-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, NBZNtjrev+tCVeXrasyulQIpyYWgSxkqMUSCkGDSEf6SljLc6QaxIiF3Qby0Yx2B eXpcvlMW/8NvCJs0OeSzsA== 0001047469-99-020432.txt : 19990517 0001047469-99-020432.hdr.sgml : 19990517 ACCESSION NUMBER: 0001047469-99-020432 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ABBOTT LABORATORIES CENTRAL INDEX KEY: 0000001800 STANDARD INDUSTRIAL CLASSIFICATION: PHARMACEUTICAL PREPARATIONS [2834] IRS NUMBER: 360698440 STATE OF INCORPORATION: IL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-02189 FILM NUMBER: 99622158 BUSINESS ADDRESS: STREET 1: 100 ABBOTT PARK ROAD STREET 2: D-322 AP6D CITY: ABBOTT PARK STATE: IL ZIP: 60064-3500 BUSINESS PHONE: (708)-937-6100 10-Q 1 1O-Q 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, 1999 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to __________________ Commission File No. 1-2189 ABBOTT LABORATORIES An Illinois Corporation I.R.S. Employer Identification No. 36-0698440 100 Abbott Park Road Abbott Park, Illinois 60064-3500 Telephone: (847) 937-6l00 Indicate by check mark whether the registrant (l) has filed all reports required to be filed by Section l3 or l5(d) of the Securities Exchange Act of l934 during the preceding l2 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X . No . --- ---- As of April 30, 1999, the Corporation had 1,520,401,928 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)
Three Months Ended March 31 --------------------------- 1999 1998 ---------- ---------- Net Sales. . . . . . . . . . . . . . . . . . . . . . . . . . $3,299,031 $3,044,913 ---------- ---------- Cost of products sold. . . . . . . . . . . . . . . . . . . . 1,448,831 1,279,973 Research and development . . . . . . . . . . . . . . . . . . 267,177 279,876 Selling, general and administrative. . . . . . . . . . . . . 680,273 682,175 ---------- ----------- Total Operating Cost and Expenses . . . . . . . . . . . 2,396,281 2,242,024 ---------- ----------- Operating Earnings . . . . . . . . . . . . . . . . . . . . . 902,750 802,889 ---------- ----------- Net interest expense . . . . . . . . . . . . . . . . . . . . 26,239 25,046 Income from TAP Holdings Inc. joint venture. . . . . . . . . (71,569) (50,348) Net foreign exchange (gain) loss . . . . . . . . . . . . . . 20,559 7,401 Other (income) expense, net. . . . . . . . . . . . . . . . . 1,731 1,911 ---------- ----------- Earnings Before Taxes . . . . . . . . . . . . . . . . . . 925,790 818,879 Taxes on earnings. . . . . . . . . . . . . . . . . . . . . . 259,221 229,286 ---------- ----------- Net Earnings . . . . . . . . . . . . . . . . . . . . . . . . $ 666,569 $ 589,593 ---------- ----------- ---------- ----------- Basic Earnings Per Common Share. . . . . . . . . . . . . . . $0.44 $0.39 ----- ----- ----- ----- Diluted Earnings Per Common Share. . . . . . . . . . . . . . $0.43 $0.38 ----- ----- ----- ----- Average Number of Common Shares Outstanding Used for Basic Earnings Per Common Share. . . . . . . . . 1,517,598 1,528,009 Dilutive Common Stock Options. . . . . . . . . . . . . . . . 23,628 21,082 ---------- ----------- Average Number of Common Shares Outstanding Plus Dilutive Common Stock Options. . . . . . . . . . . . 1,541,226 1,549,091 ---------- ---------- ---------- ---------- Outstanding Common Stock Options Having No Dilutive Effect . . . . . . . . . . . . . . . . . . . . . . . . . . 1,709 13,468 ----- ------ ----- ------
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)
Three Months Ended March 31 ----------------------------- 1999 1998 --------- -------- Cash Flow From (Used in) Operating Activities: Net earnings. . . . . . . . . . . . . . . . . . . . . . . . . $666,569 $ 589,593 Adjustments to reconcile net earnings to net cash from operating activities - Depreciation and amortization . . . . . . . . . . . . . . . . 211,599 190,585 Trade receivables . . . . . . . . . . . . . . . . . . . . . . (84,822) 50,467 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . (493) (86,212) Other, net. . . . . . . . . . . . . . . . . . . . . . . . . . 52,535 136,950 --------- -------- Net Cash From Operating Activities. . . . . . . . . . . . . 845,388 881,383 --------- -------- Cash Flow From (Used in) Investing Activities: Acquisitions of property and equipment. . . . . . . . . . . . (209,939) (238,447) Investment securities transactions. . . . . . . . . . . . . . 69,045 16,778 Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,439 4,388 --------- -------- Net Cash Used in Investing Activities . . . . . . . . . . . (133,455) (217,281) --------- -------- Cash Flow From (Used in) Financing Activities: Proceeds from (repayments of) commercial paper, net . . . . . (491,000) (489,000) Proceeds from issuance of long-term debt. . . . . . . . . . . --- 200,000 Other borrowing transactions, net . . . . . . . . . . . . . . 23,218 2,237 Common share transactions . . . . . . . . . . . . . . . . . . 34,004 (171,709) Dividends paid. . . . . . . . . . . . . . . . . . . . . . . . (227,519) (206,343) --------- -------- Net Cash Used in Financing Activities . . . . . . . . . . . (661,297) (664,815) --------- -------- Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . (7,104) (3,767) --------- -------- Net Increase (Decrease) in Cash and Cash Equivalents. . . . . . 43,532 (4,480) Cash and Cash Equivalents, Beginning of Year. . . . . . . . . . 308,230 230,024 --------- --------- Cash and Cash Equivalents, End of Period. . . . . . . . . . . . $ 351,762 $ 225,544 --------- --------- --------- ---------
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)
March 31 December 31 1999 1998 ------------ ------------ (Unaudited) Assets Current Assets: Cash and cash equivalents. . . . . . . . . . . . . . . . . . . . . $ 351,762 $ 308,230 Investment securities. . . . . . . . . . . . . . . . . . . . . . . 45,051 75,087 Trade receivables, less allowances of $188,907 in 1999 and $190,952 in 1998 . . . . . . . . . . . . . . . . . . . . . . . . 1,983,431 1,950,058 Inventories: Finished products. . . . . . . . . . . . . . . . . . . . . . . . 693,700 697,494 Work in process. . . . . . . . . . . . . . . . . . . . . . . . . 332,762 345,776 Materials. . . . . . . . . . . . . . . . . . . . . . . . . . . . 349,109 367,339 ----------- ----------- Total inventories. . . . . . . . . . . . . . . . . . . . . . . 1,375,571 1,410,609 Prepaid expenses, income taxes, and other receivables. . . . . . . . 2,015,484 1,809,152 ----------- ----------- Total Current Assets . . . . . . . . . . . . . . . . . . . . . 5,771,299 5,553,136 ----------- ----------- Investment Securities Maturing after One Year. . . . . . . . . . . . 744,832 783,842 ----------- ----------- Property and Equipment, at Cost. . . . . . . . . . . . . . . . . . . 9,398,387 9,396,236 Less: accumulated depreciation and amortization. . . . . . . . . . 4,714,464 4,657,393 ----------- ----------- Net Property and Equipment . . . . . . . . . . . . . . . . . . . . 4,683,923 4,738,843 Deferred Charges, Intangible and Other Assets. . . . . . . . . . . . 2,116,903 2,140,392 ----------- ----------- $13,316,957 $13,216,213 ----------- ----------- ----------- ----------- Liabilities and Shareholders' Investment Current Liabilities: Short-term borrowings and current portion of long-term debt. . . . $ 1,286,394 $ 1,759,076 Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . 1,058,172 1,056,641 Salaries, income taxes, dividends payable, and other accruals. . . 2,364,629 2,146,409 ------------ ------------ Total Current Liabilities. . . . . . . . . . . . . . . . . . . 4,709,195 4,962,126 ------------ ------------ Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,339,524 1,339,694 ------------ ------------ Other Liabilities and Deferrals. . . . . . . . . . . . . . . . . . . 1,206,000 1,200,732 ------------ ------------ Shareholders' Investment: Preferred shares, one dollar par value Authorized - 1,000,000 shares, none issued . . . . . . . . . . . --- --- Common shares, without par value Authorized - 2,400,000,000 shares Issued at stated capital amount - Shares: 1999: 1,536,988,092; 1998: 1,533,774,332 . . . . . . . . 1,364,070 1,231,079 Earnings employed in the business. . . . . . . . . . . . . . . . . . 5,094,196 4,782,349 Accumulated other comprehensive income. . . . . . . . . . . . . . . . (323,888) (227,701) Common shares held in treasury, at cost - Shares: 1999: 17,654,838; 1998: 17,710,838 . . . . . . . . . . . . (46,587) (46,735) Unearned compensation - restricted stock awards . . . . . . . . . . . (25,553) (25,331) ------------ ------------ Total Shareholders' Investment . . . . . . . . . . . . . . . . . . 6,062,238 5,713,661 ------------ ------------ $13,316,957 $13,216,213 ------------ ------------ ------------ ------------
