Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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.

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

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

The aggregate market value of the 1,487,147,688 shares of voting stock held by nonaffiliates of the registrant, computed by reference to the closing price as reported on the New York Stock Exchange, as of the last business day of Abbott Laboratories' most recently completed second fiscal quarter (June 30, 2004), was approximately $60,616,139,804. Abbott has no non-voting common equity.

Portions of the 2005 Abbott Laboratories Proxy Statement are incorporated by reference into Part III. The Proxy Statement will be filed on or about March 18, 2005.

Abbott Laboratories is an Illinois corporation, incorporated in 1900. Abbott's* principal business is the discovery, development, manufacture, and sale of a broad and diversified line of health care products.

FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS,
GEOGRAPHIC AREAS, AND CLASSES OF SIMILAR PRODUCTS

Incorporated herein by reference is Note 7 entitled "Segment and Geographic Area Information" of the Notes to Consolidated Financial Statements included under Item 8, "Financial Statements and Supplementary Data."

Abbott has four reportable revenue segments: Pharmaceutical Products, Diagnostic Products, Ross Products, and International. Abbott also has a 50 percent owned joint venture, TAP Pharmaceutical Products Inc.

Abbott previously had five reportable segments. Effective January 1, 2004, Abbott's segments were reorganized to reflect the shift of certain hospital pharmaceutical products from the Hospital Products segment to the Pharmaceutical Products segment, and the separation of the vascular and spinal products businesses into separate non-reportable segments. In addition, as of January 1, 2004, the Diagnostic Products segment was reorganized into four separate divisions. For segment reporting purposes, these divisions are aggregated and reported as the Diagnostic Products segment.

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 common share of Hospira stock on April 30, 2004. All of the shares of Hospira's common stock were distributed to Abbott shareholders on a pro-rata basis. 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 the 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 Statement of Cash Flows. Prior years' balance sheets have not been adjusted to reflect the effect of the spin-off. The prior years' segments have been adjusted to conform to the current year's presentation.

The Pharmaceutical Products segment's products include a broad line of adult and pediatric pharmaceuticals, which are sold primarily on the prescription, or recommendation, of physicians.

In addition, through an agreement with Boehringer Ingelheim, the Pharmaceutical Products segment co-promotes and distributes Flomax® for the treatment of benign prostatic hyperplasia, Micardis® for the treatment of hypertension, and Mobic® for the treatment of arthritis.

The Pharmaceutical Products segment markets its products in the United States and generally sells its products directly to wholesalers, government agencies, health care facilities, and independent retailers from Abbott-owned distribution centers and public warehouses. This segment directs its primary marketing efforts toward securing the prescription of Abbott's brand of products by physicians. Managed care providers (for example, health maintenance organizations and pharmacy benefit managers) and state and federal governments and agencies (for example, the Department of Veterans Affairs and the Department of Defense) are also important customers.

Competition in the Pharmaceutical Products segment is generally from other health care and pharmaceutical companies. The search for technological innovations in pharmaceutical products is a significant aspect of competition in this segment. The introduction of new products by competitors and changes in medical practices and procedures can result in product obsolescence in the Pharmaceutical Products segment, and price can also be a factor. In addition, the substitution of generic drugs for the brand prescribed has increased competitive pressures on pharmaceutical products which are off-patent.

The Diagnostic Products segment's products include diagnostic systems and tests for blood banks, hospitals, commercial laboratories, alternate-care testing sites, plasma protein therapeutic companies, and consumers. In the first quarter of 2004, Abbott acquired i-STAT Corporation, a leading manufacturer of point-of-care diagnostic systems for blood analysis. In the second quarter of 2004, Abbott completed its acquisition of TheraSense, Inc. TheraSense develops, manufactures and markets FreeStyle® blood glucose self-monitoring systems, and is a leader in developing systems that feature a very small sample size, rapid test results, and less painful testing.

In addition, under its strategic alliance with Celera Diagnostics, a joint venture between the Applied Biosystems Group and the Celera Genomics Group of Applera Corporation, the Diagnostic Products segment develops, manufactures and markets a broad range of in vitro molecular diagnostic products for disease detection, disease progression monitoring and therapy selection. Through a sales and marketing agreement with Enfer Scientific Ltd., the Diagnostic Products segment also distributes diagnostic tests in Europe and Japan that are used to detect bovine spongiform encephalopathy (BSE) in cattle.

The Diagnostic Products segment markets its products worldwide. These products are generally marketed and sold directly to hospitals, laboratories, clinics, and physicians' offices from Abbott-owned distribution centers and public warehouses. Outside the United States, sales are made either directly to customers or through distributors, depending on the market served. Blood glucose monitoring meters and test strips for people with diabetes are also marketed and sold over the counter to consumers.

The Diagnostic Products segment's products are subject to competition in technological innovation, price, convenience of use, service, instrument warranty provisions, product performance, long-term supply contracts, and product potential for overall cost-effectiveness and productivity gains. Some products in this segment can be subject to rapid product obsolescence. Although Abbott has benefited from technological advantages of certain of its current products, these advantages may be reduced or eliminated as competitors introduce new products. Certain of this segment's products are subject to restrictions on their sale in the United States. These restrictions are discussed in the section captioned, "Regulation" on pages 8 and 9.

The Ross Products segment's products include a broad line of pediatric and adult nutritionals. These products are sold directly to consumers, often on the recommendation of physicians or other health care professionals. The Ross Products segment also includes specialty pharmaceuticals. In the fourth quarter of 2004, Abbott acquired EAS Inc., a nutritional leader with a strong portfolio of brands, including AdvantEdge®, Myoplex®, and Body for Life®.

In addition, the Ross Products segment co-promotes Synagis®, for prevention of respiratory syncytial virus, under an agreement with MedImmune Inc.

The Ross Products segment markets its products in the United States, except for EAS® and Zone Perfect® retail products which are sold worldwide. In most cases, its products are distributed from Abbott-owned distribution centers or public warehouses.

It generally sells nutritional products directly to retailers, wholesalers, health care facilities, and government agencies. Currently, primary marketing efforts for nutritional products are directed toward securing the recommendation of Abbott's brand of products by physicians or other health care professionals. In addition, nutritional products are also promoted through direct to consumer marketing efforts. Similac® Advance®, Isomil® Advance®, PediaSure®, Pedialyte®, Ensure®, Glucerna®, Zone Perfect®, and EAS® retail products are promoted directly to the public by consumer advertising. These products are generally sold directly to retailers and wholesalers.

The Ross Products segment's pharmaceutical products are generally marketed directly to physicians, health care facilities, and government agencies and sold through wholesalers. Primary marketing efforts for this segment's pharmaceutical products are directed at securing the prescription of these products by physicians.

Competition for nutritional products in the Ross Products segment is generally other diversified consumer and health care manufacturers. Competitive factors include consumer advertising, formulation, packaging, scientific innovation, price, and availability of private label product forms. Competition for pharmaceutical products in the Ross Products segment is generally from other health care and pharmaceutical companies. A significant aspect of competition is the search for technological innovations. The introduction of new products by competitors and changes in medical practices and procedures can result in product obsolescence. Price can also be a factor. In addition, the substitution of generic drugs for the brand prescribed has increased competitive pressures on pharmaceutical products which are off-patent.

The International segment's products include a broad line of pharmaceutical and adult and pediatric nutritional products marketed and primarily manufactured outside the United States. These products are sold primarily on the prescription or recommendation of physicians and other health care professionals. This segment also includes consumer products.

The International segment's pharmaceutical and nutritional products are generally sold directly to government agencies, retailers, wholesalers, and health care facilities. In most cases, they are distributed from Abbott-owned distribution centers. Certain products are co-marketed or co-promoted with other companies. Some of these products are marketed and distributed through distributors. Primary marketing efforts for pharmaceutical products are directed toward securing the prescription of Abbott's brand of products by physicians. Primary marketing efforts for nutritional products are directed toward securing the recommendation of Abbott's brand of products by physicians or other health care professionals.

