filings.toolsAbbott Laboratories 10-Q 2024-06-30
Filed 2024-07-31. 6 sections, 131K characters. Original on sec.gov · Markdown · JSON
Cover and table of contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2024
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File No. 1-2189
ABBOTT LABORATORIES
| An Illinois Corporation | I.R.S. Employer Identification No. | ||||
| 36-0698440 |
100 Abbott Park Road
Abbott Park, Illinois 60064-6400
Telephone: (224) 667-6100
Securities Registered Pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||||||
| Common Shares, Without Par Value | ABT | New York Stock Exchange Chicago Stock Exchange, Inc. |
Indicate by check mark whether the registrant: (l) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of l934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large Accelerated Filer x | Accelerated Filer o | ||||
| Non-Accelerated Filer o | Smaller reporting company o | ||||
| Emerging growth company o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
As of June 30, 2024, Abbott Laboratories had 1,739,897,004 common shares without par value outstanding.
Abbott Laboratories
Table of Contents
Abbott Laboratories and Subsidiaries
Condensed Consolidated Statement of Earnings
(Unaudited)
(dollars in millions except per share data; shares in thousands)
| Three Months Ended | Six Months Ended | ||||||||||||||||||||||
| June 30 | June 30 | ||||||||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||
| Net sales | $ | 10,377 | $ | 9,978 | $ | 20,341 | $ | 19,725 | |||||||||||||||
| Cost of products sold, excluding amortization of intangible assets | 4,603 | 4,483 | 9,066 | 8,814 | |||||||||||||||||||
| Amortization of intangible assets | 471 | 498 | 943 | 989 | |||||||||||||||||||
| Research and development | 698 | 715 | 1,382 | 1,369 | |||||||||||||||||||
| Selling, general and administrative | 2,936 | 2,740 | 5,895 | 5,502 | |||||||||||||||||||
| Total operating cost and expenses | 8,708 | 8,436 | 17,286 | 16,674 | |||||||||||||||||||
| Operating earnings | 1,669 | 1,542 | 3,055 | 3,051 | |||||||||||||||||||
| Interest expense | 140 | 159 | 281 | 312 | |||||||||||||||||||
| Interest (income) | (82) | (98) | (162) | (199) | |||||||||||||||||||
| Net foreign exchange (gain) loss | (6) | 21 | (6) | 27 | |||||||||||||||||||
| Other (income) expense, net | 10 | (176) | (101) | (287) | |||||||||||||||||||
| Earnings before taxes | 1,607 | 1,636 | 3,043 | 3,198 | |||||||||||||||||||
| Taxes on ear |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Financial Review — Results of Operations
Abbott’s revenues are derived primarily from the sale of a broad line of health care products under short-term receivable arrangements. Patent protection and licenses, technological and performance features, and inclusion of Abbott’s products under a contract most impact which products are sold; price controls, competition and rebates most impact the net selling prices of products; and foreign currency translation impacts the measurement of net sales and costs. Abbott’s primary products are medical devices, diagnostic testing products, nutritional products and branded generic pharmaceuticals.
The following tables detail sales by reportable segment for the three and six months ended June 30. Percent changes are versus the prior year and are based on unrounded numbers.