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, 1999 (Unaudited) Note 1 - Basis of Presentation The accompanying unaudited, condensed consolidated financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission and, therefore, do not include all information and footnote disclosures normally included in audited financial statements. However, in the opinion of management, all adjustments (which include only normal adjustments) necessary to present fairly the results of operations, financial position and cash flows have been made. It is suggested that these statements be read in conjunction with the financial statements included in Abbott's Annual Report on Form 10-K for the year ended December 31, 1998. Note 2 - Supplemental Financial Information (dollars in thousands)
Three Months Ended March 31 ---------------------------- 1999 1998 ---- ---- Net interest expense: Interest expense . . . . . . . . . $ 40,348 $ 37,960 Interest income. . . . . . . . . . (14,109) (12,914) -------- -------- Total . . . . . . . . . . . . . . . . $ 26,239 $ 25,046 -------- -------- -------- --------
Note 3 - Taxes on Earnings Taxes on earnings reflect the estimated annual effective tax rates. The effective tax rates are less than the statutory U.S. Federal income tax rate principally due to tax incentive grants related to subsidiaries operating in Puerto Rico, the Dominican Republic, Ireland, the Netherlands, and Italy. Note 4 - Litigation and Environmental Matters Abbott is involved in various claims and legal proceedings including numerous antitrust suits and investigations in connection with the pricing of prescription pharmaceuticals. These suits and investigations allege that various pharmaceutical manufacturers have conspired to fix prices for prescription pharmaceuticals and/or to discriminate in pricing to retail pharmacies by providing discounts to mail-order pharmacies, institutional pharmacies and HMOs in violation of state and federal antitrust laws. The suits have been brought on behalf of individuals and retail pharmacies and name both Abbott and certain other pharmaceutical manufacturers and pharmaceutical wholesalers and at least one mail-order pharmacy company as defendants. The cases seek treble damages, civil penalties, injunctive and other relief. During 1998, settlements were reached in the federal class action lawsuit, whereby Abbott paid $57 million, and thirteen other separate actions. Abbott has filed or intends to file a response to each of the remaining complaints denying all substantive allegations. In addition, Abbott has been identified as a potentially responsible party for investigation and cleanup costs at a number of locations in the United States and Puerto Rico under federal and state remediation laws and is investigating potential contamination at a number of Abbott-owned locations. The matters above are discussed more fully in Note 14 to the financial statements included in Abbott's Annual Report on Form 10-K, which is available upon request, and in Part II, Item 1, Legal Proceedings, in this Form. 5 Notes to Condensed Consolidated Financial Statements March 31, 1999 (Unaudited), continued Note 4 - Litigation and Environmental Matters, continued Abbott expects that within the next year, legal proceedings will occur which 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 5 - Comprehensive Income (dollars in thousands)
Three Months Ended March 31 --------------------------- 1999 1998 ---- ---- Net Earnings . . . . . . . . . . . . . . . . . . $666,569 $589,593 -------- --------- Other comprehensive loss: Foreign currency translation adjustments. . . (79,537) (45,595) Tax benefit related to foreign currency 126 --- translation adjustments . . . . . . . . . . Unrealized losses on marketable equity securities. . . . . . . . . . . . . . . . . (27,960) (343) Tax benefit related to unrealized losses on marketable equity securities. . . . . . . . 11,184 137 -------- -------- Other comprehensive loss, net of tax . . . . . . (96,187) (45,801) -------- -------- Comprehensive Income . . . . . . . . . . . . . . $570,382 $543,792 -------- -------- -------- --------
As of March 31, 1999, the cumulative net of tax balances for foreign currency translation loss adjustments and the unrealized (gains) on marketable equity securities were $340,122, and ($16,234), respectively. Note 6 - Common Stock Split On February 13, 1998, the Board of Directors approved a two-for-one stock split. Shareholders of record on May 1, 1998, were issued an additional share of Abbott's common stock on May 29, 1998, for each share owned on the record date. All shares and per share data in the condensed consolidated financial statements and notes have been adjusted to reflect the stock split. Note 7 - Segment Information REVENUE SEGMENTS - Abbott's principal business is the discovery, development, manufacture and sale of a broad line of health care products and services. Abbott's products are generally sold directly to retailers, wholesalers, hospitals, health care facilities, laboratories, physicians' offices and government agencies throughout the world. Segments are identified as those revenue divisions which report directly to the chief operating officer of Abbott. Abbott's products are sold through six revenue segments as follows: PHARMACEUTICAL PRODUCTS - U.S. sales of a broad line of pharmaceuticals. DIAGNOSTIC PRODUCTS - Worldwide sales of diagnostic systems for blood banks, hospitals, consumers, commercial laboratories and alternate-care sites. HOSPITAL PRODUCTS - U.S. sales of intravenous and irrigation fluids and related administration equipment, drugs and drug delivery systems, anesthetics, critical care products and other medical specialty products for hospitals and alternate-care sites. ROSS PRODUCTS - U.S. sales of a broad line of adult and pediatric nutritional products, pediatric pharmaceuticals and consumer products. 6 Notes to Condensed Consolidated Financial Statements March 31, 1999 (Unaudited), continued Note 7 - Segment Information (dollars in millions), continued INTERNATIONAL - Non-U.S. sales of all Abbott's pharmaceutical, hospital and nutritional products. Products sold by International are manufactured by domestic segments and by international manufacturing locations. CHEMICAL & AGRICULTURAL PRODUCTS - Worldwide sales of chemicals and agricultural products for crop protection, forestry and animal health and a supplier of bulk drugs for the Pharmaceutical Products, Hospital Products, and International segments. SEGMENT ACCOUNTING POLICIES - Abbott's underlying accounting records are maintained on a legal entity basis for government and public reporting requirements. Segment disclosures are on a performance basis consistent with internal management reporting. Intersegment transfers of inventory are recorded at standard cost and are not a measure of segment operating earnings. The cost of some corporate functions and the cost of certain employee benefits are sold to segments at predetermined rates which approximate cost. Remaining costs, if any, are not allocated to revenue segments. The following segment information has been prepared in accordance with the internal accounting policies of Abbott, as described above, and may not be presented in accordance with generally accepted accounting principles.