Competition for the International segment's pharmaceutical products is generally from other health care and pharmaceutical companies. A significant aspect of competition is the search for technological innovations. The introduction of new products by competitors and changes in medical practices and procedures can result in product obsolescence. Price can also be a factor. In addition, the substitution of generic drugs for the brand prescribed has increased competitive pressures on pharmaceutical products. Competition for the segment's nutritional products is generally from other health care manufacturers and food companies. Nutritional products are subject to competition in price, scientific innovation, formulation, and promotional initiatives.

Under an agreement between Abbott and Takeda Pharmaceutical Company, Ltd. of Japan (Takeda), TAP Pharmaceutical Products Inc. (owned 50 percent by Abbott and 50 percent by an affiliate of Takeda), together with its subsidiary, TAP Pharmaceuticals Inc. (TAP), develops and markets pharmaceutical products primarily for the United States and Canada. TAP markets Lupron®, an LH-RH analog, and Lupron Depot®, a sustained release form of Lupron®, in the United States. Lupron® and Lupron Depot® are used principally for the palliative treatment of advanced prostate cancer and for the treatment of endometriosis and central precocious puberty and for the preoperative treatment of patients with anemia caused by uterine fibroids. TAP also markets Prevacid® (lansoprazole), a proton pump inhibitor. Its principal indications are for short-term treatment of gastroesophageal reflux disease, duodenal ulcers, gastric ulcers, and erosive esophagitis.

TAP's products are generally sold directly to physicians, retailers, wholesalers, health care facilities, and government agencies. In most cases, they are distributed for TAP from Abbott-owned distribution centers. Primary marketing efforts for pharmaceutical products are directed toward securing the

prescription of TAP's brand of products by physicians. Managed care purchasers (for example, health maintenance organizations and pharmacy benefit managers) are increasingly important customers.

Competition is generally from other pharmaceutical companies. A significant aspect of competition is the search for technological innovations. The introduction of new products by competitors and changes in medical practices and procedures can result in product obsolescence. Price can also be a factor. In addition, the availability of over-the-counter drugs or the substitution of generic drugs for the brand prescribed has increased competitive pressures.

Abbott purchases, in the ordinary course of business, raw materials and supplies essential to Abbott's operations from numerous suppliers in the United States and abroad. There have been no recent significant availability problems or supply shortages.

Abbott is aware of the desirability for patent and trademark protection for its products. Accordingly, where possible, patents and trademarks are sought and obtained for Abbott's products in the United States and all countries of major marketing interest to Abbott. Abbott owns and is licensed under a substantial number of patents and patent applications. Principal trademarks and the products they cover are discussed in the Narrative Description of Business on pages 1 through 6. These, and various patents which expire during the period 2005 to 2024, in the aggregate are believed to be of material importance in the operation of Abbott's business. Abbott believes that no single patent, license, trademark (or related group of patents, licenses, or trademarks), except for those related to adalimumab (which is sold under the trademark HUMIRA®), those related to clarithromycin (which is sold under the trademarks Biaxin®, Klacid® and Klaricid®), those related to divalproex sodium (which is sold under the trademark Depakote®), those related to lansoprazole (which is sold under the trademarks Prevacid® and Ogastro®), and those related to lopinavir/ritonavir (which is sold under the trademark Kaletra®), are material in relation to Abbott's business as a whole. The original United States compound patents covering adalimumab will expire in 2016. The original United States compound patent covering clarithromycin is licensed from Taisho Pharmaceutical Co., Ltd. of Tokyo, Japan, and will expire in 2005. The original United States compound patents covering divalproex sodium will expire in 2008. The original United States compound patent covering lansoprazole is licensed by TAP from Takeda and will expire in 2009. The original United States compound patent covering lopinavir will expire in 2015. The original United States compound patents covering ritonavir will expire in 2013 and 2014. The original United States composition patent covering lopinavir/ritonavir will expire in 2016. In addition, the patents, licenses, and trademarks related to fenofibrate (which is sold under the trademark TriCor®) are significant for Abbott's Pharmaceutical Products segment and the patents, licenses, and trademarks related to sevoflurane (which is sold under the trademarks Sevorane® and Ultane®) are significant for Abbott's International segment. The principal United States formulation patents covering the fenofibrate products will expire in 2009, 2011, 2018, and 2020. The principal formulation patents covering sevoflurane in the International segment's major markets will expire in 2018. Litigation involving Abbott's patents covering clarithromycin, its patents covering divalproex sodium, and its patents covering fenofibrate is discussed in Legal Proceedings on pages 11, 14 and 15.

Although the expiration of a compound patent may lead to increased competition, in most cases Abbott owns or has a license to other patents that expire after the original compound patent related to particular formulations, uses, or processes for manufacturing the pharmaceutical. These other patents and Abbott's other intellectual property, along with such other factors as a competitor's need to obtain regulatory approvals prior to marketing a competitive product and the nature of the market, may allow Abbott to continue to maintain exclusivity or have other commercial advantages after the expiration of the original compound patent.

There are no significant seasonal aspects to Abbott's business. The incidence of certain infectious diseases which occur at various times in different areas of the world does, however, affect the demand for Abbott's anti-infective products. Orders for Abbott's products are generally filled on a current basis, and order backlog is not material to Abbott's business. No single customer accounted for sales equaling 10 percent or more of Abbott's consolidated net sales. No material portion of Abbott's business is subject to renegotiation of profits or termination of contracts at the election of the government.

Abbott spent $1,696,753,000 in 2004, $1,623,752,000 in 2003, and $1,474,537,000 in 2002 on research to discover and develop new products and processes and to improve existing products and processes. The majority of research and development expenditures is concentrated on pharmaceutical products.

Abbott believes that its operations comply in all material respects with applicable laws and regulations concerning environmental protection. Regulations under federal and state environmental laws impose stringent limitations on emissions and discharges to the environment from various manufacturing operations. Abbott's capital and operating expenditures for pollution control in 2004 were approximately $10 million and $58 million, respectively. Capital and operating expenditures for pollution control are estimated to approximate $6 million and $61 million, respectively, in 2005.

Abbott has been identified as one of many potentially responsible parties in investigations and/or remediations at 17 locations in the United States including Puerto Rico under the Comprehensive Environmental Response, Compensation, and Liability Act, commonly known as Superfund. The aggregate costs of remediation at these sites by all identified parties are uncertain but have been subject to widely ranging estimates totaling as much as several hundred million dollars. In many cases, Abbott believes that the actual costs will be lower than these estimates, and the fraction for which Abbott may be responsible is anticipated to be considerably less and will be paid out over a number of years. Abbott may participate in the investigation or cleanup at these sites. Abbott is also voluntarily investigating potential contamination at one Abbott-owned site, and is engaged in remediation at five other sites, in cooperation with the Environmental Protection Agency (EPA) or similar agencies.

While it is not feasible to predict with certainty the costs related to the previously described investigations and cleanup activities, Abbott believes that such costs, together with other expenditures to maintain compliance with applicable laws and regulations concerning environmental protection, should not have a material adverse effect on Abbott's financial position, cash flows, or results of operations.

The development, manufacture, sale, and distribution of Abbott's products are subject to comprehensive government regulation. Government regulation by various federal, state, and local agencies, which includes detailed inspection of, and controls over, research and laboratory procedures, clinical investigations, product approvals and manufacturing, marketing and promotion, sampling, distribution, record keeping, storage, and disposal practices, substantially increases the time, difficulty, and costs incurred in obtaining and maintaining the approval to market newly developed and existing products. Government regulatory actions can result in delay in the release of products, seizure or recall of products, suspension or revocation of the authority necessary for their production and sale, and other civil or criminal sanctions.

Abbott is a party to a consent decree entered in 1999 that requires Abbott to ensure its diagnostics manufacturing processes in Lake County, Illinois conform with the FDA's Quality System Regulation. In 2003, the FDA concluded that those operations were in substantial conformity with that regulation. Abbott is introducing new diagnostics products manufactured at its Lake County, Illinois facility and continuing the process of reintroducing products removed from the market as a result of the consent decree.

