuller
Director
/s/ DAVID A. JONES
- -------------------------------------------
David A. Jones
Director
/s/ DAVID A. L. OWEN
- -------------------------------------------
David A. L. Owen
Director
/s/ BOONE POWELL, JR.
- -------------------------------------------
Boone Powell, Jr.
Director
/s/ A. BARRY RAND
- -------------------------------------------
A. Barry Rand
Director
23
<PAGE>
/s/ W. ANN REYNOLDS
- -------------------------------------------
W. Ann Reynolds
Director
/s/ ROY S. ROBERTS
- -------------------------------------------
Roy S. Roberts
Director
/s/ WILLIAM D. SMITHBURG
- -------------------------------------------
William D. Smithburg
Director
/s/ JOHN R. WALTER
- -------------------------------------------
John R. Walter
Director
/s/ WILLIAM L. WEISS
- -------------------------------------------
William L. Weiss
Director
24
<PAGE>
ABBOTT LABORATORIES AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
(UNAUDITED)
<TABLE>
<CAPTION>
AMOUNTS
ALLOWANCES FOR DOUBTFUL BALANCE AT PROVISIONS CHARGED OFF
ACCOUNTS AND SALES BEGINNING CHARGED TO NET OF BALANCE AT
DEDUCTIONS OF YEAR INCOME(a) RECOVERIES END OF YEAR
- ------------------------------------------------------------ ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C>
1998................................................ 167,406 41,441 (17,895) 190,952
1997................................................ 153,424 28,193 (14,211) 167,406
1996................................................ 157,990 7,389 (11,955) 153,424
</TABLE>
(a) Represents provisions related to allowances for doubtful accounts and net
change in the allowances for sales deductions.
25
<PAGE>
SUPPLEMENTAL REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Abbott Laboratories:
We have audited in accordance with generally accepted auditing standards,
the financial statements included in Abbott's Annual Report incorporated by
reference in this Form 10-K, and have issued our report thereon dated January
14, 1999. Our audits were made for the purpose of forming an opinion on those
statements taken as a whole. Schedule II is the responsibility of Abbott's
management, is presented for purposes of complying with the Securities and
Exchange Commission's rules, and is not part of the basic financial statements.
This schedule has been subjected to the auditing procedures applied in the
audits of the basic financial statements and, in our opinion, fairly states in
all material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
January 14, 1999
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of the following into Abbott's previously filed S-8 Registration
Statements 33-4368 for the Abbott Laboratories 1986 Incentive Stock Program,
33-39798 for the Abbott Laboratories 1991 Incentive Stock Program, 333-09071,
333-43381 and 333-69547 for the Abbott Laboratories 1996 Incentive Stock
Program, 333-13091 for the Abbott Laboratories Ashland Union 401(k) Plan and
Trust, and 33-26685, 33-51585, 33-56897, 33-65127, 333-19511, 333-43383, and
333-69579 for the Abbott Laboratories Stock Retirement Plan and Trust and into
Abbott's previously filed S-3 Registration Statements 33-50253, 333-06155,
333-63481, and 333-65601:
1. Our supplemental report dated January 14, 1999 included in this Annual
Report on Form 10-K for the year ended December 31, 1998; and
2. Our report dated January 14, 1999 incorporated by reference in this
Annual Report on Form 10-K for the year ended December 31, 1998.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 9, 1999
27
<PAGE>
EXHIBIT INDEX
ABBOTT LABORATORIES
ANNUAL REPORT
FORM 10-K
1998
<TABLE>
<CAPTION>
10-K
EXHIBIT
TABLE
ITEM NO.
- ----------
<S> <C>
3.1 * Articles of Incorporation-Abbott Laboratories, filed as Exhibit 3.1 to the Abbott Laboratories
Quarterly Report on Form 10-Q for the Quarter ended March 31, 1998.
3.2 Corporate By-Laws-Abbott Laboratories.
4.1 * Indenture dated as of October 1, 1993, between Abbott Laboratories and Harris Trust and Savings Bank,
filed as Exhibit 4.1 to the Abbott Laboratories Quarterly Report for the Quarter ended September 30,
1993, on Form 10-Q.
4.2 * Form of 5.6% Note issued pursuant to the Indenture filed as Exhibit 4.2 to the Abbott Laboratories
Quarterly Report for the Quarter ended September 30, 1993, on Form 10-Q.
4.3 * Form of Medium-Term Note, Series A (Fixed Rate) to be issued pursuant to the Indenture filed as
Exhibit 4.3 to the Abbott Laboratories Quarterly Report for the Quarter ended September 30, 1993, on
Form 10-Q.
4.4 * Form of Medium-Term Note, Series A (Floating Rate) to be issued pursuant to the Indenture filed as
Exhibit 4.4 to the Abbott Laboratories Quarterly Report for the Quarter ended September 30, 1993, on
Form 10-Q.
4.5 * Resolution of Abbott's Board of Directors filed as Exhibit 4.5 to the Abbott Laboratories Quarterly
Report for the Quarter ended September 30, 1993, on Form 10-Q.
4.6 * Actions of the Authorized Officers with respect to Abbott's $200,000,000 5.6% Notes filed as Exhibit
4.6 to the Abbott Laboratories Quarterly Report for the Quarter ended September 30, 1993, on Form
10-Q.
4.7 * Actions of the Authorized Officers with respect to Abbott's Medium-Term Notes, Series A filed as
Exhibit 4.7 to the Abbott Laboratories Quarterly Report for the Quarter ended September 30, 1993, on
Form 10-Q.
4.8 * Officers' Certificate and Company Order with respect to Abbott's $200,000,000 5.6% Notes filed as
Exhibit 4.8 to the Abbott Laboratories Quarterly Report for the Quarter ended September 30, 1993, on
Form 10-Q.
4.9 * Form of 6.8% Note issued pursuant to Indenture filed as Exhibit 4.9 to the 1995 Abbott Laboratories
Annual Report on Form 10-K.
4.10 * Actions of Authorized Officers with respect to Abbott's $150,000,000 6.8% Notes filed as Exhibit 4.10
to the 1995 Abbott Laboratories Annual Report on Form 10-K.
4.11 * Officers' Certificate and Company Order with respect to Abbott's $150,000,000 6.8% Notes filed as
Exhibit 4.11 to the 1995 Abbott Laboratories Annual Report on Form 10-K.
4.12 * Resolution of Abbott's Board of Directors relating to the 6.4% Notes filed as Exhibit 4.12 to the 1996
Abbott Laboratories Annual Report on Form 10-K.
4.13 * Form of $50,000,000 6.4% Note issued pursuant to Indenture filed as Exhibit 4.13 to the 1996 Abbott
Laboratories Annual Report on Form 10-K.
4.14 * Form of $200,000,000 6.4% Note issued pursuant to Indenture filed as Exhibit 4.14 to the 1996 Abbott
Laboratories Annual Report on Form 10-K.
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
10-K
EXHIBIT
TABLE
ITEM NO.
- ----------
<S> <C>
4.15 * Actions of Authorized Officers with respect to Abbott's 6.4% Notes filed as Exhibit 4.15 to the 1996
Abbott Laboratories Annual Report on Form 10-K.
4.16 * Officers' Certificate and Company Order with respect to Abbott's 6.4% Notes filed as Exhibit 4.16 to
the 1996 Abbott Laboratories Annual Report on Form 10-K.
4.17 * Form of $200,000,000 6.0% Note issued pursuant to Indenture filed as Exhibit 4.2 to the Abbott
Laboratories Quarterly Report for the Quarter ended June 30, 1998, on Form 10-Q.
4.18 * Actions of Authorized Officers with respect to Abbott's 6.0% Note filed as Exhibit 4.3 to the Abbott
Laboratories Quarterly Report for the Quarter ended June 30, 1998, on Form 10-Q.
4.19 * Officers' Certificate and Company Order with respect to Abbott's 6.0% Note filed as Exhibit 4.4 to the
Abbott Laboratories Quarterly Report for the Quarter ended June 30, 1998, on Form 10-Q.
4.20 * Form of $200,000,000 5.40% Note issued pursuant to Indenture filed as Exhibit 4.2 to the Abbott
Laboratories Quarterly Report for the Quarter ended September 30, 1998, on Form 10-Q.
4.21 * Actions of Authorized Officers with respect to Abbott's 5.40% Note filed as Exhibit 4.3 to the Abbott
Laboratories Quarterly Report for the Quarter ended September 30, 1998, on Form 10-Q.
4.22 * Officers' Certificate and Company Order with respect to Abbott's 5.40% Note filed as Exhibit 4.4 to
the Abbott Laboratories Quarterly Report for the Quarter ended September 30, 1998, on Form 10-Q.
Other debt instruments are omitted in accordance with Item 601(b)(4)(iii)(A) of Regulation S-K. Copies
of such agreements will be furnished to the Securities and Exchange Commission upon request.
10.1 * Supplemental Plan Abbott Laboratories Extended Disability Plan, filed as an exhibit (pages 50-51) to
the 1992 Abbott Laboratories Annual Report on Form 10-K.**
10.2 * The Abbott Laboratories 1986 Incentive Stock Program filed as Exhibit 10.2 to the 1997 Abbott
Laboratories Annual Report on Form 10-K.**
10.3 * The Abbott Laboratories 1991 Incentive Stock Program filed as Exhibit 10.3 to the 1997 Abbott
Laboratories Annual Report on Form 10-K.**
10.4 * Consulting agreement between Abbott Laboratories and K. Frank Austen, M.D. dated, December 15, 1997
filed as Exhibit 10.4 to the 1997 Abbott Laboratories Annual Report on Form 10-K.**
10.5 * Abbott Laboratories 401(k) Supplemental Plan, filed as Exhibit 10.7 to the Abbott Laboratories 1993
Annual Report on Form 10-K.**
10.6 * Abbott Laboratories Supplemental Pension Plan filed as Exhibit 10.1 to the Abbott Laboratories
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.**
10.7 * The 1986 Abbott Laboratories Management Incentive Plan filed as Exhibit 10.1 to the Abbott
Laboratories Quarterly Report on Form 10-Q for the quarter ended June 30, 1997.**
10.8 Abbott Laboratories Non-Employee Directors' Fee Plan.**
10.9 * The Abbott Laboratories 1996 Incentive Stock Program filed as Exhibit 10.9 to the 1997 Abbott
Laboratories Annual Report on Form 10-K.**
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
10-K
EXHIBIT
TABLE
ITEM NO.
- ----------
<S> <C>
10.10 * 1998 Abbott Performance Incentive Plan filed as Exhibit 10.1 to the Abbott Laboratories Quarterly
Report on Form 10-Q for the quarter ended March 31, 1998. **
10.11 Consulting arrangement between Abbott Laboratories and Duane L. Burnham dated, December 23, 1998.**
12 Computation of Ratio of Earnings to Fixed Charges.
13 The portions of the Abbott Laboratories Annual Report for the year ended December 31, 1998 captioned
Consolidated Statement of Earnings, Consolidated Statement of Cash Flows, Consolidated Balance Sheet,
Consolidated Statement of Shareholders' Investment, Notes to Consolidated Financial Statements, Report
of Independent Public Accountants, Financial Instruments and Risk Management, Financial Review, and
the applicable portions of the section captioned Summary of Financial Data for the years 1994 through
1998.
21 Subsidiaries of Abbott Laboratories.
23 Consent of Independent Public Accountants.
27 Financial Data Schedule.
99.1 Cautionary Statement Regarding Forward-Looking Statements.
The 1999 Abbott Laboratories Proxy Statement will be filed with the Securities and Exchange Commission
under separate cover on or about March 9, 1999.
</TABLE>
- ------------------------
* Incorporated herein by reference. Commission file number 1-2189.
** Denotes management contract or compensatory plan or arrangement required to
be filed as an exhibit hereto.
Abbott will furnish copies of any of the above exhibits to a shareholder
upon written request to the Corporate Secretary, Abbott Laboratories, 100 Abbott
Park Road, Abbott Park, Illinois 60064-6400.
30
<PAGE>
Exhibit 3.2
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 9, 1998
<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
<PAGE>
BY-LAWS
Page 6
may 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 sixteen. 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 reason of an increase in the number of
Directors, may be filled by
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Page 8
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
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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.
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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,
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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.
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.
<PAGE>
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Page 12
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.
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.
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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.
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
<PAGE>
BY-LAWS
Page 14
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 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;
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BY-LAWS
Page 15
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.
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 "[Logo]" and shall have inscribed
thereon the name of the Corporation and the words "an Illinois Corporation."
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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>
Amended effective April 23, 1999
ABBOTT LABORATORIES NON-EMPLOYEE DIRECTORS' FEE PLAN
SECTION 1
PURPOSE
ABBOTT LABORATORIES NON-EMPLOYEE DIRECTORS' FEE PLAN - referred to below
as the "Plan" - has been established by ABBOTT LABORATORIES - referred to below
as the "Company" - to attract and retain as members of its Board of Directors
persons who are not full-time employees of the Company or any of its
subsidiaries but whose business experience and judgment are a valuable asset to
the Company and its subsidiaries.
SECTION 2
DIRECTORS COVERED
As used in the Plan, the term "Director" means any person who is elected
to the Board of Directors of the Company in April, 1962 or at any time
thereafter, and is not a full-time employee of the Company or any of its
subsidiaries.
SECTION 3
FEES PAYABLE TO DIRECTORS
3.1 Each Director shall be entitled to a deferred monthly fee of Five
Thousand Dollars ($5,000.00) for each calendar month or portion thereof
(excluding the month in which he is first elected a Director) that he holds
such office with the Company.
3.2 A Director who serves as Chairman of the Executive Committee of the
Board of Directors shall be entitled to a deferred monthly fee of One Thousand
Six Hundred Dollars ($1,600.00) for each calendar month or portion thereof
(excluding the month in which he is first elected to such position) that he
holds such position.
3.3 A Director who serves as Chairman of the Audit Committee of the Board
of Directors shall be entitled to a deferred monthly fee of Six Hundred
Sixty-Seven Dollars ($667.00) for each calendar month or portion thereof
(excluding the month in which he is first elected to such position) that he
holds such position.
3.4 A Director who serves as Chairman of the Compensation Committee of
the Board of Directors shall be entitled to a deferred monthly fee of Six
Hundred Sixty-Seven Dollars ($667.00) for each calendar month or portion
thereof (excluding the month in which he is first elected to such position)
that he holds such position.
3.5 A Director who serves as Chairman of the Nominations Committee of the
Board of Directors shall be entitled to a deferred monthly fee of Six Hundred
Sixty-Seven Dollars ($667.00) for each calendar month or portion thereof
(excluding the month in which he is first elected to such position) that he
holds such position.
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3.6 A Director who serves as Chairman of any other Committee created by
this Board of Directors shall be entitled to a deferred monthly fee of Six
Hundred Sixty-Seven Dollars ($667.00) for each calendar month or portion
thereof (excluding the month in which he is first elected to such position)
that he holds such position.
3.7 A Director's Deferred Fee Account shall be credited with interest
annually. During the calendar years 1968 and prior, the rate of interest
credited to deferred fees shall be four (4) percent per annum. During the
calendar years 1969 through 1992, the rate of interest credited to deferred
fees shall be the average of the prime rates being charged by two largest
commercial banks in the City of Chicago as of the end of the month coincident
with or last preceding the date upon which said interest is so credited.
During the calendar years 1993 and subsequent, the rate of interest credited to
deferred fees shall be equal to: (a) the average of the prime rates being
charged by the two largest commercial banks in the City of Chicago as of the
end of the month coincident with or last preceding the date upon which said
interest is so credited; plus (b) two hundred twenty-five (225) basis points.
For purposes of the provisions of the Plan, the term "deferred fees" shall
include "deferred monthly fees," and "deferred meeting fees," and shall also
include any such interest credited thereon.
SECTION 4
PAYMENT OF DIRECTORS' FEES
4.1 A Director's deferred fees earned pursuant to the Plan shall commence
to be paid on the first day of the calendar month next following the earlier of
his death or his attainment of age sixty-five (65) if he is not then serving as
a Director, or the termination of his service as a Director if he serves as a
Director after the attainment of age sixty-five (65); provided that any
Director may, by written notice filed with the Secretary of the Company, elect
to receive current payment of all or any portion of the monthly and meeting
fees earned by him in calendar years subsequent to the calendar year in which
he files such notice (or all or any portion of such fees earned by him in the
calendar year he first becomes a Director, if such notice is filed within 30
days of becoming a Director), in which case such fees or the portion thereof so
designated earned in such calendar years shall not be deferred but shall be
paid quarterly as earned and no interest shall be credited thereon. Such
election may be revoked or modified by any Director by written notice to the
Secretary of the Company as to fees to be earned by him in calendar years
subsequent to the calendar year in which he files such notice.
4.2 After a Director's deferred fees shall have commenced to be payable
pursuant to Paragraph 4.1 they shall be payable in annual installments in the
order in which they shall have been deferred (i.e. the deferred fees for the
earliest year of service as a Director will be paid on the date provided for in
Section 4.1, the deferred fees for the next earliest year of service as a
Director will be paid on the anniversary of the payment of the first
installment, etc.).
4.3 A Director's deferred fees shall continue to be paid until all
deferred fees which he is entitled to receive under the Plan shall have been
paid to him (or, in case of his death, to his beneficiary).
<PAGE>
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4.4 Notwithstanding any other provisions of the Plan, if a Director's
service as a Director should terminate for any reason within five (5) years
after the date of a Change in Control, the aggregate unpaid balance of such
Director's deferred fees plus all unpaid interest credited thereon, shall be
paid to such Director in a lump sum within thirty (30) days following the date
of such termination.
4.5 A "Change in Control" shall be deemed to have occurred on the
earliest of the following dates:
(i) The date any entity or person (including a "group" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934 (the "Exchange
Act")) shall have become the beneficial owner of, or shall have
obtained voting control over thirty percent (30%) or more of the
outstanding common shares of the Company;
(ii) The date the shareholders of the Company approve a definitive
agreement (A) to merge or consolidate the Company with or into another
corporation, in which the Company is not the continuing or surviving
corporation or pursuant to which any common shares of the company
would be converted into cash, securities or other property of another
corporation, other than a merger of the Company in which holders of
common shares immediately prior to the merger have the same
proportionate ownership of common stock of the surviving corporation
immediately after the merger as immediately before, or (B) to sell or
otherwise dispose of substantially all the assets of the Company; or
(iii) The date there shall have been a change in a majority of the Board of
Directors of the Company within a twelve (12) month period unless the
nomination for election by the Company's shareholders of each new
director was approved by the vote of two-thirds of the directors then
still in office who were in office at the beginning of the twelve (12)
month period.
4.6 The provisions of Paragraphs 4.4 and 4.5 and this Paragraph 4.6 may
not be amended or deleted, nor superseded by any other provision of the Plan,
during the period beginning on the date of a Change in Control and ending on
the date five (5) years following such Change in Control.