Net Sales to Operating External Customers Earnings Three Months Ended March 31 Three Months Ended March 31 --------------------------- --------------------------- 1999 1998 1999 1998 ---- ---- ---- ---- Pharmaceutical. . . . . . . . . . . . $ 670 $ 697 $ 377 $ 409 Diagnostics . . . . . . . . . . . . . 715 625 110 94 Hospital. . . . . . . . . . . . . . . 517 457 120 98 Ross. . . . . . . . . . . . . . . . . 501 452 185 133 International . . . . . . . . . . . . 832 733 213 180 Chemical & Agricultural . . . . . . . 64 80 14 23 ------ ------ ------ ------ Total Segments. . . . . . . . . . . . 3,299 3,044 1,019 937 Other . . . . . . . . . . . . . . . . --- 1 ------ ------ Net Sales . . . . . . . . . . . . . . $3,299 $3,045 ------ ------ ------ ------ Corporate and service functions. . . . . . . . . . . . . . . . . . . . . . . . . 28 34 Benefit plans costs. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 28 Net interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 25 Income from TAP Holdings Inc. . . . . . . . . . . . . . . . . . . . . . . . . . (72) (50) Net foreign exchange (gain) loss . . . . . . . . . . . . . . . . . . . . . . . . 21 7 Other expenses, net. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 74 ------ ------- Consolidated Earnings Before Taxes . . . . . . . . . . . . . . . . . . . . . . . $ 926 $ 819 ------ ------- ------ -------
7 FINANCIAL REVIEW RESULTS OF OPERATIONS - FIRST QUARTER 1999 COMPARED WITH FIRST QUARTER 1998 The following table details sales by segment for the first quarter 1999: (dollars in millions)
Net Sales to Percentage External Customers Change* -------------------------- ---------- Three Months Ended March 31 --------------------------- 1999 1998 ---- ---- Pharmaceutical . . . . . . . . . . . . $ 670 $ 697 (4.0) Diagnostics. . . . . . . . . . . . . . 715 625 14.5 Hospital . . . . . . . . . . . . . . . 517 457 13.0 Ross . . . . . . . . . . . . . . . . . 501 452 10.9 International. . . . . . . . . . . . . 832 733 13.5 Chemical & Agricultural. . . . . . . . 64 80 (19.2) ------ ------ Total Segments . . . . . . . . . . . . 3,299 3,044 8.4 Other. . . . . . . . . . . . . . . . . --- 1 ------ ------ Net Sales. . . . . . . . . . . . . . . $3,299 $3,045 8.3 ------ ------ ------ ------ Total U.S. . . . . . . . . . . . . . . $2,041 $1,917 6.5 ------ ------ ------ ------ Total International. . . . . . . . . . $1,258 $1,128 11.5 ------ ------ ------ ------ * Percentage changes are based on unrounded numbers.
Domestic and international sales for the first quarter reflect primarily unit growth. Total sales were favorably affected 0.1 percent and international sales were favorably affected 0.2 percent by the relatively weaker U.S. dollar in the first quarter 1999. Pharmaceutical segment sales decreased primarily due to volume shortfalls for Abbokinase and Norvir, as the result of production issues more fully described below. Diluted earnings per share for the quarter rose to 43 cents, up 13.2 percent from 38 cents a year ago. Net earnings increased 13.1 percent to $667 million, from $590 million in the first quarter of 1998. Gross profit margin (sales less cost of products sold, including freight and distribution expenses) was 56.1 percent for the 1999 first quarter, compared to 58.0 percent for the 1998 first quarter. This decrease was primarily due to unfavorable product mix, primarily lower sales of pharmaceuticals, higher manufacturing costs, and inflation. Research and development expenses were $267 million for the first quarter 1999, representing 8.1 percent of net sales, compared to 9.2 percent in 1998. 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 1999 were comparable to the prior year. Abbott holds patents on Hytrin in the United States and several major markets throughout the world. Abbott is facing a number of patent challenges from generic manufacturers in the United States, and the ultimate outcome of this litigation cannot be predicted with certainty. However, Abbott does not expect a generic form of Hytrin to become available before the end of the third quarter of 1999. Abbott believes generic competition would adversely impact sales of Hytrin. For the year ended December 31, 1998, Abbott recorded U.S. sales of Hytrin of $542 million. On July 27, 1998, Abbott announced that it was experiencing manufacturing difficulties with the capsule formulation of its protease inhibitor Norvir. The manufacturing difficulties with Norvir have resulted in shortages and interruption of the supply of capsules. Abbott is supplying Norvir liquid formulation to provide continued Norvir therapy for patients. For the year ended December 31, 1998, Abbott recorded sales of Norvir of $250 million. Abbott is unable to quantify the effect that the production problems will have on sales in future periods. 8 FINANCIAL REVIEW (continued) In late 1998, the U.S. Food and Drug Administration (FDA) suspended its approval of the release of production lots of Abbott's pharmaceutical product Abbokinase due to Current Good Manufacturing Practice concerns raised by the FDA following inspections of Abbott and its raw material supplier. Abbott is instituting changes to its procedures in response to the FDA. In January 1999, after Abbott revised the product's labeling to add additional warnings and the FDA issued a health care provider information sheet, the FDA released certain lots that were under its review. The FDA subsequently established new criteria for the release of additional lots. No additional lots have been released. Abbott cannot predict the effect of this matter on future sales of Abbokinase. For the year ended December 31, 1998, Abbott sold approximately $277 million of Abbokinase, primarily in the U.S. LIQUIDITY AND CAPITAL RESOURCES AT MARCH 31, 1999 COMPARED WITH DECEMBER 31, 1998 Net cash from operating activities for the first quarter 1999 totaled $845 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 $2.5 billion at March 31, 1999. These lines of credit support domestic commercial paper borrowing arrangements. Abbott may issue up to $750 million of senior debt securities in the future under a registration statement filed with the Securities and Exchange Commission in 1998. In December 1998, Abbott suspended purchases of its common shares and currently has no plans to resume purchases in 1999. LEGISLATIVE ISSUES Abbott's primary markets are highly competitive and subject to substantial government regulation. Abbott expects debate to continue at both the federal and the state levels over the availability, method of delivery, and payment for health care products and services. Abbott believes that if legislation is enacted, it could have the effect of reducing prices, or reducing the rate of price increases for medical products and services. International operations are also subject to a significant degree of government regulation. It is not possible to predict the extent to which Abbott or the health care industry in general might be adversely affected by these factors in the future. A more complete discussion of these factors is contained in Item 1, Business, in the Annual Report on Form 10-K, which is available upon request. YEAR 2000 The Year 2000 ("Y2K") issue results from the inability of some computer programs to identify the Year 2000 properly, potentially leading to errors or system failure. Abbott has organized its efforts to resolve the Y2K issue as follows: internal information systems; landlord and embedded systems; electronic products currently marketed or in the field; and suppliers providing products and services to Abbott. Progress goals have been established in each area. Internal information systems were inventoried and assessed, and remediation started in 1992. All remediation has been completed. Eighty-nine percent of testing has been completed, and all testing is scheduled to be completed by mid-1999. Current progress is slightly better than plan. Landlord and embedded systems were inventoried and Y2K assessment completed by May 1998. Abbott's goal is to resolve all critical systems by July 1999. Current progress is according to plan. Abbott has assessed the ability of its medical electronic and software products to cope with the Y2K issue. Except for certain products for which Abbott is the distributor, customers may access Abbott's assessment on Abbott's Web site. For i-STAT products and the recently acquired Murex product line, a referral source for customers to contact the manufacturer is provided on the Web site. Most of Abbott's products are not affected by the Y2K issue. For those products requiring remediation, Abbott's goal is to provide solutions by June 1999. Current progress is according to plan. 9 FINANCIAL REVIEW (continued) Beginning in March 1998, key suppliers were requested to certify that they were Y2K compliant or, if not, to provide their plans to become compliant. Ninety-one percent of suppliers responded; 57 percent of those responding certified compliance currently and 43 percent forwarded action plans. Follow-up with all key suppliers is being conducted according to plan. Each of the above areas began developing business continuity plans during 1998. Abbott's goal is to complete all business continuity plans by September 30, 1999. Current progress is according to plan. Abbott is in the process of quantifying the amount of sales which might occur in 1999 due to Y2K that would otherwise occur in 2000. The most likely worst-case Y2K scenarios are subject to a wide range of speculation. However, the business continuity plans assume Y2K failures are primarily third party, are intermittent, are of relatively short duration, or are localized at one site or region, primarily outside the United States. Abbott's policy is to expense Y2K remediation costs as incurred. Y2K remediation costs from inception through the end of 1999 are expected to approximate $100 million, of which approximately one-third is expected to be spent in 1999. EURO CONVERSION On January 1, 1999, the European Economic and Monetary Union took effect and introduced the euro as the official single currency of the eleven participating member countries. On that date the currency exchange rates of the participating countries were fixed against the euro. There will be a three-year transition to the euro, and at the end of 2001, the legacy currencies will be eliminated. In 1997, 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. 