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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, 1999 COMMISSION FILE NUMBER 1-2189
[LOGO] ABBOTT LABORATORIES
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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)
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SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
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NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
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Common Shares, Without Par Value (including New York Stock Exchange
Preferred Stock Purchase Rights) Chicago Stock Exchange
Pacific Exchange
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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. [X]
THE AGGREGATE MARKET VALUE OF THE 1,439,038,517 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 31, 2000, WAS APPROXIMATELY $46,858,691,709.
ABBOTT HAS NO NON-VOTING COMMON EQUITY.
NUMBER OF COMMON SHARES OUTSTANDING AS OF JANUARY 31, 2000: 1,547,694,358.
DOCUMENTS INCORPORATED BY REFERENCE
PORTIONS OF THE ABBOTT LABORATORIES ANNUAL REPORT FOR THE YEAR ENDED
DECEMBER 31, 1999 ARE INCORPORATED BY REFERENCE INTO PARTS I, II, AND IV.
PORTIONS OF THE 2000 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 Note entitled "Segment and
Geographic Area Information" of the Notes to Consolidated Financial Statements
in the Abbott Laboratories Annual Report for the year ended December 31, 1999
(1999 Annual Report), filed as an exhibit to this report.
NARRATIVE DESCRIPTION OF BUSINESS
Abbott has five reporting revenue segments: Pharmaceutical Products,
Diagnostic Products, Hospital Products, Ross Products, and International. 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 urology products, including Flomax-Registered Trademark- for the treatment of
benign prostatic hyperplasia; Abbokinase-Registered Trademark-, a thrombolytic
drug; TriCor-Registered Trademark- 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 factor.
In addition, the substitution of generic drugs for the brand prescribed has
increased competitive pressures on pharmaceutical products which are off-patent.
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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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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 systems and reagents
used to perform immunoassay tests including Architect-Registered Trademark-,
AxSYM-Registered Trademark-, IMx-Registered Trademark-, Abbott Quantum-TM-;
Commander-Registered Trademark-, and Abbott PRISM-Registered Trademark- lines of
instruments and chemical reagents; 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; therapeutic drug monitoring tests
and systems such as TDx-Registered Trademark- and TDxFlx-Registered Trademark-;
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- and Determine-Registered Trademark- systems for
rapid diagnostic testing; clinical chemistry systems such as Abbott
Spectrum-Registered Trademark-, Aeroset-Registered Trademark-,
Alcyon-Registered Trademark-, and Abbott Vision-Registered Trademark-; 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 Xtra-Registered Trademark-, Precision Q.I.D.-Registered Trademark-,the
ExacTech-Registered Trademark-, the MediSense II-TM-, the ExacTech
RSG-Registered Trademark-, Precision G-Registered Trademark- and Precision
PCx-Registered Trademark- hospital systems; 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.
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 benefitted from
technological advantages of certain of its current products; however, these
advantages may be reduced or eliminated as competitors introduce new products.
For a specified period, certain of this segment's products are subject to
restrictions on their sale in the United States. These restrictions are
discussed in Regulation on page 7.
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
Techstar-Registered Trademark-, Prostar-Registered Trademark-, and The
Closer-TM- vessel closure products, 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-TM-, 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 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;
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and Faultless-Registered Trademark- rubber sundry products. In the fourth
quarter of 1999, Abbott acquired all of the outstanding shares of
Perclose, Inc., a company that designs, manufactures, and markets less invasive
medical devices that automate the surgical closure or connection of blood
vessels.
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, instrument warranty provisions, 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 benefitted 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 NeoSure-Registered Trademark-; 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-, and 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-; the
anti-viral 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 inhibitor
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 Blopress-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 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. Price can also be a factor.
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, scientific innovation, 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, service, 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 benefitted from technological advantages
of certain of its current products; however, these advantages may be reduced or
eliminated as competitors introduce new products.
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 for the
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United States and Canada. 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-,
Lucrin-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. Managed care purchasers,
for example, health maintenance organizations (HMOs) and pharmacy benefit
managers, are increasingly important customers. Competition is generally from
other 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.
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 expire during the period
2000 to 2020, 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 (which is sold under the trademarks
Biaxin-Registered Trademark-, Klacid-Registered Trademark- and
Klaricid-Registered Trademark-), 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
divalproex sodium (which is sold under the trademark
Depakote-Registered Trademark-) are significant for Abbott's Pharmaceutical
Products segment. The original United States compound patents covering
divalproex sodium will expire in 2008. Litigation involving Abbott's patents
covering divalproex sodium is discussed in Legal Proceedings on pages 10
and 11.
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
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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 $1,193,963,000 in 1999, $1,228,777,000 in 1998, and
$1,307,362,000 in 1997 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
1999 were approximately $20 million and $54 million, respectively. Capital and
operating expenditures for pollution control are estimated to approximate
$19 million and $57 million, respectively, in 2000.
Abbott has been identified as one of many potentially responsible parties in
investigations and/or remediations at twenty-four locations in the United States
including 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 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 57,100 persons as of December 31, 1999.
REGULATION
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-Registered Trademark- 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. No lots have
been released since January 1999. Abbott submitted a letter to the FDA on
October 7, 1999, responding to the FDA's concerns and committing to meet all
outlined criteria for the release of Abbokinase. On December 10, 1999, Abbott
met with the FDA to review Abbott's plan for the qualification of new raw
materials and reinitiation of manufacturing. The FDA concurred with Abbott's
strategy. In the future, Abbott will sell only Abbokinase that is manufactured
with new raw materials that meet the FDA's criteria. Abbott cannot predict,
however, whether it will be successful in qualifying new raw material sources or
the effect of this matter on future sales of Abbokinase. Sales of Abbokinase
were approximately $47 million and $277 million in 1999 and 1998, respectively.
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On September 28, 1999, Abbott announced that it had been notified by the
United States government of alleged noncompliance with the FDA's Quality System
Regulation at the Lake County, Illinois facilities of Abbott's Diagnostic
Products division. On November 4, 1999, a consent decree was entered in the
United States District Court for the Northern District of Illinois which settles
the issues involving Abbott's diagnostic manufacturing operations in Lake
County, Illinois. The decree required Abbott to make a payment of $100 million
to the United States government and to ensure its diagnostic manufacturing
processes in Lake County, Illinois conform with the FDA's current Quality System
Regulation. The consent decree does not represent an admission by Abbott of any
violation of the Federal Food, Drug and Cosmetic Act or its regulations. The
decree allows for the continued manufacture and distribution of medically
necessary diagnostic products made in Lake County, Illinois, such as certain
assays for hepatitis, retrovirus, cardiovascular disease, cancer, thyroid
disorders, fertility, drug monitoring, and congenital and respiratory
conditions. However, Abbott is prohibited from manufacturing or distributing
certain other diagnostic products until Abbott ensures the processes in its Lake
County, Illinois diagnostics manufacturing operations conform with the current
Quality System Regulation. Under the terms of the consent decree, among other
actions, Abbott has submitted to the FDA proposed master compliance and
validation plans to ensure its processes conform with the current Quality System
Regulation. The decree requires Abbott to ensure its facilities are in
conformance with the current Quality System Regulation within one year. The
consent decree does not affect Abbott's MediSense, i-STAT, hematology or Murex
products; the clinical chemistry products Abbott Spectrum-Registered Trademark-,
Aeroset-Registered Trademark-, and Alcyon-Registered Trademark-; or any other
Abbott divisions or their products. The consent decree allows Abbott to export
diagnostic products and components for sale and distribution outside the United
States if they meet the export requirements of the Federal Food, Drug and
Cosmetic Act.
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, record
keeping, 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.
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 and is implementing a prospective payment system (PPS) for
services delivered in hospital outpatient, nursing home, and home health
settings. DRG and PPS entitle a health care facility to a fixed reimbursement
based on diagnosis 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
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Veterans Health Care Act of 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 2000 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 also are having an
impact on United States regulations. 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.
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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 REPORTABLE REVENUE 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 and Diagnostic Products
Bedford, Massachusetts Diagnostic Products
Brockville, Canada International
Campoverde, Italy International
Casa Grande, Arizona Ross Products
Columbus, Ohio Ross Products
Dartford, England Diagnostic 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 and Hospital 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>
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In addition to the above, Abbott has manufacturing facilities in six other
locations in the United States, including Puerto Rico. Outside the United States
manufacturing facilities are located in 15 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; North Chicago, Illinois;
Redwood City, California; 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, 2000), 130 antitrust lawsuits 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-, 13 antitrust lawsuits, two antitrust
investigations, and one patent infringement lawsuit involving Abbott's patents
for terazosin hydrochloride, a drug that Abbott sells under the trademark
Hytrin-Registered Trademark-, and 18 cases involving Abbott's alleged
noncompliance with the United States Food and Drug Administration's Quality
System Regulation at Abbott's Diagnostic Products division facilities in Lake
County, Illinois.
As of January 31, 2000, 116 prescription pharmaceutical pricing antitrust
cases were pending in federal court and 14 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:
Clarke County, Alabama; Monterey County, California; San Francisco County,
California (five cases); San Joaquin County, California; Prentiss County,
Mississippi; Burleigh County, North Dakota; San Miguel, County, New Mexico;
Hughes County, South Dakota; Cocke County, Tennessee; and, Marshall County, West
Virginia. Abbott entered and the courts have approved settlement agreements in
the consumer lawsuits that were previously pending in the following
jurisdictions: Kansas, North Carolina, and Tennessee. The investigations are
being conducted by the Attorney General of Illinois and the Federal Trade
Commission.
As of January 31, 2000, 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
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<PAGE>
infringement. TorPharm contends that its product does not infringe Abbott's
patents and that, in any event, the patents are invalid and unenforceable. A
trial is scheduled for July 17, 2000. 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. On
November 23, 1999, the court re-affirmed its prior rulings granting Abbott
summary judgment. Alra has appealed.
As of January 31, 2000, one case involving Abbott's patents for terazosin
hydrochloride, a drug that Abbott sells under the trademark
Hytrin-Registered Trademark-, was pending. Five cases had been filed in the
United States District Court for the Northern District of Illinois alleging
infringement of Abbott's terazosin hydrochloride form IV patent. The other
parties to these cases were Geneva Pharmaceuticals, Inc. ("Geneva"), Novopharm
Limited ("Novopharm"), Invamed, Inc. ("Invamed"), Mylan Pharmaceuticals, Inc.
("Mylan"), and Warner Chilcott, Inc. ("Warner Chilcott"). Abbott sued each of
these five corporations alleging patent infringement after learning that they
had applied to the FDA for approval for a generic version of terazosin
hydrochloride. Each of these corporations contended that Abbott's patent which
covers their version of terazosin hydrochloride is invalid and unenforceable.
The Geneva, Invamed, and Novopharm cases were all pending before the same judge,
who, on September 1, 1998, entered a judgment in each of those cases ruling that
the Abbott patent at issue in those cases is invalid. Abbott appealed this
ruling and on July 1, 1999, the appellate court affirmed the lower court's
decision. Abbott filed a petition for a writ of certiorari in the United States
Supreme Court, which was denied on January 10, 2000. On October 4, 1999, Mylan's
motion in the appellate court for Summary Affirmance, based on the September 1,
1998 ruling in the Geneva case, was granted. Abbott filed a petition for a writ
of certiorari in the United States Supreme Court, which is pending. On November
24, 1999, Warner Chilcott's motion in the appellate court for Summary
Affirmance, based on the September 1, 1998 ruling in the Geneva case, was
granted and is now final.
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 patent litigation and the litigation of
other claims between the parties. In the settlement, Zenith acknowledged the
validity of Abbott's terazosin hydrochloride patents and agreed to refrain from
selling a generic version of terazosin hydrochloride until the expiration of one
of Abbott's patents for terazosin hydrochloride (U.S. Patent No. 4,251,532). On
April 1, 1998, Abbott and Geneva reached an agreement under which Geneva would
not market its Food and Drug Administration approved generic terazosin
hydrochloride products until resolution of the pending patent litigation between
the parties. Abbott agreed to make quarterly payments to Zenith and monthly
payments to Geneva until the date on which they could enter the market for
terazosin hydrochloride under their agreements. Under the agreements, both
Zenith and Geneva would have been free to enter the market for terazosin
hydrochloride in the United States if certain of Abbott's patents for terazosin
hydrochloride were determined to be invalid and if another company legally
entered the generic market in the United States. On August 12, 1999, Abbott and
Geneva terminated their
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<PAGE>
April 1, 1998 agreement, and Geneva returned to Abbott a portion of the payments
held in escrow under the agreement. On August 13, 1999, Geneva entered the
market with its product.
As of January 31, 2000, 13 cases were pending relating to Abbott's
agreements with Geneva and Zenith and/or its conduct with respect to its patents
for terazosin hydrochloride. Nine cases were pending in federal court. Four were
pending in state court. Each alleges Abbott violated antitrust and/or consumer
protection laws. Generally, each seeks actual damages, treble damages, civil
penalties, and other relief. Abbott has sought or intends to seek to have the
state cases removed to federal court and has requested or intends to request the
Judicial Panel for Multidistrict Litigation to transfer the cases to the United
States District Court for the Southern District of Florida for coordinated
pre-trial proceedings. Abbott has filed or intends to file a response to each
complaint denying all substantive allegations.
As noted above, as of January 31, 2000, 9 cases are pending in federal
court. On December 18, 1998, Louisiana Wholesale Drug Co. sued Abbott, Geneva
and Zenith. On August 30, 1999, Valley Drug Co. sued Abbott and Geneva. Both
cases were filed in in the United States District Court for the Southern
District of Florida. On October 19, 1999, Char-Mar Pharmacy, Inc. sued Abbott,
Geneva, and Zenith in the United States District Court for the Eastern District
of New York. On August 19, 1999, Drug Mart Pharmacy Corp. sued Abbott, Geneva,
and Zenith in the Supreme Court of New York, Kings County. The case is now
pending in the United States District Court for the Southern District of
Florida. On October 5, 1999, United Wisconsin Services, Inc., Blue Cross & Blue
Shield of Wisconsin, Inc., Compare Health Insurance Corp., Unity Health Plans
Insurance Corp., and Valley Health Plan Inc. sued Abbott in the Circuit Court of
Cook County. The case is now pending in the United States District Court for the
Northern District of Illinois. On October 29, 1999, Ewald and Lavera
Grosskrueger sued Abbott in the Circuit Court of Cook County, Illinois. The case
is now pending in the United States District Court for the Northern District of
Illinois. On November 29, 1999, Maxicare Health Plans, Inc. sued Abbott in the
Superior Court of the State of California for the City and County of San
Francisco. The case is now pending in the United States District Court for the
Northern District of California. Each of the 7 preceding cases purports to be a
class action. In addition, on July 12, 1999, Walgreen Co. and five other retail
pharmacy chains sued Abbott, Geneva, and Zenith and on December 29, 1999,
CVS Meridian, Inc. and Rite Aid Corp. sued Abbott, Geneva, and Zenith. Both
cases were filed in the United States District Court for the Southern District
of Florida.
As of January 31, 2000, 4 cases were pending in state court. Each purports
to be a class action. On December 30, 1999, Victor Scafani sued Abbott, Geneva,
and Zenith in the Superior Court of California for the County of San Mateo. On
January 7, 2000, Mermel J. Valentine sued Abbott, Geneva, and Zenith in the
Circuit Court of Tennessee, Cocke County. On November 8, 1999, Aaron Asher and
New Utrecht Pharmacy, Inc., sued Abbott, Geneva, and Zenith in the Supreme Court
of New York for the County of New York. On November 18, 1999, Joseph Lisanti
sued Abbott, Geneva, and Zenith in the Supreme Court of New York for the County
of Nassau.
On April 19, 1999, Abbott received a subpoena and a civil investigation
demand from the Federal Trade Commission regarding Abbott's agreements with
Geneva and Zenith. On December 29, 1999, Abbott received a civil investigative
demand from the State of Florida, Office of the Attorney General, regarding
Abbott's agreements with Geneva and Zenith.
As of January 31, 2000, eighteen cases, including five shareholder
derivative suits, were pending relating to Abbott's alleged noncompliance with
the Food and Drug Administration's Quality System Regulation at Abbott's
Diagnostic Products division facilities in Lake County, Illinois. (This matter
is discussed in greater detail in "Regulation" on page 7 and is incorporated
herein by this reference.)
Thirteen of these lawsuits allege that Abbott and Miles White, its Chief
Executive Officer, and in some cases, Thomas Brown, Abbott's Senior Vice
President, Diagnostic Operations, violated Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934 by misrepresenting or omitting material
information about the alleged regulatory noncompliance. On October 20, 1999, Tom
Anderson sued
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<PAGE>
Abbott and Mr. White. Abbott and Mr. White were also sued by Adele Brody on
October 26, 1999; Solomon Glazer on October 26, 1999; Deborah Isaac on
October 26, 1999; Feivel Alter on November 3, 1999; George Ehlert and Georgeanne
Ehlert on November 26, 1999; Albert Pats on November 26, 1999; James Bresnahan
on December 16, 1999; and, also on December 16, 1999 by Robert Corwin. In
addition, in their lawsuits against Abbott and Mr. White, the following
individuals also sued Mr. Brown: James Brannon on November 5, 1999; Scott Mustin
on December 3, 1999; Bethany Gill Revocable Trust on December 7, 1999; and, also
on December 7, 1999, Joseph Rabinovits. These lawsuits were filed in the United
States District Court for the Northern District of Illinois. Each of these cases
(a) purports to be a class action brought on behalf of purchasers of Abbott
stock between March 17, 1999, and September 29, 1999 (or, in the case brought by
Tom Anderson on behalf of purchasers of Abbott stock between March 17, 1999 and
November 2, 1999), and (b) seeks unspecified monetary damages and other relief.
On February 2, 2000, the United States District Court consolidated all thirteen
cases, which will now be known as, "IN RE ABBOTT LABORATORIES SECURITIES
LITIGATION." Abbott denies all of the substantive allegations of these lawsuits
and will vigorously defend against them.
The five shareholder derivative suits name as defendants each of Abbott's
current directors, certain former directors and, nominally, Abbott, and claim
that the directors breached their fiduciary duties by, among other things,
(a) allowing the alleged regulatory noncompliance, (b) failing to publicly
disclose the alleged regulatory noncompliance in supposed violation of federal
securities law, (c) misusing or permitting the misuse of corporate information
for the personal profit of corporate insiders in supposed violation of federal
and state law, and (d) causing Abbott to pay $100 million to the federal
government and withdraw certain medical diagnostics kits from the U.S. market.
In the United States District Court for the Northern District of Illinois, Leo
Farrell sued on November 5, 1999; Leonard Bronstein sued on November 8, 1999;
and Carpenters Pension Fund of Arkansas and David Kaufman sued on December 15,
1999 (and also name Thomas Hodgson, a former director and officer, as a
defendant). In the Circuit Court of Cook County, Illinois, F. David Seinfeld
sued on December 2, 1999. In the Circuit Court for the Nineteenth Judicial
Circuit, Lake County, Illinois, Craig Heneghan and Marjory Motiaytis sued on
December 14, 1999 (and also names K. Frank Austen, a former director, and Duane
Burnham, a former director and officer, as defendants). In each case, the
plaintiffs request unspecified monetary damages to be paid to Abbott, that the
directors indemnify Abbott for all fines, penalties or damages paid by Abbott in
connection with the alleged regulatory noncompliance, reimbursement of their
legal fees and costs, and various forms of other relief. The Bronstein, Farrell,
and Carpenters cases have been consolidated and are now known as IN RE ABBOTT
LABORATORIES DERIVATIVE SHAREHOLDER LITIGATION. Abbott has filed motions to
dismiss the Seinfeld and Heneghan cases. Abbott intends to deny all of the
substantive allegations of these suits. Abbott will vigorously defend these
suits.
