Abbott Laboratories (ABT), (founding name: Abbott Alkaloid Company) is a global pharmaceutical company with around 73,000 employees in 150 countries. Abbott was founded in 1888 by Wallace C. Abbott (1857-1921) and is headquartered in Abbott Park, a northern suburb of Chicago, Illinois.
FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 (Mark One) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from___________________________ to___________________ Commission File No. 1-2189 ABBOTT LABORATORIES An Illinois Corporation I.R.S. Employer Identification No. 36-0698440 100 Abbott Park Road Abbott Park, Illinois 60064-6400 Telephone: (847) 937-6l00 Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section l3 or l5(d) of the Securities Exchange Act of l934 during the preceding l2 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes / X / No / / As of April 14, 2000 the Corporation had 1,549,423,189 common shares without par value outstanding.
PART I. FINANCIAL INFORMATION Abbott Laboratories and Subsidiaries Condensed Consolidated Financial Statements (Unaudited)
Abbott Laboratories and Subsidiaries Condensed Consolidated Statement of Earnings (Unaudited) (dollars and shares in thousands except per share data) <TABLE> <CAPTION> Three Months Ended March 31 -------------------------- 2000 1999 ---------- ---------- <S> <C> <C> Net Sales $3,353,178 $3,313,320 ---------- ---------- Cost of products sold ......................................... 1,496,447 1,453,016 Research and development ...................................... 321,367 269,497 Selling, general and administrative ........................... 730,304 685,480 Gain on sale of business ...................................... (46,304) -- ---------- ---------- Total Operating Cost and Expenses ........................ 2,501,814 2,407,993 ---------- ---------- Operating Earnings ............................................ 851,364 905,327 Net interest expense .......................................... 12,034 25,852 Income from TAP Pharmaceutical Products Inc. joint venture .... (118,914) (71,569) Net foreign exchange loss ..................................... 841 20,559 Other (income) expense, net ................................... 8,147 1,731 ---------- ---------- Earnings Before Taxes ...................................... 949,256 928,754 Taxes on earnings ............................................. 256,299 260,051 ---------- ---------- Net Earnings .................................................. $ 692,957 $ 668,703 ========== ========== Basic Earnings Per Common Share ............................... $0.45 $0.44 ===== ===== Diluted Earnings Per Common Share ............................. $0.44 $0.43 ===== ===== Cash Dividends Declared Per Common Share ...................... $0.19 $0.17 ===== ===== Average Number of Common Shares Outstanding Used for Basic Earnings Per Common Share ................... 1,548,066 1,532,325 Dilutive Common Stock Options ................................. 11,489 25,106 ---------- ---------- Average Number of Common Shares Outstanding Plus Dilutive Common Stock Options ......................... 1,559,555 1,557,431 ========= ========= Outstanding Common Stock Options Having No Dilutive Effect .... 49,936 1,709 ====== ===== </TABLE> The accompanying notes to consolidated financial statements are an integral part of this statement. 2
Abbott Laboratories and Subsidiaries Condensed Consolidated Statement of Cash Flows (Unaudited) (dollars in thousands) <TABLE> <CAPTION> Three Months Ended March 31 --------------------------- 2000 1999 ---------- ---------- <S> <C> <C> Cash Flow From (Used in) Operating Activities: Net earnings .................................................. $ 692,957 $ 668,703 Adjustments to reconcile net earnings to net cash from operating activities - Depreciation and amortization ................................. 172,561 212,211 Trade receivables ............................................. 80,183 (86,703) Inventories ................................................... (166,898) (911) Gain on sale of business ...................................... (46,304) --- Other, net .................................................... (352,534) 26,840 --------- ---------- Net Cash From Operating Activities .......................... 379,965 820,140 --------- ---------- Cash Flow From (Used in) Investing Activities: Proceeds from sale of business ................................ 116,000 --- Acquisitions of property and equipment ........................ (241,804) (211,908) Investment securities transactions ............................ (39,410) 90,450 Other ......................................................... 