Abbott Reports Strong Fourth-Quarter Results and Record Operating Cash Flow in 2006
- Sales Growth of 14.5 Percent in the Fourth Quarter, as Adjusted -ABBOTT PARK, Ill., January 24, 2007 /PRNewswire-FirstCall/ -- Abbott today announced financial results for the fourth quarter and full year ended Dec. 31, 2006.
-- Abbott's earnings per share, excluding specified items, for the fourth
quarter were $0.75, at the high end of the company's previous guidance
range of $0.73 to $0.75. Diluted earnings per share under U.S.
Generally Accepted Accounting Principles (GAAP) were a loss of
($0.31), which contains acquisition-related costs, including acquired
in-process research and development of $0.82 per share from the Kos
acquisition.
-- In the fourth quarter, worldwide sales increased 14.5 percent,
adjusting both periods for the amendment of the Boehringer Ingelheim
(BI) distribution agreement and including a favorable 1.5 percent
effect of exchange rates. Reported worldwide sales were $6.2 billion,
up 2.8 percent.
-- U.S. pharmaceutical sales increased 9.9 percent in the quarter,
adjusting both periods for the BI amendment, driven by continued
success in HUMIRA, which achieved full-year worldwide sales of more
than $2 billion. U.S. pharmaceutical sales, as reported, decreased
18.2 percent, reflecting the BI impact.
-- Medical Products sales increased 22.7 percent, including $389 million
from Abbott Vascular and double-digit growth in International
Nutritionals and Abbott Molecular.
-- Operating cash flow reached a record $5.3 billion in 2006.
-- The company expects 2007 global sales of HUMIRA to exceed
$2.7 billion.
"2006 was a highly productive and successful year for Abbott," said Miles D. White, chairman and chief executive officer, Abbott. "We completed several major transformational changes that significantly strengthened the mix of our broad-based portfolio as well as the diversity of our strong cash flows. The strategic actions we've taken over the last seven to eight years have positioned Abbott for higher growth and consistent double-digit earnings performance."
The following is a summary of fourth-quarter 2006 sales for each of Abbott's major operating divisions.
Sales Summary - % Change Impact of
Quarter Ended 12/31/06 of all Exchange
4Q06 % Change non-BI on %
($ millions) vs. 4Q05 Products Change
Total Sales $6,218 2.8 14.5 1.5
Total U.S. Sales $3,256 (6.5) 13.7 ---
Total International Sales $2,962 15.5 3.6
Worldwide Pharmaceutical Sales $3,537 (8.2) 9.4 1.4
U.S. Pharmaceuticals $1,978 (18.2) 9.9 ---
International
Pharmaceuticals (AI) $1,559 8.8 3.8
Worldwide Nutritional Sales $1,067 9.3 1.2
U.S. Nutritionals (Ross) $624 2.8 ---
International
Nutritionals (ANI) $443 19.9 3.2
Worldwide Diagnostics Sales $1,052 6.4 2.5
U.S. Diagnostics $342 6.3 ---
International Diagnostics $710 6.5 3.7
Worldwide Vascular Sales $389 406.4(a) 1.7
U.S. Vascular $224 384.1(a) ---
International Vascular $165 440.2(a) 4.3
(a) Includes the impact of the Guidant vascular acquisition.
Note: See "Consolidated Statement of Earnings" for more information.
The following is a summary of 2006 sales for each of Abbott's major
operating divisions.
Sales Summary - % Change Impact of
Year Ended 12/31/06 of all Exchange
FY06 % Change non-BI on %
($ millions) vs. FY05 Products Change
Total Sales $22,476 0.6 11.6 (0.2)
Total U.S. Sales $11,534 (7.5) 12.3 ---
Total International Sales $10,942 10.9 (0.5)
Worldwide Pharmaceutical Sales $12,395 (9.5) 7.8 (0.3)
U.S. Pharmaceuticals $6,550 (19.5) 10.1 ---
International
Pharmaceuticals (AI) $5,845 5.3 (0.7)
Worldwide Nutritional Sales $4,313 9.6 0.3
U.S. Nutritionals (Ross) $2,629 4.2 ---
International
Nutritionals (ANI) $1,684 19.1 0.8
Worldwide Diagnostics Sales $3,979 5.9 (0.5)
U.S. Diagnostics $1,346 7.5 ---
International Diagnostics $2,633 5.1 (0.7)
Worldwide Vascular Sales $1,082 327.7(a) (0.9)
U.S. Vascular $647 359.2(a) ---
International Vascular $435 288.0(a) (1.9)
(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 fourth-quarter 2006 sales for selected products.
