Good morning and thank you for standing by. Welcome to Abbott's Second Quarter 2016 Earnings Conference Call. All participants will be able to listen-only until the question-and-answer portion of this call. This call is being recorded by Abbott. With the exception of any participant's questions asked during the question-and-answer session, the entire call, including the question-and-answer session, is material copyrighted by Abbott. It cannot be recorded or rebroadcast without Abbott's expressed written permission. I would now like to introduce Mr. Scott Leinenweber, Vice President, Investor Relations.

Good morning and thank you for joining us. With me today are Miles White, Chairman of the Board and Chief Executive Officer; Tom Freyman, Executive Vice President, Finance and Administration; and Brian Yoor Senior Vice President, Finance and Chief Financial Officer. Miles will provide opening remarks and Brian will discuss the performance in more detail. Following their comments, Miles, Tom, Brian and I will take your questions. Before we get started, some statements made today may be forward-looking for purposes of the Securities Litigation Reform Act of 1995, including the expected financial results for 2016. Abbott cautions that these forward-looking statements are subject to risk 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, to our Annual Report on Securities and Exchange Commission Form 10-K for the year ended December 31, 2015. 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. Please note that second quarter financial results and guidance provided on the call today for sales, EPS, and line items of the P&L will be for continuing operations only. On today's conference call, as in the past, non-GAAP financial measures will be used to help investors understand Abbott's ongoing business performance. These non-GAAP financial measures are reconciled with the comparable GAAP financial measures in our earnings news release and regulatory filing from today, which will be available on our website at abbott.com. Our commentary on sales growth refers to operational sales growth, which excludes the impact of foreign exchange unless otherwise noted. As you recall, Abbott issued a press release on April 28, 2016 announcing the transaction with St. Jude Medical. Please refer to that release for additional important information about Abbott, St. Jude and related matters. With that, I will now turn the call over to Miles.

Okay. Thanks, Scott. Good morning. Today we reported adjusted earnings per share of $0.55 above our guidance range. Sales increased 6.5% in the quarter, led by strong performance in Established Pharmaceuticals, Medical Devices and Diagnostics. As you know, earlier in the quarter, we took an important strategic step with our announcement to acquire St. Jude Medical. Abbott and St. Jude combined will have a highly competitive medical device portfolio, including an industry-leading new product pipeline across cardiovascular, neuromodulation, diabetes and vision care. This strategic action builds upon the steps we've taken to achieve critical mass and leadership positions across each of our four businesses. In Diagnostics and Nutrition, where we hold market-leading positions today, we've been investing in R&D and infrastructure in high-growth geographies that have strengthened our global scale and competitiveness. And in Established Pharmaceuticals, or EPD, we've taken a number of strategic steps over the last couple of years to position our business for long-term growth. EPD now operates entirely in emerging geographies and holds leading positions in many of the largest and fastest-growing pharmaceutical markets for branded generics in the world, including India, Russia and Latin America. All four of our businesses will now hold leading positions in large and growing markets that are aligned with healthcare and demographic trends, providing a strong foundation to deliver top-tier growth over the long-term. I'll now briefly review our second quarter results, and I'll start with Diagnostics, where we achieved sales growth of 6% in the quarter, driven by continued above-market performance in Core Laboratory and Point of Care Diagnostics. Our Diagnostics business has been a solid and continuous outperformer in the company and in its industry over the past several years. There is an opportunity here to further maintain if not improve upon this growth trajectory, as we prepare…

Okay. Thank you, Miles. Sales for the quarter increased 6.4% on an operational basis, that is excluding an unfavorable impact of 3.2% in foreign exchange. The negative impact from exchange was somewhat higher than previous expectations due to modest strengthening of the U.S. dollar relative to other currencies in the quarter. Reported sales increased 3.2% in the quarter. Regarding other aspects of the P&L in the quarter, the adjusted gross margin ratio was 57.6% of sales, somewhat above our previous guidance. Adjusted R&D investment was 6.5% of sales and adjusted SG&A expense was 31.6% of sales, each in line with previously-issued guidance. Turning to our outlook for the full-year 2016. Our adjusted earnings per share guidance range of $2.14 to $2.24 from continuing operations remains unchanged and reflects double-digit underlying growth offset by the impact of foreign exchange on our operating results. We continue to forecast operational sales growth in the mid-single digits for the full year. Based on current exchange rates, we expect exchange to have a negative impact of around 2.5% on our full-year reported sales, somewhat higher than previous expectations of negative 2%. This would result in reported sales growth in the low-single digits for the full-year 2016. We continue to forecast an adjusted gross margin ratio of around 57% of sales for the full year, which includes underlying gross margin improvement initiatives across our businesses. We forecast adjusted R&D investment of around 6.5% of sales and adjusted SG&A expense of approaching 31% of sales for the full year. We now forecast net interest expense of around $100 million, reflecting changes in interest rate assumptions on both, our borrowing rates for debt and the income we earn on some of our investments, and around $35 million of non-operating expense. Turning to our outlook for the third quarter,…

Thank you. Thank you. And our first question comes from Mike Weinstein from JPMorgan. Your line is now open.