63,761 7,439 --------- ---------- Net Cash Used in Investing Activities ....................... (101,453) (114,019) --------- ---------- Cash Flow From (Used in) Financing Activities: Repayments of commercial paper, net ........................... (25,000) (491,000) Other borrowing transactions, net ............................. 31,216 23,180 Common share transactions ..................................... 54,821 35,748 Dividends paid ................................................ (263,062) (227,519) --------- ---------- Net Cash Used in Financing Activities ....................... (202,025) (659,591) --------- ---------- Effect of exchange rate changes on cash and cash equivalents .... (3,690) (7,104) --------- ---------- Net Increase in Cash and Cash Equivalents ....................... 72,797 39,426 Cash and Cash Equivalents, Beginning of Year .................... 608,097 315,238 --------- ---------- Cash and Cash Equivalents, End of Period ........................ $ 680,894 $ 354,664 ========= ========= </TABLE> The accompanying notes to consolidated financial statements are an integral part of this statement. 3
Abbott Laboratories and Subsidiaries Condensed Consolidated Balance Sheet (dollars in thousands) <TABLE> <CAPTION> March 31 December 31 2000 1999 ----------- ----------- <S> <C> <C> (Unaudited) Assets Current Assets: Cash and cash equivalents ....................................................... $ 680,894 $ 608,097 Investment securities ........................................................... 94,453 115,199 Trade receivables, less allowances of $235,001 in 2000 and $238,956 in 1999 ..... 1,941,480 2,055,839 Inventories: Finished products ............................................................. 864,116 772,478 Work in process ............................................................... 368,784 338,818 Materials ..................................................................... 389,409 384,148 ----------- ----------- Total inventories ........................................................... 1,622,309 1,495,444 Prepaid expenses, income taxes, and other receivables ............................. 2,388,770 2,145,175 ----------- ----------- Total Current Assets ........................................................ 6,727,906 6,419,754 ----------- ----------- Investment Securities Maturing after One Year ..................................... 1,014,931 954,778 ----------- ----------- Property and Equipment, at Cost ................................................... 9,891,241 9,797,567 Less: accumulated depreciation and amortization ................................. 5,110,228 5,027,508 ----------- ----------- Net Property and Equipment ...................................................... 4,781,013 4,770,059 Deferred Charges, Intangible and Other Assets ..................................... 2,437,073 2,326,453 ----------- ----------- $14,960,923 $14,471,044 =========== =========== Liabilities and Shareholders' Investment Current Liabilities: Short-term borrowings and current portion of long-term debt ..................... $ 909,117 $ 896,271 Trade accounts payable .......................................................... 1,203,779 1,226,854 Salaries, income taxes, dividends payable, and other accruals ................... 2,387,749 2,393,586 ----------- --------- Total Current Liabilities .................................................. 4,500,645 4,516,711 ----------- --------- Long-Term Debt .................................................................... 1,326,746 1,336,789 ----------- --------- Other Liabilities and Deferrals ................................................... 1,259,965 1,189,949 ----------- --------- 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: 2000: 1,566,756,449; 1999: 1,564,670,440 .............................. 2,001,434 1,939,673 Common shares held in treasury, at cost - Shares: 2000: 17,622,834 ; 1999: 17,650,834 .................................. (257,347) (257,756) Unearned compensation - restricted stock awards.................................. (21,965) (23,028) Earnings employed in the business................................................ 6,566,506 6,174,007 Accumulated other comprehensive loss............................................. (415,061) (405,301) ----------- ----------- Total Shareholders' Investment................................................ 7,873,567 7,427,595 ----------- ----------- $14,960,923 $14,471,044 =========== =========== </TABLE> The accompanying notes to consolidated financial statements are an integral part of this statement. 4