Quarter Ended 12/31/06 Percent Percent Percent
(dollars in millions) U.S. Change Rest of Change Global Change
Sales vs. 4Q05 World vs. 4Q05 Sales vs. 4Q05
Pharmaceutical Products
HUMIRA $370 31.0 $250 57.6 (a) $620 40.6
Depakote $384 14.9 $21 21.6 $405 15.2
TriCor $326 4.3 --- --- $326 4.3
Kaletra $138 10.8 $159 7.7 (b) $297 9.1
Omnicef $259 36.9 --- --- $259 36.9
Biaxin (clarithromycin) $56 (40.0) $179 (4.7)(c) $235 (16.4)
Ultane/Sevorane $58 (36.4) $137 (3.8)(d) $195 (16.5)
Synthroid $115 (18.7) $17 14.5 $132 (15.5)
Leuprolide --- --- $61 13.6 (e) $61 13.6
Lansoprazole --- --- $46 11.4 (f) $46 11.4
Medical Products
Pediatric Nutritionals $294 14.7 $231 24.7 $525 18.9
Adult Nutritionals $263 2.2 $212 15.1 $475 7.5
Abbott Diabetes Care $135 (2.1) $155 4.9 (g) $290 1.5
TAP Pharmaceutical
Products
(not consolidated in
Abbott's sales)
Prevacid $709 12.1 --- --- $709 12.1
Lupron $164 (5.5) --- --- $164 (5.5)
(a) Without the positive impact of exchange of 8.5 percent, HUMIRA sales
increased 49.1 percent internationally.
(b) Without the positive impact of exchange of 4.7 percent, Kaletra sales
increased 3.0 percent internationally.
(c) Without the positive impact of exchange of 3.2 percent,
clarithromycin sales decreased 7.9 percent internationally.
(d) Without the positive impact of exchange of 2.9 percent, Sevorane
sales decreased 6.7 percent internationally.
(e) Without the positive impact of exchange of 4.0 percent, leuprolide
sales increased 9.6 percent internationally.
(f) Without the positive impact of exchange of 4.0 percent, lansoprazole
sales increased 7.4 percent internationally.
(g) Without the positive impact of exchange of 4.6 percent, Abbott
Diabetes Care sales increased 0.3 percent internationally.
The following is a summary of sales for the full-year 2006 for selected
products.
Year Ended 12/31/06 Percent Percent Percent
(dollars in millions) U.S. Change Rest of Change Global Change
Sales vs. FY05 World vs. FY05 Sales vs. FY05
Pharmaceutical Products
HUMIRA $1,176 38.4 $868 57.6 $2,044 45.9
Depakote $1,230 18.5 $78 24.8 $1,308 18.9
Kaletra $512 22.0 $623 6.5 (a) $1,135 13.0
TriCor $1,048 13.1 --- --- $1,048 13.1
Biaxin (clarithromycin) $151 (50.5) $665 (12.5)(b) $816 (23.4)
Ultane/Sevorane $260 (22.5) $539 0.2 (c) $799 (8.6)
Omnicef $637 28.6 --- --- $637 28.6
Synthroid $470 (5.7) $64 14.5 $534 (3.6)
Leuprolide --- --- $230 4.6 (d) $230 4.6
Lansoprazole --- --- $173 12.3 (e) $173 12.3
Medical Products
Pediatric Nutritionals $1,128 2.7 $898 28.7 $2,026 12.8
Adult Nutritionals $1,097 1.9 $785 9.7 $1,882 5.0
Abbott Diabetes Care $547 4.8 $589 8.2 (f) $1,136 6.5
TAP Pharmaceutical
Products
(not consolidated in
Abbott's sales)
Prevacid $2,600 4.0 --- --- $2,600 4.0
Lupron $662 (5.2) --- --- $662 (5.2)
(a) Without the negative impact of exchange of 0.4 percent, Kaletra sales
increased 6.9 percent internationally.