SECTION 5
DIRECTORS' RETIREMENT BENEFIT
5.1 Effective April 30, 1998, each of the persons serving as a Director
on December 12, 1997 shall be credited with a retirement benefit of $4,167 a
month for 120 months of continuous service and no additional retirement
benefits shall accrue under the Plan. Each of the persons serving as a
Director on December 12, 1997 may elect: (a) to have his or her retirement
benefit under the Plan treated as provided in Section 5.2 of the Plan; or (b)
to have the present value of that retirement benefit credited to an unfunded
phantom stock account and converted into phantom stock units based on the
closing price of the Company's common stock on April 30, 1998, with those
phantom stock units then being credited with the same cash and stock dividends,
stock splits and other distributions and adjustments as are paid on the
Company's common stock. The phantom stock units shall be payable to the
Director in annual payments commencing on the first day of the calendar month
next following the earlier of the Director's death or termination of service as
a Director, in an amount determined by the closing price of the
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Company's common stock on the first business day preceding the payment date.
Unless the retirement benefit is terminated, the annual benefit shall continue
to be paid on the anniversary of the day on which the first such retirement
benefit payment was made, until the benefit has been paid for ten years, or
until the death of the Director or surviving spouse, if earlier. If a Director
should die with such benefit still in effect, prior to receipt of all payments
due hereunder, the annual benefit shall continue to be paid to the surviving
spouse of such Director until all payments due hereunder have been made or
until the death of the surviving spouse, if earlier.
5.2 Any person serving as a Director on December 12, 1997 who elects to
have his or her retirement benefit paid pursuant to this Section 5.2 shall
receive a monthly benefit equal to $4,167. Payment of the monthly benefit
shall commence on the first day of the calendar month next following the
earlier of the Director's death or termination of service as a Director.
Unless the retirement benefit is terminated, the monthly benefit shall continue
to be paid on the first day of each calendar month thereafter, until the
benefit has been paid for one hundred and twenty (120) months, or until the
death of the Director or surviving spouse, if earlier. If a Director should
die with such benefit still in effect, prior to receipt of all payments due
hereunder, the monthly benefit shall continue to the surviving spouse of such
Director until all payments due hereunder have been made or until the death of
the surviving spouse, if earlier.
5.3 Directors who retired on or before December 12, 1997 will receive the
form and amount of retirement benefit payable under the terms of the Plan in
effect at the time of their retirement.
5.4 Each Director who is granted a retirement benefit hereunder shall
make him or herself available for such consultation with the Board of Directors
or any committee or member thereof, as may be reasonably requested from time to
time by the Chairman of the Board of Directors, following such Director's
termination of service as a Director. The Company shall reimburse each such
Director for all reasonable travel, lodging and subsistence expenses incurred
by the Director at the request of the Company in rendering such consultation.
The Company may terminate the retirement benefit if the Director should fail to
render such consultation, unless prevented by disability or other reason beyond
the Director's control.
5.5 It is recognized that during a Director's period of service as a
Director and as a consultant hereunder, a Director will acquire knowledge of
the affairs of the Company and its subsidiaries, the disclosure of which would
be contrary to the best interests of the Company. Accordingly, the Company may
terminate the retirement benefit if, without the express consent of the
Company, the Director accepts election to the Board of Directors of, acquires a
partnership or proprietary interest in, or renders services as an employee or
consultant to, any business entity which is engaged in substantial competition
with the Company or any of its subsidiaries.
5.6 An individual will be considered a Director's "surviving spouse" for
purposes of this Section 5 only if the Director and such individual were
married in a religious or civil ceremony recognized under the laws of the state
where the marriage was contracted and the marriage
<PAGE>
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remained legally effective at the date of the Director's death.
SECTION 6
CONVERSION TO COMMON STOCK UNITS
6.1 Any Director who is then serving as a director may, by written notice
filed with the Secretary of the Company, elect to have all or any portion of
deferred fees previously earned but not yet paid, transferred from the
Director's Deferred Fee Account to a Stock Account maintained on his or her
behalf pursuant to paragraph 9.3. Any election as to a portion of such fees
shall be expressed as a percentage and the same percentage shall be applied to
all such fees regardless of the calendar year in which earned or to all
deferred fees earned in designated calendar years, as specified by the
Director. A Director may make no more than one election under this paragraph
6.l in any calendar year. All such elections may apply only to deferred fees
for which an election has not previously been made and shall be irrevocable.
6.2 Any Director may, by written notice filed with the Secretary of the
Company, elect to have all or any portion of deferred fees earned subsequent to
the date such notice is filed credited to a Stock Account established under
this Section 6. Fees covered by such election shall be credited to such account
at the end of each calendar quarter in, or for which, such fees are earned.
Such election may be revoked or modified by such Director, by written notice
filed with the Secretary of the Company, as to deferred fees to be earned in
calendar years subsequent to the calendar year such notice is filed, but shall
be irrevocable as to deferred fees earned prior to such year.
6.3 Deferred fees credited to a Stock Account under paragraph 6.1 shall
be converted to Common Stock Units by dividing the deferred fees so credited by
the closing price of common shares of the Company on the date notice of
election under paragraph 6.1 is received by the Company (or the next business
day, if there are no sales on such date) as reported on the New York Stock
Exchange Composite Reporting System. Deferred fees credited to a Stock Account
under paragraph 6.2 shall be converted to Common Stock Units by dividing the
deferred fees so credited by the closing price of common shares of the Company
as of the last business day of the calendar quarter for which the credit is
made, as reported on the New York Stock Exchange Composite Reporting System.
6.4 Each Common Stock Unit shall be credited with the same cash and stock
dividends, stock splits and other distributions and adjustments as are received
by one common share of the Company. All cash dividends and other cash
distributions credited to Common Stock Units shall be converted to additional
Common Stock Units by dividing each such dividend or distribution by the
closing price of common shares of the Company on the payment date for such
dividend or distribution, as reported by the New York Stock Exchange Composite
Reporting System.
6.5 The value of the Common Stock Units credited each Director shall be
paid the Director in cash on the dates specified in paragraph 4.2 (or, if
applicable, paragraph 4.4). The amount of each payment shall be determined by
multiplying the Common Stock Units payable on each date specified in paragraph
4.2 (or, if applicable, paragraph 4.4) by the closing price of common shares of
the Company on the day prior to that date (or the next preceding business day
if there are no sales on such date), as reported by the New York Stock Exchange
Composite Reporting System.
<PAGE>
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SECTION 7
MISCELLANEOUS
7.1 Each Director or former Director entitled to payment of deferred fees
hereunder, from time to time may name any person or persons (who may be named
contingently or successively) to whom any deferred Director's fees earned by
him and payable to him are to be paid in case of his death before he receives
any or all of such deferred Director's fees. Each designation will revoke all
prior designations by the same Director or former Director, shall be in form
prescribed by the Company, and will be effective only when filed by the
Director or former Director in writing with the Secretary of the Company during
his lifetime. If a deceased Director or former Director shall have failed to
name a beneficiary in the manner provided above, or if the beneficiary named by
a deceased Director or former Director dies before him or before payment of all
the Director's or former Director's deferred Directors' fees, the Company, in
its discretion, may direct payment in a single sum of any remaining deferred
Directors' fees to either:
(a) any one or more or all of the next of kin (including the
surviving spouse) of the Director or former Director, and in such
proportions as the Company determines; or
(b) the legal representative or representatives of the estate of the
last to die of the Director or former Director and his last
surviving beneficiary.
The person or persons to whom any deceased Director's or former Director's
deferred Directors' fees are payable under this paragraph will be referred to
as his "beneficiary."
7.2 Establishment of the Plan and coverage thereunder of any person shall
not be construed to confer any right on the part of such person to be nominated
for reelection to the Board of Directors of the Company, or to be reelected to
the Board of Directors.
7.3 Payment of deferred Directors' fees will be made only to the person
entitled thereto in accordance with the terms of the Plan, and deferred
Directors' fees are not in any way subject to the debts or other obligations of
persons entitled thereto, and may not be voluntarily or involuntarily sold,
transferred or assigned. When a person entitled to a payment under the Plan is
under legal disability or, in the Company's opinion, is in any way
incapacitated so as to be unable to manage his financial affairs, the Company
may direct that payment be made to such person's legal representative, or to a
relative or friend of such person for his benefit. Any payment made in
accordance with the preceding sentence shall be in complete discharge of the
Company's obligation to make such payment under the Plan.
7.4 Any action required or permitted to be taken by the Company under the
terms of the Plan shall be by affirmative vote of a majority of the members of
the Board of Directors then in office.
<PAGE>
-7-
SECTION 8
AMENDMENT AND DISCONTINUANCE
While the Company expects to continue the Plan, it must necessarily
reserve, and does hereby reserve, the right to amend or discontinue the Plan at
any time; provided, however, that any amendment or discontinuance of the Plan
shall be prospective in operation only, and shall not affect the payment of any
deferred Directors' fees theretofore earned by any Director, or the conditions
under which any such fees are to be paid or forfeited under the Plan, unless
the Director affected shall expressly consent thereto.
SECTION 9
ALTERNATE PAYMENT OF DEFERRED FEES
9.1 By written notice filed with the Secretary of the Company prior to
calendar years beginning after December 31, 1988 (or, for the calendar year he
first becomes a Director within 30 days of becoming a Director), a Director may
elect to receive all or any portion of his deferred fees earned in such
calendar years in a lump sum in accordance with the provisions of this Section
9. An election under this subsection 9.1 may be revoked or modified by the
Director by written notice to the Secretary of the Company as to deferred fees
earned under Section 3 in calendar years beginning after the calendar year in
which he files such notice. Any amounts that were deferred for calendar years
beginning before January 1, 1989 shall automatically be paid as provided in
this Section 9.
9.2 If payment of a Director's deferred fees is made pursuant to
paragraph 9.1, a portion of such fees shall be paid in cash for the Director
directly to a "Grantor Trust" established by the Director, provided such trust
is in a form which the Company determines to be substantially similar to the
trust attached to this plan as Exhibit A; and the balance of the deferred fees
shall be paid in cash directly to the Director, provided that the payment made
directly to the Director shall approximate the aggregate federal, state and
local individual income taxes attributable to the deferred fees paid pursuant
to this paragraph 9.2.
9.3 The Company will establish and maintain four separate accounts in the
name of each Director, "a Deferred Fee Account", a "Deferred Fee Trust
Account", a "Stock Account" and a "Stock Trust Account". The Deferred Fee
Account shall reflect the deferred fees and interest to be credited to a
Director pursuant to Section 3. The Deferred Fee Trust Account shall reflect
any deferred fees paid in cash to a Director (including amounts paid to a
Director's Grantor Trust and allocated to the deferred account maintained
thereunder) pursuant to paragraph 9.2 and any adjustments made pursuant to
paragraph 9.4. The Stock Account shall reflect the deferred fees converted to
Common Stock Units pursuant to Section 6 and any adjustments made pursuant to
that Section. The Stock Trust Account shall reflect deferred fees that have
been converted to Common Stock Units under Section 6 and paid in cash to a
Director (including amounts paid to a Director's Grantor Trust and allocated to
the stock account maintained thereunder) pursuant to paragraph 9.2 and any
adjustments made pursuant to paragraph 9.5. The Accounts established pursuant
to this paragraph 9.3 are for the convenience of the administration of the plan
and no trust relationship with respect to such Accounts is intended or should
be implied.
<PAGE>
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9.4 As of the end of each calendar year, the Company shall adjust each
Director's Deferred Fee Trust Account as follows:
(a) FIRST, charge an amount equal to the product of: (i) any
payments made to the Director during that year from the deferred
account maintained under his or her Grantor Trust (other than
distributions of trust earnings in excess of the Net Interest
Accrual authorized by the administrator of the trust to provide
for the Tax Gross Up under paragraph 9.9 below); multiplied by
(ii) a fraction, the numerator of which is the balance in the
Director's Deferred Fee Trust Account as of the end of the prior
calendar year and the denominator of which is the balance in the
deferred account maintained under the Director's Grantor Trust
(as determined by the administrator of the trust) as of that same
date;
(b) NEXT, credit an amount equal to the deferred fees that have not
been converted to Common Stock Units that are paid that year to
the Director (including the amount paid to the Director's Grantor
Trust and allocated to the deferred account maintained
thereunder) pursuant to paragraph 9.2; and
(c) FINALLY, credit an amount equal to the Interest Accrual earned
for that year pursuant to paragraph 9.6.
9.5 As of the end of each calendar year, the Company shall adjust each
Director's Stock Trust Account as follows:
(a) FIRST, charge an amount equal to the product of: (i) any payments
made to the Director during that year from the stock account
maintained under his or her Grantor Trust (other than
distributions of trust earnings authorized by the administrator
of the trust to provide for the Tax Gross Up under paragraph 9.9
below); multiplied by (ii) a fraction, the numerator of which is
the balance in the Director's Stock Trust Account as of the end
of the prior calendar year and the denominator of which is the
balance in the stock account maintained under the Director's
Grantor Trust (as determined by the administrator of the trust)
as of that same date;
(b) NEXT, credit an amount equal to the deferred fees that have been
converted to Common Stock Units that are paid that year to the
Director (including the amount paid to the Director's Grantor
Trust and allocated to the stock account maintained thereunder)
pursuant to paragraph 9.2; and
(c) FINALLY, credit an amount equal to the Book Value Adjustments to
be made for that year pursuant to paragraph 9.6.
9.6 As of the end of each calendar year, a Director's Deferred Fee Trust
Account shall be credited with interest at the rate described in paragraph 3.7.
Any amount so credited shall be referred to as a Director's "Interest Accrual".
As of that same date, a Director's Stock Trust Account shall be adjusted as
provided in paragraph 6.4, and shall also be adjusted to reflect the
<PAGE>
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increase or decrease in the fair market value of the Company's common stock
determined in accordance with paragraph 6.5. Such adjustments shall be
referred to as "Book Value Adjustments."
9.7 In addition to any fees earned by a Director under Section 3 of this
plan or paid under paragraphs 4.1 or 9.1 the Company shall also make a payment
to a Director's Grantor Trust (a "Guaranteed Rate Payment"), to be credited to
the deferred account maintained thereunder, for any year in which the net
income credited to the deferred account maintained under such trust does not
equal or exceed the Director's Net Interest Accrual for that year. A
Director's "Net Interest Accrual" for a year is an amount equal to: (a) the
Interest Accrual credited to the Director's Deferred Fee Trust Account for that
year; less (b) the product of (i) the amount of such Interest Accrual,
multiplied by (ii) the aggregate of the federal, state and local individual
income tax rates (determined in accordance with paragraph 9.10). The
Guaranteed Rate Payment shall equal the difference between the Director's Net
Interest Accrual and the net income credited to the deferred account maintained
under the Director's Grantor Trust for the year, and shall be paid within 90
days of the end of that year.
9.8 The Company shall also make a payment to a Director's Grantor Trust
(a "Guaranteed Principal Payment"), to be credited to the stock account
maintained thereunder, to the extent that the balance in the stock account
as of the end of any calendar year is less than 75 percent of the balance of
the Director's Stock Trust Account (net of federal, state and local income
taxes) as of that same date. For the calendar year in which the last
installment distribution is made from the Director's Grantor Trust, the payment
made under this paragraph 9.8 shall equal the amount, if any, needed to
increase the fair market value of the stock account maintained under the
Director's Grantor Trust; such that if a distribution of the stock account were
then made to the Director, the Director would receive the same amount he or she
would have received (net of federal, state and local income taxes) if his or
her Stock Trust Account were to be distributed on that same date with the
deferred fees that had been allocated to that Account taxed at the federal,
state and local income tax rates in effect on the date the fees were credited
to the Account and the balance of the Account taxed at the federal, state and
local income tax rates in effect on the date of the distribution. Payments
required under this paragraph 9.8 shall be made within 90 days of the end of
the calendar year, except the last payment which shall be made not later than
the due date of the last installment distribution from the Director's Grantor
Trust.
9.9 In addition to the fees provided under Section 3, each Director (or,
if the Director is deceased, the beneficiary designated under the Director's
Grantor Trust) shall be entitled to a Tax Gross Up payment for each year there
is a balance in his or her Deferred Fee Trust Account or Stock Trust Account.
The "Tax Gross Up" shall approximate: (a) the amount necessary to compensate
the Director (or beneficiary) for the net increase in his or her federal, state
and local income taxes as a result of the inclusion in the Director's (or
beneficiary's) taxable income of the income of his or her Grantor Trust and any
Guaranteed Rate and Guaranteed Principal Payments for that year; less (b) any
distribution to the Director (or beneficiary) of his or her Grantor Trust's net
earnings for that year; plus (c) an amount necessary to compensate the Director
(or beneficiary) for the net increase in the taxes described in (a) above as a
result of the inclusion in his or her taxable income of any payment made
pursuant to this paragraph 9.9.
<PAGE>
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9.10 For purposes of this Section, a Director's federal income tax rate
shall be deemed to be the highest marginal rate of federal individual income
tax in effect in the calendar year in which a calculation under this Section is
to be made and state and local tax rates shall be deemed to be the highest
marginal rates of individual income tax in effect in the state and locality of
the Director's residence on the date such a calculation is made, net of any
federal tax benefits. Notwithstanding the preceding sentence, if a Director is
not a citizen or resident of the United States, his or her income tax rates
shall be deemed to be the highest marginal income tax rates actually imposed on
the Director's benefits under this Plan or earnings under his or her Grantor
Trust.
<PAGE>
Exhibit A
IRREVOCABLE GRANTOR TRUST AGREEMENT
THIS AGREEMENT, made this ______ day of ________, 198_, by and between
_____________ of ______, ______ (the "grantor"), and The Northern Trust Company,
located at Chicago, Illinois, as trustee (the "trustee"),
WITNESSETH THAT:
WHEREAS, the grantor desires to establish and maintain a trust to hold
certain benefits received by the grantor under the Abbott Laboratories
Non-Employee Directors' Fee Plan, as it may be amended from time to time;
NOW, THEREFORE, IT IS AGREED as follows:
ARTICLE I
INTRODUCTION
I-1. NAME. This agreement and the trust hereby evidenced (the "trust")
may be referred to as the "________ 1988 Grantor Trust".
I-2. THE TRUST FUND. The "trust fund" as at any date means all property
then held by the trustee under this agreement.
I-3. STATUS OF THE TRUST. The trust shall be irrevocable. The trust is
intended to constitute a grantor trust under Sections 671-678 of the Internal
Revenue Code, as amended, and shall be construed accordingly.
I-4. THE ADMINISTRATOR. Abbott Laboratories ("Abbott") shall act as the
"administrator" of the trust, and as such shall have certain powers, rights and
duties under this agreement as described below. Abbott will certify to the
trustee from time to time the person or persons authorized to act on behalf of
Abbott as the administrator. The trustee may rely on the latest certificate
received without further inquiry or verification.
I-5. ACCEPTANCE. The trustee accepts the duties and obligations of the
"trustee" hereunder, agrees to accept funds delivered to it by the grantor or
the administrator, and agrees to hold such funds (and any proceeds from the
investment of such funds) in trust in accordance with this agreement.