10 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS As reported in Abbott's 10-K for the fiscal year ended December 31, 1998, Abbott is involved in numerous antitrust suits and two investigations regarding Abbott's pricing of pharmaceutical products. As of April 30, 1999, 116 antitrust suits are pending in federal court and 13 are pending in state courts. The prescription pharmaceutical pricing antitrust suits allege that various pharmaceutical manufacturers and pharmaceutical wholesalers have conspired to fix prices for prescription pharmaceuticals and/or to discriminate in pricing to retail pharmacies by providing discounts to mail-order pharmacies, institutional pharmacies, and HMOs in violation of state and federal antitrust laws. The suits have been brought on behalf of individual consumers and retail pharmacies and name both Abbott and certain other pharmaceutical manufacturers and pharmaceutical wholesalers and at least one mail-order pharmacy company as defendants. The cases seek treble damages, civil penalties and injunctive and other relief. Abbott has filed or intends to file a response to each of the complaints denying all substantive allegations. The federal cases are pending in the United States District Court for the Northern District of Illinois under the Multidistrict Litigation Rules as In re: Brand Name Prescription Drug Antitrust Litigation, MDL 997. The state cases are pending in the following state courts: Tuscaloosa County and Clarke County, Alabama; Monterey County, California; San Francisco County, California (five cases); San Joaquin County, California; Prentiss County, Mississippi; San Miguel County, New Mexico; Burleigh County, North Dakota; and Cocke County, Tennessee. Abbott has previously reported that it has entered settlement agreements in the consumer lawsuits pending in Johnson County, Kansas; Mecklenburg County, North Carolina; and Davidson County, Tennessee and that the court in each jurisdiction must approve the agreement before it becomes final. The courts have now approved the settlement agreement in each of those jurisdictions. In addition, a settlement agreement for the four consumer cases pending in Alameda County, California and San Francisco County, California was approved by the court on April 21, 1999. The amount to be paid in settlement is $6.2 million (in cash and product). As reported in Abbott's 10-K for the fiscal year ended December 31, 1998, five cases involving Abbott's patents for terazosin hydrochloride, a drug that Abbott sells under the trademark Hytrin-Registered Trademark-, are pending in the United States District Court for the Northern District of Illinois. The other parties to these cases are Geneva Pharmaceuticals, Inc. ("Geneva"), Novopharm Limited ("Novopharm"), Invamed, Inc. ("Invamed"), Mylan Pharmaceuticals, Inc. ("Mylan"), and Warner Chilcott, Inc. Abbott sued each of these five other corporations alleging patent infringement after learning that they had applied to the Federal Food and Drug Administration for approval for a generic version of terazosin hydrochloride. Each of these corporations contends that Abbott's patent which covers their version of terazosin hydrochloride is invalid and unenforceable. The Geneva, Invamed, and Novopharm cases were all pending before the same judge, who, on September 1, 1998, entered a judgment in each of those cases ruling that the Abbott patent at issue in those cases is invalid. Abbott has appealed this ruling. On March 4, 1999, the judge hearing the Mylan case granted Mylan's motion for summary judgment, applying the ruling issued September 1 in the Geneva, Novopharm and Invamed cases in Mylan's case as well. Abbott has also appealed this ruling. Additionally, in April 1996, Zenith Laboratories, Inc. ("Zenith") sued Abbott in the United States District Court for the District of New Jersey alleging that Abbott had engaged in unfair competition, abuse of process, tortious interference with prospective economic advantage, and fraud in attempting to protect Hytrin from generic competition. Zenith sought money damages and a declaration that certain of Abbott's patents covering terazosin hydrochloride are invalid. Abbott filed counterclaims alleging patent infringement. On March 31, 1998, Abbott and Zenith reached an agreement that resolved the litigation between the parties. In the settlement, Zenith acknowledged the validity of Abbott's terazosin hydrochloride patents and agreed to refrain from selling a generic version of terazosin hydrochloride until the expiration of one of Abbott's patents for terazosin hydrochloride (U.S. Patent No. 4,251,532). On April 1, 1998, Abbott and Geneva reached an agreement under which Geneva will not market its Food and Drug Administration approved generic terazosin hydrochloride products until resolution of the pending litigation between the parties. Abbott agreed to make quarterly payments to Zenith and monthly payments to Geneva until the date on which they may enter the market for terazosin hydrochloride under their agreements. Both Zenith and Geneva would be free to enter the market for terazosin hydrochloride in the United States, if certain of Abbott's patents for terazosin hydrochloride were determined to be invalid and if another company legally enters the generic market in the United States. On April 19, 1999, Abbott received a subpoena and a civil investigation demand from the Federal Trade Commission regarding these agreements with Geneva and Zenith. 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 Abbotts financial position, cash flows, or results of operations. 11 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Abbott held its Annual Meeting of Shareholders on April 23, 1999. The following is a summary of the matters voted on at that meeting. (a) The shareholders elected Abbott's entire Board of Directors. The persons elected to Abbott'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:
NAME VOTES FOR VOTES WITHHELD H. Laurance Fuller 1,238,343,957 5,521,927 David A. Jones 1,235,310,332 8,555,552 Jeffrey M. Leiden, M.D., Ph.D. 1,238,392,486 5,473,398 The Lord Owen CH 1,238,584,310 5,281,574 Robert L. Parkinson Jr. 1,239,172,503 4,693,381 Boone Powell Jr. 1,238,914,382 4,951,502 Addison Barry Rand 1,238,364,655 5,501,229 W. Ann Reynolds, Ph.D. 1,236,279,121 7,586,763 Roy S. Roberts 1,238,126,061 5,739,823 William D. Smithburg 1,237,739,036 6,126,848 John R. Walter 1,236,249,924 7,615,960 William L. Weiss 1,236,168,227 7,697,657 Miles D. White 1,238,887,943 4,977,941
(b) The shareholders ratified the appointment of Arthur Andersen LLP as auditors of Abbott. The number of shares cast in favor of the ratification of Arthur Andersen LLP, the number against, and the number abstaining were as follows:
FOR AGAINST ABSTAIN 1,236,072,381 3,437,644 4,355,859
(c) The shareholders rejected a shareholder proposal that Abbott adopt the CERES Principles. 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:
FOR AGAINST ABSTAIN BROKER NON-VOTE 62,537,789 920,299,546 77,239,931 183,788,618
12 (d) The shareholders rejected a shareholder proposal on the phase-out production of PVC medical 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:
FOR AGAINST ABSTAIN BROKER NON-VOTE 28,510,694 966,086,542 65,485,030 183,783,618
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits 3.1 By-Laws of Abbott Laboratories, as amended and effective April 23, 1999 - 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/ Theodore A. Olson --------------------------------- Date: May 14, 1999 Theodore A. Olson, Vice President and Controller (Principal Accounting Officer) 13 EX-3.1 2 EXHIBIT 3.1 BY-LAWS OF ABBOTT LABORATORIES Adopted by the Board of Directors of Abbott Laboratories at the Annual Meeting, April 11, 1963 as amended and restated, effective April 23, 1999 BY-LAWS OF ABBOTT LABORATORIES ARTICLE I OFFICES The principal office of the Corporation in the State of Illinois shall be located at the intersection of State Routes 43 and 137 in the County of Lake. The Corporation may have such other offices either within or without the State of Illinois as the business of the Corporation may require from time to time. The registered office of the Corporation may be, but need not be, identical with the principal office in the State of Illinois. The address of the registered office may be changed from time to time by the Board of Directors. ARTICLE II SHAREHOLDERS SECTION 1. ANNUAL MEETING; TRANSACTION OF BUSINESS, NOMINATION OF DIRECTORS. The annual meeting of the shareholders shall be held in the month of April in each year on such date and at such time as the Board of Directors shall provide. The meeting shall be held for the purpose of electing Directors and for the transaction of such other business as is properly brought before the meeting in accordance with these By-Laws. If the election of Directors shall not be held on the day designated for any annual meeting, or at any adjournment thereof, the Board of Directors shall cause the election to be held at a meeting of the shareholders as soon thereafter as conveniently may be. To be properly brought before the meeting, business must be either (a) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (b) otherwise properly brought before the meeting by or at the direction of the Board of Directors or (c) otherwise properly brought before the meeting by a shareholder. In addition to any other applicable requirements, for business to be properly brought before an annual meeting by a shareholder, the shareholder must have given timely notice thereof in writing to the Secretary. To be timely, a shareholder's notice must be delivered to or mailed and received at the principal office of the Corporation, not earlier than October 1 nor later than the first business day of January immediately prior to