ITEM 1. BUSINESS
GENERAL DEVELOPMENT OF BUSINESS
Abbott Laboratories is an Illinois corporation, incorporated in 1900. The Company's* principal business is the discovery, development, manufacture, and sale of a broad and diversified line of health care products and services.
FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS, GEOGRAPHIC AREAS, AND CLASSES OF SIMILAR PRODUCTS
Incorporated herein by reference is the footnote entitled "Industry Segment and Geographic Area Information" of the Consolidated Financial Statements in the Abbott Laboratories Annual Report for the year ended December 31, 1996 (1996 Annual Report), filed as an exhibit to this report. Also incorporated herein by reference is the text and table of sales by class of similar products included in the section of the 1996 Annual Report captioned "Financial Review."
NARRATIVE DESCRIPTION OF BUSINESS
PHARMACEUTICAL AND NUTRITIONAL PRODUCTS
Included in this segment is a broad line of adult and pediatric pharmaceuticals and nutritionals. These products are sold primarily on the prescription or recommendation of physicians or other health care professionals. The segment also includes agricultural and chemical products, bulk pharmaceuticals, and consumer products.
Principal pharmaceutical and nutritional products include the anti-infectives clarithromycin, sold in the United States under the trademark Biaxin-Registered Trademark- and outside the United States primarily under the trademark Klacid-Registered Trademark-, and tosufloxacin, sold in Japan under the trademark Tosuxacin-Registered Trademark-, various forms of the antibiotic erythromycin, sold primarily as PCE-Registered Trademark- or polymer coated erythromycin, Erythrocin-Registered Trademark-, and E.E.S.-Registered Trademark-, and Norvir-Registered Trademark- , a protease inhibitor for the treatment of HIV infection; agents for the treatment of epilepsy and bipolar disorder, including Depakote-Registered Trademark-; a broad line of cardiovascular products, including Loftyl-Registered Trademark-, a vasoactive agent sold outside the United States; Hytrin-Registered Trademark-, used as an anti-hypertensive and for the treatment of benign prostatic hyperplasia; Abbokinase-Registered Trademark-, a thrombolytic drug; Survanta-Registered Trademark-, a bovine derived lung surfactant; various forms of prepared infant formula, including Similac-Registered Trademark-, Isomil-Registered Trademark-, Alimentum-Registered Trademark-, and Similac NeoCare-Registered Trademark-; and other medical and pediatric nutritionals, including Ensure-Registered Trademark-, Ensure Plus-Registered Trademark-, Ensure-Registered Trademark- High Protein, Ensure-Registered Trademark- Light, Jevity-Registered Trademark-, Glucerna-Registered Trademark-, Advera-Registered Trademark-, PediaSure-Registered Trademark-, Pedialyte-Registered Trademark-, Pulmocare-Registered Trademark- and Gain-Registered Trademark-. Consumer products include the dandruff shampoo Selsun Blue-Registered Trademark-; Murine-Registered Trademark- eye care and ear care products; and Tronolane-Registered Trademark- hemorrhoid medication. Agricultural, animal health, and chemical products include plant growth regulators, including ProGibb-Registered Trademark-; herbicides; larvicides, including VectoBac-Registered Trademark-; biologically derived insecticides, including DiPel-Registered Trademark- and XenTari-Registered Trademark-; and anti-infectives, including Saraflox-Registered Trademark- and Sarafin-Registered Trademark-.
Pharmaceutical and nutritional products are generally sold directly to retailers, wholesalers, health care facilities, and government agencies. In most cases, they are distributed from Company-owned distribution centers or public warehouses. Certain products are co-marketed with other companies. In
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* As used throughout the text of this report on Form 10-K, the term "Company" refers to Abbott Laboratories, an Illinois corporation, or Abbott Laboratories and its consolidated subsidiaries, as the context requires.
certain overseas countries, some of these products are marketed and distributed through distributors. Primary marketing efforts for pharmaceutical and nutritional products are directed toward securing the prescription or recommendation of the Company's brand of products by physicians or other health care professionals. In the United States managed care purchasers, for example health maintenance organizations (HMOs) and pharmacy benefit managers, are becoming increasingly important customers. Competition is generally from other broad line and specialized health care manufacturers. A significant aspect of competition is the search for technological innovations. The introduction of new products by competitors and changes in medical practices and procedures can result in product obsolescence. In addition, the substitution of generic drugs for the brand prescribed has increased competitive pressures on pharmaceutical products.
Consumer products are promoted directly to the public by consumer advertising. These products are generally sold directly to retailers and wholesalers. Competitive products are sold by other diversified consumer and health care companies. Competitive factors include consumer advertising, scientific innovation, price, and availability of generic product forms.
Agricultural, animal health and chemical products are generally sold to agricultural distributors, animal health companies and pharmaceutical companies. Competition is primarily from chemical, animal health and agricultural companies. Competition is based on numerous factors depending on the market served. Competitive factors include product performance, quality, price, and technological advantages.
The Company is the leading worldwide producer of the antibiotic erythromycin. Ensure-Registered Trademark- is the leading medical nutritional worldwide. Similac-Registered Trademark- is a leading infant formula in the United States.