<PAGE>
ARTICLE II
DISTRIBUTION OF THE TRUST FUND
II-1. SEPARATE ACCOUNTS. The administrator shall maintain two separate
accounts under the trust, a "deferred account" and a "stock account." Funds
delivered to the trustee shall be allocated between the accounts by the trustee
as directed by the administrator. As of the end of each calendar year, the
administrator shall charge each account with all distributions made from such
account during that year; and credit each account with its share of income and
realized gains and charge each account with its share of expenses and realized
losses for the year. The trustee shall be required to make separate
investments of the trust fund for the accounts, and may not administer and
invest all funds delivered to it under the trust as one trust fund.
II-2. DISTRIBUTIONS PRIOR TO THE GRANTOR'S DEATH. Principal and
accumulated income shall not be distributed from the trust prior to the
grantor's termination of service as a Director of Abbott (the grantor's
"settlement date"); provided that, each year the administrator may direct the
trustee to distribute to the grantor a portion of the income of the trust fund
for that year, with the balance of such income to be accumulated in the trust.
The administrator shall inform the trustee of the grantor's settlement date.
Thereafter, the trustee shall distribute the trust fund to the grantor, if then
living, in a series of annual installments, commencing on the first day of the
month next following the later of the grantor's settlement date or the date the
grantor attains age 65 years. The administrator shall inform the trustee of
the number of installment distributions and the amount of each installment
distribution under this paragraph II-2, and the trustee shall be fully
protected in relying on such information received from the administrator.
II-3. DISTRIBUTIONS AFTER THE GRANTOR'S DEATH. The grantor, from time to
time may name any person or persons (who may be named contingently or
successively and who may be natural persons or fiduciaries) to whom the
principal of the trust fund and all accrued or undistributed income thereof
shall be distributed in a lump sum or, if the beneficiary is the grantor's
spouse, in installments, as directed by the grantor, upon the grantor's death.
If the grantor directs an installment method of distribution, any amounts
remaining at the death of the spouse beneficiary shall be distributed in a lump
sum. Each designation shall revoke all prior designations, shall be in writing
and shall be effective only when filed by the grantor with the administrator
during the grantor's lifetime. If the grantor fails to direct a method of
distribution, the distribution shall be made in a lump sum. If the grantor
fails to designate a beneficiary as provided above, then on the grantor's
death, the trustee shall distribute the balance of the trust fund in a lump sum
to the executor or administrator of the grantor's estate.
II-4. FACILITY OF PAYMENT. When a person entitled to a distribution
hereunder is under legal disability, or, in the trustee's opinion, is in any
way incapacitated so as to be unable to manage his or her financial affairs,
the trustee may make such distribution to such person's legal representative,
or to a relative or friend of such person for such person's benefit. Any
distribution made in accordance with the preceding sentence shall be a full and
complete discharge of any liability for such distribution hereunder.
<PAGE>
II-5. PERPETUITIES. Notwithstanding any other provisions of this
agreement, on the day next preceding the end of 21 years after the death of the
last to die of the grantor and the grantor's descendants living on the date of
this instrument, the trustee shall immediately distribute any remaining balance
in the trust to the beneficiaries then entitled to distributions hereunder.
<PAGE>
ARTICLE III
MANAGEMENT OF THE TRUST FUND
III-1. GENERAL POWERS. The trustee shall, with respect to the trust
fund, have the following powers, rights and duties in addition to those
provided elsewhere in this agreement or by law:
(a) Subject to the limitations of subparagraph (b) next below, to
sell, contract to sell, purchase, grant or exercise options to
purchase, and otherwise deal with all assets of the trust fund,
in such way, for such considerations, and on such terms and
conditions as the trustee decides.
(b) To retain in cash such amounts as the trustee considers
advisable; and to invest and reinvest the balance of the trust
fund, without distinction between principal and income, in common
stock of Abbott Laboratories, or in obligations of the United
States Government and its agencies or which are backed by the
full faith and credit of the United States Government or in any
mutual fund, common trust fund or collective investment fund
which invests solely in such obligations; and any such investment
made or retained by the trustee in good faith shall be proper
despite any resulting risk or lack of diversification or
marketability.
(c) To deposit cash in any depositary (including the banking
department of the bank acting as trustee) without liability for
interest, and to invest cash in savings accounts or time
certificates of deposit bearing a reasonable rate of interest in
any such depositary.
(d) To invest, subject to the limitations of subparagraph (b) above,
in any common or commingled trust fund or funds maintained or
administered by the trustee solely for the investment of trust
funds.
(e) To borrow from anyone, with the administrator's approval, such
sum or sums from time to time as the trustee considers desirable
to carry out this trust, and to mortgage or pledge all or part of
the trust fund as security.
(f) To retain any funds or property subject to any dispute without
liability for interest and to decline to make payment or delivery
thereof until final adjudication by a court of competent
jurisdiction or until an appropriate release is obtained.
(g) To begin, maintain or defend any litigation necessary in
connection with the administration of this trust, except that the
trustee shall not be obliged or required to do so unless
indemnified to the trustee's satisfaction.
(h) To compromise, contest, settle or abandon claims or demands.
<PAGE>
(i) To give proxies to vote stocks and other voting securities, to
join in or oppose (alone or jointly with others) voting trusts,
mergers, consolidations, foreclosures, reorganizations,
liquidations, or other changes in the financial structure of any
corporation, and to exercise or sell stock subscription or
conversion rights.
(j) To hold securities or other property in the name of a nominee, in
a depositary, or in any other way, with or without disclosing the
trust relationship.
(k) To divide or distribute the trust fund in undivided interests or
wholly or partly in kind.
(l) To pay any tax imposed on or with respect to the trust; to defer
making payment of any such tax if it is indemnified to its
satisfaction in the premises; and to require before making any
payment such release or other document from any lawful taxing
authority and such indemnity from the intended payee as the
trustee considers necessary for its Protection.
(m) To deal without restriction with the legal representative of the
grantor's estate or the trustee or other legal representative of
any trust created by the grantor or a trust or estate in which a
beneficiary has an interest, even though the trustee,
individually, shall be acting in such other capacity, without
liability for any loss that may result.
(n) To appoint or remove by written instrument any bank or
corporation qualified to act as successor trustee, wherever
located, as special trustee as to part or all of the trust fund,
including property as to which the trustee does not act, and such
special trustee, except as specifically limited or provided by
this or the appointing instrument, shall have all of the rights,
titles, powers, duties, discretions and immunities of the
trustee, without liability for any action taken or omitted to be
taken under this or the appointing instrument.
(o) To appoint or remove by written instrument any bank, wherever
located, as custodian of part or all of the trust fund, and each
such custodian shall have such rights, powers, duties and
discretions as are delegated to it by the trustee.
(p) To employ agents, attorneys, accountants or other persons, and to
delegate to them such powers as the trustee considers desirable,
and the trustee shall be protected in acting or refraining from
acting on the advice of Persons so employed without court action.
(q) To perform any and all other acts which in the trustee's judgment
are appropriate for the proper management, investment and
distribution of the trust fund.
III-2. PRINCIPAL AND INCOME. Any income earned on the trust fund which
is not distributed as provided in Article II shall be accumulated and from time
to time added to the principal of the trust. The grantor's interest in the
trust shall include all assets or other property held by the trustee hereunder,
including principal and accumulated income.
<PAGE>
III-3. STATEMENTS. The trustee shall prepare and deliver monthly to the
administrator and annually to the grantor, if then living, otherwise to each
beneficiary then entitled to distributions under this agreement, a statement
(or series of statements) setting forth (or which taken together set forth) all
investments, receipts, disbursements and other transactions effected by the
trustee during the reporting period; and showing the trust fund and the value
thereof at the end of such period.
III-4. COMPENSATION AND EXPENSES. All reasonable costs, charges and
expenses incurred in the administration of this trust, including compensation
to the trustee, any compensation to agents, attorneys, accountants and other
persons employed by the trustee, and expenses incurred in connection with the
sale, investment and reinvestment of the trust fund shall be paid from the
trust fund.
ARTICLE IV
GENERAL PROVISIONS
IV-1. INTERESTS NOT TRANSFERABLE. The interests of the grantor or other
persons entitled to distributions hereunder are not subject to their debts or
other obligations and may not be voluntarily or involuntarily sold,
transferred, alienated, assigned or encumbered.
IV-2. DISAGREEMENT AS TO ACTS. If there is a disagreement between the
trustee and anyone as to any act or transaction reported in any accounting, the
trustee shall have the right to a settlement of its account by any proper court.
IV-3. TRUSTEE'S OBLIGATIONS. No power, duty or responsibility is imposed
on the trustee except as set forth in this agreement. The trustee is not
obliged to determine whether funds delivered to or distributions from the trust
are proper under the trust, or whether any tax is due or payable as a result of
any such delivery or distribution. The trustee shall be protected in making
any distribution from the trust as directed pursuant to Article II without
inquiring as to whether the distributee is entitled thereto; and the trustee
shall not be liable for any distribution made in good faith without written
notice or knowledge that the distribution is not proper under the terms of this
agreement.
IV-4. GOOD FAITH ACTIONS. The trustee's exercise or non-exercise of its
powers and discretions in good faith shall be conclusive on all persons. No
one shall be obliged to see to the application of any money paid or property
delivered to the trustee. The certificate of the trustee that it is acting
according to this agreement will fully protect all persons dealing with the
trustee.
<PAGE>
IV-5. WAIVER OF NOTICE. Any notice required under this agreement may be
waived by the Person entitled to such notice.
IV-6. CONTROLLING LAW. The laws of the State of Illinois shall govern
the interpretation and validity of the provisions of this agreement and all
questions relating to the management, administration, investment and
distribution of the trust hereby created.
<PAGE>
IV-7. SUCCESSORS. This agreement shall be binding on all persons
entitled to distributions hereunder and their respective heirs and legal
representatives, and on the trustee and its successors.
ARTICLE V
CHANGES IN TRUSTEE
V-1. RESIGNATION OR REMOVAL OF TRUSTEE. The trustee may resign at any
time by giving thirty days' advance written notice to the administrator and the
grantor. The administrator may remove a trustee by written notice to the
trustee and the grantor.
V-2. APPOINTMENT OF SUCCESSOR TRUSTEE. The administrator shall fill any
vacancy in the office of trustee as soon as practicable by written notice to
the successor trustee; and shall give prompt written notice thereof to the
grantor, if then living, otherwise to each beneficiary then entitled to
payments or distributions under this agreement. A successor trustee shall be a
bank (as defined in Section 581 of the Internal Revenue Code, as amended).
V-3. DUTIES OF RESIGNING OR REMOVED TRUSTEE AND OF SUCCESSOR TRUSTEE. A
trustee that resigns or is removed shall furnish promptly to the administrator
and the successor trustee an account of its administration of the trust from
the date of its last account. Each successor trustee shall succeed to the
title to the trust fund vested in its predecessor without the signing or filing
of any instrument, but each predecessor trustee shall execute all documents and
do all acts necessary to vest such title of record in the successor trustee.
Each successor trustee shall have all the powers conferred by this agreement as
if originally named trustee. No successor trustee shall be personally liable
for any act or failure to act of a predecessor trustee. With the approval of
the administrator, a successor trustee may accept the account furnished and the
property delivered by a predecessor trustee without incurring any liability for
so doing, and such acceptance will be complete discharge to the predecessor
trustee.
ARTICLE VI
AMENDMENT AND TERMINATION
VI-1. AMENDMENT. With the consent of the administrator, this trust may
be amended from time to time by the grantor, if then living, otherwise by a
majority of the beneficiaries then entitled to payments or distributions
hereunder, except as follows:
(a) The duties and liabilities of the trustee cannot be changed
substantially without its consent.
(b) This trust may not be amended so as to make the trust revocable.
VI-2. TERMINATION. This trust shall not terminate, and all rights,
titles, powers, duties, discretions and immunities imposed on or reserved to
the trustee, the administrator, the grantor
<PAGE>
and the beneficiaries shall continue in effect, until all assets of the trust
have been distributed by the trustee as provided in Article II.
IN WITNESS WHEREOF, the grantor and the trustee have executed this
agreement as of the day and year first above written.
------------------------------------------
Grantor
The Northern Trust Company, as Trustee
By
----------------------------------------
Its
---------------------------------------
<PAGE>
December 23, 1998
Mr. Duane L. Burnham
15 Bridlewood Road
Northbrook, IL 60062-4707
Dear Duane:
You shall be entitled to participate in all applicable Abbott employee
benefit plans (including Abbott's stock option plans) in accordance with
their terms, based on your compensation and service with Abbott as an
employee through April 30, 1999 and as a retiree thereafter (including
coverage for yourself and your eligible dependants under normal Abbott
retiree medical and dental coverage and retiree life insurance under the
normal provisions of the Abbott plans as they may be in effect from time to
time).
In recognition of your successful completion of management succession ahead
of schedule, Abbott will pay you, in the form of a payment for consultation
described below, a total of $2,205,000 on April 23, 1999, with $705,000 being
paid in cash and $1,500,000 being deposited into your grantor trust net of
pro forma income taxes, which will be paid to you in cash. Also, in addition
to the pension you shall receive under the Annuity Retirement Plan and
Supplemental Pension Plan, starting May 31, 1999, you shall receive a monthly
pension in the amount of $6,238.08 in the form of a single life annuity.
During the first week of January, 1999, the present value of this amount,
which is estimated to be $754,175.24, shall be funded in a manner consistent
with the grantor trust you established under the Supplemental Pension Plan.
Beginning May 1, 1999 and ending December 31, 1999, you agree to make
yourself available for consultation with the Board of
<PAGE>
Mr. Duane L. Burnham
December 23, 1998
Page 2
Directors, any committee or member thereof, or any elected officer of Abbott,
as may be reasonably requested from time to time by the Chairman of the
Board of Directors. Abbott will reimburse you for all reasonable travel,
lodging and sustenance expenses incurred by you at the request of Abbott for
such consultation.
Sincerely,
Jose M. de Lasa
AGREED
-------------------------------
Duane L. Burnham
JmdL:ras
<PAGE>
EXHIBIT 12
Abbott Laboratories and Subsidiaries
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
(Unaudited)
(dollars in millions except ratios)
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------------------
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Earnings . . . . . . . . . . . . . . . . . . . . . $2,333 $2,094 $1,882 $1,689 $1,517
Add (deduct):
Income taxes . . . . . . . . . . . . . . . . . . . . . 907 855 788 706 650
Capitalized interest cost, net of amortization . . . . 1 (1) (4) (7) (7)
Equity in earnings of 20% -49% owned companies,
less dividends received. . . . . . . . . . . . . . . . 0 0 0 2 0
Minority interest. . . . . . . . . . . . . . . . . . . 7 11 16 18 12
------ ------ ------ ------ ------
Net earnings as adjusted . . . . . . . . . . . . . . . $3,248 $2,959 $2,682 $2,408 $2,172
------ ------ ------ ------ ------
Fixed Charges:
Interest on long-term and short-term debt. . . . . . . $160 $135 $95 $70 $50
Capitalized interest cost. . . . . . . . . . . . . . . 14 14 16 19 18
Rental expense representative of an interest factor. . 40 29 26 26 26
------ ------ ------ ------ ------
Total Fixed Charges. . . . . . . . . . . . . . . . . . 214 178 137 115 94
------ ------ ------ ------ ------
Total adjusted earnings available for
payment of fixed charges . . . . . . . . . . . . . . . $3,462 $3,137 $2,819 $2,523 $2,266
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Ratio of earnings to fixed charges . . . . . . . . . . 16.2 17.6 20.6 21.9 24.1
------ ------ ------ ------ ------
------ ------ ------ ------ ------
</TABLE>
NOTE: For the purpose of calculating this ratio, (i) earnings have been
calculated by adjusting net earnings for taxes on earnings; interest
expense; capitalized interest cost, net of amortization; minority interest;
and the portion of rentals representative of the interest factor, (ii)
the company considers one-third of rental expense to be the amount
representing return on capital, and (iii) fixed charges comprise total
interest expense, including capitalized interest and such portion of
rentals.
<PAGE>
Exhibit 13
The portions of the Abbott Laboratories Annual Report for the year ended
December 31, 1998 captioned Consolidated Statement of Earnings, Consolidated
Statement of Cash Flows, Consolidated Balance Sheet, Consolidated Statement of
Shareholders' Investment, Notes to Consolidated Financial Statements, Report of
Independent Public Accountants, Financial Instruments and Risk Management,
Financial Review, and the applicable portions of the section captioned Summary
of Financial Data for the years 1994 through 1998.