Abbott has previously reported that four lawsuits, all purporting to be
class action lawsuits filed on behalf of a class of holders of ALZA Corporation
("ALZA") stock as of August 16, 1999, were pending in the United States District
Court for the Northern District of Illinois. The plaintiffs in these cases were
Gayle Stahl, Galina Mikhailova, Ted Dellas, and Sylvia Piven. Each of these
cases alleged the defendants violated Sections 14(a) and 20(a) of the Securities
Exchange Act of 1934 by soliciting the approval of ALZA's shareholders for a
merger of ALZA with Abbott by means of a proxy statement/prospectus, which the
plaintiffs allege contained materially false and misleading statements or
omissions concerning Abbott's alleged noncompliance with the Food and Drug
Administration's Quality System Regulation. On January 19, 2000, the court
dismissed these cases with prejudice.
While it is not feasible to predict the outcome of such pending claims,
proceedings, and investigations with certainty, management is of the opinion
that their ultimate dispositions should not have a material adverse effect on
Abbott's financial position, cash flows, or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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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, 2000, are listed
below. The officers' principal occupations and employment from January 1995 to
March 1, 2000 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**, 44
1999 to present -- Chairman of the Board and Chief Executive Officer, and
Director.
1998 to 1999 -- Executive Vice President and Director.
1995 to 1998 -- Senior Vice President, Diagnostic Operations.
Elected Corporate Officer -- 1993.
ROBERT L. PARKINSON JR.,** 49
1999 to present -- President and Chief Operating Officer, and Director.
1998 to 1999 -- Executive Vice President and Director.
1995 to 1998 -- Senior Vice President, International Operations.
1995 -- Senior Vice President, Chemical and Agricultural Products.
Elected Corporate Officer -- 1989.
JOY A. AMUNDSON**, 45
1998 to present -- Senior Vice President, Ross Products.
1995 to 1998 -- Senior Vice President, Chemical and Agricultural Products.
1995 -- Vice President, Abbott HealthSystems.
Elected Corporate Officer -- 1990.
CHRISTOPHER B. BEGLEY**, 47
1999 to present -- Senior Vice President, Chemical and Agricultural
Products.
1998 to 1999 -- Vice President, Abbott HealthSystems.
1996 to 1998 -- Vice President, MediSense Operations.
1995 to 1996 -- Vice President, Hospital Products Business Sector.
Elected Corporate Officer -- 1993.
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<PAGE>
THOMAS D. BROWN**, 51
1998 to present -- Senior Vice President, Diagnostic Operations.
1995 to 1998 -- Vice President, Diagnostic Commercial Operations.
Elected Corporate Officer -- 1993.
GARY P. COUGHLAN**, 56
1995 to present -- Senior Vice President, Finance and Chief Financial
Officer.
Elected Corporate Officer -- 1990.
JOSE M. DE LASA**, 58
1995 to present -- Senior Vice President, Secretary and General Counsel.
Elected Corporate Officer -- 1994.
WILLIAM G. DEMPSEY **, 48
1999 to present -- Senior Vice President, International Operations.
1998 to 1999 -- Senior Vice President, Chemical and Agricultural Products.
1996 to 1998 -- Vice President, Hospital Products Business Sector.
1995 to 1996 -- Divisional Vice President, Hospital Products Business Sector
Sales.
1995 -- Divisional Vice President and General Manager, Abbott Critical Care
Systems.
Elected Corporate Officer -- 1996.
RICHARD A. GONZALEZ**, 46
1998 to present -- Senior Vice President, Hospital Products.
1995 to 1998 -- Vice President, Abbott HealthSystems.
1995 -- Divisional Vice President and General Manager, U.S. and Canada,
Diagnostic Products.
Elected Corporate Officer -- 1995.
ARTHUR J. HIGGINS**, 43
1998 to present -- Senior Vice President, Pharmaceutical Operations.
1996 to 1998 -- Vice President, Pacific, Asia, and Africa Operations.
1995 to 1996 -- Divisional Vice President, Pacific, Asia, and Africa
Operations.
1995 -- Divisional Vice President, Commercial Operations, Abbott
International Division.
Elected Corporate Officer -- 1996.
15
<PAGE>
THOMAS M. WASCOE**, 53
1999 to present -- Senior Vice President, Human Resources.
1995 to 1999 -- Divisional Vice President, Human Resources, Diagnostic
Products.
Elected Corporate Officer -- 1999.
CATHERINE V. BABINGTON, 47
1995 to present -- Vice President, Investor Relations and Public Affairs.
1995 -- Director, Corporate Communications.
Elected Corporate Officer -- 1995.
PATRICK J. BALTHROP, 43
1998 to present -- Vice President, Diagnostic Commercial Operations.
1996 to 1998 -- Vice President, Diagnostic Operations, U.S. and Canada.
1995 to 1996 -- Divisional Vice President and General Manager, U.S. and
Canada, Diagnostic Products.
1995 -- Divisional Vice President and Sector General Manager, Diagnostic
Products.
Elected Corporate Officer -- 1996.
MARK E. BARMAK, 58
2000 to present -- Vice President, Government Affairs.
1995 to 2000 -- Vice President, Litigation and Government Affairs.
1995 -- Divisional Vice President and Associate General Counsel, Litigation.
Elected Corporate Officer -- 1995.
MICHAEL G. BEATRICE, 52
1999 to present -- Vice President, Corporate Regulatory and Quality Science.
1996 to 1999 -- Executive Vice President and General Manager, Quintiles
Strategic Product Development Consulting Services (global
regulatory and quality systems consultation service
organization).
1995 to 1996 -- Deputy Director, Center for Biologics Evaluation and
Research, United States Food and Drug Administration.
Elected Corporate Officer -- 1999.
16
<PAGE>
CHRISTOPHER A. BLECK, 42
1999 to present -- Vice President, Pediatrics, Ross Products.
1997 to 1999 -- Divisional Vice President and President and General Manager,
Canada, Abbott International Division.
1995 to 1997 -- Divisional Vice President, Business Development, Abbott
International Division.
Elected Corporate Officer -- 1999.
DOUGLAS C. BRYANT, 42
1998 to present -- Vice President, Diagnostic Operations, Asia and Pacific.
1997 to 1998 -- Commercial Director, Asia and Pacific, Diagnostic Products.
1995 to 1997 -- General Manager, United Kingdom and Ireland, Diagnostic
Products.
1995 -- Regional Sales Manager, Diagnostic Products.
Elected Corporate Officer -- 1998.
GARY R. BYERS, 58
1995 to present -- Vice President, Internal Audit.
Elected Corporate Officer -- 1993.
THOMAS F. CHEN, 50
1998 to present -- Vice President, Pacific, Asia, and Africa Operations.
1996 to 1998 -- Regional Director, Taiwan and People's Republic of China.
1995 to 1996 -- General Manager, Taiwan and People's Republic of China Task
Force.
Elected Corporate Officer -- 1998.
EDWARD J. FIORENTINO, 41
1998 to present -- Vice President, Pharmaceutical Products, Marketing and
Sales.
1995 to 1998 -- Divisional Vice President, Marketing, Pharmaceutical
Products.
Elected Corporate Officer -- 1998.
GARY L. FLYNN**, 50
1999 to present -- Vice President and Controller.
1995 to 1999 -- Divisional Vice President and Controller, Ross Products.
Elected Corporate Officer -- 1999.
THOMAS C. FREYMAN, 45
1999 to present -- Vice President, Hospital Products Controller.
1995 to 1999 -- Vice President and Treasurer.
Elected Corporate Officer -- 1991.
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<PAGE>
STEPHEN R. FUSSELL, 42
1999 to present -- Vice President, Compensation and Development.
1996 to 1999 -- Divisional Vice President, Compensation and Benefits.
1995 to 1996 -- Vice President, Total Compensation, Nestle USA (diversified
food company).
Elected Corporate Officer -- 1999.
DAVID B. GOFFREDO, 45
1998 to present -- Vice President, European Operations.
1995 to 1998 -- Vice President, Pharmaceutical Products, Marketing and
Sales.
1995 -- Divisional Vice President, Pharmaceutical Products Sales and
Marketing.
Elected Corporate Officer -- 1995.
ROBERT B. HANCE, 40
1999 to present -- Vice President, Diagnostic Operations, Europe, Africa and
Middle East.
1997 to 1999 -- Divisional Vice President, European Region, Diagnostic
Products.
1996 to 1997 -- Area Business Development Director, Europe, Middle East and
Africa, Diagnostic Products.
1995 to 1996 -- Director, Marketing, IPLS and Clinical Chemistry, Diagnostic
Products.
Elected Corporate Officer -- 1999.
GUILLERMO A. HERRERA, 46
1998 to present -- Vice President, Latin America and Canada Operations.
1996 to 1998 -- Vice President, Latin America Operations.
1995 to 1996 -- Area Vice President, Latin America.
Elected Corporate Officer -- 1996.
JAMES J. KOZIARZ, 51
1995 to present -- Vice President, Diagnostic Products Research and
Development.
Elected Corporate Officer -- 1993.
ELAINE R. LEAVENWORTH, 40
1999 to present -- Vice President, Abbott HealthSystems.
1997 to 1999 -- Divisional Vice President, Licensing and New Business
Development, Abbott International Division.
1996 to 1997 -- Director, Licensing and Acquisitions, Abbott International
Division.
1995 to 1996 -- Director, Nutritionals, Abbott International Division.
Elected Corporate Officer -- 1999.
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<PAGE>
JOHN M. LEONARD, 42
1999 to present -- Vice President, Pharmaceutical Development.
1997 to 1999 -- Divisional Vice President, Pharmaceutical Development,
Pharmaceutical Products Research and Development.
1996 to 1997 -- Therapeutic Area Venture Head, Pharmaceutical Products
Research and Development.
1995 to 1996 -- Venture Head, Pharmaceutical Products Research and
Development.
Elected Corporate Officer -- 1999.
GREG W. LINDER, 43
1999 to present -- Vice President and Treasurer.
1996 to 1999 -- Divisional Vice President and Controller, Hospital Products.
1995 to 1996 -- Assistant Controller, Corporate Finance.
Elected Corporate Officer -- 1999.
JOHN F. LUSSEN, 58
1995 to present -- Vice President, Taxes.
Elected Corporate Officer -- 1985.
EDWARD L. MICHAEL, 43
1999 to present -- Vice President, Diagnostic Assays and Systems.
1997 to 1999 -- Vice President, Diagnostic Operations, Europe, Africa, and
Middle East.
1995 to 1997 -- Director, Area Operations and Scientific Development.
Elected Corporate Officer -- 1997.
KAREN L. MILLER, 46
2000 to present -- Vice President, Information Technology.
1997 to 2000 -- Divisional Vice President, Information Systems, Diagnostic
Products.
1995 to 1997 -- Director, Business Systems, Diagnostic Products.
Elected Corporate Officer -- 2000.
19
<PAGE>
DANIEL W. NORBECK, 41
1999 to present -- Vice President, Pharmaceutical Discovery.
1998 to 1999 -- Divisional Vice President, Discovery, Pharmaceutical
Products Research and Development.
1995 to 1998 -- Divisional Vice President, Area Head, Pharmaceutical
Products Research and Development.
1995 -- Senior Project Leader, Pharmaceutical Products Research and
Development.
Elected Corporate Officer -- 1999.
EDWARD A. OGUNRO, 47
1999 to present -- Vice President, Hospital Products Research and
Development, Medical and Regulatory Affairs.
1995 to 1999 -- Divisional Vice President, Immunodiagnostics and Chemistry,
Diagnostic Products.
Elected Corporate Officer -- 1999.
WILLIAM H. STADTLANDER, 54
1995 to present -- Vice President, Ross Medical Nutritional Products.
Elected Corporate Officer -- 1993.
MARCIA A. THOMAS, 52
1999 to present -- Vice President, Diagnostic Quality Assurance, Regulatory
Affairs and Compliance.
1996 to 1999 -- Vice President, Quality Assurance and Regulatory Affairs.
1995 to 1996 -- Divisional Vice President, Quality Assurance and Regulatory
Affairs, Diagnostic Products.
1995 -- Divisional Vice President and General Manager, Infectious Diseases
Diagnostics.
Elected Corporate Officer -- 1996.
STEVEN J. WEGER JR., 55
1996 to present -- Vice President, Corporate Planning and Development.
1995 to 1996 -- Divisional Vice President, Strategic Planning and Technology
Assessment, Diagnostic Products.
Elected Corporate Officer -- 1996.
20
<PAGE>
SUSAN M. WIDNER, 43
1998 to present -- Vice President, Diagnostic Operations, U.S. and Canada.
1996 to 1998 -- Divisional Vice President, Worldwide Marketing, Diagnostic
Products.
1995 to 1996 -- Director, Venture Marketing, Diagnostic Products.
1995 -- Business Unit Manager, Diagnostic Products.
Elected Corporate Officer -- 1998.
LANCE B. WYATT, 55
1995 to present -- Vice President, Corporate Engineering.
1995 -- Divisional Vice President, Quality Assurance and Regulatory Affairs,
Pharmaceutical Products.
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).
21
<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
-----------------------------------------------------------
1999 1998
--------------------------- --------------------------
HIGH LOW HIGH LOW
---------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
First Quarter..................................... 51 7/16 43 39 7/16 32 1/2
Second Quarter.................................... 53 5/16 41 15/16 42 11/16 34 7/8
Third Quarter..................................... 45 7/8 36 5/16 45 11/16 36 5/8
Fourth Quarter.................................... 42 7/8 33 50 1/16 39
</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 106,766 shareholders of record of Abbott common shares as of
December 31, 1999.
DIVIDENDS
Quarterly dividends of $.17 per share and $.15 per share were declared on
common shares in 1999 and 1998, respectively, after reflecting the May 1998
stock split.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated herein by reference for the years 1995 through 1999 are the
applicable portions of the section captioned "Summary of Selected Financial
Data" of the 1999 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 1999, 1998, and 1997
found under the section captioned "Financial Review" of the 1999 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 1999 Annual Report.
22
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated herein by reference are the portions of the 1999 Annual Report
captioned "Consolidated Statement of Earnings and Comprehensive Income,"
"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 17, 2000
(except with respect to the matter discussed in the third paragraph of Note 12,
as to which the date is January 20, 2000)). Data relating to quarterly results
are found in Note 10.
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 2000 Abbott
Laboratories Proxy Statement. Also incorporated herein by reference is the text
found under the caption, "Executive Officers of The Registrant" on pages 14
through 21.
ITEM 11. EXECUTIVE COMPENSATION
The material in the 2000 Proxy Statement under the heading "Executive
Compensation," other than the Report of the Compensation Committee and the
Performance Graph, is incorporated herein 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 2000 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, 1999, 1998, and 1997 and the related report of Arthur
Andersen LLP dated January 17, 2000 (except with respect to the matter discussed
in the third paragraph of Note 12, as to which the date is January 20, 2000),
appearing under the portions of the 1999 Annual Report captioned "Consolidated
Statement of Earnings and Comprehensive Income," "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 1999 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.
23
<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 1999 Annual
Report:
<TABLE>
<CAPTION>
SCHEDULES PAGE NO.
- --------- --------
<S> <C>
Valuation and Qualifying Accounts (Schedule II) 27
Schedules I, III, IV, and V are not submitted because they
are not applicable or not required.
Supplemental Report of Independent Public Accountants 28
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 30, 31 and 32 of this Form 10-K.
(b) REPORTS ON FORM 8-K DURING THE QUARTER ENDED DECEMBER 31, 1999:
Four reports on Form 8-K were filed during the quarter ended December 31,
1999. In a Form 8-K dated November 2, 1999, Abbott reported that a consent
decree was entered in the United States District Court for the Northern
District of Illinois which settles the issues involving Abbott's diagnostic
manufacturing operations in Lake County, Illinois. In a report dated
November 10, 1999, Abbott reported that, on November 10, 1999, the Board of
Directors of Abbott adopted a shareholder rights plan and declared a
dividend of one Preferred Stock Purchase Right for each outstanding share of
Abbott common stock to be distributed to the shareholders of record of
Abbott as of the close of business on December 1, 1999. In a report dated
November 11, 1999, Abbott reported that, on November 11, 1999, Abbott and
BankBoston, N.A., as Rights Agent, executed a Rights Agreement relating to
the Preferred Stock Purchase Rights to be distributed to the shareholders of
record of Abbott as of the close of business on December 1, 1999. In a
report dated December 7, 1999, Abbott reported that on December 7, 1999
Abbott and BankBoston, N.A., as Rights Agent, executed an Amendment
Number 1 to the Rights Agreement between Abbott and BankBoston, N.A., as
Rights Agent dated November 11, 1999.
(c) EXHIBITS FILED (SEE EXHIBIT INDEX ON PAGES 30, 31 AND 32).
(d) FINANCIAL STATEMENT SCHEDULES FILED (PAGE 27).
24
<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
Chairman of the Board and
Chief Executive Officer
Date: February 11, 2000
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 11, 2000 in the capacities indicated below.
/s/ MILES D. WHITE
- -------------------------------------------
Miles D. White
Chairman of the Board, Chief Executive Officer
and Director of Abbott Laboratories
(principal executive officer)
/s/ ROBERT L. PARKINSON JR.
- -------------------------------------------
Robert L. Parkinson Jr.
President, Chief Operating Officer
and Director of Abbott Laboratories
/s/ GARY P. COUGHLAN
- -------------------------------------------
Gary P. Coughlan
Senior Vice President, Finance and
Chief Financial Officer
(principal financial officer)
/s/ GARY L. FLYNN
- -------------------------------------------
Gary L. Flynn
Vice President and Controller
(principal accounting officer)
/s/ H. LAURANCE FULLER
- -------------------------------------------
H. Laurance Fuller
Director of Abbott Laboratories
/s/ DAVID A. JONES
- -------------------------------------------
David A. Jones
Director of Abbott Laboratories
/s/ JEFFREY M. LEIDEN
- -------------------------------------------
Jeffrey M. Leiden, M.D.
Director of Abbott Laboratories
/s/ DAVID A. L. OWEN
- -------------------------------------------
David A. L. Owen
Director of Abbott Laboratories
/s/ BOONE POWELL JR.
- -------------------------------------------
Boone Powell Jr.
Director of Abbott Laboratories
/s/ A. BARRY RAND
- -------------------------------------------
A. Barry Rand
Director of Abbott Laboratories
/s/ W. ANN REYNOLDS
- -------------------------------------------
W. Ann Reynolds
Director of Abbott Laboratories
25
<PAGE>
/s/ ROY S. ROBERTS
- -------------------------------------------
Roy S. Roberts
Director of Abbott Laboratories
/s/ WILLIAM D. SMITHBURG
- -------------------------------------------
William D. Smithburg
Director of Abbott Laboratories
/s/ JOHN R. WALTER
- -------------------------------------------
John R. Walter
Director of Abbott Laboratories
/s/ WILLIAM L. WEISS
- -------------------------------------------
William L. Weiss
Director of Abbott Laboratories
26
<PAGE>
ABBOTT LABORATORIES AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
<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>
1999...................................... 191,352 67,645 (20,041) 238,956
1998...................................... 167,592 41,655 (17,895) 191,352
1997...................................... 153,615 28,188 (14,211) 167,592
</TABLE>
(a) Represents provisions related to allowances for doubtful accounts and net
change in the allowances for sales deductions.
27
<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 17, 2000 (except with respect to the matter discussed in the third
paragraph of Note 12, as to which the date is January 20, 2000). 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 17, 2000
(except with respect to the matter
discussed in the third paragraph
of Note 12, as to which the date
is January 20, 2000)
<PAGE>
EXHIBIT INDEX
ABBOTT LABORATORIES
ANNUAL REPORT
FORM 10-K
1999
<TABLE>
<CAPTION>
10-K
EXHIBIT
TABLE
ITEM NO.
- ---------------------
<C> <S>
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. (see also
Exhibit 4.23, below.)
3.2 * Corporate By-Laws-Abbott Laboratories filed as Exhibit 3.1
to the Abbott Laboratories Quarterly Report on Form 10-Q
for the quarter ended September 30, 1999.
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.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
10-K
EXHIBIT
TABLE
ITEM NO.
- ---------------------
<C> <S>
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.
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.
4.23 * Certificate of Designations, Preferences and Rights of the
Series A Junior Participating Preferred Stock, filed as
Exhibit 4.1 to the Abbott Laboratories Current Report on
Form 8-K filed on November 15, 1999.
4.24 * Rights Agreement, dated as of November 11, 1999, between
Abbott Laboratories and BankBoston, N.A., as Rights Agent,
filed as Exhibit 99.1 to the Abbott Laboratories Current
Report on Form 8-K filed on November 15, 1999.
