Press Release

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
Medical Products Sales Growth of 22.7 Percent in the Fourth Quarter
HUMIRA® Exceeds $2 Billion in Global Revenue in 2006
Record Operating Cash Flow of $5.3 Billion in 2006

 

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Abbott Park, Illinois, January 24, 2007 — Abbott today announced financial results for the fourth quarter and full year ended December 31, 2006.

"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 –
Quarter Ended 12/31/06		 4Q06
($ millions)		 % Change
 vs. 4Q05		 % Change of all
non-BI Products		 Impact of Exchange
on % 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 $389 406.4a   1.7
U.S. Vascular $224 384.1a   . . .
International Vascular $165 440.2a   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 –
Year Ended 12/31/06		 FY06
($ millions)		 % Change
vs. FY05		 % Change of all
non-BI Products		 Impact of Exchange
on % 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 $1,082 327.7a   (0.9)
U.S. Vascular $647 359.2a   . . .
International Vascular $435 288.0a   (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
(dollars in millions)
U.S
Sales		 Percent
Change
vs. 4Q05
Rest of
World		 Percent
Change
vs. 4Q05
Global
Sales		 Percent
Change
vs. 4Q05

Pharmaceutical Products
HUMIRA $370 31.0 $250 57.6a $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 7.7b $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 13.6e $61 13.6
Lansoprazole . . . . . . $46 11.4f $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 4.9g $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
(dollars in millions)
U.S
Sales		 Percent
Change
vs. FY05
Rest of
World		 Percent
Change
vs. FY05
Global
Sales		 Percent
Change
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 6.5a $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 0.2c $799 (8.6)
Omnicef $637 28.6 . . . . . . $637 28.6
Synthroid $470 (5.7) $64 14.5 $534 (3.6)
Leuprolide . . . . . . $230 4.6d $230 4.6
Lansoprazole . . . . . . $173 12.3e $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 8.2f $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

 

 

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 December 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 February 15, 2007, to shareholders of record at the close of business on January 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 will webcast its live fourth-quarter earnings conference call through its Investor Relations Web site at www.abbottinvestor.com at 8 a.m. Central time today. An archived edition of the call will be available after 11 a.m. Central time.

 

 

Private Securities Litigation Reform Act of 1995 — A Caution Concerning Forward-Looking Statements

Some statements in this news release may be forward-looking statements for the purposes of the Private Securities Litigation Reform Act of 1995. We caution that these forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those indicated. Economic, competitive, governmental, technological and other factors that may affect Abbott's operations are discussed in Item 1A, "Risk Factors," and Exhibit 99.1 to our Annual Report on Securities and Exchange Commission Form 10-K for the year ended Dec. 31, 2005, and in Item 1A, "Risk Factors," to our Quarterly Report on Securities and Exchange Commission Form 10-Q for the period ended March 31, 2006, and are incorporated by reference. We undertake no obligation to release publicly any revisions to forward-looking statements as the result of subsequent events or developments.

 

Abbott Laboratories and Subsidiaries
Consolidated Statement of Earnings
Fourth Quarter Ended December 31, 2006 and 2005
(unaudited)
 
2006
2005		 Percent
Change

Net Sales 1)
$ 6,217,969,000
$ 6,047,334,000
2.8
Cost of products sold 2) 2,865,612,000 2,809,557,000 2.0
Research and development 2) 596,167,000 490,392,000 21.6
Acquired in-process and collaborations R&D 1,307,000,000 --- n/m
Selling, general and administrative 2) 1,703,112,000 1,446,583,000 17.7
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 2) $ (476,214,000) $ 976,416,000 n/m
 
Net Earnings Excluding Specified Items,
as described below 2) 3)
$ 1,152,966,000
$ 1,176,934,000
(2.0)
 
Diluted (Loss) Earnings Per Common Share2) $ (0.31) $ 0.63 n/m
 
Diluted Earnings Per Common Share
Excluding Specified Items, as described below2) 3)
$ 0.75
$ 0.76
(1.3)
 
Diluted Earnings Per Common Share
Excluding Specified Items and Incremental Stock
Compensation Expense, as described below2) 3)

$ 0.78

$ 0.76

2.6
 
Average Number of Common Shares Outstanding Plus Dilutive
Common Stock Options and Awards
1,533,489,000
1,554,211,000		  

1)
Adjusting both periods for the amendment of the Boehringer Ingelheim (BI) distribution agreement, net sales increased by 14.5 percent.
2) 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.
3)

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)
 
2006
 2005		 Percent
Change

Net Sales 1)
$ 22,476,322,000
$ 22,337,808,000
0.6
Cost of products sold 1) 2) 9,815,147,000 10,641,111,000 (7.8)
Research and development 2) 2,255,271,000 1,821,175,000 23.8
Acquired in-process and collaborations R&D 2,014,000,000 17,131,000 n/m
Selling, general and administrative 2) 6,349,685,000 5,496,123,000 15.5
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 3) (79,128,000) 8,270,000 n/m
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 2) $ 1,716,755,000 $ 3,372,065,000 (49.1)
 
Net Earnings Excluding Specified Items,
as described below 2) 4)
$ 3,880,826,000
$3,908,524,000
(0.7)
 
Diluted Earnings Per Common Share 2) 5) 1.12 2.16 (48.1)
 
Diluted Earnings Per Common Share
Excluding Specified Items, as described below 2) 4) 5)
2.53
2.50
1.2
 
Diluted Earnings Per Common Share
Excluding Specified Items and Incremental Stock
Compensation Expense, as described below 2) 4) 5)

2.67

2.50

6.8
 
Average Number of Common Shares Outstanding Plus Dilutive
Common Stock Options and Awards
1,536,724,000
1,564,103,000		  

1)
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.
2) 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.
3) 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.
4) 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.
5) 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 January 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):

 
Cost of products sold		 4Q06   FY06
$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  
Pre-tax After-tax EPS Pre-tax After-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
Cost of
Products
Sold		  

R&D		 Acquired
in-process
R&D
SG&A		 Other
(Income)
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
Products
Sold
Gross
Margin
Gross
Margin %		 Cost of
Products
Sold
Gross
Margin
Gross
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		   Income
Tax		   Tax
Rate
As reported ($242) $234 n/m
Acquired in-process & 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.

 

 

Media:
Melissa Brotz
Jonathon Hamilton
(847) 935-3456
(847) 935-8646
Financial:
John Thomas
Larry Peepo
Tina Ventura
(847) 938-2655
(847) 935-6722
(847) 935-9390

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