ABBOTT LABORATORIES - Interim / Quarterly Report 2009

10-Q 1 a09-13597_110q.htm 10-Q

*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, 2009*

*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
36-0698440

*100 Abbott Park Road*

*Abbott Park, Illinois 60064-6400*

*Telephone: (847) 937-6l00*

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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post 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, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer x	Accelerated Filer o
Non-Accelerated Filer o	Smaller reporting company o
(Do not check if a smaller
reporting company)

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, 2009, Abbott Laboratories had 1,545,912,443 common shares without par value outstanding.

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PART I. FINANCIAL INFORMATION

Abbott Laboratories and Subsidiaries

Condensed Consolidated Financial Statements

(Unaudited)

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Abbott Laboratories and Subsidiaries

Condensed Consolidated Statement of Earnings

(Unaudited)

(dollars and shares in thousands except per share data)

	Three Months Ended				Six Months Ended
	June 30				June 30
	2009		2008		2009		2008
Net
Sales	$ 7,494,876		$ 7,314,021		$ 14,213,244		$ 14,079,624
Cost
of products sold	3,128,998		3,119,700		6,064,919		6,080,772
Research
and development	670,206		656,863		1,320,949		1,276,820
Acquired
in-process research and development			78,556				97,256
Selling,
general and administrative	2,024,252		2,052,317		4,095,197		4,070,350
Total
Operating Cost and Expenses	5,823,456		5,907,436		11,481,065		11,525,198
Operating
Earnings	1,671,420		1,406,585		2,732,179		2,554,426
Interest
expense	136,969		137,769		261,159		280,303
Interest
(income)	(33,877	)	(54,448	)	(69,921	)	(103,804	)
(Income)
from TAP Pharmaceutical Products Inc. joint venture			(17,055	)			(118,997	)
Net
foreign exchange loss (gain)	14,394		14,472		28,828		20,693
Other
(income) expense, net	(13,104	)	(310,471	)	(987,404	)	(320,813	)
Earnings
Before Taxes	1,567,038		1,636,318		3,499,517		2,797,044
Taxes
on Earnings	278,933		314,304		772,775		537,163
Net
Earnings	$ 1,288,105		$ 1,322,014		$ 2,726,742		$ 2,259,881
Basic
Earnings Per Common Share	$ 0.83		$ 0.86		$ 1.76		$ 1.47
Diluted
Earnings Per Common Share	$ 0.83		$ 0.85		$ 1.75		$ 1.45
Cash
Dividends Declared Per Common Share	$ 0.40		$ 0.36		$ 0.80		$ 0.72
Average
Number of Common Shares Outstanding
Used
for Basic Earnings Per Common Share	1,545,643		1,539,786		1,546,317		1,541,909
Dilutive
Common Stock Options and Awards	4,921		13,609		7,337		15,076
Average
Number of Common Shares Outstanding
Plus
Dilutive Common Stock Options and Awards	1,550,564		1,553,395		1,553,654		1,556,985
Outstanding
Common Stock Options Having No Dilutive Effect	90,451		48,423		67,391		6,399

The accompanying notes to condensed consolidated financial statements are an integral part of this statement.

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Abbott Laboratories and Subsidiaries

Condensed Consolidated Statement of Cash Flows

(Unaudited)

(dollars in thousands)

	Six Months Ended
	June 30
	2009		2008
Cash
Flow From (Used in) Operating Activities:
Net
earnings	$ 2,726,742		$ 2,259,881
Adjustments
to reconcile earnings to net cash from operating activities
Depreciation	574,139		534,626
Amortization
of intangible assets	427,304		383,088
Share-based
compensation	244,911		219,793
Derecognition
of a contingent liability associated with the conclusion of the TAP
Pharmaceutical Products Inc. joint venture	(797,130	)
Gain
on dissolution of TAP Pharmaceutical Products Inc. joint venture			(94,656	)
Acquired
in-process research and development			97,256
Trade
receivables	427,257		(53,079	)
Inventories	(280,610	)	(35,087	)
Other,
net	(910,094	)	(248,196	)
Net
Cash From Operating Activities	2,412,519		3,063,626
Cash
Flow From (Used in) Investing Activities:
Acquisitions
of property and equipment	(514,891	)	(703,327	)
Acquisitions
of businesses, net of cash acquired	(1,509,391	)
Proceeds
from sales of Boston Scientific common stock			318,645
Purchases
of other investment securities, net	(1,717,733	)	(1,209,203	)
Other,
net	(1,135	)	(87,322	)
Net
Cash (Used in) Investing Activities	(3,743,150	)	(1,681,207	)
Cash
Flow From (Used in) Financing Activities:
Proceeds
from issuance of short-term debt and other	2,547,425		1,699,869
Proceeds
from issuance of long-term debt	3,000,000
Repayments
of long-term debt	(2,483,176	)	(200,000	)
Purchases
of common shares	(824,781	)	(1,071,435	)
Proceeds
from stock options exercised, including tax benefit	292,819		463,169
Dividends
paid	(1,177,308	)	(1,060,186	)
Net
Cash From (Used in) Financing Activities	1,354,979		(168,583	)
Effect
of exchange rate changes on cash and cash equivalents	67,934		126,366
Net
Increase in Cash and Cash Equivalents	92,282		1,340,202
Cash
and Cash Equivalents, Beginning of Year	4,112,022		2,456,384
Cash
and Cash Equivalents, End of Period	$ 4,204,304		$ 3,796,586

The accompanying notes to condensed consolidated financial statements are an integral part of this statement.

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Abbott Laboratories and Subsidiaries

Condensed Consolidated Balance Sheet

(Unaudited)

(dollars in thousands)

	June 30 2009		December 31 2008
Assets
Current
Assets:
Cash
and cash equivalents	$ 4,204,304		$ 4,112,022
Investments,
primarily time deposits and certificates of deposit	2,683,639		967,603
Trade
receivables, less allowances of $299,234 in 2009 and $263,632 in 2008	5,452,765		5,465,660
Inventories:
Finished
products	2,262,439		1,545,950
Work
in process	647,612		698,140
Materials	610,788		531,759
Total
inventories	3,520,839		2,775,849
Prepaid
expenses, deferred income taxes, and other receivables	3,766,829		3,721,425
Total
Current Assets	19,628,376		17,042,559
Investments	1,051,952		1,073,736
Property
and Equipment, at Cost	15,884,553		15,188,673
Less:
accumulated depreciation and amortization	8,436,250		7,969,507
Net
Property and Equipment	7,448,303		7,219,166
Intangible
Assets, net of amortization	5,996,480		5,151,106
Goodwill	12,217,882		9,987,361
Deferred
Income Taxes and Other Assets	1,287,024		1,945,276
	$ 47,630,017		$ 42,419,204
Liabilities and Shareholders Investment
Current
Liabilities:
Short-term
borrowings	$ 4,295,727		$ 1,691,069
Trade
accounts payable	1,185,405		1,351,436
Salaries,
dividends payable, and other accruals	5,556,720		5,787,118
Income
taxes payable	932,321		805,397
Obligation
in connection with conclusion of TAP Pharmaceutical Products Inc. joint
venture	36,105		915,982
Current
portion of long-term debt	36,103		1,040,906
Total
Current Liabilities	12,042,381		11,591,908
Long-term
Debt	11,371,518		8,713,327
Post-employment
Obligations and Other Long-term Liabilities	4,296,050		4,595,278
Commitments
and Contingencies
Shareholders
Investment:
Preferred
shares, one dollar par value
Authorized
1,000,000 shares, none issued
Common
shares, without par value
Authorized
- 2,400,000,000 shares
Issued
at stated capital amount -
Shares:
2009: 1,607,948,710; 2008: 1,601,580,899	7,927,426		7,444,411
Common
shares held in treasury, at cost -
Shares:
2009: 62,036,267; 2008: 49,147,968	(3,338,360	)	(2,626,404	)
Earnings
employed in the business	15,296,662		13,825,383
Accumulated
other comprehensive income (loss)	(6,616	)	(1,163,839	)
Total
Abbott Shareholders Investment	19,879,112		17,479,551
Noncontrolling
Interests in Subsidiaries	40,956		39,140
Total
Equity	19,920,068		17,518,691
	$ 47,630,017		$ 42,419,204

The accompanying notes to condensed consolidated financial statements are an integral part of this statement.