Under an agreement between the Company and Takeda Chemical Industries, Ltd. of Japan (Takeda), TAP Holdings Inc., (owned 50 percent by the Company and 50 percent by Takeda) together with its subsidiary, TAP Pharmaceuticals Inc. (TAP), develops and markets products in the United States. TAP markets Lupron-Registered Trademark-, an LH-RH analog, and Lupron Depot-Registered Trademark-, a sustained release form of Lupron-Registered Trademark- in the United States. Lupron-Registered Trademark- and Lupron Depot-Registered Trademark- are used for the palliative treatment of advanced prostate cancer, treatment of endometriosis and central precocious puberty, and for preoperative treatment of patients with anemia caused by uterine fibroids. TAP also markets Prevacid-Registered Trademark- (lansoprazole), a proton pump inhibitor, and has a co-promotion arrangement with the Company for Prevacid-Registered Trademark-. Prevacid-Registered Trademark- is indicated for short-term treatment of duodenal ulcers, esophagitis, and long-term treatment of Zollinger-Ellison syndrome, as well as the maintenance of healed erosive esophagitis. The Company also has marketing rights to certain Takeda products in select Latin American markets. The Company also markets Lupron-Registered Trademark-, Lupron Depot-Registered Trademark-, Lupron Depot-Ped-Registered Trademark-, and Prevacid-Registered Trademark- in select markets outside the United States.
HOSPITAL AND LABORATORY PRODUCTS
Hospital and laboratory products include diagnostic systems for blood banks, hospitals, commercial laboratories, alternate-care testing sites and consumers; intravenous and irrigation fluids and related administration equipment, including electronic drug delivery systems; drugs and drug delivery systems; anesthetics; critical care products; diagnostic imaging products; and other medical specialty products for hospitals and alternate-care sites. In the second and third quarters of 1996, the Company acquired, for cash, all of the outstanding shares of MediSense, Inc., a manufacturer of blood glucose self-testing systems.
The principal products included in this segment are parenteral (intravenous or I.V.) solutions and related administration equipment sold as the LifeCare-Registered Trademark- line of products, LifeShield-Registered Trademark- needleless products, and Venoset-Registered Trademark- products; irrigating fluids; parenteral nutritionals such as Aminosyn-Registered Trademark- and Liposyn-Registered Trademark-; Plum-Registered Trademark-, Omni-Flow-Registered Trademark- and Abbott AIM-Registered Trademark- electronic drug delivery systems; Abbott Pain Manager-Registered Trademark-; patient-controlled analgesia (PCA) systems; venipuncture products; hospital injectables including FirstChoice-Registered Trademark- generics; premixed I.V. drugs in various containers; ADD-Vantage-Registered Trademark- and Nutrimix-Registered Trademark- drug and nutritional delivery systems; Anne-Registered Trademark- anesthetic infusion systems; anesthetics, including Pentothal-Registered Trademark-, Amidate-Registered Trademark-, sevoflurane (sold in the United States and a few other markets as Ultane-Registered Trademark- and outside of the United States
primarily under the trademark Sevorane-Registered Trademark-), isoflurane and enflurane; Calcijex-Registered Trademark-, an injectable agent for treatment of bone disease in hemodialysis patients; critical care products including Opticath-Registered Trademark- and OptiQue-TM- advanced sensor catheters, Transpac-Registered Trademark- for hemodynamic monitoring, specialty cardiac products; and Faultless-Registered Trademark- rubber sundry products; diagnostic imaging products used in MRI (magnetic resonance imaging) and CT (computed tomography) imaging; screening tests for hepatitis B, HTLV-1, hepatitis B core, and hepatitis C; tests for detection of AIDS antibodies and antigens, and other infectious disease detection systems; tests for determining levels of abused drugs with the ADx-Registered Trademark- instrument; physiological diagnostic tests; cancer monitoring tests including tests for prostate specific antigen; laboratory tests and therapeutic drug monitoring systems such as TDx-Registered Trademark-; clinical chemistry systems such as Abbott Spectrum-Registered Trademark-, Abbott Spectrum-Registered Trademark- EPx-Registered Trademark-, Abbott Spectrum-Registered Trademark- CCx-TM-, and Quantum-TM-; AxSYM-Registered Trademark-, Commander-Registered Trademark-, IMx-Registered Trademark-, and Abbott Prism-Registered Trademark- lines of diagnostic instruments and chemical reagents used with immunoassay diagnostics; the LCx-Registered Trademark- amplified DNA probe system and reagents; Abbott Vision-Registered Trademark-, a desk-top blood analyzer; the Abbott TestPack-Registered Trademark- system for diagnostic testing; a full line of hematology systems and reagents known as the Cell-Dyn-Registered Trademark- series; and the MediSense line of blood glucose monitoring meters and test strips for diabetics including Precision Q.I.D.-TM-, the ExacTech-Registered Trademark-, the MediSense II-TM-, and the ExacTech RSG-TM-.
The Company markets hospital and laboratory products in the United States and many other countries. These products are generally distributed to wholesalers and directly to hospitals, laboratories, and physicians' offices from distribution centers maintained by the Company. Sales in the home infusion services market are also made directly to patients receiving treatment outside the hospital through marketing arrangements with hospitals and other health care providers. Overseas sales are made either directly to customers or through distributors, depending on the market served. Blood glucose monitoring meters and test strips for diabetics are sold over the counter to consumers.
The hospital and laboratory products industry segment is highly competitive, both in the United States and overseas. This segment is subject to competition in technological innovation, price, convenience of use, service, instrument warranty provisions, product performance, long-term supply contracts, and product potential for overall cost effectiveness and productivity gains. Products in this segment can be subject to rapid product obsolescence. The Company has benefitted from technological advantages of certain of its current products; however, these advantages may be reduced or eliminated as competitors introduce new products.