Good morning, guys. Thanks for taking the questions. Miles, let's start with a couple of items, if we could. I'm sure everyone would love to get an update on the two transactions in both St. Jude and Alere. So in particular on Alere, I think people would love to hear your comments. And then second, fundamentally, it was a good quarter. I think the mix of growth was a little bit different than what we saw at the last couple of quarters. If there is one business that probably is worth spending a few more minutes on is the international pediatric nutritionals business. We've seen a couple of the local companies announce weaker results. Your quarter this quarter wasn't as good as some of your recent quarters, so maybe you can talk about what's going on in some of those markets obviously and particular at China. Thanks.

As usual, Mike, you are spot on. I feel like you must've been in the room or something here. Let me deal with the transactions first, and I'll go right to the one that you targeted, Alere. From our perspective, there has been no change. They still haven't filed a 10-K. Our access to the information has been limited. And they did put out a press release with an update that I think was at least from my perspective over-enthusiastically embraced from one of their analysts. But to that extent, the update they put out basically provided no particular new information and was a requirement they had with their bondholders for the extensions they got on the requirements in their agreements. And, the information they put out was characterized as preliminary unaudited summary only, et cetera. So I think from our perspective, no change other than the passage of time. And that's about all I can say about it at this point. So I'm not an odds predictor here so I have no particular predictions to make other than the information that's here and there is no more really to say about it since the last time you asked me the question. So moving to St. Jude, I'd say everything is tracking well. We've got a second request from the FTC which we'll certainly respond to. I'd say there is not much in the way of surprises there. All of our planning going forward is going according to plan. There is no surprises, no negatives. Their performance appears to be tracking according to our forecasts, our expectations and for their forecasts. In fact, I'd say their report this morning looks to me like their best quarter in about the last six quarters anyway. And they're trending in the right directions…

Maybe I could just get in two quick follow-ups. So one on the Alere question. Can you just talk about some of the items that you're still waiting on beyond just the filing of the 10-K? And then second, Brian, you raise your estimated FX impact on the top-line for the company. I assume there is an incremental FX headwind on the bottom-line, and that's in part why you're not raising 2016 guidance. But if you could shed any light on that, that'd be great.

With regard to I guess Alere, some information has been provided to us. We've made a number of requests regarding books and records and things that we want to audit and have access to. Some of that has been provided to us and a fair amount of it has not and continues not to be. So there is really nothing more I can say at this point, Mike, unfortunately. The announcement that they put out was not that forthcoming, and I certainly wouldn't share the optimism that one of their analysts expressed about their announcement. But I think we're just in a waiting situation here. With regard to guidance, I mean, I'll just pre-empt Brian a little bit here. You recall, we did raise guidance after the first quarter. And I think – I want to be careful how I state this, because all of our businesses are running really strong here, but I'm a little cautious on the second half. Part of it's FX but part of it is just watching underlying market growth, I'm particularly keeping an eye on China. I didn't mean I'm negative on China at all – I'm not. But I think it's premature to forecast or forecast for raising guidance on the second half of the year, so I think we'll just keep our powder dry there.

Mike, around $0.01 to $0.02 on the back half.

Perfect. Understood.

(20:53).

Thank you, guys. I appreciate you taking the questions.

Yeah.

Thank you. Our next question comes from Matt Taylor from Barclays. Your line is now open.

Good morning. Thanks for taking the questions. Wanted to start with Medical Devices. Your results there even excluding the royalty were better than recent trends, and you called out some new products. I was wondering if you could give us some more details on the contributions of those and what you expect out of Absorb or any other meaningful products going forward.