(b) Without the negative impact of exchange of 1.6 percent,
clarithromycin sales decreased 10.9 percent internationally.
(c) Without the negative impact of exchange of 1.0 percent, Sevorane
sales increased 1.2 percent internationally.
(d) Without the positive impact of exchange of 0.4 percent, leuprolide
sales increased 4.2 percent internationally.
(e) Without the positive impact of exchange of 6.1 percent, lansoprazole
sales increased 6.2 percent internationally.
(f) Without the negative impact of exchange of 0.3 percent, Abbott
Diabetes Care sales increased 8.5 percent internationally.
Business Highlights
-- FreeStyle(R) Freedom(TM) Approval -- In March, Abbott received U.S.
Food and Drug Administration (FDA) regulatory approval to market
FreeStyle Freedom, a blood glucose monitoring system with a five-
second average testing time and a large, easy-to-read display.
FreeStyle Freedom offers virtually pain-free testing, using a blood
sample size of 0.3 microliter, the smallest sample size required of
any blood glucose monitoring product on the market.
-- Guidant Vascular Acquisition -- In April, Abbott completed its
acquisition of Guidant's vascular business, creating a leading global
vascular device business with a broad product portfolio, innovative
research and development programs, and leading manufacturing and
commercial operations.
-- HUMIRA(R) Ankylosing Spondylitis (AS) Approval -- Abbott received U.S.
and European approval for HUMIRA to treat AS, the third disease state
indication for HUMIRA. Ankylosing spondylitis is a chronic disease
that causes inflammatory back pain and stiffness.
-- Kaletra(R) Tablets Approval -- The European Commission approved the
tablet formulation of Kaletra, Abbott's leading HIV protease
inhibitor. Approved in the United States in 2005 and developed using
proprietary Meltrex(TM) melt-extrusion technology, Kaletra tablets
offer patients improved convenience over the capsule formulation,
including a reduced pill count, no refrigeration requirements and the
ability to take Kaletra with or without food.
-- Global Regulatory Submission for HUMIRA in Crohn's Disease -- 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. Abbott's U.S. submission was granted
6-month Priority Review status by the FDA. Crohn's disease is the
fourth autoimmune disease submitted for regulatory approval for
HUMIRA.
-- XIENCE(TM) V International Launch -- In October, Abbott launched its
XIENCE V drug-eluting stent (DES) system internationally. Positive
clinical results for XIENCE V from the SPIRIT II trial 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 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.
-- Kos Pharmaceuticals Acquisition -- In December, Abbott successfully
completed the acquisition of Kos Pharmaceuticals. Kos complements
Abbott's existing franchise in the $20 billion global dyslipidemia
market and strengthens the late-stage and mid-term pharmaceutical
pipeline with opportunities in asthma, inhaled insulin and cholesterol
management.
-- Divestiture of Core Laboratory Diagnostics Business -- In January
2007, Abbott announced the sale of its core laboratory and point of
care diagnostics businesses to GE for $8.13 billion. This divestiture
does not include Abbott's Molecular Diagnostics and Diabetes Care
businesses.
Abbott issues earnings per share and sales growth guidance for 2007
For the first time, Abbott is announcing guidance for earnings per share excluding specified items of $2.77 to $2.83 for the full-year 2007. This guidance reflects the recently announced sale of Abbott's core laboratory and point of care diagnostic businesses and includes both the results of these businesses while owned by Abbott and the redeployment of proceeds after closing the transaction, which is expected in the first half of 2007. Abbott is forecasting 2007 sales growth of 13 percent to 15 percent.