Abbott Laboratories and Subsidiaries
CONSOLIDATED STATEMENT OF EARNINGS
(dollars and shares in thousands except per share data)
<TABLE>
<CAPTION>
Year Ended December 31
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales. . . . . . . . . . . . . . . . . . . . . $12,477,845 $11,883,462 $11,013,460
----------- ----------- -----------
Cost of products sold. . . . . . . . . . . . . . . 5,394,441 5,045,678 4,731,998
Research and development . . . . . . . . . . . . . 1,221,593 1,302,403 1,204,841
Selling, general and administrative. . . . . . . . 2,743,888 2,684,955 2,459,560
----------- ----------- -----------
Total Operating Cost and Expenses . . . . . . . 9,359,922 9,033,036 8,396,399
----------- ----------- -----------
Operating Earnings . . . . . . . . . . . . . . . . 3,117,923 2,850,426 2,617,061
Net interest expense . . . . . . . . . . . . . . . 104,118 86,802 50,924
Income from TAP Holdings Inc. joint venture . . . (266,347) (189,497) (129,717)
Net foreign exchange (gain) loss . . . . . . . . . 31,158 (9,048) 21,827
Other (income) expense, net. . . . . . . . . . . . 8,395 12,223 4,477
----------- ----------- -----------
Earnings Before Taxes . . . . . . . . . . . . . 3,240,599 2,949,946 2,669,550
Taxes on earnings. . . . . . . . . . . . . . . . . 907,368 855,484 787,517
----------- ----------- -----------
Net Earnings . . . . . . . . . . . . . . . . . . . $ 2,333,231 $ 2,094,462 $ 1,882,033
----------- ----------- -----------
----------- ----------- -----------
Basic Earnings Per Common Share. . . . . . . . . . $1.53 $1.36 $1.20
----------- ----------- -----------
----------- ----------- -----------
Diluted Earnings Per Common Share. . . . . . . . . $1.51 $1.34 $1.19
----------- ----------- -----------
----------- ----------- -----------
Average Number of Common Shares Outstanding
Used for Basic Earnings Per Common Share. . . . 1,522,702 1,539,746 1,562,494
Dilutive Common Stock Options . . . . . . . . . 22,956 21,716 18,098
----------- ----------- -----------
Average Number of Common Shares Outstanding
Plus Dilutive Common Stock Options. . . . . . . 1,545,658 1,561,462 1,580,592
----------- ----------- -----------
----------- ----------- -----------
Outstanding Common Stock Options
Having No Dilutive Effect . . . . . . . . . . . 657 2,216 600
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
<PAGE>
Abbott Laboratories and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Cash Flow From (Used in) Operating Activities:
Net earnings . . . . . . . . . . . . . . . . . . . . . . . . . $2,333,231 $2,094,462 $1,882,033
Adjustments to reconcile net earnings to
net cash from operating activities -
Depreciation and amortization. . . . . . . . . . . . . . . . . 784,243 727,754 686,085
Exchange (gains) losses, net . . . . . . . . . . . . . . . . . (14,176) 31,005 (3,419)
Investing and financing (gains) losses, net. . . . . . . . . . 90,798 113,999 57,224
Trade receivables. . . . . . . . . . . . . . . . . . . . . . . (143,470) (222,427) (163,621)
Inventories. . . . . . . . . . . . . . . . . . . . . . . . . . (111,649) (98,964) (125,726)
Prepaid expenses and other assets. . . . . . . . . . . . . . . (239,533) (491,769) (303,766)
Trade accounts payable and other liabilities . . . . . . . . . 178,979 485,407 342,407
Income taxes payable . . . . . . . . . . . . . . . . . . . . . (145,522) (10,700) 10,845
---------- ---------- ----------
Net Cash From Operating Activities . . . . . . . . . . . . . 2,732,901 2,628,767 2,382,062
---------- ---------- ----------
Cash Flow From (Used in) Investing Activities:
Acquisition of International Murex in 1998, Sanofi's parenteral
products businesses in 1997, and MediSense in 1996,
net of cash acquired. . . . . . . . . . . . . . . . . . . (249,177) (200,475) (830,559)
Acquisitions of property, equipment and other businesses . . . (990,619) (1,007,296) (949,028)
Purchases of investment securities . . . . . . . . . . . . . . (278,002) (25,115) (312,535)
Proceeds from sales of investment securities . . . . . . . . . 78,898 43,424 117,783
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,034 (8,209) 19,098
---------- ---------- ----------
Net Cash Used in Investing Activities. . . . . . . . . . . . (1,420,866) (1,197,671) (1,955,241)
---------- ---------- ----------
Cash Flow From (Used in) Financing Activities:
Proceeds from (repayments of) commercial paper, net. . . . . . 42,000 402,000 317,000
Proceeds from issuance of long-term debt . . . . . . . . . . . 400,000 - 500,000
Other borrowing transactions, net. . . . . . . . . . . . . . . (59,499) 16,085 18,037
Purchases of common shares . . . . . . . . . . . . . . . . . . (875,407) (1,054,512) (808,816)
Proceeds from stock options exercised. . . . . . . . . . . . . 150,881 137,482 109,638
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . (891,661) (809,554) (728,147)
---------- ---------- ----------
Net Cash Used in Financing Activities. . . . . . . . . . . . (1,233,686) (1,308,499) (592,288)
---------- ---------- ----------
</TABLE>
<PAGE>
Abbott Laboratories and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)
(dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Effect of exchange rate changes on cash and
cash equivalents . . . . . . . . . . . . . . . . (143) (2,782) (5,521)
---------- --------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents 78,206 119,815 (170,988)
Cash and Cash Equivalents, Beginning of Year . . . 230,024 110,209 281,197
--------- --------- ---------
Cash and Cash Equivalents, End of Year . . . . . . $ 308,230 $ 230,024 $ 110,209
---------- --------- ---------
---------- --------- ---------
Supplemental Cash Flow Information:
Income taxes paid. . . . . . . . . . . . . . . . $1,060,479 $ 922,242 $ 801,107
Interest paid. . . . . . . . . . . . . . . . . . 153,875 132,645 89,509
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
<PAGE>
Abbott Laboratories and Subsidiaries
CONSOLIDATED BALANCE SHEET
(dollars in thousands)
ASSETS
<TABLE>
<CAPTION>
December 31
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents. . . . . . . . . . . . . . . . . $ 308,230 $ 230,024 $ 110,209
Investment securities. . . . . . . . . . . . . . . . . . . 75,087 28,986 12,875
Trade receivables, less allowances of -
1998: $190,952; 1997: $167,406; 1996: $153,424 . . . . . 1,950,058 1,782,326 1,708,807
Inventories -
Finished products. . . . . . . . . . . . . . . . . . . . 697,494 667,355 627,449
Work in process. . . . . . . . . . . . . . . . . . . . . 345,776 287,653 269,443
Materials. . . . . . . . . . . . . . . . . . . . . . . . 367,339 324,892 341,313
----------- ----------- -----------
Total inventories. . . . . . . . . . . . . . . . . . . 1,410,609 1,279,900 1,238,205
Prepaid income taxes . . . . . . . . . . . . . . . . . . . 847,154 800,591 708,402
Other prepaid expenses and receivables . . . . . . . . . . 961,998 916,381 702,404
----------- ----------- -----------
Total Current Assets. . . . . . . . . . . . . . . . . . 5,553,136 5,038,208 4,480,902
----------- ----------- -----------
Investment Securities Maturing after One Year. . . . . . . . 783,842 630,967 665,553
----------- ----------- -----------
Property and Equipment, at Cost:
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . 165,474 152,791 156,038
Buildings. . . . . . . . . . . . . . . . . . . . . . . . . 1,860,068 1,746,772 1,621,036
Equipment. . . . . . . . . . . . . . . . . . . . . . . . . 7,099,092 6,486,512 6,142,139
Construction in progress . . . . . . . . . . . . . . . . . 271,602 404,082 451,070
----------- ----------- -----------
9,396,236 8,790,157 8,370,283
Less: accumulated depreciation and amortization. . . . . . 4,657,393 4,220,466 3,908,740
----------- ----------- -----------
Net Property and Equipment . . . . . . . . . . . . . . . . 4,738,843 4,569,691 4,461,543
Net Intangible Assets. . . . . . . . . . . . . . . . . . . . 1,349,822 1,112,126 979,793
----------- ----------- -----------
Deferred Charges and Other Assets. . . . . . . . . . . . . . 790,570 710,076 537,809
----------- ----------- -----------
$13,216,213 $12,061,068 $11,125,600
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
<PAGE>
Abbott Laboratories and Subsidiaries
CONSOLIDATED BALANCE SHEET
(dollars in thousands)
LIABILITIES AND SHAREHOLDERS' INVESTMENT
<TABLE>
<CAPTION>
December 31
-----------------------------------------
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Current Liabilities:
Short-term borrowings and current portion of
long-term debt. . . . . . . . . . . . . . . . . . . . $ 1,759,076 $ 1,781,352 $ 1,383,727
Trade accounts payable . . . . . . . . . . . . . . . . . . 1,056,641 1,001,058 923,018
Salaries, wages and commissions. . . . . . . . . . . . . . 374,262 332,914 322,292
Other accrued liabilities. . . . . . . . . . . . . . . . . 1,378,707 1,406,132 1,206,552
Dividends payable. . . . . . . . . . . . . . . . . . . . . 227,400 201,450 185,866
Income taxes payable . . . . . . . . . . . . . . . . . . . 166,040 311,562 322,262
----------- ----------- -----------
Total Current Liabilities . . . . . . . . . . . . . . . 4,962,126 5,034,468 4,343,717
----------- ----------- -----------
Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . 1,339,694 937,983 932,898
----------- ----------- -----------
Deferred Income Taxes. . . . . . . . . . . . . . . . . . . . 108,964 136,514 153,279
----------- ----------- -----------
Other Liabilities and Deferrals. . . . . . . . . . . . . . . 1,091,768 953,426 875,524
----------- ----------- -----------
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: 1998: 1,533,774,332; 1997: 1,546,468,504;
1996: 1,568,075,716. . . . . . . . . . . . . . . . . . . 1,231,079 907,106 694,380
Common shares held in treasury, at cost -
Shares: 1998: 17,710,838; 1997: 18,280,398;
1996: 19,177,264 . . . . . . . . . . . . . . . . . . . . (46,735) (48,238) (50,605)
Unearned compensation - restricted stock awards. . . . . . (25,331) (25,532) (7,627)
Earnings and other comprehensive
income employed in the business . . . . . . . . . . . 4,554,648 4,165,341 4,184,034
----------- ----------- -----------
Total Shareholders' Investment . . . . . . . . . . . . . 5,713,661 4,998,677 4,820,182
----------- ----------- -----------
$13,216,213 $12,061,068 $11,125,600
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
<PAGE>
Abbott Laboratories and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS' INVESTMENT
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Common Shares:
Beginning of Year
Shares: 1998: 1,546,468,504; 1997: 1,568,075,716; 1996: 1,594,042,422 . . . . $ 907,106 $ 694,380 $ 581,562
Issued under incentive stock programs
Shares: 1998: 13,641,871; 1997: 15,268,426; 1996: 10,207,402. . . . . . . . . 257,249 177,395 105,648
Tax benefit from option shares and vesting of restricted stock awards
(no share effect) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,070 53,866 21,589
Retired - Shares: 1998: 26,336,043; 1997: 36,875,638; 1996: 36,174,108 . . . . (18,346) (18,535) (14,419)
---------- ---------- ----------
End of Year
Shares: 1998: 1,533,774,332; 1997: 1,546,468,504; 1996: 1,568,075,716 . . . . $1,231,079 $ 907,106 $ 694,380
---------- ---------- ----------
---------- ---------- ----------
Common Shares Held in Treasury:
Beginning of Year
Shares: 1998: 18,280,398; 1997: 19,177,264; 1996: 19,428,758. . . . . . . . . $ (48,238) $ (50,605) $ (51,268)
Issued under incentive stock programs
Shares: 1998: 569,560; 1997: 896,866; 1996: 251,494 . . . . . . . . . . . . . 1,503 2,367 663
---------- ---------- ----------
End of Year
Shares: 1998: 17,710,838; 1997: 18,280,398; 1996: 19,177,264. . . . . . . . . $ (46,735) $ (48,238) $ (50,605)
---------- ---------- ----------
---------- ---------- ----------
Unearned Compensation - Restricted Stock Awards:
Beginning of Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (25,532) $ (7,627) $ (4,718)
Issued at market value - Shares: 1998: 554,000; 1997: 888,000; 1996: 237,600 . (20,584) (25,914) (5,881)
Lapses - Shares: 1998: 22,000; 1996: 12,000. . . . . . . . . . . . . . . . . . 705 - 308
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,080 8,009 2,664
---------- ---------- ----------
End of Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (25,331) $ (25,532) $ (7,627)
---------- ---------- ----------
---------- ---------- ----------
Earnings and Other Comprehensive Income Employed in the Business:
Beginning of Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,165,341 $4,184,034 $3,871,271
Comprehensive income:
Net earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,333,231 2,094,462 1,882,033
---------- ---------- ----------
Other comprehensive income (loss):
Foreign currency translation adjustments. . . . . . . . . . . . . . . . . . . 1,504 (183,886) (23,101)
Unrealized gains on marketable equity securities. . . . . . . . . . . . . . . 991 3,025 15,000
Tax benefit (expense) related to items of other comprehensive income. . . . . 45 (1,210) (6,023)
---------- ---------- ----------
Total other comprehensive income (loss), net of tax . . . . . . . . . . . 2,540 (182,071) (14,124)
---------- ---------- ----------
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,335,771 1,912,391 1,867,909
---------- ---------- ----------
Cash dividends declared on common shares
(per share -1998: $.60; 1997: $.54; 1996: $.48). . . . . . . . . . . . . . . (917,611) (825,138) (748,659)
Cost of common shares retired in excess of stated capital amount . . . . . . . (1,048,500) (1,129,757) (811,996)
Cost of treasury shares issued below market value of restricted stock awards . 19,647 23,811 5,509
---------- ---------- ----------
End of Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,554,648 $4,165,341 $4,184,034
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
<PAGE>
Abbott Laboratories and Subsidiaries
CONSOLIDATED STATEMENT OF SHAREHOLDERS' INVESTMENT (CONTINUED)
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Supplemental Comprehensive Income Information:
Cumulative foreign currency translation loss adjustments, net of tax $ 260,711 $ 262,656 $ 78,770
Cumulative unrealized (gains) on marketable equity securities, net of tax (33,010) (32,415) (30,600)
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this statement.
<PAGE>
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting Policies
NATURE OF BUSINESS AND CONCENTRATION OF RISK - The Company's principal business
is the discovery, development, manufacture and sale of a broad line of health
care products and services. Due to the nature of the Company's operations, it
is not subject to significant concentration risks relating to customers,
products or geographic locations.
BASIS OF CONSOLIDATION - The consolidated financial statements include the
accounts of the parent company and subsidiaries, after elimination of
intercompany transactions. The accounts of foreign subsidiaries are
consolidated as of November 30 due to the time needed to consolidate these
subsidiaries. No events occurred related to these foreign subsidiaries in
December 1998, 1997, and 1996 which materially affected the financial position
or results of operations.
USE OF ESTIMATES - The financial statements have been prepared in accordance
with generally accepted accounting principles and necessarily include amounts
based on estimates and assumptions by management. Actual results could differ
from those amounts. Significant estimates include amounts for litigation,
income taxes, sales rebates and inventory and accounts receivable exposures.
CASH, CASH EQUIVALENTS AND INVESTMENT SECURITIES - Cash equivalents consist of
time deposits and certificates of deposit with original maturities of three
months or less. Investments in marketable equity securities are classified as
available-for-sale and are recorded at fair value with any unrealized holding
gains or losses, net of tax, included as a component of earnings and other
comprehensive income employed in the business. Investments in debt securities
are classified as held-to-maturity, as management has both the intent and
ability to hold these securities to maturity, and are reported at cost, net of
any unamortized premium or discount. Income relating to these securities is
reported as interest income.
INVENTORIES - Inventories are stated at the lower of cost (first-in, first-out
basis) or market. Cost includes material and conversion costs.
PROPERTY AND EQUIPMENT - Depreciation and amortization are provided on a
straight-line basis over the estimated useful lives of the assets. In 1998, the
Company elected early adoption of the provisions of the American Institute of
Certified Public Accountants' Statement of Position 98-1, "Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use." This
statement requires capitalization of certain costs incurred in the development
of internal-use software. Adoption of the provisions of this statement did not
have a material effect on the financial statements of the Company. The
following table shows estimated useful lives of property and equipment:
<TABLE>
<CAPTION>
Classification Expected Useful Lives
-------------- ---------------------------------
<S> <C>
Buildings 10 to 50 years (average 29 years)
Equipment 3 to 20 years (average 11 years)
</TABLE>
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable. If the
fair value is less than the carrying amount of the asset, a loss is recognized
for the difference.
INTANGIBLE ASSETS - Intangible assets, primarily purchased intangible assets and
goodwill resulting from business acquisitions, are amortized on a straight-line
basis over up to 40 years. Accumulated amortization as of December 31, 1998,
1997, and 1996, was $163 million, $98 million, and $55 million, respectively.
<PAGE>
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
PRODUCT LIABILITY - Provisions are made for the portions of probable losses that
are not covered by product liability insurance.
TRANSLATION ADJUSTMENTS - For foreign operations in highly inflationary
economies, translation gains and losses are included in net foreign exchange
(gain) loss. For remaining foreign operations, translation adjustments are
included as a component of earnings and other comprehensive income employed in
the business.
REVENUE RECOGNITION - Revenue from product sales is recognized upon shipment to
customers. Provisions for discounts and rebates to customers, and returns and
other adjustments are provided for in the same period the related sales are
recorded.
RESEARCH AND DEVELOPMENT - Internal research and development costs are expensed
as incurred. Third-party research and development costs are expensed when the
contracted work has been performed or as milestone results have been achieved.
COMPREHENSIVE INCOME - In 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income." As
a result, certain balance sheet reclassifications were made to previously
reported amounts to achieve the required presentation of comprehensive income.
<PAGE>
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 2 - Supplemental Financial Information
(dollars in thousands)
<TABLE>
<CAPTION>
1998 1997 1996
---------- -------- --------
<S> <C> <C> <C>
Other prepaid expenses and receivables
Receivables purchased from TAP Holdings Inc.
under a factoring agreement. . . . . . . . . . . . . $ 310,993 $344,979 $255,455
All other. . . . . . . . . . . . . . . . . . . . . . . 651,005 571,402 446,949
---------- -------- --------
Total. . . . . . . . . . . . . . . . . . . . . . . . . $ 961,998 $916,381 $702,404
---------- -------- --------
---------- -------- --------
Other liabilities and deferrals
Accrued post-employment costs. . . . . . . . . . . . . $ 477,417 $409,169 $342,582
All other. . . . . . . . . . . . . . . . . . . . . . . 614,351 544,257 532,942
---------- -------- --------
Total. . . . . . . . . . . . . . . . . . . . . . . . . $1,091,768 $953,426 $875,524
---------- -------- --------
---------- -------- --------
Net interest expense
Interest expense . . . . . . . . . . . . . . . . . . . $ 159,839 $134,550 $ 95,445
Interest income. . . . . . . . . . . . . . . . . . . . (55,721) (47,748) (44,521)
---------- -------- --------
Total. . . . . . . . . . . . . . . . . . . . . . . . . $ 104,118 $ 86,802 $ 50,924
---------- -------- --------
---------- -------- --------
</TABLE>
<PAGE>
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 3 - Taxes on Earnings
(dollars in thousands)
Deferred income taxes reflect the tax consequences on future years of temporary
differences between the tax bases of assets and liabilities and their financial
reporting amounts. U.S. income taxes are provided on those earnings of foreign
subsidiaries and subsidiaries operating in Puerto Rico under tax incentive
grants, which are intended to be remitted to the parent company. Undistributed
earnings reinvested indefinitely in foreign subsidiaries as working capital and
plant and equipment aggregated $1,818,000 at December 31, 1998. Deferred income
taxes not provided on these earnings would be approximately $356,000.