| Net Sales to External Customers | ||||||||||||||||||||||||||||||||
| (in millions) | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Total Change | Impact of Foreign Exchange | Total Change Excl. Foreign Exchange | |||||||||||||||||||||||||||
| Established Pharmaceutical Products | $ | 1,294 | $ | 1,287 | 0.6 | % | (7.5) | % | 8.1 | % | ||||||||||||||||||||||
| Nutritional Products | 2,150 | 2,076 | 3.5 | (3.6) | 7.1 | |||||||||||||||||||||||||||
| Diagnostic Products | 2,195 | 2,317 | (5.3) | (3.8) | (1.5) | |||||||||||||||||||||||||||
| Medical Devices | 4,734 | 4,295 | 10.2 | (2.2) | 12.4 | |||||||||||||||||||||||||||
| Total Reportable Segments | 10,373 | 9,975 | 4.0 | (3.5) | 7.5 | |||||||||||||||||||||||||||
| Other | 4 | 3 | n/m | n/m | n/m | |||||||||||||||||||||||||||
| Net Sales | $ | 10,377 | $ | 9,978 | 4.0 | (3.5) | 7.5 | |||||||||||||||||||||||||
| Total U.S. | $ | 3,934 | $ | 3,758 | 4.7 | — | 4.7 | |||||||||||||||||||||||||
| Total International | $ | 6,443 | $ | 6,220 | 3.6 | (5.6) | 9.2 |
| Net Sales to External Customers | ||||||||||||||||||||||||||||||||
| (in millions) | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | Total Change | Impact of Foreign Exchange | Total Change Excl. Foreign Exchange | |||||||||||||||||||||||||||
| Established Pharmaceutical Products | $ | 2,520 | $ | 2,476 | 1.8 | % | (9.0) | % | 10.8 | % | ||||||||||||||||||||||
| Nutritional Products | 4,218 | 4,043 | 4.3 | (3.1) | 7.4 | |||||||||||||||||||||||||||
| Diagnostic Products | 4,409 | 5,005 | (11.9) | (2.9) | (9.0) | |||||||||||||||||||||||||||
| Medical Devices | 9,187 | 8,195 | 12.1 | (1.7) | 13.8 | |||||||||||||||||||||||||||
| Total Reportable Segments | 20,334 | 19,719 | 3.1 | (3.2) | 6.3 | |||||||||||||||||||||||||||
| Other | 7 | 6 | n/m | n/m | n/m | |||||||||||||||||||||||||||
| Net Sales | $ | 20,341 | $ | 19,725 | 3.1 | (3.2) | 6.3 | |||||||||||||||||||||||||
| Total U.S. | $ | 7,780 | $ | 7,686 | 1.2 | — | 1.2 | |||||||||||||||||||||||||
| Total International | $ | 12,561 | $ | 12,039 | 4.3 | (5.3) | 9.6 |
| Notes: | In order to compute results excluding the impact of exchange rates, current year U.S. dollar sales are multiplied or divided, as appropriate, by the current year average foreign exchange rates and then those amounts are multiplied or divided, as appropriate, by the prior year average foreign exchange rates. | ||||
| n/m = Percent change is not meaningful |
The 7.5 percent increase in total net sales during the second quarter of 2024, excluding the impact of foreign exchange, reflected higher sales in the Medical Devices, Nutritional Products, and Established Pharmaceutical Products segments, partially offset by a decrease in demand for Abbott’s rapid diagnostic tests to detect COVID-19. Abbott’s COVID-19 testing-related sales totaled $102 million during the second quarter of 2024 and $263 million during the second quarter of 2023. Excluding the impact of COVID-19 testing-related sales, Abbott’s total net sales increased 5.7 percent. Excluding the impacts of COVID-19 testing-related sales and foreign exchange, Abbott’s total net sales increased 9.3 percent. Abbott’s net sales were unfavorably impacted by changes in foreign exchange rates in the second quarter as the relatively stronger U.S. dollar decreased total international sales by 5.6 percent and total sales by 3.5 percent.
The 6.3 percent increase in total net sales during the first six months of 2024, excluding the impact of foreign exchange, reflected sales growth in the Medical Devices, Nutritional Products, and Established Pharmaceutical Products segments, partially offset by a decrease in demand for Abbott’s rapid diagnostic tests to detect COVID-19. Abbott’s COVID-19 testing-related sales totaled $306 million during the first six months of 2024 and $993 million during the first six months of 2023. Excluding the impact of COVID-19 testing-related sales, Abbott’s total net sales increased 7.0 percent. Excluding the impacts of COVID-19 testing-related sales and foreign exchange, Abbott’s total net sales increased 10.3 percent. Abbott’s net sales were unfavorably impacted by changes in foreign exchange rates in the first six months as the relatively stronger U.S. dollar decreased total international sales by 5.3 percent and total sales by 3.2 percent.
