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Abbott Reports Strong Third-Quarter Results, Announces $2.5 Billion Share Repurchase Program- Sales Growth of 14.9 Percent as Adjusted Driven by Broad-Based Businesses -
ABBOTT PARK, Ill., Oct. 18 /PRNewswire-FirstCall/ -- Abbott (NYSE: ABT) today announced financial results for the third quarter ended Sept. 30, 2006. -- Abbott's diluted earnings per share for the third quarter were
$0.58, excluding specified items, within the company's previous
guidance range of $0.57 to $0.59. Diluted earnings per share under
U.S. Generally Accepted Accounting Principles (GAAP) were $0.46, which
includes costs related to the Guidant vascular acquisition, including
acquired in-process R&D.
-- Worldwide sales increased 14.9 percent, adjusting both periods for the
amendment of the Boehringer Ingelheim (BI) distribution agreement and
including a favorable 0.9 percent effect of exchange rates. Worldwide
sales include the impact from the Guidant vascular acquisition.
Reported worldwide sales were $5.6 billion, up 3.5 percent.
-- U.S. pharmaceutical sales increased nearly 17 percent, adjusting both
periods for the BI amendment. The strong U.S. performance was led by
HUMIRA(R), Omnicef(R), Depakote(R), Kaletra(R) and TriCor(R), which
all reported double-digit growth. U.S. pharmaceutical sales, as
reported, were down 15.8 percent, reflecting the BI impact.
-- Global HUMIRA sales were $541 million, an increase of more than
50 percent, with U.S. sales up 43 percent and international sales up
66 percent.
-- Medical Products sales increased 20 percent, including $351 million in
sales from Abbott Vascular and strong growth in International
Nutritionals and U.S. Diagnostics.
-- The gross margin ratio increased more than 500 basis points in the
quarter due to the amended BI agreement, operational efficiencies and
product mix.
-- Investments in R&D and sales and marketing increased double digits in
the quarter.
-- Abbott recently launched the XIENCE(TM) V drug-eluting stent (DES)
system internationally.
-- The Abbott Board of Directors approved a new $2.5 billion share
repurchase program (see separate news release issued today).
"Our long-term strategy and broad portfolio are continuing to drive strong results," said Miles D. White, chairman and chief executive officer, Abbott. "We are especially pleased with the exceptional performance of our major pharmaceutical brands, including HUMIRA. In addition, our emerging high- growth medical products businesses, including global nutritionals and vascular devices, are making significant contributions to our overall performance." The following is a summary of third-quarter 2006 sales for each of Abbott's major operating divisions. Sales Summary - % Change of Impact of
Quarter Ended 3Q06 % Change all non-BI Exchange
9/30/06 ($ millions) vs. 3Q05 Products on % Change
Total Sales $5,574 3.5 14.9 0.9
Total U.S. Sales $2,846 (4.9) 15.6 ---
Total International
Sales $2,728 14.1 2.1
Worldwide Pharmaceutical
Sales $2,951 (7.6) 10.8 0.9
U.S. Pharmaceuticals $1,614 (15.8) 16.6 ---
International
Pharmaceuticals (AI) $1,337 4.7 2.3
Worldwide Nutritional
Sales $1,056 3.9 0.7
U.S. Nutritionals
(Ross) $621 (4.5) ---
International
Nutritionals (ANI) $435 18.7 1.8
Worldwide Diagnostics
Sales $1,002 8.6 1.5
U.S. Diagnostics $337 9.9 ---
International
Diagnostics $665 8.0 2.2
Worldwide Vascular Sales $351 480.1(a) 1.1
U.S. Vascular $199 490.8(a) ---
International Vascular $152 466.6(a) 2.5
(a) Includes the impact of the Guidant vascular acquisition.
Note: See "Consolidated Statement of Earnings" for more information.
