UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D. C.  20549

FORM 10-Q

(Mark One)

ý        QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2005

OR

o        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                                 to                               

Commission File No. 1-2189

ABBOTT LABORATORIES

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 ý.  No o.

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).     Yes ý.  No o.

As of June 30, 2005, Abbott Laboratories had 1,554,415,729 common shares without par value outstanding.

PART  I.  FINANCIAL INFORMATION

Abbott Laboratories and Subsidiaries

Condensed Consolidated Financial Statements

(Unaudited)

Abbott Laboratories and Subsidiaries

Condensed Consolidated Statement of Earnings

(Unaudited)

(dollars and shares in thousands except per share data)

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

2

Abbott Laboratories and Subsidiaries

Condensed Consolidated Statement of Cash Flows

(Unaudited)

(dollars in thousands)

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

3

Abbott Laboratories and Subsidiaries

Condensed Consolidated Balance Sheet

(Unaudited)

(dollars in thousands)

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

4

Abbott Laboratories and Subsidiaries

Notes to Condensed Consolidated Financial Statements

June 30, 2005

(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 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 Abbott’s Annual Report on Form 10-K for the year ended December 31, 2004.

Note 2 – Spin-off of Hospira

On April 12, 2004, Abbott’s board of directors declared a special dividend distribution of all of the outstanding shares of common stock of Hospira, Inc.  For every 10 Abbott common shares held at the close of business on April 22, 2004, Abbott shareholders received one share of Hospira stock on April 30, 2004.  Hospira included the operations relating to the manufacture and sale of hospital products including specialty injectable pharmaceuticals, medication delivery systems and critical care devices and injectable pharmaceutical contract manufacturing.  Hospira included Abbott’s Hospital products segment, after that segment’s reorganization on January 1, 2004, and portions of Abbott’s International segment.  The income and cash flows of Hospira and the direct transaction costs of the spin-off have been presented as discontinued operations in the Condensed Consolidated Statement of Earnings and Condensed Consolidated Statement of Cash Flows.

The legal transfer of certain operations and assets (net of liabilities) outside the United States is expected to occur in 2005 and 2006.  Approximately half of these operations are expected to be transferred to Hospira in 2005 with the remaining operations transferring in the first half of 2006.  As of June 30, 2005, approximately 20 percent of these operations have been transferred to Hospira.  These operations and assets are used in the conduct of Hospira’s international business and Hospira is subject to the risks and entitled to the benefits generated by these operations and assets.  These assets and liabilities have been presented as held for sale in the Condensed Consolidated Balance Sheet.  The assets and liabilities held for sale consist primarily of inventories, trade accounts receivable, equipment and trade accounts payable, salaries and other accruals.

Summarized financial information for discontinued operations is as follows: (dollars in thousands)

The financial information above includes the operations of Hospira through April 30, 2004, the date of the spin-off.  As a consequence, the results for the three months ended June 30, 2004 include only one month of the operations of Hospira and the results for the six months ended June 30, 2004 include only four months.  The results of the discontinued operations also include direct transaction costs of approximately $32 million and $36 million in the three months and six months ended June 30, 2004, respectively.

5

Note 3 – Supplemental Financial Information

(dollars in thousands)

Supplemental Cash Flow Information – Other, net in Net Cash From Operating Activities of Continuing Operations for 2005 includes the effects of contributions to the main domestic defined benefit plan of $641,000 and to the post-employment medical and dental plans of $140,000.

Note 4 – Taxes on Earnings

Taxes on earnings reflect the estimated annual effective rates and for the first six months 2005 include additional income taxes of approximately $52 million for remittances of foreign earnings of approximately $600 million in connection with the American Jobs Creation Act of 2004.  In February 2005, management concluded that it would remit these earnings in 2005.  2004 includes the effects of charges for acquired in-process research and development and for other non-tax deductible items.  The effective tax rates, excluding the effect of these 2005 and 2004 items, are less than the statutory U.S. federal income tax rate principally due to the domestic dividend exclusion and the benefit of lower statutory tax rates and tax exemptions in several taxing jurisdictions.