The table below provides detail by sales category for the six months ended June 30. Percent changes are versus the prior year and are based on unrounded numbers.
| (in millions) | June 30, 2024 | June 30, 2023 | Total Change | Impact of Foreign Exchange | Total Change Excl. Foreign Exchange | |||||||||||||||||||||||||||
| Established Pharmaceutical Products — | ||||||||||||||||||||||||||||||||
| Key Emerging Markets | $ | 1,916 | $ | 1,902 | 0.7 | % | (11.3) | % | 12.0 | % | ||||||||||||||||||||||
| Other Emerging Markets | 604 | 574 | 5.3 | (1.6) | 6.9 | |||||||||||||||||||||||||||
| Nutritionals — | ||||||||||||||||||||||||||||||||
| International Pediatric Nutritionals | 990 | 982 | 0.7 | (3.0) | 3.7 | |||||||||||||||||||||||||||
| U.S. Pediatric Nutritionals | 1,078 | 966 | 11.6 | — | 11.6 | |||||||||||||||||||||||||||
| International Adult Nutritionals | 1,417 | 1,368 | 3.6 | (6.9) | 10.5 | |||||||||||||||||||||||||||
| U.S. Adult Nutritionals | 733 | 727 | 0.8 | — | 0.8 | |||||||||||||||||||||||||||
| Diagnostics — | ||||||||||||||||||||||||||||||||
| Core Laboratory | 2,534 | 2,475 | 2.4 | (4.9) | 7.3 | |||||||||||||||||||||||||||
| Molecular | 256 | 288 | (11.1) | (0.6) | (10.5) | |||||||||||||||||||||||||||
| Point of Care | 295 | 276 | 6.9 | — | 6.9 | |||||||||||||||||||||||||||
| Rapid Diagnostics | 1,324 | 1,966 | (32.7) | (1.1) | (31.6) | |||||||||||||||||||||||||||
| Medical Devices — | ||||||||||||||||||||||||||||||||
| Rhythm Management | 1,169 | 1,110 | 5.4 | (1.3) | 6.7 | |||||||||||||||||||||||||||
| Electrophysiology | 1,214 | 1,058 | 14.7 | (2.8) | 17.5 | |||||||||||||||||||||||||||
| Heart Failure | 626 | 576 | 8.6 | (0.1) | 8.7 | |||||||||||||||||||||||||||
| Vascular | 1,413 | 1,332 | 6.1 | (1.5) | 7.6 | |||||||||||||||||||||||||||
| Structural Heart | 1,079 | 959 | 12.5 | (1.8) | 14.3 | |||||||||||||||||||||||||||
| Neuromodulation | 469 | 423 | 10.9 | (1.6) | 12.5 | |||||||||||||||||||||||||||
| Diabetes Care | 3,217 | 2,737 | 17.6 | (1.8) | 19.4 |
Excluding the unfavorable effect of foreign exchange, sales in Key Emerging Markets for Established Pharmaceutical Products increased 12.0 percent in the first six months of 2024, led by higher revenue in several countries and across several therapeutic areas, including respiratory, gastroenterology, cardiometabolic and central nervous system/pain management. Other Emerging Markets, excluding the effect of foreign exchange, increased by 6.9 percent in the first six months of 2024.
Excluding the impact of foreign exchange, total Nutritional Products sales in the first six months of 2024 increased 7.4 percent. In U.S. Pediatric Nutritionals, the 11.6 percent increase in sales in the first six months of 2024 reflects infant formula market share gains and the continued favorable impact of 2023 price increases, partially offset by a decrease in PediaSure® and Pedialyte® product sales. Excluding the effect of foreign exchange, the 3.7 percent increase in International Pediatric Nutritional sales in the first six months of 2024 primarily reflects growth in Canada and several countries in the Asia Pacific and Europe/Middle East regions.
In the first six months of 2024, U.S. Adult Nutritionals sales increased 0.8 percent as growth of Ensure® product sales was offset by a decrease in Glucerna® product sales and the discontinuation of the ZonePerfect® product line. Excluding the effect of foreign exchange, the 10.5 percent growth in International Adult Nutritionals in the first six months of 2024 was led by growth of Ensure and Glucerna product sales.