The following is a summary of sales for the first nine months of 2006 for each of Abbott's major operating divisions. Sales Summary - % Change of Impact of
Nine Months 9M06 % Change all non-BI Exchange
Ended 9/30/06 ($ millions) vs. 9M05 Products on % Change
Total Sales $16,258 (0.2) 10.5 (0.9)
Total U.S. Sales $8,279 (7.9) 11.7 ---
Total International
Sales $7,979 9.3 (2.0)
Worldwide Pharmaceutical
Sales $8,859 (10.0) 7.1 (1.0)
U.S. Pharmaceuticals $4,572 (20.1) 10.3 ---
International
Pharmaceuticals (AI) $4,287 4.0 (2.3)
Worldwide Nutritional
Sales $3,246 9.6 ---
U.S. Nutritionals
(Ross) $2,005 4.7 ---
International
Nutritionals (ANI) $1,241 18.8 (0.1)
Worldwide Diagnostics
Sales $2,928 5.8 (1.5)
U.S. Diagnostics $1,005 8.0 ---
International
Diagnostics $1,923 4.7 (2.3)
Worldwide Vascular Sales $693 293.3(a) (2.0)
U.S. Vascular $423 347.0(a) ---
International Vascular $270 231.1(a) (4.3)
(a) Includes the impact of the Guidant vascular acquisition.
Note: See "Consolidated Statement of Earnings" for more information.
The following is a summary of Abbott's third-quarter 2006 sales for selected products. Quarter Ended
9/30/06 Percent Percent Percent
(dollars in U.S. Change Rest of Change Global Change
millions) Sales vs. 3Q05 World vs. 3Q05 Sales vs. 3Q05
Pharmaceutical
Products
HUMIRA $305 42.6 $236 65.7(a) $541 51.8
Depakote $319 28.9 $20 22.2 $339 28.5
Kaletra $137 28.8 $157 2.2(b) $294 13.1
TriCor $266 18.3 --- --- $266 18.3
Ultane/Sevorane $56 (35.2) $133 1.2(c) $189 (13.2)
Synthroid $132 9.3 $17 11.9 $149 9.6
Biaxin
(clarithromycin) $16 (61.6) $122 (10.5)(d) $138 (22.1)
Omnicef $135 55.6 --- --- $135 55.6
Leuprolide --- --- $58 3.7(e) $58 3.7
Lansoprazole --- --- $44 12.7(f) $44 12.7
Medical Products
Pediatric
Nutritionals $286 (1.2) $232 26.4 $518 9.5
Adult Nutritionals $266 (4.4) $203 11.0 $469 1.7
Abbott Diabetes
Care $133 (0.4) $150 10.0(g) $283 4.9
TAP Pharmaceutical
Products
(not consolidated
in Abbott's sales)
Prevacid $663 8.3 --- --- $663 8.3
Lupron $159 (11.5) --- --- $159 (11.5)
(a) Without the positive impact of exchange of 6.6 percent, HUMIRA sales
increased 59.1 percent internationally.
(b) Without the positive impact of exchange of 2.9 percent, Kaletra sales
decreased 0.7 percent internationally.
(c) Without the positive impact of exchange of 1.1 percent, Sevorane sales
increased 0.1 percent internationally.
(d) Without the positive impact of exchange of 1.5 percent, clarithromycin
sales decreased 12.0 percent internationally.
(e) Without the positive impact of exchange of 3.2 percent, leuprolide
sales increased 0.5 percent internationally.
(f) Without the positive impact of exchange of 8.0 percent, lansoprazole
sales increased 4.7 percent internationally.
(g) Without the positive impact of exchange of 3.6 percent, Abbott
Diabetes Care sales increased 6.4 percent internationally.