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Abbott Laboratories and Subsidiaries

Notes to Condensed Consolidated Financial Statements

June 30, 2009

(Unaudited)

Note 1 Basis of Presentation

The accompanying unaudited, condensed consolidated financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission and, therefore, do not include all information and footnote disclosures normally included in audited financial statements. However, in the opinion of management, all adjustments (which include only normal adjustments) necessary to present fairly the results of operations, financial position and cash flows have been made. It is suggested that these statements be read in conjunction with the financial statements included in Abbotts Annual Report on Form 10-K for the year ended December 31, 2008. Events that occurred after June 30, 2009 through the date that these financial statements have been filed with the Securities and Exchange Commission were considered in the preparation of these financial statements.

On January 1, 2009, Abbott adopted SFAS No. 160 Noncontrolling Interests in Consolidated Financial Statementsan amendment of ARB No. 51 and accordingly, noncontrolling interests in subsidiaries are presented as a component of total equity as of June 30, 2009 and December 31, 2008.

Note 2 Supplemental Financial Information

Other (income) expense, net, for the first six months of 2009 includes the derecognition of a contingent liability of $797 million associated with the conclusion of the TAP joint venture as discussed in Note 9 and income from the recording of certain investments at fair value in connection with business acquisitions. Other (income) expense, net, for the second quarter and first six months of 2009 and 2008 includes ongoing contractual payments from Takeda associated with the conclusion of the TAP joint venture. In connection with the dissolution of the TAP Pharmaceutical Products Inc. joint venture, Abbott recorded a gain of approximately $95 million in the second quarter 2008, which is included in Other (income) expense, net. Other (income) expense, net for the second quarter and six months ended June 30, 2008 also includes a gain of approximately $52 million on the sale of an equity investment accounted for as an available-for-sale investment.

Supplemental Cash Flow Information Other, net in Net cash from operating activities for 2009 and 2008 includes the effects of contributions to the main domestic defined benefit plan of $700 million and $200 million, respectively, and to the post-employment medical and dental plans of $13 million and $65 million in 2009 and 2008, respectively. Purchases of other investment securities, net in 2009 and 2008 reflects the acquisition of short-term investments with original maturities of over three months.

The components of long-term investments as of June 30, 2009 and December 31, 2008 are as follows:

	June 30	December 31
(dollars
in millions)	2009	2008
Equity
securities	$ 113	$ 147
Note
receivable from Boston Scientific, 4% interest, due in 2011	872	865
Other	67	62
Total	$ 1,052	$ 1,074

Note 3 Taxes on Earnings

Taxes on earnings reflect the estimated annual effective rates and include charges for interest and penalties. The effective tax rates are less than the statutory U.S. federal income tax rate principally due to the benefit of lower statutory tax rates and tax exemptions in several foreign taxing jurisdictions. In the second quarter of 2008, Abbotts federal income tax returns for 2004 and 2005 were settled, resulting in a net reduction of income taxes of approximately $30 million.

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Notes to Condensed Consolidated Financial Statements

June 30, 2009

(Unaudited), continued

Note 4 Litigation and Environmental Matters

Abbott has been identified as a potentially responsible party for investigation and cleanup costs at a number of locations in the United States and Puerto Rico under federal and state remediation laws and is investigating potential contamination at a number of company-owned locations. Abbott has recorded an estimated cleanup cost for each site for which management believes Abbott has a probable loss exposure. No individual site cleanup exposure is expected to exceed $3 million, and the aggregate cleanup exposure is not expected to exceed $15 million.

There are a number of patent disputes with third parties who claim Abbotts products infringe their patents. In April 2007, New York University (NYU) and Centocor, Inc. filed a lawsuit in the Eastern District of Texas asserting that HUMIRA infringes a patent co-owned by NYU and Centocor. In June 2009, a jury found that Abbott had willfully infringed the patent and awarded NYU and Centocor approximately $1.67 billion in past compensatory damages. The award is subject to review by the trial court. Abbott will ask the trial court to overturn the verdict and/or reduce the damages award. In the event that the trial court does not overturn the verdict, Abbott will appeal. Abbott is confident in the merits of its case and believes that it will prevail on appeal. As a result, no reserves have been recorded in this case. Abbotts acquisition of Kos Pharmaceuticals Inc. resulted in the assumption of various cases and investigations and Abbott has recorded reserves related to several of those cases and investigations.

There are several civil actions pending brought by individuals or entities that allege generally that Abbott and numerous pharmaceutical companies reported false or misleading pricing information relating to the average wholesale price of certain pharmaceutical products in connection with federal, state and private reimbursement. Civil actions have also been brought against Abbott, and in some cases other members of the pharmaceutical industry, by state attorneys general seeking to recover alleged damages on behalf of state Medicaid programs. In May 2006, Abbott was notified that the U.S. Department of Justice intervened in a civil whistle-blower lawsuit alleging that Abbott inflated prices for Medicaid and Medicare reimbursable drugs. Abbott has settled a few of the cases and recorded reserves for its estimated losses in a few other cases, however, Abbott is unable to estimate the range or amount of possible loss for the remaining cases, and no loss reserves have been recorded for them. Many of the products involved in these cases are Hospira products. Hospira, Abbotts former hospital products business, was spun off to Abbotts shareholders in 2004. Abbott retained liability for losses that result from these cases and investigations to the extent any such losses both relate to the sale of Hospiras products prior to the spin-off of Hospira and relate to allegations that were made in such pending and future cases and investigations that were the same as allegations existing at the date of the spin-off.

There are several civil actions pending brought by state attorneys general and private entities alleging antitrust and unfair competition claims in connection with the sales of TriCor . Abbott licenses TriCor from a third party and the licensor has also been named as a defendant. Settlements have been reached in all of these cases except the state attorneys general, however, Abbott is unable to estimate a reserve and no loss reserve has been recorded for the remaining TriCor cases.

Within the next year, legal proceedings may occur that may result in a change in the estimated reserves recorded by Abbott. For its legal proceedings and environmental exposures, except as noted above, Abbott estimates the range of possible loss to be from approximately $205 million to $415 million. The recorded reserve balance at June 30, 2009 for these proceedings and exposures was approximately $275 million. These reserves represent managements best estimate of probable loss, as defined by Statement of Financial Accounting Standards No. 5 Accounting for Contingencies.

While it is not feasible to predict the outcome of all such proceedings and exposures with certainty, management believes that their ultimate disposition should not have a material adverse effect on Abbotts financial position, cash flows, or results of operations, except for the cases and investigations discussed in the third paragraph and the patent case discussed in the second paragraph of this footnote, the resolution of which could be material to cash flows or results of operations.

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Notes to Condensed Consolidated Financial Statements

June 30, 2009

(Unaudited), continued

Note 5 Post-Employment Benefits

Retirement plans consist of defined benefit, defined contribution, and medical and dental plans. Net cost for the three and six months ended June 30 for Abbotts major defined benefit plans and post-employment medical and dental benefit plans is as follows:

	Defined Benefit Plans								Medical and Dental Plans
	Three Months				Six Months				Three Months				Six Months
	Ended June 30				Ended June 30				Ended June 30				Ended June 30
(dollars
in millions)	2009		2008		2009		2008		2009		2008		2009		2008
Service cost benefits earned during the
period	$ 60		$ 55		$ 120		$ 115		$ 12		$ 11		$ 24		$ 23
Interest cost on projected benefit obligations	94		84		188		170		26		22		51		48
Expected return on plans assets	(127	)	(120	)	(254	)	(239	)	(6	)	(8	)	(12	)	(16	)
Net amortization	18		5		36		18		4		1		9		6
Net
Cost	$ 45		$ 24		$ 90		$ 64		$ 36		$ 26		$ 72		$ 61

Abbott funds its domestic defined benefit plans according to IRS funding limitations. In the first quarters of 2009 and 2008, $700 million and $200 million, respectively, was contributed to the main domestic defined benefit plan and $13 million and $65 million, respectively, was contributed to the post-employment medical and dental benefit plans.