Yeah, I'll give you a little bit of overview, and then I'll ask Brian for a little help on some of the details here. But the Vascular business is doing better and a couple of things there. MitraClip is certainly a contributor to that and so also is the Endovascular business. On the core stent business, and there is still pricing pressure there, because it's an intensely competitive market among three of us but, at the same time, we're gaining share. And I think that business, if I would characterize it, is doing better and stronger than it has been in the last, I'll call it, year-and-a-half. So I'm pretty pleased with the progress there and the performance of the team. The royalty situation itself, there is a catch-up in there, which inflates the number, the growth number for this quarter, because it was catch-up of the past. But it's also – that we're going to have that royalty going forward here, so that'll be something we will clearly have in the future which has not been there for the past few quarters. So that's a plus. But if you take out the impact of that catch-up in the royalty, the growth in the Vascular business in the quarter is better than we've seen in quite some time. Brian, do you want to add any detail to that?

Yeah, Matt, we're growing to mid-single digits even tough for the royalty here. MitraClip had a really strong quarter. We're seeing great adoption uptake and utilization in the centers we're in there. And our Endovascular business continues to perform well. It's growing double digits. It's a combination of both Supera for the SFA, as you know, as well as our vessel closure business. And as far as the other side of like Medical Optics, I mean, you continue to see us grow, outpacing the market in cataracts, particularly with our premium lenses. And just excited about the cadence of the portfolio that's coming here, particularly with Symfony, to continue to build upon that. And then of course you know the story on FreeStyle Libre.

The optics market, particularly in the U.S., as you know, has experienced a fair amount of price decline in the LASIK business. And setting that aside, the performance in the cataract and the intraocular lens business has just been stellar, and we're really pleased with that. And pleased with our R&D group for the products that they've put out, pleased with the reception by customers and to be growing in healthy double digits in that segment is, well, it's great fun. All of these businesses have had their times when they've been down or waiting for new products, but these businesses are all doing really well.

Great. And maybe just one follow-up on Diagnostics. You've talked for a while about the potential for a refresh of the Core Lab and Molecular systems. Just wondering if you could give us a little bit more thoughts on timing, the feature upgrades and what really matters there, and how that can contribute to growth for Dx?

Yeah, we've got a number of new systems coming here, all of which have been under development for a few years in our Diagnostics business, and we're starting to see those roll out now and we will see over the next, let's say, two years, three years. First of all, we just launched AlinIQ, which is an informatics program that is designed to help labs with productivity and their own cost management and so forth, which we think is going to be exceptionally well received. That's launched. Following that, we've got five systems coming. There is a next-generation system in our Point of Care business that will begin to launch in Europe in the second half of this year; probably in the fourth quarter, then in the U.S. in 2017. Then the Core Lab systems to both immunoassay and clinical chemistry testing will begin to roll out as well. We expect European launch before the end of the year and in the U.S. in 2018, early in 2018. Blood screening, same thing. Late in the year in Europe, late this year in Europe. A brand new system. Beyond that, hematology in the following year of 2017, early 2017 in Europe, and then all of these early on in 2018 in the U.S. And then finally in our Molecular business in the second half of 2017, we begin to roll out a new system in Europe. So that's a lot, and that's unprecedented. No company in our business has ever put that many new systems out. They're not just refreshments; they're not just software updates or upgrades or incremental improvements on existing systems, they are all complete new refreshed systems or redone and with some new advantages and so forth. So we're pretty excited about the entire product line. Diagnostics has been doing really well with the mature products in its line, and when you think about the complete line of new products coming over the next couple of years to that business, I think that's just really a great shot in the arm there for a business that's been outperforming as it is anyway. Customers will start to see those systems at the AACC Conference in Philadelphia in later this month. At a number of the industry trade shows in the U.S. and Europe we'll clearly be introducing those systems to customers so they get a preview in advance. So I think the future for Diagnostics looks pretty good.

Thank you.

Thank you. Our next question comes from Rick Wise from Stifel. Your line is now open.

Good morning, Miles. Good morning, everybody. Miles, just to start with sort of a bigger picture question, a lot of the pushback that I get in talking about the acquisitions, that St. Jude, Alere, it seems to revolve around a few points that both are challenged, even troubled assets, that you're taking on too much integration challenge at once, the uncertainty around an equity raise, the lack of certainty around how Abbott will add value improve or better run particularly St. Jude, and maybe a little lack of clarity about the Abbott senior management team, how that's going to change, who is going to lead the effort, again, particularly on the device side. While I personally don't agree with these thoughts, I'd be curious just looking at the big picture here, again, given your long track record of successful opportunistic M&A, how is St. Jude, Alere, set up better or worse than some of the past challenges you faced? Why are these the right deal after another few months of thinking about it? What needs to be done to ensure that these are the right moves today for Abbott shareholders?