The following is a summary of sales for the first nine months of 2006 for selected products. Nine Months
Ended 9/30/06 Percent Percent Percent
(dollars in U.S. Change Rest of Change Global Change
millions) Sales vs. 9M05 World vs. 9M05 Sales vs. 9M05
Pharmaceutical
Products
HUMIRA $807 42.1 $617 57.6(a) $1,424 48.4
Depakote $847 20.3 $57 26.0 $904 20.6
Kaletra $375 26.7 $464 6.1(b) $839 14.4
TriCor $722 17.5 --- --- $722 17.5
Ultane/Sevorane $203 (17.4) $401 1.6(c) $604 (5.7)
Biaxin
(clarithromycin) $95 (55.1) $485 (15.1)(d) $580 (26.0)
Synthroid $356 (0.5) $47 14.5 $403 1.0
Omnicef $378 23.4 --- --- $378 23.4
Leuprolide --- --- $168 1.7(e) $168 1.7
Lansoprazole --- --- $127 12.6(f) $127 12.6
Medical Products
Pediatric
Nutritionals $834 (0.9) $668 30.1 $1,502 10.8
Adult Nutritionals $833 1.8 $573 7.8(g) $1,406 4.2
Abbott Diabetes
Care $412 7.2 $434 9.4(h) $846 8.3
TAP Pharmaceutical
Products
(not consolidated
in Abbott's sales)
Prevacid $1,891 1.2 --- --- $1,891 1.2
Lupron $499 (5.1) --- --- $499 (5.1)
(a) Without the negative impact of exchange of 3.6 percent, HUMIRA sales
increased 61.2 percent internationally.
(b) Without the negative impact of exchange of 2.1 percent, Kaletra sales
increased 8.2 percent internationally.
(c) Without the negative impact of exchange of 2.5 percent, Sevorane sales
increased 4.1 percent internationally.
(d) Without the negative impact of exchange of 3.2 percent, clarithromycin
sales decreased 11.9 percent internationally.
(e) Without the negative impact of exchange of 0.8 percent, leuprolide
sales increased 2.5 percent internationally.
(f) Without the positive impact of exchange of 6.8 percent, lansoprazole
sales increased 5.8 percent internationally.
(g) Without the negative impact of exchange of 2.0 percent, Adult
Nutritionals sales increased 9.8 percent internationally.
(h) Without the negative impact of exchange of 2.1 percent, Abbott
Diabetes Care sales increased 11.5 percent internationally.
Business Highlights
-- XIENCE(TM) V International Launch -- Earlier this month, Abbott
launched its XIENCE V drug-eluting stent (DES) system internationally.
Positive clinical results for XIENCE V from the SPIRIT II trial
announced in September demonstrated that XIENCE V showed statistically
significant superiority to the TAXUS(R) paclitaxel-eluting coronary
stent system with respect to the study's primary endpoint. XIENCE V
uses the cobalt chromium Multi-Link Vision(R) coronary stent system,
the most popular metallic stent platform in the world.
-- HUMIRA(R) Approval for Ankylosing Spondylitis -- In July, Abbott
received U.S. Food and Drug Administration (FDA) approval for HUMIRA
to treat ankylosing spondylitis, a chronic disease that causes
inflammatory back pain and stiffness. In June, Abbott received
European approval for this indication.
-- Global Regulatory Submission for HUMIRA in Crohn's Disease -- As
announced in September, Abbott submitted HUMIRA for U.S. and European
regulatory approval to treat Crohn's disease, a chronic inflammatory
disease of the gastrointestinal tract. In clinical trials, patients
treated with HUMIRA were three times more likely to achieve and
maintain clinical remission through one year than patients receiving
placebo. Crohn's disease is the fourth autoimmune disease submitted
for regulatory approval for HUMIRA in both the U.S. and Europe.
-- HUMIRA Phase III Psoriasis Data -- Abbott presented Phase III
psoriasis data that show HUMIRA to be the first biologic treatment to
demonstrate superiority over methotrexate. Eighty percent of patients
treated with HUMIRA achieved at least a 75 percent improvement in
disease severity after 16 weeks of treatment. An estimated 125
million people worldwide suffer from psoriasis, a chronic, autoimmune
skin disease.
-- ABBOTT PRISM(R) Agreement -- Abbott Diagnostics signed an agreement
with the American Red Cross to supply ABBOTT PRISM fully automated
blood screening instruments. The American Red Cross is a leader in
the blood screening industry, testing 7 million units of blood
annually at its five U.S. laboratories.
-- i-STAT(R) BNP Approval -- In July, Abbott received FDA approval to
market its i-STAT BNP cartridge, a new point of care diagnostic test
to assess the patient levels of BNP. BNP is a protein released in the
bloodstream during congestive heart failure. The BNP cartridge is
designed for use with the i-STAT System, a market-leading automated
hand-held blood analyzer.