Note 6 Comprehensive Income, net of tax

	Three Months Ended				Six Months Ended
	June 30				June 30
(dollars in millions)	2009		2008		2009		2008
Foreign
currency translation gain adjustments	$ 1,223		$ 242		$ 1,164		$ 433
Unrealized
(losses) gains on marketable
equity securities			(2	)	3		(27	)
Amortization
of net actuarial losses and prior service cost and credits	14		4		30		16
Net
adjustments for derivative instruments designated as cash flow hedges	(49	)	2		(40	)	(4	)
Other
comprehensive income, net of tax	1,188		246		1,157		418
Net
Earnings	1,288		1,322		2,727		2,260
Comprehensive
Income	$ 2,476		$ 1,568		$ 3,884		$ 2,678

	June 30 2009		December 31 2008
Supplemental
Comprehensive Income Information, net of tax:
Cumulative
foreign currency translation (gain) adjustments	$ (1,904	)	$ (740	)
Cumulative
unrealized (gains) on marketable equity securities	(20	)	(17	)
Net
actuarial losses and prior service cost and credits	1,871		1,901
Cumulative
losses on derivative instruments designated as cash flow hedges	60		20

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Notes to Condensed Consolidated Financial Statements

June 30, 2009

(Unaudited), continued

Note 7 Segment Information

Abbotts principal business is the discovery, development, manufacture and sale of a broad line of health care products. Abbotts products are generally sold directly to retailers, wholesalers, hospitals, health care facilities, laboratories, physicians offices and government agencies throughout the world. Abbotts reportable segments are as follows:

Pharmaceutical Products Worldwide sales of a broad line of pharmaceuticals. For segment reporting purposes, two pharmaceutical divisions are aggregated and reported as the Pharmaceutical Products segment.

Nutritional Products Worldwide sales of a broad line of adult and pediatric nutritional products.

Diagnostic Products Worldwide sales of diagnostic systems and tests for blood banks, hospitals, commercial laboratories and alternate-care testing sites. For segment reporting purposes, three diagnostic divisions are aggregated and reported as the Diagnostic Products segment.

Vascular Products Worldwide sales of coronary, endovascular, vessel closure and other products.

Abbotts underlying accounting records are maintained on a legal entity basis for government and public reporting requirements. Segment disclosures are on a performance basis consistent with internal management reporting. Intersegment transfers of inventory are recorded at standard cost and are not a measure of segment operating earnings. The cost of some corporate functions and the cost of certain employee benefits are charged to segments at predetermined rates that approximate cost. Remaining costs, if any, are not allocated to segments. For acquisitions prior to 2006, substantially all intangible assets and related amortization are not allocated to segments. The following segment information has been prepared in accordance with the internal accounting policies of Abbott, as described above, and are not presented in accordance with generally accepted accounting principles applied to the consolidated financial statements.

	Net Sales to External Customers				Operating Earnings
	Three Months		Six Months		Three Months				Six Months
	Ended June 30		Ended June 30		Ended June 30				Ended June 30
(dollars
in millions)	2009	2008	2009	2008	2009		2008		2009		2008
Pharmaceutical
Products	$ 3,946	$ 4,123	$ 7,582	$ 7,978	$ 1,554		$ 1,541		$ 2,859		$ 2,886
Nutritional
Products	1,283	1,235	2,465	2,344	215		193		396		376
Diagnostic
Products	878	936	1,694	1,768	103		102		190		155
Vascular
Products	658	489	1,302	941	138		47		297		16
Total
Reportable Segments	6,765	6,783	13,043	13,031	2,010		1,883		3,742		3,433
Other	730	531	1,170	1,049
Net
Sales	$ 7,495	$ 7,314	$ 14,213	$ 14,080
Corporate
functions and benefit plans costs					(107	)	(97	)	(201	)	(210	)
Non-reportable
segments					114		41		171		113
Net
interest expense					(103	)	(83	)	(191	)	(176	)
Acquired
in-process research and development							(79	)			(97	)
Income
from TAP Pharmaceutical Products Inc. joint venture							17				119
Share-based
compensation (a)					(71	)	(68	)	(245	)	(220	)
Other,
net (b)					(276	)	22		224		(165	)
Consolidated
Earnings Before Taxes					$ 1,567		$ 1,636		$ 3,500		$ 2,797

(a) Approximately 40 to 45 percent of the annual net cost of share-based awards will typically be recognized in the first quarter due to the timing of the granting of share-based awards.

(b) Other, net, for the six months ended June 30, 2009, includes the derecognition of a contingent liability of $797 established in connection with the conclusion of the TAP joint venture. Other, net for the three months and six months ended June 30, 2008, includes the gain from the closing of the TAP joint venture and contractual payments from TAP associated with the closing of the TAP Pharmaceutical Products Inc. joint venture.

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Notes to Condensed Consolidated Financial Statements

June 30, 2009

(Unaudited), continued

Note 8 Incentive Stock Program

In the first six months of 2009, Abbott granted 1,712,400 stock options, 797,763 replacement stock options, 1,274,400 restricted stock awards and 5,468,552 restricted stock units under this program. In addition, 2,899,411 options were issued in connection with the conversion of Advanced Medical Optics, Inc. options to Abbott options. At June 30, 2009, approximately 220 million shares were reserved for future grants, including 175 million shares authorized by Abbotts shareholders in April 2009. Information regarding the number of options outstanding and exercisable at June 30, 2009 is as follows:

	Outstanding	Exercisable
Number of shares	124,936,705	102,978,217
Weighted average
remaining life (years)	6.1	5.6
Weighted average exercise
price	$ 49.72	$ 48.70
Aggregate intrinsic value
( in millions )	$ 232	$ 232

The total unrecognized share-based compensation cost at June 30, 2009 amounted to approximately $340 million which is expected to be recognized over the next three years.

Note 9 Conclusion of TAP Pharmaceutical Products Inc. Joint Venture

On April 30, 2008, Abbott and Takeda concluded their TAP Pharmaceutical Products Inc. (TAP) joint venture, evenly splitting the value and assets of the joint venture. Abbott exchanged its 50 percent equity interest in TAP for the assets, liabilities and employees related to TAPs Lupron business. Beginning on May 1, 2008, Abbott began recording U.S. Lupron net sales and costs in its operating results and no longer records income from the TAP joint venture. Abbott receives payments based on specified development, approval and commercial events being achieved with respect to products retained by Takeda and payments from Takeda based on sales of products retained by Takeda, which are recorded by Abbott as Other (income) expense, net as earned. Abbott also agreed to remit cash to Takeda if certain research and development events were not achieved on the development assets retained by Takeda. These amounts were recorded as a liability at closing in the amount of approximately $1.1 billion. Of the $1.1 billion, Abbott made tax-deductible payments of $83 million and $200 million in 2009 and 2008, respectively, and Abbott will make a tax-deductible payment of approximately $36 million in 2010. In the first quarter of 2009, events occurred resulting in certain payments not being required and a liability in the amount of $797 million was derecognized and recorded as income in Other (income) expense, net.