Governmental regulatory agencies require prescription drug and medical device manufacturers to pay fees, such as application, product, and establishment fees.

International operations are also subject to a significant degree of government regulation and country-specific rules and regulations. Many countries, directly or indirectly, through reimbursement limitations, control the selling price of most health care products. Furthermore, many countries limit the importation of raw materials and finished products.

Continuing studies of the utilization, safety, and efficacy of health care products and their components are being conducted by industry, government agencies, and others. Such studies, which employ increasingly sophisticated methods and techniques, can call into question the utilization, safety, and efficacy of previously marketed products and in some cases have resulted, and may in the future result, in the discontinuance of marketing of such products and may give rise to claims for damages from persons who believe they have been injured as a result of their use.

Access to and the cost of human health care products continues to be a subject of investigation and action by governmental agencies, legislative bodies, and private organizations in the United States and other countries. In the United States, most states have enacted generic substitution legislation requiring or permitting a dispensing pharmacist to substitute a different manufacturer's version of a pharmaceutical product for the one prescribed. In 2006, a prescription drug benefit will be implemented under the Medicare program, providing eligible individuals with greater access to prescription drugs. Although it is not yet possible to assess the overall impact on Abbott, that impact is expected to be neutral, with any increase in volume likely to be offset by federal and state governments' efforts to manage the costs of Medicare and Medicaid programs. In addition, the federal government follows a diagnosis-related group (DRG) payment system for certain institutional services provided under Medicare or Medicaid and has implemented a prospective payment system (PPS) for services delivered in hospital outpatient, nursing home, and home health settings. DRG and PPS entitle a health care facility to a fixed reimbursement based on diagnosis rather than actual costs incurred in patient treatment, thereby increasing the incentive for the facility to limit or control expenditures for many health care products. Manufacturers must pay certain statutorily-prescribed rebates on Medicaid purchases for reimbursement on prescription drugs under state Medicaid plans and some states are seeking additional rebates. The Veterans Health Care Act of 1992 requires manufacturers to extend additional discounts on pharmaceutical products to various federal agencies, including the Department of Veterans Affairs, Department of Defense, and Public Health Service entities and institutions.

In the United States, governmental cost containment efforts have extended to the federally funded Special Supplemental Nutrition Program for Women, Infants, and Children (WIC). All states participate in WIC and have sought and obtained rebates from manufacturers of infant formula whose products are used in the program. All states have conducted competitive bidding for infant formula contracts which require the use of specific infant formula products by the state WIC program, unless a physician requests a non-contract formula for a WIC client. States participating in WIC are required to engage in competitive bidding or to use any other cost containment measure that yields savings equal to or greater than the savings generated by a competitive bidding system.

Abbott expects debate to continue during 2005 at both the federal and the state level over the availability, method of delivery, and payment for health care products and services. Abbott believes that if legislation is enacted, it could have the effect of reducing prices, or reducing the rate of price increases, for health care products and services.

Efforts to reduce health care costs are also being made in the private sector. Health care providers have responded by instituting various cost reduction and containment measures.

It is not possible to predict the extent to which Abbott or the health care industry in general might be affected by the matters discussed above.

Abbott markets products in approximately 130 countries through affiliates and distributors. Most of the products discussed in the preceding sections of this report are also sold outside the United States. In addition, certain products of a local nature and variations of product lines to meet local regulatory requirements and marketing preferences are manufactured and marketed to customers outside the United States. International operations are subject to certain additional risks inherent in conducting business outside the United States, including price and currency exchange controls, changes in currency exchange rates, limitations on foreign participation in local enterprises, expropriation, nationalization, and other governmental action.

Copies of Abbott's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge through Abbott's investor relations website (www.abbottinvestor.com) as soon as reasonably practicable after Abbott electronically files the material with, or furnishes it to, the Securities and Exchange Commission.

Abbott's corporate governance guidelines, outline of directorship qualifications, code of business conduct and the charters of Abbott's audit committee, compensation committee, nominations and governance committee, and public policy committee are all available on Abbott's investor relations website (www.abbottinvestor.com) or by sending a request for a paper copy to: Abbott Laboratories, 100 Abbott Park Road, Dept. 383, AP6D2, Abbott Park, Illinois 60064-6400, attn. Investor Relations.

Abbott's corporate offices are located at 100 Abbott Park Road, Abbott Park, Illinois 60064-6400. The locations of Abbott's principal plants, as of December 31, 2004, are listed below.

Location		Reportable Segments of Products Produced
Abbott Park, Illinois		Pharmaceutical Products and Diagnostic Products
Abingdon, England*		Diagnostic Products
Alameda, California		Diagnostic Products
Altavista, Virginia		Ross Products
Barceloneta, Puerto Rico		Pharmaceutical Products and Diagnostic Products
Brockville, Canada		International
Campoverde, Italy		International
Casa Grande, Arizona		Ross Products
Columbus, Ohio		Ross Products
Dartford, England*		Diagnostic Products
Delkenheim, Germany		Diagnostic Products
Granada, Spain		International
Irving, Texas		Diagnostic Products
Jayuya, Puerto Rico		Pharmaceutical Products
Kanata, Canada*		Diagnostic Products
Karachi, Pakistan		International
Katsuyama, Japan		International
Liestal, Switzerland		International
Ludwigshafen, Germany		International
Matsudo, Japan		Diagnostic Products
Mexico City, Mexico		International
North Chicago, Illinois		Pharmaceutical Products
Queenborough, England		International
Redwood City, California*		Vascular — a non-reportable segment
Rio de Janeiro, Brazil		International
Santa Clara, California		Diagnostic Products
Sligo/Donegal/Cootehill/Finisklin, Ireland		Diagnostic Products and International
Sturgis, Michigan		Ross Products
St. Remy, France		International
Whippany, New Jersey		Pharmaceutical Products
Worcester, Massachusetts*		Pharmaceutical Products
Zwolle, the Netherlands		International

In addition to the above, Abbott has manufacturing facilities in seven other locations in the United States, including Puerto Rico. Outside the United States, manufacturing facilities are located in ten other countries. Abbott's facilities are deemed suitable, provide adequate productive capacity, and generally are utilized at normal and acceptable levels.

In the United States, including Puerto Rico, Abbott owns eight distribution centers. Abbott also has 17 United States research and development facilities located at: Abbott Park, Illinois; Alameda, California; Bedford, Massachusetts; Columbus, Ohio (two locations); Downers Grove, Illinois; East Windsor, New Jersey; Fairfield, California; Golden, Colorado; Irving, Texas; Long Grove, Illinois; North Chicago, Illinois; Parsippany, New Jersey; Redwood City, California; Santa Clara, California; Sunnyvale, California; and Worcester, Massachusetts. Outside the United States, Abbott has research and development facilities in Argentina, Canada, Germany, Ireland, Japan, the Netherlands, South Africa, Spain, Switzerland, and the United Kingdom.

Except as noted, the corporate offices, and those principal plants in the United States listed above, are owned by Abbott or subsidiaries of Abbott. The remaining manufacturing plants and all other facilities are owned or leased by Abbott or subsidiaries of Abbott. There are no material encumbrances on the properties.

Abbott is involved in various claims, legal proceedings and investigations, including (as of January 31, 2005) those described below.

In 2001, the United States District Court for the Northern District of Illinois dismissed the shareholder derivative suits filed in 1999 against Abbott's directors as of November 1999 and certain other former directors in connection with Abbott's consent decree with the FDA regarding Abbott's diagnostic manufacturing operations in Lake County, Illinois. The suits had been consolidated as In re: Abbott Laboratories Derivative Shareholder Litigation. The plaintiffs alleged that the directors breached their duty of care by failing to prevent Abbott's alleged regulatory noncompliance and sought unspecified damages from the directors. Plaintiffs appealed to the United States Court of Appeals for the Seventh Circuit. In March 2003, the Seventh Circuit reversed the District Court's dismissal and remanded the case. On December 28, 2004, the trial court preliminarily approved a settlement of this matter pending a final approval hearing date, which is expected to occur in the first half of 2005. Under the terms of the settlement, a charter for the board's public policy committee has been adopted, Abbott will fund regulatory/compliance activities in the amount of $27 million, and the plaintiffs' attorneys fees will be paid from proceeds of insurance maintained by Abbott for its directors.