Earnings before taxes, and the related provisions for taxes on earnings,
were as follows:
<TABLE>
<CAPTION>
Earnings Before Taxes 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,519,719 $2,236,393 $1,934,872
Foreign. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 720,880 713,553 734,678
---------- ---------- ----------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,240,599 $2,949,946 $2,669,550
---------- ---------- ----------
---------- ---------- ----------
<CAPTION>
Taxes on Earnings 1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Current:
U.S. Federal and Possessions . . . . . . . . . . . . . . . . . $743,980 $717,156 $573,208
State. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49,869 71,447 62,835
Foreign. . . . . . . . . . . . . . . . . . . . . . . . . . . . 184,100 171,259 207,512
---------- ---------- ----------
Total current. . . . . . . . . . . . . . . . . . . . . . . . . . 977,949 959,862 843,555
---------- ---------- ----------
Deferred:
Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . (92,681) (130,634) (68,762)
Foreign. . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,219 26,836 13,338
Enacted tax rate changes . . . . . . . . . . . . . . . . . . . (3,119) (580) (614)
---------- ---------- ----------
Total deferred . . . . . . . . . . . . . . . . . . . . . . . . . (70,581) (104,378) (56,038)
---------- ---------- ----------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $907,368 $855,484 $787,517
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Differences between the effective income tax rate and the U.S. statutory tax
rate were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Statutory tax rate . . . . . . . . . . . . . . . . . . . . . . . . 35.0% 35.0% 35.0%
Benefit of tax exemptions in Puerto Rico, the Dominican Republic,
Ireland, the Netherlands, and Italy. . . . . . . . . . . . . . . (4.9) (6.1) (6.5)
State taxes, net of federal benefit. . . . . . . . . . . . . . . . 1.0 1.6 1.5
Domestic dividend exclusion. . . . . . . . . . . . . . . . . . . . (2.3) (1.8) (1.4)
All other, net . . . . . . . . . . . . . . . . . . . . . . . . . . (0.8) 0.3 0.9
---- ---- ----
Effective tax rate . . . . . . . . . . . . . . . . . . . . . . . . 28.0% 29.0% 29.5%
---- ---- ----
---- ---- ----
</TABLE>
<PAGE>
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of December 31, 1998, 1997, and 1996, total deferred tax assets were
$1,269,441, $1,144,915, and $997,036, respectively, and total deferred tax
liabilities were $487,207, $461,943, and $427,412, respectively. Valuation
allowances for deferred tax assets were not significant. The temporary
differences that give rise to deferred tax assets and liabilities were as
follows:
<TABLE>
<CAPTION>
Investment Securities Maturing after One Year 1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Compensation and employee benefits . . . . . . . . . . . . . . . $ 254,026 $ 205,423 $ 185,537
Trade receivable reserves. . . . . . . . . . . . . . . . . . . . 173,525 176,070 130,692
Inventory reserves . . . . . . . . . . . . . . . . . . . . . . . 115,693 119,398 122,522
Deferred intercompany profit . . . . . . . . . . . . . . . . . . 177,515 135,211 112,467
State income taxes . . . . . . . . . . . . . . . . . . . . . . . 26,585 32,442 30,343
Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . (197,832) (196,233) (184,270)
Other, primarily other accruals and reserves not currently
deductible, and the excess of book basis over tax basis
of intangible assets . . . . . . . . . . . . . . . . . . . . . 188,678 191,766 157,832
--------- --------- ---------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 738,190 $ 664,077 $ 555,123
--------- --------- ---------
--------- --------- ---------
</TABLE>
<PAGE>
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 4 - Investment Securities
(dollars in thousands)
The following is a summary of investment securities at December 31:
<TABLE>
<CAPTION>
Current Investment Securities 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Time deposits and certificates of deposit . . . . . . . . . $ 50,000 $ 25,700 $ 800
Other, primarily debt obligations issued or guaranteed
by various governments or government agencies. . . . . . 25,087 3,286 12,075
-------- -------- --------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 75,087 $ 28,986 $ 12,875
-------- -------- --------
-------- -------- --------
<CAPTION>
Investment Securities Maturing after One Year 1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Time deposits and certificates of deposit,
maturing through 2001. . . . . . . . . . . . . . . . . . $486,500 $406,500 $432,200
Corporate debt obligations, maturing through 2008 . . . . . 112,320 82,143 84,310
Debt obligations issued or guaranteed
by various governments or government agencies,
maturing through 2023. . . . . . . . . . . . . . . . . . 185,022 142,324 149,043
-------- -------- --------
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . $783,842 $630,967 $665,553
-------- -------- --------
-------- -------- --------
</TABLE>
The Company has both the intent and ability to hold the above investment
securities until maturity, and therefore they are classified as held-to-maturity
securities. All investment securities classified as current as of December 31,
1998, mature in 1999.
Of the investment securities listed above, $858,809, $656,634, and
$676,251, were held at December 31, 1998, 1997, and 1996, respectively, by
subsidiaries operating in Puerto Rico under tax incentive grants expiring from
2002 through 2007. In addition, these subsidiaries held cash equivalents of
$74,900 and $81,100 at December 31, 1998, and 1997, respectively.
The Company maintains a portfolio of available-for-sale equity securities
from strategic technology acquisitions which are included in deferred charges
and other assets. The fair value of marketable equity securities is $98,075,
$83,083, and $58,691, and the cost basis of nonmarketable equity securities is
$75,901, $50,202 and $28,457 as of December 31, 1998, 1997 and 1996,
respectively.
<PAGE>
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 5 - Post-Employment Benefits
(dollars in thousands)
Retirement plans consist of defined benefit, defined contribution, and medical
and dental plans.
Information for the Company's major defined benefit plans and
post-employment medical and dental benefit plans is as follows:
<TABLE>
<CAPTION>
Defined Benefit Plans Medical and Dental Plans
----------------------------------- ----------------------------------
1998 1997 1996 1998 1997 1996
---------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Projected benefit obligations, January 1 . . . . . . . $2,000,329 $1,771,191 $1,494,348 $ 646,448 $ 599,631 $ 556,969
Service cost - benefits earned during the year . . . . 108,754 97,272 81,243 30,664 28,274 28,302
Interest cost on projected benefit obligations . . . . 140,287 128,404 111,449 43,770 42,167 40,822
Actuarial loss (gain), primarily changes in discount
rate and lower than estimated health care costs. . . 182,829 95,495 154,993 18,057 (5,389) (9,149)
Benefits paid. . . . . . . . . . . . . . . . . . . . . (85,722) (77,722) (66,776) (23,993) (18,235) (17,313)
Other, primarily translation . . . . . . . . . . . . . 2,143 (14,311) (4,066) ... ... ...
---------- ---------- ---------- --------- --------- ---------
Projected benefit obligations, December 31 . . . . . . $2,348,620 $2,000,329 $1,771,191 $ 714,946 $ 646,448 $ 599,631
---------- ---------- ---------- --------- --------- ---------
---------- ---------- ---------- --------- --------- ---------
Plans' assets at fair value, January 1,
principally listed securities. . . . . . . . . . . . $2,192,486 $1,828,989 $1,600,368 $86,600 $87,719 $95,530
Actual return on plans' assets . . . . . . . . . . . . 426,023 373,405 224,624 18,656 17,009 9,372
Company contributions. . . . . . . . . . . . . . . . . 18,945 76,083 69,674 1,265 107 130
Benefits paid. . . . . . . . . . . . . . . . . . . . . (85,722) (77,722) (66,776) (23,993) (18,235) (17,313)
Other, primarily translation . . . . . . . . . . . . . (761) (8,269) 1,099 ... ... ...
---------- ---------- ---------- --------- --------- ---------
Plans' assets at fair value, December 31,
principally listed securities. . . . . . . . . . . . $2,550,971 $2,192,486 $1,828,989 $82,528 $86,600 $87,719
---------- ---------- ---------- --------- -------- --------
---------- ---------- ---------- --------- --------- ---------
Projected benefit obligations less than (greater than)
plans' assets, December 31 . . . . . . . . . . . . . $ 202,351 $ 192,157 $ 57,798 $(632,418) $(559,848) $(511,912)
Unrecognized actuarial (gains) losses, net . . . . . . (143,876) (78,522) 51,531 137,701 133,379 152,030
Unrecognized prior service cost. . . . . . . . . . . . 6,134 9,053 11,968 ... ... ...
Unrecognized transition obligation . . . . . . . . . . (21,015) (32,085) (42,728) ... ... ...
---------- ---------- ---------- --------- --------- ---------
Prepaid (accrued) benefit cost . . . . . . . . . . . . $ 43,594 $ 90,603 $ 78,569 $(494,717) $(426,469) $(359,882)
---------- ---------- ---------- --------- --------- ---------
---------- ---------- ---------- --------- --------- ---------
Service cost - benefits earned during the year . . . . $ 108,754 $ 97,272 $81,243 $30,664 $28,274 $28,302
Interest cost on projected benefit obligations . . . . 140,287 128,404 111,449 43,770 42,167 40,822
Expected return on plans' assets . . . . . . . . . . . (179,194) (148,250) (136,062) (7,211) (7,035) (7,793)
Net amortization . . . . . . . . . . . . . . . . . . . (7,728) (7,154) (7,464) 2,290 3,288 5,549
---------- ---------- ---------- --------- --------- ---------
Net cost . . . . . . . . . . . . . . . . . . . . . . . $ 62,119 $ 70,272 $ 49,166 $ 69,513 $ 66,694 $ 66,880
---------- ---------- ---------- --------- --------- ---------
---------- ---------- ---------- --------- --------- ---------
</TABLE>
<PAGE>
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The projected benefit obligations for certain foreign defined benefit plans that
do not have plan assets were $62,719, $52,841, and $69,337 at December 31, 1998,
1997, and 1996, respectively.
Assumptions used for major benefit plans as of December 31 include:
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Discount rate for determining obligations and interest cost. . . . . . 6 3/4% 7 1/4% 7 1/2%
Expected aggregate average long-term change in compensation. . . . . . 5% 5% 5%
Expected long-term rate of return on assets. . . . . . . . . . . . . . 9 1/2% 9 1/2% 9%
</TABLE>
A five percent annual rate of increase in the per capita cost of covered health
care benefits is assumed.
A one-percentage point increase/(decrease) in the assumed health care
cost trend rate would increase/(decrease) the accumulated post-employment
benefit obligations as of December 31, 1998, by approximately
$139,214/($114,623), and the total of the service and interest cost
components of net post-employment health care cost for the year then ended by
approximately $17,612/($14,289).
The Stock Retirement Plan is the principal defined contribution plan.
Company contributions to this plan were $66,911 in 1998, $60,838 in 1997, and
$54,883 in 1996, equal to 7.33 percent of dividends declared, as provided under
the plan.
The Company provides certain other post-employment benefits, primarily
salary continuation plans, to qualifying domestic employees, and accrues for the
related cost over the service lives of the employees.
<PAGE>
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 6 - Financial Instruments and Derivatives
The Company enters into foreign currency forward exchange contracts to hedge
intercompany loans and trade accounts payable where the receivable or payable
is denominated in a currency other than the functional currency of the
entity. Such contracts are also used to hedge foreign currency denominated
third-party trade payables and receivables. For intercompany loans, the
contracts require the Company to sell foreign currencies, primarily European
currencies and Japanese yen, in exchange for primarily U.S. dollars and other
European currencies. For intercompany and trade payables and receivables,
the currencies hedged are primarily the U.S. dollar, European currencies and
Japanese yen. At December 31, 1998, 1997, and 1996, the Company held $1.6
billion, $1.3 billion, and $1.0 billion, respectively, of foreign currency
forward exchange contracts. The contracts outstanding at December 31, 1998,
mature in 1999. These contracts are marked to market each month. The
resulting gains or losses are reflected in income and are generally offset by
losses or gains on the exposures being hedged.
The Company's foreign subsidiaries purchase U.S. dollar call options as a
hedge of anticipated intercompany purchases by these subsidiaries whose
functional currency is not the U.S. dollar. These contracts give the Company
the right, but not the requirement, to purchase U.S. dollars in exchange for
foreign currencies, primarily European currencies and Japanese yen, at
predetermined exchange rates. At December 31, 1998, 1997, and 1996, the Company
held $406 million, $461 million, and $431 million, respectively, of U.S. dollar
call option contracts. The contracts outstanding at December 31, 1998, mature
in 1999. Realized and unrealized gains and losses on contracts that qualify as
hedges of anticipated purchases by foreign subsidiaries are recognized in the
same period that the foreign currency exposure is recognized. Contracts that do
not qualify for hedge accounting are marked to market each month, and the
resulting gains or losses are reflected in income.
The Company purchases foreign currency put options as a hedge against the
effect of exchange rate fluctuations on income. These contracts give the
Company the right, but not the requirement, to sell foreign currencies,
primarily European currencies and Japanese yen, in exchange for U.S. dollars at
predetermined exchange rates. These contracts are marked to market each month.
The resulting gains or losses are reflected in income and are generally offset
by losses or gains on the exposures being hedged. There were no such contracts
outstanding at December 31, 1998, 1997, and 1996.
Net unrealized losses on foreign currency forward exchange contracts are
included in other prepaid expenses and receivables, and net unrealized gains are
included in other accrued liabilities. Gains and losses are classified as net
foreign exchange (gain) loss. For U.S. dollar call options, net unrealized
gains and losses and unamortized premiums are included in other prepaid expenses
and receivables, and for foreign currency put options and U.S. dollar call
options that do not qualify for hedge accounting, gains and losses are included
as net foreign exchange (gain) loss. For U.S. dollar call options that qualify
for hedge accounting treatment, gains and losses are included in cost of
products sold at the time the products are sold.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement requires the recognition of the fair
value of derivatives as either assets or liabilities. The statement is
effective for fiscal years beginning after June 15, 1999. Adoption of the
provisions of this statement will not have a material effect on the financial
statements of the Company.
<PAGE>
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The gross unrealized holding gains (losses) on current held-to-maturity
investment securities and those maturing after one year totaled $3.7 million and
$(9.6) million, respectively, at December 31, 1998; $4.1 million and $(10.2)
million, respectively, at December 31, 1997; and $4.2 million and $(11.0)
million, respectively, at December 31, 1996. The gross unrealized holding gains
(losses) on available-for-sale marketable equity securities, classified as
deferred charges and other assets, totaled $61.7 million and $(6.7) million,
respectively, at December 31, 1998. The gross unrealized holding gains on
available-for-sale marketable equity securities were $54.0 million and $51.0
million, respectively, at December 31, 1997 and 1996.
The carrying values and fair values of certain of the Company's financial
instruments as of December 31 are shown in the table below. The carrying values
of all other financial instruments approximate their estimated fair values.
Fair value is the quoted market price of the instrument held or the quoted
market price of a similar instrument. The counterparties to financial
instruments consist of select major international financial institutions. The
Company does not expect any losses from nonperformance by these counterparties.
<TABLE>
<CAPTION>
(millions of dollars)
1998 1997 1996
-----------------------------------------------------------------------
Carrying Fair Carrying Fair Carrying Fair
Value Value Value Value Value Value
--------------------- --------------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Securities:
Current. . . . . . . . . . . . . . . . . $ 75.1 $ 75.7 $ 29.0 $ 29.1 $ 12.9 $ 12.7
Maturing after One Year. . . . . . . . . 783.8 777.3 631.0 624.8 665.6 659.0
Total Long-Term Debt . . . . . . . . . . . . (1,340.8) (1,400.9) (940.6) (946.0) (935.2) (917.0)
Foreign Currency Forward
Exchange Contracts:
(Payable) position . . . . . . . . . . . (14.2) (14.2) (6.2) (6.2) (10.9) (10.9)
Receivable position. . . . . . . . . . . 21.7 21.7 24.1 24.1 18.6 18.6
Foreign Currency Option Contracts. . . . . . 14.4 3.6 14.8 15.3 2.8 1.6
</TABLE>
<PAGE>
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 7 - Common Stock Split
On February 13, 1998, the Board of Directors approved a two-for-one stock
split. Shareholders of record on May 1, 1998, were issued an additional
share of the Company's common stock on May 29, 1998, for each share owned on
the record date. All common shares and per share data in the consolidated
financial statements and notes have been adjusted to reflect the stock split.
<PAGE>
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 8 - Incentive Stock Program
The 1996 Incentive Stock Program authorizes the granting of stock options,
replacement stock options, stock appreciation rights, limited stock
appreciation rights, restricted stock awards, performance units, and foreign
qualified benefits. Stock options, replacement stock options, limited stock
appreciation rights, restricted stock awards, and foreign qualified benefits
have been granted and are currently outstanding under this program and prior
programs. The purchase price of shares under option must be at least equal to
the fair market value of the common stock on the date of grant and the
maximum term of an option is ten years. Options granted in 1998, 1997, and
1996 vest equally over three years except for replacement options which
generally vest in six months.
Limited stock appreciation rights have been granted to certain holders of
stock options and can be exercised, by surrendering the related stock options,
only upon a change in control of the Company. At December 31, 1998, 7,319,089
options, with a weighted average exercise price of $25.10 per share, were
subject to limited stock appreciation rights. Upon a change in control of the
Company, all outstanding stock options become fully exercisable, and all terms
and conditions of all restricted stock awards are deemed satisfied.
At January 1, 1999, 23,244,070 shares were reserved for future grants under
the 1996 Program. Subsequent to year end, the Board of Directors granted
approximately 13.3 million stock options from this reserve. Data with respect
to stock options under the 1996 Program and prior programs are as follows:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING EXERCISABLE OPTIONS
------------------- -------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
January 1, 1996 59,001,574 $13.91
Granted 12,243,128 21.98
Exercised (10,207,402) 10.19
Lapsed (563,110) 20.20
----------- ------
December 31, 1996 60,474,190 16.11 39,914,828 $13.75
----------- ------
----------- ------
Granted 14,203,498 29.72
Exercised (15,268,426) 11.37
Lapsed (753,016) 24.18
----------- ------
December 31, 1997 58,656,246 20.54 33,544,332 16.56
----------- ------
----------- ------
Granted 17,894,254 37.92
Exercised (13,641,871) 18.30
Lapsed (949,032) 31.21
----------- ------
December 31, 1998 61,959,597 $25.89 35,018,732 $20.23
----------- ------ ----------- ------
----------- ------ ----------- ------
</TABLE>
<PAGE>
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
Options Outstanding Exercisable Options
at December 31, 1998 at December 31, 1998
------------------------ --------------------
Weighted Weighted Weighted
Average Average Average
Range of Remaining Exercise Exercise
Exercise Prices Shares Life (Years) Price Shares Price
- ----------------- ---------- ------------ -------- ---------- --------
<S> <C> <C> <C> <C> <C>
$ 6 to $21 23,408,676 4.2 $16.47 23,376,410 $16.47
22 to 36 22,423,247 7.8 26.88 10,647,080 26.82
37 to 50 16,127,674 9.2 38.17 995,242 38.04
---------- --- ------ ---------- ------
$ 6 to $50 61,959,597 6.8 $25.89 35,018,732 $20.23
---------- --- ------ ---------- ------
---------- --- ------ ---------- ------
</TABLE>
The Company measures compensation cost using the intrinsic value-based method
of accounting. Had compensation cost been determined using the fair market
value-based accounting method for options granted since 1995, pro forma net
income for 1998, 1997, and 1996 would have been $2.243 billion, $2.030
billion and $1.845 billion, respectively, and pro forma basic earnings per
common share for 1998, 1997 and 1996 would have been $1.47, $1.32 and $1.18,
respectively. The weighted average fair value of an option granted in 1998,
1997 and 1996, was $10.31, $8.21 and $5.82, respectively. For purposes of
fair market value disclosures, the fair market value of an option grant was
estimated using the Black-Scholes option pricing model with the following
assumptions:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Risk-Free Interest Rate. . . . . . . . . 5.50% 6.00% 5.25%
Average Life of Options (years). . . . . 5.6 5.2 5.2
Volatility . . . . . . . . . . . . . . . 23.0% 25.0% 25.0%
Dividend Yield . . . . . . . . . . . . . 1.6% 1.9% 1.9%
</TABLE>
<PAGE>
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 9 - Debt and Lines of Credit
(dollars in thousands)
The following is a summary of long-term debt at December 31:
<TABLE>
<CAPTION>
1998 1997 1996
---------- -------- --------
<S> <C> <C> <C>
6.5% debentures, due 2001. . . . . . . . $ 250,000 $250,000 $250,000
5.6% debentures, due 2003. . . . . . . . 200,000 200,000 200,000
6.8% debentures, due 2005. . . . . . . . 150,000 150,000 150,000
6.4% debentures, due 2006. . . . . . . . 250,000 250,000 250,000
6.0% debentures, due 2008. . . . . . . . 200,000 - -
5.4% debentures, due 2008. . . . . . . . 200,000 - -
Other. . . . . . . . . . . . . . . . . . 89,694 87,983 82,898
---------- -------- --------
Total, net of current maturities . . . . $1,339,694 $937,983 $932,898
---------- -------- --------
---------- -------- --------
</TABLE>
Payments required on long-term debt outstanding at December 31, 1998 are $1,125
in 1999, $9,926 in 2000, $250,926 in 2001, $1,351 in 2002, and $201,280 in 2003.