4.25 * Amendment No. 1 to Rights Agreement, dated as of
December 7, 1999, between Abbott Laboratories and
BankBoston, N.A., as Rights Agent, filed as Exhibit 99.1
to the Abbott Laboratories Current Report on Form 8-K
filed on December 20, 1999.
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 * Abbott Laboratories 401(k) Supplemental Plan, filed as
Exhibit 10.7 to the Abbott Laboratories 1993 Annual Report
on Form 10-K.**
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
10-K
EXHIBIT
TABLE
ITEM NO.
- ---------------------
<C> <S>
10.5 * 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.**
10.6 * 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.**
10.7 * Abbott Laboratories Non-Employee Directors' Fee Plan filed
as Exhibit 10.8 to the 1998 Abbott Laboratories Annual
Report on Form 10-K.**
10.8 * The Abbott Laboratories 1996 Incentive Stock Program filed
as Exhibit 10.9 to the 1997 Abbott Laboratories Annual
Report on Form 10-K.**
10.9 * 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. **
10.10 Form of Agreement Between Abbott Laboratories and each of
M. D. White, R. L. Parkinson Jr., G. P. Coughlan, J. A.
Amundson, and R. P. Gonzalez regarding Change in Control.
12 Computation of Ratio of Earnings to Fixed Charges.
13 The portions of the Abbott Laboratories Annual Report for
the year ended December 31, 1999 captioned "Consolidated
Statement of Earnings and Comprehensive Income,"
"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 Selected Financial Data" for the years 1995 through
1999.
21 Subsidiaries of Abbott Laboratories.
23 Consent of Independent Public Accountants.
27.1 Financial Data Schedule.
27.2 Financial Data Schedule.
27.3 Financial Data Schedule.
99.1 Cautionary Statement Regarding Forward-Looking Statements.
</TABLE>
The 2000 Abbott Laboratories Proxy Statement will be filed with the
Securities and Exchange Commission under separate cover on or about March 14,
2000.
- ------------------------
* 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.
32
<PAGE>
Exhibit 10.10
AGREEMENT REGARDING
CHANGE IN CONTROL
THIS AGREEMENT ("Agreement"), made and entered into as of the 1st day
of January, 2000 (the "Effective Date"), by and between Abbott Laboratories (the
"Company") and __________ (the "Executive");
WITNESSETH THAT:
WHEREAS, the Company considers it essential to the best interests of
its shareholders to foster the continuous employment of key management
personnel, and the Board of Directors of the Company (the "Board") recognizes
that, as is the case with many publicly held corporations, a change in control
might occur and that such possibility, and the uncertainty and questions which
it may raise among management, may result in the departure or distraction of
management personnel to the detriment of the Company and its shareholders; and
WHEREAS, the Board has determined that appropriate steps should be
taken to reinforce and encourage the continued attention and dedication of
members of the Company's management, including the Executive, to their assigned
duties without distraction in the face of potentially disturbing circumstances
arising from the possibility of a change in control of the Company;
NOW, THEREFORE, to induce the Executive to remain in the employ of the
Company and in consideration of the premises and mutual covenants set forth
herein, IT IS HEREBY AGREED by and between the parties as follows:
1. AGREEMENT TERM. The initial "Agreement Term" shall begin on the
Effective Date and shall continue through December 31, 2002. As of December 31,
2000, and as of each December 31 thereafter, the Agreement Term shall extend
automatically to the third anniversary thereof unless the Company gives notice
to the Executive prior to the date of such extension that the Agreement Term
will not be extended. Notwithstanding the foregoing, if a Change in Control (as
defined in Section 7 below), occurs during the Agreement Term, the Agreement
Term shall continue through and terminate on the second anniversary of the date
on which the Change in Control occurs.
2. ENTITLEMENT TO CHANGE IN CONTROL BENEFITS. The Executive shall be
entitled to the Change in Control Benefits described in Section 3 hereof if the
Executive's employment by the Company is terminated during the Agreement Term
but after a Change in Control (i) by the Company for any reason other than
Permanent Disability or Cause, or (ii) by the Executive for Good Reason. For
purposes of this Agreement:
<PAGE>
(a) A termination of the Executive's employment shall be treated as a
termination by reason of "Permanent Disability" only if, due to a
mental or physical disability, the Executive is absent from the full
time performance of duties with the Company for a period of at least
twelve consecutive months and fails to return to the full time
performance of duties within 30 days after receipt of a demand by the
Company to do so.
(b) The term "Cause" shall mean the willful engaging by the Executive in
illegal conduct or gross misconduct which is demonstrably and
materially injurious to the Company. For purposes of this Agreement, no
act, or failure to act, on the Executive's part shall be deemed
"willful" unless done, or omitted to be done, by the Executive not in
good faith and without reasonable belief that the Executive's action or
omission was in the best interest of the Company. Notwithstanding the
foregoing, the Executive shall not be deemed to have been terminated
for Cause unless and until the Company delivers to the Executive a copy
of a resolution duly adopted by the affirmative vote of not less than
three-quarters of the entire membership of the Board at a meeting of
the Board called and held for such purpose (after reasonable notice to
the Executive and an opportunity for the Executive, together with
counsel, to be heard before the Board) finding that, in the good faith
opinion of the Board, the Executive was guilty of conduct set forth
above and specifying the particulars thereof in detail.
(c) The term "Good Reason" shall mean the occurrence of any of the
following circumstances without the Executive's express written
consent:
(i) a significant adverse change in the nature, scope or status of
the Executive's position, authorities or duties from those in
effect immediately prior to the Change in Control;
(ii) the failure by the Company to pay the Executive any portion of
the Executive's current compensation, or to pay the Executive
any portion of any installment of deferred compensation under
any deferred compensation program of the Company, within seven
days of the date such compensation is due;
(iii) a reduction in the Executive's annual base salary (or a
material change in the frequency of payment) as in effect
immediately prior to the Change in Control as the same may be
increased from time to time;
(iv) the failure by the Company to award the Executive an annual
bonus in any year which is at least equal to the annual bonus,
awarded to the Executive under the annual bonus plan of the
Company for the year immediately preceding the year of the
Change in Control;
(v) the failure by the Company to award the Executive equity-based
incentive compensation (such as stock options, shares of
restricted stock, or other equity-
2
<PAGE>
based compensation) on a periodic basis consistent with the
Company's practices with respect to timing, value and terms
prior to the Change in Control;
(vi) the failure by the Company to continue to provide the
Executive with the welfare benefits, fringe benefits and
perquisites enjoyed by the Executive immediately prior to the
Change in Control under any of the Company's plans or
policies, including, but not limited to, those plans and
policies providing pension, life insurance, medical, health
and accident, disability, vacation, executive automobile,
executive tax or financial advice benefits or club dues;
(vii) the relocation of the Company's principal executive offices to
a location more than thirty-five miles from the location of
such offices immediately prior to the Change in Control or the
Company requiring the Executive to be based anywhere other
than the Company's principal executive offices except for
required travel to the Company's business to an extent
substantially consistent with the Executive's business travel
obligations immediately prior to the Change in Control; or
(viii) the failure of the Company to obtain a satisfactory agreement
from any successor to the Company to assume and agree to
perform this Agreement as contemplated by Section 16.
3. CHANGE IN CONTROL BENEFITS. In the event of a termination of
employment entitling the Executive to benefits in accordance with Section 2, the
Executive shall receive the following:
(a) The Executive shall be entitled to receive the following employee
welfare benefits: medical, accident, dental, prescription, and life
insurance coverage for the Executive (and, where applicable under the
Company's welfare benefit plans, the Executive's family) through the
third anniversary of the Executive's date of termination of employment,
or, if earlier, the date on which the Executive becomes employed by
another employer. The benefits provided by the Company shall be no less
favorable in terms of coverage and cost to the Executive than those
provided under the Company's welfare benefit plans applicable to the
Executive (and, where applicable, the Executive's family) prior to the
Change in Control, determined as if the Executive remained in the
employ of the Company through such third anniversary. For purposes of
determining eligibility of the Executive for retiree welfare benefits,
the Executive shall be considered to have remained in the employ of the
Company through such third anniversary.
(b) If the Executive's date of termination occurs after the end of a
performance period applicable to an annual incentive (bonus) award,
and prior to the payment of the award for the period, the Executive
shall be entitled to a lump sum payment in cash no later than twenty
(20) business days after the date of termination equal to the
greatest of (i) the Executive's annual incentive (bonus) award for
that period, as determined under the terms of that incentive award
arrangement, (ii) the Executive's annual incentive (bonus) award for
that period, with the determination of the amount of such award
based on an
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assumption that the target level of performance had been achieved or
(iii) the Participant's average annual incentive (bonus) award for
the three annual performance periods preceding that period (provided
that if the Participant was not a participant in the incentive award
arrangement for any of those three prior years, the averaging period
shall be reduced from three years to the number of years during the
three year period in which the Participant was a participant; and
further provided that if the Participant's award for any such year
was reduced because the Participant was not a participant for the
full year, such amount shall be annualized for purposes of the
computation in this clause (iii)).
(c) For any annual incentive (bonus) plan or arrangement in which the
Executive participates for the performance period in which the
Executive's termination of employment occurs, the Executive shall be
entitled to a lump sum payment in cash no later than twenty
(20) business days after the date of termination equal to the greater
of (i) the Executive's annual incentive (bonus) award for the
performance period that includes the date of termination, with the
determination of the amount of such award based on an assumption
that the target level of performance has been achieved or (ii) the
Executive's average annual incentive (bonus) award for the three
annual performance periods preceding the performance period that
includes the date of termination (provided that if the Executive was
not a participant in the incentive award arrangement for any of
those three prior years, the averaging period shall be reduced from
three years to the number of years during the three year period in
which the Executive was a participant; and further provided that if
the Executive's award for any such year was reduced because the
Executive was not a participant for the full year, such amount shall
be annualized for purposes of the computation in this clause (ii));
provided that such payment shall be subject to a pro-rata reduction
to reflect the number of days in the performance period following
the date of termination. The amount payable under this paragraph (c)
shall be in lieu of any amounts that may otherwise be due to the
Executive with respect to any annual incentive (bonus) plan or
arrangement in which the Executive participates for the performance
period in which the Executive's date of termination occurs.
(d) The Executive shall be entitled to a lump sum payment in cash no later
than twenty business days after the Executive's date of termination
equal to the sum of:
(i) an amount equal to three times the Executive's annual salary
rate in effect on the date of the Change in Control or, or if
greater, as in effect immediately prior to the date of
termination; plus
(ii) an amount equal to three times the greater of (x) the
Executive's annual incentive (bonus) award for the
performance period that includes the date of the
Executive's termination of employment, with the
determination of the amount of such award based on an
assumption that the target level of performance has been
achieved or (y) the Executive's average annual incentive
(bonus) award for the three annual performance periods
preceding the performance period that includes the date of
termination (provided that if the Executive was not a
participant in the incentive
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award arrangement for any of those three prior years, the
averaging period shall be reduced from three years to the
number of years during the three year period in which the
Executive was a participant; and further provided that if
the Executive's award for any such year was reduced because
the Executive was not a participant for the full year, such
amount shall be annualized for purposes of the computation
in this subparagraph (ii)).
The amount payable under this paragraph (d) shall be inclusive of the
amounts, if any, to which the Executive would otherwise be entitled as
severance pay under any severance pay plan, or by law and shall be in
addition to (and not inclusive of) any amount payable under any written
agreement(s) directly between the Executive and the Company or any of
its subsidiaries.
(e) The Executive shall be entitled to benefits under the Abbott
Laboratories Supplemental Pension Plan (the "Supplemental Plan") which
shall be determined as if the Executive had been credited for benefit
accrual purposes with three additional years of service and three
additional years of eligible earnings at the higher of the Executive's
eligible earnings on the date of termination or the Executive's
eligible earnings on the date of the Change in Control and, for
purposes of determining the Executive's eligibility for subsidized
early retirement benefits, determined as if the Executive were three
years older than the Executive's actual age on the date of termination.
For purposes of this paragraph (e), "eligible earnings" shall include
salary, annual incentive (bonus) awards and all other forms of
compensation used to calculate benefits under the Supplemental Plan.
The amounts of the annual incentive (bonus) awards shall be calculated
in accordance with this paragraph (e) and, to the extent applicable,
paragraphs (b) and (c) above. The Executive's benefits under the
Supplemental Plan shall be determined, paid and administered without
regard to any termination or amendment (including any amendment
affecting actuarial factors) of such plan or of any other plan, which
is adopted on or after a Change in Control or in contemplation of a
Change in Control and, subject to paragraph (f) below, shall be paid in
accordance with the terms of that plan and the Executive's elections
under that plan. Within twenty (20) days of Executive's date of
termination, the Company shall provide the Executive with all forms,
elections and materials required in connection with the funding or
payment of the Executive's benefits under that plan. Within twenty
(20) days of the Company's receipt of properly executed and completed
forms, elections and other required materials from the Executive, the
Company shall fund the additional benefits to the extent provided by
the terms of such plan.
(f) The Executive shall be entitled to elect that all or any portion of the
amounts payable under paragraphs 3(b) and 3(c) and subparagraph
3(d)(ii) above (less applicable tax withholding) be paid directly to a
grantor trust established by the Executive to the same extent as
bonuses payable under the 1986 Abbott Laboratories Management Incentive
Plan, the 1998 Abbott Laboratories Performance Incentive Plan, or any
successor plans thereto with all of the rights and entitlements
attendant thereto.
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If the Executive is a participant in the 1998 Abbott Laboratories Performance
Incentive Plan or any successor thereto, the Executive's annual incentive
(bonus) award for the performance period which includes the date of termination
under paragraphs (c) and (d)(ii) above and, if applicable, for the period
preceding the date of termination under paragraph (b) shall, be determined under
the bonus levels communicated in writing to the Executive by the Company for
such year and shall not be the Executive's individual base award allocation as
defined in Section 4.2 of the 1998 Abbott Laboratories Performance Incentive
Plan (or any corresponding provision of any successor plan).
4. MITIGATION. The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise. Except as set forth in paragraph 3(a) with respect to benefits,
the Company shall not be entitled to set off against the amounts payable to the
Executive under this Agreement any amounts owed to the Company by the Executive,
any amounts earned by the Executive in other employment after the Executive's
termination of employment with the Company, or any amounts which might have been
earned by the Executive in other employment had the Executive sought such other
employment.
5. MAKE-WHOLE PAYMENTS. If any payment or benefit to which the
Executive (or any person on account of the Executive) is entitled, whether under
this Agreement or otherwise, in connection with a Change in Control or the
Executive's termination of employment (a "Payment") constitutes a "parachute
payment" within the meaning of section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), and as a result thereof the Executive is subject
to a tax under section 4999 of the Code, or any successor thereto, (an "Excise
Tax"), the Company shall pay to the Executive an additional amount (the
"Make-Whole Amount") which is intended to make the Executive whole for such
Excise Tax, other than the portion thereof that is attributable solely to
equity-based compensation. The Make-Whole Amount shall be equal to (x) minus
(y) where (x) is equal to (i) the amount of the Excise Tax, plus (ii) the
aggregate amount of any interest, penalties, fines or additions to any tax
which are imposed in connection with the imposition of such Excise Tax, plus
(iii) all income, excise and other applicable taxes imposed on the Executive
under the laws of any Federal, state or local government or taxing authority
by reason of the payments required under clauses (i) and (ii) and this clause
(iii), and (y) is the amount that would be determined under such clauses (i),
(ii), and (iii) if the only parachute payments received by the Executive were
equity-based Payments, including but not limited to the accelerated vesting
of stock options, shares of restricted stock, or any other equity based award.
(a) For purposes of determining the Make-Whole Amount, the Executive shall
be deemed to be taxed at the highest marginal rate under all applicable
local, state, federal and foreign income tax laws for the year in which
the Make-Whole Amount is paid. The Make-Whole Amount payable with
respect to an Excise Tax shall be paid by the Company coincident with
the Payment with respect to which such Excise Tax relates.
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(b) All calculations under this Section 5 shall be made initially by the
Company and the Company shall provide prompt written notice thereof to
the Executive to enable the Executive to timely file all applicable tax
returns. Upon request of the Executive, the Company shall provide the
Executive with sufficient tax and compensation data to enable the
Executive or the Executive's tax advisor to independently make the
calculations described in subparagraph (a) above and the Company shall
reimburse the Executive for reasonable fees and expenses incurred for
any such verification.
(c) If the Executive gives written notice to the Company of any objection
to the results of the Company's calculations within 60 days of the
Executive's receipt of written notice thereof, the dispute shall be
referred for determination to independent tax counsel selected by the
Company and reasonably acceptable to the Executive ("Tax Counsel"). The
Company shall pay all fees and expenses of such Tax Counsel. Pending
such determination by Tax Counsel, the Company shall pay the Executive
the Make-Whole Amount as determined by it in good faith. The Company
shall pay the Executive any additional amount determined by Tax Counsel
to be due under this Section 5 (together with interest thereon at a
rate equal to 120% of the Federal short-term rate determined under
section 1274(d) of the Code) promptly after such determination.
(d) The determination by Tax Counsel shall be conclusive and binding upon
all parties unless the Internal Revenue Service, a court of competent
jurisdiction, or such other duly empowered governmental body or agency
(a "Tax Authority") determines that the Executive owes a greater or
lesser amount of Excise Tax with respect to any Payment than the amount
determined by Tax Counsel.
(e) If a Taxing Authority makes a claim against the Executive which, if
successful, would require the Company to make a payment under this
Section 5, the Executive agrees to contest the claim with counsel
reasonably satisfactory to the Company, on request of the Company
subject to the following conditions:
(i) The Executive shall notify the Company of any such claim
within 10 days of becoming aware thereof. In the event that
the Company desires the claim to be contested, it shall
promptly (but in no event more than 30 days after the
notice from the Executive or such shorter time as the
Taxing Authority may specify for responding to such claim)
request the Executive to contest the claim. The Executive
shall not make any payment of any tax which is the subject
of the claim before the Executive has given the notice or
during the 30-day period thereafter unless the Executive
receives written instructions from the Company to make such
payment together with an advance of funds sufficient to
make the requested payment plus any amounts payable under
this Section 5 determined as if such advance were an Excise
Tax, in which case the Executive will act promptly in
accordance with such instructions.
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(ii) If the Company so requests, the Executive will contest the
claim by either paying the tax claimed and suing for a refund
in the appropriate court or contesting the claim in the United
States Tax Court or other appropriate court, as directed by
the Company; PROVIDED, HOWEVER, that any request by the
Company for the Executive to pay the tax shall be accompanied
by an advance from the Company to the Executive of funds
sufficient to make the requested payment plus any amounts
payable under this Section 5 determined as if such advance
were an Excise Tax. If directed by the Company in writing the
Executive will take all action necessary to compromise or
settle the claim, but in no event will the Executive
compromise or settle the claim or cease to contest the claim
without the written consent of the Company; PROVIDED, HOWEVER,
that the Executive may take any such action if the Executive
waives in writing the Executive's right to a payment under
this Section 5 for any amounts payable in connection with such
claim. The Executive agrees to cooperate in good faith with
the Company in contesting the claim and to comply with any
reasonable request from the Company concerning the contest of
the claim, including the pursuit of administrative remedies,
the appropriate forum for any judicial proceedings, and the
legal basis for contesting the claim. Upon request of the
Company, the Executive shall take appropriate appeals of any
judgment or decision that would require the Company to make a
payment under this Section 5. Provided that the Executive is
in compliance with the provisions of this section, the Company
shall be liable for and indemnify the Executive against any
loss in connection with, and all costs and expenses, including
attorneys' fees, which may be incurred as a result of,
contesting the claim, and shall provide to the Executive
within 30 days after each written request therefor by the
Executive cash advances or reimbursement for all such costs
and expenses actually incurred or reasonably expected to be
incurred by the Executive as a result of contesting the claim.