In the mid-1990s, a number of prescription pharmaceutical pricing antitrust suits were brought on behalf of retail pharmacies in federal and state courts as purported class actions. The retail pharmacies allege that pharmaceutical manufacturers, including Abbott, conspired to fix prices for prescription pharmaceuticals and/or to discriminate in pricing to retail pharmacies in violation of state and federal antitrust laws. The cases seek treble damages, civil penalties, and injunctive and other relief. Abbott filed a response to each of the complaints denying all substantive allegations. Abbott has settled all of the claims, with the exception of the claims brought on behalf of a group of retail pharmacies that "opted-out" of the class action settlement Abbott entered into in 1998. That group's claims are pending in the United States District Court for the Eastern District of New York. An investigation is also being conducted into the same allegations by the Illinois Attorney General.

Three cases are pending in which Abbott seeks to protect its patents for divalproex sodium (a drug that Abbott sells under the trademark Depakote®). In March 2004, in the case against TorPharm, a division of Apotex, Inc., ("TorPharm"), filed October 1997, the United States District Court for the Northern District of Illinois ruled in Abbott's favor finding that TorPharm's proposed product infringed Abbott's patents. The court entered an injunction barring TorPharm from manufacturing, using, selling, or offering to sell the generic divalproex sodium product until Abbott's patents expire, and directed that the effective date of any approval by FDA be no earlier than each patent expiration date. TorPharm has appealed to the Federal Circuit Court of Appeals. In the second case filed by Abbott in August 1992, the United States District Court for the Northern District of Illinois granted Abbott's motion for summary judgment against Alra Laboratories, Inc. ("Alra"), finding that Alra's proposed product infringed Abbott's patents. Alra appealed the decision to the Federal Circuit Court of Appeals. In March 2003, the Court of Appeals issued an order in Alra providing that the appeal would not be resolved on the merits and remanding the case to the lower court for a determination as to whether the lower court's judgment should stand or be vacated. The third case was brought by Abbott in May 2003 against Andrx Corporation, Andrx Pharmaceuticals, Inc., and Andrx Pharmaceuticals, LLC ("Andrx") in the United States District Court for the Southern District of Florida after Andrx submitted a Section 505(b)(2) NDA for a product described as sodium valproate tablets. That case was consolidated with a case Abbott had filed in April 2000 against the same parties. The earlier case has been dismissed.

A number of antitrust cases were pending in federal court (including a case filed by the Attorneys General of the States of Colorado, Florida and Kansas) and various state courts in connection with the settlement of patent litigation by Abbott involving terazosin hydrochloride, a drug sold by Abbott under the trademark Hytrin®. These cases (which were brought against Abbott, Geneva Pharmaceuticals, Inc., and Zenith Goldline Pharmaceuticals, Inc.) seek actual damages, treble damages, and other relief and allege Abbott violated state or federal antitrust laws and, in some cases, unfair competition laws. The federal court cases are pending in the United States District Court for the Southern District of Florida under the Multidistrict Litigation Rules as In re: Terazosin Hydrochloride, MDL No. 1317. On remand, the MDL court denied certification of a class of direct purchasers of Hytrin, but granted certification of a class of indirect purchasers. The United States Court of Appeals for the Eleventh Circuit has accepted an appeal from Abbott of the District Court's certification of a class of indirect purchasers. The MDL court has granted summary judgment in plaintiffs' favor finding that the challenged agreement was impermissible under federal antitrust law. The MDL court also granted summary judgment in Abbott's favor on certain of plaintiffs' claims finding both that Abbott's patent infringement lawsuits were not baseless and that Abbott did not defraud the patent office in obtaining the challenged patent. Cases are also pending in six state courts. Two of the state court cases, Asher and New Utrecht Pharmacy and Lisanti (both filed in 1999 in the Supreme Court of the State of New York, County of New York), were consolidated and are stayed pending the resolution of MDL No. 1317. The other state cases are: State of West Virginia, filed in October 2001 in the Circuit Court in Wyoming County, West Virginia; Daniels, filed in May 2000 in Superior Court in Orange County, California (stayed pending resolution of MDL No. 1317); Hopper, filed in October 2001 in the Superior Court in Pitt County, North Carolina; and Blue Cross/Blue Shield of Minnesota et al. v. Abbott Laboratories, et al., filed in August 2003 in the Circuit Court of Cook County, Illinois. Abbott has filed a response to each complaint denying all substantive allegations.

A number of cases, brought as purported class actions or representative actions on behalf of individuals or entities, 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. These cases brought by private plaintiffs and State Attorneys General generally seek damages, treble damages, disgorgement of profits, restitution, and attorneys fees. The federal court cases have been consolidated in the United States District Court for the District of Massachusetts under the Multidistrict Litigation Rules as In re: Pharmaceutical Industry Average Wholesale Price Litigation, MDL 1456. The following previously reported cases have now been transferred to MDL 1456: International Union of Operating Engineers Local No. 68 Welfare Fund; County of Rockland; County of Westchester; Digel; State of California ex rel. Ven-A-Care of the Florida Keys; and Turner. One of the previously reported federal court cases, Rice, has been dismissed without prejudice. Two new federal cases have been filed and have been or will be transferred to MDL 1456: City of New York, filed in August 2004 in the United States District Court for the Southern District of New York; and County of Nassau, filed in November 2004 in the United States District Court for the Eastern District of New York. Cases are also pending in eight state courts: Swanston, filed in March 2002 in the Superior Court for Maricopa County, Arizona; State of West Virginia ex rel. Darrell V. McGraw, Jr., Attorney General, filed in October 2001 in the Circuit Court of Kanawha County, West Virginia; Peralta, a minor by and through his Guardian ad Litem, Filamena Iberia, filed in October 2001 in the Superior Court for Los Angeles County, California; State of Nevada, filed in January 2002 in the Second Judicial District Court in Washoe County, Nevada; Commonwealth of Kentucky ex rel. Albert B. Chandler III, Attorney General, filed in September 2003 in the Circuit Court of Franklin County, Kentucky; Commonwealth of Pennsylvania, filed in March 2004 in the Commonwealth Court of Pennsylvania; State of Ohio, filed in March 2004 in the Court of Common Pleas, Hamilton County, Ohio; State of Texas ex rel. Greg Abbott, Attorney General, filed in May 2004 in the District Court of Travis County, Texas; and State of Wisconsin, filed in June 2004 in the Circuit Court of Dane County, Wisconsin. Abbott has filed or intends to file a response in each case denying all substantive allegations.

In addition, various state and federal agencies, including the United States Department of Justice, the Florida and Illinois Attorneys General, and the Department of Audit and Control for the County of

Albany, New York, are investigating Abbott's marketing and pricing practices with respect to certain Medicare and Medicaid reimbursable products. These civil investigations seek to determine whether these practices violated any laws, including the Federal False Claims Act or constituted fraud in connection with the Medicare and/or Medicaid reimbursement paid to third parties.