Well, I'd say a couple of things, and I understand the sentiments of investors in general. I mean I think that first of all I'd say, it's not a skeptical or cautious attitude on the part of investors, with just about everything, not particular to Abbott or specific to Abbott, but I think there is just a lot of caution out there. All that frothy, robust enthusiasm of a year and a half ago is definitely not there now. And yet the market is at a near high, but in our businesses that enthusiasm, or at least that attitude, doesn't seem to be that lit up. So we put this in the context of all of that. I think what I find in the feedback from investors is they just want a lot more clarity and a lot more visibility so that they can forecast or model or know where all this is going to go, because I can lean on historical track record and say, hey, look, AMO wasn't a great performing business when we bought it, but right now it is doing exceptionally well. The assets we assembled there is EPD. We're not at the time great asset – let's say (29:41) CFR was a pretty great asset, but a lot of the assets that we put together weren't necessarily super-performing assets. And right now, I'd say we've got one of the gems in the branded generic business globally because of the markets and the things we're in. And I think the track record of how we integrate or how we manage our businesses is proven. We're not intimidated at all by the integration. Frankly, that part, I think, we've shown we're really good at. We've got an experienced team in place. I'm not worried about that at…

Yeah, that's great perspective. One tiny quick follow-up. Obviously FreeStyle Libre is often running in Europe. You said you're working to bring it to the U.S. What's needed to make that happen? What kind of timing should we expect for FreeStyle Libre in the U.S? Thanks so much.

Yeah, there is – gosh, I'm not sure how specific to be about that. We're going to submit, as soon as possible, and I would estimate it is approved in the U.S., is my estimate and my guesstimate in the first quarter. That's what I would guess. And there's two stages to this. There's a Libre Pro and then a Libre consumer. So I think that our ambition would be to get this approved probably within the next six months to eight months, something like that. But we'll see. There is a number of steps that are going to happen here in the interim. In the meanwhile, I think it's doing exceptionally well on its rollout in Europe, we've had a really good reception from the states and countries with regard to reimbursement which I think is unusual. This has been – thus far, Libre's success has been driven by consumer pay, and direct consumer pay. And we are achieving our goals of getting key countries and key prices to agree to reimburse the product which should frankly make a big difference in the performance in the market, and it's already trending north at a pretty good clip. So I'm pretty enthusiastic about Libre and, of course, when you've got a product that's as good as that is and trending like it is, you're in a big hurry to get it approved in the U.S. yesterday. So that's where we are. Brian, do you want to add anything to that, or Scott?

No. I think that's perfectly characterized. Thanks.

Thank you.

Thank you. Our next question comes from Glenn Navarro from RBC Capital Markets. Your line is now open.

Hi. Good morning, guys. My first question relates to St. Jude. They did report this morning, and I thought what was very important is the fact that all their new products and timelines were reaffirmed this morning, which really sets St. Jude up to rebound and have a strong 2017. And Miles, you mentioned St. Jude's internal forecast, we've read it in the proxy, 10% revenue growth for the next five years, which is well above what the Street is modeling. And I'm curious...

Well, that's above what I modeled.

Okay. And it's above what I modeled. What is in that forecast that gets them to that 10%? And I guess another way to say is what are the upside surprises that could exist within the St. Jude outlook portfolio over the next five years? If you can maybe call some out to us. And then, putting the two companies together, there could be sales dis-synergies. I think you're hoping for sales synergies. How soon do you think you can achieve those sales synergies? Thank you.

Okay. A couple of things. First, before I phone a friend next to me here for some of the details underlying specific products, I would tell you that – first of all, if you've got a robust portfolio of new products coming, that's always a good thing, and we're naturally always optimistic about the uptick of products, the penetration of products, the introduction of products and so forth. And it's always a constant balance of being sufficiently enthusiastic and pushing your organization hard enough on how you want to take those products to market. And then there is always the speed bumps; something slows you down somewhere, whether it's reimbursement or the timing of an approval or whatever. And in all my years in the industry, I have never seen, on a particularly consistent basis, any company including my own deliver its new products on-time, on-plan, on-schedule without some kind of delay. Even with Libre, our ambitions were – in terms of our own internal goals, we're probably a couple of months behind where we wanted to be – months, okay, couple months. And yet, we have pretty stiff goal in our own minds about what we're trying to do here. And if you look at the product, it's screaming north at a rocket-like pace, which is a good thing. And all it takes is some minister somewhere to slow down his decision a few weeks and you're off by a couple of weeks. So when I look forward at St. Jude and I look at the 10%, is it potentially possible? Yeah, it's potentially possible, but it's a lot of green lights. It's a lot of green lights without many speed bumps. And the reality of life is, is there is a lot of speed bumps. So I would've…

Well, it's Glenn. Not Rick.