Abbott Laboratories and Subsidiaries Notes to Condensed Consolidated Financial Statements March 31, 2000 (Unaudited) Note 1 - Basis of Presentation The accompanying unaudited, condensed consolidated financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission and, therefore, do not include all information and footnote disclosures normally included in audited financial statements. However, in the opinion of management, all adjustments (which include only normal adjustments) necessary to present fairly the results of operations, financial position and cash flows have been made. It is suggested that these statements be read in conjunction with the financial statements included in Abbott's Annual Report on Form 10-K for the year ended December 31, 1999. Note 2 - Supplemental Financial Information (dollars in thousands) <TABLE> <CAPTION> Three Months Ended March 31 ------------------------ 2000 1999 -------- -------- <S> <C> <C> Net interest expense: Interest expense................... $ 32,215 $ 40,348 Interest income.................... (20,181) (14,496) -------- -------- Total................................. $ 12,034 $ 25,852 ======== ======== </TABLE> Note 3 - Taxes on Earnings Taxes on earnings reflect the estimated annual effective tax rates. The effective tax rates are less than the statutory U.S. Federal income tax rate principally due to the domestic dividend exclusion and tax incentive grants related to subsidiaries operating in Puerto Rico, the Dominican Republic, Ireland, and the Netherlands. Note 4 - Litigation and Environmental Matters Abbott is involved in various claims and legal proceedings including numerous antitrust suits and investigations in connection with the pricing of prescription pharmaceuticals. These suits and investigations allege that various pharmaceutical manufacturers have conspired to fix prices for prescription pharmaceuticals and/or to discriminate in pricing to retail pharmacies by providing discounts to mail-order pharmacies, institutional pharmacies and HMOs in violation of state and federal antitrust laws. The suits have been brought on behalf of individuals and retail pharmacies and name both Abbott and certain other pharmaceutical manufacturers and pharmaceutical wholesalers and at least one mail-order pharmacy company as defendants. The cases seek treble damages, civil penalties, and injunctive and other relief. 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 one investigation pending in connection with the sales of HYTRIN. These suits and the investigation 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 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. 5
Notes to Condensed Consolidated Financial Statements March 31, 2000 (Unaudited), continued The matters above are discussed more fully in Note 14 to the financial statements included in Abbott's Annual Report on Form 10-K, which is available upon request. Note 5 - 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 from the date of the consent decree. 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. Note 6 - Comprehensive Income (dollars in thousands) <TABLE> <CAPTION> Three Months Ended March 31 ------------------------- 2000 1999 -------- --------- <S> <C> <C> Foreign currency translation adjustments.............................. $(31,062) $ (79,537) Tax (expense) benefit related to foreign currency translation adjustments................................... (418) 126 Unrealized gains (losses) on marketable equity securities............. 32,566 (27,999) Tax (expense) benefit related to unrealized gains (losses) on marketable equity securities.................................... (10,846) 11,184 -------- --------- Other comprehensive loss, net of tax.................................. (9,760) (96,226) Net Earnings.......................................................... 692,957 668,703 -------- --------- Comprehensive Income.................................................. $683,197 $ 572,477 ======== ========= Supplemental Comprehensive Income Information: Cumulative foreign currency translation loss adjustments, net of tax.. $463,422 $340,122 Cumulative unrealized (gains) on marketable equity securities, net of tax.......................................................... (48,361) (16,203) ======== ======== </TABLE> 6