The 9.0 percent decrease in Diagnostic Products sales in the first six months of 2024, excluding the impact of foreign exchange, was primarily driven by lower demand for COVID-19 tests. In Rapid Diagnostics, sales decreased 31.6 percent in the first six months of 2024, excluding the effect of foreign exchange, due to lower demand for COVID-19 tests. In the first six months of 2024 and 2023, Rapid Diagnostics COVID-19 testing-related sales were $294 million and $954 million, respectively. In the first six months of 2024, Rapid Diagnostics sales increased 1.7 percent, excluding COVID-19 testing-related sales, and increased 3.0 percent, excluding the impact of foreign exchange and COVID-19 testing-related sales.
In Core Laboratory Diagnostics, sales increased 7.3 percent in the first six months of 2024, excluding the effect of foreign exchange, due to the continued deployment of Abbott's Alinity® testing platform and higher volume of routine diagnostic testing performed in hospitals and other laboratories. In the first six months of 2024 and 2023, Core Laboratory Diagnostics COVID-19 testing-related sales were $5 million and $11 million, respectively. In the first six months of 2024, Core Laboratory Diagnostics sales increased 2.6 percent, excluding COVID-19 testing-related sales, and increased 7.6 percent, excluding the impact of foreign exchange and COVID-19 testing-related sales.
The 10.5 percent decrease in Molecular Diagnostics sales in the first six months of 2024, excluding the effect of foreign exchange, was primarily driven by lower demand for laboratory-based molecular tests for COVID-19. In the first six months of 2024 and 2023, Molecular Diagnostics COVID-19 testing-related sales were $7 million and $28 million, respectively. In the first six months of 2024, Molecular Diagnostics sales decreased 3.8 percent, excluding COVID-19 testing-related sales, and decreased 3.2 percent, excluding the impact of foreign exchange and COVID-19 testing-related sales.
Excluding the effect of foreign exchange, total Medical Devices sales increased 13.8 percent in the first six months of 2024, led by double-digit growth in Diabetes Care, Electrophysiology, Structural Heart and Neuromodulation. Higher Diabetes Care sales were driven by continued growth of FreeStyle Libre®, Abbott’s continuous glucose monitoring system, in the U.S. and internationally. FreeStyle Libre sales totaled $3.0 billion in the first six months of 2024, which reflected a 21.8 percent increase, excluding the effect of foreign exchange, over the first six months of 2023 when FreeStyle Libre sales totaled $2.5 billion.
In January 2024, Abbott announced that Tandem Diabetes Care, Inc.'s t:slim X2™ insulin pump is the first automated insulin delivery system in the U.S. to integrate with Abbott's FreeStyle Libre 2 Plus sensor for treating diabetes. In February 2024, Insulet's Omnipod® 5 Automated Insulin Delivery System received CE Mark approval to be offered as an integrated solution with Abbott's FreeStyle Libre 2 Plus sensor. In June, Abbott announced U.S. Food and Drug Administration (FDA) clearance for two new over-the-counter continuous glucose monitoring systems, LingoTM and Libre RioTM, which are based on Abbott's FreeStyle Libre continuous glucose monitoring technology.
During the first six months of 2024, procedure volumes continued to increase across the cardiovascular and neuromodulation businesses. In Structural Heart, the 14.3 percent increase in sales, excluding the effect of foreign exchange, primarily reflects growth of the Navitor®, MitraClip®, TriClip® and Amulet® products. In Vascular, the 7.6 percent increase in sales, excluding the impact of foreign exchange, during the first six months of 2024 was primarily due to the acquisition of Cardiovascular Systems, Inc. (CSI) in April 2023 and growth in other endovascular sales.
In Electrophysiology, the 17.5 percent increase in sales, excluding the effect of foreign exchange, primarily reflects higher procedure volumes and increased demand for catheters and cardiac mapping products. In Neuromodulation, the 12.5 percent increase in sales, excluding the effect of foreign exchange, was driven by the EternaTM rechargeable spinal cord stimulation system for the treatment of chronic pain.
In April 2024, Abbott announced FDA approval of the Esprit™ below-the-knee (BTK) system, which is designed to keep arteries open in people living with peripheral artery disease and deliver a drug to support vessel healing prior to completely dissolving. In April, Abbott also announced FDA approval of TriClip™, which provides a minimally invasive treatment option for patients with tricuspid regurgitation, or a leaky tricuspid heart valve. In June, Abbott obtained CE Mark for its AVEIR® dual chamber (DR) leadless pacemaker system, which is the world's first dual chamber leadless pacemaker system that treats people with abnormal or slow heart rhythms.