-- Harmony Retractor(TM) Launch -- In September, Abbott Spine launched
the Harmony Retractor Minimally Invasive Access System, a new
instrument that provides surgeons access to the spine through a small,
tissue-sparing incision. Each of the instrument's four blades can be
retracted and pivoted independently, providing customized access to
the surgical location.
Abbott issues earnings-per-share guidance for the fourth-quarter 2006
For the first time, Abbott is announcing earnings-per-share guidance of $0.73 to $0.75 for the fourth quarter, excluding specified items. As a result, Abbott's earnings-per-share guidance for the full-year 2006 is $2.50 to $2.52, also excluding specified items, within the range previously forecast. Abbott forecasts specified items for the full-year 2006 of $0.39 per share, with $0.35 per share incurred in the first nine months of 2006 and $0.04 expected in the fourth-quarter 2006, associated with the Guidant vascular acquisition and previously announced cost reduction initiatives. Including these specified items, projected earnings per share under GAAP would be $2.11 to $2.13 for the full-year 2006 and $0.69 to $0.71 for the fourth quarter. Abbott declares quarterly dividend and announces share repurchase program On Sept. 8, 2006, the board of directors of Abbott declared the company's quarterly common dividend of 29.5 cents per share. The cash dividend is payable Nov. 15, 2006, to shareholders of record at the close of business on Oct. 13, 2006. This marks the 331st consecutive dividend paid by Abbott since 1924. The board of directors also authorized a share repurchase program of up to $2.5 billion. Abbott is a global, broad-based health care company devoted to the discovery, development, manufacture and marketing of pharmaceuticals and medical products, including nutritionals, devices and diagnostics. The company employs 65,000 people and markets its products in more than 130 countries. Abbott's news releases and other information are available on the company's Web site at http://www.abbott.com/ . Abbott will webcast its live third-quarter earnings conference call through its Investor Relations Web site at http://www.abbottinvestor.com/ at 8 a.m. Central time today. An archived edition of the call will be available after 11 a.m. Central time. Private Securities Litigation Reform Act of 1995 -
A Caution Concerning Forward-Looking Statements
Some statements in this news release may be forward-looking statements for the purposes of the Private Securities Litigation Reform Act of 1995. We caution that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated. Economic, competitive, governmental, technological and other factors that may affect Abbott's operations are discussed in Item 1A, "Risk Factors," and Exhibit 99.1 to our Annual Report on Securities and Exchange Commission Form 10-K for the year ended Dec. 31, 2005 and in Item 1A, "Risk Factors," to our Quarterly Report on Securities and Exchange Commission Form 10-Q for the period ended March 31, 2006, and are incorporated by reference. We undertake no obligation to release publicly any revisions to forward-looking statements as the result of subsequent events or developments. Abbott Laboratories and Subsidiaries
Consolidated Statement of Earnings
Third Quarter Ended September 30, 2006 and 2005
(unaudited)
Percent
2006 2005 Change
Net Sales $5,573,770,000 $5,383,995,000 3.5 a)
Cost of products sold 2,391,218,000 2,677,188,000 (10.7) a) b)
Research and development 617,625,000 448,869,000 37.6 b)
Acquired in-process research
and development 214,000,000 17,131,000 n/m
Selling, general and
administrative 1,661,761,000 1,410,127,000 17.8 b)
Total Operating Cost and
Expenses 4,884,604,000 4,553,315,000 7.3
Operating earnings 689,166,000 830,680,000 (17.0)
Net interest expense 86,884,000 40,360,000 115.3
Net foreign exchange (gain)
loss 10,231,000 8,013,000 27.7
(Income) from TAP
Pharmaceutical Products Inc.