The Company is one of the leading domestic manufacturers of I.V. and irrigating solutions and related administration equipment, parenteral nutritional products, anesthesia products, and drug delivery systems. It is also the worldwide leader in in vitro diagnostic products, including thyroid tests, therapeutic drug monitoring, cancer monitoring tests, diagnostic tests for the detection of hepatitis and AIDS antibodies, and immunodiagnostic instruments.
INFORMATION WITH RESPECT TO THE COMPANY'S BUSINESS IN GENERAL
SOURCES AND AVAILABILITY OF RAW MATERIALS
The Company purchases, in the ordinary course of business, necessary raw materials and supplies essential to the Company's operations from numerous suppliers in the United States and overseas. There have been no recent availability problems or significant supply shortages.
PATENTS, TRADEMARKS, AND LICENSES
The Company is aware of the desirability for patent and trademark protection for its products. Accordingly, where possible, patents and trademarks are sought and obtained for the Company's products in the United States and all countries of major marketing interest to the Company. The Company owns, has applications pending for, and is licensed under a substantial number of patents. Principal trademarks and the products they cover are discussed in the Narrative Description of Business on pages 1, 2 and 3. These, and various patents which expire during the period 1997 to 2017, in the aggregate, are believed to
be of material importance in the operation of the Company's business. The Company believes that no single patent, license, trademark (or related group of patents, licenses, or trademarks), except for those related to clarithromycin, is material in relation to the Company's business as a whole. The principal patents covering clarithromycin are licensed from Taisho Pharmaceutical Co., Ltd. of Tokyo, Japan. The Uruguay Round Agreements Act implemented the Uruguay Round of the General Agreement on Tariffs and Trade (GATT) in the United States. It appears that under the intellectual property provisions of GATT the patent on the clarithromycin compound is scheduled to expire in the United States in 2005.
SEASONAL ASPECTS, CUSTOMERS, BACKLOG, AND RENEGOTIATION
There are no significant seasonal aspects to the Company's business. The incidence of certain infectious diseases which occur at various times in different areas of the world does, however, affect the demand for the Company's anti-infective products. Orders for the Company's products are generally filled on a current basis, and order backlog is not material to the Company's business. No single customer accounted for sales equaling 10 percent or more of the Company's consolidated net sales. No material portion of the Company's business is subject to renegotiation of profits or termination of contracts at the election of the government.
RESEARCH AND DEVELOPMENT
The Company spent $1,204,841,000 in 1996, $1,072,745,000 in 1995, and $963,516,000 in 1994 on research to discover and develop new products and processes and to improve existing products and processes. The Company continues to concentrate research expenditures in pharmaceutical and diagnostic products.
ENVIRONMENTAL MATTERS
The Company believes that its operations comply in all material respects with applicable laws and regulations concerning environmental protection. Regulations under federal and state environmental laws impose stringent limitations on emissions and discharges to the environment from various manufacturing operations. The Company's capital and operating expenditures for pollution control in 1996 were approximately $29 million and $50 million, respectively. Capital and operating expenditures for pollution control are estimated to approximate $18 million and $50 million, respectively, in 1997.
The Company is participating as one of many potentially responsible parties in investigation and/or remediation at eleven locations in the United States and Puerto Rico under the Comprehensive Environmental Response, Compensation, and Liability Act, commonly known as Superfund. The aggregate costs of remediation at these sites by all identified parties are uncertain but have been subject to widely ranging estimates totaling as much as several hundred million dollars. In many cases, the Company believes that the actual costs will be lower than these estimates, and the fraction for which the Company may be responsible is anticipated to be considerably less and will be paid out over a number of years. The Company expects to participate in the investigation or cleanup at these sites. The Company is also voluntarily investigating potential contamination at two Company-owned sites, and has initiated voluntary remediation at four sites, in cooperation with the Environmental Protection Agency (EPA) or similar state agencies.
While it is not feasible to predict with certainty the costs related to the previously described investigation and cleanup activities, the Company believes that such costs, together with other expenditures to maintain compliance with applicable laws and regulations concerning environmental protection, should not have a material adverse effect on the Company's financial position, cash flows, or results of operations.
EMPLOYEES
The Company employed 52,817 persons as of December 31, 1996.
REGULATION
The development, manufacture, sale, and distribution of the Company's products are subject to comprehensive government regulation, and the general trend is toward more stringent regulation. Government regulation by various federal, state, and local agencies, which includes detailed inspection of and controls over research and laboratory procedures, clinical investigations, and manufacturing, marketing, sampling, distribution, recordkeeping, storage and disposal practices, substantially increases the time, difficulty, and costs incurred in obtaining and maintaining the approval to market newly developed and existing products. Government regulatory actions can result in the seizure or recall of products, suspension or revocation of the authority necessary for their production and sale, and other civil or criminal sanctions.
Continuing studies of the utilization, safety, and efficacy of health care products and their components are being conducted by industry, government agencies, and others. Such studies, which employ increasingly sophisticated methods and techniques, can call into question the utilization, safety, and efficacy of previously marketed products and in some cases have resulted, and may in the future result, in the discontinuance of marketing of such products and give rise to claims for damages from persons who believe they have been injured as a result of their use.