At December 31, 1998, the Company had $2,505,000 of unused domestic lines
of credit which support domestic commercial paper borrowing arrangements.
Related compensating balances, which are subject to withdrawal by the Company at
its option, and commitment fees are not material. The Company's weighted
average interest rate on short-term borrowings was 5.5%, 6.0%, and 5.8% at
December 31, 1998, 1997, and 1996, respectively.
The Company may issue up to $750,000 of senior debt securities in the
future under a registration statement filed with the Securities and Exchange
Commission in 1998.
<PAGE>
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 10 - Investment in Equity Method Investments
(dollars in millions)
The Company's 50 percent owned joint venture, TAP Holdings Inc. (TAP), is
accounted for under the equity method of accounting. The Company's share of
TAP's income was $266, $189, and $130 in 1998, 1997, and 1996, respectively.
The investment in TAP is included in deferred charges and other assets and was
$368, $311, and $185 at December 31, 1998, 1997, and 1996, respectively.
Dividends received from TAP were $209, $63, and $20 in 1998, 1997, and 1996,
respectively. Summarized financial information for TAP is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
---------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net Sales. . . . . . . . . . . . . . . . $2,062.7 $1,565.8 $1,128.6
Cost of products sold. . . . . . . . . . 426.5 321.1 270.6
Income before income taxes . . . . . . . 836.3 612.4 426.7
Net income . . . . . . . . . . . . . . . 532.7 379.0 259.4
</TABLE>
<TABLE>
<CAPTION>
December 31
---------------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Current assets . . . . . . . . . . . . . $1,088.8 $ 727.5 $ 439.0
Total assets . . . . . . . . . . . . . . 1,251.1 847.9 577.1
Current liabilities. . . . . . . . . . . 514.2 223.2 198.5
</TABLE>
Undistributed earnings of investments accounted for under the equity method
amounted to $345 as of December 31, 1998.
<PAGE>
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 11 - Quarterly Results (Unaudited)
(dollars in millions except per share data)
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
FIRST QUARTER
Net Sales. . . . . . . . . . . . . . . . $3,044.9 $2,999.8 $2,672.2
Gross Profit . . . . . . . . . . . . . . 1,764.9 1,672.5 1,516.0
Net Earnings . . . . . . . . . . . . . . 589.6 534.8 480.1
Basic Earnings Per Common Share. . . . . .39 .34 .30
Diluted Earnings Per Common Share. . . . .38 .34 .30
SECOND QUARTER
Net Sales. . . . . . . . . . . . . . . . $3,066.8 $2,900.4 $2,699.2
Gross Profit . . . . . . . . . . . . . . 1,769.0 1,683.4 1,555.3
Net Earnings . . . . . . . . . . . . . . 585.6 521.5 470.4
Basic Earnings Per Common Share. . . . . .38 .34 .30
Diluted Earnings Per Common Share. . . . .38 .33 .30
THIRD QUARTER
Net Sales. . . . . . . . . . . . . . . . $3,035.8 $2,865.2 $2,646.2
Gross Profit . . . . . . . . . . . . . . 1,660.8 1,623.3 1,468.9
Net Earnings . . . . . . . . . . . . . . 531.7 471.5 420.9
Basic Earnings Per Common Share. . . . . .35 .31 .27
Diluted Earnings Per Common Share. . . . .34 .30 .26
FOURTH QUARTER
Net Sales. . . . . . . . . . . . . . . . $3,330.3 $3,118.1 $2,995.9
Gross Profit . . . . . . . . . . . . . . 1,888.7 1,858.6 1,741.3
Net Earnings . . . . . . . . . . . . . . 626.3 566.7 510.6
Basic Earnings Per Common Share. . . . . .41 .37 .33
Diluted Earnings Per Common Share. . . . .41 .37 .33
</TABLE>
<PAGE>
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 12 - Business Acquisitions
In 1998, the Company acquired the common stock of International Murex
Technologies Corporation, a manufacturer of medical diagnostic products, for
approximately $234 million in cash. A substantial portion of the purchase
price was allocated to goodwill, which will be amortized on a straight-line
basis over 20 years. In 1997, the Company acquired certain parenteral
products businesses of Sanofi Pharmaceuticals, Inc., for approximately $200
million in cash. A substantial portion of the purchase price was allocated
to goodwill, which will be amortized on a straight-line basis over 15 years.
In 1996, the Company acquired all of the outstanding shares of MediSense,
Inc., a manufacturer of blood glucose self-testing products, for
approximately $867 million in cash. Goodwill of approximately $219 million
will be amortized on a straight-line basis over 32 years and other intangible
assets of $635 million, including trade names, patient base and acquired
technology, will be amortized on a straight-line basis over approximately 30
years. Purchased in-process research and development of $37 million was
charged against earnings. Had these acquisitions taken place on January 1 of
the previous years, consolidated sales and income would not have been
significantly different from reported amounts.
The Company currently owns 76 percent of the capital stock of a Japanese
subsidiary. In 1998, the Japanese subsidiary converted the common stock of
the minority interest shareholder into non-voting, non-participating
cumulative preferred stock. Pursuant to an agreement with the minority
interest shareholder, the Company will purchase this preferred stock over an
eight-year period beginning in 1999 for approximately $115 million. In 1998
and 1997, the Company purchased six percent of the subsidiary's common stock
for approximately $30 million. Goodwill of $110 million resulting from these
transactions will be amortized on a straight-line basis over 40 years.
<PAGE>
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 13 - Segment and Geographic Area Information
(dollars in millions)
REVENUE SEGMENTS - The Company's principal business is the discovery,
development, manufacture and sale of a broad line of health care products and
services. The Company's products are generally sold directly to retailers,
wholesalers, hospitals, health care facilities, laboratories, physicians'
offices and government agencies throughout the world. The Company'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 testing
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 the Company'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.
The Company'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 the Company, as described above, and may not be presented in
accordance with generally accepted accounting principles.
<PAGE>
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 13 - Segment and Geographic Area Information
(dollars in millions)
(continued)
<TABLE>
<CAPTION>
Net Sales to Operating Depreciation
External Customers Earnings and Amortization
--------------------------- -------------------------- --------------------------
1998 1997 1996 1998 1997 1996 1998 1997 1996
------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pharmaceutical . . . . . $ 2,601 $ 2,475 $ 2,058 $1,402 $1,242 $ 970 $ 40 $ 37 $ 31
Diagnostics (a)(b) . . . 2,790 2,613 2,571 448 433 493 245 234 203
Hospital (c) . . . . . . 1,890 1,689 1,476 369 277 230 119 109 101
Ross . . . . . . . . . . 1,820 1,850 1,898 540 528 597 72 68 64
International (a). . . . 3,001 2,912 2,736 605 637 596 98 97 91
Chemical & Agricultural. 352 332 278 117 111 72 66 63 57
------- ------- ------- ------ ------ ------ ---- ---- ----
Total Segments . . . . . 12,454 11,871 11,017 $3,481 $3,228 $2,958 $640 $608 $547
------ ------ ------ ---- ---- ----
------ ------ ------ ---- ---- ----
Other. . . . . . . . . . 24 12 (4)
Net Sales. . . . . . . . $12,478 $11,883 $11,013
------- ------- -------
------- ------- -------
<CAPTION>
Additions to
Long-Term Assets Total Assets
-------------------------- ---------------------------
1998 1997 1996 1998 1997 1996
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Pharmaceutical . . . . . $ 54 $ 53 $ 49 $ 1,315 $1,362 $1,237
Diagnostics (a)(b) . . . 541 391 1,049 3,480 3,006 3,040
Hospital (c) . . . . . . 157 295 172 1,563 1,522 1,262
Ross . . . . . . . . . . 65 85 102 919 935 954
International (a). . . . 309 150 147 2,504 2,140 2,093
Chemical & Agricultural. 60 83 94 368 379 343
------ ------ ------ ------- ------ ------
Total Segments . . . . . $1,186 $1,057 $1,613 $10,149 $9,344 $8,929
------ ------ ------ ------- ------ ------
------ ------ ------ ------- ------ ------
Other. . . . . . . . . .
Net Sales. . . . . . . .
</TABLE>
(a) Net sales and operating earnings were unfavorably affected by the
relatively stronger U.S. dollar in 1998, 1997 and 1996.
(b) In 1998 and 1996 the Company acquired the common stock of International
Murex Technologies Corporation and MediSense, Inc., respectively.
(c) In 1997, the Company acquired certain parenteral products businesses of
Sanofi Pharmaceuticals, Inc.
<TABLE>
<CAPTION>
1998 1997 1996
----- ----- -----
<S> <C> <C> <C>
Total Segment Operating Earnings . . . . $3,481 $3,228 $2,958
Corporate and service functions. . . . . 145 153 118
Benefit plans costs. . . . . . . . . . . 94 113 92
Net interest expense . . . . . . . . . . 104 87 51
Income from TAP Holdings Inc . . . . . . (266) (189) (130)
Net foreign exchange (gain) loss . . . . 31 (9) 22
Other expenses, net. . . . . . . . . . . 132 123 135
------- ------- -------
Consolidated Earnings Before Taxes . . . $3,241 $2,950 $2,670
------- ------- -------
------- ------- -------
Total Segment Assets . . . . . . . . . . $10,149 $9,344 $8,929
Cash and investments . . . . . . . . . . 1,167 890 789
Investment in TAP Holdings Inc.. . . . . 368 311 185
Prepaid income taxes . . . . . . . . . . 847 801 708
All other, net . . . . . . . . . . . . . 685 715 515
------- ------- -------
Total Assets . . . . . . . . . . . . . . $13,216 $12,061 $11,126
------- ------- -------
------- ------- -------
</TABLE>
<PAGE>
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 13 - Segment and Geographic Area Information
(dollars in millions)
(continued)
<TABLE>
<CAPTION>
Net Sales to
External Customers Long-Term Assets
--------------------------- ---------------------------
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
United States. . . . . . $ 7,919 $ 7,472 $ 6,786 $ 6,424 $ 5,946 $ 5,583
Japan. . . . . . . . . . 528 586 603 133 121 128
Germany. . . . . . . . . 446 438 428 186 167 171
Canada . . . . . . . . . 345 329 315 64 44 46
Italy. . . . . . . . . . 328 305 316 106 91 92
All Other Countries. . . 2,912 2,753 2,565 750 654 625
------- ------- ------- ------- ------- -------
Consolidated . . . . . . $12,478 $11,883 $11,013 $ 7,663 $ 7,023 $ 6,645
------- ------- ------- ------- ------- -------
------- ------- ------- ------- ------- -------
</TABLE>
The classes of products which contributed at least 10 percent to consolidated
net sales in at least one of the last three years were:
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Anti-Infectives. . . . . $1,415 $1,510 $1,407
Adult Nutritionals . . . 1,257 1,240 1,226
Infant Formula . . . . . 1,132 1,166 1,153
</TABLE>
<PAGE>
Abbott Laboratories and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Note 14 - Litigation and Environmental Matters
The Company is involved in various claims and legal proceedings including
numerous antitrust suits and investigations in connection with the pricing of
prescription pharmaceuticals. 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 the Company 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 the Company paid $57 million, and thirteen other
separate actions. The Company has filed or intends to file a response to
each of the remaining complaints denying all substantive allegations.
In addition, the Company has been identified as a potentially responsible
party for investigation and cleanup costs at a number of locations in the United
States and Puerto Rico under federal and state remediation laws and is
investigating potential contamination at a number of Company-owned locations.
The Company expects that within the next year, legal proceedings will occur
which may result in a change in the estimated reserves recorded by the Company.
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 the Company's financial position, cash flows, or
results of operations.
<PAGE>
Abbott Laboratories and Subsidiaries
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of Abbott Laboratories:
We have audited the accompanying consolidated balance sheet of Abbott
Laboratories (an Illinois corporation) and Subsidiaries as of December 31, 1998,
1997, and 1996, and the related consolidated statements of earnings,
shareholders' investment, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Abbott Laboratories and
Subsidiaries as of December 31, 1998, 1997, and 1996, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
Chicago, Illinois Arthur Andersen LLP
January 14, 1999
AUDIT COMMITTEE CHAIRMAN'S REPORT
The Audit Committee of the Board of Directors is composed of six non-employee
directors. The Audit Committee oversees the Company's financial reporting
process on behalf of the Board of Directors. The Committee held two meetings
during 1998. In fulfilling its responsibility, the Committee recommended to the
Board of Directors, subject to shareholder approval, the selection of the
Company's independent public accountants. The Audit Committee discussed with
the internal auditors and the independent public accountants the overall scope
and specific plans for their respective audits. The Committee also discussed
the Company's consolidated financial statements and the adequacy of the
Company's internal controls. During the Audit Committee meetings, the Committee
met with the internal auditors and independent public accountants, without
management present, to discuss the results of their audits, their evaluations of
the Company's internal controls, and the overall quality of the Company's
financial reporting. The meetings also were designed to facilitate any private
communication with the Committee desired by the internal auditors or independent
public accountants.
W. Ann Reynolds, Ph.D.
Chairman, Audit Committee
<PAGE>
Abbott Laboratories and Subsidiaries
MANAGEMENT REPORT ON FINANCIAL STATEMENTS
Management has prepared, and is responsible for, the Company's consolidated
financial statements and related notes. They have been prepared in
accordance with generally accepted accounting principles and necessarily
include amounts based on judgments and estimates by management. All
financial information in this annual report is consistent with the
consolidated financial statements.
The Company maintains internal accounting control systems and related
policies and procedures designed to provide reasonable assurance that assets are
safeguarded, that transactions are executed in accordance with management's
authorization and properly recorded, and that accounting records may be relied
upon for the preparation of consolidated financial statements and other
financial information. The design, monitoring, and revision of internal
accounting control systems involve, among other things, management's judgment
with respect to the relative cost and expected benefits of specific control
measures. The Company also maintains an internal auditing function which
evaluates and formally reports on the adequacy and effectiveness of internal
accounting controls, policies, and procedures.
The Company's consolidated financial statements have been audited by
independent public accountants who have expressed their opinion with respect to
the fairness of these statements.
Miles D. White
Chief Executive Officer
Gary P. Coughlan
Senior Vice President, Finance and Chief Financial Officer
Theodore A. Olson
Vice President and Controller
<PAGE>
Abbott Laboratories and Subsidiaries
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT
(Unaudited)
INTEREST RATE SENSITIVE FINANCIAL INSTRUMENTS
The Company does not currently use derivative financial instruments, such as
interest rate swaps, to manage its exposure to changes in interest rates for its
debt instruments and investment securities. As of December 31, 1998 and 1997,
the Company had $1.7 billion of domestic commercial paper outstanding with an
average interest rate of 5.4% and 6.0%, respectively, and with an average
remaining life of 9 days and 11 days, respectively. The fair market value of
long-term debt at December 31, 1998 and 1997 amounted to $1.4 billion and $946
million, respectively, and consisted primarily of fixed rate (average of 6.1%
and 6.3%, respectively) debt with maturities through 2023. As of December 31,
1998 and 1997, the fair market value of current and long-term investment
securities maturing through 2023 amounted to $853 million and $654 million,
respectively. Approximately 19 percent and 33 percent of these investments as
of December 31, 1998 and 1997, respectively, have fixed interest rates (average
of 7.1% and 7.5%, respectively), while the remaining investments have variable
rates. A hypothetical 100-basis point change in the interest rates would not
have a material effect on cash flows, income or market values.
MARKET PRICE SENSITIVE FINANCIAL INSTRUMENTS
The Company maintains a portfolio of available-for-sale marketable equity
securities from strategic technology acquisitions which are included in deferred
charges and other assets. The market value of these investments was
approximately $98 million and $83 million, respectively, as of December 31, 1998
and 1997. A hypothetical 20 percent decrease in the share prices of these
investments would decrease the fair value by approximately $20 million.
FOREIGN CURRENCY SENSITIVE FINANCIAL INSTRUMENTS --
PURCHASED U.S. DOLLAR CALL OPTIONS
The Company's foreign subsidiaries purchase U.S. dollar call options as a hedge
of anticipated intercompany purchases by these foreign subsidiaries whose
functional currency, primarily European currencies and Japanese yen, is not the
U.S. dollar. At December 31, 1998 and 1997, the Company held $406 million and
$461 million, respectively, of these contracts. Unamortized premiums for these
contracts amounted to $14 million as of December 31, 1998, which represents the
maximum potential loss exposure.