(f) Should a Tax Authority finally determine that an additional Excise Tax
is owed, then the Company shall pay an additional Make-Whole Amount to
the Executive in a manner consistent with this Section 5 with respect
to any additional Excise Tax and any assessed interest, fines, or
penalties. If any Excise Tax as calculated by the Company or Tax
Counsel, as the case may be, is finally determined by a Tax Authority
to exceed the amount required to be paid under applicable law, then the
Executive shall repay such excess to the Company within 30 days of such
determination; provided that such repayment shall be reduced by the
amount of any taxes paid by the Executive on such excess which is not
offset by the tax benefit attributable to the repayment.
6. TERMINATION DURING POTENTIAL CHANGE IN CONTROL. If a Potential
Change in Control (as defined in Section 8) occurs during the Agreement Term,
and the Company terminates the Executive's employment for reasons other than
Permanent Disability or Cause during such Potential Change in Control, the
Executive shall be entitled to receive the benefits that the Executive would
have received under Section 3, such benefits to be calculated based upon the
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Executive's compensation prior to the actual termination of employment but paid
within 20 business days of the date of such termination.
7. CHANGE IN CONTROL. For purposes of this Agreement, a "Change in
Control" shall be deemed to have occurred on the earliest of the following
dates:
(a) 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, twenty percent (20%) or more of the
outstanding common shares of the Company;
(b) the date on which the Company (i) merges or consolidates with or into
another corporation, or merges another corporation into the Company, in
which the Company is not the continuing or surviving corporation or
pursuant to which any common shares of the Company are converted into
cash, securities of another corporation, or other property, other than
a merger or consolidation 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 or its parent
corporation immediately after the merger as immediately before, or
(ii) sells or otherwise disposes of substantially all of the assets
of the Company; or
(c) 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.
8. POTENTIAL CHANGE IN CONTROL. A "Potential Change in Control" shall
exist during any period in which the circumstances described in paragraphs (a),
(b), (c) or (d), below, exist (provided, however, that a Potential Change in
Control shall cease to exist not later than the occurrence of a Change in
Control):
(a) The Company enters into an agreement, the consummation of which would
result in the occurrence of a Change in Control, provided that a
Potential Change in Control described in this paragraph (a) shall cease
to exist upon the expiration or other termination of all such
agreements.
(b) Any person (including the Company) publicly announces an intention
to take or to consider taking actions the consummation of which
would constitute a Change in Control; provided that a Potential
Change in Control described in this paragraph (b) shall cease to
exist upon the withdrawal of such intention, or upon a reasonable
determination by the Board that there is no reasonable chance that
such actions would be consummated.
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(c) The acquisition by any person (within the meaning of Section 13(d)(3)
or 14(d)(2) of the Securities Exchange Act of 1934) of beneficial
ownership of 10 percent or more of the then outstanding shares of
common stock of the Company; but excluding, for this purpose, any such
acquisition by:
(i) the Company, any subsidiary, any employee benefit plan (or
related trust, or a fiduciary of the plan or trust) maintained
by the Company or any Subsidiary, or any person who satisfies
the requirements set forth in Rule 13d-1(b)(1)(i) and (ii)
promulgated under the Securities Exchange Act of 1934; or
(ii) any corporation with respect to which, following such
acquisition, more than 50 percent of the then outstanding
shares of common stock of such corporation is then
beneficially owned by all or substantially all of the
individuals and entities who were the beneficial owners of
common stock of the Company immediately prior to such
acquisition, and in substantially the same proportion as their
ownership, immediately prior to such acquisition, of the then
outstanding shares of common stock of the Company.
(d) The Board adopts a resolution to the effect that, for purposes of this
Agreement, a Potential Change in Control exists; provided that a
Potential Change in Control described in this paragraph (d) shall cease
to exist upon a reasonable determination by the Board that the reasons
that gave rise to the resolution providing for the existence of a
Potential Change in Control have expired or no longer exist.
9. STOCK AND OPTION AWARDS. With respect to any award granted the
Executive after the date of execution of this Agreement (and not the
Effective Date) under the Company's 1996 Incentive Stock Program or any
successor thereto that includes a provision substantially similar to the
provision contained on Appendix A, after a Change in Control no forfeiture
shall be effected pursuant to such provision unless the Executive shall have
been terminated for "Cause" pursuant to the provisions of paragraph 2(b)
above.
10. WITHHOLDING. All payments to the Executive under this Agreement
will be subject to withholding of applicable taxes. The Company shall
withhold the applicable taxes in an amount calculated at the minimum
statutory rate and shall pay the amount so withheld to the appropriate tax
authority.
11. NONALIENATION. The interests of the Executive under this
Agreement are not subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, attachment, or garnishment by
creditors of the Executive or the Executive's beneficiary.
12. AMENDMENT. This Agreement may be amended or canceled only by
mutual agreement of the parties in writing without the consent of any other
person. So long as the Executive lives, no person, other than the parties
hereto, shall have any rights under or interest in this Agreement or the
subject matter hereof.
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13. APPLICABLE LAW. The provisions of this Agreement shall be
construed in accordance with the laws of the State of Illinois, without
regard to the conflict of law provisions of any state.
14. SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement will not affect the validity or enforceability of
any other provision of this Agreement, and this Agreement will be construed
as if such invalid or unenforceable provision were omitted (but only to the
extent that such provision cannot be appropriately reformed or modified).
15. WAIVER OF BREACH. No waiver by any party hereto of a breach of
any provision of this Agreement by any other party, or of compliance with any
condition or provision of this Agreement to be performed by such other party,
will operate or be construed as a waiver of any subsequent breach by such
other party of any similar or dissimilar provisions and conditions at the
same or any prior or subsequent time. The failure of any party hereto to take
any action by reason of such breach will not deprive such party of the right
to take action at any time while such breach continues.
16. SUCCESSORS, ASSUMPTION OF CONTRACT. This Agreement shall be
binding upon and inure to the benefit of the Company and any successor of the
Company. The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation or otherwise) to all or substantially all
of the business and/or assets of the Company to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the
Company would be required to perform it if no succession had taken place.
This Agreement is personal to the Executive and may not be assigned by the
Executive without the written consent of the Company. However, to the extent
that rights or benefits under this Agreement otherwise survive the
Executive's death, the Executive's heirs and estate shall succeed to such
rights and benefits pursuant to the Executive's will or the laws of descent
and distribution; provided that the Executive shall have the right at any
time and from time to time, by notice delivered to the Company, to designate
or to change the beneficiary or beneficiaries with respect to such benefits.
17. NOTICES. Notices and all other communications provided for in
this Agreement shall be in writing and shall be delivered personally or sent
by registered or certified mail, return receipt requested, postage prepaid
(provided that international mail shall be sent via overnight or two-day
delivery), or sent by facsimile or prepaid overnight courier to the parties
at the addresses set forth below. Such notices, demands, claims and other
communications shall be deemed given:
(a) in the case of delivery by overnight service with guaranteed next day
delivery, the next day or the day designated for delivery;
(b) in the case of certified or registered U.S. mail, five days after
deposit in the U.S. mail; or
(c) in the case of facsimile, the date upon which the transmitting party
received confirmation of receipt by facsimile, telephone or otherwise;
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provided, however, that in no event shall any such communications be deemed
to be given later than the date they are actually received. Communications
that are to be delivered by the U.S. mail or by overnight service or two-day
delivery service are to be delivered to the addresses set forth below:
to the Company:
Senior Vice President, Human Resources
Abbott Laboratories
100 Abbott Park Road
Abbott Park, Illinois 60064
with a copy (which shall not constitute notice) to:
General Counsel and Secretary
Abbott Laboratories
100 Abbott Park Road
Abbott Park, Illinois 60064
or to the Executive:
____________________
____________________
____________________
Each party, by written notice furnished to the other party, may modify the
applicable delivery address, except that notice of change of address shall be
effective only upon receipt.
18. RESOLUTION OF ALL DISPUTES. Any controversy or claim arising out of
or relating to this Agreement (or the breach thereof) shall be settled by
alternative dispute resolution procedures in accordance with Appendix B hereto.
19. LEGAL AND ENFORCEMENT COSTS. The provisions of this Section 19
shall apply if it becomes necessary or desirable for the Executive to retain
legal counsel or incur other costs and expenses in connection with enforcing any
and all rights under this Agreement:
(a) The Executive shall be entitled to recover from the Company reasonable
attorneys' fees, costs and expenses incurred in connection with such
enforcement or defense.
(b) Payments required under this Section 19 shall be made by the Company to
the Executive (or directly to the Executive's attorney) promptly
following submission to the Company of appropriate documentation
evidencing the incurrence of such attorneys' fees, costs, and expenses.
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(c) The Executive shall be entitled to select legal counsel; provided,
however, that such right of selection shall not affect the requirement
that any costs and expenses reimbursable under this Section 19 be
reasonable.
(d) The Executive's rights to payments under this Section 19 shall not be
affected by the final outcome of any dispute with the Company.
20. SURVIVAL OF AGREEMENT. Except as otherwise expressly provided in
this Agreement, the rights and obligations of the parties to this Agreement
shall survive the termination of the Executive's employment with the Company.
21. ENTIRE AGREEMENT. Except as otherwise provided herein, this
Agreement constitutes the entire agreement between the parties concerning the
subject matter hereof and supersedes all prior or contemporaneous agreements,
if any, between the parties relating to the subject matter hereof; provided,
however, that nothing in this Agreement shall be construed to limit any
policy or agreement that is otherwise applicable relating to confidentiality,
rights to inventions, copyrightable material, business and/or technical
information, trade secrets, solicitation of employees, interference with
relationships with other businesses, competition, and other similar policies
or agreement for the protection of the business and operations of the Company
and the subsidiaries.
22. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, any one of which shall be deemed the original without reference
to the others.
IN WITNESS THEREOF, the Executive has hereunto set his hand, and the
Company has caused these presents to be executed in its name and on its behalf,
and its corporate seal to be hereunto affixed on this ____ day of _____________,
2000, all as of the Effective Date.
------------------------------
EXECUTIVE
ABBOTT LABORATORIES
By
----------------------------
Its
----------------------------
ATTEST:
- -----------------------
(Seal)
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APPENDIX A
AGREEMENT REGARDING CHANGE IN CONTROL
FORFEITURE PROVISION REFERENCED IN SECTION 9
Notwithstanding paragraphs (x*), (y*) and (z*), these options (this restricted
stock award, etc.) shall immediately terminate (be forfeited), if in the sole
opinion and discretion of the Compensation Committee or its delegate, the
employee (a) engages in a material breach of the company's Code of Business
Conduct; (b) commits an act of fraud, embezzlement or theft in connection with
the employee's duties or in the course of employment; or (c) wrongfully
discloses secret processes or confidential information of the company or its
subsidiaries.
* Provisions contained in the agreements pertaining to nonforfeiture for
death, disability, etc.
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APPENDIX B
AGREEMENT REGARDING CHANGE IN CONTROL
ALTERNATIVE DISPUTE RESOLUTION PROCEDURES
The parties to the Agreement Regarding Change in Control dated as of the 1st
day of January, 2000 (the "Agreement") recognize that a bona fide dispute as
to certain matters may arise from time to time during the term of the
Agreement which relates to either party's rights and/or obligations. To have
such a dispute resolved by this Alternative Dispute Resolution ("ADR")
provision, a party first must send written notice of the dispute to the other
party for attempted resolution by good faith negotiations between the
Executive and the Company within twenty-eight (28) days after such notice is
received (all references to "days" in the ADR provision are to calendar days).
If the matter has not been resolved within twenty-eight (28) days of the
notice of dispute, or if the parties fail to meet within such twenty-eight
(28) days, either party may initiate an ADR proceeding as provided herein.
The parties shall have the right to be represented by counsel in such a
proceeding.
1. To begin an ADR proceeding, a party shall provide written notice to the
other party of the issues to be resolved by ADR. Within fourteen
(14) days after its receipt of such notice, the other party may, by
written notice to the party initiating the ADR, add additional issues to
be resolved within the same ADR.
2. Within twenty-one (21) days following receipt of the original ADR
notice, the parties shall select a mutually acceptable neutral to
preside in the resolution of any disputes in this ADR proceeding. If
the parties are unable to agree on a mutually acceptable neutral within
such period, either party may request the President of the CPR
Institute for Dispute Resolution ("CPR"), 366 Madison Avenue, 14th
Floor, New York, New York 10017, to select a neutral pursuant to the
following procedures:
(a) The CPR shall submit to the parties a list of not less than
five (5) candidates within fourteen (14) days after receipt of
the request, along with a CURRICULUM VITAE for each candidate.
No candidate shall be an employee, director or shareholder of
either party or any of their subsidiaries or affiliates.
(b) Such list shall include a statement of disclosure by each
candidate of any circumstances likely to affect his or her
impartiality.
(c) Each party shall number the candidates in order of preference
(with the number one (1) signifying the greatest preference)
and shall deliver the list to the CPR within seven (7) days
following receipt of the list of candidates. If a party
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believes a conflict of interest exists regarding any of the
candidates, that party shall provide a written explanation of
the conflict to the CPR along with its list showing its order
of preference for the candidates. Any party failing to return
a list of preferences on time shall be deemed to have no order
of preference.
(d) If the parties collectively have identified fewer than three
(3) candidates deemed to have conflicts, the CPR immediately
shall designate as the neutral the candidate for whom the
parties collectively have indicated the greatest preference.
If a tie should result between two candidates, the CPR may
designate either candidate. If the parties collectively have
identified three (3) or more candidates deemed to have
conflicts, the CPR shall review the explanations regarding
conflicts and, in its sole discretion, may either
(i) immediately designate as the neutral the candidate for
whom the parties collectively have indicated the greatest
preference, or (ii) issue a new list of not less than five
(5) candidates, in which case the procedures set forth in
subparagraphs 2(a)-2(d) shall be repeated.
3. No earlier than twenty-eight (28) days or later than fifty-six
(56) days after selection, the neutral shall hold a hearing to resolve
each of the issues identified by the parties. The ADR proceeding shall
take place at a location agreed upon by the parties. If the parties
cannot agree, the neutral shall designate a location other than the
principal place of business of either party or any of the subsidiaries
or affiliates.
4. At least seven (7) days prior to the hearing, each party shall submit
the following to the other party and the neutral:
(a) a copy of all exhibits on which such party intends to rely in
any oral or written presentation to the neutral;
(b) a list of any witnesses such party intends to call at the
hearing, and a short summary of the anticipated testimony of
each witness;
(c) a proposed ruling on each issue to be resolved, together with
a request for a specific damage award or other remedy for each
issue. The proposed rulings and remedies shall not contain any
recitation of the facts or any legal arguments and shall not
exceed one (1) page per issue.
(d) a brief in support of such party's proposed rulings and
remedies, provided that the brief shall not exceed twenty
(20) pages. This page limitation shall apply regardless of the
number of issues raised in the ADR proceeding.
Except as expressly set forth in subparagraphs 4(a) - 4(d), no
discovery shall be required or permitted by any means, including
deposition, interrogatories, requests for admissions or production of
documents.
16
<PAGE>
5. The hearing shall be conducted on two (2) consecutive days and shall be
governed by the following rules:
(a) Each party shall be entitled to five (5) hours of hearing time
to present its case. The neutral shall determine whether each
party has had the five (5) hours to which it is entitled.
(b) Each party shall be entitled, but not required, to make an
opening statement, to present regular or rebuttal testimony,
documents or other evidence, to cross-examine witnesses and to
make a closing argument. Cross-examination of witnesses shall
occur immediately after their direct testimony, and
cross-examination time shall be charged against the party
conducting the cross-examination.
(c) The party initiating the ADR shall begin the hearing and, if
it chooses to make an opening statement, shall address not
only issues it raised, but also any issues raised by the
responding party. The responding party, if it chooses to make
an opening statement, also shall address all issues raised in
the ADR. Thereafter, the presentation of regular and rebuttal
testimony and documents, other evidence and closing arguments
shall proceed in the same sequence.
(d) Except when testifying, witnesses shall be excluded from the
hearing until closing arguments.
(e) Settlement negotiations, including any statements made
therein, shall not be admissible under any circumstances.
Affidavits prepared for purposes of the ADR hearing also shall
not be admissible. As to all other matters, the neutral shall
have sole discretion regarding the admissibility of any
evidence.
6. Within seven (7) days following completion of the hearing, each party
may submit to the other party and the neutral a post-hearing brief in
support of its proposed rulings and remedies, provided that such brief
shall not contain or discuss any new evidence and shall not exceed ten
(10) pages. This page limitation shall apply regardless of the number
of issues raised in the ADR proceeding.
7. The neutral shall rule on each disputed issue within fourteen (14) days
following completion of the hearing. Such ruling shall adopt in its
entirety the proposed ruling and remedy of one of the parties on each
disputed issue but may adopt one party's proposed rulings and remedies
on some issues and the other party's proposed rulings and remedies on
other issues. The neutral shall not issue any written opinion or
otherwise explain the basis of the ruling.
17
<PAGE>
8. The neutral shall be paid a reasonable fee plus expenses by the
Company. The Company shall bear its own fees and expenses. The
Executive's fees and expenses shall be paid or reimbursed by the
Company to the extent provided by the Agreement.
9. The rulings of the neutral and the allocation of fees and expenses
shall be binding, non-reviewable, and non-appealable, and may be
entered as a final judgment in any court having jurisdiction.
10. Except as provided in Section 9 or as required by law, the existence of
the dispute, any settlement negotiations, the ADR hearing, any
submissions (including exhibits, testimony, proposed rulings, and
briefs), and the rulings shall be deemed Confidential Information. The
neutral shall have the authority to impose sanctions for unauthorized
disclosure of Confidential Information.
18
<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
-----------------------------------------------------------------
1999 1998 1997 1996 1995
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net Earnings ...................................... $2,446 $2,334 $2,079 $1,874 $1,680
Add (deduct):
Income taxes ...................................... 951 908 856 788 707
Capitalized interest cost, net of amortization .... (1) 1 (1) (4) (7)
Equity in earnings of 20%-49% owned
companies, less dividends received ................ 0 0 0 0 2
Minority interest ................................. 8 7 11 16 18
------ ------ ------ ------ ------
Net earnings as adjusted .......................... $3,404 $3,250 $2,945 $2,674 $2,400
------ ------ ------ ------ ------
Fixed Charges:
Interest on long-term and short-term debt ......... $ 145 $ 160 $ 135 $ 96 $ 70
Capitalized interest cost ......................... 13 14 14 16 19
Rental expense representative of an interest
factor............................................. 44 40 29 26 26
------ ------ ------ ------ ------
Total Fixed Charges ............................... 202 214 178 138 115
------ ------ ------ ------ ------
Total adjusted earnings available for
payment of fixed charges .......................... $3,606 $3,464 $3,123 $2,812 $2,515
====== ====== ====== ====== ======
Ratio of earnings to fixed charges ................ 17.9 16.2 17.5 20.4 21.9
====== ====== ====== ====== ======
</TABLE>
NOTE: For the purpose of calculating this ratio, (i) earnings have been
calculated by adjusting net earnings for taxes on earnings; interest
expense; capitalized interest cost, net of amortization; minority
interest; and the portion of rentals representative of the interest
factor, (ii) the Company considers one-third of rental expense to be
the amount representing return on capital, and (iii) fixed charges
comprise total interest expense, including capitalized interest and
such portion of rentals.
<PAGE>
Exhibit 13
The portions of the Abbott Laboratories Annual Report for the year ended
December 31, 1999 captioned Consolidated Statement of Earnings and Comprehensive
Income, 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 Selected Financial Data for the years 1995
through 1999.