The gross profit margin percentage was 51.1 percent for the second quarter of 2024 compared to 50.1 percent for the second quarter of 2023 and 50.8 percent for the first six months of 2024 compared to 50.3 percent for the first six months of 2023. The increase in the quarter and the first six months of 2024 reflects the favorable impacts of higher pricing in various businesses and gross margin improvement initiatives, partially offset by the unfavorable effect of foreign exchange.
Research and development (R&D) expenses decreased $17 million, or 2.3 percent, in the second quarter of 2024 and increased $13 million, or 0.9 percent, in the first six months of 2024 compared to the prior year. The decrease in R&D expense in the second quarter of 2024 was primarily driven by lower 2024 charges for the impairment of in-process R&D (IPR&D) assets acquired in previous business combinations. The increase in R&D expense in the first six months of 2024 was primarily driven by higher spending on various projects, partially offset by lower 2024 IPR&D impairment charges.
Selling, general and administrative expenses increased $196 million, or 7.1 percent, in the second quarter of 2024, and increased $393 million, or 7.1 percent, in the first six months of 2024 compared to the prior year. Higher selling and marketing spending to drive growth across various businesses was partially offset by the favorable impact of foreign exchange.
Restructuring Plans
In 2024, Abbott management approved plans to streamline operations in order to reduce costs and improve efficiencies in its diagnostic, medical devices and nutritional businesses, including the discontinuation of its ZonePerfect® product line. In the six months ended June 30, 2024, Abbott recorded employee related severance and other charges of $59 million, of which $38 million was recorded in Cost of products sold, $2 million was recorded in Research and development, and $19 million was recorded in Selling, general and administrative expenses. Payments related to these actions totaled $8 million in the first six months of 2024 and the remaining liabilities totaled $51 million at June 30, 2024. In addition, Abbott recognized asset impairment charges of $28 million related to these restructuring plans.
Other (Income) Expense, net
Other income, net decreased from $176 million of income in the second quarter of 2023 to $10 million of expense in the second quarter of 2024 and decreased from $287 million of income in the first six months of 2023 to $101 million of income in the first six months of 2024. The decreases reflect the recognition of a $143 million loss in the second quarter of 2024 on the sale of a non-core business related to the Established Pharmaceutical Products segment, as well as the 2023 impact of favorable changes in the fair value of contingent consideration liabilities that did not repeat in 2024. In addition, for the first six months of 2024, an increase in income associated with the non-service cost components of net pension and post-retirement medical benefit costs was offset by incremental charges related to investment impairments.
Interest Expense, net
Interest expense, net decreased $3 million to $58 million in the second quarter of 2024 and increased $6 million to $119 million in the first six months of 2024. In the second quarter of 2024 and in the first six months of 2024, interest expense decreased due to the repayment of approximately $2.25 billion of long-term debt in September and November of 2023. In the first six months of 2024, the decrease in interest expense was more than offset by a reduction in interest income due to lower average cash balances versus the prior year, thereby resulting in an increase in Interest expense, net.
Taxes on Earnings
Taxes on earnings reflect the estimated annual effective rates and include charges for interest and penalties. In the first six months of 2024 and 2023, taxes on earnings include approximately $29 million and $9 million, respectively, in excess tax benefits associated with share-based compensation. In the first six months of 2024 and 2023, taxes on earnings also include approximately $35 million and $62 million, respectively, of tax expense as the result of the resolution of various tax positions related to prior years.
Tax authorities in various jurisdictions regularly review Abbott’s income tax filings. Abbott believes that it is reasonably possible that the recorded amount of gross unrecognized tax benefits may decrease approximately $90 million to $1.34 billion, including cash adjustments, within the next twelve months as a result of concluding various domestic and international tax matters.