The cost of human health care products continues to be a subject of investigation and action by governmental agencies, legislative bodies, and private organizations in the United States and other countries. In the United States, most states have enacted generic substitution legislation requiring or permitting a dispensing pharmacist to substitute a different manufacturer's version of a pharmaceutical product for the one prescribed. Federal and state governments continue to press efforts to reduce costs of Medicare and Medicaid programs, including restrictions on amounts agencies will reimburse for the use of products. Manufacturers must pay certain statutorily-prescribed rebates on Medicaid purchases for reimbursement on prescription drugs under state Medicaid plans. In addition, the federal government follows a diagnosis-related group (DRG) payment system for certain institutional services provided under Medicare or Medicaid. The DRG system entitles a health care facility to a fixed reimbursement based on discharge diagnoses rather than actual costs incurred in patient treatment, thereby increasing the incentive for the facility to limit or control expenditures for many health care products. The Veterans Health Care Act of 1992 requires manufacturers to extend additional discounts on pharmaceutical products to various federal agencies, including the Department of Veterans Affairs, Department of Defense, and Public Health Service entities and institutions.
In the United States, governmental cost-containment efforts have extended to the federally funded Special Supplemental Nutrition Program for Women, Infants, and Children (WIC). All states participate in WIC and have sought and obtained rebates from manufacturers of infant formula whose products are used in the program. All of the states have also conducted competitive bidding for infant formula contracts which require the use of specific infant formula products for the state WIC program. The Child Nutrition and WIC Reauthorization Act of 1989 requires all states participating in WIC to engage in competitive bidding or to use any other cost containment measure that yields savings equal to or greater than the savings generated by a competitive bidding system.
Governmental regulatory agencies now require prescription drug manufacturers to pay additional fees. Under the Prescription Drug User Fee Act of 1992, the Federal Food and Drug Administration (FDA) imposes substantial fees on various aspects of the approval, manufacture and sale of proprietary prescription drugs. Congress is now considering expanding user fees to generic drugs and medical devices. The Company believes that such legislation, if enacted, will add considerable expense for the Company.
The Company expects debate to continue during 1997 at both the federal and the state level over the availability, method of delivery, and payment for health care products and services. The Company believes that if legislation is enacted, it could have the effect of reducing prices, or reducing the rate of price increases, for medical products and services.
International operations are also subject to a significant degree of government regulation. Many countries, directly or indirectly through reimbursement limitations, control the selling price of most health care products. Furthermore, many developing countries limit the importation of raw materials and finished products. International regulations are having an impact on United States regulations, as well. The International Organization for Standardization (ISO) provides the criteria for regulating medical devices within the European Economic Community. The Company has made significant strides in gaining ISO 9000 and European Norm 46000 certification for facilities that manufacture devices for European markets. The FDA has announced that it will attempt to harmonize its regulation of medical devices with that of the ISO. Proposed changes to the FDA's regulations governing the manufacture of medical devices appear to encompass and exceed the ISO's approach to regulating medical devices. The FDA's adoption of the ISO's approach to regulation and other changes to the manner in which the FDA regulates medical devices will increase the cost of compliance with those regulations.
Efforts to reduce health care costs are also being made in the private sector. Health care providers have responded by instituting various cost reduction and containment measures.
It is not possible to predict the extent to which the Company or the health care industry in general might be affected by the matters discussed above.
INTERNATIONAL OPERATIONS
The Company markets products in approximately 130 countries through affiliates and distributors. Most of the products discussed in the preceding sections of this report are also sold outside the United States. In addition, certain products of a local nature and variations of product lines to meet local regulatory requirements and marketing preferences are manufactured and marketed to customers outside the United States. International operations are subject to certain additional risks inherent in conducting business outside the United States, including price and currency exchange controls, changes in currency exchange rates, limitations on foreign participation in local enterprises, expropriation, nationalization, and other governmental action.
ITEM 2.
ITEM 2. PROPERTIES
The Company's corporate offices are located at 100 Abbott Park Road, Abbott Park, Illinois 60064-3500. The locations of the Company's principal plants are listed below.
In addition to the above, the Company has manufacturing facilities in six other locations in the United States and Puerto Rico. Overseas manufacturing facilities are located in thirteen other countries. The Company's facilities are deemed suitable, provide adequate productive capacity, and are utilized at normal and acceptable levels.
In the United States and Puerto Rico, the Company owns five distribution centers. The Company also has twelve United States research and development facilities located at Abbott Park, Illinois; Ashland, Ohio; Columbus, Ohio (2 locations); Irving, Texas; Long Grove, Illinois; Madera, California; Morgan Hill, California; North Chicago, Illinois; Salt Lake City, Utah; Bedford, Massachusetts; and Santa Clara, California. Overseas, the Company has research and development facilities in Argentina, Australia, Canada, Germany, Italy, Japan, The Netherlands, Spain and the United Kingdom.
The corporate offices, and those principal plants in the United States that are listed above, are owned. The remaining manufacturing plants and all other facilities are owned or leased by the Company or subsidiaries of the Company.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved in various claims and legal proceedings, including (as of January 31, 1997) 6 antitrust suits and 5 investigations in connection with the Company's sale and marketing of infant formula products, and 142 antitrust suits and two investigations in connection with the Company's pricing of prescription pharmaceuticals. The Company was also involved in a civil proceeding involving certain Illinois environmental laws.
The infant formula antitrust suits allege that the Company conspired with one or more of its competitors to fix prices, restrain trade and monopolize the market for infant formula products in violation of state and federal antitrust laws. The suits have been brought on behalf of individuals, the Nestle Food Company, and state government agencies and name the Company, certain other infant formula manufacturers and, in some instances, the American Academy of Pediatrics as defendants. The cases seek treble damages, civil penalties and other relief.