Abbott forecasts a net gain from specified items for the full-year 2007 of $2.00 per share, which includes a gain of approximately $2.25 per share related to the sale of the core laboratory and point of care diagnostic businesses offset by costs of $0.25 per share, primarily associated with acquisition integration and cost reduction initiatives. Including these net specified items, projected earnings per share under GAAP would be $4.77 to $4.83 for the full-year 2007.
These forecasts exclude any one-time costs associated with the sale of the core laboratory and point of care diagnostic businesses, which will be provided at a later date.
Abbott declares quarterly dividend
On Dec. 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 Feb. 15, 2007, to shareholders of record at the close of business on Jan. 12, 2007. This marks the 332nd consecutive dividend paid by Abbott since 1924.
About Abbott
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 fourth-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
Abbott Laboratories and Subsidiaries
Consolidated Statement of Earnings
Fourth Quarter Ended December 31, 2006 and 2005
(unaudited)
Percent
2006 2005 Change
Net Sales $6,217,969,000 $6,047,334,000 2.8 a)
Cost of products sold 2,865,612,000 2,809,557,000 2.0 b)
Research and
development 596,167,000 490,392,000 21.6 b)
Acquired in-process and
collaborations R&D 1,307,000,000 --- n/m
Selling, general and
administrative 1,703,112,000 1,446,583,000 17.7 b)
Total Operating Cost
and Expenses 6,471,891,000 4,746,532,000 36.3
Operating (loss)
earnings (253,922,000) 1,300,802,000 n/m
Net interest expense 89,261,000 27,788,000 221.2
Net foreign exchange
(gain) loss 10,803,000 7,269,000 48.6
(Income) from TAP
Pharmaceutical Products
Inc. joint venture (118,528,000) (135,746,000) (12.7)
Other (income) expense,
net 6,642,000 1,567,000 n/m
(Loss) Earnings before
taxes (242,100,000) 1,399,924,000 n/m
Taxes on earnings 234,114,000 423,508,000 (44.7)
Net (Loss) Earnings $(476,214,000) $976,416,000 n/m b)
Net Earnings Excluding
Specified Items, as
described below $1,152,966,000 $1,176,934,000 (2.0) b) c)
Diluted (Loss) Earnings
Per Common Share $(0.31) $0.63 n/m b)
Diluted Earnings Per
Common Share Excluding
Specified Items, as
described below $0.75 $0.76 (1.3) b) c)
Diluted Earnings Per
Common Share Excluding
Specified Items and
Incremental Stock
Compensation Expense,
as described below $0.78 $0.76 2.6 b) c)
Average Number of Common
Shares Outstanding Plus
Dilutive Common Stock
Options and Awards 1,533,489,000 1,554,211,000
a) Adjusting both periods for the amendment of the Boehringer Ingelheim
(BI) distribution agreement, net sales increased by 14.5 percent.
b) 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) 2006 Net Earnings Excluding Specified Items excludes after-tax charges
of $1.3 billion, or $0.85 per share, for acquired in-process and
collaborations research and development primarily related to the Kos
acquisition, $110 million, or $0.07 per share, for costs associated
with cost reduction initiatives, $74 million, or $0.05 per share,
primarily for costs associated with an asset impairment related to the
generic introduction of Biaxin XL, $69 million, or $0.04 per share, for
litigation associated with the settlement of an intellectual property
matter and $76 million, or $0.05 per share, for acquisition integration
activities and other.
2005 Net Earnings Excluding Specified Items excludes $194 million, or
$0.13 per share, related to the tax expense associated with
repatriation of foreign earnings in connection with the American Jobs
Creation Act of 2004, after-tax charges of $38 million, or $0.02 per
share, related to cost reduction initiatives, $36 million, or $0.02,
per share related to litigation reserves associated with a patent
dispute resolution and $39 million, or $0.03 per share, related to
acquisition integration activities. These specified items were
partially offset by a favorable adjustment to tax expense of
$106 million, or $0.07 per share, primarily resulting from a resolution
of prior years' tax accrual requirements.