Notes to Condensed Consolidated Financial Statements March 31, 2000 (Unaudited), continued Note 7 - Segment Information (dollars in millions) REVENUE SEGMENTS-- Abbott's principal business is the discovery, development, manufacture and sale of a broad line of health care products and services. Abbott's products are generally sold directly to retailers, wholesalers, hospitals, health care facilities, laboratories, physicians' offices and government agencies throughout the world. Segments are identified as those revenue divisions 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> Three Months Ended March 31 -------------------------------------------- Net Sales to Operating External Customers Earnings ------------------- ---------------- 2000 1999 2000 1999 ---- ---- ---- ---- <S> <C> <C> <C> <C> Pharmaceutical (a) ..................................... $ 607 $ 624 $ 234 $ 348 Diagnostics ............................................ 708 715 60 110 Hospital (a) ........................................... 570 576 126 152 Ross ................................................... 550 501 222 185 International .......................................... 852 832 227 213 ----- ----- ---- ----- Total Reportable Segments .............................. 3,287 3,248 869 1,008 Other................................................... 66 65 ------ ------ Net Sales .............................................. $3,353 $3,313 ====== ====== Corporate functions ............................................................... 41 27 Benefit plans costs ............................................................... 19 27 Non-reportable segments ........................................................... (7) (13) Gain on sale of business .......................................................... (46) -- Net interest expense .............................................................. 12 26 Income from TAP Pharmaceutical Products Inc. ...................................... (119) (72) Net foreign exchange loss ......................................................... 1 21 Other expense (income), net ....................................................... 19 63 ------ ------ Consolidated Earnings Before Taxes ................................................ $ 949 $ 929 ====== ====== </TABLE> (a) In 2000, management of the cardiovascular medicine franchise was transferred from the Pharmaceutical segment to the Hospital segment. Net sales and operating earnings for 1999 have been restated to reflect this reclassification. 7
Notes to Condensed Consolidated Financial Statements March 31, 2000 (Unaudited), continued Note 8 -- Sale of Agricultural Products Business On January 20, 2000, Abbott sold its agricultural products business to Sumitomo Chemical Co., Ltd., resulting in a $46 million gain recorded in the first quarter 2000. In addition, under the terms of the agreement, upon Sumitomo achieving a specified sales milestone, an additional $80 to $90 million would be due to Abbott. This could occur as early as the second quarter of 2000. 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. For the full year 1999, Abbott recorded approximately $102 million in sales from this business. 8
FINANCIAL REVIEW RESULTS OF OPERATIONS - FIRST QUARTER 2000 COMPARED WITH FIRST QUARTER 1999 The following table details sales by segment for the first quarter 2000: (dollars in millions) <TABLE> <CAPTION> Net Sales to Percentage External Customers Change (a) ------------------- ----------- Three Months Ended March 31 --------------------------------------- 2000 1999 ------ ------ <S> <C> <C> <C> Pharmaceutical (b).............................. $ 607 $ 624 (2.7) Diagnostics..................................... 708 715 (1.1) Hospital (b).................................... 570 576 (1.1) Ross............................................ 550 501 9.7 International................................... 852 832 2.5 ------ ------ Total Reportable Segments....................... 3,287 3,248 1.2 Other........................................... 66 65 ------ ------ Net Sales....................................... $3,353 $3,313 1.2 ====== ====== Total U.S....................................... $2,061 $2,055 0.3 ====== ====== Total International............................. $1,292 $1,258 2.7 ====== ====== </TABLE> (a) Percentage changes are based on unrounded numbers. (b) In 2000, management of the cardiovascular medicine franchise was transferred from the Pharmaceutical segment to the Hospital segment. Net sales for 1999 have been restated to reflect this reclassification. Worldwide sales for the first quarter reflect primarily unit growth. Excluding the negative effect of the relatively stronger U.S. dollar, sales increased 2.8 percent over the first quarter 1999. Pharmaceutical segment sales decreased primarily due to volume shortfalls for HYTRIN. Diagnostics segment sales decreased primarily due to the effect of the consent decree as discussed in Note 5 and due to the negative effect of the relatively stronger U.S. Dollar. Excluding exchange, Diagnostics and International segment sales increased 1.9 and 6.3 percent, respectively. Diluted earnings per common share for the quarter rose to 44 cents, up 2.3 percent from 43 cents a year ago. Net earnings increased 3.6 percent to $693 million, from $669 million in the first quarter of 1999. 