A number of cases have been brought against TAP Pharmaceutical Products Inc., Abbott and Takeda Chemical Industries, Ltd. in various courts that generally allege that TAP reported false pricing information in connection with Lupron®, a product reimbursable under Medicare. The previously reported federal court cases have been consolidated in the United States District Court for the District of Massachusetts under the Multidistrict Litigation Rules as In re: Lupron® Marketing and Sales Practices Litigation, MDL 1430, and include: a Consolidated Class Action Complaint brought on behalf of all persons or entities who paid for Lupron® at a price calculated by reference to the published Average Wholesale Price from January 1, 1991 through September 2001; Empire Healthchoice, Inc., et al., v. TAP Pharmaceutical Products, Inc., Abbott Laboratories and Takeda Chemical Industries, Ltd., filed in June 2002 in the United States District Court for the District of Massachusetts; Cobalt Corporation v. Abbott Laboratories Inc., Takeda Chemical Industries Ltd. and TAP Pharmaceutical Products Inc., filed in August 2002 in the United States District Court for the District of Massachusetts; Health Care Service Corporation v. TAP Pharmaceutical Products, Inc., et al., removed to the United States District Court for the Eastern District of Texas in March 2003; and Liberty National Life Ins. Co. et al., v. TAP Pharmaceutical Products, Inc., et al., filed in the United States District Court for the Northern District of Alabama in October 2003. On November 24, 2004, the MDL court granted preliminary approval for a proposed nationwide settlement and also stayed all state class actions as to class claims pending a final approval hearing date, which is expected to occur in the first half of 2005.

Cases are also pending in various state courts, and have been brought as purported class actions or representative actions on behalf of individuals and/or insurance plans that paid any portion of the twenty percent co-payment cost under Medicare for Lupron® based on the published Average Wholesale Price (or, in some instances, any portion of the cost for Lupron®) and seek treble damages, and other relief. The cases allege TAP reported false pricing information in connection with Lupron®. The state cases are: Campbell-Hubbard, filed in June 2001 in the Superior Court for San Francisco County, California; Clark, filed in July 2001 in the Circuit Court of the First Judicial District, Williamson County, Illinois; Walker, filed in October 2001 in the Superior Court of New Jersey, Cape May County; Farris, filed in December 2001 in the Superior Court for San Francisco, California; Stetser, filed in December 2001 in the Superior Court, New Hanover County, North Carolina; Benoit, filed in February 2002 in the District Court of Jefferson County, Texas; and Grass, filed in September 2002 in the District Court of Jefferson County, Texas. A nationwide class has been certified in the Clark case. The previously reported nationwide class certification in the Stetser case was reversed by the North Carolina Court of Appeals and, on remand, the Stetser court certified a North Carolina statewide class. The court in Stetser has not ruled on plaintiffs' motion to proceed with their individual claims against TAP and Abbott. A New Jersey state class has been certified in the Walker case. The Walker state court found that the individual plaintiff opted-out of the proposed nationwide settlement and may proceed to trial with his individual claims. Abbott and TAP have filed responses in each case denying all substantive allegations.

A consolidated shareholder derivative complaint is pending in state court in the Circuit Court of Cook County, Illinois against Abbott's directors as of October 2001 alleging that these directors breached their fiduciary duties in relation to certain marketing and pricing practices at TAP. The complaint includes the following cases: Zimmerman, filed in October 2001; Thierman, filed in October 2001; and Raftery, filed in October 2001. The plaintiffs request damages, a return of salaries, reimbursement of their legal fees and costs, and various forms of other relief from these directors on behalf of Abbott. On January 6, 2005, the court preliminarily approved a settlement in this matter pending a final approval hearing date, which is expected to occur in the first half of 2005. Under the terms of the settlement, certain provisions were

included in the charter for the board's public policy committee, and the plaintiffs' attorneys fees will be paid from proceeds of insurance maintained by Abbott for its directors.

Six cases are pending in which Abbott seeks to protect its patents for fenofibrate (a drug Abbott sells under the trademark TriCor®). Cases are pending against the following companies: Teva Pharmaceutical Industries, filed in October 2002 in the United States District Court for the District of Delaware; IMPAX Laboratories, filed in February 2003 in the United States District Court for the District of Delaware; Par Pharmaceuticals, filed in February 2003 in the United States District Court for the District of New Jersey; Ranbaxy Laboratories, filed in May 2003 in the United States District Court for the District of New Jersey; Cipher Pharmaceuticals, filed in March 2003 in the United States District Court for the District of Puerto Rico; and Reliant Pharmaceuticals, filed in June 2004 in the United States District Court for the District of Delaware. Each of the lawsuits involves patents covering Abbott's 54 mg and 160 mg tablets. Teva, Impax, and Cipher have filed motions for summary judgment and Teva has filed a motion to lift the statutory 30-month stay that currently precludes the regulatory approval of its products. Abbott has filed oppositions to the motions.

Abbott is a defendant in numerous lawsuits involving the drug oxycodone (a drug sold under the trademark OxyContin®), which is manufactured by Purdue Pharma. Abbott promoted OxyContin to certain specialty physicians, including surgeons and anesthesiologists under a co-promotion agreement with Purdue Pharma. Purdue Pharma is a defendant in each lawsuit and, pursuant to the co-promotion agreement, Purdue is required to indemnify Abbott in each lawsuit. Most of the lawsuits allege generally that plaintiffs suffered personal injuries as a result of taking OxyContin. A few lawsuits allege consumer protection violations and unfair trade practices. One suit by a third party payor alleges antitrust pricing violations and overpricing of the drug. As of December 31, 2004, there are a total of 267 lawsuits pending in which Abbott is a party. 43 cases are pending in federal court; 224 cases are pending in state court. 246 cases are brought by individual plaintiffs, and 21 cases are brought as purported class action lawsuits. The previously reported action brought by the Attorney General for the State of West Virginia was settled by Purdue Pharma without admission of liability, and all claims against Abbott were dismissed with prejudice. A class of Ohio plaintiffs was certified in the case Howland v. Purdue Pharma, L.P. et al., Butler County Court of Common Pleas. The Ohio Court of Appeals affirmed certification, but on December 15, 2004, the Ohio Supreme Court reversed the certification of the class.

A consolidated shareholder derivative complaint is pending in state court in the Circuit Court of Cook County, Illinois against Abbott's directors as of June 2003 alleging that these directors breached their fiduciary duties in relation to certain business practices in the enteral nutritional business. The complaint includes Robert Corwin, filed in June 2003; Adele Brody, filed in August 2003; and Ted Gordon, filed in August 2003. In January 2004, Dennis MacCoumber filed a related additional shareholder derivative action in the United States District Court for the Northern District of Illinois. The suits seek compensatory damages, return of salaries, attorneys fees and other forms of relief. Abbott and the directors deny all substantive allegations. On January 7, 2005, the court preliminarily approved a settlement in this matter pending a final approval hearing date, which is expected to occur in the first half of 2005. Under the terms of the settlement, certain provisions were included in the charter for the board's public policy committee, and the plaintiffs' attorneys fees will be paid from proceeds of insurance maintained by Abbott for its directors.

Abbott is a defendant in a number of lawsuits involving the drug sibutramine (sold under the trademarks Meridia®, Reductil®, Reductyl™ and Reductal™) that have been brought either as purported class actions or on behalf of individual plaintiffs. The lawsuits generally allege design defects and failure to warn. Certain lawsuits also allege consumer protection violations and/or unfair trade practices. As of December 31, 2004, 118 lawsuits were pending in which Abbott is a party. 113 cases are being or have been transferred to the United States District Court for the Southern District of Ohio and are captioned, In Re Meridia MDL No. 1481. In July 2004, the United States District Court for the Northern District of Ohio granted Abbott's motion for summary judgment and dismissed Abbott from the 113 cases pending before

it in the case captioned, In Re Meridia MDL No. 1481. The cases are now on appeal. Four cases are pending in state court: Barley, filed in October 2002 in the Circuit Court of Jefferson County, Alabama; Titus, filed in October 2002 in the District Court of Nueces County, Texas; Killinger, filed in November 2002 in the Circuit Court in Lake County, Illinois; and a consolidated case pending in the Circuit Court in Lake County, Illinois that includes Lemetti, filed in March 2004 in the Circuit Court of Cook County, Illinois; Mosbah, filed in July 2003 in the Circuit Court of Cook County, Illinois; and Olinger, filed in January 2003 in the Circuit Court of Madison County, Illinois. One of the previously reported state court cases, Watson, filed in July 2002 in the District Court, Parish of East Baton Rouge, Louisiana, was dismissed in October 2004. Outside of the United States, one case is pending in Canada: Mandel, et al. v. Abbott, filed in June 2002 in the Ontario Superior Court of Justice, Toronto, Canada.