In its 10-Q for the quarter ended March 31, 1996, the Company reported that it had entered into a settlement agreement with plaintiffs involving 20 infant formula antitrust cases that had been pending in 17 states. Each individual state settlement, except Mississippi, is subject to approval by the individual state courts. Courts in Colorado, Florida, Illinois, Kansas, Kentucky, Minnesota, North Carolina, North Dakota, South Dakota, Tennessee, West Virginia and Wisconsin have now given their final approval to their respective state settlements. Courts have not yet given their final approval for the cases pending in Alabama, Michigan, and Nevada. The court in Louisiana denied final approval on January 22, 1997. An infant formula antitrust case is also pending in Federal District Court in Massachusetts. It purports to be a statewide consumer class action. The case that was pending in Federal District Court in Tallahassee, Florida was dismissed. On June 19, 1995, a jury in federal court in Los Angeles, California found in favor of the Company and the American Academy of Pediatrics in the infant formula antitrust case brought by Nestle Food Company. The Ninth Circuit Court of Appeals affirmed the jury's verdict on January 9, 1997. Nestle has the right to petition for certiorari to the United States Supreme Court. The shareholder derivative suit that had been pending in state court in Cook County, Illinois was dismissed on December 15, 1995. The shareholder derivative suit named all of the Company's present directors (other than Allen F. Jacobson) and a former executive officer as defendants and alleged that the defendants breached their fiduciary duty to the Company by permitting antitrust violations in connection with the Company's sale and marketing of infant formula products. The court dismissed this lawsuit. The appeal of the dismissal was voluntarily dismissed on May 22, 1996. The investigations are being conducted by the Attorneys General of the states of California, Connecticut, New York, Pennsylvania and Wisconsin.
As of January 31, 1997, 118 prescription pharmaceutical pricing antitrust cases were pending in federal court, 23 were pending in state courts, and 1 was pending in a District of Columbia court. The prescription pharmaceutical pricing antitrust suits allege that various pharmaceutical manufacturers have conspired to fix prices for prescription pharmaceuticals and/or to discriminate in pricing to retail pharmacies by providing discounts to mail-order pharmacies, institutional pharmacies and HMOs in violation of state and federal antitrust laws. The suits have been brought on behalf of individuals and retail pharmacies and name both the Company and certain other pharmaceutical manufacturers and pharmaceutical wholesalers and at least one mail-order pharmacy company as defendants. The cases seek treble damages, civil penalties, injunctive and other relief. The Company has filed or intends to file a response to each of the complaints denying all substantive allegations. The state cases are pending in the following state courts: Clarke County, Alabama; Yavapai County, Arizona; Alameda County, California; Monterey County, California; San Francisco County, California (8 cases); San Joaquin County, California; Dade County, Florida; Johnson County, Kansas; Cumberland County, Maine; Oakland County, Michigan; Hennepin County, Minnesota (2 cases); and Dane County and Washington County, Wisconsin. A case is also pending in the Superior Court for the District of Columbia. The cases which had been pending in New York County, New York and King County, Washington have been dismissed and are now on appeal. The case pending in Greene County, Alabama was removed to the U.S. District Court for the Northern District of Illinois. The plaintiffs have sought an interlocutory appeal of the removal order. The federal cases are pending in the United States District Court for the Northern District of Illinois under the Multidistrict Litigation Rules as IN RE: BRAND NAME PRESCRIPTION DRUG ANTITRUST LITIGATION, MDL 997. One of the cases which is pending in the MDL 997 litigation has been certified as a class action on behalf of certain retail pharmacies. A number of appeals to the Seventh Circuit Court of Appeals have been filed arising out of the MDL 997 litigation. All litigation in the U.S. District Court for the Northern District of Illinois is stayed pending the resolution of the appeals. The investigations are being conducted by the Attorney General of Illinois and the Federal Trade Commission.
On March 31, 1995, the Illinois Attorney General informed the Company that it proposed the assessment of a civil penalty of $750,000 in connection with an administrative enforcement action initiated in May of 1993 by the Illinois Environmental Protection Agency (the "IEPA") against the Company. The enforcement action alleged that the Company violated its waste water discharge permits and certain Illinois environmental laws at its North Chicago, Illinois facility. On May 9, 1996, the Company and the Illinois Attorney General concluded the action by executing a settlement agreement. Under the settlement agreement, the Company did not admit liability but did agree to pay a civil penalty of $400,000 to the IEPA, to pay an additional $200,000 to the state of Illinois for the purchase of land for use as a wetlands preserve, and to take further steps to reduce the chances of an unlawful discharge of waste water from the North Chicago, Illinois facility.
While it is not feasible to predict the outcome of such pending claims, proceedings, and investigations with certainty, management is of the opinion that their ultimate disposition should not have a material adverse effect on the Company's financial position, cash flows, or results of operations.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Officers of the Company are elected annually by the board of directors at the first meeting held after the annual shareholders meeting. Each officer holds office until a successor has been duly elected and qualified or until the officer's death, resignation, or removal. Vacancies may be filled at any meeting of the board. Any officer may be removed by the board of directors when, in its judgment, removal would serve the best interests of the Company.
Current corporate officers, and their ages as of February 14, 1997, are listed below. The officers' principal occupations and employment from January 1992 to the present and the dates of their first election as officers of the Company are also shown. Unless otherwise stated, employment was by the Company for the period indicated. There are no family relationships between any corporate officers or directors.