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
Twelve Months Ended December 31, 2006 and 2005
(unaudited)
Percent
2006 2005 Change
Net Sales $22,476,322,000 $22,337,808,000 0.6 a)
Cost of products
sold 9,815,147,000 10,641,111,000 (7.8) a) b)
Research and
development 2,255,271,000 1,821,175,000 23.8 b)
Acquired in-process
and collaborations
R&D 2,014,000,000 17,131,000 n/m
Selling, general and
administrative 6,349,685,000 5,496,123,000 15.5 b)
Total Operating Cost
and Expenses 20,434,103,000 17,975,540,000 13.7
Operating earnings 2,042,219,000 4,362,268,000 (53.2)
Net interest expense 292,347,000 153,662,000 90.3
Net foreign exchange
(gain) loss 28,441,000 21,804,000 30.4
(Income) from TAP
Pharmaceutical Products
Inc. joint venture (475,811,000) (441,388,000) 7.8
Other (income)
expense, net (79,128,000) 8,270,000 n/m c)
Earnings before taxes 2,276,370,000 4,619,920,000 (50.7)
Taxes on earnings 559,615,000 1,247,855,000 (55.2)
Net Earnings $1,716,755,000 $3,372,065,000 (49.1) b)
Net Earnings Excluding
Specified Items, as
described below $3,880,826,000 $3,908,524,000 (0.7) b) d)
Diluted Earnings Per
Common Share $1.12 $2.16 (48.1) b) e)
Diluted Earnings Per
Common Share Excluding
Specified Items, as
described below $2.53 $2.50 1.2 b) d) e)
Diluted Earnings Per
Common Share Excluding
Specified Items and
Incremental Stock
Compensation Expense,
as described below $2.67 $2.50 6.8 b) d) e)
Average Number of Common
Shares Outstanding Plus
Dilutive Common Stock
Options and Awards 1,536,724,000 1,564,103,000
a) Adjusting both periods for the amendment of the Boehringer Ingelheim
(BI) distribution agreement, net sales increased by 11.6 percent. The
decline in Cost of products sold in 2006 was primarily due to the
amended BI agreement.
b) Incremental stock compensation expense in 2006 totaled $226 million,
after-tax, or $0.15 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 full-year ongoing results, as discussed in
footnote 4 below.
d) 2006 Net Earnings Excluding Specified Items excludes after-tax charges
of $1.7 billion, or $1.13 per share, for acquired in-process and
collaborations research and development, $141 million, or $0.09 per
share, for cost reduction initiatives, $220 million, or $0.14 per
share, for integration activities and other primarily related to the
Guidant acquisition, $74 million, or $0.05 per share, primarily for
costs associated with an asset impairment related to the generic
introduction of Biaxin XL, $70 million, or $0.05 per share, for costs
associated with Abbott's decision to discontinue the commercial
development of the ZoMaxx drug-eluting stent, $69 million, or $0.04 per
share, for litigation costs associated with the settlement of an
intellectual property matter and $53 million, or $0.04 per share, for a
philanthropic contribution to the Abbott Fund. These specified items
were partially offset by an after-tax gain of ($70 million), or ($0.04)
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 $234 million, or $0.15 per share, related to cost reduction
initiatives, $70 million, or $0.04 per share, related to acquisition,
integration and other charges, $44 million, or $0.03 per share, related
to an increase in a bad debt reserve associated with an unfavorable
court ruling, $36 million, or $0.02 per share, related to litigation
reserves resulting from a patent dispute resolution, and $13 million,
or $0.01 per share, for acquired in-process R&D. 2005 also excludes
$245 million, or $0.16 per share, related to the tax expense associated
with the repatriation of foreign earnings. These items were partially
offset by a favorable adjustment to tax expense of $106 million, or
$0.07 per share, primarily resulting from a resolution of prior years'
tax accrual requirements.
e) The sum of the four quarters in 2006 do not add to the full-year
diluted earnings per common share due to rounding.
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 & Answers
Q1) What impacted total sales growth?
A1) Total sales growth for the fourth quarter was 14.5 percent, including
a 1.5 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 $6.2 billion, up 2.8 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 distributed these
products and no longer recorded sales for distribution activities.