The 50 percent-owned joint venture was accounted for under the equity method of accounting. Summarized financial information for TAP for the three months and six months ended June 30, 2008 are as follows below: ( dollars in millions )

	Three Months	Six Months
Net sales	$ 141	$ 853
Cost
of sales	46	229
Income
before taxes	35	356
Net
earnings	34	238

SEQ.=1,FOLIO='9',FILE='C:\JMS\105932\09-13597-1\task3657782\13597-1-ba-05.htm',USER='105932',CD='Aug 4 09:31 2009'

Notes to Condensed Consolidated Financial Statements

June 30, 2009

(Unaudited), continued

Note 10 Business Acquisitions

In February 2009, Abbott acquired the outstanding shares of Advanced Medical Optics, Inc. (AMO), a marketer of ophthalmic surgical technology and devices, as well as eye care solutions for approximately $1.4 billion in cash, net of cash held by AMO. Prior to the acquisition, Abbott held a small investment in AMO. Abbott acquired AMO to take advantage of increasing demand for vision care technologies due to population growth and demographic shifts and AMOs premier position in its field. Abbott acquired control of this business on February 25, 2009 and the financial results of the acquired operations are included in these financial statements beginning on that date in accordance with Statement of Financial Accounting Standards No. 141(R). The acquisition was financed with long-term debt. The preliminary allocation of the fair value of the acquisition is shown in the table below (in billions of dollars) . These allocations will be finalized when appraisals are completed.

| Goodwill,
non-deductible | $ | |
| --- | --- | --- |
| Acquired
intangible assets, non-deductible | 0.9 | |
| Acquired
in-process research and development | 0.2 | |
| Acquired
net tangible assets | 0.5 | |
| Acquired
debt | (1.5 | ) |
| Deferred
income taxes recorded at acquisition | (0.3 | ) |
| Total
preliminary allocation of fair value | $ 1.4 | |

Acquired intangible assets consist of established customer relationships, developed technology and trade names and will be amortized over 2 to 30 years (average of 15 years). Acquired in-process research and development will be accounted for as an indefinite lived intangible asset until regulatory approval or discontinuation. The net tangible assets acquired consist primarily of trade accounts receivable, inventory, property and equipment and other assets, net of assumed liabilities, primarily trade accounts payable, accrued compensation and other liabilities.

Abbott incurred approximately $70 million of acquisition related expenses in the first six months of 2009 which are classified as Selling, general and administrative expense. In addition, subsequent to the acquisition, Abbott repaid substantially all of the acquired debt of AMO.

In January 2009, Abbott acquired Ibis Biosciences, Inc. (Ibis) for $175 million, in cash, to expand Abbotts position in molecular diagnostics for infectious disease. Including a $40 million investment in Ibis in 2008, Abbott has acquired 100 percent of the outstanding shares of Ibis. A substantial portion of the fair value of the acquisition has been allocated to goodwill and amortizable intangible assets, and acquired in-process research and development which will be accounted for as an indefinite lived intangible asset until regulatory approval or discontinuation. The investment in Ibis in 2008 resulted in a charge to acquired in-process research and development in the first six months of 2008. In connection with the acquisition, the carrying amount of this investment was revalued to fair value in the first quarter of 2009 resulting in recording $33 million of income, which is reported as Other (income) expense, net.

Had the above acquisitions taken place on January 1 of the previous year, consolidated net sales and income would not have been significantly different from reported amounts.

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Notes to Condensed Consolidated Financial Statements

June 30, 2009

(Unaudited), continued

Note 11 Financial Instruments, Derivatives and Fair Value Measures

Certain Abbott foreign subsidiaries enter into foreign currency forward exchange contracts to manage exposures to changes in foreign exchange rates for anticipated intercompany purchases by those subsidiaries whose functional currencies are not the U.S. dollar. These contracts, totaling $470 million and $129 million at June 30, 2009 and December 31, 2008, respectively, are designated as cash flow hedges of the variability of the cash flows due to changes in foreign exchange rates. Accumulated gains and losses as of June 30, 2009 will be included in Cost of products sold at the time the products are sold, generally through the next twelve months. The amount of hedge ineffectiveness was not significant in 2009 and 2008 for these hedges.

Abbott enters into foreign currency forward exchange contracts to manage currency exposures for foreign currency denominated third-party trade payables and receivables, and for intercompany loans and trade accounts payable where the receivable or payable is denominated in a currency other than the functional currency of the entity. For intercompany loans, the contracts require Abbott to sell or buy foreign currencies, primarily European currencies and Japanese yen, in exchange for primarily U.S. dollars and other European currencies. For intercompany and trade payables and receivables, the currency exposures are primarily the U.S. dollar, European currencies and Japanese yen. At June 30, 2009 and December 31, 2008, Abbott held $6.5 billion and $8.3 billion, respectively, of such foreign currency forward exchange contracts.

Abbott has designated foreign denominated short-term debt as a hedge of the net investment in certain foreign subsidiaries of approximately $556 million and approximately $585 million as of June 30, 2009 and December 31, 2008, respectively. Accordingly, changes in the fair value of this debt due to changes in exchange rates are recorded in Accumulated other comprehensive income (loss), net of tax.

Abbott is a party to interest rate swap contracts totaling $5.5 billion and $2.5 billion at June 30, 2009 and December 31, 2008, respectively, to manage its exposure to changes in the fair value of $5.5 billion and $2.5 billion, respectively, of fixed-rate debt due 2011 through 2019. These contracts are designated as fair value hedges of the variability of the fair value of fixed-rate debt due to changes in the long-term benchmark interest rates. The effect of the hedge is to change a fixed-rate interest obligation to a variable rate for that portion of the debt. Abbott records the contracts at fair value and adjusts the carrying amount of the fixed-rate debt by an offsetting amount. No hedge ineffectiveness was recorded in income in 2009 or 2008 for these hedges.

The following table summarizes the amounts and location of certain derivative financial instruments as of June 30, 2009 and December 31, 2008:

| (dollars
in millions) | Fair
Value - Assets — June 30 2009 | December 31 2008 | Balance
Sheet Caption | Fair
Value - Liabilities — June 30 2009 | December 31 2008 | Balance
Sheet Caption |
| --- | --- | --- | --- | --- | --- | --- |
| Interest
rate swaps designated as | $ 65 | $ 170 | Deferred income | $ 224 | $ | Post-employment |
| fair
value hedges | | | taxes and other assets | | | obligations and other
long-term liabilities |
| Foreign
currency forward exchange contracts | | | | | | |
| Hedging
instruments | | | Prepaid expenses, | 33 | 7 | Salaries, dividends |
| Others
not designated as | 85 | 148 | deferred income | 80 | 93 | payable and other |
| hedges | | | taxes, and other
receivables | | | accruals |
| Financial
assets and liabilities | 10 | 16 | Deferred income | 15 | 24 | Post-employment |
| relating to TAP
employees stock options | | | taxes and other assets | | | obligations and other
long-term liabilities |
| Debt
designated as a hedge of net investment in certain foreign subsidiaries | | | | 556 | 585 | Short-term borrowings |
| | $ 160 | $ 334 | | $ 908 | $ 709 | |

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Notes to Condensed Consolidated Financial Statements

June 30, 2009

(Unaudited), continued

The following table summarizes the activity for foreign currency forward exchange contracts designated as cash flow hedges, debt designated as a hedge of net investment in certain foreign subsidiaries and the amounts and location of income (expense) and gain (loss) reclassified into income in the second quarter and first six months of 2009 and 2008 and for certain other derivative financial instruments. The amount of hedge ineffectiveness was not significant in 2009 and 2008 for these hedges.