the date of the meeting; PROVIDED, HOWEVER, that in the event that the date of such meeting is not in the month of April and less than sixty-five days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the fifteenth day following the day on which such notice of the date of the annual meeting was mailed or such public disclosure was made, whichever first occurs. A shareholder's notice to the Secretary shall set forth as to each matter the shareholder proposes to bring before the annual meeting (i) a brief BY-LAWS Page 2 description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and record address of the shareholder proposing such business, (iii) the class and number of shares of the Corporation which are beneficially owned by the shareholder and (iv) any material interest of the shareholder in such business. Notwithstanding anything in these By-Laws to the contrary, no business shall be conducted at the annual meeting except in accordance with the procedures set forth in this Section 1, PROVIDED, HOWEVER, that nothing in this Section 1 shall be deemed to preclude discussion by any shareholder of any business properly brought before the annual meeting. The Chairman of an annual meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this Section 1, and if he should so determine, he shall so declare to the meeting and such business not properly brought before the meeting shall not be transacted. Only persons who are nominated in accordance with the following procedures shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the Corporation at the annual meeting may be made at such annual meeting of shareholders by or at the direction of the Board of Directors, by any nominating committee or person appointed by the Board of Directors, or by any shareholder of the Corporation entitled to vote for the election of directors at such meeting who complies with the notice procedures set forth in this Section 1. Such nominations, other than those made by or at the direction of the Board of Directors or by a committee or person appointed by the Board of Directors, shall be made pursuant to timely notice in writing to the Secretary. To be timely, a shareholder's notice shall be delivered to or mailed and received at the principal office of the Corporation not earlier than October 1 nor later than the first business day of January immediately prior to the date of the meeting; PROVIDED, HOWEVER, that in the event that the date of such meeting is not in the month of April and less than sixty-five days' notice or prior public disclosure of the date of the meeting is given or made to shareholders, notice by the shareholder to be timely must be so received not later than the close of business on the fifteenth day following the day on which such notice of the date of the meeting was mailed or such public disclosure was made, whichever first occurs. Such shareholder's notice to the Secretary shall set forth: (a) as to each person whom the shareholder proposes to nominate for election or re-election as a director, (i) the name, age, business address and residence address of the person, (ii) the principal occupation or employment of the person, (iii) the class and number of shares of capital stock of the Corporation which are beneficially owned by the person and (iv) any other information relating to the person that is required to be disclosed in solicitations for proxies for election of directors pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended; and (b) as to the shareholder giving the notice, (i) the name and record address of such shareholder and (ii) the class and number of shares of the Corporation which are beneficially owned by such shareholder. The Corporation may require any proposed nominee to furnish such other information as may reasonably be required by the Corporation to determine the eligibility of such proposed nominee to serve as BY-LAWS Page 3 director of the Corporation. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth herein. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. SECTION 2. SPECIAL MEETINGS. Special meetings of the shareholders may be called by the Chairman of the Board, the Chief Executive Officer, the President, the Board of Directors or by the holders of not less than one-fifth of all the outstanding shares entitled to vote on the matter for which the meeting is called. SECTION 3. PLACE OF MEETING. The Board of Directors may designate any place, either within or without the State of Illinois, as the place of meeting for any annual meeting or for any special meeting called by the Board of Directors. If no designation is made, or if a special meeting be otherwise called, the place of meeting shall be the principal office of the Corporation in the State of Illinois. SECTION 4. NOTICE OF MEETINGS. Written notice stating the place, day and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten nor more than sixty days before the date of the meeting, or in the cases of a merger, consolidation, share exchange, dissolution or sale, lease or exchange of assets not less than twenty nor more than sixty days before the meeting, either personally or by mail, by or at the direction of the Chairman of the Board, the Chief Executive Officer, the President, or the Secretary or the persons calling the meeting, to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at his or her address as it appears on the records of the Corporation, with postage thereon prepaid. SECTION 5. FIXING RECORD DATE. For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders, or shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors of the Corporation may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than sixty days and, for a meeting of shareholders, not less than ten days, or in the case of a merger, consolidation, share exchange, dissolution or sale, lease or exchange of assets not less than twenty days, immediately preceding such meeting. SECTION 6. VOTING LISTS. The Secretary shall make, or cause to have made, within twenty days after the record date for a meeting of shareholders or ten days before such meeting, whichever is earlier, a complete list of the shareholders entitled to vote at such meeting, arranged in alphabetical order, with the address of and the number of shares held by each, which list, for a period of ten days prior to such meeting, shall be kept on file at the registered office of the BY-LAWS Page 4 Corporation and shall be subject to inspection by any shareholder and to copying at the shareholder's expense, at any time during usual business hours. Such list shall also be produced and kept open at the time and place of the meeting and shall be subject to the inspection of any shareholder during the whole time of the meeting. The original share ledger or transfer book, or a duplicate thereof kept in this State, shall be prima facie evidence as to who are the shareholders entitled to examine such list or share ledger or transfer book or to vote at any meeting of shareholders. SECTION 7. QUORUM. A majority of the outstanding shares of the Corporation entitled to vote on a matter, represented in person or by proxy, shall constitute a quorum for consideration of such matter at a meeting of shareholders. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on a matter shall be the act of the shareholders, unless the vote of a greater number or voting by classes is required by The Business Corporation Act of 1983 or the Articles of Incorporation, as in effect on the date of such determination. If a quorum is not present, a majority of the shares of the Corporation entitled to vote on a matter and represented in person or by proxy at such meeting may adjourn the meeting from time to time without further notice. SECTION 8. PROXIES. A shareholder may appoint a proxy to vote or otherwise act for the shareholder by delivering a valid appointment to the person so appointed or such person's agent; PROVIDED, HOWEVER, no shareholder may name more than three persons as proxies to attend and to vote the shareholder's shares at any meeting of shareholders. Without limiting the manner in which a shareholder may appoint such a proxy pursuant to these By-Laws, the following shall constitute valid means by which a shareholder may make such an appointment: (a) A shareholder may sign a proxy appointment form. The shareholder's signature may be affixed by any reasonable means, including, but not limited to, by facsimile signature. (b) A shareholder may transmit or authorize the transmission of a telegram, cablegram, or other means of electronic transmission; provided that any such transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram, or other electronic transmission was authorized by the shareholder. If it is determined that the telegram, cablegram, or other electronic transmission is valid, the inspectors or, if there are no inspectors, such other persons making that determination shall specify the information upon which they relied. No proxy shall be valid after the expiration of eleven months from the date thereof unless otherwise provided in the proxy. Each proxy continues in full force and effect until revoked by the person appointing the proxy prior to the vote pursuant thereto, except as otherwise provided by law. Such revocation may be effected by a writing delivered to the secretary of the Corporation stating that the proxy is revoked or by a subsequent delivery of a valid proxy by, or BY-LAWS Page 5 by the attendance at the meeting and voting in person by the person appointing the proxy. The dates of the proxy shall presumptively determine the order of appointment. SECTION 9. VOTING OF SHARES. Each outstanding share, regardless of class, shall be entitled to one vote in each matter submitted to a vote at a meeting of shareholders and, in all elections for Directors, every shareholder shall have the right to vote the number of shares owned by such shareholder for as many persons as there are Directors to be elected, or to cumulate such votes and give one candidate as many votes as shall equal the number of Directors multiplied by the number of such shares