Abbott Laboratories and Subsidiaries
Consolidated Statement of Earnings and Comprehensive Income
(dollars and shares in thousands except per share data)
<TABLE>
<CAPTION>
Year Ended December 31 1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales........................................... $13,177,625 $12,512,734 $11,889,283
----------- ----------- -----------
Cost of products sold............................... 5,977,183 5,406,635 5,052,313
Research and development............................ 1,193,963 1,228,777 1,307,362
Selling, general and administrative................. 2,857,104 2,759,757 2,695,758
----------- ----------- -----------
Total Operating Cost and Expenses................... 10,028,250 9,395,169 9,055,433
----------- ----------- -----------
Operating Earnings.................................. 3,149,375 3,117,565 2,833,850
Net interest expense................................ 81,765 102,540 85,543
Income from TAP Holdings Inc. joint venture......... (390,152) (266,347) (189,497)
Net foreign exchange (gain) loss.................... 26,238 31,158 (9,048)
Other (income) expense, net......................... 34,636 8,349 12,267
----------- ----------- -----------
Earnings Before Taxes............................... 3,396,888 3,241,865 2,934,585
Taxes on earnings................................... 951,129 907,512 855,484
----------- ----------- -----------
Net Earnings........................................ $ 2,445,759 $ 2,334,353 $ 2,079,101
=========== =========== ===========
Basic Earnings Per Common Share..................... $1.59 $1.52 $1.34
=========== =========== ===========
Diluted Earnings Per Common Share................... $1.57 $1.50 $1.32
=========== =========== ===========
Average Number of Common Shares Outstanding
Used for Basic Earnings Per Common Share............ 1,536,762 1,537,242 1,552,811
Dilutive Common Stock Options....................... 20,893 23,716 22,261
----------- ----------- -----------
Average Number of Common Shares Outstanding
Plus Dilutive Common Stock Options.................. 1,557,655 1,560,958 1,575,072
=========== =========== ===========
Outstanding Common Stock Options
Having No Dilutive Effect........................... 1,807 657 2,216
=========== =========== ===========
Comprehensive Income:
Foreign currency translation adjustments............ $ (172,517) $ 1,504 $ (183,886)
Tax benefit related to
foreign currency translation adjustments............ 1,286 441 --
Unrealized gains (loss)on
marketable equity securities........................ (10,548) 1,000 3,067
Tax benefit (expense) related to unrealized
gains (loss) on marketable equity securities........ 4,171 (396) (1,210)
----------- ----------- -----------
Other comprehensive income (loss), net of tax....... (177,608) 2,549 (182,029)
Net Earnings........................................ 2,445,759 2,334,353 2,079,101
----------- ----------- -----------
Comprehensive Income................................ $ 2,268,151 $ 2,336,902 $ 1,897,072
=========== =========== ===========
Supplemental Comprehensive Income Information:
Cumulative foreign currency translation
loss adjustments, net of tax........................ $ 431,942 $ 260,711 $ 262,656
Cumulative unrealized (gains)
on marketable equity securities, net of tax......... (26,641) (33,018) (32,414)
</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 1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flow From (Used in) Operating Activities:
Net earnings........................................ $ 2,445,759 $ 2,334,353 $ 2,079,101
Adjustments to reconcile net earnings
to net cash from operating activities--
Depreciation and amortization....................... 828,006 786,380 729,143
Exchange (gains) losses, net........................ (10,011) (14,176) 31,005
Investing and financing (gains) losses, net......... 93,723 90,798 113,999
Trade receivables................................... (176,347) (147,489) (222,189)
Inventories......................................... (147,778) (112,692) (99,400)
Prepaid expenses and other assets................... (542,306) (191,249) (446,489)
Trade accounts payable and other liabilities........ 299,048 179,653 485,618
Income taxes payable................................ 147,427 (145,379) (10,700)
----------- ----------- -----------
Net Cash From Operating Activities.................. 2,937,521 2,780,199 2,660,088
----------- ----------- -----------
Cash Flow From (Used in) Investing Activities:
Acquisition of certain assets of
Glaxo Wellcome Inc.'s U.S. anesthesia business
in 1999, International Murex in 1998 and
Sanofi's parenteral products businesses
in 1997, net of cash acquired....................... (217,000) (249,177) (200,475)
Acquisitions of property, equipment
and other businesses................................ (987,098) (993,555) (1,009,096)
Purchases of investment securities.................. (175,694) (343,453) (91,273)
Proceeds from sales of investment securities........ 169,356 96,757 67,726
Other............................................... 12,187 18,034 (8,209)
----------- ----------- -----------
Net Cash Used in Investing Activities............... (1,198,249) (1,471,394) (1,241,327)
----------- ----------- -----------
Cash Flow From (Used in) Financing Activities:
Proceeds from (repayments of) commercial paper, net.. (864,000) 42,000 402,000
Proceeds from issuance of long-term debt............. -- 400,000 --
Other borrowing transactions, net.................... 6,286 (59,640) 15,294
Purchases of common shares........................... -- (876,264) (1,054,512)
Proceeds from issuance of common shares.............. 329,490 -- 19,417
Proceeds from stock options exercised................ 104,693 152,399 138,392
Dividends paid....................................... (1,003,295) (891,661) (809,554)
----------- ----------- -----------
Net Cash Used in Financing Activities................ (1,426,826) (1,233,166) (1,288,963)
----------- ----------- -----------
Effect of exchange rate changes
on cash and cash equivalents......................... (19,587) (143) (2,782)
----------- ----------- -----------
Net Increase in Cash and Cash Equivalents............ 292,859 75,496 127,016
Cash and Cash Equivalents, Beginning of Year......... 315,238 239,742 112,726
----------- ----------- -----------
Cash and Cash Equivalents, End of Year............... $ 608,097 $ 315,238 $ 239,742
=========== =========== ===========
Supplemental Cash Flow Information:
Income taxes paid.................................... $ 882,957 $ 1,060,479 $ 922,242
Interest paid........................................ 145,055 153,891 132,689
</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)
<TABLE>
<CAPTION>
December 31 1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Assets
- ------
Current Assets:
Cash and cash equivalents........................... $ 608,097 $ 315,238 $ 239,742
Investment securities............................... 115,199 95,827 52,816
Trade receivables, less allowances of --
1999: $238,956; 1998: $191,352; 1997: $167,592...... 2,055,839 1,955,866 1,784,115
Inventories--
Finished products................................... 772,478 697,974 667,617
Work in process..................................... 338,818 347,150 287,880
Materials........................................... 384,148 367,616 325,491
----------- ----------- -----------
Total inventories................................... 1,495,444 1,412,740 1,280,988
Prepaid income taxes................................ 918,617 847,154 800,591
Other prepaid expenses and receivables.............. 1,226,558 962,936 917,695
----------- ----------- -----------
Total Current Assets................................ 6,419,754 5,589,761 5,075,947
----------- ----------- -----------
Investment Securities............................... 954,778 967,819 764,253
----------- ----------- -----------
Property and Equipment, at Cost:
Land................................................ 202,858 165,474 152,791
Buildings........................................... 1,882,439 1,860,265 1,746,956
Equipment........................................... 7,339,578 7,104,805 6,490,599
Construction in progress............................ 372,692 272,949 404,303
----------- ----------- -----------
9,797,567 9,403,493 8,794,649
Less: accumulated depreciation and amortization.... 5,027,508 4,660,555 4,222,690
----------- ----------- -----------
Net Property and Equipment......................... 4,770,059 4,742,938 4,571,959
----------- ----------- -----------
Net Intangible Assets.............................. 1,574,851 1,349,822 1,112,126
----------- ----------- -----------
Deferred Charges, Investments in
Joint Ventures and Other Assets.................... 751,602 609,579 577,540
----------- ----------- -----------
$14,471,044 $13,259,919 $12,101,825
=========== =========== ===========
</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)
<TABLE>
<CAPTION>
December 31 1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Liabilities and Shareholders' Investment
- ----------------------------------------
Current Liabilities:
Short-term borrowings and
current portion of long-term debt.................. $ 896,271 $ 1,759,145 $ 1,781,563
Trade accounts payable............................. 1,226,854 1,057,417 1,001,572
Salaries, wages and commissions.................... 383,552 375,804 333,843
Other accrued liabilities.......................... 1,433,424 1,379,953 1,407,578
Dividends payable.................................. 263,000 227,400 201,450
Income taxes payable............................... 313,610 166,183 311,562
----------- ----------- -----------
Total Current Liabilities.......................... 4,516,711 4,965,902 5,037,568
----------- ----------- -----------
Long-Term Debt..................................... 1,336,789 1,339,694 937,983
----------- ----------- -----------
Deferred Income Taxes.............................. 23,779 108,964 136,514
----------- ----------- -----------
Other Liabilities and Deferrals.................... 1,166,170 1,091,768 953,426
----------- ----------- -----------
Shareholders' Investment:
Preferred shares, one dollar par value
Authorized-- 1,000,000 shares, none issued......... -- -- --
Common shares, without par value
Authorized -- 2,400,000,000 shares
Issued at stated capital amount --
Shares: 1999: 1,564,670,440;
1998: 1,548,382,682; 1997: 1,560,865,737........... 1,939,673 1,310,500 985,575
Common shares held in treasury, at cost--
Shares: 1999: 17,650,834; 1998: 17,710,838;
1997: 18,280,398................................... (257,756) (46,735) (48,238)
Unearned compensation-- restricted stock awards.... (23,028) (25,796) (26,187)
Earnings employed in the business.................. 6,174,007 4,743,315 4,355,426
Accumulated other comprehensive loss............... (405,301) (227,693) (230,242)
----------- ----------- -----------
Total Shareholders' Investment..................... 7,427,595 5,753,591 5,036,334
----------- ----------- -----------
$14,471,044 $13,259,919 $12,101,825
=========== =========== ===========
</TABLE>
<PAGE>
Abbott Laboratories and Subsidiaries
Consolidated Statement of Shareholders' Investment
(dollars in thousands except per share data)
<TABLE>
<CAPTION>
Year Ended December 31 1999 1998 1997
----------- ----------- ------------
<S> <C> <C> <C>
Common Shares:
Beginning of Year
Shares: 1999: 1,548,382,682;
1998: 1,560,865,737; 1997: 1,580,928,032............ $ 1,310,500 $ 985,575 $ 751,619
Issued shares: 1999: 9,000,000; 1997: 1,350,000..... 329,490 -- 19,417
Issued under incentive stock programs
Shares: 1999: 11,476,536; 1998: 13,929,668;
1997: 15,463,343.................................... 240,897 259,058 179,208
Tax benefit from option shares and vesting of
restricted stock awards (no share effect)........... 62,458 85,070 53,866
Retired -- Shares: 1999: 4,188,778;
1998: 26,412,723; 1997: 36,875,638.................. (3,672) (19,203) (18,535)
----------- ----------- ------------
End of Year
Shares: 1999: 1,564,670,440;
1998: 1,548,382,682; 1997: 1,560,865,737............ $ 1,939,673 $ 1,310,500 $ 985,575
=========== =========== ============
Common Shares Held in Treasury:
Beginning of Year
Shares: 1999: 17,710,838; 1998: 18,280,398;
1997: 19,177,264.................................... $ (46,735) $ (48,238) $ (50,605)
Private transaction in 1999
Shares purchased: 5,099,720
Shares issued: 4,985,475............................ (211,822) -- --
Issued under incentive stock programs
Shares: 1999: 174,249; 1998: 569,560;
1997: 896,866....................................... 801 1,503 2,367
----------- ----------- ------------
End of Year
Shares: 1999: 17,650,834; 1998: 17,710,838;
1997: 18,280,398.................................... $ (257,756) $ (46,735) $ (48,238)
=========== =========== ============
Unearned Compensation -- Restricted Stock Awards:
Beginning of Year................................... $ (25,796) $ (26,187) $ (7,804)
Issued at market value--
Shares: 1999: 106,500; 1998: 554,000;
1997: 888,000....................................... (7,186) (20,584) (26,879)
Lapses-- Shares: 1998: 22,000....................... -- 705 --
Amortization........................................ 9,954 20,270 8,496
----------- ----------- ------------
End of Year......................................... $ (23,028) $ (25,796) $ (26,187)
=========== =========== ============
Earnings Employed in the Business:
Beginning of Year................................... $ 4,743,315 $ 4,355,426 $ 4,207,409
Net earnings........................................ 2,445,759 2,334,353 2,079,101
Cash dividends declared on common shares
(per share-- 1999: $.68; 1998: $.60; 1997: $.54).... (1,038,895) (917,611) (825,138)
Cost of common shares retired
in excess of stated capital amount.................. (194,990) (1,048,500) (1,129,757)
Cost of treasury shares issued below market value... 218,818 19,647 23,811
----------- ----------- ------------
End of Year......................................... $ 6,174,007 $ 4,743,315 $ 4,355,426
=========== =========== ============
Accumulated Other Comprehensive Loss:
Beginning of Year................................... $ (227,693) $ (230,242) $ (48,213)
Other comprehensive income (loss)................... (177,608) 2,549 (182,029)
----------- ----------- ------------
End of Year......................................... $ (405,301) $ (227,693) $ (230,242)
=========== =========== ============
</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 -- Abbott'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 its operations, Abbott 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 1999, 1998 and 1997 that materially affected the financial position
or results of operations.
Certain prior year equity security amounts have been reclassified from
deferred charges and other assets to long-term investment securities to
conform with the 1999 presentation.
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 in accumulated other
comprehensive income (loss). 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 a
component of interest income.
INVENTORIES -- Inventories are stated at the lower of cost (first-in,
first-out basis) or market. Cost includes material and conversion costs.
LONG-LIVED ASSETS -- Depreciation and amortization are provided on a
straight-line basis over the estimated useful lives of the assets. 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>
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, 1999, 1998,
and 1997, was $228 million, $163 million, and $98 million, respectively.
Long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable based
on projected undiscounted cash flows associated with the affected assets. If
the fair value is less than the carrying amount of the asset, a loss is
recognized for the difference. Fair value is determined based on market
quotes, if available, or is based on valuation techniques.
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 accumulated other comprehensive income (loss).
<PAGE>
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 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.
Note 2 -- Supplemental Financial Information
(dollars in thousands)
<TABLE>
<CAPTION>
Other prepaid expenses and receivables 1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Receivables purchased from TAP Holdings
Inc. under a factoring agreement....... $ 431,801 $ 310,993 $ 344,979
All other.............................. 794,757 651,943 572,716
---------- ---------- ----------
Total.................................. $1,226,558 $ 962,936 $ 917,695
========== ========== ==========
Other liabilities and deferrals
Accrued post-employment costs.......... $ 537,309 $ 477,417 $ 409,169
All other.............................. 628,861 614,351 544,257
---------- ---------- ----------
Total.................................. $1,166,170 $1,091,768 $ 953,426
========== ========== ==========
Net interest expense
Interest expense....................... $ 144,689 $ 159,986 $ 134,625
Interest income........................ (62,924) (57,446) (49,082)
---------- ---------- ----------
Total.................................. $ 81,765 $ 102,540 $ 85,543
========== ========== ==========
</TABLE>
<PAGE>
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 $1,980,122
at December 31, 1999. Deferred income taxes not provided on these earnings
would be approximately $469,258.
Earnings before taxes, and the related provisions for taxes on earnings, were
as follows:
<TABLE>
<CAPTION>
Earnings Before Taxes 1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Domestic..................... $2,505,060 $2,520,985 $2,221,032
Foreign...................... 891,828 720,880 713,553
---------- ---------- ----------
Total........................ $3,396,888 $3,241,865 $2,934,585
========== ========== ==========
Taxes on Earnings 1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Current:
U.S. Federal
and Possessions.............. $ 785,709 $ 744,124 $ 717,156
State........................ 70,376 49,869 71,447
Foreign...................... 235,459 184,100 171,259
---------- ---------- ----------
Total current................ 1,091,544 978,093 959,862
---------- ---------- ----------
Deferred:
Domestic..................... (112,398) (92,681) (130,634)
Foreign...................... (30,215) 25,219 26,836
Enacted tax rate changes..... 2,198 (3,119) (580)
---------- ---------- ----------
Total deferred............... (140,415) (70,581) (104,378)
---------- ---------- ----------
Total........................ $ 951,129 $ 907,512 $ 855,484
========== ========== ==========
</TABLE>
Differences between the effective income tax rate and the U.S. statutory tax
rate were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
----- ----- -----
<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......................... (5.2) (4.9) (6.1)
State taxes, net of
federal benefit................... 1.4 1.0 1.6
Domestic dividend exclusion....... (3.2) (2.3) (1.8)
All other, net.................... -- (0.8) 0.4
----- ----- -----
Effective tax rate................ 28.0% 28.0% 29.1%
===== ===== =====
</TABLE>
<PAGE>
As of December 31, 1999, 1998, and 1997, total deferred tax assets were
$1,364,867, $1,286,341, and $1,161,085, respectively, and total deferred tax
liabilities were $441,404, $487,207, and $461,943, 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>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
Compensation and employee benefits...... $ 293,893 $ 254,026 $ 205,423
Trade receivable reserves............... 178,157 173,525 176,070
Inventory reserves...................... 150,100 115,693 119,398
Deferred intercompany profit............ 184,687 177,515 135,211
State income taxes...................... 46,964 26,585 32,442
Depreciation............................ (174,396) (197,832) (196,233)
Other, primarily other accruals
and reserves not currently deductible,
and the excess of book basis over
tax basis of intangible assets.......... 215,433 188,678 191,766
-------- -------- --------
Total................................... $ 894,838 $ 738,190 $ 664,077
========= ========= =========
</TABLE>
Note 4 -- Investment Securities
(dollars in thousands)
The following is a summary of investment securities at December 31:
<TABLE>
<CAPTION>
Current Investment Securities 1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Time deposits and
certificates of deposit................. $ 95,000 $ 50,000 $ 25,700
Other, primarily debt obligations
issued or guaranteed by various
governments or government agencies...... 20,199 45,827 27,116
--------- --------- --------
Total................................... $115,199 $ 95,827 $ 52,816
========= ========= ========
<CAPTION>
Long-Term Investment Securities 1999 1998 1997
--------- --------- --------
<S> <C> <C> <C>
Time deposits and certificates
of deposit, maturing through 2003....... $391,500 $486,500 $406,500
Corporate debt obligations,
maturing through 2008................... 73,037 112,320 82,143
Debt obligations issued or guaranteed
by various governments or government
agencies, maturing through 2023......... 183,184 185,022 142,324
Equity securities....................... 307,057 183,977 133,286
-------- -------- --------
Total................................... $954,778 $967,819 $764,253
======== ======== ========
</TABLE>
Abbott has both the intent and ability to hold the above marketable
non-equity investment securities until maturity, and therefore, they are
classified as held-to-maturity securities. The equity securities are
classified as available-for-sale and are marked-to-market with the resulting
unrealized gains or losses recorded as a component of accumulated other
comprehensive income (loss). All investment securities classified as current
as of December 31, 1999, mature in 2000.
Of the investment securities listed above, $742,610, $858,809, and $656,634
were held at December 31, 1999, 1998, and 1997, respectively, by subsidiaries
operating in Puerto Rico under tax incentive grants expiring from 2002
through 2007. In addition, these subsidiaries held cash equivalents of
$11,900, $74,900, and $81,100 at December 31, 1999, 1998, and 1997,
respectively.
<PAGE>
Note 5 -- Post-Employment Benefits
(dollars in thousands)
Retirement plans consist of defined benefit, defined contribution, and
medical and dental plans.