Although this change reduced reported 2006 sales growth, it also
resulted in significant improvement in the gross margin ratio, as
discussed in Q&A Answer 7. Abbott earned a small residual commission
related to these products in 2006.
Q2) What drove double-digit medical products sales growth?
A2) Medical Products sales growth of approximately 23 percent was led by
Abbott Vascular, which achieved sales of $389 million, up
significantly from the prior year, including the contribution from
the Guidant acquisition. Strong performance in Abbott Vascular was
driven by continued growth in vessel closure, strong carotid stent
sales and an increase in coronary stent sales. Continued double-digit
sales growth in International Nutritionals and Abbott Molecular
contributed to the strong performance in the quarter.
Q3) What drove pharmaceutical sales growth, as adjusted for the BI
products?
A3) U.S. pharmaceutical sales growth of approximately 10 percent,
adjusted for the impact of the amended BI agreement, was led by
HUMIRA, which increased more than 30 percent in the United States as
the product continued to gain market share in both the rheumatology
and dermatology self-injectable biologics markets. During the
quarter, Abbott was granted 6-month Priority Review status by the
U.S. Food and Drug Administration for HUMIRA in treating Crohn's
disease. A response from the agency is expected in the first quarter
of 2007. Kaletra sales in the United States increased nearly
11 percent, driven by continued strong uptake of the new tablet
formulation. Reported U.S. pharmaceutical sales declined
18.2 percent, reflecting the BI impact.
In addition, sales of Abbott's international pharmaceuticals
increased nearly 9 percent during the quarter, including a
3.8 percent favorable impact from exchange. International growth was
favorably impacted by the continued strength of HUMIRA, with sales
this quarter up 58 percent including the favorable impact of
exchange.
Q4) How did stock compensation expense impact the quarter and full year?
A4) Fourth-quarter and full-year 2006 earnings per share include
incremental stock compensation expense of $0.03 and $0.15 per share,
respectively, which was included in the various line items of the
Consolidated Statement of Earnings, as follows (dollars in millions,
except per-share data):
4Q06 FY06
Cost of products sold $9 $37
R&D $14 $73
SG&A $29 $187
Pre-tax total $52 $297
Taxes $12 $71
After-tax total $40 $226
Per Share $0.03 $0.15
As a reminder, most stock compensation expense was not charged to
earnings under GAAP prior to 2006.
Q5) What drove the double-digit increase in R&D and SG&A this quarter?
A5) On a reported basis, R&D investment increased 22 percent this
quarter, including specified items, stock compensation expense and
the impact from the Guidant acquisition, 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, driven by continued spending on new and
ongoing promotional initiatives, including preparation for new
indications for HUMIRA and the international launch of Xience V.
Q6) How did specified items and stock compensation expense affect
reported results?
A6) Specified items and stock compensation expense impacted
fourth-quarter Net Earnings as follows (dollars in millions, except
earnings-per-share data):
4Q06 4Q05
Earnings Earnings
After- After-
Pre-tax tax EPS Pre-tax tax EPS
As reported ($242) ($476) ($0.31) $1,400 $976 $0.63
Adjusted for specified
items:
Acquired in-process &
collaborations R&D $1,307 $1,300 $0.85 --- --- ---
Cost reduction
initiatives $144 $110 $0.07 $51 $38 $0.02
Asset impairment $98 $74 $0.05 --- --- ---
Litigation settlement $90 $69 $0.04 $47 $36 $0.02
Integration activities
and other $96 $76 $0.05 $51 $39 $0.03
Tax accrual/audit
resolution --- --- --- --- ($106) ($0.07)
Tax expense for
repatriation --- --- --- --- $194 $0.13
Excluding specified items $1,493 $1,153 $0.75 $1,549 $1,177 $0.76
Add back incremental stock
compensation expense $52 $40 $0.03 --- --- ---