	Gain (loss) Recognized in Other Comprehensive Income (loss)								Income (expense) and Gain (loss) Reclassified into Income
	Three Months Ended June 30				Six Months Ended June 30				Three Months Ended June 30				Six Months Ended June 30				Income Statement
(dollars
in millions)	2009		2008		2009		2008		2009		2008		2009		2008		Caption
Foreign
currency forward exchange contracts designated as cash flow hedges	$ (14	)	$ (4	)	$ (17	)	$ (6	)	$ (3	)	$ (2	)	$ (5	)	$ (4	)	Cost of products sold
Debt
designated as a hedge of net investment in certain foreign subsidiaries	(9	)	26		32		(123	)									n/a
Interest
rate swaps designated as fair value hedges	n/a		n/a		n/a		n/a		(305	)	(81	)	(328	)	(32	)	Interest expense
Foreign
currency forward exchange contracts not designated as hedges	n/a		n/a		n/a		n/a		(85	)	44		(11	)	45		Net foreign exchange
loss (gain)
Financial
assets and liabilities relating to TAP employees stock options
Assets	n/a		n/a		n/a		n/a		(1	)	(11	)	(5	)	(11	)	Other (income)
Liabilities	n/a		n/a		n/a		n/a		1		11		9		11		expense, net

The carrying values and fair values of certain financial instruments as of June 30, 2009 and December 31, 2008 are shown in the table below. The carrying values of all other financial instruments approximate their estimated fair values. The counterparties to financial instruments consist of select major international financial institutions. Abbott does not expect any losses from nonperformance by these counterparties.

| (dollars
in millions) | June 30 2009 — Carrying Value | | Fair Value | | December 31 2008 — Carrying Value | | Fair Value | |
| --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Long-term
Investments: | | | | | | | | |
| Available-For-Sale
Equity Securities | $ 113 | | $ 113 | | $ 147 | | $ 147 | |
| Note
Receivable | 872 | | 890 | | 865 | | 824 | |
| Other | 67 | | 62 | | 62 | | 56 | |
| Total
Long-term Debt | (11,408 | ) | (12,030 | ) | (9,754 | ) | (10,458 | ) |
| Foreign
Currency Forward Exchange Contracts: | | | | | | | | |
| Receivable
position | 85 | | 85 | | 148 | | 148 | |
| (Payable)
position | (113 | ) | (113 | ) | (100 | ) | (100 | ) |
| Interest
Rate Hedge Contracts: | | | | | | | | |
| Receivable
position | 65 | | 65 | | 170 | | 170 | |
| (Payable)
position | (224 | ) | (224 | ) | | | | |

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Notes to Condensed Consolidated Financial Statements

June 30, 2009

(Unaudited), continued

The following table summarizes the bases used to measure certain assets and liabilities at fair value on a recurring basis in the balance sheet:

| (dollars
in millions) | Outstanding Balances | Basis of Fair Value Measurement — Quoted Prices in Active Markets | Significant Other Observable Inputs | Significant Unobservable Inputs |
| --- | --- | --- | --- | --- |
| June
30, 2009: | | | | |
| Equity
and other securities | $ 108 | $ 71 | $ 6 | $ 31 |
| Interest
rate swap derivative financial instruments | 65 | | 65 | |
| Foreign
currency forward exchange contracts | 85 | | 85 | |
| Financial
assets relating to TAP employees stock options | 10 | | | 10 |
| Total
Assets | $ 268 | $ 71 | $ 156 | $ 41 |
| Fair
value of hedged long-term debt | $ 5,342 | $ | $ 5,342 | $ |
| Interest
rate swap derivative financial instruments | 224 | | 224 | |
| Foreign
currency forward exchange contracts | 113 | | 113 | |
| Financial
liabilities relating to TAP employees stock options | 15 | | | 15 |
| Total
Liabilities | $ 5,694 | $ | $ 5,679 | $ 15 |
| December 31,
2008: | | | | |
| Equity
and other securities | $ 144 | $ 105 | $ 10 | $ 29 |
| Interest
rate swap derivative financial instruments | 170 | | 170 | |
| Foreign
currency forward exchange contracts | 148 | | 148 | |
| Financial
assets relating to TAP employees stock options | 16 | | | 16 |
| Total
Assets | $ 478 | $ 105 | $ 328 | $ 45 |
| Fair
value of hedged long-term debt | $ 2,670 | $ | $ 2,670 | $ |
| Foreign
currency forward exchange contracts | 100 | | 100 | |
| Financial
liabilities relating to TAP employees stock options | 24 | | | 24 |
| Total
Liabilities | $ 2,794 | $ | $ 2,770 | $ 24 |

The value of the financial assets and liabilities relating to TAP employees stock options are calculated using the Black-Scholes option-pricing model. Changes in the recorded amounts are recorded in Other income (expense), net each period. The recorded value of investments that are valued using significant unobservable inputs did not change significantly. Changes in these values are recorded in Accumulated other comprehensive income.

Note 12 Goodwill and Intangible Assets

Abbott recorded goodwill of approximately $1.7 billion in 2009 related to the acquisitions of Advanced Medical Optics, Inc. and Ibis Biosciences, Inc. In connection with the dissolution of the TAP Pharmaceutical Products Inc. (TAP) joint venture in 2008, Abbott recorded approximately $350 million of goodwill. Goodwill related to the Ibis acquisition was allocated to the Diagnostic Products segment and goodwill related to TAP was allocated to the Pharmaceutical Products segment. Foreign currency translation adjustments and other adjustments increased goodwill in the first six months of 2009 and 2008 by approximately $506 million and $312 million, respectively. The amount of goodwill related to reportable segments at June 30, 2009 was $6.3 billion for the Pharmaceutical Products segment, $206 million for the Nutritional Products segment, $386 million for the Diagnostic Products segment and $2.4 billion for the Vascular Products segment. There were no reductions of goodwill relating to impairments or disposal of all or a portion of a business.

The gross amount of amortizable intangible assets, primarily product rights and technology, was $10.6 billion as of June 30, 2009 and $9.4 billion as of December 31, 2008, and accumulated amortization was $4.6 billion as of June 30, 2009 and $4.2 billion as of December 31, 2008. The estimated annual amortization expense for intangible assets is approximately $847 million in 2009, $859 million in 2010, $844 million in 2011, $831 million in 2012 and $675 million in 2013. Amortizable intangible assets are amortized over 4 to 25 years (average 11 years).

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Notes to Condensed Consolidated Financial Statements

June 30, 2009

(Unaudited), continued

Note 13 Restructuring Plans

In 2008, Abbott management approved a plan to streamline global manufacturing operations, reduce overall costs, and improve efficiencies in Abbotts core diagnostic business. Additional charges of approximately $23 million were recorded in the first six months of 2009 relating to this restructuring, primarily for accelerated depreciation and product transfer costs. Additional charges will occur through 2011 as a result of product re-registration timelines required under manufacturing regulations in a number of countries and product transition timelines. The following summarizes the activity for this restructuring: (dollars in millions)

| Accrued
balance at January 1 | 2009 — $ 110 | |
| --- | --- | --- |
| Restructuring
charges | 1 | |
| Payments
and other adjustments | (10 | ) |
| Accrued
balance at June 30 | $ 101 | |

In 2009 and prior years, Abbott management approved plans to realign its worldwide pharmaceutical and vascular manufacturing operations and selected domestic and international commercial and research and development operations in order to reduce costs. Additional charges of $20 million and $44 million were subsequently recorded in the first six months of 2009 and 2008, respectively, relating to these restructurings, primarily for accelerated depreciation and product transfer costs. The following summarizes the activity for these restructurings: (dollars in millions)

| Accrued
balance at January 1 | 2009 — $ 105 | | 2008 — $ 194 | |
| --- | --- | --- | --- | --- |
| Restructuring
charges | 26 | | 11 | |
| Payments
and other adjustments | (34 | ) | (59 | ) |
| Accrued
balance at June 30 | $ 97 | | $ 146 | |

Note 14 Subsequent Event Litigation Settlement

In July 2009, Abbott and Medtronic, Inc. reached a settlement resolving all outstanding intellectual property litigation between the two parties. Under the terms of the settlement, Medtronic will pay Abbott $400 million. The settlement also includes a mutual agreement not to pursue additional litigation on current and future vascular products, subject to specific conditions and time limits. The one-time impact of this settlement will be included in third quarter 2009 earnings.

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FINANCIAL REVIEW

Results of Operations

The following table details sales by reportable segment for the three months and six months ended June 30. Percent changes are versus the prior year and are based on unrounded numbers.