Information for Abbott'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
--------------------------------------- ---------------------------------------
1999 1998 1997 1999 1998 1997
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Projected benefit obligations, January 1 ..... $2,348,620 $2,000,329 $1,771,191 $ 714,946 $ 646,448 $ 599,631
Service cost-- benefits earned during the year 131,670 108,754 97,272 31,933 30,664 28,274
Interest cost on projected benefit obligations 157,004 140,287 128,404 44,297 43,770 42,167
Losses (gains), primarily changes in
discount rate, plan design changes and
lower than estimated health care costs ....... (283,135) 182,829 95,495 (124,269) 18,057 (5,389)
Benefits paid ................................ (97,399) (85,722) (77,722) (31,207) (23,993) (18,235)
Other, primarily translation ................. 2,981 2,143 (14,311) -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Projected benefit obligations, December 31 ... $2,259,741 $2,348,620 $2,000,329 $ 635,700 $ 714,946 $ 646,448
=========== =========== =========== =========== =========== ===========
Plans' assets at fair value, January 1,
principally listed securities ................ $2,550,971 $2,192,486 $1,828,989 $ 82,528 $ 86,600 $ 87,719
Actual return on plans' assets ............... 608,805 426,023 373,405 23,407 18,656 17,009
Company contributions ........................ 24,623 18,945 76,083 3,021 1,265 107
Benefits paid ................................ (97,399) (85,722) (77,722) (31,207) (23,993) (18,235)
Other, primarily translation ................. 13,222 (761) (8,269) -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Plans' assets at fair value, December 31 ..... $3,100,222 $2,550,971 $2,192,486 $ 77,749 $ 82,528 $ 86,600
=========== =========== =========== =========== =========== ===========
Projected benefit obligations less than
(greater than) plans' assets, December 31 .... $ 840,481 $ 202,351 $ 192,157 $(557,951) $(632,418) $(559,848)
Unrecognized actuarial (gains) losses, net ... (837,234) (143,876) (78,522) 63,324 137,701 133,379
Unrecognized prior service cost .............. 3,210 6,134 9,053 (68,682) -- --
Unrecognized transition obligation ........... (10,486) (21,015) (32,085) -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Prepaid (accrued) benefit cost ............... $ (4,029) $ 43,594 $ 90,603 $(563,309) $(494,717) $(426,469)
=========== =========== =========== =========== =========== ===========
Service cost-- benefits earned during the year $ 131,670 $ 108,754 $ 97,272 $ 31,933 $ 30,664 $ 28,274
Interest cost on projected benefit obligations 157,004 140,287 128,404 44,297 43,770 42,167
Expected return on plans' assets ............. (200,260) (179,194) (148,250) (6,813) (7,211) (7,035)
Net amortization ............................. (3,082) (7,728) (7,154) 1,396 2,290 3,288
----------- ----------- ----------- ----------- ----------- -----------
Net cost ..................................... $ 85,332 $ 62,119 $ 70,272 $ 70,813 $ 69,513 $ 66,694
=========== =========== =========== =========== =========== ===========
</TABLE>
<PAGE>
The projected benefit obligations for certain foreign defined benefit plans
that do not have plan assets were $63,904, $62,719, and $52,841 at December
31, 1999, 1998, and 1997, respectively.
Assumptions used for major benefit plans as of December 31 include:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Discount rate for determining
obligations and interest cost........... 7 3/4% 6 3/4% 7 1/4%
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 1/2%
</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, 1999, by approximately $109,354/$(84,312), and
the total of the service and interest cost components of net post-employment
health care cost for the year then ended by approximately $17,385/$(14,376).
The Abbott Stock Retirement Plan is the principal defined contribution plan.
Company contributions to this plan were $76,000 in 1999, $66,911 in 1998, and
$60,838 in 1997, equal to 7.33 percent of dividends declared, as provided
under the plan.
Abbott 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.
Note 6 -- Financial Instruments and Derivatives
Abbott 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 Abbott 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, 1999, 1998, and 1997, Abbott held $1.4 billion,
$1.6 billion, and $1.3 billion, respectively, of foreign currency forward
exchange contracts. The contracts outstanding at December 31, 1999, mature in
2000. 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.
Abbott'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 Abbott 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, 1999, 1998, and 1997, Abbott held $85
million, $406 million, and $461 million, respectively, of U.S. dollar call
option contracts. The contracts outstanding at December 31, 1999, mature in
2000. 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.
Abbott purchases foreign currency put options as a hedge against the effect
of exchange rate fluctuations on income. These contracts give Abbott 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, 1999, 1998, and 1997.
<PAGE>
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, 2000.
Adoption of the provisions of this statement will not have a material effect
on the financial statements of Abbott.
The gross unrealized holding gains (losses) on current and long-term
held-to-maturity investment securities totaled $1.1 million and $(29.9)
million, respectively, at December 31, 1999; $3.7 million and $(9.6) million,
respectively, at December 31, 1998; and $4.1 million and $(10.2) million,
respectively, at December 31, 1997. The gross unrealized holding gains
(losses) on available-for-sale equity securities totaled $49.3 million and
$(4.7) million, respectively, at December 31, 1999, and $61.7 million and
$(6.7) million, respectively, at December 31, 1998. The gross unrealized
holding gain at December 31, 1997, was $54.0 million.
The carrying values and fair values of certain 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. Abbott does not expect any
losses from nonperformance by these counterparties.
<TABLE>
<CAPTION>
(dollars in millions) 1999 1998 1997
----------------------- ---------------------- ----------------------
Carrying Fair Carrying Fair Carrying Fair
Value Value Value Value Value Value
----------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C>
Investment Securities:
Current......................................... $ 115.2 $ 114.4 $ 95.8 $ 96.4 $ 52.8 $ 52.9
Long-Term:
Held-to-Maturity................................ 647.7 619.7 783.8 777.3 631.0 624.8
Available-for-Sale.............................. 307.1 307.1 184.0 184.0 133.3 133.3
Total Long-Term Debt............................ (1,337.0) (1,280.2) (1,340.8) (1,400.9) (940.6) (946.0)
Foreign Currency Forward Exchange Contracts:
(Payable) position............................. (23.9) (23.9) (14.2) (14.2) (6.2) (6.2)
Receivable position............................. 35.8 35.8 21.7 21.7 24.1 24.1
Foreign Currency Option Contracts............... 3.5 -- 14.4 3.6 14.8 15.3
</TABLE>
<PAGE>
Note 7 -- 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 10 years. Options granted in 1999, 1998 and 1997
vest equally over three or four 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 Abbott. At December 31, 1999, 3.8
million options, with a weighted average exercise price of $25.77 per share,
were subject to limited stock appreciation rights. Upon a change in control
of Abbott, all outstanding stock options become fully exercisable, and all
terms and conditions of all restricted stock awards are deemed satisfied.
At January 1, 2000, 18.2 million shares were reserved for future grants under
the 1996 Program. Subsequent to year end, the Board of Directors granted
approximately 16.6 million stock options from this reserve.
<TABLE>
<CAPTION>
Options Outstanding Exercisable Options
- ------------------------------------------- --------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
------------ --------- ---------- ---------
<S> <C> <C> <C> <C>
January 1, 1997 61,997,616 $15.94
Granted 14,871,702 29.15
Exercised (15,433,076) 11.29
Lapsed (880,570) 22.85
------------ ---------
December 31, 1997 60,555,672 20.27 34,269,232 $16.36
========== =========
Granted 21,346,846 33.76
Exercised (13,892,080) 18.04
Lapsed/Cancelled (3,405,409) 20.22
------------ ---------
December 31, 1998 64,605,029 25.20 35,990,189 19.90
========== =========
Granted 18,682,834 44.68
Exercised (11,428,496) 20.74
Lapsed (837,026) 32.16
------------ ---------
December 31, 1999 71,022,341 $30.96 42,410,885 $25.42
============ ========= ========== =========
<CAPTION>
Options Outstanding Exercisable Options
at December 31, 1999 at December 31, 1999
- -------------------------------------------- ---------------------
Weighted Weighted Weighted
Range of Average Average Average
Exercise Remaining Exercise Exercise
Prices Shares Life (Years) Price Shares Price
- ------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
$ 1 to $25 26,723,056 4.5 $17.64 25,656,178 $17.82
26 to 42 25,052,784 7.8 33.83 11,873,858 32.84
43 to 53 19,246,501 9.1 45.74 4,880,849 47.32
---------- --- ------ ---------- ------
$ 1 to $53 71,022,341 6.9 $30.96 42,410,885 $25.42
========== === ====== ========== ======
</TABLE>
<PAGE>
Abbott measures compensation cost using the intrinsic value-based method of
accounting. Had compensation cost been determined using the fair market
value-based accounting method, pro forma net income and earnings per share
amounts would have been as follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Pro Forma Net Income (in billions)....... $ 2.3 $ 2.2 $ 2.0
Pro Forma Basic EPS...................... 1.51 1.45 1.30
Pro Forma Diluted EPS.................... 1.49 1.44 1.28
</TABLE>
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>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Risk-Free Interest Rate................. 5.1% 5.4% 6.0%
Average Life of Options (years)......... 5.3 5.5 5.2
Volatility.............................. 24.0% 30.0% 27.0%
Dividend Yield.......................... 1.4% 1.3% 1.8%
</TABLE>
Note 8 -- Debt and Lines of Credit
(dollars in thousands)
The following is a summary of long-term debt at December 31:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<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.............. 200,000 200,000 --
5.4% debentures, due 2008.............. 200,000 200,000 --
Other.................................. 86,789 89,694 87,983
---------- ---------- ----------
Total, net of current maturities....... $1,336,789 $1,339,694 $ 937,983
========== ========== ==========
</TABLE>
Payments required on long-term debt outstanding at December 31, 1999, are
$167 in 2000, $259,111 in 2001, $1,069 in 2002, $200,069 in 2003, and $0 in
2004.
At December 31, 1999, Abbott 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 Abbott at
its option, and commitment fees are not material. Abbott's weighted average
interest rate on short-term borrowings was 5.7%, 5.5%, and 6.0% at December
31, 1999, 1998, and 1997, respectively.
Abbott may issue up to $521,000 of securities in the future under a
registration statement filed with the Securities and Exchange Commission in
1999. Of the $521,000 total, Abbott may issue up to $271,000 either in the
form of debt securities or common shares without par value. The remaining
$250,000 may only be issued in the form of debt securities.
<PAGE>
Note 9 -- Equity Method Investments
(dollars in millions)
Abbott's 50 percent owned joint venture, TAP Holdings Inc. (TAP), is
accounted for under the equity method of accounting. Abbott's share of TAP's
income was $390, $266, and $189 in 1999, 1998, and 1997, respectively. The
investment in TAP was $521, $368, and $311 at December 31, 1999, 1998, and
1997, respectively. Dividends received from TAP were $237, $209, and $63 in
1999, 1998, and 1997, respectively. Summarized financial information for TAP
is as follows:
<TABLE>
<CAPTION>
Year Ended December 31 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net Sales.................... $2,927.5 $2,062.7 $1,565.8
Cost of products sold........ 686.4 426.5 321.1
Income before income taxes... 1,240.4 836.3 612.4
Net income................... 780.3 532.7 379.0
<CAPTION>
December 31 1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Current assets............... $1,595.4 $1,088.8 $ 727.5
Total assets................. 1,850.2 1,251.1 847.9
Current liabilities.......... 759.1 514.2 223.2
</TABLE>
Undistributed earnings of investments accounted for under the equity method
amounted to $498 as of December 31, 1999.
Note 10 -- Quarterly Results (Unaudited)
(dollars in millions except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
First Quarter
- --------------
Net Sales................................ $3,313.3 $3,050.7 $3,000.8
Gross Profit............................. 1,860.3 1,768.4 1,672.3
Net Earnings............................. 668.7 588.0 531.7
Basic Earnings Per Common Share.......... .44 .38 .34
Diluted Earnings Per Common Share........ .43 .38 .33
Second Quarter
- --------------
Net Sales................................ $3,259.2 $3,075.1 $2,901.6
Gross Profit............................. 1,844.0 1,774.1 1,683.1
Net Earnings............................. 645.0 585.9 517.5
Basic Earnings Per Common Share.......... .42 .38 .33
Diluted Earnings Per Common Share........ .41 .38 .33
Third Quarter
- --------------
Net Sales................................ $3,137.2 $3,044.9 $2,866.4
Gross Profit............................. 1,547.0 1,666.6 1,622.7
Net Earnings............................. 468.1 532.5 467.1
Basic Earnings Per Common Share.......... .30 .35 .30
Diluted Earnings Per Common Share........ .30 .34 .30
Fourth Quarter
- --------------
Net Sales................................ $3,467.9 $3,342.0 $3,120.5
Gross Profit............................. 1,949.1 1,897.0 1,858.9
Net Earnings............................. 664.0 628.0 562.8
Basic Earnings Per Common Share.......... .43 .41 .37
Diluted Earnings Per Common Share........ .43 .40 .36
</TABLE>
<PAGE>
Note 11 -- Stock Purchase Rights
Common shares outstanding are subject to stock purchase rights. The rights,
which are exercisable only under certain conditions, entitle the holder to
purchase common shares at prices specified in the Rights Agreement. The
rights were not exercisable at December 31, 1999.
Note 12 -- Business Combinations and Divestiture
On November 19, 1999, Abbott completed a merger transaction with Perclose,
Inc., which was accounted for as a pooling-of-interests transaction. Abbott
issued approximately 15.1 million common shares to Perclose shareholders and
Perclose's outstanding stock options were converted into options to purchase
approximately 2.9 million Abbott common shares. Merger-related charges of
approximately $16.2 million are included in selling, general and
administrative expenses. Abbott's consolidated financial statements for prior
periods have been restated to include Perclose and are not significantly
different than previously reported amounts.
In 1999, Abbott acquired certain assets of Glaxo Wellcome Inc.'s U.S.
anesthesia business for approximately $217 million in cash. A substantial
portion of the purchase price was allocated to intangible assets, which will
be amortized on a straight-line basis over 15 years. In 1998, Abbott 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, Abbott 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. 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.
On January 20, 2000, Abbott sold its agricultural products business to
Sumitomo Chemical Co., Ltd. Under the transaction, Sumitomo acquired research
and development, sales, marketing, and support operations for Abbott's entire
line of naturally occurring biopesticides, plant growth regulators and other
products for agriculture, public health and forestry. Bulk active ingredient
manufacturing rights were retained by Abbott.
<PAGE>
Note 13 -- Segment and Geographic Area Information
(dollars in millions)
REVENUE SEGMENTS -- Abbott's principal business is the discovery,
development, manufacture and sale of a broad line of health care products and
services. Abbott's products are generally sold directly to retailers,
wholesalers, hospitals, health care facilities, laboratories, physicians'
offices and government agencies throughout the world. Segments are identified
as those revenue divisions that report directly to the chief operating
officer of Abbott. Abbott's reportable segments are 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 of Abbott's pharmaceutical, hospital
and nutritional products. Products sold by International are manufactured by
domestic segments and by international manufacturing locations.
Abbott's underlying accounting records are maintained on a legal entity basis
for government and public reporting requirements. Segment disclosures are on
a performance basis consistent with internal management reporting.
Intersegment transfers of inventory are recorded at standard cost and are not
a measure of segment operating earnings. The cost of some corporate functions
and the cost of certain employee benefits are sold to segments at
predetermined rates which approximate cost. Remaining costs, if any, are not
allocated to revenue segments. The following segment information has been
prepared in accordance with the internal accounting policies of Abbott, as
described above, and may not be presented in accordance with generally
accepted accounting principles.
<TABLE>
<CAPTION>
Net Sales to Operating
External Customers Earnings
--------------------------- ---------------------------
1999 1998 1997 1999 1998 1997
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Pharmaceutical ..... $ 2,444 $ 2,601 $ 2,475 $ 1,214 $ 1,402 $ 1,242
Diagnostics (a)(b) . 3,039 2,790 2,613 529 448 433
Hospital (c) ....... 2,203 1,925 1,695 495 369 261
Ross ............... 1,928 1,820 1,850 628 540 528
International (a) .. 3,204 3,001 2,912 671 605 637
------- ------- ------- ------- ------- -------
Total Reportable
Segments ........... 12,818 12,137 11,545 $ 3,537 $ 3,364 $ 3,101
======= ======= =======
Other .............. 360 376 344
------- ------- -------
Net Sales .......... $13,178 $12,513 $11,889
======= ======= =======
<CAPTION>
Depreciation Additions to
and Amortization Long-Term Assets Total Assets
--------------------------- --------------------------- ---------------------------
1999 1998 1997 1999 1998 1997 1999 1998 1997
------- ------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Pharmaceutical ..... $ 46 $ 40 $ 37 $ 177 $ 54 $ 53 $ 1,528 $ 1,315 $ 1,362
Diagnostics (a)(b) . 253 245 234 313 541 391 3,512 3,480 3,006
Hospital (c) ....... 134 120 110 374 161 296 1,926 1,579 1,530
Ross ............... 71 72 68 50 65 85 878 919 935
International (a) .. 107 98 97 180 309 150 2,631 2,504 2,140
------- ------- ------- ------- ------- ------- ------- ------- -------
Total Reportable
Segments ........... $ 611 $ 575 $ 546 $ 1,094 $ 1,130 $ 975 $10,475 $ 9,797 $ 8,973
======= ======= ======= ======= ======= ======= ======= ======= =======
Other ..............
Net Sales ..........
</TABLE>
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Total Segment Operating Earnings . $ 3,537 $ 3,364 $ 3,101
Corporate functions .............. 118 114 102
Benefit plans costs .............. 109 94 113
Non-reportable segments .......... (64) (86) (60)
Net interest expense ............. 82 103 86
Income from TAP Holdings Inc. .... (390) (266) (189)
Net foreign exchange (gain) loss . 26 31 (9)
Other expenses, net (d) .......... 259 132 123
-------- -------- --------
Consolidated Earnings Before Taxes $ 3,397 $ 3,242 $ 2,935
======== ======== ========
Total Segment Assets ............. $10,475 $ 9,797 $ 8,973
Cash and investments ............. 1,678 1,379 1,057
Investment in TAP Holdings Inc. .. 521 368 311
Prepaid income taxes ............. 919 847 801
Non-reportable segments .......... 417 421 472
All other, net ................... 461 448 488
-------- -------- --------
Total Assets ..................... $14,471 $13,260 $12,102
======== ======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Net Sales to
External Customers (e) Long-Term Assets
------------------------- ------------------------
1999 1998 1997 1999 1998 1997
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
United States............. $ 8,291 $ 7,954 $ 7,478 $6,820 $6,431 $5,949
Japan..................... 664 528 586 164 133 121
Germany................... 452 446 438 164 186 167
Canada.................... 374 345 329 49 64 44
Italy..................... 335 328 305 97 106 91
The Netherlands........... 309 292 245 62 51 38
All Other Countries....... 2,753 2,620 2,508 695 699 616
------ ------ ------ ------ ------ ------
Consolidated.............. $13,178 $12,513 $11,889 $8,051 $7,670 $7,026
====== ====== ====== ====== ====== ======
</TABLE>
(a) Net sales and operating earnings were unfavorably affected by the
relatively stronger U.S. dollar in each year presented.
(b) In 1998, Abbott acquired the common stock of International Murex
Technologies Corporation.
(c) In 1999, Abbott acquired certain assets of Glaxo Wellcome Inc.'s U.S.
anesthesia business.
(d) 1999 includes charges of $168 relating to the FDA consent decree, as
described in Note 15.
(e) Sales by country are based on the country that sold the product or
service.
The classes of products that contributed at least 10 percent to consolidated
net sales in at least one of the last three years were:
<TABLE>
<CAPTION>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Anti-Infectives............ $1,431 $1,415 $1,510
Adult Nutritionals......... 1,357 1,257 1,240
</TABLE>
Note 14 -- Litigation and Environmental Matters
Abbott is involved in various claims and legal proceedings including numerous
antitrust suits and investigations in connection with the pricing of
prescription pharmaceuticals. These suits and investigations allege that
various pharmaceutical manufacturers have conspired to fix prices for
prescription pharmaceuticals and/or to discriminate in pricing to retail
pharmacies by providing discounts to mail-order pharmacies, institutional
pharmacies and HMOs in violation of state and federal antitrust laws. The
suits have been brought on behalf of individuals and retail pharmacies and
name both Abbott and certain other pharmaceutical manufacturers and
pharmaceutical wholesalers and at least one mail-order pharmacy company as
defendants. The cases seek treble damages, civil penalties, and injunctive
and other relief. During 1998, settlements were reached in the federal class
action lawsuit, whereby Abbott paid $57 million, and 13 other separate
actions. Abbott has filed or intends to file a response to each of the
remaining complaints denying all substantive allegations.
In addition, there are several lawsuits and two investigations pending in
connection with the sales of HYTRIN. These suits and investigations allege
that Abbott violated state or federal antitrust laws and, in some cases,
unfair competition laws by signing separate agreements with Geneva
Pharmaceuticals, Inc. and Zenith Laboratories, Inc. Those agreements related
to pending patent infringement lawsuits between
<PAGE>
Abbott and the two companies. Some of the suits also allege that Abbott
violated various state or federal laws by filing frivolous patent
infringement lawsuits to protect HYTRIN from generic competition. The cases
seek treble damages, civil penalties and other relief. Abbott has filed or
intends to file a response to each of the complaints denying all substantive
allegations.
Abbott has also 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.
Abbott expects that within the next year, legal proceedings will occur that
may result in a change in the estimated reserves recorded by Abbott. While it
is not feasible to predict the outcome of such pending claims, proceedings,
investigations and remediation activities with certainty, management is of
the opinion that their ultimate disposition should not have a material
adverse effect on Abbott's financial position, cash flows, or results of
operations.