Abbott is a defendant in three cases pending in the United States District Court for the Northern District of Illinois related to Abbott's patents for clarithromycin (a drug Abbott sells under the trademarks Biaxin®, Biaxin®XL, Klacid®, and Klaricid®): Teva Pharmaceuticals USA, Inc., filed in August 2003; Genpharm, Inc., filed in October 2004; and Ranbaxy Laboratories Ltd. and Ranbaxy Pharmaceuticals, Inc., filed in December 2004. Teva and Genpharm have each brought a lawsuit seeking a declaration that their respective proposed generic immediate release clarithromycin products do not infringe certain Abbott patents and/or that the patents are invalid. The Ranbaxy lawsuit seeks a declaration that Ranbaxys' proposed generic immediate release clarithromycin product and proposed extended release clarithromycin product do not infringe certain Abbott patents and/or that the patents are invalid. Litigation relating to Abbott's clarithromycin patents is also pending in the United Kingdom, Netherlands, Spain, Belgium, and Canada.

Abbott is a defendant in several lawsuits that are pending in the United States District Court for the District of Minnesota and consolidated under the caption In re Canadian Import Antitrust Litigation alleging generally that Abbott and numerous other pharmaceutical manufacturers violated antitrust laws by conspiring to prevent re-importation of drugs from Canada. The consolidated lawsuit purports to be a class action brought on behalf of all United States residents who purchased and/or paid for brand name prescription drugs manufactured by the defendants. The plaintiffs seek an injunction prohibiting efforts to stop re-importation, a refund of all allegedly unlawful profits received by the defendants, treble damages, and attorneys fees.

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 dispositions should not have a material adverse effect on Abbott's financial position, cash flows, or results of operations.

Executive officers of Abbott are elected annually by the board of directors. All other officers may be elected by the board or appointed by the chairman of the board. All officers are either elected at the first meeting of the board of directors held after the annual shareholder meeting or appointed by the chairman after that board meeting. Each officer holds office until a successor has been duly elected or appointed and qualified or until the officer's death, resignation, or removal. Vacancies may be filled at any time by the board. Any officer may be removed by the board of directors when, in its judgment, removal would serve the best interests of Abbott. Any officer appointed by the chairman of the board may be removed by the chairman whenever, in the chairman's judgment, removal would serve the best interests of Abbott. A vacancy in any office appointed by the chairman of the board may be filled by the chairman.

Current corporate officers, their ages as of February 18, 2005, and the dates of their first election as officers of Abbott are listed below. The executive officers' principal occupations and employment from January 2000 to February 18, 2005 and the current principal occupation of all other officers are also shown. Unless otherwise stated, employment was by Abbott for the period indicated. There are no family relationships between any corporate officers or directors.

2000 to present — Chairman of the Board and Chief Executive Officer, and Director.

2001 to present — President and Chief Operating Officer, Medical Products Group, and Director.

2001 to present — President and Chief Operating Officer, Pharmaceutical Products Group, and Director.

2000 to 2001 — Executive Vice President, Pharmaceuticals and Chief Scientific Officer, and Director.

2000 — Elkan R. Blout Professor of Biological Sciences, Harvard School of Public Health and Professor of Medicine, Harvard Medical School.

2000 to 2003 — Senior Director, McKinsey and Company (a management consulting firm).

Jose M. de Lasa*, 63 (Mr. de Lasa has announced that he plans to retire in 2005.)

2004 to present — Executive Vice President, Finance and Chief Financial Officer.

2004 to present — Senior Vice President, Global Pharmaceutical Manufacturing and Supply.

2003 to 2004 — Vice President, Quality Assurance and Compliance, Medical Products Group.

2000 — Divisional Vice President, Manufacturing, Abbott International Division.

2001 to 2004 — Vice President, Japan Operations, Abbott International Division.

2000 to 2003 — Senior Vice President — Americas, Wm. Wrigley Jr. Company (a manufacturer and marketer of quality confectionery products, primarily chewing gum).

2000 — General Manager, Home Care Category, North America, Procter & Gamble Company (a manufacturer and marketer of a broad range of consumer products).

2002 to 2003 — Vice President, Global Commercial Operations, Diagnostic Products.

2001 — Divisional Vice President, Acquisition Integration Management, International Division.

2000 to 2001 — Divisional Vice President and Executive Director, Clara Abbott Foundation.

Vice President, Abbott Immunology Research Development and President, Abbott Bioresearch Center.

Vice President, Diagnostic Commercial Operations, Europe, Africa and Middle East.

Vice President, Pharmaceutical Products, Integrated Healthcare Marketing and Policy.

Karen L. Miller, 50 (Ms. Miller has announced that she plans to retire in 2005.)

Laura J. Schumacher, 41 (Ms. Schumacher has been elected Senior Vice President, Secretary and General Counsel, effective March 1, 2005.)

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

The principal market for Abbott's common shares is the New York Stock Exchange. Shares are also listed on the Chicago Stock Exchange and the Pacific Exchange and are traded on the Boston, Cincinnati, and Philadelphia Exchanges. Outside the United States, Abbott's shares are listed on the London Stock Exchange and the Swiss Stock Exchange.

	Market Price Per Share
	2004		2003
	high	low	high	low
First Quarter	47.25	39.28	40.85	33.75
Second Quarter	44.67	39.43	46.94	37.57
Third Quarter	43.20	38.26	45.09	37.65
Fourth Quarter	47.63	40.25	47.15	39.95

Market prices are as reported by the New York Stock Exchange composite transaction reporting system. On April 30, 2004 Abbott spun off all of the outstanding common shares of Hospira. For every 10 Abbott common shares held at the close of business on April 22, 2004, Abbott shareholders received one common share of Hospira stock on April 30, 2004. In the table above, market prices include the value of the Hospira business through the date of the spin-off. Subsequent to the spin-off, the value of Abbott shares no longer includes the value of the Hospira business.

There were 88,582 shareholders of record of Abbott common shares as of December 31, 2004.

Quarterly dividends of $.26 per share and $.245 per share were declared on common shares in 2004 and 2003, respectively. In addition, as noted above, a special dividend distribution of shares of Hospira, Inc. occurred in the second quarter of 2004. For every 10 Abbott common shares held at the close of business on April 22, 2004, Abbott shareholders received one share of Hospira common stock on April 30, 2004.

Abbott Laboratories is an Illinois High Impact Business (HIB) and is located in a federal Foreign Trade Sub-Zone (Sub-Zone 22F). Dividends may be eligible for a subtraction from base income for Illinois income tax purposes. If you have questions, please contact your tax advisor.

Period	(a) Total Number of Shares (or Units) Purchased		(b) Average Price Paid per Share (or Unit)
October 1, 2004 — October 31, 2004	136,644	¹	$	41.571	50,000,000	²
November 1, 2004 — November 30, 2004	937,165	¹	$	44.541	50,000,000	²
December 1, 2004 — December 31, 2004	538,941	¹	$	45.316	50,000,000	²
Total	1,612,750		$	44.5553	50,000,000	²

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Abbott's revenues are derived primarily from the sale of a broad line of health care products under short-term receivable arrangements. Patent protection and licenses, technological and performance features, and inclusion of Abbott's products under a contract or by a pharmacy benefit manager most impact which products are sold; price controls, competition and rebates most impact the net selling prices of products; and foreign currency translation impacts the measurement of net sales. Abbott's primary products are prescription pharmaceuticals, nutritional products and diagnostic testing products. Abbott also owns 50 percent of TAP Pharmaceutical Products Inc. (TAP) that Abbott accounts for on the equity method.

Integration activities, regulatory and legal issues, the worldwide launch of HUMIRA and the Hospira spin-off have impacted Abbott's sales, costs and financial position over the last three years.