DUANE L. BURNHAM**, 55
1992 to present -- Chairman of the Board and Chief Executive Officer, and Director.
Elected Corporate Officer -- 1982.
THOMAS R. HODGSON**, 55
1992 to present -- President and Chief Operating Officer, and Director.
Elected Corporate Officer -- 1980.
JOY A. AMUNDSON**, 42
1992 to 1994 -- Vice President, Corporate Hospital Marketing.
1994 to 1995 -- Vice President, HealthSystems.
1995 to present -- Senior Vice President, Chemical and Agricultural Products.
Elected Corporate Officer -- 1990.
PAUL N. CLARK**, 50
1992 to present -- Senior Vice President, Pharmaceutical Operations.
Elected Corporate Officer -- 1985.
GARY P. COUGHLAN**, 52
1992 to present -- Senior Vice President, Finance and Chief Financial Officer.
Elected Corporate Officer -- 1990.
JOSE M. DE LASA**, 55
1992 to 1994 -- Vice President and Associate General Counsel, Bristol-Myers Squibb Company (Health and personal care products company).
1994 -- Vice President, Secretary and Associate General Counsel, Bristol-Myers Squibb Company.
1994 to present -- Senior Vice President, Secretary and General Counsel.
Elected Corporate Officer -- 1994.
JOHN G. KRINGEL**, 57
1992 to present -- Senior Vice President, Hospital Products.
Elected Corporate Officer -- 1981.
THOMAS M. MCNALLY**, 49
1992 to 1993 -- Senior Vice President, Chemical and Agricultural Products.
1993 to present -- Senior Vice President, Ross Products.
Elected Corporate Officer -- 1989.
ROBERT L. PARKINSON, JR.**, 46
1992 to 1993 -- Vice President, European Operations.
1993 to 1995 -- Senior Vice President, Chemical and Agricultural Products.
1995 to present -- Senior Vice President, International Operations.
Elected Corporate Officer -- 1989.
ELLEN M. WALVOORD**, 57
1992 to 1995 -- Vice President, Investor Relations and Public Affairs.
1995 to present -- Senior Vice President, Human Resources.
Elected Corporate Officer -- 1991.
MILES D. WHITE**, 41
1992 -- Divisional Vice President and General Manager, Hospital Laboratory Sector.
1992 to 1993 -- Divisional Vice President and General Manager, Diagnostic Systems and Operations.
1993 to 1994 -- Vice President, Diagnostic Systems and Operations.
1994 to present -- Senior Vice President, Diagnostic Operations.
Elected Corporate Officer -- 1993.
CATHERINE V. BABINGTON**, 44
1992 to 1995 -- Director, Corporate Communications.
1995 to present -- Vice President, Investor Relations and Public Affairs.
Elected Corporate Officer -- 1995.
PATRICK J. BALTHROP, 40
1992 to 1995 -- Divisional Vice President and Sector General Manager, Diagnostic Products.
1995 to 1996 -- Divisional Vice President and General Manager, U.S. and Canada, Diagnostic Products.
1996 to present -- Vice President, Diagnostic Operations, U.S. and Canada.
Elected Corporate Officer -- 1996.
MARK E. BARMAK, 55
1992 to 1995 -- Divisional Vice President and Associate General Counsel, Litigation.
1995 to present -- Vice President, Litigation and Government Affairs.
Elected Corporate Officer -- 1995.
CHRISTOPHER B. BEGLEY, 44
1992 to 1993 -- Divisional Vice President and General Manager, Hospital Products Business Sector.
1993 to 1996 -- Vice President, Hospital Products Business Sector.
1996 to present -- Vice President, MediSense Operations.
Elected Corporate Officer -- 1993.
THOMAS D. BROWN, 48
1992 -- Divisional Vice President and General Manager, Western Hemisphere.
1992 to 1993 -- Divisional Vice President, Diagnostic Commercial Operations.
1993 to present -- Vice President, Diagnostic Commercial Operations.
Elected Corporate Officer -- 1993.
GARY R. BYERS**, 55
1992 to 1993 -- Divisional Vice President, Corporate Auditing.
1993 to present -- Vice President, Internal Audit.
Elected Corporate Officer -- 1993.
WILLIAM G. DEMPSEY, 45
1992 to 1995 -- Divisional Vice President and General Manager, Abbott Critical Care Systems.
1995 to 1996 -- Divisional Vice President and General Manager, Hospital Products Business Sector.
1996 to present -- Vice President, Hospital Products Business Sector.
Elected Corporate Officer -- 1996.
KENNETH W. FARMER**, 51
1992 to present -- Vice President, Management Information Services and Administration.
Elected Corporate Officer -- 1985.
THOMAS C. FREYMAN**, 42
1992 to present -- Vice President and Treasurer.
Elected Corporate Officer -- 1991.
DAVID B. GOFFREDO, 42
1992 to 1993 -- Divisional Vice President, Pharmaceutical Products Marketing.
1993 to 1995 -- Divisional Vice President, Pharmaceutical Products Sales and Marketing.
1995 to present -- Vice President, Pharmaceutical Products Sales and Marketing.
Elected Corporate Officer -- 1995.
RICHARD A. GONZALEZ**, 43
1992 to 1995 -- Divisional Vice President and General Manager, U.S. and Canada Diagnostics.
1995 to present -- Vice President, HealthSystems.