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. In 1999, sales of ABBOKINASE were approximately $47 million, all of which were recorded in the first quarter. In August 1999, Geneva Pharmaceuticals, Inc. began shipments of generic HYTRIN in the United States, which has adversely impacted Abbott's HYTRIN sales. Full year U.S sales of HYTRIN amounted to $466 million in 1999. For the first quarter 2000, U.S. Sales of HYTRIN were $34 million. As a result of the consent decree entered into with the U.S. Food and Drug Administration in 1999, as discussed in Note 5, 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 1999. In addition, Abbott estimates 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. Gross profit margin (sales less cost of products sold, including freight and distribution expenses) was 55.4 percent for the 2000 first quarter, compared to 56.1 percent for the 1999 first quarter. This decrease was primarily due to unfavorable product mix, primarily lower sales of pharmaceuticals. 9
FINANCIAL REVIEW (continued) Research and development expenses for the first quarter 2000 increased 19.2 percent over the comparable 1999 period and includes charges relating to several research and development collaboration agreements entered into in the first quarter 2000. The majority of research and development expenditures continues to be concentrated on pharmaceutical and diagnostic products. Selling, general and administrative expenses for the first quarter 2000 increased 6.5 percent over the comparable 1999 period, due primarily to increased selling and marketing support for new and existing products. SALE OF AGRICULTURAL PRODUCTS BUSINESS On January 20, 2000, Abbott sold its agricultural products business to Sumitomo Chemical Co., Ltd., resulting in a $46 million gain recorded in the first quarter 2000. In addition, under the terms of the agreement, upon Sumitomo achieving a specified sales milestone, an additional $80 to $90 million would be due to Abbott. This could occur as early as the second quarter of 2000. 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. For the full year 1999, Abbott recorded approximately $102 million in sales from this business. INTEREST (INCOME) EXPENSE, NET Net interest expense decreased in 2000 due primarily to a lower level of borrowings as a result of the termination of the common share purchase program. TAXES ON EARNINGS The effective income tax rate was 27.0 percent in 2000 and 28.0 percent in 1999. The tax rate for 2000 was reduced primarily due to the domestic dividend exclusion. LIQUIDITY AND CAPITAL RESOURCES AT MARCH 31, 2000 COMPARED WITH DECEMBER 31, 1999 Net cash from operating activities for the first quarter 2000 totaled $380 million. Abbott expects annual cash flow from operating activities to continue to approximate or exceed Abbott's capital expenditures and cash dividends. Abbott has maintained its favorable bond ratings (AAA by Standard & Poor's Corporation and Aa1 by Moody's Investors Service) and continues to have readily available financial resources, including unused domestic lines of credit of $2.505 billion at March 31, 2000. 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. LEGISLATIVE ISSUES Abbott's primary markets are highly competitive and subject to substantial government regulation. Abbott expects debate to continue at both the federal and the state levels over the availability, method of delivery, and payment for health care products and services. Abbott believes that if legislation is enacted, it could have the effect of reducing prices, or reducing the rate of price increases for medical products and services. International operations are also subject to a significant degree of government regulation. It is not possible to predict the extent to which Abbott or the health care industry in general might be adversely affected by these factors in the future. A more complete discussion of these factors is contained in Item 1, Business, in the Annual Report on Form 10-K, which is available upon request. 10
FINANCIAL REVIEW (continued) 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. 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. 11
PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS Abbott is involved in various claims and legal proceedings, including those described below. In its 1999 Annual Report on Securities and Exchange Commission Form 10-K (the "1999 Form 10-K"), Abbott reported that two lawsuits were pending involving Abbott's patents for divalproex sodium. Three additional lawsuits have been filed. On March 9, 2000, after having been notified that Andrx Corporation had filed an abbreviated new drug application to market a generic divalproex sodium, Abbott filed a patent infringement lawsuit against Andrx Corporation, Andrx Pharmaceutical, and Andrx Pharmaceutical, L.L.C. in the United States District Court for the Northern District of Illinois. The defendants have filed a motion to dismiss this complaint. On April 14, 2000, Abbott filed patent infringement lawsuits against these three Andrx companies in the United States District Court for the Southern District of Florida and against Andrx L.L.C. in the United States District Court for the Eastern District of Virginia. As of April 14, 2000, 17 antitrust lawsuits and one antitrust investigation involving Abbott's patents for terazosin hydrochloride, a drug that Abbott sells under the trademark Hytrin-Registered Trademark-, were pending. The final patent infringement lawsuit involving Abbott's patents for terazosin hydrochloride was resolved during the first quarter of 2000. As previously reported, Abbott sued Mylan Pharmaceuticals, Inc. ("Mylan") alleging patent infringement. Mylan contended that Abbott's patent which covers their version of terazosin hydrochloride is invalid and unenforceable. On October 4, 1999, Mylan's motion in the appellate court for Summary Affirmance was granted. In February 2000, the United States Supreme Court denied Abbott's petition for a writ of certiorari. In its 1999 Form 10-K, Abbott reported that 13 lawsuits were pending relating to Abbott's agreements with Geneva Pharmaceuticals, Inc. ("Geneva") and Zenith Laboratories, Inc. ("Zenith") regarding terazosin hydrochloride. During the first quarter of 2000, two of these lawsuits, SCAFANI V. ABBOTT and VALENTINE V. ABBOTT, were removed from state court to the United States District Court for the Southern District of Florida. In addition, four new lawsuits were filed. Three of these new lawsuits are pending in the United States District Court for the Southern District of Florida: on January 19, 2000, William Mednick filed a lawsuit on behalf of himself and others; on January 27, 2000, Clarence Reid filed a lawsuit on behalf of himself and others; and, on April 7, 2000, Blue Cross and Blue Shield of Alabama filed a lawsuit on behalf of itself and others. The plaintiffs in the REID and MEDNICK lawsuits allege Abbott violated antitrust and/or consumer protection laws and seek actual damages, treble damages, civil penalties and other relief. The plaintiffs in the BLUE CROSS case allege Abbott violated federal racketeering statutes and seek unspecified damages. The BLUE CROSS case purports to be a class action.
Finally, on April 10, 2000, Merit Aid Pharmacy filed a lawsuit on behalf of itself and others in San Diego Superior Court, San Diego, California, alleging Abbott violated antitrust laws and seeking actual damages, treble damages, civil penalties and other relief. Abbott also reported that the Federal Trade Commission was conducting an investigation regarding Abbott's agreements with Geneva and Zenith. On March 13, 2000, Abbott and the Federal Trade Commission entered into a consent agreement regarding this matter which has been placed in the public record for comments. In its 1999 Form 10-K, Abbott reported that eighteen lawsuits, including five derivative lawsuits, were pending relating to Abbott's alleged noncompliance with the Food and Drug Administration's Quality System Regulation at Abbott's Diagnostics Division facilities in Lake County, Illinois. During the first quarter of 2000, the plaintiff in SEINFELD V. ABBOTT filed a lawsuit in the United States District Court for the Northern District of Illinois, where it was consolidated with the three other shareholder derivative lawsuits that were already pending in that court as IN RE ABBOTT LABORATORIES DERIVATIVE SHAREHOLDER LITIGATION and then voluntarily dismissed his lawsuit that was pending in Illinois state court. The fifth shareholder derivative suit was filed by Craig Heneghan and Marjory Motiaytis in the Circuit Court for the Nineteenth Judicial Circuit, Lake County, Illinois. On April 6, 2000, the Lake County Circuit Court granted Abbott's motion to stay the Heneghan/Motiaytis lawsuit until the shareholder derivative suits pending in federal court are decided. One new case relating to the alleged regulatory noncompliance