Subsequent to Abbott's 2001 acquisition of the Knoll pharmaceutical business, which significantly increased the scale of Abbott's pharmaceutical business, Abbott focused on reorganizing and growing its global pharmaceutical business. Abbott has established a global research and development organization and a global manufacturing and distribution organization to serve its domestic and international commercial pharmaceutical operations. Pharmaceutical research and development is focused on five therapeutic areas — immunology, oncology, neuroscience, diabetes/metabolism, and viral diseases. U.S. commercial pharmaceutical operations are focused on primary care, specialty and hospital pharmaceuticals. In 2003, Abbott began the worldwide launch of HUMIRA, which achieved worldwide sales of $852 million in 2004.

In 2004, Abbott separated its diagnostic segment into four separate divisions — immunoassay/hematology, glucose testing, molecular, and point of care — to better focus on commercial and scientific opportunities. In early 2004, Abbott acquired TheraSense for $1.2 billion, and began to integrate it with Abbott's glucose testing business. In late 2003, Abbott was informed by the FDA that it may distribute the immunoassay products in the U.S. that were impacted by regulatory restrictions imposed in 1999. Net sales and profits for this business declined over the restricted period, but stabilized in 2004. In 2004, Abbott diagnostics launched more than 80 new products. In the Ross segment in 2003, Abbott settled its portion of an industry-wide investigation of the enteral nutritional business for $614 million.

In 2004, Abbott completed the spin-off of Hospira, Abbott's former hospital products business. Prior to the spin-off, the hospital pharmaceutical and vascular device businesses, which Abbott retained, were transferred to the pharmaceutical business and Abbott Vascular Products segment, respectively. Annual sales of Hospira were approximately $2.4 billion. As part of the spin-off, Hospira assumed $700 million of debt. The historical operating and cash flow results of Hospira are now presented as discontinued operations. Hospira is contractually obligated to purchase the international hospital assets and operations that were not included in the spin-off.

TAP's contribution to Abbott's earnings has declined over the last two years. A part of the decline is due to increased competition for Prevacid, TAP's largest selling product, and due to market contraction for prescription proton pump inhibitors. In 2004, TAP recorded additional litigation reserves of $125 million for an anticipated legal settlement.

Abbott's short- and long-term debt totaled $6.8 billion at December 31, 2004, largely incurred to finance acquisitions. Operating cash flows in excess of capital expenditures and cash dividends have allowed Abbott to reduce debt and fund acquisitions over the last three years. At December 31, 2004, Abbott's long-term debt rating was AA by Standard and Poor's and A1 by Moody's Investors Service.

In 2005, Abbott will focus on several key initiatives. In the pharmaceutical business, Abbott expects worldwide sales of HUMIRA, its rheumatoid arthritis drug launched in 2003 and 2004, to exceed $1.3 billion in 2005. Abbott will also focus on appropriate market support for Synthroid, which became subject to generic U.S. competition in mid-2004. U.S. Synthroid sales in 2004 and 2003 were $637 million and $565 million, respectively, and are projected to exceed $400 million in 2005. In 2005, Abbott expects a response from the FDA to Abbott's regulatory submissions made in 2004 for Xinlay, for prostate cancer, Kaletra once-daily dosing, Zemplar capsules, and additional HUMIRA indications, and TAP expects a response for its filing for Febuxostat. Abbott expects to submit a similar number of additional pharmaceutical regulatory filings in 2005. Pharmaceutical research and development efforts will continue to be focused in the five therapeutic areas noted above with a significant portion of the development expenditures allocated to new HUMIRA indications. In the immunoassay business, attention will be focused on improving revenue growth by capitalizing on recent product launches, launching additional products, and commercial execution of the existing broad product portfolio. In addition, Abbott expects to place with customers additional ARCHITECT immunochemistry diagnostic instruments in 2005. With a greater focus on consumer marketing, Ross will maximize the strength of its core brands and expand its healthy-living market presence. In the other business segments, Abbott will focus on developing or acquiring differentiated technologies in higher growth segments of those markets.

Sales Rebates—Approximately 40 percent of Abbott's consolidated gross revenues are subject to various forms of rebates and allowances that Abbott records as reductions of revenues at the time of sale. Most of these allowances are in two of Abbott's domestic segments—the Pharmaceutical Products segment and the Ross Products segment. Abbott provides rebates to pharmacy benefit management companies, to state agencies which administer the federal Medicaid program and the Special Supplemental Food Program for Women, Infants, and Children (WIC), wholesalers, group purchasing organizations, and other government and private entities. Rebate amounts are usually based upon the volume of purchases using contractual or statutory prices for a product. Factors used in the rebate calculations include the identification of which products have been sold subject to a rebate, which customer or government price terms apply, and the estimated lag time between sale and payment of a rebate. Using historical trends, adjusted for current changes, Abbott estimates the amount of the rebate that will be paid, and records the liability as a reduction of gross sales when Abbott records its sale of the product. Settlement of the rebate occurs from two to 24 months after sale. Abbott regularly analyzes the historical rebate trends and makes adjustments to reserves for changes in trends and terms of rebate programs. Rebates and chargebacks charged against gross sales in 2004 amounted to approximately $2.4 billion, or 25.6 percent, based on gross sales of approximately $9.3 billion subject to rebate. Rebates and chargebacks charged against gross sales were approximately $1.8 billion in 2003 and $1.4 billion in 2002. A one-percentage point increase in the percentage of rebates to related gross sales would decrease 2004 net sales and operating earnings by approximately $93 million. Other allowances charged against gross sales were approximately $233 million, $191 million and $164 million for cash discounts in 2004, 2003 and 2002, respectively, and $163 million, $171 million and $157 million for returns in 2004, 2003 and 2002, respectively. Cash discounts are known within 15 to 30 days of sale, and therefore can be reliably estimated. Returns can be reliably estimated because Abbott's historical returns are low, and because sales returns terms and other sales terms have remained relatively unchanged for several periods.

Management analyzes the adequacy of ending accrual balances each quarter. In the Ross nutritional business, management uses both internal and external data available to estimate the level of inventory in the distribution channel. Management internally estimates the inventory in the retail channel that is not on the retail shelf. A third party continuously measures time on the retail shelf, which is a relatively significant portion of the time inventory is in the distribution channel. Except for a transition period before or after a change in the supplier for the WIC business in a state, inventory in the distribution channel does not vary substantially. Management also estimates the states' processing lag time based on claims data. In addition,

internal processing time is a factor in estimating the accrual. In the WIC business the state where the sale is made, which is the determining factor for the applicable price, is reliably estimable. Estimates are required for the amount of WIC sales within each state where Abbott has the WIC business. External data sources utilized for that estimate are participant data from the U.S. Department of Agriculture (USDA), which administers the WIC program, participant data from some of the states, and internally administered market surveys. The USDA has been making its data available for many years. Internal data includes historical redemption rates and pricing data. At December 31, 2004, Ross had the exclusive WIC business in 12 states. Recent competitive and market conditions have resulted in a trend towards more WIC sales, and therefore a higher sales rebate provision.

In the domestic pharmaceutical business, the most significant charges against gross sales are for Medicaid Rebates, Pharmacy Benefit Manager Rebates and Wholesaler Chargebacks. In order to evaluate the adequacy of the ending accrual balances, management uses both internal and external estimates of the level of inventory in the distribution channel and the rebate claims processing lag time. External data sources used to estimate the inventory in the distribution channel include inventory levels periodically reported by wholesalers and third party market data purchased by Abbott. Management estimates the processing lag time based on periodic sampling of claims data. To estimate the price rebate percentage, systems and calculations are used to track sales by product by customer and to estimate the contractual or statutory price. Abbott's systems and calculations have developed over time as rebates have become more significant, and Abbott believes they are very reliable.

Settlement of rebate accruals from the date of sale ranges from 5 to 12 weeks for WIC, 31 to 35 weeks for Medicaid, 27 to 31 weeks for Pharmacy Benefit Managers and 2 to 8 weeks for Wholesaler Chargebacks. Average settlement times are 8 weeks for WIC, 33 weeks for Medicaid, 29 weeks for Pharmacy Benefit Managers and 6 weeks for Wholesaler Chargebacks.