joint venture (121,469,000) (115,644,000) 5.0
Other (income) expense, net (12,797,000) 2,281,000 n/m c)
Earnings before taxes 726,317,000 895,670,000 (18.9)
Taxes on earnings 10,475,000 214,961,000 (95.1) d)
Net Earnings $715,842,000 $680,709,000 5.2 b)
Net Earnings Excluding
Specified Items, as described
below $898,838,000 $903,395,000 (0.5) b) e)
Diluted Earnings Per Common
Share $0.46 $0.44 4.5 b)
Diluted Earnings Per Common
Share Excluding Specified
Items, as described below $0.58 $0.58 --- b) e)
Diluted Earnings Per Common
Share Excluding Specified
Items and Incremental Stock
Compensation Expense, as
described below $0.61 $0.58 5.2 b) e)
Average Number of Common Shares
Outstanding Plus Dilutive
Common Stock Options and
Awards 1,541,988,000 1,563,526,000
a) Adjusting both periods for the amendment of the Boehringer Ingelheim
(BI) distribution agreement, net sales increased by 14.9 percent. The
decline in Cost of products sold in 2006 was primarily due to the
amended BI agreement.
b) 2006 results include incremental stock compensation expense that was
not required under Generally Accepted Accounting Principles in 2005.
Incremental stock compensation expense in 2006 totaled $40 million,
after-tax, or $0.03 per share. See Q&A Answer 4 for stock compensation
expense detail by Consolidated Statement of Earnings line item.
c) The increase in Other (income) expense, net over the prior year
reflects a fair-value adjustment for the gain-sharing aspect of the
Boston Scientific stock purchase, which was classified as a specified
item and excluded from ongoing results, as discussed in footnote e
below.
d) 2006 Taxes on earnings includes a favorable adjustment to tax expense
of $132 million, or $0.09 per share, as a result of the resolution of
prior years' tax audits, which was classified as a specified item and
excluded from ongoing results, as discussed in footnote e below.
e) 2006 Net Earnings Excluding Specified Items excludes after-tax charges
of $133 million, or $0.09 per share, for acquired in-process research
and development related to the Guidant acquisition, $69 million, or
$0.05 per share, for costs associated with Abbott's decision to
discontinue the commercial development of the ZoMaxx drug-eluting
stent, $53 million or $0.03 per share, for a philanthropic contribution
to the Abbott Fund and $77 million, or $0.05 per share, for cost
reduction/integration activities and other, primarily related to the
Guidant acquisition. These specified items were partially offset by an
after-tax gain of ($17 million), or ($0.01) per share, for a fair-value
adjustment for the gain-sharing aspect of the Boston Scientific stock
purchase and a favorable adjustment to tax expense of ($132 million),
or ($0.09) per share, as a result of the resolution of prior years' tax
audits.
2005 Net Earnings Excluding Specified Items excludes after-tax charges
of $154 million, or $0.10 per share, relating to cost reduction
initiatives, $44 million or $0.03 per share, relating to an increase in
a bad debt reserve associated with an unfavorable court ruling,
$25 million, or $0.01 per share, relating to acquired in-process
research and development relating to two small medical products
transactions, as well as acquisition integration costs and other costs.
NOTE: See attached questions and answers section for further
explanation of Consolidated Statement of Earnings line items.
n/m = Percent change is not meaningful.
Abbott Laboratories and Subsidiaries
Consolidated Statement of Earnings
Nine Months Ended September 30, 2006 and 2005
(unaudited)
Percent
2006 2005 Change
Net Sales $16,258,353,000 $16,290,474,000 (0.2) a)
Cost of products sold 6,949,535,000 7,831,554,000 (11.3) a) b)
Research and development 1,659,104,000 1,330,783,000 24.7 b)
Acquired in-process and
collaborations research and
development 707,000,000 17,131,000 n/m
Selling, general and
administrative 4,646,573,000 4,049,540,000 14.7 b)
Total Operating Cost and
Expenses 13,962,212,000 13,229,008,000 5.5
Operating earnings 2,296,141,000 3,061,466,000 (25.0)
Net interest expense 203,086,000 125,874,000 61.3
Net foreign exchange (gain)
loss 17,638,000 14,535,000 21.3
(Income) from TAP
Pharmaceutical Products
Inc. joint venture (357,283,000) (305,642,000) 16.9
Other (income) expense, net (85,770,000) 6,703,000 n/m c)
Earnings before taxes 2,518,470,000 3,219,996,000 (21.8)
Taxes on earnings 325,501,000 824,347,000 (60.5)
Net Earnings $2,192,969,000 $2,395,649,000 (8.5) b)
Net Earnings Excluding
Specified Items, as
described below $2,727,860,000 $2,731,590,000 (0.1) b) d)
Diluted Earnings Per Common
Share $1.43 $1.53 (6.5) b)
Diluted Earnings Per Common
Share Excluding Specified
Items, as described below $1.77 $1.74 1.7 b) d)
Diluted Earnings Per Common
Share Excluding Specified
Items and Incremental Stock
Compensation Expense, as
described below $1.90 $1.74 9.2 b) d)
Average Number of Common
Shares Outstanding Plus
Dilutive Common Stock
Options and Awards 1,537,780,000 1,567,566,000
a) Adjusting both periods for the amendment of the Boehringer Ingelheim
(BI) distribution agreement, net sales increased by 10.5 percent. The
decline in Cost of products sold in 2006 was primarily due to the
amended BI agreement.