was filed in the first quarter of 2000. On February 7, 2000, Lena Gallagher sued Abbott and Miles White, Abbott's Chief Executive Officer, claiming the defendants violated Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934 by allegedly misrepresenting or omitting material information about the alleged regulatory noncompliance. The complaint, which was filed in the United States District Court for the Eastern District of Illinois, purports to be a class action on behalf of purchasers of ALZA Corporation stock between June 22, 1999 and November 1, 1999, and seeks unspecified monetary damages and relief. The United States Department of Justice is investigating the marketing and sales practices of TAP Pharmaceutical Products Inc. for leuprolide acetate depot suspension (a drug TAP markets as Lupron Depot-Registered Trademark-). Various state and federal agencies including the Office of the Inspector General, the United States Department of Justice and the Texas Attorney General, are also investigating the pricing practices of TAP with respect to Lupron Depot and/or of Abbott with respect to certain other Medicare and Medicaid reimbursable products. These investigations seek to determine whether these practices resulted in any violations of civil and/or criminal laws, including the Federal False Claims Act and the Anti-Kickback Act, or fraud in connection with the Medicare and/or Medicaid reimbursement paid to third parties. Abbott owns 50 percent of TAP. While it is not feasible to predict the outcome of such pending claims, proceedings, and investigations with certainty, management is of the opinion that their ultimate disposition should not have a material adverse effect on the Company's financial position, cash flows, or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its Annual Meeting of Shareholders on April 28, 2000. The following is a summary of the matters voted on at that meeting. (a) The shareholders elected the Company's entire Board of Directors. The persons elected to the Company's Board of Directors and the number of shares cast for and the number of shares withheld, with respect to each of these persons, were as follows: <TABLE> <CAPTION> Name Votes For Votes Withheld ------ ----------- ---------------- <S> <C> <C> H. Laurance Fuller 1,247,829,128 66,669,298 David A. Jones 1,244,586,940 69,911,486 Jeffrey M. Leiden, M.D., Ph.D. 1,247,893,732 66,604,694 The Lord Owen CH 1,247,984,397 66,514,029 Robert L. Parkinson Jr. 1,246,091,752 68,406,674 Boone Powell Jr. 1,248,195,317 66,303,109 Addison Barry Rand 1,247,589,123 66,909,303 W. Ann Reynolds, Ph.D. 1,245,426,341 69,072,085 Roy S. Roberts 1,247,476,037 67,022,389 William D. Smithburg 1,245,633,391 68,865,035 John R. Walter 1,246,494,483 68,003,943 Miles D. White 1,242,324,783 72,173,643 </TABLE> (b) The shareholders approved the amendment of the Abbott Laboratories 1996 Incentive Stock Program. The number of shares cast in favor of the approval of the Abbott Laboratories 1996 Incentive Stock Program, the number against, the number abstaining, and the number of broker non-votes were as follows: <TABLE> <CAPTION> For Against Abstain Broker Non-Vote ----- --------- --------- ----------------- <S> <C> <C> <C> 850,977,581 254,891,780 13,839,465 194,789,600 </TABLE> (c) The shareholders ratified the appointment of Arthur Andersen LLP as Abbott's auditors. The number of shares cast in favor of the ratification of Arthur Andersen LLP, the number against, and the number abstaining were as follows: <TABLE> <CAPTION> For Against Abstain ----- --------- --------- <S> <C> <C> 1,301,783,279 7,044,021 5,671,126 </TABLE>
(d) The shareholders rejected a shareholder proposal that Abbott implement a policy of price restraint on pharmaceutical products. The number of shares cast in favor of the shareholder proposal, the number against, the number abstaining, and the number of broker non-votes were as follows: <TABLE> <CAPTION> For Against Abstain Broker Non-Vote ----- --------- --------- ----------------- <S> <C> <C> <C> 51,502,535 1,028,301,673 39,903,871 194,790,347 </TABLE> Item 6. Exhibits and Reports on Form 8-K a) Exhibits 3.1 By-Laws of Abbott Laboratories, as amended and effective April 28, 2000 - attached hereto. 12. Statement re: computation of ratio of earnings to fixed charges - attached hereto. 27. Financial Data Schedule - attached hereto. b) Reports on Form 8-K None SIGNATURE Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. ABBOTT LABORATORIES /s/ Gary L. Flynn - ------------------------------------------------- Gary L. Flynn, Vice President and Controller (Principal Accounting Officer) Date: May 15, 2000