In September 2023, Abbott received a Statutory Notice of Deficiency (SNOD) from the U.S. Internal Revenue Service (IRS) for the 2019 Federal tax year in the amount of $417 million. The primary adjustments proposed in the SNOD relate to the reallocation of income between Abbott’s U.S. entities and its foreign affiliates. Abbott believes that the income reallocation adjustments proposed in the SNOD are without merit, in part because certain adjustments contradict methods that were agreed to with the IRS in prior audit periods. The SNOD also contains other proposed adjustments that Abbott believes are erroneous and unsupported. Abbott filed a petition with the U.S. Tax Court contesting the SNOD in December 2023.
In June 2024, Abbott received a SNOD from the IRS for the 2017 and 2018 Federal tax years in the amount of $192 million. The matters proposed in the 2017/2018 SNOD are substantially similar to the income allocation adjustments included in the 2019 SNOD. Abbott intends to file a petition with the U.S. Tax Court contesting the 2017/2018 SNOD in a manner consistent with its petition for the 2019 SNOD.
In June 2024, Abbott received a Revenue Agent’s Report (RAR) from the IRS for the 2020 Federal tax year assessing an additional $443 million of income tax. The primary adjustments proposed in the RAR are substantially similar to the income allocation adjustments included in the 2017/2018 and 2019 SNODs. Abbott believes that the income reallocation adjustments proposed in the RAR are without merit. The RAR also contains other proposed adjustments and omissions that Abbott believes are erroneous and unsupported. In addition to the tax assessment for the 2020 tax year, the 2020 RAR also contested a deduction for which an estimated $440 million cash tax benefit would be available in a different taxable year as allowed under applicable U.S. tax law. Abbott is contesting these RAR findings and intends to continue to do so.
Abbott intends to vigorously defend its filing positions through ongoing discussions with the IRS, the IRS independent appeals process and/or through litigation as necessary. Abbott reserves for uncertain tax positions related to unresolved matters with the IRS and other taxing authorities. Abbott continues to believe that its reserves for uncertain tax positions are appropriate.
The Organization for Economic Cooperation & Development (OECD) has proposed a two-pillared plan for a revised international tax system. Pillar 1 proposes to reallocate taxing rights among the jurisdictions in which in-scope multinational corporations operate. Abbott is continuing to analyze the Pillar 1 proposal. Pillar 2 proposes to assess a 15 percent minimum tax on the earnings of in-scope multinational corporations on a country-by-country basis. Numerous countries have enacted legislation to adopt the Pillar 2 model rules. A subset of the rules became effective January 1, 2024, and the remaining rules become effective January 1, 2025 or later. Abbott continues to analyze the Pillar 2 model rules. The full implementation of the model rules may have a material impact on Abbott’s condensed consolidated financial statements in the future.
Liquidity and Capital Resources
The increase in cash and cash equivalents from $6.9 billion at December 31, 2023 to $7.0 billion at June 30, 2024 primarily reflects the cash generated from operations and an increase in Abbott's yen-denominated loan, partially offset by the payment of dividends and capital expenditures in the first six months of 2024. Working capital was $9.4 billion at June 30, 2024 and $8.8 billion at December 31, 2023. The increase in working capital in 2024 primarily reflects an increase in cash and cash equivalents, accounts receivable, and inventory, as well as decreases in accrued salaries and other accrued liabilities, partially offset by an increase in the current portion of long-term debt and income taxes payable.
In the Condensed Consolidated Statement of Cash Flows, Net cash from operating activities for the first six months of 2024 totaled approximately $3.0 billion, an increase of $0.6 billion from the prior year, due to higher operating segment earnings and the timing of cash taxes paid. In the first six months of 2024, Net cash from operating activities includes $289 million of pension contributions and the payment of cash taxes of approximately $747 million. Net cash from operating activities in 2023 includes $290 million of pension contributions and the payment of cash taxes of approximately $837 million.
At June 30, 2024, Abbott’s long-term debt rating was AA- by S&P Global Ratings and Aa3 by Moody’s Investors Service. Abbott expects to maintain an investment grade rating.