b) 2006 results include incremental stock compensation expense that was
not required under Generally Accepted Accounting Principles in 2005.
Incremental stock compensation expense in 2006 totaled $187 million,
after-tax, or $0.12 per share. See Q&A Answer 4 for stock compensation
expense detail by Consolidated Statement of Earnings line item.
c) The increase in Other (income) expense, net over the prior year
reflects fair-value adjustments for the gain-sharing aspect of the
Boston Scientific stock purchase, which was classified as a specified
item and excluded from nine months ongoing results, as discussed in
footnote d below.
d) 2006 Net Earnings Excluding Specified Items excludes after-tax charges
of $438 million, or $0.29 per share, for acquired in-process and
collaborations research and development, $69 million, or $0.05 per
share, for costs associated with Abbott's decision to discontinue the
commercial development of the ZoMaxx drug-eluting stent, $53 million or
$0.03 per share, for a philanthropic contribution to the Abbott Fund
and $178 million, or $0.12 per share, for cost reduction/integration
activities and other, primarily related to the Guidant acquisition.
These specified items were partially offset by an after-tax gain of
($71 million), or ($0.05) per share for fair-value adjustments for the
gain sharing aspect of the Boston Scientific stock purchase and a
favorable adjustment to tax expense of ($132 million), or ($0.09) per
share, as a result of the resolution of prior years' tax audits.
2005 Net Earnings Excluding Specified Items excludes after-tax charges
of $175 million, or $0.11 per share, relating to cost reduction
initiatives, $52 million, or $0.03 per share, relating to acquisition,
integration, and other charges, $44 million, or $0.03 per share,
relating to an increase in a bad debt reserve associated with an
unfavorable court ruling, and $13 million, or $0.01 per share for
acquired in-process research and development. 2005 also excludes
$52 million, or $0.03 per share, related to tax expense associated with
the repatriation of foreign earnings.
NOTE: See attached questions and answers section for further
explanation of Consolidated Statement of Earnings line items.
n/m = Percent change is not meaningful.
Questions and Answers
Q1) What impacted total sales growth?
A1) Total sales growth for the third quarter was 14.9 percent, including
a 0.9 percent favorable impact of exchange rates and adjusted for
sales from the Boehringer Ingelheim (BI) distribution agreement in
both periods. Strong results in both pharmaceutical products
(adjusted for BI) and medical products drove the performance this
quarter. Reported sales were $5.6 billion, up 3.5 percent,
reflecting the BI impact.
As announced in August 2005, we amended our co-promotion and
distribution agreement for the three BI products: Mobic, Flomax and
Micardis. As of Jan. 1, 2006, Abbott no longer distributes these
products and no longer records sales for distribution activities.
Although this change reduces reported 2006 sales growth, it also
results in significant improvements in the gross margin ratio, as
discussed in Q&A Answer 7. Abbott earns a small residual commission
related to these products in 2006.
Q2) What drove double-digit pharmaceutical sales growth, as adjusted for
the BI products?