	Net Sales to External Customers
	Three Months Ended June 30					Six Months Ended June 30
(dollars
in millions)	2009	Percent Change		2008	Percent Change	2009	Percent Change		2008	Percent Change
Pharmaceutical
Products	$ 3,946	(4.3	)	$ 4,123	16.7	$ 7,582	(5.0	)	$ 7,978	15.5
Nutritional
Products	1,283	4.0		1,235	12.6	2,465	5.1		2,344	11.7
Diagnostic
Products	878	(6.2	)	936	17.2	1,694	(4.1	)	1,768	17.1
Vascular
Products	658	34.3		489	15.7	1,302	38.3		941	11.6
Total
Reportable Segments	6,765	(0.3	)	6,783	15.9	13,043	0.1		13,031	14.8
Other	730	37.5		531	2.2	1,170	11.6		1,049	9.1
Net
Sales	$ 7,495	2.5		$ 7,314	14.8	$ 14,213	0.9		$ 14,080	14.3
Total
U.S.	$ 3,563	4.5		$ 3,410	5.7	$ 6,565	1.7		$ 6,452	4.8
Total
International	$ 3,932	0.7		$ 3,904	24.1	$ 7,648	0.3		$ 7,628	23.9

Worldwide sales for the second quarter and the first six months of 2009 compared to 2008 reflect the negative effect of a relatively stronger U.S. dollar. Excluding 8.0 percent and 7.1 percent of unfavorable exchange for the second quarter and first six months of 2009, net sales increased 10.5 percent and 8.0 percent, respectively, which reflects primarily unit growth. The relatively stronger U.S. dollar decreased second quarter 2009 Total International sales by 14.9 percent, Pharmaceutical Products segment sales by 8.3 percent, Nutritional Product segment sales by 5.2 percent, Diagnostic Products segment sales by 10.1 percent and Vascular Products segment sales by 8.7 percent over the second quarter of 2008. The relatively stronger U.S. dollar decreased the first six months 2009 Total International sales by 13.0 percent, Pharmaceutical Products segment sales by 7.5 percent, Nutritional Product segment sales by 4.7 percent, Diagnostic Products segment sales by 9.0 percent and Vascular Products segment sales by 6.7 percent over the first six months of 2008. The relatively weaker U.S. dollar increased second quarter 2008 consolidated net sales by 5.9 percent, Total International sales by 12.0 percent, Pharmaceutical Products segment sales by 6.0 percent, Nutritional Product segment sales by 3.6 percent, Diagnostic Products segment sales by 9.2 percent and Vascular Products segment sales by 6.4 percent over the second quarter of 2007. The relatively weaker U.S. dollar also increased the first six months 2008 consolidated net sales by 5.7 percent, Total International sales by 11.5 percent, Pharmaceutical Products segment sales by 6.0 percent, Nutritional Product segment sales by 3.3 percent, Diagnostic Products segment sales by 8.7 percent and Vascular Products segment sales by 5.6 percent over the first six months of 2007. The sales growth in 2009 for the Vascular Products segment was impacted by the U.S. launch of the Xience V drug eluting stent in the third quarter of 2008. The sales growth in 2009 for the Pharmaceutical Products segment and Total U.S. sales in 2009 were impacted by decreased sales of Depakote due to generic competition. The increase in Other sales for the second quarter of 2009 is primarily due to the acquisition of Advanced Medical Optics, Inc. on February 25, 2009.

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FINANCIAL REVIEW

(continued)

A comparison of significant product group sales for the six months ended June 30 is as follows. Percent changes are versus the prior year and are based on unrounded numbers.

| | Six
Months Ended June 30 | | | | | |
| --- | --- | --- | --- | --- | --- | --- |
| | | Percent | | | Percent | |
| (dollars
in millions) | 2009 | Change | | 2008 | Change | |
| Pharmaceutical Products | | | | | | |
| U.S.
Specialty | $ 2,089 | (10.8 | ) | $ 2,341 | 19.5 | |
| U.S. Primary Care | 1,377 | (2.4 | ) | 1,411 | (8.1 | ) |
| International Pharmaceuticals | 3,734 | (0.3 | ) | 3,743 | 27.0 | |
| Nutritional Products | | | | | | |
| U.S. Pediatric Nutritionals | 624 | 1.4 | | 615 | 5.7 | |
| International Pediatric Nutritionals | 690 | 8.7 | | 634 | 22.9 | |
| U.S. Adult Nutritionals | 614 | 9.2 | | 562 | 3.3 | |
| International Adult Nutritionals | 500 | (3.8 | ) | 520 | 18.9 | |
| Diagnostics | | | | | | |
| Immunochemistry | 1,334 | (5.4 | ) | 1,411 | 17.3 | |

Decreased sales of Depakote due to generic competition impacted U.S. Specialty product sales in 2009. This was partially offset by increased sales of HUMIRA and by the addition of Lupron sales from the conclusion of the TAP joint venture in April 2008. U.S. sales of Depakote for the first six months of 2009 and 2008 were $190 million and $727 million, respectively. Increased sales of HUMIRA and Depakote accounted for the majority of the sales increases for U.S. Specialty products in 2008. U.S. Primary Care sales in both 2009 and 2008 were impacted by decreased sales of Omnicef and Synthroid due to generic competition, partially offset by increased sales of Niaspan and the TriCor/Trilipix franchise. Increased sales of HUMIRA favorably impacted International Pharmaceutical sales in both 2009 and 2008. International sales of HUMIRA for the first six months of 2009 and 2008 were $1.290 billion and $1.039 billion, respectively. Abbott forecasts 2009 worldwide HUMIRA sales growth of 15 to 20 percent. Excluding the impact of exchange, Abbott forecasts 2009 HUMIRA sales growth of 25 to 30 percent. The relatively stronger U.S. dollar decreased International Pharmaceutical sales in 2009 by 14.3 percent and the relatively weaker U.S. dollar increased International Pharmaceutical sales in 2008 by 12.9 percent. International Pediatric Nutritionals sales increases in 2009 and 2008 were due primarily to volume growth in developing countries. The relatively stronger U.S. dollar decreased International Adult Nutritionals sales in 2009 by 11.9 percent and the relatively weaker U.S. dollar increased International Adult Nutritionals sales in 2008 by 9.0 percent. The relatively stronger U.S. dollar decreased Immunochemistry sales in 2009 by 9.7 percent and the relatively weaker U.S. dollar increased Immunochemistry sales in 2008 by 9.5 percent.

The gross profit margin was 58.3 percent for the second quarter 2009, compared to 57.3 percent for the second quarter 2008. First six months 2009 gross profit margin was 57.3 percent, compared to 56.8 percent for the first six months 2008. The gross profit margin for the first six months 2009 was impacted by charges relating to a delayed product launch and the discontinuation of a product. These charges had the effect of reducing the gross profit margin by 0.6 percentage points. The increases in the gross profit margin in 2009, excluding these charges, were due, in part, to improved margins in the vascular and diagnostics businesses and the favorable effect of exchange on the gross profit margin ratio; partially offset by the negative impact from lower sales of Depakote .

Research and development expenses increased 2.0 percent in the second quarter 2009 and 3.5 percent for the first six months 2009 over comparable 2008 periods. These increases reflect continued pipeline spending, including programs in vascular devices, biologics, neuroscience, oncology and Hepatitis C. The majority of research and development expenditures is concentrated on pharmaceutical products.

Selling, general and administrative expenses for the second quarter 2009 decreased 1.4 percent and increased 0.6 percent for the first six months of 2009 over the comparable 2008 periods. These changes reflect the favorable effect of exchange rates which was offset by expenses relating to the acquisition of Advanced Medical Optics, Inc, and the settlement of litigation in the first six months of 2009. Excluding the effect of the charges and exchange, selling, general and administrative expenses increased 6.3 percent and 3.1 percent for the second quarter 2009 and first six months of 2009, respectively.