Elected Corporate Officer -- 1995.
GUILLERMO A. HERRERA, 43
1992 to 1994 -- Regional Director, Europe, Abbott International.
1994 -- General Manager, Abbott Spain and Portugal.
1994 to 1996 -- Area Vice President, Latin America.
1996 to present -- Vice President, Latin America Operations.
Elected Corporate Officer -- 1996.
ARTHUR J. HIGGINS, 40
1992 to 1994 -- Regional Director, Europe, Africa, and Middle East.
1994 to 1995 -- Divisional Vice President, Commercial Operations.
1995 to 1996 -- Divisional Vice President, Pacific, Asia, and Africa Operations.
1996 to present -- Vice President, Pacific, Asia, and Africa Operations.
Elected Corporate Officer -- 1996.
JAY B. JOHNSTON, 53
1992 -- President, Dainabot Co., Ltd. (an affiliate of the Company) and General Manager, Asia Pacific, Abbott Diagnostics Division.
1992 -- Divisional Vice President, Business Development.
1992 to 1993 -- Divisional Vice President and General Manager, Diagnostic Assays and Operations.
1993 to present -- Vice President, Diagnostic Assays and Systems.
Elected Corporate Officer -- 1993.
JAMES J. KOZIARZ, 48
1992 -- Divisional Vice President and General Manager, Diagnostic Assays.
1992 to 1993 -- Divisional Vice President, Diagnostic Products Research and Development.
1993 to present -- Vice President, Diagnostic Products Research and Development.
Elected Corporate Officer -- 1993.
JOHN F. LUSSEN**, 55
1992 to present -- Vice President, Taxes.
Elected Corporate Officer -- 1985.
EDWARD L. MICHAEL, 39
1992 to 1994 -- Business Unit Manager.
1995 to 1996 -- Director, Area Operations and Scientific Development.
1997 to present -- Vice President, Diagnostic Operations, Europe, Africa, and Middle East.
Elected Corporate Officer -- 1997.
THEODORE A. OLSON**, 58
1992 to present -- Vice President and Controller.
Elected Corporate Officer -- 1988.
ANDRE G. PERNET, 52
1992 -- Divisional Vice President, Therapeutic Area Ventures, Pharmaceutical Products Division.
1992 to 1994 -- Divisional Vice President, Pharmaceutical Development, Pharmaceutical Products Division.
1994 to present -- Vice President, Pharmaceutical Products Research and Development.
Elected Corporate Officer -- 1994.
CARL A. SPALDING, 51
1992 -- Vice President, International, Johnson & Johnson (manufacturer of health care products serving the consumer, pharmaceutical and professional markets).
1992 to 1993 -- Divisional Vice President and General Manager, Ross Pediatric Products.
1993 to present -- Vice President, Ross Pediatric Products.
Elected Corporate Officer -- 1993.
WILLIAM H. STADTLANDER, 51
1992 -- Divisional Vice President, Medical Nutritionals.
1992 to 1993 -- Divisional Vice President and General Manager, Medical Nutritionals.
1993 to present -- Vice President, Ross Medical Nutritional Products.
Elected Corporate Officer -- 1993.
MARCIA A. THOMAS **, 49
1992 to 1995 -- Divisional Vice President and General Manager, Infectious Diseases Diagnostics.
1995 to 1996 -- Divisional Vice President, Quality Assurance and Regulatory Affairs, Diagnostics Division.
1996 to present -- Vice President, Quality Assurance and Regulatory Affairs.
Elected Corporate Officer -- 1996.
H. THOMAS WATKINS, 44
1992 to 1993 -- Divisional Vice President and Sector General Manager, Diagnostics Division.
1994 to 1996 -- Divisional Vice President and General Manager, Asia and Pacific Diagnostics.
1996 to present -- Vice President, Diagnostic Operations, Asia and Pacific.
Elected Corporate Officer -- 1996.
STEVEN J. WEGER, JR.**, 52
1992 to 1993 -- Director, Strategic Planning, Diagnostics Division.
1994 to 1996 -- Divisional Vice President, Strategic Planning and Technology Assessment, Diagnostics Division.
1996 to present -- Vice President, Corporate Planning and Development.
Elected Corporate Officer -- 1996.
JOSEF WENDLER, 47
1992 -- Regional Director, Europe, Diagnostics Division.
1992 to 1993 -- Divisional Vice President, Pacific, Asia, and Africa.
1993 to 1995 -- Vice President, Pacific, Asia, and Africa Operations.
1995 to present -- Vice President, European Operations.
Elected Corporate Officer 1993.
LANCE B. WYATT**, 52
1992 to 1995 -- Divisional Vice President, Quality Assurance and Regulatory Affairs.
1995 to present -- Vice President, Corporate Engineering.
Elected Corporate Officer -- 1995.
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** Pursuant to Item 401(b) of Regulation S-K the Company has identified these persons as "executive officers" within the meaning of Item 401(b).
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
PRINCIPAL MARKET
The principal market for the Company's common shares is the New York Stock Exchange. Shares are also listed on the Chicago and Pacific Stock Exchanges and are traded on the Boston, Cincinnati, and Philadelphia Exchanges. Overseas, the Company's shares are listed on the London Stock Exchange and the Swiss Stock Exchange.
Market prices are as reported by the New York Stock Exchange composite transaction reporting system.
SHAREHOLDERS
There were 99,513 shareholders of record of Abbott common shares as of December 31, 1996.