or to distribute such cumulative votes in any proportion among any number of candidates; provided that, vacancies on the Board of Directors may be filled as provided in Section 9, Article III of these By-Laws. A shareholder may vote either in person or by proxy. SECTION 10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares of this Corporation held by the Corporation in a fiduciary capacity may be voted and shall be counted in determining the total number of outstanding shares entitled to vote at any given time. Shares registered in the name of another corporation, domestic or foreign, may be voted by any officer, agent, proxy or other legal representative authorized to vote such shares under the law of incorporation of such corporation. Shares registered in the name of a deceased person, a minor ward or a person under legal disability may be voted by his or her administrator, executor, or court appointed guardian, either in person or by proxy without a transfer of such shares into the name of such administrator, executor, or court appointed guardian. Shares registered in the name of a trustee may be voted by him or her, either in person or by proxy. Shares registered in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into his or her name if authority so to do is contained in an appropriate order of the court by which such receiver was appointed. A shareholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. SECTION 11. VOTING BY BALLOT. Voting on any question or in any election may be viva voce unless the presiding officer shall order that voting be by ballot. SECTION 12. INSPECTORS OF ELECTION. The Board of Directors in advance of any meeting of shareholders may appoint inspectors to act at such meeting or any adjournment thereof. If inspectors of election are not so appointed, the officer or person acting as chairman at any such meeting may, and on the request of any shareholder or his proxy, shall make such appointment. In case any person appointed as inspector shall fail to appear or to act, the vacancy BY-LAWS Page 6 may be filled by appointment made by the Board of Directors in advance of the meeting or at the meeting by the officer or person acting as chairman. Such inspectors shall ascertain and report the number of shares represented at the meeting, based upon their determination of the validity and effect of proxies; count all votes and report the results; and do such other acts as are proper to conduct the election and voting with impartiality and fairness to all the shareholders. Each report of an inspector shall be in writing and signed by him or her or by a majority of them if there be more than one inspector acting at such meeting. If there is more than one inspector, the report of a majority shall be the report of the inspectors. The report of the inspector or inspectors on the number of shares represented at the meeting and the results of the voting shall be prima facie evidence thereof. ARTICLE III DIRECTORS SECTION 1. GENERAL POWERS. The business and affairs of the Corporation shall be managed under the direction of the Board of Directors. SECTION 2. NUMBER, TENURE AND QUALIFICATIONS. The number of Directors of the Corporation shall be thirteen. The terms of all Directors shall expire at the next annual meeting of shareholders following their election. Despite the expiration of a Director's term, he or she shall continue to serve until the next meeting of shareholders at which Directors are elected. Directors need not be residents of Illinois or shareholders of the Corporation. SECTION 3. REGULAR MEETINGS. A regular annual meeting of the Board of Directors shall be held without other notice than this By-Law, immediately after, and at the same place as, the annual meeting of shareholders. Other regular meetings of the Board of Directors shall be held at the principal office of the Corporation on the second Friday of every month at 9:00 a.m. without other notice than this By-Law. The Board of Directors may provide, by resolution, for the holding of the regular monthly meetings at a different time and place, either within or without the State of Illinois, or for the omission of the regular monthly meeting altogether. Where the Board of Directors has, by resolution, changed or omitted regular meetings, no other notice than such resolution shall be given. SECTION 4. SPECIAL MEETINGS. Special meetings of the Board of Directors may be called by or at the request of the Chairman of the Board, the Chairman of the Executive Committee, the Chief Executive Officer, the President, or of any four Directors. The persons authorized to call special meetings of the Board of Directors may fix any place, either within or without the State of Illinois, as the place for holding any special meeting of the Board of Directors. BY-LAWS Page 7 SECTION 5. NOTICE. Notice of any special meeting shall be given: (i) at least one day prior thereto if the notice is given personally or by an electronic transmission, (ii) at least two business days prior thereto if the notice is given by having it delivered by a third party entity that provides delivery services in the ordinary course of business and guarantees delivery of the notice to the Director no later than the following business day, and (iii) at least seven days prior thereto if the notice is given by mail. For this purpose, the term "electronic transmission" may include, but shall not be limited to, a telex, facsimile, or other electronic means. Notice shall be delivered to the Director's business address and/or telephone number and shall be deemed given upon electronic transmission, upon delivery to the third party delivery service, or upon being deposited in the United States mail with postage thereon prepaid. Any Director may waive notice of any meeting by signing a written waiver of notice either before or after the meeting. Attendance of a Director at any meeting shall constitute a waiver of notice of such meeting, except where a Director attends a meeting for the express purpose of objecting to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need to be specified in the notice or waiver of notice of such meeting. SECTION 6. QUORUM. A majority of the number of Directors fixed by these By-Laws shall constitute a quorum for transaction of business at any meeting of the Board of Directors; provided, that if less than a majority of such number of Directors are present at said meeting, a majority of the Directors present may adjourn the meeting from time to time without further notice. SECTION 7. MANNER OF VOTING. The act of the majority of the Directors present at a meeting at which a quorum is present shall be the act of the Board of Directors. SECTION 8. INFORMAL ACTION BY DIRECTORS. Any action required to be taken at a meeting of the Board of Directors, or any other action which may be taken at a meeting of the Board of Directors or a committee thereof, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by all of the Directors entitled to vote with respect to the subject matter thereof, or by all the members of such committee, as the case may be. The consent shall be evidenced by one or more written approvals, each of which sets forth the action taken and bears the signature of one or more Directors. All the approvals evidencing the consent shall be delivered to the Secretary of the Corporation to be filed in the corporate records. The action taken shall be effective when all the Directors have approved the consent unless the consent specifies a different effective date. Any such consent signed by all the Directors or all the members of a committee shall have the same effect as a unanimous vote. SECTION 9. VACANCIES. Any vacancy occurring in the Board of Directors and any directorship to be filled by reason of an increase in the number of Directors, may be filled by BY-LAWS Page 8 election at an annual meeting or at a special meeting of shareholders called for that purpose. A Director elected to fill a vacancy shall serve until the next annual meeting of shareholders. A majority of Directors then in office may also fill one or more vacancies arising between meetings of shareholders by reason of an increase in the number of Directors or otherwise, and any Director so selected shall serve until the next annual meeting of shareholders, provided that at no time may the number of Directors selected to fill vacancies in this manner during any interim period between meetings of shareholders exceed 33-1/3 per cent of the total membership of the Board of Directors. SECTION 10. PRESUMPTION OF ASSENT. A Director of the Corporation who is present at a meeting of the Board of Directors or any committee thereof at which action on any corporate matter is taken is conclusively presumed to have assented to the action taken unless his or her dissent is entered in the minutes of the meeting or unless he or she files his or her written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or forwards such dissent by registered or certified mail to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favor of such action. SECTION 11. APPOINTMENT OF AUDITORS. Upon the recommendation of the Audit Committee, the Board of Directors shall appoint annually a firm of independent public accountants as auditors of the Corporation. Such appointment shall be submitted to the shareholders for ratification at the Annual Meeting next following such appointment. Should the holders of a majority of the shares represented at the meeting fail to ratify the appointment of any firm as auditors of the Corporation, or should the Board of Directors for any reason determine that such appointment be terminated, the Board of Directors shall appoint another firm of independent public accountants to act as auditors of the Corporation and such appointment shall be submitted to the shareholders for ratification at the Annual or Special Shareholders Meeting next following such appointment. ARTICLE IV COMMITTEES SECTION 1. APPOINTMENT. A majority of the Board of Directors may create one or more committees and appoint members of the Board to serve on the committee or