A2) U.S. pharmaceutical sales growth of nearly 17 percent, adjusted for
the impact of the amended BI agreement, was led by double-digit
increases in HUMIRA, Omnicef, Depakote, Kaletra and TriCor. HUMIRA
increased 43 percent in the United States as the product continued
to gain market share in both the rheumatology and dermatology
self-injectable biologics markets. Kaletra sales in the United
States increased nearly 30 percent, driven by a strong uptake of the
new tablet formulation. Reported U.S. pharmaceutical sales were down
15.8 percent, reflecting the BI impact.
In addition, sales of Abbott's international pharmaceuticals
increased 4.7 percent during the quarter, including a 2.3 percent
favorable impact from exchange. International growth was favorably
impacted by the continued strength of HUMIRA, with sales this
quarter up 66 percent including the favorable impact of exchange.
Q3) What drove double-digit medical products sales growth?
A3) Medical Products sales growth of 20 percent was led by International
Nutritionals and Abbott Vascular, with sales of $351 million, up
significantly from the prior year, including the contribution from
the Guidant acquisition. Strong performance in Abbott's base
vascular business continued, driven by the continued successful U.S.
launch of the StarClose vascular closure device as well as the
performance of Abbott's carotid stent. The U.S. Diagnostics business
delivered approximately 10 percent sales growth driven by the launch
of the ABBOTT PRISM blood-screening system and double-digit sales
growth in Abbott's Molecular and Point of Care businesses.
Q4) How did stock compensation expense impact the quarter?
A4) Third-quarter and year-to-date 2006 earnings per share include
incremental stock compensation expense of $0.03 and $0.12 per share,
respectively, that was included in the various line items of the
Consolidated Statement of Earnings, as follows (in millions):
3Q06 9M06
Cost of products sold $9 $28
R&D $14 $59
SG&A $29 $158
Pre-tax Total $52 $245
Taxes $12 $58
After-tax Total $40 $187
Per Share $0.03 $0.12
We continue to forecast $0.15 to $0.16 of incremental stock
compensation expense for the full-year 2006. As a reminder, most
stock compensation expense was not charged to earnings under GAAP
prior to 2006.
Q5) What drove the strong double-digit increase in R&D and SG&A this
quarter?
A5) On a reported basis, R&D investment increased nearly 40 percent this
quarter, including specified items, stock compensation expense and
the impact from the Guidant acquisition. Excluding these items, R&D
investment was strong, exceeding our forecast and reflecting
continued investment in our broad-based pipeline, including vascular
products and HUMIRA.
Reported SG&A expense increased 18 percent this quarter, also
including specified items, stock compensation expense and the impact
from the Guidant acquisition. Adjusting for the impact of these
items, SG&A expense also exceeded our forecast, driven by continued
spending on new and ongoing promotional initiatives, including new
indications for HUMIRA.
Q6) How did specified items and stock compensation expense affect
reported results?
A6) Specified items and stock compensation expense impacted
third-quarter Net Earnings as follows (dollars in millions,
except earnings-per-share data):
3Q06 3Q05
Earnings Earnings
Pre-tax After-tax EPS Pre-tax After-tax EPS
As reported $726 $716 $0.46 $896 $681 $0.44
Adjusted for
specified items:
Acquired in-
process R&D $214 $133 $0.09 $17 $13 $0.01
Bad debt reserve --- --- --- $58 $44 $0.03
Philanthropic
contribution $70 $53 $0.03 --- --- ---
Product
discontinuation $90 $69 $0.05 --- --- ---
Cost reduction/
integration
activities and
other $102 $77 $0.05 $218 $165 $0.10
Tax audit
resolution --- ($132) ($0.09) --- --- ---
Guidant
acquisition
financial
instrument
(gain) ($23) ($17) ($0.01) --- --- ---
Excluding
specified
items $1,179 $899 $0.58 $1,189 $903 $0.58
Add back
incremental
stock
compensation
expense $52 $40 $0.03 --- --- ---
As adjusted $1,231 $939 $0.61 $ 1,189 $903 $0.58
The tax audit resolution reflects a reduction in taxes on earnings
resulting from the resolution of prior years' tax audits. This has
been reflected as a reduction in the Taxes on earnings line item in
the Consolidated Statement of Earnings.