DIVIDENDS
Quarterly dividends of $.24 per share and $.21 per share were declared on common shares in 1996 and 1995, respectively.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated herein by reference for the years 1992 through 1996 are the applicable portions of the section captioned "Summary of Selected Financial Data" of the 1996 Annual Report.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Incorporated herein by reference is management's discussion and analysis of financial condition and results of operations for the years 1996, 1995, and 1994 found under the section captioned "Financial Review" of the 1996 Annual Report.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated herein by reference are the portions of the 1996 Annual Report captioned Consolidated Balance Sheet, Consolidated Statement of Earnings, Consolidated Statement of Cash Flows, Consolidated Statement of Shareholders' Investment, Notes to Consolidated Financial Statements and Report of Independent Public Accountants (which contains the related report of Arthur Andersen LLP dated January 15, 1997). Data relating to quarterly results is found in Note 8.
ITEM 9.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference are "Committees of the Board of Directors," and "Information Concerning Nominees for Directors" found in the 1997 Abbott Laboratories Proxy Statement (1997 Proxy Statement).
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
The material in the 1997 Proxy Statement under the heading "Executive Compensation," other than the Report of the Compensation Committee, the Performance Graph, and Security Ownership of Officers and Directors are hereby incorporated by reference.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference is the text found under the caption "Information Concerning Security Ownership" and the material under the heading "Security Ownership of Executive Officers and Directors" in the 1997 Proxy Statement.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS FORM 10-K.
1. FINANCIAL STATEMENTS: The Consolidated Financial Statements for the years ended December 31, 1996, 1995, and 1994 and the related report of Arthur Andersen LLP dated January 15, 1997, appearing under the portions of the 1996 Annual Report captioned Consolidated Balance Sheet, Consolidated Statement of Earnings, Consolidated Statement of Cash Flows, Consolidated Statement of Shareholders' Investment, Notes to Consolidated Financial Statements and Report of Independent Public Accountants, respectively, are incorporated by reference in response to Item 14(a)1. With the exception of the portions of the 1996 Annual Report specifically incorporated herein by reference, such Report shall not be deemed filed as part of this Annual Report on Form 10-K or otherwise deemed subject to the liabilities of Section 18 of the Securities Exchange Act of 1934.
2. FINANCIAL STATEMENT SCHEDULES: The required financial statement schedules are found on the pages indicated below. These schedules should be read in conjunction with the Consolidated Financial Statements in the 1996 Annual Report:
3. EXHIBITS REQUIRED BY ITEM 601 OF REGULATION S-K: The information called for by this paragraph is incorporated herein by reference to the Exhibit Index on pages 21 and 22 of this Form 10-K.
(b) REPORTS ON FORM 8-K DURING THE QUARTER ENDED DECEMBER 31, 1996:
No reports on Form 8-K were filed during the quarter ended December 31, 1996.
(c) EXHIBITS FILED (SEE EXHIBIT INDEX ON PAGES 21 AND 22).
(d) FINANCIAL STATEMENT SCHEDULES FILED (PAGE 23).
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Abbott Laboratories has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ABBOTT LABORATORIES
By /s/ DUANE L. BURNHAM Duane L. Burnham Chairman of the Board and Chief Executive Officer
Date: February 14, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Abbott Laboratories on February 14, 1997 in the capacities indicated below.
/s/ DUANE L. BURNHAM Duane L. Burnham Chairman of the Board, Chief Executive Officer and Director of Abbott Laboratories (principal executive officer)
/s/ GARY P. COUGHLAN Gary P. Coughlan Senior Vice President, Finance and Chief Financial Officer (principal financial officer)
/s/ THOMAS R. HODGSON Thomas R. Hodgson President, Chief Operating Officer and Director of Abbott Laboratories
/s/ THEODORE A. OLSON Theodore A. Olson Vice President and Controller (principal accounting officer)
/s/ K. FRANK AUSTEN, M.D. K. Frank Austen, M.D. Director of Abbott Laboratories
/s/ H. LAURANCE FULLER H. Laurance Fuller Director of Abbott Laboratories
/s/ ALLEN F. JACOBSON Allen F. Jacobson Director of Abbott Laboratories
/s/ DAVID A. JONES David A. Jones Director of Abbott Laboratories
/s/ DAVID A. L. OWEN David A. L. Owen Director of Abbott Laboratories
/s/ BOONE POWELL, JR. Boone Powell, Jr. Director of Abbott Laboratories
/s/ A. BARRY RAND A. Barry Rand Director of Abbott Laboratories
/s/ W. ANN REYNOLDS W. Ann Reynolds Director of Abbott Laboratories
/s/ WILLIAM D. SMITHBURG William D. Smithburg Director of Abbott Laboratories
/s/ JOHN R. WALTER John R. Walter Director of Abbott Laboratories
/s/ WILLIAM L. WEISS William L. Weiss Director of Abbott Laboratories
EXHIBIT INDEX ABBOTT LABORATORIES ANNUAL REPORT FORM 10-K
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* Incorporated herein by reference.
** Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit hereto.
The Company will furnish copies of any of the above exhibits to a shareholder upon written request to the Corporate Secretary, Abbott Laboratories, 100 Abbott Park Road, Abbott Park, Illinois 60064-3500.
ABBOTT LABORATORIES AND SUBSIDIARIES SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994 (DOLLARS IN THOUSANDS)
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(a) Represents provisions related to allowances for doubtful accounts and the net change in the allowances for sales deductions.