Note 5 – Litigation and Environmental Matters

As of December 31, 2004, there were several lawsuits pending in connection with the sales of Hytrin. These suits alleged that Abbott violated state or federal antitrust laws and, in some cases, unfair competition laws by signing patent settlement agreements with Geneva Pharmaceuticals, Inc. and Zenith Laboratories, Inc. in 1998. Those agreements related to pending patent infringement lawsuits between Abbott and the two companies.  In the second quarter of 2005, the court approved settlements with the majority of the plaintiffs in the aggregate amount of $90 million which was previously reserved.  The claims of the remaining plaintiffs are not material and are reserved for by Abbott.

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 $20 million.

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, including those discussed in this note and in Note 6, Abbott estimates the range of possible loss to be from approximately $25 million to $75 million.  Reserves of approximately $35 million have been recorded at June 30, 2005 for these proceedings and exposures.  These reserves represent management’s best estimate of probable loss, except for one which is recorded at the minimum, 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 Abbott’s financial position, cash flows, or results of operations.

6

Note 6 – TAP Pharmaceutical Products Inc.

As of December 31, 2004, TAP Pharmaceutical Products Inc. (TAP) and Abbott were named as defendants in several lawsuits alleging violations of various state or federal laws in connection with TAP’s marketing and pricing of Lupron. In the second quarter of 2005, the court approved settlements with the majority of the plaintiffs in the aggregate amount of $150 million which was previously reserved.  The claims of the remaining plaintiffs are not material and are reserved for by TAP.  Abbott’s portion of TAP’s remaining reserve is included in the reserve amounts and range in Note 5 above.

Within the next year, legal proceedings may occur that may result in a change in the estimated reserves recorded by TAP. 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 disposition should not have a material adverse effect on Abbott’s financial position, cash flows, or results of operations.

Note 7 – Post-Employment Benefits

(dollars in millions)

Retirement plans consist of defined benefit, defined contribution, and medical and dental plans.  Net cost recognized in continuing operations for the six months ended June 30 for Abbott’s major defined benefit plans and post-employment medical and dental benefit plans is as follows:

In the second quarter 2004, Abbott reflected the requirements of Financial Accounting Standards Board Staff Position No. 106-2, “Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003.”  As a result, the projected benefit obligations related to benefits attributed to past service were reduced by approximately $210, and the net cost recognized in the second quarter 2004 was reduced by approximately $16.

Abbott funds its domestic defined benefit plans according to IRS funding limitations.  In the first quarter 2005, $641 was contributed to the main domestic defined benefit plan and $140 was contributed to the post-employment medical and dental benefit plans. In the first quarter of 2004, $200 was contributed to the main domestic defined benefit plan.

7

Note 8 – Comprehensive Income, net of tax

(dollars in thousands)

Note 9 – Segment Information (dollars in millions)

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

Pharmaceutical Products — U.S. sales of a broad line of pharmaceuticals.

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

Ross Products — Primarily U.S. sales of a broad line of adult and pediatric nutritional products, pediatric pharmaceuticals and consumer products.

International — Non-U.S. sales of Abbott’s pharmaceutical and nutritional products. Products sold by International are manufactured in domestic and international manufacturing locations.

Abbott’s 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 sold to segments at predetermined rates that approximate cost.  Remaining costs, if any, are not allocated to segments.  Substantially all intangible assets and related amortization from business acquisitions 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.