Note 15 -- U.S. Food and Drug Administration Consent Decree
In November 1999, Abbott reached agreement with the U.S. Food and Drug
Administration to have a consent decree entered to settle issues involving
Abbott's diagnostics manufacturing operations in Lake County, Ill. The decree
requires Abbott to ensure its diagnostics manufacturing processes in Lake
County, Ill., conform with the FDA's current Quality System Regulation. The
decree allows for the continued manufacture and distribution of medically
necessary diagnostic products made in Lake County, Ill. However, Abbott is
prohibited from manufacturing or distributing certain diagnostic products
until Abbott ensures the processes in its Lake County, Ill., diagnostics
manufacturing operations conform with the current Quality System Regulation.
Under the terms of the consent decree, among other actions, Abbott has
submitted to the FDA a proposed master compliance and validation plan to
ensure its processes conform with the current Quality System Regulation. The
decree requires Abbott to ensure its facilities are in conformance with the
current Quality System Regulation within one year. The consent decree allows
Abbott to export diagnostic products and components for sale and distribution
outside the United States if they meet the export requirements of the Federal
Food, Drug and Cosmetic Act. As a result of the consent decree, Abbott
recorded a one-time charge of $168 million, including a $100 million payment
to the U.S. Government, and charges of $44 million for contractual
obligations and inventory exposures and $24 million for long-term asset
impairments. At December 31, 1999, a reserve of approximately $39 million
remained, primarily for contractual obligations.
<PAGE>
Abbott Laboratories and Subsidiaries
Reports of Auditors, Audit Committee and Management
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,
1999, 1998, and 1997, and the related consolidated statements of earnings and
comprehensive income, shareholders' investment, and cash flows for the years
then ended. These financial statements are the responsibility of Abbott'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, 1999, 1998, and 1997, 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 17, 2000
(except with respect to the matter
discussed in the third paragraph of Note
12, as to which the date is January 20, 2000)
Audit Committee Chairman's Report
The Audit Committee of the Board of Directors is composed of six non-employee
directors. The Audit Committee oversees Abbott's financial reporting process
on behalf of the Board of Directors. The Committee held two meetings during
1999. In fulfilling its responsibility, the Committee recommended to the
Board of Directors, subject to shareholder approval, the selection of
Abbott'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 Abbott's consolidated financial statements and the adequacy of
Abbott'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 Abbott's internal controls, and the overall quality of
Abbott'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
Management Report on Financial Statements
Management has prepared, and is responsible for, Abbott'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.
Abbott 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
<PAGE>
with respect to the relative cost and expected benefits of specific control
measures. Abbott also maintains an internal auditing function that evaluates
and formally reports on the adequacy and effectiveness of internal accounting
controls, policies and procedures.
Abbott'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
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
Gary P. Coughlan
SENIOR VICE PRESIDENT, FINANCE AND CHIEF FINANCIAL OFFICER
Gary L. Flynn
VICE PRESIDENT AND CONTROLLER
<PAGE>
Abbott Laboratories and Subsidiaries
Financial Instruments and Risk Management
(Unaudited)
Interest Rate Sensitive Financial Instruments
Abbott 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, 1999, and
1998, Abbott had $0.9 billion and $1.7 billion, respectively, of domestic
commercial paper outstanding with an average interest rate of 5.8% and 5.4%,
respectively, and with an average remaining life of 13 days and 9 days,
respectively. The fair market value of long-term debt at December 31, 1999,
and 1998 amounted to $1.3 billion and $1.4 billion, respectively, and
consisted primarily of fixed rate (average of 6.1%) debt with maturities
through 2023. As of December 31, 1999, and 1998, the fair market value of
current and long-term investment securities maturing through 2023 amounted to
$734 million and $874 million, respectively. Approximately 15 percent and 19
percent of these investments as of December 31, 1999, and 1998, respectively,
have fixed interest rates (average of 7.1%), 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. (A 100-basis point change is a reasonably possible near-term change
in rates.)
Market Price Sensitive Financial Instruments
Abbott maintains a portfolio of available-for-sale equity securities from
strategic technology acquisitions. The market value of these investments was
approximately $282 million and $98 million, respectively, as of December 31,
1999, and 1998. A hypothetical 20 percent decrease in the share prices of
these investments would decrease the fair value by approximately $56 million.
(A 20 percent decrease is a reasonably possible near-term change in share
prices.)
Foreign Currency Sensitive Financial Instruments --
Purchased U.S. Dollar Call Options
Abbott'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, 1999, and 1998, Abbott held $85 million and
$406 million, respectively, of these contracts. Unamortized premiums for
these contracts amounted to $3.5 million as of December 31, 1999, which
represents the maximum potential loss exposure.
Foreign Currency Forward Exchange Contracts
Abbott 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, 1999, and 1998, Abbott held $1.4 billion and
$1.6 billion, respectively, of such contracts which all mature in the next
calendar year. The following table reflects the contracts outstanding at
December 31, 1999, and 1998:
<PAGE>
<TABLE>
<CAPTION>
1999 1998
---------------------------- -----------------------------
Average Fair and Average Fair and
Contract Exchange Carrying Contract Exchange Carrying
(dollars in millions) 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........... $ 62 1.82 $ 2.8 $ 299 1.67 $1.9
Spanish Peseta.......... 77 139.6 13.8 172 140.6 4.3
Japanese Yen............ 242 103.2 (4.8) 137 120.0 3.2
Euro.................... 293 1.03 1.6 -- -- --
Dutch Guilder........... 180 2.02 7.6 133 1.88 2.1
British Pound........... 219 0.6 2.1 160 0.6 0.3
Canadian Dollar......... 56 1.47 0.1 38 1.54 (0.3)
Australian Dollar....... 39 1.56 0.3 36 1.60 0.0
Taiwan Dollar........... 26 32.0 (0.3) 30 34.0 (0.6)
All other currencies.... 154 N/A (9.6) 334 N/A (0.9)
------ ------ ------ ------
1,348 13.6 1,339 10.0
------ ------ ------ ------
Receive Dutch Guilders
in exchange for the
following currencies:
British Pound........... 71 0.46 (0.7) 92 0.32 (1.4)
Taiwan Dollar........... 8 15.2 (0.4) 8 17.6 (0.3)
All other currencies.... 4 N/A 0.0 124 N/A (0.2)
------ ------ ------ ------
83 (1.1) 224 (1.9)
------ ------ ------ ------
All other............... 8 N/A (0.6) 8 N/A (0.6)
------ ------ ------ ------
Total................... $1,439 $11.9 $1,571 $7.5
====== ====== ====== ======
</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>
Total % Components of Change %
Total Net Sales Change Price Volume Exchange
------ ------ ------ --------
<S> <C> <C> <C> <C>
1999 vs. 1998 5.3 (0.1) 6.1 (0.7)
1998 vs. 1997 5.2 0.6 7.4 (2.8)
1997 vs. 1996 7.9 0.5 10.4 (3.0)
Total U.S.
1999 vs. 1998 4.8 (0.5) 5.3 --
1998 vs. 1997 6.4 1.0 5.4 --
1997 vs. 1996 10.0 0.8 9.2 --
Total International
1999 vs. 1998 6.1 0.6 7.4 (1.9)
1998 vs. 1997 3.4 (0.1) 10.7 (7.2)
1997 vs. 1996 4.8 -- 12.2 (7.4)
Pharmaceutical Products Segment
1999 vs. 1998 (6.0) -- (6.0) --
1998 vs. 1997 5.1 3.8 1.3 --
1997 vs. 1996 20.3 3.4 16.9 --
Diagnostic Products Segment
1999 vs. 1998 8.9 (1.2) 10.7 (0.6)
1998 vs. 1997 6.8 (2.1) 12.9 (4.0)
1997 vs. 1996 1.6 (0.6) 7.7 (5.5)
Hospital Products Segment
1999 vs. 1998 14.4 (1.8) 16.2 --
1998 vs. 1997 13.6 (1.5) 15.1 --
1997 vs. 1996 14.5 (1.8) 16.3 --
Ross Products Segment
1999 vs. 1998 6.0 0.9 5.1 --
1998 vs. 1997 (1.6) 0.9 (2.5) --
1997 vs. 1996 (2.5) (0.4) (2.1) --
International Segment
1999 vs. 1998 6.8 1.8 7.4 (2.4)
1998 vs. 1997 3.1 1.4 9.5 (7.8)
1997 vs. 1996 6.4 0.4 12.8 (6.8)
</TABLE>
Sales of new products in 1999 are estimated to be $888 million, led by the
International, Hospital and Diagnostic segments. Increases, as disclosed in
Note 13, in adult nutritionals in all three years and in anti-infectives in
1999 and 1997 were primarily due to unit increases. The decrease in
anti-infectives for 1998 was due primarily to unit decreases.
Operating Earnings
Gross profit margins (sales less cost of products sold, including freight and
distribution expenses) were 54.6 percent of net sales in 1999, 56.8 percent
in 1998, and 57.5 percent in 1997. Excluding the
<PAGE>
charges described in Note 15 relating to the FDA consent decree, the gross
profit margin for 1999 would have been 55.8 percent. Gross profit margins in
1999 and 1998 were affected by unfavorable product mix, primarily lower sales
of pharmaceuticals, and the negative effect of the relatively stronger U.S.
dollar. The increase in the gross profit margin in 1997 was due primarily to
favorable product mix, primarily higher sales of pharmaceuticals, partially
offset by the negative effect of the relatively stronger U.S. dollar. Gross
profit margins in all years were affected by 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. 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 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 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. On
December 10, 1999, Abbott met with the FDA to review Abbott's plan for the
qualification of new raw materials and reinitiation of manufacturing. In the
future, Abbott will sell only ABBOKINASE that is manufactured with new raw
materials that meet the FDA's criteria. Abbott cannot predict, however,
whether it will be successful in qualifying new raw material sources or the
effect of this matter on future sales of ABBOKINASE. It is anticipated,
however, that sales of ABBOKINASE will resume after 2000. Sales of ABBOKINASE
were approximately $47 million and $277 million in 1999 and 1998,
respectively.
In August 1999, Geneva Pharmaceuticals, Inc. began shipments of generic
HYTRIN in the United States, which has adversely impacted Abbott's HYTRIN
sales. Sales of HYTRIN in the United States amounted to $466 million, $542
million and $518 million in 1999, 1998, and 1997, respectively.
As a result of the consent decree entered into with the U.S. Food and Drug
Administration in 1999, as discussed in Note 15, Abbott is prohibited from
manufacturing or distributing certain diagnostic products until Abbott
ensures the processes in its Lake County, Ill., diagnostics manufacturing
operations conform with the current Quality System Regulation. The consent
decree resulted in a one-time charge of $168 million. In addition, Abbott
believes that 2000 sales may be negatively impacted up to $250 million and
earnings per share may be negatively impacted up to 10 cents per share.
Research and development expense was $1.2 billion in 1999 and represented 9.1
percent of net sales in 1999, compared to 9.8 percent of net sales in 1998,
and 11.0 percent of net sales in 1997. The decrease in research and
development expenses in 1999 was concentrated primarily in the Diagnostic and
Ross segments. Research and development expenditures continue to be
concentrated on pharmaceutical and diagnostic products.
Selling, general and administrative expenses increased 3.5 percent in 1999,
net of the favorable effect of the relatively stronger U.S. dollar of 1.2
percent, compared to increases of 2.4 percent in 1998, and 9.4 percent in
1997. The net increases, exclusive of exchange impact, reflect inflation and
additional selling and marketing support primarily in the Diagnostic,
International and Hospital segments. In addition, 1999 and 1998 reflect
litigation charges and 1999 includes merger costs of approximately $16.2
million.
Interest (Income) Expense, Net
Net interest expense decreased in 1999 due primarily to lower borrowings as a
result of the termination of the common share purchase program. Net interest
expense increased in 1998 and 1997 due primarily to a higher level of
borrowings as a result of business acquisitions.
Taxes on Earnings
The effective income tax rates were 28.0 percent in 1999 and 1998 and 29.1
percent in 1997. The tax rates for 1999 and 1998 were reduced primarily due
to the extension of the research and development tax credit. In addition, all
three years' tax rates were unfavorably impacted by the reduction in tax
incentive grants for Puerto Rico operations.
Financial Condition
<PAGE>
Cash Flow
Abbott expects positive cash flow from operating activities to continue to
approximate or exceed Abbott's capital expenditures and cash dividends.
Debt and Capital
Abbott has maintained its favorable bond ratings (AAA by Standard & Poor's
Corporation and Aa1 by Moody's Investors Service) and continues to have
readily available financial resources, including unused domestic lines of
credit of $2.5 billion at December 31, 1999. These lines of credit support
domestic commercial paper borrowing arrangements.
Abbott may issue up to $521 million of securities in the future under a
registration statement filed with the Securities and Exchange Commission in
1999. Of the $521 million, Abbott may issue up to $271 million either in the
form of debt securities or common shares without par value. The remaining
$250 million may only be issued in the form of debt securities.
In 1998 and 1997, Abbott purchased 55,487,000 of its common shares at a cost
of $1.9 billion. In December 1998, Abbott terminated purchases of its common
shares and currently has no plans to resume purchases.
Working Capital
At December 31, 1999, 1998, and 1997 working capital was $1.9 billion, $624
million and $38 million, respectively.
Capital Expenditures
Capital expenditures of $987 million in 1999, $994 million in 1998, and $1.0
billion in 1997 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 segments.
Legislative Issues
Abbott's primary markets are highly competitive and subject to substantial
government regulation. Abbott expects debate to continue at both the federal
and state levels over the availability, method of delivery, and payment for
health care products and services. If legislation is enacted, it could have
the effect of reducing prices, or reducing the rate of price increases for
medical products and services. International operations are also subject to a
significant degree of government regulation. It is not possible to predict
the extent to which Abbott or the health care industry in general might be
adversely affected by these factors in the future. A more complete discussion
of these factors is contained in Item 1, Business, in the Annual Report on
Form 10-K, which is available upon request.
Business Combinations and Divestiture
On November 19, 1999, Abbott completed a merger transaction with Perclose,
Inc., which was accounted for as a pooling-of-interests transaction. Abbott
issued approximately 15.1 million common shares to Perclose shareholders, and
Perclose's outstanding stock options were converted into options to purchase
approximately 2.9 million Abbott common shares. Merger-related charges of
approximately $16.2 million are included in selling, general and
administrative expenses. Abbott's consolidated financial statements for prior
periods have been restated to include Perclose and are not significantly
different than previously reported amounts.
In 1999, Abbott acquired certain assets of Glaxo Wellcome Inc.'s U.S.
anesthesia business for approximately $217 million in cash. A substantial
portion of the purchase price was allocated to intangible assets, which will
be amortized on a straight-line basis over 15 years. In 1998, Abbott 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, Abbott 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. 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>
On January 20, 2000, Abbott sold its agricultural products business to
Sumitomo Chemical Co., Ltd. Under the transaction, Sumitomo acquired research
and development, sales, marketing, and support operations for Abbott's entire
line of naturally occurring biopesticides, plant growth regulators and other
products for agriculture, public health and forestry. Bulk active ingredient
manufacturing rights were retained by Abbott. In 1999, Abbott recorded
approximately $102 million in sales from this business.
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, 2000.
Adoption of the provisions of this statement will not have a material effect
on the financial statements of Abbott.
Year 2000
The Year 2000 ("Y2K") issue results from the inability of some computer
programs to identify the year 2000 properly, potentially leading to errors or
system failure. Abbott did not incur any significant problems relating to the
Y2K issue. In addition, the Y2K issue did not cause a significant
acceleration of sales into 1999, and Abbott does not expect to incur
significant expenses to remediate small Y2K operating issues.
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 11 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, Abbott organized an internal
cross-functional task force to address the euro issues and expects to be
ready for the full conversion to the euro. Costs required to prepare for the
euro are not material to Abbott's financial position, results of operations
or cash flows. The impact, if any, of the euro on Abbott's competitive
position is unknown.
