10-QPeriod: Q2 FY2008

ABBOTT LABORATORIES Quarterly Report for Q2 Ended Jun 30, 2008

Filed July 25, 2008For Securities:ABT

Summary

Abbott Laboratories reported strong financial performance for the second quarter and first half of 2008, with net sales increasing by 14.8% and 14.3% respectively compared to the prior year. This growth was driven by robust performance across its key segments, particularly Pharmaceuticals and Diagnostics. The company also benefited from favorable foreign currency exchange rates. A significant event during the quarter was the conclusion of the TAP Pharmaceutical Products Inc. joint venture, where Abbott acquired the Lupron business, leading to the recognition of substantial intangible assets and goodwill. The company generated substantial operating earnings and net earnings, with diluted EPS at $0.85 for the quarter and $1.45 for the six-month period. The company also continued its share repurchase program and maintained a strong liquidity position with substantial cash and cash equivalents.

Financial Statements
Beta
Revenue$7.31B
Cost of Revenue$3.12B
Gross Profit$4.19B
SG&A Expenses$2.05B
Operating Expenses$5.91B
Operating Income$1.41B
Interest Expense$137.77M
Net Income$1.32B
EPS (Basic)$0.86
EPS (Diluted)$0.85
Shares Outstanding (Basic)1.54B
Shares Outstanding (Diluted)1.55B

Key Highlights

  • 1Net sales increased by 14.8% to $7.31 billion in Q2 2008 and by 14.3% to $14.08 billion in the first six months of 2008, driven by strong segment performance and favorable currency impacts.
  • 2Diluted earnings per share (EPS) were $0.85 for the quarter and $1.45 for the six months, up from $0.63 and $1.08 respectively in the prior year.
  • 3The conclusion of the TAP Pharmaceutical Products Inc. joint venture resulted in Abbott acquiring the Lupron business, adding approximately $700 million in intangible assets and $350 million in goodwill, along with a contingent liability of $1.1 billion.
  • 4Pharmaceutical Products segment showed significant sales growth of 16.7% in Q2 and 15.5% for the first six months, fueled by strong performance of Humira and Depakote, and the addition of Lupron sales.
  • 5Operating earnings grew to $1.41 billion in Q2 and $2.55 billion in the first six months, indicating improved profitability.
  • 6The company generated robust cash flow from operations of $3.06 billion for the first six months of 2008, enabling continued investment and capital returns.
  • 7Abbott maintained a strong balance sheet with $3.80 billion in cash and cash equivalents and significant working capital, alongside substantial unused lines of credit.

Frequently Asked Questions

The conclusion of the TAP Pharmaceutical Products Inc. joint venture on April 30, 2008, resulted in Abbott acquiring the Lupron business. This transaction led to the recording of approximately $700 million in intangible assets (primarily Lupron product rights), $350 million in goodwill, and a contingent liability of approximately $1.1 billion related to potential future R&D events. Abbott also recognized a gain of approximately $95 million from the exchange. Beginning May 1, 2008, Abbott began recording U.S. Lupron net sales directly into its operating results.

The weaker U.S. dollar had a positive impact on Abbott's reported sales. For the second quarter of 2008, the weaker U.S. dollar increased consolidated net sales by 5.9%, international sales by 12.0%, and specific segment sales like Pharmaceutical Products by 6.0% compared to the prior year. A similar positive impact was observed for the first six months of the year.

The Pharmaceutical Products segment experienced strong growth, with net sales increasing by 16.7% in Q2 and 15.5% year-to-date. Key drivers include the strong performance of Humira and Depakote, particularly in U.S. specialty markets, and the newly acquired Lupron sales. International Pharmaceutical sales also saw significant growth, largely attributed to increased Humira sales.

Research and development expenses increased by 12.6% in Q2 and 6.2% for the first six months of 2008, primarily to support pipeline programs in oncology, immunology, hepatitis C, neuroscience, and drug-eluting stents. The majority of R&D expenditure is concentrated on pharmaceutical products.