FOREIGN CURRENCY FORWARD EXCHANGE CONTRACTS
The Company enters into foreign currency forward exchange contracts to manage
its exposure to foreign currency denominated intercompany loans and trade
payables and third-party trade payables and receivables. The contracts are
marked to market and resulting gains or losses are reflected in income and are
generally offset by losses or gains on the foreign currency exposure being
hedged. At December 31, 1998 and 1997, the Company held $1.6 billion and $1.3
billion, respectively, of such contracts which all mature in the next calendar
year. The following table reflects the contracts outstanding at December 31,
1998 and 1997:
<PAGE>
Abbott Laboratories and Subsidiaries
FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED)
(Unaudited)
(dollars in millions)
<TABLE>
<CAPTION>
1998 1997
---------------------------- ----------------------------
Average Fair and Average Fair and
Contract Exchange Carrying Contract Exchange Carrying
Amount Rate Value Amount Rate Value
------ ---- ----- ------ ---- -----
<S> <C> <C> <C> <C> <C> <C>
RECEIVE U.S. DOLLARS IN EXCHANGE FOR THE FOLLOWING CURRENCIES:
German Deutsche Mark . . . . . . . . . . . . . . . . . . . . . . $ 299 1.67 $ 1.9 $ 304 1.75 $ 1.9
Spanish Peseta . . . . . . . . . . . . . . . . . . . . . . . . . 172 140.6 4.3 151 146.3 3.0
Japanese Yen . . . . . . . . . . . . . . . . . . . . . . . . . . 137 120.0 3.2 122 122.8 3.7
Dutch Guilder. . . . . . . . . . . . . . . . . . . . . . . . . . 133 1.88 2.1 106 1.98 0.5
British Pound. . . . . . . . . . . . . . . . . . . . . . . . . . 160 0.6 0.3 70 0.6 2.1
Italian Lira . . . . . . . . . . . . . . . . . . . . . . . . . . 86 1,654 1.1 59 1,713 0.5
French Franc . . . . . . . . . . . . . . . . . . . . . . . . . . 39 5.6 0.6 33 5.8 0.5
Canadian Dollar. . . . . . . . . . . . . . . . . . . . . . . . . 38 1.54 (0.3) 30 1.41 0.1
Australian Dollar. . . . . . . . . . . . . . . . . . . . . . . . 36 1.60 0.0 24 1.44 0.4
Brazilian Real . . . . . . . . . . . . . . . . . . . . . . . . . 25 1.30 (0.5) 22 1.04 (0.2)
Taiwan Dollar. . . . . . . . . . . . . . . . . . . . . . . . . . 30 34.0 (0.6) 18 30.4 1.0
Hong Kong Dollar . . . . . . . . . . . . . . . . . . . . . . . . 3 7.88 0.0 13 7.73 (0.1)
Irish Punt . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 0.67 (0.3) 12 0.67 (0.1)
All other currencies . . . . . . . . . . . . . . . . . . . . . . 148 N/A (1.8) 128 N/A 3.9
----- ----- ----- -----
1,339 10.0 1,092 17.2
RECEIVE DUTCH GUILDERS IN EXCHANGE FOR THE FOLLOWING CURRENCIES:
British Pound. . . . . . . . . . . . . . . . . . . . . . . . . . 92 0.32 (1.4) 74 0.31 (1.2)
French Franc . . . . . . . . . . . . . . . . . . . . . . . . . . 28 2.98 0.0 32 2.97 0.0
Swiss Franc. . . . . . . . . . . . . . . . . . . . . . . . . . . 15 0.72 (0.2) 24 0.72 0.0
Portuguese Escudo. . . . . . . . . . . . . . . . . . . . . . . . 32 90.9 0.0 17 91.2 0.0
Irish Punt . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 0.36 0.0 17 0.34 0.0
Japanese Yen . . . . . . . . . . . . . . . . . . . . . . . . . . 15 62.5 0.3 14 62.1 0.4
Taiwan Dollar. . . . . . . . . . . . . . . . . . . . . . . . . . 8 17.6 (0.3) 8 15.3 0.5
All other currencies . . . . . . . . . . . . . . . . . . . . . . 15 N/A (0.3) 29 N/A 0.3
----- ----- ----- -----
224 (1.9) 215 0.0
All other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 N/A (0.6) 5 N/A 0.7
----- ----- ----- -----
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,571 $ 7.5 $1,312 $17.9
----- ----- ----- -----
----- ----- ----- -----
</TABLE>
<PAGE>
Abbott Laboratories and Subsidiaries
FINANCIAL REVIEW
RESULTS OF OPERATIONS
SALES
The following table details the components of sales growth by segment for the
last three years:
<TABLE>
<CAPTION>
Components of Change %
Total % -----------------------------------
Total Net Sales Change Price Volume Exchange
------ ----- ------ --------
<S> <C> <C> <C> <C>
1998 vs. 1997 5.0 0.6 7.2 (2.8)
1997 vs. 1996 7.9 0.5 10.4 (3.0)
1996 vs. 1995 10.0 0.1 11.5 (1.6)
Total Domestic
1998 vs. 1997 6.0 1.0 5.0 -
1997 vs. 1996 10.0 0.8 9.2 -
1996 vs. 1995 10.8 0.1 10.7 -
Total International
1998 vs. 1997 3.4 (0.1) 10.7 (7.2)
1997 vs. 1996 4.8 - 12.2 (7.4)
1996 vs. 1995 8.8 0.2 12.4 (3.8)
Pharmaceutical Products Segment
1998 vs. 1997 5.1 3.8 1.3 -
1997 vs. 1996 20.3 3.4 16.9 -
1996 vs. 1995 27.3 4.9 22.4 -
Diagnostic Products Segment
1998 vs. 1997 6.8 (2.1) 12.9 (4.0)
1997 vs. 1996 1.6 (0.6) 7.7 (5.5)
1996 vs. 1995 7.1 (1.4) 10.8 (2.3)
Hospital Products Segment
1998 vs. 1997 11.9 (1.5) 13.4 -
1997 vs. 1996 14.4 (1.8) 16.2 -
1996 vs. 1995 9.1 (2.1) 11.2 -
Ross Products Segment
1998 vs. 1997 (1.6) 0.9 (2.5) -
1997 vs. 1996 (2.5) (0.4) (2.1) -
1996 vs. 1995 0.7 (0.3) 1.0 -
International Segment
1998 vs. 1997 3.1 1.4 9.5 (7.8)
1997 vs. 1996 6.4 0.4 12.8 (6.8)
1996 vs. 1995 8.9 0.6 12.3 (4.0)
<PAGE>
Abbott Laboratories and Subsidiaries
FINANCIAL REVIEW (CONTINUED)
Chemical & Agricultural Products Segment
1998 vs. 1997 6.0 (0.7) 6.7 -
1997 vs. 1996 19.6 0.2 19.4 -
1996 vs. 1995 12.9 1.1 11.8 -
</TABLE>
Sales of new products in 1998 are estimated to be $885 million, led by the
Diagnostics, International and Hospital products segments. Increases, as
disclosed in Note 13, in anti-infectives and infant formula sales in 1996 and
1997 and increases in adult nutritionals in 1996, 1997 and 1998 were primarily
due to unit increases. Decreases in anti-infectives and infant formula sales in
1998 were due primarily to unit decreases.
The Company holds patents on Hytrin in the United States and several major
markets throughout the world. The Company is facing a number of patent
challenges from generic manufacturers in the United States, and the ultimate
outcome of this litigation cannot be predicted with certainty. However, the
Company does not expect a generic form of Hytrin to become available before the
end of the second quarter of 1999. The Company believes generic competition
would adversely impact sales of Hytrin. In 1998, the Company recorded U.S.
sales of Hytrin of $542 million.
On July 27, 1998, the Company announced that it was experiencing
manufacturing difficulties with the capsule formulation of its protease
inhibitor Norvir. The manufacturing difficulties with Norvir will result in
shortages and interruption of the supply of capsules. The Company is supplying
Norvir liquid formulation to provide continued Norvir therapy for patients. In
1998, the Company recorded sales of Norvir of $250 million. The Company is
unable to quantify the effect that the production problems will have on sales in
future periods.
OPERATING EARNINGS
Gross profit margins (sales less cost of products sold, including freight and
distribution expenses) were 56.8 percent of net sales in 1998, 57.5 percent in
1997, and 57.0 percent in 1996. The decrease in the gross profit margin in 1998
was caused by unfavorable product mix, primarily slower sales of pharmaceutical
products, and the negative effect of a relatively stronger U.S. dollar. The
increases in the gross profit margins in 1997 and 1996 were due primarily to
favorable product mix, especially higher sales of pharmaceuticals, price and
productivity improvements, partially offset by higher project expenses for new
products, higher manufacturing capacity costs for anticipated unit growth, and
the effects of inflation and competitive pricing pressures in some product
lines. Gross profit margins in 1997 and 1996 were also unfavorably affected by
the relatively stronger U.S. dollar. In the U.S., states receive price rebates
from manufacturers of infant formula under the federally subsidized Special
Supplemental Food Program for Women, Infants, and Children (WIC). There are
also similar rebate programs for pharmaceutical products. These rebate programs
continue to have a negative effect on the gross profit margins of the Ross and
Pharmaceutical products segments.
In late 1998, the U.S. Food and Drug Administration (FDA) suspended its
approval of the release of production lots of the Company's pharmaceutical
product Abbokinase due to Current Good Manufacturing Practice concerns raised by
the FDA following inspections of the Company and its raw material supplier. In
January 1999, after the Company 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. The FDA subsequently
established new criteria for the release of additional lots. The Company is
instituting changes to its procedures in response to the FDA. The Company
cannot predict whether these changes will resolve 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.
<PAGE>
Abbott Laboratories and Subsidiaries
FINANCIAL REVIEW (CONTINUED)
Research and development expense decreased to $1.2 billion in 1998 and
represented 9.8 percent of net sales in 1998, compared to 11.0 percent of net
sales in 1997, and 10.9 percent of net sales in 1996. The decrease in
research and development expenses in 1998 was due, in part, to higher charges
in 1997 for the acquisition of certain technologies in conjunction with
business acquisitions and strategic alliances. Research and development
expenditures continue to be concentrated on pharmaceutical and diagnostic
products.
Selling, general and administrative expenses increased 2.2 percent in
1998, net of the favorable effect of the relatively stronger U.S. dollar of
2.8 percent, compared to increases of 9.2 percent in 1997, and 10.3 percent
in 1996. The net increases, exclusive of exchange impact, reflect inflation,
additional selling and marketing support for new and existing products, and
litigation charges.
INTEREST (INCOME) EXPENSE, NET
Net interest expense increased in 1998, 1997 and 1996 due primarily to a higher
level of borrowings as a result of business acquisitions. As a result of the
suspension of the common share purchase program, it is expected that the level
of borrowings will decrease in 1999.
TAXES ON EARNINGS
The Company's effective income tax rates were 28.0 percent in 1998, 29.0 percent
in 1997 and 29.5 percent in 1996. The tax rates for 1998 and 1997 were reduced
primarily due to the extension of the research and development tax credit
through June 30, 1999. In addition, all three years' tax rates were unfavorably
impacted by the reduction in tax incentive grants for Puerto Rico operations.
<PAGE>
Abbott Laboratories and Subsidiaries
FINANCIAL REVIEW (CONTINUED)
FINANCIAL CONDITION
CASH FLOW
The Company expects positive cash flow from operating activities to continue to
approximate or exceed the Company's capital expenditures and cash dividends.
DEBT AND CAPITAL
The Company has maintained its favorable bond ratings (AAA by Standard & Poor's
Corporation and Aa1 by Moody's Investors Service) and continues to have readily
available financial resources, including unused domestic lines of credit of $2.5
billion at December 31, 1998. These lines of credit support domestic commercial
paper borrowing arrangements.
The Company may issue up to $750 million of senior debt securities in the
future under a registration statement filed with the Securities and Exchange
Commission in 1998.
During the last three years, the Company purchased 90,897,000 of its common
shares at a cost of $2.7 billion. In December 1998, the Company suspended
purchases of its common shares and currently has no plans to resume purchases in
1999.
FINANCIAL CONDITION
At December 31, 1998, 1997 and 1996 working capital was $591 million, $4 million
and $137 million, respectively. The decrease in working capital in 1997 was
partially due to increased short-term commercial paper borrowings which funded
long-term asset acquisitions.
CAPITAL EXPENDITURES
Capital expenditures of $991 million in 1998, $1.0 billion in 1997 and
$949 million in 1996 were principally for upgrading and expanding manufacturing,
research and development and administrative support facilities in all segments
and for laboratory instruments and hospital equipment placed with customers.
This level of capital expenditures is expected to continue, with an increased
proportion dedicated to the Hospital, International and Diagnostic products
segments.
BUSINESS ACQUISITIONS
In 1998, the Company acquired the common stock of International Murex
Technologies Corporation, a manufacturer of medical diagnostic products, for
approximately $234 million in cash. A substantial portion of the purchase
price was allocated to goodwill, which will be amortized on a straight-line
basis over 20 years. In 1997, the Company acquired certain parenteral
products businesses of Sanofi Pharmaceuticals, Inc., for approximately $200
million in cash. A substantial portion of the purchase price was allocated
to goodwill, which will be amortized on a straight-line basis over 15 years.
In 1996, the Company acquired all of the outstanding shares of MediSense,
Inc., a manufacturer of blood glucose self-testing products, for
approximately $867 million in cash. Goodwill of approximately $219 million
will be amortized on a straight-line basis over 32 years and other intangible
assets of $635 million, including trade names, patient base and acquired
technology, will be amortized on a straight-line basis over approximately 30
years. Purchased in-process research and development of $37 million was
charged against earnings. Had these acquisitions taken place on January 1 of
the previous years, consolidated sales and income would not have been
significantly different from reported amounts.
<PAGE>
Abbott Laboratories and Subsidiaries
FINANCIAL REVIEW (CONTINUED)
LEGISLATIVE ISSUES
The Company's primary markets are highly competitive and subject to
substantial government regulation. The Company expects debate to continue at
both the federal and state level over the availability, method of delivery,
and payment for health care products and services. The Company believes that
if legislation is enacted, it could have the effect of reducing prices, or
reducing the rate of price increases for medical products and services.
International operations are also subject to a significant degree of
government regulation. It is not possible to predict the extent to which the
Company or the health care industry in general might be adversely affected by
these factors in the future. A more complete discussion of these factors is
contained in Item 1, Business, in the Annual Report on Form 10-K, which is
available upon request.
RECENTLY ISSUED ACCOUNTING STANDARD
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities." This statement requires the recognition of the fair
value of derivatives as either assets or liabilities. The statement is
effective for fiscal years beginning after June 15, 1999. Adoption of the
provisions of this statement will not have a material effect on the financial
statements of the Company.
YEAR 2000
The Year 2000 ("Y2K") issue results from the inability of some computer programs
to identify the year 2000 properly, potentially leading to errors or system
failure.
The Company has organized its efforts to resolve the Y2K issue as follows:
internal information systems; landlord and embedded systems; electronic products
currently marketed or in the field; and suppliers providing products and
services to the Company. Progress goals have been established in each area.
Internal information systems were inventoried and assessed, and remediation
started in 1992. Virtually all remediation has been completed. Eighty-one
percent of testing has been completed and all testing is scheduled to be
completed by mid-1999. Current progress is slightly better than plan.
Landlord and embedded systems were inventoried and Y2K assessment completed
by May 1998. The Company's goal is to resolve all critical systems by July
1999. Current progress is better than plan.
The Company has assessed the ability of its medical electronic and software
products to cope with the Y2K issue. Except for certain products distributed by
Murex, customers may access the Company's assessment on the Company's Web site.
For the recently acquired Murex product line, a referral source for customers to
contact the manufacturer is provided on the Web site. Most of the Company's
products are not affected by the Y2K issue. For those products requiring
remediation, the Company's goal is to provide solutions by June 1999. Current
progress is according to plan.
Beginning in March 1998, key suppliers were requested to certify that
they were Y2K compliant or, if not, to provide their plans to become
compliant. Eighty-six percent of suppliers responded; 54 percent of those
responding certified compliance currently and 46 percent forwarded action
plans. Follow-up with all key suppliers is being conducted according to plan.
<PAGE>
Abbott Laboratories and Subsidiaries
FINANCIAL REVIEW (CONTINUED)
Each of the above areas began developing business continuity plans during
1998, and will complete development of those plans by September 30, 1999.
The most likely worst-case Y2K scenarios are subject to a wide range of
speculation. However, the business continuity plans will 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.
The Company'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.
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 will be a three-year transition to
the euro, and at the end of 2001, the legacy currencies will be eliminated. In
1997, the Company organized an internal cross-functional task force to address
the euro issues and expects to be ready for the full conversion to the euro.
Costs required to prepare for the euro are not material to the Company's
financial position, results of operations or cash flows. The impact, if any, of
the euro on the Company's competitive position is unknown.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 -- A CAUTION CONCERNING
FORWARD-LOOKING STATEMENTS
Under the safe harbor provisions of the Private Securities Litigation Reform Act
of 1995, the Company cautions investors that any forward-looking statements or
projections made by the Company, including those made in this document, are
subject to risks and uncertainties that may cause actual results to differ
materially from those projected. Economic, competitive, governmental,
technological and other factors that may affect the Company's operations are
discussed in Exhibit 99.1 to the Annual Report on Form 10-K.