8

Note 10 – Business Combinations and Technology Acquisitions

In April 2004, Abbott acquired TheraSense, Inc., a leader in the development, manufacturing and marketing of blood glucose self-monitoring systems, for approximately $1.2 billion in cash.  Abbott also acquired certain other product technologies for approximately $352 million.  These acquisitions resulted in a charge of $164 million for acquired in-process research and development, intangible assets of approximately $912 million, non-tax deductible goodwill of approximately $623 million and deferred income taxes of approximately $241 million.  Acquired intangible assets, primarily product technology, are amortized over 9 to 17 years (average of approximately 13 years).  In January 2004, Abbott acquired i-STAT Corporation, a manufacturer of point-of-care diagnostic products for blood analysis, for approximately $394 million in cash.  In the first quarter of 2004, Abbott recorded a charge of approximately $60 million for acquired in-process research and development, intangible assets of approximately $263 million, non-tax deductible goodwill of approximately $109 million and deferred income taxes of approximately $105 million.  Acquired intangible assets, primarily product technology, are amortized over 7 to 18 years (average of approximately 17 years).  Had these acquisitions taken place on January 1 of the previous year, consolidated sales and income would not have been significantly different from reported amounts.

9

Note 11 – Incentive Stock Programs

Abbott measures compensation cost using the intrinsic value-based method of accounting for stock options and replacement stock options granted to employees.  Had compensation cost been determined using a fair market value-based accounting method, pro forma net earnings (in millions) and earnings per share (EPS) amounts would have been as shown in the table below.  Effective in the first quarter 2005, the calculation of pro forma compensation expense was modified to reflect a shorter vesting period for employees who are retirement eligible or who will be retirement eligible during the normal vesting period. Approximately 40 to 45 percent of the annual net cost of stock options granted will typically be recognized in the first quarter due to the timing of stock option grants.  The effect of this change has an immaterial effect on the annual pro forma compensation expense.  The quarterly pro forma compensation cost and EPS amounts for 2004 have been adjusted to reflect this change.

The above information was derived using Statement of Financial Accounting Standards (SFAS) No. 123 and the Black-Scholes valuation model.  In December 2004, the Financial Accounting Standards Board issued SFAS No. 123 (revised 2004), “Share-Based Payment.”  This standard required companies to expense employee stock options beginning no later than July 1, 2005.  On April 14, 2005, the Securities and Exchange Commission announced that companies may implement SFAS No. 123 (revised 2004) at the beginning of their next fiscal year that begins after June 15, 2005.  Abbott expects to adopt the revised rules on January 1, 2006.

10

Note 12 – Equity Method Investments

(dollars in millions)

Abbott’s 50 percent-owned joint venture, TAP Pharmaceutical Products Inc. (TAP), is accounted for under the equity method of accounting.  Summarized financial information for TAP is as follows:

Note 13 – Goodwill and Intangible Assets

(dollars in millions)

Abbott recorded goodwill of approximately $834 related to the acquisitions of TheraSense in the second quarter of 2004 and i-STAT in the first quarter of 2004.  Foreign currency translation adjustments (decreased) increased goodwill in the first six months of 2005 and 2004 by approximately ($232) and $62, respectively.  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 $6,563 as of June 30, 2005 and $6,622 as of December 31, 2004, and accumulated amortization was $1,734 as of June 30, 2005 and $1,468 as of December 31, 2004.  Intangible assets with indefinite lives are not significant.  The estimated annual amortization expense for intangible assets is $484 in 2005, $485 in 2006, $468 in 2007, $445 in 2008, and $439 in 2009.  Intangible assets are amortized primarily on a straight-line basis over 4 to 25 years (average 13 years).

11

FINANCIAL REVIEW

Results of Operations

The following table details sales by reportable segment for the second quarter and first six months:

(dollars in millions)

a) Percentage changes are based on unrounded numbers.

Worldwide sales for the second quarter and six months 2005 reflect primarily unit growth and the positive effect of the relatively weaker U.S. dollar.  The relatively weaker U.S. dollar increased second quarter and first six months 2005 consolidated net sales 2.3 percent and 2.5 percent respectively, and increased Total International sales 5.2 percent and 5.6 percent over the second quarter and first six months 2004.  In addition, the effect of the relatively weaker U.S. dollar increased second quarter and first six months 2005 sales in the Diagnostic products segment by 3.8 percent and 4.0 percent, respectively, and International segment sales by 5.1 percent and 5.4 percent, respectively.

12

A comparison of the product group sales by segment for the six months ended June 30 is as follows: (dollars in millions)