committees. Each committee shall have three or more members, who serve at the pleasure of the Board. The Board shall designate one member of each committee to be chairman of the committee. The Board shall designate a secretary of each committee who may be, but need not be, a member of the committee or the Board. SECTION 2. COMMITTEE MEETINGS. A majority of any committee shall constitute a quorum and a majority of the committee is necessary for committee action. A committee may act by unanimous consent in writing without a meeting. Committee meetings may be called by the Chairman of the Board, the chairman of the committee, or any two of the committee's BY-LAWS Page 9 members. The time and place of committee meetings shall be designated in the notice of such meeting. Notice of each committee meeting shall be given to each committee member. Each Committee shall keep minutes of its proceedings and such minutes shall be distributed to the Board of Directors. SECTION 3. EXECUTIVE COMMITTEE. The Board shall appoint an Executive Committee. A majority of the members of the Committee shall be selected from those Directors who are not then serving as full-time employees of the Corporation or any of its subsidiaries. SECTION 4. DUTIES OF THE EXECUTIVE COMMITTEE. The Executive Committee may, when the Board of Directors is not in session, exercise the authority of the Board in the management of the business and affairs of the Corporation; provided, however, the Committee may not: (1) authorize distributions; (2) approve or recommend to shareholders any act the Business Corporation Act of 1983 requires to be approved by shareholders. (3) fill vacancies on the Board or on any of its committees; (4) elect or remove Officers or fix the compensation of any member of the Committee; (5) adopt, amend or repeal the By-Laws; (6) approve a plan of merger not requiring shareholder approval; (7) authorize or approve reacquisition of shares, except according to a general formula or method prescribed by the Board; (8) authorize or approve the issuance or sale, or contract for sale, of shares or determine the designation and relative rights, preferences, and limitations of a series of shares, except that the Board may direct the Committee to fix the specific terms of the issuance or sale or contract for sale or the number of shares to be allocated to particular employees under an employee benefit plan; or (9) amend, alter, repeal, or take action inconsistent with any resolution or action of the Board of Directors when the resolution or action of the Board of Directors provides by its terms that it shall not be amended, altered or repealed by action of the Committee. BY-LAWS Page 10 SECTION 5. AUDIT COMMITTEE. The Board of Directors shall appoint an Audit Committee. All of the members of the Committee shall be selected from those Directors who are not then serving as full-time employees of the Corporation or any of its subsidiaries. SECTION 6. DUTIES OF THE AUDIT COMMITTEE. The Audit Committee shall: (1) recommend to the Board of Directors annually a firm of independent public accountants to act as auditors of the Corporation; (2) review with the auditors in advance the scope of and fees for their annual audit; (3) review with the auditors and the management, from time to time, the Corporation's accounting principles, policies, and practices and its reporting policies and practices; (4) review with the auditors annually the results of their audit; and (5) review from time to time with the auditors and the Corporation's financial personnel the adequacy of the Corporation's accounting, financial and operating controls. SECTION 7. COMPENSATION COMMITTEE. The Board of Directors shall appoint a Compensation Committee. The members of the Committee shall be selected from those Directors who are not then serving as full-time employees of the Corporation or any of its subsidiaries and who are "non-employee directors" under Rule 16b-3 promulgated under the Securities Exchange Act of 1934, or any similar successor rule. SECTION 8. DUTIES OF THE COMPENSATION COMMITTEE. The Compensation Committee shall: (1) administer the stock option plans of the Corporation; (2) review, at least annually, the compensation of Directors who are not then serving as full-time employees of the Corporation or any of its subsidiaries and recommend for approval by the Board any change in the compensation of such Directors; (3) review, at least annually, the compensation of all Officers of the Corporation. The committee shall have the authority to approve changes in the base compensation, and any proposed special separation arrangements of Officers, except the Chairman of the Board of Directors, the Chief Executive Officer, and the President, whose base compensation, BY-LAWS Page 11 and any special separation arrangements, shall be subject to approval by the Board of Directors. SECTION 9. NOMINATIONS AND BOARD AFFAIRS COMMITTEE. The Board of Directors shall appoint a Nominations and Board Affairs Committee. A majority of the members of the Committee shall be selected from those Directors who are not then serving as full-time employees of the Corporation or any of its subsidiaries. SECTION 10. DUTIES OF THE NOMINATIONS AND BOARD AFFAIRS COMMITTEE. The Nominations and Board Affairs Committee shall: (1) develop general criteria for selection of and qualifications desirable in members of the Board of Directors and Officers of the Corporation and aid the Board in identifying and attracting qualified candidates to stand for election to such positions; (2) recommend to the Board annually a slate of nominees to be proposed by the Board to the shareholders as nominees for election as Directors, and, from time to time, recommend persons to fill any vacancy on the Board; (3) review annually, or more often if appropriate, the performance of individual members of the management of the Corporation and the membership and performance of committees of the Board and make recommendations deemed necessary or appropriate to the Board; (4) recommend to the Board persons to be elected as Officers of the Corporation; and (5) serve in an advisory capacity to the Board of Directors and Chairman of the Board on matters of organization, management succession plans, major changes in the organizational structure of the Corporation, and the conduct of Board activities, including assisting in the evaluation of the Board's own performance. ARTICLE V OFFICERS SECTION 1. NUMBER. The Officers of the Corporation shall be the Chairman of the Board, the Chief Executive Officer, the President, one or more Executive, Group or Senior Vice Presidents, one or more Vice Presidents, a Treasurer, a Secretary, a Controller, a General Counsel and such Assistant Treasurers and Assistant Secretaries as the Board of Directors may elect. Any two or more offices may be held by the same person. BY-LAWS Page 12 SECTION 2. ELECTION AND TERM OF OFFICE. The Officers of the Corporation shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of shareholders. If the election of Officers shall not be held at such meeting, such election shall be held as soon thereafter as conveniently may be. Vacancies or new offices may be filled at any meeting of the Board of Directors. Each Officer shall hold office until his or her successor shall have been duly elected and shall have qualified or until his or her death or until he or she shall resign or shall have been removed in the manner hereinafter provided. SECTION 3. REMOVAL OF OFFICERS. Any Officer may be removed by the Board of Directors whenever in its judgment the best interests of the Corporation will be served thereby. SECTION 4. VACANCIES. A vacancy in any office because of death, resignation, removal, disqualification or otherwise, may be filled by the Board of Directors for the unexpired portion of the term. SECTION 5. CHAIRMAN OF THE BOARD OF DIRECTORS AND CHIEF EXECUTIVE OFFICER. The Chairman shall preside at all meetings of the Board of Directors and the shareholders. The Chief Executive Officer shall be responsible for the overall management of the Corporation subject to the direction of the Board of Directors. SECTION 6. PRESIDENT. The President shall be the Chief Operating Officer. The President shall perform such duties as may be prescribed by the Board of Directors or by the Chief Executive Officer. SECTION 7. EXECUTIVE, GROUP AND SENIOR VICE PRESIDENTS. Each Executive, Group, or Senior Vice President shall be responsible for supervising and coordinating a major area of the Corporation's activities subject to the direction of the Chief Executive Officer or the President. SECTION 8. VICE PRESIDENTS. Each of the Vice Presidents shall be responsible for those activities designated by an Executive, Group, or Senior Vice President, the President, the Chief Executive Officer or by the Board of Directors. SECTION 9. TREASURER. The Treasurer shall administer the investment, financing, insurance and credit activities of the Corporation. SECTION 10. SECRETARY. The Secretary will be the custodian of the corporate records and of the seal of the Corporation, will countersign certificates for shares of the Corporation, and in general will perform all duties incident to the office of the Secretary. The Secretary shall have the authority to certify the By-Laws, resolutions of the shareholders and the Board of Directors and committees thereof, and other documents of the Corporation as true and correct copies hereof. BY-LAWS Page 13 SECTION 11. CONTROLLER. The Controller will conduct the accounting activities of the Corporation, including the maintenance of the Corporation's general and supporting ledgers and books of account, operating budgets, and the preparation and consolidation of financial statements. SECTION 12. GENERAL COUNSEL. The General Counsel will be the chief consultant of the Corporation on legal matters. He or she will supervise all matters of legal import concerning the interests of the Corporation. SECTION 13. ASSISTANT TREASURER. The Assistant Treasurer shall, in the absence or incapacity of the Treasurer, perform the duties and exercise the