10-QPeriod: Q3 FY2011

ABBOTT LABORATORIES Quarterly Report for Q3 Ended Sep 30, 2011

Filed November 4, 2011For Securities:ABT

Summary

Abbott Laboratories reported strong top-line growth for the nine months ended September 30, 2011, with net sales increasing by 13.0% to $28.47 billion. This growth was driven by robust performance across its key segments, particularly Proprietary Pharmaceuticals and Established Pharmaceuticals, bolstered by recent acquisitions like Solvay Pharmaceuticals and Piramal Healthcare. However, the quarter was significantly impacted by a $1.5 billion litigation reserve related to the Depakote investigation, which weighed heavily on operating earnings and net earnings for the period. Despite this, the company continues to demonstrate operational strength, with positive free cash flow generation and a commitment to returning capital to shareholders through dividends. Investors should monitor the resolution of the Depakote litigation and the progress of the planned separation into two independent companies, expected by the end of 2012.

Financial Highlights

54 data points
Beta

Revenue

$9.82B

59.5% Gross Margin

Net Income

$303.18M

3.1% Net Margin

EPS (Diluted)

$0.19

Total Assets

$59.63B

Cash & Equivalents

$5.05B

Free Cash Flow

$2.60B

Financial Statements
Beta
Revenue$9.82B
Cost of Revenue$3.97B
Gross Profit$5.84B
SG&A Expenses$4.24B
Operating Expenses$9.22B
Operating Income$594.88M
Interest Expense$124.34M
Net Income$303.18M
EPS (Basic)$0.19
EPS (Diluted)$0.19
Shares Outstanding (Basic)1.56B
Shares Outstanding (Diluted)1.57B

Key Highlights

  • 1Net sales grew 13.0% year-over-year to $28.47 billion for the first nine months of 2011, driven by acquisitions and strong segment performance.
  • 2Operating earnings declined significantly in the third quarter due to a $1.5 billion litigation reserve related to the Depakote investigation.
  • 3The company declared a dividend of $0.48 per common share for the third quarter, an increase from the prior year's $0.44.
  • 4Research and Development expenses increased 11.7% for the first nine months of 2011, reflecting continued pipeline investment.
  • 5Significant acquisitions, including Solvay Pharmaceuticals and Piramal Healthcare's Healthcare Solutions business, continue to contribute to revenue growth.
  • 6Abbott announced plans in October 2011 to separate into two publicly traded companies: one focused on diversified medical products and the other on research-based pharmaceuticals, expected by the end of 2012.
  • 7The company maintained strong liquidity with $5.05 billion in cash and cash equivalents and $6.7 billion in unused lines of credit.

Frequently Asked Questions

The primary driver of the significant decrease in operating earnings for the third quarter of 2011 was a $1.5 billion litigation reserve recorded by Abbott in relation to ongoing settlement discussions concerning the Depakote government investigation.

The planned separation, announced in October 2011, is expected to result in a tax-free distribution of stock to Abbott shareholders, creating a new research-based pharmaceutical company. This is intended to allow each company to focus on its respective strategic priorities and enhance shareholder value. The separation is anticipated to be completed by the end of 2012.

Abbott has recorded a $1.5 billion reserve for the Depakote investigation, and discussions to resolve potential civil and criminal claims are ongoing. While the company believes the ultimate resolution should not have a material adverse effect on its financial position or results of operations, the resolution is expected to be material to cash flows in a given year.

Recent acquisitions, notably Solvay Pharmaceuticals (acquired February 2010) and Piramal Healthcare's Healthcare Solutions business (acquired September 2010), significantly contributed to the overall net sales growth for the nine months ended September 30, 2011, particularly boosting the Established Pharmaceutical Products segment and international sales.