March 28 - Overview -- U.S. diversified pharmaceutical company Abbott Laboratories intends to split off its global proprietary pharmaceutical operations into a separate company, to be named AbbVie, leaving the lower margin established pharmaceutical operations with Abbott. -- At this time, neither the exact composition of either business or their financial structure is known, but both will be smaller and less diverse than Abbott is now. -- On Oct. 19, 2011, we placed our 'AA' long-term and corporate credit ratings and 'A-1+' commercial paper rating on Abbott on CreditWatch with negative implications. -- Resolution of the CreditWatch listing awaits publicly disclosed details of the exact business and financial structure of Abbott postspinoff. Rating Action On March 28, 2012, Standard & Poor's Ratings Services said that its 'AA/A-1+' long- and short-term ratings on Abbott Park, Ill.-based diversified pharmaceutical company Abbott Laboratories remain on CreditWatch, where we placed them with negative implications on Oct. 19, 2011. Rationale The CreditWatch listing reflects the smaller business risk profile and uncertain financial risk profile of the remaining operations at Abbott. Precisely which pharmaceuticals will remain with Abbott is uncertain, although the emerging-market focus is clear. Abbott's pharmaceutical segment now accounts for the majority of earnings and cash flows, with little significant product concentration. Its nutritional business, with the well-recognized Similac brand of infant nutritionals, has positions in mature and emerging markets. The worldwide diagnostics unit has strong positions in immunochemistry assays, hematology, and molecular diagnostics. The vascular unit benefits from the growing success of the Xience family of drug-eluting stents (DES) over its competitors. Acquisitions often strengthen these positions. For example, Abbott's presence in the ophthalmic market was established through the early 2009 purchase of Advanced Medical Optics (AMO). In 2010, Abbott added substantially to its international presence, in our view, through the $6.7 billion acquisition of the pharmaceutical business of Belgium-based Solvay SA and $3.7 billion purchase of India's Piramal branded generic drug business. In our view, Abbott has a solid track record of successfully integrating acquisitions. Liquidity Abbott's liquidity is "exceptional," supporting our 'A-1+' commercial paper rating. Sources of cash are likely to exceed mandatory uses of cash over the next two to three years. Relevant aspects of Abbott' liquidity are: -- We expect liquidity sources to exceed uses by at least 2x over the next two to three years. -- Even if EBITDA declines by 50%, we expect liquidity sources to continue exceeding uses. -- Debt to capital is more than 30% below the level specified by the sole financial covenant in its credit agreement. -- With its ample cash balance and a largely undrawn $6.7 billion revolving credit facility, which supports a large commercial paper (CP) program, we believe Abbott could absorb, without refinancing, high-impact, low-probability events. -- In our assessment, Abbott has well-established, solid relationships with banks, and a generally high standing in the credit markets. Sources of liquidity as of Dec. 31, 2011, included cash and readily available investments of $9.0 billion. The company also has access to revolving credit facilities totaling $6.7 billion, which it used to backup CP issuance. We expect Abbott to generate discretionary cash flows of about $5.0 billion annually. The largest recurring call on cash is the dividend it pays to shareholders, which we expect to be about $2.7 billion in 2011. The payment of this dividend sometimes will exceed a quarter's free cash generation. We believe Abbott will readily pay near-term maturities of $1.0 billion in 2012. Postretirement funding obligations are modest. CreditWatch Resolution of the CreditWatch listing awaits publicly disclosed details of the exact business and financial structure of Abbott postspinoff. Although the established pharmaceutical products segment will be retained by Abbott Laboratories, the pharmaceutical segment's sales base will become smaller. The distribution of the $15 billion of debt carried as of Dec. 31, 2011, is the second major uncertainty reflected in the CreditWatch listing. Related Criteria And Research -- Liquidity Descriptors For Global Corporate Issuers, Sept. 28, 2011 -- Use Of CreditWatch And Outlooks, Sept. 14, 2009 -- Business Risk/Financial Risk Matrix Expanded, May 27, 2009 -- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008 Ratings List Remaining On CreditWatch Abbott Laboratories Corporate Credit Rating AA/Watch Neg/A-1+ Senior Unsecured AA/Watch Neg Commercial Paper A-1+/Watch Neg Abbott Japan Co. Ltd. Senior Unsecured AA/Watch Neg Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at www.globalcreditportal.com. All ratings referenced herein can be found on Standard & Poor's public Web site at www.standardandpoors.com. Use the Ratings search box located in the left column.