As adjusted $1,545 $1,193 $0.78 $1,549 $1,177 $0.76
The pre-tax impact of the specified items by Consolidated Statement
of Earnings line item is as follows (dollars in millions):
4Q06
Acquired
Cost of in- Other
Products process (Income)
Sold R&D R&D SG&A Expense
As reported $2,866 $596 $1,307 $1,703 $6
Adjusted for specified items:
Acquired in-process &
collaborations R&D --- --- $1,307 --- ---
Asset impairment $98 --- --- --- ---
Cost reduction initiatives $107 $29 --- $8 ---
Litigation settlement $90 --- --- --- ---
Integration activities/other $33 $11 --- $46 $6
As adjusted $2,538 $556 --- $1,649 $---
The fourth-quarter 2006 specified items above are primarily related
to the Kos Pharmaceuticals and Guidant vascular acquisitions and
initiatives to reduce costs and improve gross margins. The acquired
in-process & collaborations R&D related primarily to the Kos
Pharmaceuticals acquisition is an estimate that will be finalized in
the coming months when appraisal work is completed. The asset
impairment primarily reflects costs related to the third-party
introduction of generic Biaxin XL in the fourth quarter. Cost
reduction initiatives relate to previously announced activities
designed to reduce costs and additional realignment of global
pharmaceutical operations during the quarter. The litigation
settlement is related to an intellectual property matter. Costs
associated with integration activities are related to the continuing
integration of the Guidant vascular acquisition.
Q7) How does the fourth-quarter gross margin profile compare to the prior
year?
A7) The adjusted gross margin ratio, excluding specified items and stock
compensation expense, improved sequentially from the third quarter
and was up nearly 500 basis points from the prior year to
59.3 percent, consistent with our forecast. Gross margin before and
after specified items and stock compensation expense is shown below
(dollars in millions):
4Q06 4Q05
Cost of Gross Cost of Gross
Products Gross Margin Products Gross Margin
Sold Margin % Sold Margin %
As reported $2,866 $3,352 53.9% $2,810 $3,238 53.5%
Incremental stock
compensation expense ($9) $9 0.1% --- --- ---
Excluding stock compensation
expense $2,857 $3,361 54.0% $2,810 $3,238 53.5%
Adjust for specified items:
Asset impairment ($98) $98 1.6% --- --- ---
Cost reduction initiatives ($107) $107 1.7% ($22) $22 0.4%
Litigation settlement ($90) $90 1.5% --- --- ---
Integration
activities/other ($33) $33 0.5% ($29) $29 0.5%
As adjusted $2,529 $3,689 59.3% $2,759 $3,289 54.4%
The year-over-year improvement in the adjusted gross margin ratio
resulted primarily from the amendment to the BI agreement.
Q8) What was the tax rate in the quarter?
A8) The tax rate for operations, excluding specified items, this quarter
was 22.8 percent, reflecting the impact of the R&D tax credit, which
was signed into law in December 2006. Excluding this tax credit, the
tax rate for the quarter was 23.8 percent, consistent with previous
forecasts. The reported tax rate is reconciled to the ongoing rate
below (dollars in millions):
4Q06
Pre-tax Income Tax
Income Tax Rate
As reported ($242) $234 n/m
Acquired in-process and
collaborations R&D $1,307 $6 0.5%
Other specified items $428 $100 23.3%
Excluding specified items $1,493 $340 22.8%
Impact of R&D tax credit --- $15 ---
Excluding tax credit $1,493 $355 23.8%
Q9) Why did Net Interest Expense increase from the prior year?
A9) Net Interest Expense increased over the prior year primarily as a
result of debt related to the Guidant vascular acquisition.
CONTACT: Media, Melissa Brotz, +1-847-935-3456, or Jonathon Hamilton,+1-847-935-8646, or Financial, John Thomas, +1-847-938-2655, or LarryPeepo, +1-847-935-6722, or Tina Ventura, +1-847-935-9390, all of Abbott
Web site: http://www.abbott.com/
Company News On-Call: http://www.prnewswire.com/comp/110328.html /
Ticker Symbol: (NYSE:ABT)
Terms and conditions of use apply
Copyright © 2007 PR Newswire Association LLC. All rights
reserved.
A United Business Media Company
Posted: January 2007