powers of the Treasurer, and shall perform such other duties as shall from time to time be given to him or her by the Treasurer. SECTION 14. ASSISTANT SECRETARY. The Assistant Secretary shall, in the absence or incapacity of the Secretary, perform the duties and exercise the powers of the Secretary, and shall perform such other duties as shall from time to time be given to him or her by the Secretary. The Assistant Secretary shall be, with the Secretary, keeper of the books, records, and the seal of the Corporation, and shall have the authority to certify the By-Laws, resolutions and other documents of the Corporation. SECTION 15. GENERAL POWERS OF OFFICERS. The Chairman of the Board, the Chief Executive Officer, the President, and any Executive, Group or Senior Vice President, may sign without countersignature any deeds, mortgages, bonds, contracts, reports to public agencies, or other instruments whether or not the Board of Directors has expressly authorized execution of such instruments, except in cases where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these By-Laws solely to some other Officer or agent of the Corporation, or shall be required by law to be otherwise signed or executed. Any other Officer of this Corporation may sign contracts, reports to public agencies, or other instruments which are in the regular course of business and within the scope of his or her authority, except where the signing and execution thereof shall be expressly delegated by the Board of Directors or by these By-Laws to some other Officer or agent of the Corporation, or shall be required by law to be otherwise signed or executed. ARTICLE VI CERTIFICATES FOR SHARES AND THEIR TRANSFER SECTION 1. CERTIFICATES FOR SHARES. Certificates representing shares of the Corporation shall be in such form as may be determined by the Board of Directors. Such certificates shall be signed by any one of the Chairman of the Board, the Chief Executive Officer, the President or an Executive Vice President, and shall be countersigned by the Secretary or an Assistant Secretary and shall be sealed with the seal, or a facsimile of the seal, of the Corporation. If a certificate is countersigned by a Transfer Agent or Registrar, other than the BY-LAWS Page 14 Corporation itself or its employee, any other signatures or countersignature on the certificate may be facsimiles. In case any Officer of the Corporation, or any officer or employee of the Transfer Agent or Registrar who has signed or whose facsimile signature has been placed upon such certificate ceases to be an Officer of the Corporation, or an officer or employee of the Transfer Agent or Registrar before such certificate is issued, the certificate may be issued by the Corporation with the same effect as if the Officer of the Corporation, or the officer or employee of the Transfer Agent or Registrar had not ceased to be such at the date of its issue. Each certificate representing shares shall state: that the Corporation is organized under the laws of the State of Illinois; the name of the person to whom issued; the number and class of shares; and the designation of the series, if any, which such certificate represents. Each certificate shall be consecutively numbered or otherwise identified. The name of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the books of the Corporation. All certificates surrendered to the Corporation for transfer shall be canceled, and no new certificate shall be issued in replacement until the former certificate for a like number of shares shall have been surrendered and canceled, except in the case of lost, destroyed or mutilated certificates. SECTION 2. TRANSFER AGENT AND REGISTRAR. The Board of Directors may from time to time appoint such Transfer Agents and Registrars in such locations as it shall determine, and may, in its discretion, appoint a single entity to act in the capacity of both Transfer Agent and Registrar in any one location. SECTION 3. TRANSFER OF SHARES. Transfers of shares of the Corporation shall be made only on the books of the Corporation at the request of the holder of record thereof or of his attorney, lawfully constituted in writing, and on surrender for cancellation of the certificate for such shares. The person in whose name shares stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards the Corporation. SECTION 4. LOST, DESTROYED OR MUTILATED CERTIFICATES. In case of lost, destroyed or mutilated certificates, duplicate certificates shall be issued to the person claiming the loss, destruction or mutilation, provided: (a) That the claimant furnishes an affidavit stating the facts of such loss, destruction or mutilation so far as known to him or her and further stating that the affidavit is made to induce the Corporation to issue a duplicate certificate or certificates; and that issuance of the duplicate certificate or certificates is approved: (i) in a case involving a certificate or certificates for more than 1,000 shares, by the Chairman of the Board, the Chief Executive Officer, the President, an Executive Vice President, or the Secretary; or (ii) in a case involving a certificate or certificates for 1,000 shares or less, by the Transfer Agent appointed by the Board of Directors for the transfer of the shares represented by such certificate or certificates; BY-LAWS Page 15 upon receipt of a bond, with one or more sureties, in the amount to be determined by the party giving such approval; or (b) that issuance of the said duplicate certificate or certificates is approved by the Board of Directors upon such terms and conditions as it shall determine. ARTICLE VII FISCAL YEAR The fiscal year of the Corporation shall begin on the first day of January in each year and end on the last day of December in each year. ARTICLE VIII VOTING SHARES OR INTERESTS IN OTHER CORPORATIONS The Chairman of the Board, the Chief Executive Officer, the President, an Executive, Group, or Senior Vice President and each of them, shall have the authority to act for the Corporation by voting any shares or exercising any other interest owned by the Corporation in any other corporation or other business association, including wholly or partially owned subsidiaries of the Corporation, such authority to include, but not be limited to, power to attend any meeting of any such corporation or other business association, to vote shares in the election of directors and upon any other matter coming before any such meeting, to waive notice of any such meeting and to consent to the holding thereof without notice, and to appoint a proxy or proxies to represent the Corporation at any such meeting with all the powers that the said Officer would have under this section if personally present. ARTICLE IX DISTRIBUTIONS TO SHAREHOLDERS The Board of Directors may authorize, and the Corporation may make, distributions to its shareholders, subject to any restriction in the Articles of Incorporation and subject also to the limitations prescribed by law. ARTICLE X SEAL The Corporate Seal of the Corporation shall be in the form of a circle in the center of which is the insignia "[LOGO]" and shall have inscribed thereon the name of the Corporation and the words "an Illinois Corporation." BY-LAWS Page 16 ARTICLE XI WAIVER OF NOTICE Whenever any notice whatever is required to be given under the provisions of these By-Laws or under the provisions of the Articles of Incorporation or under the provisions of The Business Corporation Act of 1983, a waiver thereof in writing, signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Attendance at any meeting shall constitute waiver of notice thereof unless the person at the meeting objects to the holding of the meeting because proper notice was not given. ARTICLE XII AMENDMENTS These By-Laws may be made, altered, amended or repealed by the shareholders or the Board of Directors. EX-12 3 EXHIBIT 12 Exhibit 12 Abbott Laboratories Computation of Ratio of Earnings to Fixed Charges (Unaudited) (dollars in millions except ratios)
Three Months Ended March 31, 1999 ------------------ Net Earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $667 Add (deduct): Taxes on earnings. . . . . . . . . . . . . . . . . . . . . . . . . 259 Minority interest. . . . . . . . . . . . . . . . . . . . . . . . . 2 ---- Net Earnings as adjusted. . . . . . . . . . . . . . . . . . . . . . . . $928 ---- Fixed Charges: Interest on long-term and short-term debt. . . . . . . . . . . . . 40 Capitalized interest cost. . . . . . . . . . . . . . . . . . . . . 2 Rental expense representative of an interest factor. . . . . . . . 10 ---- Total Fixed Charges . . . . . . . . . . . . . . . . . . . . . . . . . . 52 ---- Total adjusted earnings available for payment of fixed charges. . . . . $980 ---- ---- Ratio of earnings to fixed charges. . . . . . . . . . . . . . . . . . . 18.8 ---- ----
NOTE: For the purpose of calculating this ratio, (i) earnings have been calculated by adjusting net earnings for taxes on earnings; interest expense; capitalized interest cost, net of amortization; minority interest; and the portion of rentals representative of the interest factor, (ii) Abbott considers one-third of rental expense to be the amount representing return on capital, and (iii) fixed charges comprise total interest expense, including capitalized interest and such portion of rentals. EX-27 4 EXHIBIT 27
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ABBOTT LABORATORIES' 1999 FIRST QUARTER FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FORM 10-Q FILING. 1,000 3-MOS DEC-31-1999 JAN-01-1999 MAR-31-1999 351,762 45,051 2,172,338 188,907 1,375,571 5,771,299 9,398,387 4,714,464 13,316,957 4,709,195 1,339,524 0 0 1,364,070 4,698,168 13,316,957 3,299,031 3,299,031 1,448,831 1,448,831 267,177 5,757 40,348 925,790 259,221 666,569 0 0 0 666,569 0.44 0.43 OTHER EXPENSES CONSIST OF RESEARCH AND DEVELOPMENT EXPENSES. THE EPS INFORMATION IN THIS EXHIBIT HAS BEEN PREPARED IN ACCORDANCE WITH SFAS NO. 128, AND BASIC AND DILUTED EPS HAVE BEEN ENTERED IN PLACE OF PRIMARY AND FULLY DILUTED EPS, RESPECTIVELY.
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