The pre-tax impact of the remaining specified items by Consolidated
Statement of Earnings line item is as follows (dollars in millions):
3Q06
Cost of Acquired Other
Products in-process (Income)
Sold R&D R&D SG&A Expense
As reported $2,391 $618 $214 $1,662 ($13)
Adjusted for
specified
items:
Guidant
acquisition
financial
instrument
(gain) --- --- --- --- ($23)
Acquired in-
process R&D --- --- $214 --- ---
Philanthropic
contribution --- --- --- $70 ---
Product
discontinuation $44 $46 --- --- ---
Cost reduction/
integration
activities and
other $42 --- --- $48 $12
As adjusted $2,305 $572 --- $1,544 ($2)
The third-quarter 2006 specified items above are primarily related
to the Guidant vascular acquisition and the previously announced
initiatives to reduce costs and improve gross margins. Acquired
in-process R&D is related to the Guidant vascular acquisition and
represents the final adjustment to the estimate recorded last
quarter based on third-party appraisal work; as noted in the
second-quarter 2006 earnings release and Form 10-Q, the amount
recorded last quarter was an estimate. The gain associated with the
Guidant acquisition financial instrument reflects the gain-sharing
aspect of the Boston Scientific stock purchase, which was adjusted
to fair-value in the quarter and reflected as a specified item. The
philanthropic contribution reflects an incremental contribution to
the Abbott Fund in the third quarter. Product discontinuation is
related to costs associated with Abbott's decision to discontinue
commercial development of the ZoMaxx drug-eluting stent.
Q7) How does the third-quarter gross margin profile compare to the prior
year?
A7) The adjusted gross margin ratio, excluding specified items and stock
compensation expense, improved 540 basis points this quarter from
the prior year to 58.8 percent. Gross margin before and after
specified items and stock compensation expense is shown below
(dollars in millions):
3Q06 3Q05
Cost of Gross Cost of Gross
Products Gross Margin Products Gross Margin
Sold Margin % Sold Margin %
As reported $2,391 $3,183 57.1% $2,677 $2,707 50.3%
Adjust for
incremental
stock
compensation
expense ($9) $9 0.2% --- --- ---
Excluding stock
compensation
expense $2,382 $3,192 57.3% $2,677 $2,707 50.3%
Adjust for
specified items:
Product
discontinuation ($44) $44 0.8% --- --- ---
Cost reduction/
integration
activities and
other ($42) $42 0.7% ($166) $166 3.1%
As adjusted $2,296 $3,278 58.8% $2,511 $2,873 53.4%
The year-over-year improvement in the adjusted gross margin ratio
resulted primarily from the amendment to the BI agreement and, to a
lesser extent, product mix and our ongoing efforts to streamline
operations and reduce costs. The gross margin ratio this quarter
exceeded our original expectations, due, in part, to a better than
expected contribution from the Guidant vascular business and
improved product mix.
Q8) What was the tax rate in the quarter?
A8) The tax rate for ongoing operations, excluding specified items, this
quarter was 23.8 percent, in-line with our forecast of 23.5 to
24.0 percent. The reported tax rate is reconciled to the ongoing
rate below:
3Q06
Pre-tax Income Tax
Income Tax Rate
As reported $726 $10 1.4%
Tax audit resolution --- $132 ---
Other specified items $453 $138 30.5%
Excluding specified items $1,179 $280 23.8%
Q9) How did the TAP joint venture perform in the quarter?
A9) Income from the TAP joint venture of $121 million was in-line with
our expectations. Sales in the quarter were also in-line with
expectations, including Prevacid sales, which increased more than
8 percent, partially offset by a decline in Lupron sales. Abbott
continues to forecast full-year 2006 income from the TAP joint
venture of $450 million to $475 million.
Q10) Why did Net Interest Expense increase from the prior year?
A10) Net Interest Expense increased over the prior year as a result of
debt related to the Guidant vascular acquisition.
Company News On-Call: http://www.prnewswire.com/comp/110328.html Website: http://www.abbott.com/Website: http://www.abbottinvestor.com/ |
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