Sorry.

And second – it's all right, Miles – and it's sales synergies. So there's the potential for dis-synergies, but as I look at this deal both companies are very compatible. And so there conceivably should be sales synergies. So maybe comment on, is that – how soon that can happen?

Yeah, yeah, Glenn. May I call you Bob?

Yeah, sure.

I apologize. It was such a windy answer, I lost track. In any case, I think the synergies are going to be easy to get. I think the commercial synergies, and first of all it depends on the integration of your sales forces, the integration of your sales management structures, your commercial management structures. I think it depends on how we construct our integration our – well, there's integration and cooperation across boundaries with the multiple businesses. That will and how customers embrace that particularly in the U.S. will determine how rapidly that goes. Now, having said that, the companies have had some experience that way for some time already because we've had a joint marketing agreement with St. Jude for a number of years between our stent business and their CRM business, so we're already well familiar with each other. Of course, the dynamics change when you're part of the same company and that's a positive. It gets better. So I think that the nature of the kind of commercial synergy we would look for in the broader portfolio of products that we offer, how we approach our accounts, how we can service our accounts, et cetera, I'd say that planning is well underway if not starting to be in practice in a number of cases. And in between Mike Rousseau, the CEO of St. Jude; and Robert Ford, our EVP, and that organization or these two organizations I think the two of them and their people have planned and cooperated exceptionally well going forward here so I think we hit the ground running as if the two companies had been together for a long time. I don't really foresee a lot of hiccups or bumps here.

All right. And since you called me by the wrong name, Miles, can I squeeze in one more question?

Sure.

Okay. The Mylan stake, when you do sell the Mylan stake, the cash that you realize, will that be considered OUS trapped cash and if so, how do you handle the tax liability if you bring it back indeed to pay for Alere or St. Jude. I remember a few years ago when Tom was CFO, you brought back cash and the liability was called out as a one-timer. Is that something that you would consider doing? Thanks.

No. I don't anticipate that.

Okay. But the cash would be considered international cash? Is that correct if you do sell the stake?

Glenn, I would assume we can navigate this without the tax correction. I think we've shown a propensity across the corporations through our buybacks and other means to access our cash in an efficient way. And I think you can assume the same about this if, to Miles' point, if we're in a situation where we sell the stock.

Okay. Thank you.

Yeah, I don't think we're going to have that hiccup.

Operator, we'll take one more question.

Thank you. And our final question comes from Larry Biegelsen from Wells Fargo. Your line is now open.

Hey, guys. Thanks for taking the question. Just, Miles, on Libre, a clarification question. First quarter 2017 is that the professional version or the consumer version? As far as I know you haven't disclosed yet when you're filing the consumer version in the U.S. And second under the Dexcom panel tomorrow, what do you think the implications are for Libre? And I did have a follow-up. Thanks.

Hey, Larry. This is Scott. I'll touch base on the professional version very quickly. As you know, we filed for that device in the middle of last year. We're working with the FDA on that and that is the approval we would expect in the next six to nine months on that particular point. Obviously, as it relates to, as you know, the Dexcom panel tomorrow, I mean we're really excited about the U.S. market. We think there is lots of opportunity there. We think Libre is a unique technology. It's a discussion we'll be watching closely to see how the FDA is thinking about these novel technologies and how to apply them for diabetic patients' needs in today's market.

Thanks, Scott. And then lastly, we saw J&J adopt ASU 2016-09 yesterday and had some implications for their tax rate. What are the implications for you guys and when do you plan to adopt it? Thanks for taking the questions.

Yeah. So we don't need to adopt till 2017, Larry, and we're still assessing what that means in terms of our ongoing earnings on a year-to-year basis because there are some moving parts there. We're still assessing it. We won't adopt until we have to.

Thanks a lot, guys.

Sure.

Okay.

Thank you, operator, and thank you for all of your questions. That concludes Abbott's conference call. A replay of this call will be available after 11:00 AM Central Time on Abbott's Investor Relations website at www.abbottinvestor.com. And after 11:00 AM Central Time via telephone at 404-537-3406; pass code 38160622. The audio replay will be available until 4:00 PM Central Time on Wednesday, August 3. Thank you for joining us today.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a wonderful day.