On June 26, 2024, Abbott modified its existing, yen-denominated 5-year term loan scheduled to mature in November 2024. The amended terms include a net increase in principal debt from ¥59.8 billion to ¥92.0 billion, with a new maturity date in June 2029. The modified, 5-year term loan bears interest at the Tokyo Interbank Offered Rate (TIBOR) plus a fixed spread, and the interest rate is reset quarterly. The net proceeds equated to approximately $201 million. The ¥92.0 billion loan is designated as a hedge of Abbott’s net investment in certain foreign subsidiaries.
Abbott has readily available financial resources, including unused lines of credit that support commercial paper borrowing arrangements and provide Abbott with the ability to borrow up to $5 billion on an unsecured basis. On January 29, 2024, Abbott terminated its 2020 Five Year Credit Agreement (2020 Agreement) and entered into a new Five Year Credit Agreement (Revolving Credit Agreement). There were no outstanding borrowings under the 2020 Agreement at the time of its termination. Any borrowings under the Revolving Credit Agreement will mature and be payable on January 29, 2029 and will bear interest, at Abbott’s option, based on either a base rate or Secured Overnight Financing Rate (SOFR), plus an applicable margin based on Abbott’s credit ratings.
In each of the first two quarters of 2024, Abbott declared a quarterly dividend of $0.55 per share on its common shares, which represents an increase of 7.8 percent over the $0.51 per share dividend declared in each of the first two quarters of 2023.
Business Acquisition
On September 22, 2023, Abbott completed the acquisition of Bigfoot Biomedical, Inc. (Bigfoot), which furthers Abbott's efforts to develop connected solutions for making diabetes management more personal and precise. The purchase price, the final allocation of acquired assets and liabilities, and the revenue and net income contributed by Bigfoot since the date of acquisition are not material to Abbott's condensed consolidated financial statements.
On April 27, 2023, Abbott completed the acquisition of Cardiovascular Systems, Inc. (CSI) for $20 per common share, which equated to a purchase price of $851 million. The transaction was funded with cash on hand and accounted for as a business combination. CSI's atherectomy system, which is used in treating peripheral and coronary artery disease, adds complementary technologies to Abbott's portfolio of vascular device offerings.
The final allocation of the purchase price of the CSI acquisition resulted in the recording of two non-deductible developed technology intangible assets totaling $305 million; a non-deductible in-process research and development asset of $15 million, which will be accounted for as an indefinite-lived intangible asset until regulatory approval or discontinuation; non-deductible goodwill of $369 million; net deferred tax assets of $46 million and other net assets of $116 million. The goodwill is identifiable to the Medical Devices reportable segment and is attributable to expected synergies from combining operations, as well as intangible assets that do not qualify for separate recognition. Revenues and earnings of CSI included in Abbott's condensed consolidated financial statements since the acquisition date are not material to Abbott's consolidated revenue and earnings.
Legislative Issues
Abbott’s primary markets are highly competitive and subject to substantial government regulations throughout the world. Abbott expects debate to continue over the availability, method of delivery, and payment for health care products and services. It is not possible to predict the extent to which Abbott or the health care industry in general might be adversely affected by these factors in the future. A more complete discussion of these factors is contained in Item 1, Business, and Item 1A, Risk Factors, in the 2023 Annual Report on Form 10-K.
Private Securities Litigation Reform Act of 1995 — A Caution Concerning Forward-Looking Statements
Under the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, Abbott cautions that any forward-looking statements made by Abbott are subject to risks and uncertainties that may cause actual results to differ materially from those indicated in the forward-looking statements. Economic, competitive, governmental, technological and other factors that may affect Abbott's operations are discussed in Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2023, and are incorporated herein by reference. Abbott undertakes no obligation to release publicly any revisions to forward-looking statements as a result of subsequent events or developments, except as required by law.