<PAGE>
Abbott Laboratories and Subsidiaries
SUMMARY OF SELECTED FINANCIAL DATA
Year Ended December 31
(dollars in millions except per share data)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
--------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Net Sales. . . . . . . . . . . . . . . . . . . $ 12,477.8 11,883.5 11,013.5 10,012.2 9,156.0
Cost of products sold. . . . . . . . . . . . . $ 5,394.4 5,045.7 4,732.0 4,325.8 3,993.8
Research and development . . . . . . . . . . . $ 1,221.6 1,302.4 1,204.8 1,072.7 963.5
Selling, general and administrative. . . . . . $ 2,743.9 2,685.0 2,459.6 2,230.7 2,054.5
Operating earnings . . . . . . . . . . . . . . $ 3,117.9 2,850.4 2,617.1 2,382.9 2,144.2
Interest expense . . . . . . . . . . . . . . . $ 159.8 134.6 95.4 69.5 49.7
Interest income. . . . . . . . . . . . . . . . $ (55.7) (47.7) (44.5) (51.8) (36.9)
Other (income) expense, net. . . . . . . . . . $ (226.8) (186.3) (103.4) (30.2) (35.3)
Earnings before taxes. . . . . . . . . . . . . $ 3,240.6 2,949.9 2,669.6 2,395.3 2,166.7
Taxes on earnings. . . . . . . . . . . . . . . $ 907.4 855.5 787.5 706.6 650.0
Net earnings . . . . . . . . . . . . . . . . . $ 2,333.2 2,094.5 1,882.0 1,688.7 1,516.7
Basic earnings per common share. . . . . . . . $ 1.53 1.36 1.20 1.06 .93
Diluted earnings per common share. . . . . . . $ 1.51 1.34 1.19 1.05 .92
Financial Position:
Working capital. . . . . . . . . . . . . . . . $ 591.0 3.7 137.2 436.4 400.5
Investment securities maturing after one year. $ 783.8 631.0 665.6 422.5 316.2
Net property and equipment . . . . . . . . . . $ 4,738.8 4,569.7 4,461.5 4,249.5 3,920.9
Total assets . . . . . . . . . . . . . . . . . $ 13,216.2 12,061.1 11,125.6 9,412.6 8,523.7
Long-term debt . . . . . . . . . . . . . . . . $ 1,339.7 938.0 932.9 435.2 287.1
Shareholders' investment.. . . . . . . . . . . $ 5,713.7 4,998.7 4,820.2 4,396.8 4,049.4
Return on shareholders' investment . . . . . . % 43.6 42.7 40.8 40.0 39.3
Book value per share . . . . . . . . . . . . . $ 3.77 3.27 3.11 2.79 2.52
Other Statistics:
Gross profit margin. . . . . . . . . . . . . . % 56.8 57.5 57.0 56.8 56.4
Research and development to net sales. . . . . % 9.8 11.0 10.9 10.7 10.5
Net cash from operating activities . . . . . . $ 2,732.9 2,628.8 2,382.1 1,965.6 2,212.1
Capital expenditures . . . . . . . . . . . . . $ 990.6 1,007.3 949.0 947.0 929.5
Cash dividends declared per common share . . . $ .60 .54 .48 .42 .38
Common shares outstanding (in thousands) . . . 1,516,063 1,528,188 1,548,898 1,574,614 1,606,560
Number of common shareholders. . . . . . . . . 107,209 102,981 99,513 89,831 86,324
Number of employees. . . . . . . . . . . . . . 56,236 54,487 52,817 50,241 49,464
Sales per employee (in dollars). . . . . . . . $ 221,884 218,097 208,521 199,283 185,105
Market price per share-high. . . . . . . . . . $ 50 1/16 34 5/8 28 11/16 22 3/8 17
Market price per share-low . . . . . . . . . . $ 32 1/2 24 7/8 19 1/16 15 5/16 12 11/16
Market price per share-close . . . . . . . . . $ 49 32 3/4 25 3/8 20 13/16 16 5/16
</TABLE>
<PAGE>
Abbott Laboratories and Subsidiaries
SUMMARY OF SELECTED FINANCIAL DATA (CONTINUED)
Year Ended December 31
(dollars in millions except per share data)
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
--------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Summary of Operations:
Net Sales. . . . . . . . . . . . . . . . . . . $ 8,407.8 7,851.9 6,876.6 6,158.7 5,379.8
Cost of products sold. . . . . . . . . . . . . $ 3,684.7 3,505.3 3,140.0 2,910.1 2,556.7
Research and development . . . . . . . . . . . $ 881.0 772.4 666.3 567.0 501.8
Selling, general and administrative. . . . . . $ 1,988.2 1,833.2 1,513.3 1,275.6 1,100.2
Operating earnings . . . . . . . . . . . . . . $ 1,924.0 1,526.0 1,557.0 1,406.0 1,221.1
Interest expense . . . . . . . . . . . . . . . $ 54.3 53.0 63.8 91.4 74.4
Interest income. . . . . . . . . . . . . . . . $ (37.8) (42.3) (45.1) (51.6) (73.8)
Other (income) expense, net. . . . . . . . . . $ (35.7) 48.5 (5.9) 15.5 26.3
Earnings before taxes. . . . . . . . . . . . . $ 1,943.2 1,738.8 1,544.2 1,350.7 1,194.2
Taxes on earnings. . . . . . . . . . . . . . . $ 544.1 499.7 455.5 384.9 334.4
Net earnings . . . . . . . . . . . . . . . . . $ 1,399.1 1,239.1 1,088.7 965.8 859.8
Basic earnings per common share. . . . . . . . $ .84 .73 .64 .56 .48
Diluted earnings per common share. . . . . . . $ .84 .73 .63 .55 .47
Financial Position:
Working capital. . . . . . . . . . . . . . . . $ 490.6 449.2 661.7 460.0 719.2
Investment securities maturing after one year. $ 221.8 270.6 340.2 314.0 300.0
Net property and equipment . . . . . . . . . . $ 3,511.0 3,099.2 2,662.1 2,375.8 2,090.2
Total assets . . . . . . . . . . . . . . . . . $ 7,688.6 6,941.2 6,255.3 5,563.2 4,851.6
Long-term debt . . . . . . . . . . . . . . . . $ 306.8 110.0 125.1 134.8 146.7
Shareholders' investment . . . . . . . . . . . $ 3,674.9 3,347.6 3,203.0 2,833.6 2,726.4
Return on shareholders' investment . . . . . . % 39.8 37.8 36.1 34.7 33.1
Book value per share . . . . . . . . . . . . . $ 2.24 2.00 1.88 1.65 1.54
Other Statistics:
Gross profit margin. . . . . . . . . . . . . . % 56.2 55.4 54.3 52.7 52.5
Research and development to net sales. . . . . % 10.5 9.8 9.7 9.2 9.3
Net cash from operating activities . . . . . . $ 1,846.9 1,388.8 1,453.2 1,200.9 959.9
Capital expenditures . . . . . . . . . . . . . $ 952.7 1,007.2 732.8 629.5 501.5
Cash dividends declared per common share . . . $ .34 .30 .25 .21 .17
Common shares outstanding (in thousands) . . . 1,642,260 1,672,104 1,701,060 1,716,564 1,769,916
Number of common shareholders. . . . . . . . . 82,947 75,703 56,541 49,827 45,361
Number of employees. . . . . . . . . . . . . . 49,659 48,118 45,694 43,770 40,929
Sales per employee (in dollars). . . . . . . . $ 169,312 163,180 150,492 140,706 131,441
Market price per share-high. . . . . . . . . . $ 15 7/16 17 1/16 17 3/8 11 9/16 8 13/16
Market price per share-low . . . . . . . . . . $ 11 5/16 13 1/16 9 13/16 7 13/16 5 3/4
Market price per share-close . . . . . . . . . $ 14 13/16 15 3/16 17 3/16 11 1/4 8 1/2
</TABLE>
<PAGE>
Abbott Laboratories and Subsidiaries
SUMMARY OF SELECTED FINANCIAL DATA (CONTINUED)
Year Ended December 31
(dollars in millions except per share data)
<TABLE>
<CAPTION>
1988
----------
<S> <C>
Summary of Operations:
Net Sales. . . . . . . . . . . . . . . . . . . . . . . $ 4,937.0
Cost of products sold. . . . . . . . . . . . . . . . . $ 2,353.2
Research and development . . . . . . . . . . . . . . . $ 454.6
Selling, general and administrative. . . . . . . . . . $ 1,027.2
Operating earnings . . . . . . . . . . . . . . . . . . $ 1,102.0
Interest expense . . . . . . . . . . . . . . . . . . . $ 85.0
Interest income. . . . . . . . . . . . . . . . . . . . $ (69.4)
Other (income) expense, net. . . . . . . . . . . . . . $ 30.9
Earnings before taxes. . . . . . . . . . . . . . . . . $ 1,055.5
Taxes on earnings. . . . . . . . . . . . . . . . . . . $ 303.5
Net earnings . . . . . . . . . . . . . . . . . . . . . $ 752.0
Basic earnings per common share. . . . . . . . . . . . $ .42
Diluted earnings per common share. . . . . . . . . . . $ .41
Financial Position:
Working capital. . . . . . . . . . . . . . . . . . . . $ 913.3
Investment securities maturing after one year. . . . . $ 285.7
Net property and equipment . . . . . . . . . . . . . . $ 1,952.6
Total assets . . . . . . . . . . . . . . . . . . . . . $ 4,825.1
Long-term debt . . . . . . . . . . . . . . . . . . . . $ 349.3
Shareholders' investment . . . . . . . . . . . . . . . $ 2,464.6
Return on shareholders' investment . . . . . . . . . . % 33.0
Book value per share . . . . . . . . . . . . . . . . . $ 1.37
Other Statistics:
Gross profit margin. . . . . . . . . . . . . . . . . . % 52.3
Research and development to net sales. . . . . . . . . % 9.2
Net cash from operating activities . . . . . . . . . . $ 965.4
Capital expenditures . . . . . . . . . . . . . . . . . $ 521.2
Cash dividends declared per common share . . . . . . . $ .15
Common shares outstanding (in thousands) . . . . . . . 1,798,768
Number of common shareholders. . . . . . . . . . . . . 46,324
Number of employees. . . . . . . . . . . . . . . . . . 38,751
Sales per employee (in dollars). . . . . . . . . . . . $ 127,403
Market price per share-high. . . . . . . . . . . . . . $ 6 9/16
Market price per share-low . . . . . . . . . . . . . . $ 5 3/8
Market price per share-close . . . . . . . . . . . . . $ 6
</TABLE>
<PAGE>
EXHIBIT
SUBSIDIARIES OF ABBOTT LABORATORIES
The following is a list of subsidiaries of the Company. Abbott
Laboratories is not a subsidiary of any other corporation.
<TABLE>
<CAPTION>
State of
Domestic Subsidiaries Incorporation
- --------------------- -------------
<S> <C>
Abbott Chemicals Plant, Inc. Puerto Rico
Abbott Health Products, Inc. Delaware
Abbott Home Infusion Services New York
of New York, Inc.
Abbott International Ltd. Delaware
Abbott International Ltd. of Puerto Rico Puerto Rico
Abbott Laboratories Inc. Delaware
Abbott Laboratories International Co. Illinois
Abbott Laboratories Pacific Ltd. Illinois
Abbott Laboratories (Puerto Rico)
Incorporated Puerto Rico
Abbott Laboratories Residential
Development Fund, Inc. Illinois
Abbott Laboratories Services Corp. Illinois
Abbott Trading Company, Inc. Virgin Islands
Abbott Universal Ltd. Delaware
CMM Transportation, Inc. Delaware
Corporate Alliance, Inc. Delaware
Fuller Research Corporation Delaware
IMTC Technologies, Inc. Delaware
Laser Surgery Partnership Illinois
</TABLE>
<PAGE>
-2-
<TABLE>
<CAPTION>
<S> <C>
Medlase Holding Corporation Delaware
Murex Diagnostics, Inc. Delaware
North Shore Properties, Inc. Delaware
Oximetrix de Puerto Rico, Inc. Delaware
Oximetrix, Inc. Delaware
Solartek Products, Inc. Delaware
Sorenson Research Co., Inc. Utah
Swan-Myers, Incorporated Indiana
TAP Holdings Inc. Delaware
TAP Pharmaceuticals Inc. Delaware
Tobal Products Incorporated Illinois
</TABLE>
<TABLE>
<CAPTION>
Country
in Which
Foreign Subsidiaries Organized
- -------------------- ---------
<S> <C>
Abbott Laboratories Argentina, S.A. Argentina
Abbott Australasia Pty. Limited Australia
Abbott Laboratories Executive Superannuation Australia
Pty. Limited
Abbott Laboratories Superannuation Pty. Limited Australia
MediSense Australia Pty. Ltd. Australia
Abbott Gesellschaft m.b.H. Austria
Abbott Hospitals Limited Bahamas
Abbott Laboratories (Bangladesh) Ltd. Bangladesh
Abbott, S.A. Belgium
</TABLE>
<PAGE>
-3-
<TABLE>
<CAPTION>
<S> <C>
MediSense Belgium, BVBA Belgium
Abbott Ireland Bermuda
Abbott Laboratorios do Brasil Ltda. Brazil
Abbott Laboratories Limited Canada
MediSense Canada, Inc. Canada
Abbott Laboratories de Chile
Limitada Chile
Ningbo Asia-Pacific Biotechnology Ltd. China, People's
Republic of
Shangai Abbott Pharmaceutical Co., Ltd. China, People's
Republic of
Abbott Laboratories de Colombia, S.A. Colombia
Abbott Laboratories de Cost Rica Ltd. Costa Rica
Abbott Laboratories s.r.o. Czech Republic
Abbott Laboratories A/S Denmark
Abbott Laboratorios del Ecuador, S.A. Ecuador
Abbott, S.A. de C.V. El Salvador
Abbott Investments Limited England
Abbott Laboratories Limited England
Abbott Laboratories Trustee
Company Limited England
MediSense (U.K.) Ltd. England
Abbott Oy Finland
Abbott France S.A. France
Alcyon Analyzer S. A. France
MediSense France SARL France
Abbott G.m.b.H. Germany
MediSense (Deutschland) GmbH Germany
</TABLE>
<PAGE>
- 4-
<TABLE>
<CAPTION>
<S> <C>
Abbott Diagnostics G.m.b.H. Germany
Abbott Laboratories (Hellas) S.A. Greece
FAMAR Panos A. Marinopoulos S.A. Greece
FAMAR Anonymous Industrial Co. of Greece
Pharmaceuticals and Cosmetics
Abbott Grenada Limited Grenada
Abbott Laboratorios, S.A. Guatemala
Abbott Laboratories Limited Hong Kong
Abbott Laboratories (Hungary) Ltd. Hungary
Abbott Laboratories (India) Limited India
Abind Healthcare Private Limited India
P. T. Abbott Indonesia Indonesia
Abbott Laboratories, Ireland,
Limited Ireland
Abbott Ireland Ltd. Ireland
Abbott S.p.A. Italy
Abbott West Indies Limited Jamaica
Consolidated Laboratories Limited Jamaica
Abbott Japan K.K. Japan
Dainabot Co., Ltd. Japan
MediSense Japan Ltd. Japan
Abbott Korea Limited Korea
Abbott Middle East S.A.R.L. Lebanon
Abbott Laboratories (Malaysia) Sdn. Bhd. Malaysia
</TABLE>
<PAGE>
- 5 -
<TABLE>
<CAPTION>
<S> <C>
Abbott Laboratories de Mexico, S.A. de C.V. Mexico
Abbott Laboratories (Mozambique)
Limitada Mozambique
Abbott B.V. The Netherlands
Abbott Finance B.V. The Netherlands
Abbott Holdings B.V. The Netherlands
Abbott Laboratories B.V. The Netherlands
Edisco B.V. The Netherlands
MediSense Europe B.V. The Netherlands
MediSense Netherlands, B.V. The Netherlands
Abbott Laboratories (N.Z.) Limited New Zealand
Abbott Laboratories Nigeria Limited Nigeria
Abbott Laboratories (Pakistan) Limited Pakistan
Abbott Laboratories, C.A. Panama
Abbott Overseas, S.A. Panama
Abbott Laboratorios S.A. Peru
Abbott Laboratories Philippines
l02 E. de los Santos Realty Co., Inc. Philippines
Union-Madison Realty Company, Inc. Philippines
Abbott Laboratories Sp. z.o.o. Poland
Abbott Laboratorios, Limitada Portugal
Abbott Laboratories (Singapore)
Private Limited Singapore
Abbott Laboratories South Africa
(Pty.) Limited South Africa
</TABLE>
<PAGE>
- 6 -
<TABLE>
<CAPTION>
<S> <C>
Abbott Laboratories, S.A. Spain
Abbott Cientifica, S.A. Spain
Abbott Scandinavia A.B. Sweden
MediSense Sverige AB Sweden
Abbott A.G. Switzerland
Abbott Laboratories S.A. Switzerland
Abbott Finance Company S.A. Switzerland
MediSense AG Switzerland
Abbott Laboratories Taiwan Limited Taiwan
Abbott Laboratories Limited Thailand
Abbott Laboratuarlari Ithalat Ihracat
Ve Tecaret Anonim Sirketi Turkey
Abbott Laboratories Uruguay Limitada Uruguay
Abbott Laboratories, C.A. Venezuela
Medicamentos M & R, S.A. Venezuela
Date: as of January 31, 1999
</TABLE>
<PAGE>
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of the following into Abbott's previously filed
S-8 Registration Statements 33-4368 for the Abbott Laboratories 1986
Incentive Stock Program, 33-39798 for the Abbott Laboratories 1991 Incentive
Stock Program, 333-09071, 333-43381 and 333-69547 for the Abbott Laboratories
1996 Incentive Stock Program, 333-13091 for the Abbott Laboratories Ashland
Union 401(k) Plan and Trust, and 33-26685, 33-51585, 33-56897, 33-65127,
333-19511, 333-43383, and 333-69579 for the Abbott Laboratories Stock
Retirement Plan and Trust and into Abbott's previously filed S-3 Registration
Statements 33-50253, 333-06155, 333-63481, and 333-65601:
1. Our supplemental report dated January 14, 1999 included in this
Annual Report on Form 10-K for the year ended December 31, 1998; and
2. Our report dated January 14, 1999 incorporated by reference in this
Annual Report on Form 10-K for the year ended December 31, 1998.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 9, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS TWELVE MONTH YEAR-TO-DATE FINANCIAL INFORMATION EXTRACTED
FROM ABBOTT LABORATORIES' 1998 FORM 10-K AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FORM 10-K FILING.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 308,230
<SECURITIES> 75,087
<RECEIVABLES> 2,141,010
<ALLOWANCES> 190,952
<INVENTORY> 1,410,609
<CURRENT-ASSETS> 5,553,136
<PP&E> 9,396,236
<DEPRECIATION> 4,657,393
<TOTAL-ASSETS> 13,216,213
<CURRENT-LIABILITIES> 4,962,126
<BONDS> 1,339,694
0
0
<COMMON> 1,231,079
<OTHER-SE> 4,482,582
<TOTAL-LIABILITY-AND-EQUITY> 13,216,213
<SALES> 12,477,845
<TOTAL-REVENUES> 12,477,845
<CGS> 5,394,441
<TOTAL-COSTS> 5,394,441
<OTHER-EXPENSES> 1,221,593<F1>
<LOSS-PROVISION> 41,441
<INTEREST-EXPENSE> 159,839
<INCOME-PRETAX> 3,240,599
<INCOME-TAX> 907,368
<INCOME-CONTINUING> 2,333,231
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,333,231
<EPS-PRIMARY> 1.53<F2>
<EPS-DILUTED> 1.51<F2>
<FN>
<F1> Other expenses consist of research and development expenses.
<F2> The EPS information in this exhibit has been prepared in accordance with
SFAS No. 128, and Basic and Diluted EPS have been entered in place of
Primary and Fully Diluted EPS, respectively.
</FN>
</TABLE>
<PAGE>
Exhibit 99.1
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The Financial Review, incorporated herein by reference, and other sections of
this Form 10-K contain forward-looking statements that are based on
management's current expectations, estimates and projections. Words such as
"expects," "anticipates," "intends," "plans," "believes," "seeks,"
"estimates," variations of these words and similar expressions are intended
to identify these forward-looking statements. Certain factors, including but
not limited to those listed below, may cause actual results to differ
materially from current expectations, estimates, projections and from past
results.
-- Economic factors including changes in the rate of inflation, business
conditions, interest rates and foreign currency exchange rates.
-- Competitive factors, including: (i) pricing pressures, both in the
United States and abroad, primarily from managed care groups and government
agencies, (ii) the development of new products by competitors having
lower prices or superior performance or that are otherwise competitive with
Abbott's current products, (iii) generic competition when Abbott's
products lose their patent protection, (iv) technological advances and
patents obtained by competitors and (v) problems with licensors, suppliers
and distributors.
-- Difficulties and delays inherent in the development, manufacturing,
marketing, or sale of products including: (i) efficacy or safety concerns,
(ii) delays in the receipt of or the inability to obtain required
approvals, (iii) the suspension or revocation of the authority necessary
for manufacture, marketing, or sale, (iv) the imposition of additional or
different regulatory requirements, such as those affecting labeling, (v)
seizure or recall of products, (vi) the failure to obtain, the imposition
of limitations on the use of, or the loss of patent and other intellectual
property rights, and (vii) manufacturing or distribution problems.
-- Governmental action including: (i) new laws, regulations and judicial
decisions related to health care availability, method of delivery and
payment for health care products and services, (ii) changes in the
Federal Food and Drug Administration and foreign regulatory approval
processes that may delay or prevent the approval of new products and result
in lost market opportunity, (iii) new laws, regulations and judicial
decisions affecting pricing or marketing and (iv) changes in the tax laws
relating to Abbott's operations.
-- Legal difficulties, including product liability claims, claims asserting
antitrust violations, disputes over intellectual property rights (including
patents) and environmental matters, any of which could preclude
commercialization of products or adversely affect profitability.
-- Changes in accounting standards promulgated by the Financial Accounting
Standards Board, the Securities and Exchange Commission or the American
Institute of Certified Public Accountants.
-- Changes in costs or expenses, including variations resulting from changes
in product mix, changes in tax rates both in the United States and abroad,
the effects of acquisitions, dispositions or other events occurring in
connection with evolving business strategies.
No assurance can be made that any expectation, estimate or projection
contained in a forward-looking statement can be achieved. Readers are
cautioned not to place undue reliance on such statements, which speak only as
of the date made. Abbott undertakes no obligation to release publicly any
revisions to forward-looking statements as the result of subsequent events or
developments.