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FINANCIAL REVIEW

(continued)

Business Acquisitions

Had the above acquisitions taken place on January 1 of the previous year, consolidated net sales and income would not have been significantly different from reported amounts.

Restructuring Plans

| Accrued
balance at January 1 | 2009 — $ 110 | |
| --- | --- | --- |
| Restructuring
charges | 1 | |
| Payments
and other adjustments | (10 | ) |
| Accrued
balance at June 30 | $ 101 | |

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FINANCIAL REVIEW

(continued)

Interest Expense (Income)

Interest expense decreased in the second quarter and the first six months of 2009 due to lower interest rates partially offset in the second quarter by increased debt levels related to the acquisition of Advanced Medical Optics, Inc. Interest income decreased in the second quarter and the first six months of 2009 due to lower interest rates.

Conclusion of TAP Pharmaceutical Products Inc. Joint Venture

	Three Months	Six Months
Net
sales	$ 141	$ 853
Cost
of sales	46	229
Income
before taxes	35	356
Net
earnings	34	238

Other (income) expense, net

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FINANCIAL REVIEW

(continued)

Taxes on Earnings

Subsequent Event Litigation Settlement

Liquidity and Capital Resources at June 30, 2009 Compared with December 31, 2008

Net cash from operating activities for the first six months 2009 totaled approximately $2.4 billion. Other, net in Net cash from operating activities for 2009 and 2008 includes the effects of contributions to the main domestic defined benefit plan of $700 million and $200 million, respectively, and to the post-employment medical and dental plans of $13 million and $65 million in 2009 and 2008, respectively. Purchases of other investment securities, net in 2009 and 2008 reflects the acquisition of short-term investments with original maturities of over three months. Abbott expects annual cash flow from operating activities to continue to exceed Abbotts capital expenditures and cash dividends.

Working capital was $7.6 billion at June 30, 2009 and $5.5 billion at December 31, 2008.

At June 30, 2009, Abbotts long-term debt rating was AA by Standard & Poors Corporation and A1 by Moodys Investors Service. Abbott has readily available financial resources, including unused lines of credit of $5.3 billion that support commercial paper borrowing arrangements of which a $2.3 billion facility expires in December 2009 and a $3.0 billion facility expires in 2012. Abbotts access to short-term financing has not been affected by recent credit market conditions.

Under a registration statement filed with the Securities and Exchange Commission in February 2009, Abbott issued $3.0 billion of long-term debt in the first quarter of 2009 that matures in 2019 and 2039 with interest rates of 5.125 percent and 6.0 percent, respectively. Proceeds from this debt were used to fund the acquisition of Advanced Medical Optics, Inc. and to repay debt of Advanced Medical Optics, Inc. In addition, Abbott repaid $1 billion of long-term notes that were due in February and May of 2009 using short-term borrowings.

In October 2008, the board of directors authorized the purchase of up to $5 billion of Abbotts common shares from time to time and approximately 14.5 million shares were purchased under this authorization in the first six months of 2009 at a cost of approximately $800 million. In the first six months of 2008, Abbott purchased approximately 19.0 million of its common shares at a cost of approximately $1.1 billion under a prior authorization.

Legislative Issues

Abbotts primary markets are highly competitive and subject to substantial government regulation throughout the world. Abbott expects debate to continue over the availability, method of delivery, and payment for health care products and services. Abbott believes that if legislation is enacted, it could change access to health care products and services, or reduce prices or the rate of price increases 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 2008 Annual Report on Form 10-K.

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FINANCIAL REVIEW

(continued)

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 investors that any forward-looking statements or projections made by Abbott, including those made in this document, are subject to risks and uncertainties that may cause actual results to differ materially from those projected. Economic, competitive, governmental, technological and other factors that may affect Abbotts operations are discussed in Item 1A, Risk Factors, in the 2008 Annual Report on Form 10-K.

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PART I. FINANCIAL INFORMATION

Item 4. Controls and Procedures

(a) Evaluation of disclosure controls and procedures. The Chief Executive Officer, Miles D. White, and Chief Financial Officer, Thomas C. Freyman, 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 under the Securities Exchange Act of 1934 (the Exchange Act) is recorded, processed, summarized and reported, within the time periods specified in the Commissions 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 Abbotts 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, 2009, there were no changes in Abbotts 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, Abbotts internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

Abbott is involved in various claims, legal proceedings, and investigations, including (as of June 30, 2009) those described 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 Abbotts financial position, cash flows, or results of operations, except for the case filed in April 2007 referred to in the second paragraph of Note 4 to Abbotts financial statements (also described in the third paragraph of this section) and the cases and investigations described in the third paragraph of such note.

In its 2008 Form 10-K, Abbott reported that a case was pending against Abbott in the United States District Court for the Northern District of California in which Medtronic Vascular, Inc., Medtronic USA, Inc., Medtronic, Inc., and Medtronic Vascular Galway, Ltd. (collectively Medtronic) and Evysio Medical Devices ULC (Evysio) claim that Abbotts stents, including the Multi-Link Vision® and Xience V Coronary stent systems, infringe certain Evysio stent design patents. Abbott also reported that, in a case filed in 1998 in the United States District Court for the District of Delaware, it was seeking to enforce its patent rights against Arterial Vascular Engineering, Inc. (now known as Medtronic Vascular, Inc.), alleging that certain models of Medtronics stents infringe four of Abbotts Lau patents. In July 2009, Abbott and Medtronic reached a settlement resolving all outstanding intellectual property litigation between the two

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parties, including the cases described above. Under the terms of the settlement, Medtronic will pay Abbott $400 million. The settlement also includes a mutual agreement not to pursue additional litigation on current and future vascular products, subject to specific conditions and time limits.

In its 2008 Form 10-K, Abbott reported that litigation is pending against Abbott in the Eastern District of Texas, in which New York University (NYU) and Centocor, Inc. assert that Humira® infringes a patent co-owned by NYU and Centocor and exclusively licensed to Centocor. In June 2009, a jury found that Abbott had willfully infringed the patent and awarded NYU and Centocor approximately $1.67 billion in past compensatory damages. The award is subject to review by the trial court. Abbott will ask the trial court to overturn the verdict and/or reduce the damages award. In the event that the trial court does not overturn the verdict, Abbott will appeal. Abbott is confident in the merits of its case and believes that it will prevail on appeal.

In its 2008 Form 10-K, Abbott reported that a number of cases are pending that allege generally that Abbott and numerous other pharmaceutical companies reported false pricing information in connection with certain drugs that are reimbursable under Medicare and Medicaid and by private payors and that the federal cases have been consolidated in the United States District Court for the District of Massachusetts as In re: Pharmaceutical Industry Average Wholesale Price Litigation, MDL 1456 . In its 2008 Form 10-K, Abbott also reported that several cases based on similar allegations were pending in state courts. In May 2009, in connection with the MDL 1456 litigation, Abbott settled the case brought by the Arizona State Attorney General. In connection with the cases pending in state courts: (a) in May 2009, Abbott settled the State of Ohio case; and (b) in June 2009, the court granted the defendants motion for summary judgment in the Swanston case and dismissed Abbott from the case without prejudice.

In its 2008 Form 10-K, Abbott reported that several cases are pending against Abbott in the United States District Court for the Northern District of California that allege antitrust violations in connection with the 2003 Norvir re-pricing. In July 2009, the Ninth Circuit Court of Appeals ruled in Abbotts favor with respect to the consolidated class action filed on behalf of individual consumers, John Doe 1 (filed in April 2004), and the lawsuit brought by third-party payors, Service Employees International Health and Welfare Fund (filed in October 2004). The ruling reversed the trial courts decision denying Abbott summary judgment and ends the litigation with the indirect purchasers of Norvir. As a result, no additional payments from Abbott are required under the August 2008 settlement agreement. The remaining previously reported cases are still pending.

