10-QPeriod: Q2 FY2011

ABBOTT LABORATORIES Quarterly Report for Q2 Ended Jun 30, 2011

Filed August 4, 2011For Securities:ABT

Summary

Abbott Laboratories reported a solid second quarter and first six months of 2011, demonstrating robust top-line growth driven by its key segments, particularly Proprietary Pharmaceuticals and Established Pharmaceuticals. Net sales increased by 9.0% in the quarter and 12.9% year-to-date, reflecting strong performance both in the U.S. and internationally, with international sales showing particularly strong growth due to favorable exchange rates and recent acquisitions. Profitability saw a significant boost in the second quarter due to a substantial tax benefit from the favorable resolution of prior tax positions, resulting in a sharp increase in net earnings compared to the prior year. Research and development expenses increased, driven by pipeline investment and acquisitions, while selling, general, and administrative expenses showed moderate growth. The company's financial position remains strong, with substantial cash flow from operations and ample liquidity, supported by credit facilities. Management expressed confidence in the company's ongoing performance and strategic initiatives.

Financial Statements
Beta
Revenue$9.62B
Cost of Revenue$3.87B
Gross Profit$5.75B
SG&A Expenses$2.76B
Operating Expenses$7.84B
Operating Income$1.77B
Interest Expense$134.13M
Net Income$1.94B
EPS (Basic)$1.24
EPS (Diluted)$1.23
Shares Outstanding (Basic)1.56B
Shares Outstanding (Diluted)1.57B

Key Highlights

  • 1Net sales increased by 9.0% to $9.6 billion for the three months ended June 30, 2011, and by 12.9% to $18.7 billion for the six months ended June 30, 2011, compared to the prior year periods.
  • 2Operating earnings for the three months ended June 30, 2011, increased by 10.4% to $1.77 billion, though operating earnings for the six-month period were relatively flat at $3.07 billion.
  • 3Net earnings saw a significant increase of 50.4% to $1.94 billion for the three months ended June 30, 2011, primarily driven by a $519 million tax benefit from the resolution of prior tax positions.
  • 4Diluted earnings per share rose to $1.23 for the three months ended June 30, 2011, and $1.79 for the six months ended June 30, 2011.
  • 5The Proprietary Pharmaceutical Products segment and Established Pharmaceutical Products segment showed strong sales growth of 13.0% and 10.3% respectively in the quarter, and 12.4% and 36.4% respectively year-to-date.
  • 6Cash flow from operations remained strong, totaling $4.5 billion for the first six months of 2011.
  • 7Abbott recognized a significant tax benefit of $519 million in the second quarter of 2011 due to the favorable resolution of various tax positions pertaining to prior years.

Frequently Asked Questions

The substantial increase in net earnings for the second quarter of 2011 was primarily driven by a one-time tax benefit of $519 million, resulting from the favorable resolution of various tax positions pertaining to prior years. This benefit significantly boosted reported net income.

Recent acquisitions, notably Solvay Pharmaceuticals (acquired Feb 2010) and Piramal Healthcare Limited’s Healthcare Solutions business (acquired Sep 2010), significantly contributed to the growth in net sales, particularly in the Established Pharmaceutical Products segment and overall international sales. These acquisitions expanded Abbott's product portfolio and geographic reach.

The U.S. Department of Justice is investigating Abbott's sales and marketing activities for Depakote. Discussions are ongoing to resolve potential civil and criminal claims. Abbott is unable to predict the outcome or estimate the potential loss, and the resolution of this matter could be material to cash flows or results of operations in a given year.

While Abbott is involved in various legal proceedings, management believes the ultimate resolution of most should not have a material adverse effect on its financial position, cash flows, or results of operations. However, the resolution of the Depakote investigation is noted as potentially material. The Humira patent dispute with Centocor was recently resolved in Abbott's favor, and several other patent litigations were settled during the quarter.