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, Abbott cautions investors that any forward-looking statements or
projections made by Abbott, 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 Abbott'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
(dollars in millions except per share data)
<TABLE>
<CAPTION>
Year Ended December 31 1999 1998 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Summary of Operations:
Net Sales................................. $ 13,177.6 12,512.7 11,889.3 11,018.0
Cost of products sold..................... $ 5,977.2 5,406.6 5,052.3 4,736.8
Research and development.................. $ 1,194.0 1,228.8 1,307.4 1,209.3
Selling, general and administrative....... $ 2,857.1 2,759.8 2,695.8 2,464.8
Operating earnings........................ $ 3,149.4 3,117.6 2,833.9 2,607.2
Interest expense.......................... $ 144.7 160.0 134.6 95.6
Interest income........................... $ (62.9) (57.4) (49.1) (46.4)
Other (income) expense, net............... $ (329.3) (226.8) (186.3) (103.4)
Earnings before taxes..................... $ 3,396.9 3,241.9 2,934.6 2,661.4
Taxes on earnings......................... $ 951.1 907.5 855.5 787.5
Net earnings.............................. $ 2,445.8 2,334.4 2,079.1 1,873.8
Basic earnings per common share........... $ 1.59 1.52 1.34 1.19
Diluted earnings per common share......... $ 1.57 1.50 1.32 1.18
Financial Position:
Working capital........................... $ 1,903.0 623.9 38.4 167.7
Long-term investment securities........... $ 954.8 967.8 764.3 752.9
Net property and equipment................ $ 4,770.1 4,742.9 4,572.0 4,462.9
Total assets.............................. $ 14,471.0 13,259.9 12,101.8 11,161.1
Long-term debt............................ $ 1,336.8 1,339.7 938.0 933.1
Shareholders' investment.................. $ 7,427.6 5,753.6 5,036.3 4,852.4
Return on shareholders' investment........ % 37.1 43.3 42.0 40.3
Book value per share...................... $ 4.80 3.76 3.26 3.11
Other Statistics:
Gross profit margin....................... % 54.6 56.8 57.5 57.0
Research and development to net sales..... % 9.1 9.8 11.0 11.0
Net cash from operating activities........ $ 2,937.5 2,780.2 2,660.1 2,373.9
Capital expenditures...................... $ 987.1 993.6 1,009.1 950.3
Cash dividends declared per common share.. $ .68 .60 .54 .48
Common shares outstanding (in thousands).. 1,547,020 1,530,672 1,542,585 1,561,751
Number of common shareholders............. 106,766 109,864 104,881 101,113
Number of employees....................... 57,100 56,510 54,685 52,949
Sales per employee (in dollars)........... $ 230,782 221,425 217,414 208,087
Market price per share - high............. $ 53 5/16 50 1/16 34 5/8 28 11/16
Market price per share - low.............. $ 33 32 1/2 24 7/8 19 1/16
Market price per share - close............ $ 36 5/16 49 32 3/4 25 3/8
</TABLE>
<PAGE>
Abbott Laboratories and Subsidiaries
Summary of Selected Financial Data
(dollars in millions except per share data)
<TABLE>
<CAPTION>
Year Ended December 31 1995 1994 1993 1992
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Summary of Operations:
Net Sales................................. $ 10,013.7 9,156.2 8,407.8 7,851.9
Cost of products sold..................... $ 4,330.2 3,995.9 3,684.8 3,505.3
Research and development.................. $ 1,076.1 966.6 882.6 773.9
Selling, general and administrative....... $ 2,233.9 2,056.7 1,989.1 1,834.2
Operating earnings........................ $ 2,373.4 2,137.0 1,921.3 1,523.5
Interest expense.......................... $ 69.7 49.7 54.3 53.0
Interest income........................... $ (52.3) (37.1) (37.8) (42.3)
Other (income) expense, net............... $ (30.2) (35.3) (35.7) 48.5
Earnings before taxes..................... $ 2,386.2 2,159.7 1,940.5 1,736.3
Taxes on earnings......................... $ 706.6 650.0 544.1 499.7
Net earnings.............................. $ 1,679.6 1,509.7 1,396.4 1,236.6
Basic earnings per common share........... $ 1.05 .93 .84 .73
Diluted earnings per common share......... $ 1.04 .92 .84 .73
Financial Position:
Working capital........................... $ 475.9 407.3 495.6 450.5
Long-term investment securities........... $ 439.2 330.7 221.8 270.6
Net property and equipment................ $ 4,250.5 3,923.7 3,511.8 3,099.4
Total assets.............................. $ 9,455.2 8,534.6 7,695.0 6,942.8
Long-term debt............................ $ 435.7 287.1 306.8 110.0
Shareholders' investment.................. $ 4,437.1 4,058.4 3,680.6 3,349.1
Return on shareholders' investment........ % 39.5 39.0 39.7 37.7
Book value per share...................... $ 2.80 2.52 2.24 2.00
Other Statistics:
Gross profit margin....................... % 56.8 56.4 56.2 55.4
Research and development to net sales..... % 10.7 10.6 10.5 9.9
Net cash from operating activities........ $ 1,956.5 2,205.2 1,844.2 1,386.3
Capital expenditures...................... $ 947.5 930.5 952.7 1,007.5
Cash dividends declared per common share.. $ .42 .38 .34 .30
Common shares outstanding (in thousands).. 1,587,404 1,614,898 1,642,260 1,672,104
Number of common shareholders............. 89,867 86,349 82,947 75,703
Number of employees....................... 50,330 49,534 49,709 48,161
Sales per employee (in dollars)........... $ 198,991 184,843 169,141 163,035
Market price per share - high............. $ 22 3/8 17 15 7/16 17 1/16
Market price per share - low.............. $ 15 5/16 12 11/16 11 5/16 13 1/16
Market price per share - close............ $ 20 13/16 16 5/16 14 13/16 15 3/16
</TABLE>
<PAGE>
Abbott Laboratories and Subsidiaries
Summary of Selected Financial Data
(dollars in millions except per share data)
<TABLE>
<CAPTION>
Year Ended December 31 1991 1990 1989
--------- --------- ---------
<S> <C> <C> <C>
Summary of Operations:
Net Sales................................. $ 6,876.6 6,158.7 5,379.8
Cost of products sold..................... $ 3,140.0 2,910.1 2,556.7
Research and development.................. $ 666.3 567.0 501.8
Selling, general and administrative....... $ 1,513.3 1,275.6 1,100.2
Operating earnings........................ $ 1,557.0 1,406.0 1,221.1
Interest expense.......................... $ 63.8 91.4 74.4
Interest income........................... $ (45.1) (51.6) (73.8)
Other (income) expense, net............... $ (5.9) 15.5 26.3
Earnings before taxes..................... $ 1,544.2 1,350.7 1,194.2
Taxes on earnings......................... $ 455.5 384.9 334.4
Net earnings.............................. $ 1,088.7 965.8 859.8
Basic earnings per common share........... $ .64 .56 .48
Diluted earnings per common share......... $ .63 .55 .47
Financial Position:
Working capital........................... $ 661.7 460.0 719.2
Long-term investment securities........... $ 340.2 314.0 300.0
Net property and equipment................ $ 2,662.1 2,375.8 2,090.2
Total assets.............................. $ 6,255.3 5,563.2 4,851.6
Long-term debt............................ $ 125.1 134.8 146.7
Shareholders' investment.................. $ 3,203.0 2,833.6 2,726.4
Return on shareholders' investment........ % 36.1 34.7 33.1
Book value per share...................... $ 1.88 1.65 1.54
Other Statistics:
Gross profit margin....................... % 54.3 52.7 52.5
Research and development to net sales..... % 9.7 9.2 9.3
Net cash from operating activities........ $ 1,453.2 1,200.9 959.9
Capital expenditures...................... $ 732.8 629.5 501.5
Cash dividends declared per common share.. $ .25 .21 .17
Common shares outstanding (in thousands).. 1,701,060 1,716,564 1,769,916
Number of common shareholders............. 56,541 49,827 45,361
Number of employees....................... 45,694 43,770 40,929
Sales per employee (in dollars)........... $ 150,492 140,706 131,441
Market price per share - high............. $ 17 3/8 11 9/16 8 13/16
Market price per share - low.............. $ 9 13/16 7 13/16 5 3/4
Market price per share - close............ $ 17 3/16 11 1/4 8 1/2
</TABLE>
<PAGE>
Exhibit 21
SUBSIDIARIES OF ABBOTT LABORATORIES
The following is a list of subsidiaries of Abbott Laboratories. Abbott
Laboratories is not a subsidiary of any other corporation. Where ownership of a
subsidiary is less than 100% by Abbott Laboratories or an Abbott Laboratories'
subsidiary, such has been noted by designating the percentage of ownership.
<TABLE>
<CAPTION>
DOMESTIC SUBSIDIARIES INCORPORATION
<S> <C>
Abbott Chemicals Plant, Inc. Puerto Rico
Abbott Fermentation Products
de Puerto Rico, Inc. Puerto Rico
Abbott Health Products, Inc. Delaware
Abbott Home Infusion Services of
New York, Inc. New York
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
AC Merger Sub Inc. Delaware
CMM Transportation, Inc. Delaware
Corporate Alliance, Inc. Delaware
Fuller Research Corporation Delaware 40%
<PAGE>
IMTC Technologies, Inc. Delaware
Laser Surgery Partnership Illinois 40%
M & D Sales Corporation
d/b/a "Nutra/Balance Products" Indiana
Medlase Holding Corporation Delaware 40%
Murex Diagnostics, Inc. Delaware
North Shore Properties, Inc. Delaware
Oximetrix de Puerto Rico, Inc. Delaware
Perclose, Inc. Delaware
Solartek Products, Inc. Delaware
Sorenson Research Co., Inc. Utah
Swan-Myers, Incorporated Indiana
TAP Finance Inc. Delaware
TAP Holdings Inc. Delaware 50%
TAP Pharmaceuticals Inc. Delaware 50%*
Tobal Products Incorporated Illinois
</TABLE>
____________________________
* TAP Pharmaceuticals Inc. is a wholly-owned subsidiary of TAP Holdings, Inc.
<PAGE>
<TABLE>
<CAPTION>
COUNTRY
IN WHICH
FOREIGN SUBSIDIARIES ORGANIZED
<S> <S>
Abbott Laboratories Argentina, S.A. Argentina
Abbott Australasia Pty. Limited Australia
Abbott Laboratories Executive
Superannuation Pty. Limited Australia
Abbott Laboratories
Superannuation Pty. Limited Australia
MediSense Australia Pty. Ltd. Australia
Abbott Gesellschaft m.b.H. Austria
Abbott Hospitals Limited Bahamas
Abbott Laboratories de Costa Rica Ltd. Bahamas
Abbott Laboratories (Bangladesh) Ltd. Bangladesh 85%
Murex Diagnostics International, Inc. Barbados
Abbott, S.A. Belgium
Abbott Ireland
Hamilton, Bermuda Bermuda
Abbott Laboratorios do Brasil Ltda. Brazil
Abbott Laboratories Limited Canada
International Murex
Technologies Corporation Canada
Abbott Laboratories de Chile
Limitada Chile
Ningbo Asia-Pacific Biotechnology, Ltd. China 25%
Abbott Laboratories de Colombia, S.A. Colombia
Abbott Laboratories s.r.o. Czech Republic
Murex Diagnostica, Spol. s.r.o. Czech Republic
Abbott Laboratories A/S Denmark
Murex Diagnostics A/S Denmark
Abbott Laboratorios del Ecuador, S.A. Ecuador
<PAGE>
Abbott, S.A. de C.V. El Salvador
Abbott Investments Limited England
Abbott Laboratories Limited England
Abbott (UK) Holdings Limited England
Abbott Laboratories Trustee
Company Limited England
IMTC Holdings (UK) Limited England
MediSense Britain, Ltd. England
MediSense UK Ltd. England
Murex Biotech Limited (UK) England
Specialist Diagnostica Limited England
Abbott OY Finland
Abbott France S.A. France
Alcyon Analyzer S.A. France
MediSense France SARL France
Murex Diagnostics (France) S.A. France
Abbott G.m.b.H. Germany
Abbott Diagnostics G.m.b.H Germany
Murex Diagnostica GmbH Germany
Abbott Laboratories (Hellas) S.A. Greece
Abbott Grenada Limited Grenada
Abbott Laboratorios, S.A. Guatemala
Abbott Laboratories Limited Hong Kong
Abbott Laboratories (Hungary) Ltd. Hungary
Abbott Laboratories (India) Ltd. India 51%
Abind Healthcare Private Limited India
P. T. Abbott Indonesia Indonesia 97%
Abbott Laboratories, Ireland, Ireland
<PAGE>
Limited
Abbott Ireland Ltd. Ireland
Murex Medical Research Limited Isle of Mann
Technology License Company Limited Isle of Mann
Abbott S.p.A. Italy
Murex Diagnostici S.p.A. Italy
Abbott West Indies Limited Jamaica 51%
Consolidated Laboratories Limited Jamaica
Abbott Japan K.K. Japan
Dainabot Co., Ltd. Japan 73%
Abbott Korea Limited Korea
Abbott Middle East S.A.R.L. Lebanon
Abbott Laboratories
(Malaysia) Sdn. Bhd. Malaysia
Abbott Laboratories de
Mexico, S.A. de C.V. Mexico
Abbott Laboratories (Mozambique)
Limitada Mozambique
Edisco B.V. The Netherlands
Abbott B.V. The Netherlands
Abbott Laboratories B.V. The Netherlands
Abbott Finance B.V. The Netherlands
Abbott Holdings B.V. The Netherlands
MediSense Europe B.V. The Netherlands
MediSense Netherlands, B.V. The Netherlands
IMTC Holdings B.V. The Netherlands
IMTC Finance B.V. The Netherlands
Murex Diagnostics Benelux B.V. The Netherlands
<PAGE>
Abbott Laboratories (N.Z.) Limited New Zealand
Abbott Laboratories Nigeria Limited Nigeria 40%
Abbott Norge A S Norway
Abbott Laboratories (Pakistan) Limited Pakistan 83.42%
Abbott Laboratories, C.A. Panama
Abbott Overseas, S.A. Panama
Abbott Laboratorios S.A. Peru
Abbott Laboratories Philippines
102 E. de los Santos Philippines 40%
Union-Madison Realty Company, Inc. Philippines 40%
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
Abbott Laboratories, S.A. Spain
Abbott Cientifica, S.A. Spain
Abbott Scandinavia A.B. Sweden
Abbott A.G. Switzerland
Abbott Laboratories S.A. Switzerland
Abbott Finance Company S.A. Switzerland
Abbott Laboratories Taiwan Limited Taiwan
Abbott Laboratories Limited Thailand
Abbott Laboratuarlari Ithalat Ihracat
Ve Tecaret Limited Sirketi Turkey
Abbott Laboratories Uruguay Limitada Uruguay
Abbott Laboratories, C.A. Venezuela
Medicamentos M & R, S.A. Venezuela
</TABLE>
<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 Form 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, 333-69547, and 333-93253 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,
333-69579, and 333-93257 for the Abbott Laboratories Stock Retirement Plan and
Trust; Abbott's previously filed post-effective Amendment No. 1 to Registration
Statement on Form S-8 333-85867 for the Perclose, Inc. 1992 Stock Plan,
Perclose, Inc. 1995 Director Option Plan, Perclose, Inc. 1997 Stock Plan and
Perclose, Inc. 1995 Employee Stock Purchase Plan; and into Abbott's previously
filed S-3 Registration Statements 33-50253, 333-06155, 333-63481, 333-65601, and
333-83647:
1. Our supplemental report dated January 17, 2000 (except with respect to
the matter discussed in the third paragraph of Note 12, as to which the date is
January 20, 2000) included in this Annual Report on Form 10-K for the year ended
December 31, 1999; and
2. Our report dated January 17, 2000 (except with respect to the matter
discussed in the third paragraph of Note 12, as to which the date is
January 20, 2000) incorporated by reference in this Annual Report on Form 10-K
for the year ended December 31, 1999.
ARTHUR ANDERSEN LLP
Chicago, Illinois
March 14, 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF EARNINGS AND COMPREHENSIVE INCOME FOR THE YEAR ENDED
DECEMBER 31, 1999, AND THE CONSOLIDATED BALANCE SHEET AS OF DECEMBER 31, 1999,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 608,097
<SECURITIES> 115,199
<RECEIVABLES> 2,294,795
<ALLOWANCES> 238,956
<INVENTORY> 1,495,444
<CURRENT-ASSETS> 6,419,754
<PP&E> 9,797,567
<DEPRECIATION> 5,027,508
<TOTAL-ASSETS> 14,471,044
<CURRENT-LIABILITIES> 4,516,711
<BONDS> 1,336,789
0
0
<COMMON> 1,939,673
<OTHER-SE> 5,487,922
<TOTAL-LIABILITY-AND-EQUITY> 14,471,044
<SALES> 13,177,625
<TOTAL-REVENUES> 13,177,625
<CGS> 5,977,183
<TOTAL-COSTS> 5,977,183
<OTHER-EXPENSES> 1,193,963<F1>
<LOSS-PROVISION> 67,045
<INTEREST-EXPENSE> 144,689
<INCOME-PRETAX> 3,396,888
<INCOME-TAX> 951,129
<INCOME-CONTINUING> 2,445,759
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,445,759
<EPS-BASIC> 1.59
<EPS-DILUTED> 1.57
<FN>
<F1>OTHER EXPENSES CONSISTS OF RESEARCH AND DEVELOPMENT EXPENSE.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THESE RESTATED SCHEDULES CONTAIN SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME FOR THE YEAR
ENDED DECEMBER 31, 1997 AND THE THREE, SIX, AND NINE MONTH PERIODS ENDED MARCH
31, JUNE 30 AND SEPTEMBER 30, 1998, RESPECTIVELY, AND THE CONSOLIDATED BALANCE
SHEETS AS OF DECEMBER 31, 1997, AND MARCH 31, JUNE 30 AND SEPTEMBER 30, 1998.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1998 DEC-31-1998 DEC-31-1998
<PERIOD-START> JAN-01-1997 JAN-01-1998 JAN-01-1998 JAN-01-1998
<PERIOD-END> DEC-31-1997 MAR-31-1998 JUN-30-1998 SEP-30-1998
<CASH> 239,742 238,776 262,860 236,807
<SECURITIES> 52,816 87,750 90,488 67,089
<RECEIVABLES> 1,951,707 1,888,665 1,961,103 1,920,924
<ALLOWANCES> 167,592 183,978 197,457 183,916
<INVENTORY> 1,280,988 1,345,810 1,431,246 1,396,021
<CURRENT-ASSETS> 5,075,947 5,219,087 5,212,336 5,102,852
<PP&E> 8,794,649 8,905,574 9,124,617 9,206,803
<DEPRECIATION> 4,222,690 4,316,422 4,455,468 4,558,255
<TOTAL-ASSETS> 12,101,825 12,155,553 12,725,472 12,644,918
<CURRENT-LIABILITIES> 5,037,568 4,730,084 5,003,529 4,667,424
<BONDS> 937,983 1,139,720 1,141,258 1,340,845
0 0 0 0
0 0 0 0
<COMMON> 985,575 1,077,037 1,133,584 1,194,532
<OTHER-SE> 4,050,759 4,101,617 4,213,908 4,217,932
<TOTAL-LIABILITY-AND-EQUITY> 12,101,825 12,155,553 12,725,472 12,644,918
<SALES> 11,889,283 3,050,751 6,125,868 9,170,758
<TOTAL-REVENUES> 11,889,283 3,050,751 6,125,868 9,170,758
<CGS> 5,052,313 1,282,373 2,583,333 3,961,613
<TOTAL-COSTS> 5,052,313 1,282,373 2,583,333 3,961,613
<OTHER-EXPENSES> 1,307,362<F1> 281,423<F1> 590,184<F1> 884,145<F1>
<LOSS-PROVISION> 28,188 16,619 31,782 27,339
<INTEREST-EXPENSE> 134,625 38,416 79,256 120,708
<INCOME-PRETAX> 2,934,585 817,273 1,630,856 2,370,152
<INCOME-TAX> 855,484 229,286 457,021 663,841
<INCOME-CONTINUING> 2,079,101 587,987 1,173,835 1,706,311
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 2,079,101 587,987 1,173,835 1,706,311
<EPS-BASIC> 1.34 .38 .76 1.11
<EPS-DILUTED> 1.32 .38 .76 1.10
<FN>
<F1>OTHER EXPENSES CONSISTS OF RESEARCH AND DEVELOPMENT EXPENSE.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THESE RESTATED SCHEDULES CONTAIN SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE CONSOLIDATED STATEMENTS OF EARNINGS AND COMPREHENSIVE INCOME FOR THE YEAR
ENDED DECEMBER 31, 1998 AND THE THREE, SIX, AND NINE MONTH PERIODS ENDED MARCH
31, JUNE 30 AND SEPTEMBER 30, 1999, RESPECTIVELY, AND THE CONSOLIDATED BALANCE
SHEETS AS OF DECEMBER 31, 1998, AND MARCH 31, JUNE 30 AND SEPTEMBER 30, 1999.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999 DEC-31-1999 DEC-31-1999
<PERIOD-START> JAN-01-1998 JAN-01-1999 JAN-01-1999 JAN-01-1999
<PERIOD-END> DEC-31-1998 MAR-31-1999 JUN-30-1999 SEP-30-1999
<CASH> 315,238 359,095 351,694 540,384
<SECURITIES> 95,827 67,915 81,097 122,366
<RECEIVABLES> 2,147,218 2,180,328 2,109,862 2,080,032
<ALLOWANCES> 191,352 189,208 190,547 185,898
<INVENTORY> 1,412,740 1,378,120 1,426,459 1,420,730
<CURRENT-ASSETS> 5,589,761 5,812,496 5,592,739 5,926,494
<PP&E> 9,403,493 9,407,612 9,509,595 9,665,310
<DEPRECIATION> 4,660,555 4,717,922 4,803,448 4,941,703
<TOTAL-ASSETS> 13,259,919 13,366,547 13,199,512 13,632,323
<CURRENT-LIABILITIES> 4,965,902 4,713,870 4,175,330 4,334,310
<BONDS> 1,339,694 1,339,524 1,337,566 1,336,425
0 0 0 0
0 0 0 0
<COMMON> 1,310,500 1,445,508 1,551,671 1,600,557
<OTHER-SE> 4,443,091 4,661,645 4,937,220 5,121,661
<TOTAL-LIABILITY-AND-EQUITY> 13,259,919 13,366,547 13,199,512 13,632,323
<SALES> 12,512,734 3,313,320 6,572,531 9,709,689
<TOTAL-REVENUES> 12,512,734 3,313,320 6,572,531 9,709,689
<CGS> 5,406,635 1,453,016 2,868,204 4,458,360
<TOTAL-COSTS> 5,406,635 1,453,016 2,868,204 4,458,360
<OTHER-EXPENSES> 1,228,777<F1> 269,497<F1> 587,400<F1> 866,111<F1>
<LOSS-PROVISION> 41,655 5,658 13,500 10,413
<INTEREST-EXPENSE> 159,986 40,348 76,840 111,842
<INCOME-PRETAX> 3,241,865 928,754 1,824,553 2,474,663
<INCOME-TAX> 907,512 260,052 510,876 692,906
<INCOME-CONTINUING> 2,334,353 668,703 1,313,677 1,781,757
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 2,334,353 668,703 1,313,677 1,781,757
<EPS-BASIC> 1.52 .44 .86 1.16
<EPS-DILUTED> 1.50 .43 .84 1.14
<FN>
<F1>OTHER EXPENSES CONSISTS OF RESEARCH AND DEVELOPMENT EXPENSE.
</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.
<PAGE>
- 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.
- Costs or difficulties related to the integration of Abbott and
Perclose, Inc. may be greater than expected.
- Complying with the consent decree between Abbott and the United
States Food and Drug Administration (this consent decree is
described in the portion of this Form 10-K captioned "Regulation")
and Abbott's ability to return diagnostic products to market
successfully.
- Legal difficulties, any of which could preclude commercialization of
products or adversely affect profitability, including: claims
asserting antitrust violations, claims asserting securities law
violations, derivative actions, product liability claims, disputes
over intellectual property rights (including patents) and
environmental matters.
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.