In June 2009, The University of Iowa sued Abbott in the United States District Court for the Southern District of Iowa alleging that Humira® infringes two of its patents. The University of Iowa alleges that Abbott has willfully infringed its patents and seeks damages, including treble damages, but does not seek injunctive relief.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

| 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, 2009 April 30, 2009 | 31,159 | (1) | $ 43.573 | 0 | $ 4,192,197,703 | (2) |
| May 1, 2009 May 31, 2009 | 25,624 | (1) | $ 44.260 | 0 | $ 4,192,197,703 | (2) |
| June 1, 2009 June 30, 2009 | 55,583 | (1) | $ 46.363 | 0 | $ 4,192,197,703 | (2) |
| Total | 112,366 | (1) | $ 45.110 | 0 | $ 4,192,197,703 | (2) |

These shares include:

(i) the shares deemed surrendered to Abbott to pay the exercise price in connection with the exercise of employee stock options 16,659 in April, 11,124 in May, and 41,083 in June; and

(ii) the shares purchased on the open market for the benefit of participants in the Abbott Laboratories, Limited Employee Stock Purchase Plan 14,500 in April, 14,500 in May, and 14,500 in June.

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.

On October 13, 2008, Abbott announced that its board of directors approved the purchase of up to $5 billion of its common shares, from time to time.

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Item 4. Submission of Matters to a Vote of Security Holders

Abbott Laboratories held its Annual Meeting of Shareholders on April 24, 2009. The following is a summary of the matters voted on at that meeting.

(a) The shareholders elected Abbotts entire Board of Directors. The persons elected to Abbotts Board of Directors and the number of shares cast for and the number of shares withheld, with respect to each of these persons, were as follows:

Name	Votes For	Votes Withheld
Robert J. Alpern, M.D.	1,295,322,871	57,980,708
Roxanne S. Austin	1,284,440,924	68,862,655
William M. Daley	1,271,502,186	81,801,393
W. James Farrell	1,270,901,953	82,401,626
H. Laurance Fuller	1,271,975,958	81,327,621
William A. Osborn	1,271,271,737	82,031,842
The Rt. Hon. Lord Owen CH	1,285,484,754	67,818,825
W. Ann Reynolds, Ph.D.	1,278,043,508	75,260,071
Roy S. Roberts	1,284,378,435	68,925,144
Samuel C. Scott III	1,266,388,831	86,914,748
William D. Smithburg	1,265,230,480	88,073,099
Glenn F. Tilton	1,290,502,961	62,800,618
Miles D. White	1,276,098,138	77,205,441

(b) The shareholders approved the Abbott Laboratories 2009 Incentive Stock Program. The number of shares cast in favor of the approval of the Abbott Laboratories 2009 Incentive Stock Program, the number against, the number abstaining, and the number of broker non-votes were as follows:

For	Against	Abstain	Broker Non-Vote
882,933,035	288,322,541	9,681,937	172,366,066

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(c) The shareholders approved the Abbott Laboratories 2009 Employee Stock Purchase Plan for Non-U.S. Employees. The number of shares cast in favor of the approval of the Abbott Laboratories 2009 Employee Stock Purchase Plan for Non-U.S. Employees, the number against, the number abstaining, and the number of broker non-votes were as follows:

For	Against	Abstain	Broker Non-Vote
1,089,023,206	84,906,019	7,027,616	172,346,738

(d) The shareholders ratified the appointment of Deloitte & Touche LLP as Abbotts auditors. The number of shares cast in favor of the ratification of Deloitte & Touche LLP, the number against, and the number abstaining were as follows:

For	Against	Abstain
1,344,937,452	4,671,333	3,694,794

(e) The shareholders rejected a shareholder proposal on animal testing. The number of shares cast in favor of the shareholder proposal, the number against, the number abstaining, and the number of broker non-votes were as follows:

For	Against	Abstain	Broker Non-Vote
50,156,907	952,431,023	178,367,141	172,348,508

(f) The shareholders rejected a shareholder proposal on health care principles. The number of shares cast in favor of the shareholder proposal, the number against, the number abstaining, and the number of broker non-votes were as follows:

For	Against	Abstain	Broker Non-Vote
57,130,368	932,008,800	191,812,903	172,351,508

(g) The shareholders rejected a shareholder proposal on advisory vote. The number of shares cast in favor of the shareholder proposal, the number against, the number abstaining, and the number of broker non-votes were as follows:

For	Against	Abstain	Broker Non-Vote
484,452,790	645,505,765	50,967,712	172,377,312

Item 6. Exhibits

Incorporated by reference to the Exhibit Index included herewith.

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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/ Thomas C. Freyman
	Thomas C. Freyman,
	Executive Vice President,
	Finance and Chief Financial Officer

Date: August 7, 2009

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*EXHIBIT INDEX*

Exhibit No.	Exhibit
10.1	*Abbott Laboratories 2009 Incentive Stock Program,
filed as Exhibit B to the Abbott Laboratories Definitive Proxy Statement
on Schedule 14A dated March 13, 2009.**
10.2	*Form of Non-Employee Director Non-Qualified
Stock Option Agreement, filed as Exhibit 10.2 to the Abbott Laboratories
Current Report on Form 8-K dated April 24, 2009.**
10.3	*Form of Non-Employee Director Restricted
Stock Unit Agreement, filed as Exhibit 10.3 to the Abbott Laboratories
Current Report on Form 8-K dated April 24, 2009.**
10.4	*Form of Non-Employee Director Non-Qualified
Replacement Stock Option Agreement, filed as Exhibit 10.4 to the Abbott
Laboratories Current Report on Form 8-K dated April 24, 2009.**
10.5	*Form of Non-Qualified Stock Option Agreement
(ratably vested), filed as Exhibit 10.5 to the Abbott Laboratories
Current Report on Form 8-K dated April 24, 2009.**
10.6	*Form of Non-Qualified Replacement Stock
Option Agreement, filed as Exhibit 10.6 to the Abbott Laboratories
Current Report on Form 8-K dated April 24, 2009.**
10.7	*Form of Performance Restricted Stock
Agreement, filed as Exhibit 10.7 to the Abbott Laboratories Current
Report on Form 8-K dated April 24, 2009.**
10.8	*Form of Restricted Stock Agreement (ratably
vested), filed as Exhibit 10.8 to the Abbott Laboratories Current Report
on Form 8-K dated April 24, 2009.**
10.9	*Form of Restricted Stock Agreement (cliff
vested), filed as Exhibit 10.9 to the Abbott Laboratories Current Report
on Form 8-K dated April 24, 2009.**
10.10	*Form of Performance Restricted Stock
Agreement (annual performance based), filed as Exhibit 10.10 to the
Abbott Laboratories Current Report on Form 8-K dated April 24,
2009.**

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| 10.11 | Form of Performance Restricted Stock
Agreement (interim performance based), filed as Exhibit 10.11 to the
Abbott Laboratories Current Report on Form 8-K dated April 24,
2009. |
| --- | --- |
| 10.12 | Form of Restricted Stock Unit Agreement
(cliff vested), filed as Exhibit 10.12 to the Abbott Laboratories
Current Report on Form 8-K dated April 24, 2009. |
| 10.13 | *Form of Restricted Stock Unit Agreement
(ratably vested), filed as Exhibit 10.13 to the Abbott Laboratories
Current Report on Form 8-K dated April 24, 2009. |
| 12 | Statement re: computation of ratio of earnings to
fixed charges. |
| 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 footnotes from the Abbott Laboratories
Quarterly Report on Form 10-Q for the quarter ended June 30, 2009,
filed on August 7, 2009, formatted in XBRL: (i) Condensed Consolidated Statement of
Earnings; (ii) Condensed Consolidated Statement of Cash Flows; and
(iii) Condensed Consolidated Balance Sheet. |

| * | Incorporated
herein by reference. Commission file number 1-2189. |
| --- | --- |
| ** | Denotes management contract or compensatory plan or
arrangement required to be filed as an exhibit hereto. |

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