PART I. FINANCIAL INFORMATION
Item 4. Controls and Procedures
(a)Evaluation of disclosure controls and procedures. The Chief Executive Officer, Robert B. Ford, and Chief Financial Officer, Philip P. Boudreau, evaluated the effectiveness of Abbott Laboratories’ disclosure controls and procedures as of the end of the period covered by this report, and concluded that Abbott Laboratories’ disclosure controls and procedures were effective to ensure that information Abbott is required to disclose in the reports that it files or submits with the Securities and Exchange Commission (the “Commission”) under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms, and to ensure that information required to be disclosed by Abbott in the reports that it files or submits under the Exchange Act is accumulated and communicated to Abbott’s management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
(b)Changes in internal control over financial reporting. During the quarter ended June 30, 2024, there were no changes in Abbott’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, Abbott’s internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Abbott is involved in various claims, legal proceedings and investigations as described in our Annual Report on Form 10-K for the year ended December 31, 2023 and our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2024, including those described below (as of June 30, 2024, except where noted below). 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 resolution should not have a material adverse effect on Abbott's financial position, cash flows, or results of operations, except for the lawsuits discussed below, the resolution of which could be material to cash flows or results of operations.
In its 2023 Annual Report on Form 10-K, Abbott reported that it is a defendant in numerous lawsuits alleging that preterm infants developed necrotizing enterocolitis as a result of being administered Abbott’s preterm infant formula products. In a trial held in July 2024, a jury in a Missouri state court awarded a plaintiff $495 million in damages. Abbott stands by its products and the information it provided about them, and it plans to appeal this jury’s verdict.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(c)Issuer Purchases of Equity Securities
| Period | (a) Total Number of Shares (or Units) Purchased | (b) Average Price Paid per Share (or Unit) | (c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs | (d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs | |||||||||||||||||||||||||
| April 1, 2024 - April 30, 2024 | — | (1) | $ | — | — | $ | 1,409,092,884 | (2) | |||||||||||||||||||||
| May 1, 2024 - May 31, 2024 | — | (1) | — | — | 1,409,092,884 | (2) | |||||||||||||||||||||||
| June 1, 2024 - June 30, 2024 | — | (1) | — | — | 1,409,092,884 | (2) | |||||||||||||||||||||||
| Total | — | (1) | $ | — | — | $ | 1,409,092,884 | (2) |
1.These shares do not include the shares surrendered to Abbott to satisfy tax withholding obligations in connection with the vesting of restricted stock or restricted stock units.
2.On December 10, 2021, the board of directors authorized the repurchase of up to $5 billion of Abbott common shares, from time to time.
Item 5. Other Information
On May 10, 2024, Robert E. Funck, Jr., the then-Executive Vice President, Finance, adopted a plan for the sale of securities of Abbott that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c). Mr. Funck’s Rule 10b5-1 plan provides for the exercise of up to 45,000 stock options until February 19, 2025.
On May 10, 2024, Hubert L. Allen, Executive Vice President, General Counsel and Secretary, adopted a plan for the sale of securities of Abbott that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c). Mr. Allen’s Rule 10b5-1 plan provides for the exercise of up to 157,421 stock options until February 19, 2025.
Item 6. Exhibits
| Exhibit No. | Exhibit | |||||||
| 31.1 | Certification of Chief Executive Officer Required by Rule 13a-14(a) (17 CFR 240.13a-14(a)). | |||||||
| 31.2 | Certification of Chief Financial Officer Required by Rule 13a-14(a) (17 CFR 240.13a-14(a)). | |||||||
| Exhibits 32.1 and 32.2 are furnished herewith and should not be deemed to be “filed” under the Securities Exchange Act of 1934. | ||||||||
| 32.1 | Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||||||
| 32.2 | Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |||||||
| 101 | The following financial statements and notes from the Abbott Laboratories Quarterly Report on Form 10-Q for the quarter and six months ended June 30, 2024, formatted in Inline XBRL: (i) Condensed Consolidated Statement of Earnings; (ii) Condensed Consolidated Statement of Comprehensive Income; (iii) Condensed Consolidated Balance Sheet; (iv) Condensed Consolidated Statement of Shareholders’ Investment; (v) Condensed Consolidated Statement of Cash Flows; and (vi) Notes to the Condensed Consolidated Financial Statements. | |||||||
| 104 | Cover Page Interactive Data File (the cover page XBRL tags are embedded in the Inline XBRL document and included in Exhibit 101). |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| ABBOTT LABORATORIES | ||||||||
| By: | /s/ PHILIP P. BOUDREAU | |||||||
| Philip P. Boudreau | ||||||||
| Executive Vice President, Finance and Chief Financial Officer | ||||||||
| Date: July 31, 2024 |