The following table is an analysis of the four largest rebate accruals, which comprise approximately 82 percent of the consolidated rebate provisions charged against revenues in 2004. Information necessary to prepare this table for 2003 and 2002 is not available due to the spin-off of Hospira that occurred in 2004. Remaining rebate provisions charged against gross sales are not significant in the determination of operating earnings. (dollars in thousands)

In the analysis above, due to systems limitations, it is not practical and has not been necessary to break out current versus prior year activity. When applicable, Abbott analyzes current year activity to identify whether material changes in estimate in the current period relate to prior period sales. Changes in estimates for current and prior years' rebate and chargeback accruals have not been material to operating income. Abbott employs various techniques to verify the accuracy of claims submitted to it, and where possible, works with the organizations submitting claims to gain insight into changes that might affect the rebate amounts. For Medicaid and other government agency programs, the calculation of a rebate involves interpretations of relevant regulations, which are subject to challenge or change in interpretation.

Income Taxes — Abbott operates in numerous countries where its income tax returns are subject to audits and adjustments. Because Abbott operates globally, the nature of the audit items are often very

complex, and the objectives of the government auditors can result in a tax on the same income in more than one country. Abbott employs internal and external tax professionals to minimize audit adjustment amounts where possible. As part of Abbott's calculation of the provision for taxes on earnings, Abbott records the amount that it expects to incur as a result of audits. Each quarter, Abbott reviews its exposures in accordance with Statement of Financial Accounting Standards (SFAS) No. 5, "Accounting for Contingencies." In the U.S., Abbott's federal income tax returns for years 1993 to 1995 are in the process of being settled at amounts that approximate recorded reserves; years 1996 to 2000 are settled, and the income tax returns for years after 2000 are open. As discussed in further detail in Legislative Issues, in February 2005, as a result of the American Jobs Creation Act of 2004, management concluded that it would remit a portion of its foreign earnings previously considered reinvested indefinitely in foreign subsidiaries. Except for dividends that will be remitted under the Act, Abbott does not record deferred income taxes on earnings reinvested indefinitely in foreign subsidiaries.

Pension and Post-Employment Benefits — Abbott offers pension benefits and post-employment health care to many of its employees. Abbott engages outside actuaries to calculate its obligations and costs under these programs. With the assistance of outside actuaries, Abbott must develop long-term assumptions, the most significant of which are the health care cost trend rate, discount rate and the expected return on plan assets. A difference between the assumed rates and the actual rates, which will not be known for decades, can be significant in relation to the obligations and the annual cost recorded for these programs. Recent low interest rates have significantly increased unrecognized actuarial losses for these plans. At December 31, 2004, the unrecognized actuarial losses for Abbott's defined benefit plans and medical and dental plans were $1.495 billion and $588 million, respectively. Unrecognized actuarial losses and gains are amortized over the remaining service periods of the employees under the corridor method, in accordance with the rules for accounting for post-employment benefits. Differences between the expected long-term return on plan assets and the actual annual return are amortized over a five-year period. Footnote 5 to the consolidated financial statements describes the impact of a one-percentage point change in the health care cost trend rate; however, there can be no certainty that a change would be limited to only one percentage point. In 2004, 2003 and 2002, Abbott recorded minimum pension liability adjustments of $120 million, $155 million and $343 million, respectively, because the accumulated benefit obligations for certain defined benefit plans exceeded the market value of the plans' assets. This resulted in charges to Accumulated other comprehensive income (loss) of $76 million, $99 million and $203 million, net of taxes, in 2004, 2003 and 2002, respectively. The weighted average discount rate used at December 31, 2004 for determining the accumulated benefit obligations for defined benefit plans whose accumulated benefit obligations were in excess of plan assets was 5.7 percent. A one-percentage point reduction in the discount rate at December 31, 2004 would result in an increase in the minimum pension liability adjustments and an increase in the charge to Accumulated other comprehensive income (loss) of approximately $779 million and $507 million, respectively.

Valuation of Intangible Assets — Abbott has acquired and continues to acquire significant intangible assets that Abbott values and records. Those assets which do not yet have regulatory approval and for which there are no alternative uses are expensed as acquired in-process research and development, and those that have regulatory approval are capitalized. Transactions involving the purchase or sale of intangible assets occur with some frequency between companies in the health care field, and valuations are usually based on a discounted cash flow analysis. Abbott uses a discounted cash flow model to value acquired intangible assets. The discounted cash flow model requires assumptions about the timing and amount of future net cash inflows, risk, the cost of capital, and terminal values. Each of these factors can significantly affect the value of the intangible asset. Abbott engages independent valuation experts who review Abbott's critical assumptions and calculations for significant acquisitions of intangibles. Abbott reviews intangible assets for impairment each quarter using an undiscounted net cash flows approach. If the undiscounted cash flows of an intangible asset are less than the carrying value of an intangible asset, the intangible asset is written down to its fair value, which is usually the discounted cash flow amount. Where cash flows cannot be identified for an individual asset, the review is applied at the lowest group

level for which cash flows are identifiable. Goodwill is reviewed for impairment annually or when an event that could result in an impairment of goodwill occurs. At December 31, 2004, goodwill and intangibles amounted to $5.7 billion and $5.2 billion, respectively. Amortization expense for intangible assets amounted to approximately $448 million in 2004. There were no impairments of goodwill in 2004.

Litigation — Abbott accounts for litigation losses in accordance with SFAS No. 5, "Accounting for Contingencies." Under SFAS No. 5, loss contingency provisions are recorded for probable losses at management's best estimate of a loss, or when a best estimate cannot be made, a minimum loss contingency amount is recorded. These estimates are often initially developed substantially earlier than the ultimate loss is known, and the estimates are refined each accounting period, as additional information becomes known. Accordingly, Abbott is often initially unable to develop a best estimate of loss, and therefore the minimum amount, which could be zero, is recorded. As information becomes known, either the minimum loss amount is increased, resulting in additional loss provisions, or a best estimate can be made, also resulting in additional loss provisions. Occasionally, a best estimate amount is changed to a lower amount when events result in an expectation of a more favorable outcome than previously expected. For its legal proceedings and environmental exposures, Abbott estimates the range of possible loss to be from approximately $150 million to $210 million. Abbott has recorded reserves at December 31, 2004 of approximately $155 million 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 SFAS No. 5.

Stock Compensation — Abbott currently measures compensation cost using the intrinsic value-based method of accounting for stock options and replacement stock options granted to employees and discloses the impact of the fair value method in the footnotes to the consolidated financial statements. In December 2004, the Financial Accounting Standards Board issued a revised Statement of Financial Accounting Standards No. 123, "Share Based Payment," which requires that fair value be recorded in the results of operations beginning no later than July 1, 2005. Since there is no market for trading employee stock options, there is no certainty that the result of the fair value method would be the value at which employee stock options would be traded for cash. Fair value methods require several assumptions, the most significant of which are stock price volatility and the average life of an option. See Recently Issued Accounting Standards below for further discussion.

The following table details the components of sales growth by segment for the last three years:

			Components of Change %
	Total % Change		Components of Change %
	Total % Change		Price		Volume		Exchange
Total Net Sales
2004 vs. 2003	13.9		1.6		9.1		3.2
2003 vs. 2002	13.1		1.3		7.8		4.0
2002 vs. 2001	9.8		0.9		9.5		(0.6	)
Total U.S.
2004 vs. 2003	12.8		3.8		9.0		—
2003 vs. 2002	11.6		1.6		10.0		—
2002 vs. 2001	8.6		0.9		7.7		—
Total International
2004 vs. 2003	15.3		(1.0	)	8.9		7.4
2003 vs. 2002	15.1		0.9		5.0		9.2
2002 vs. 2001	11.5		0.9		12.1		(1.5	)
Pharmaceutical Products Segment
2004 vs. 2003	15.8		7.2		8.6		—
2003 vs. 2002	19.5		3.3		16.2		—
2002 vs. 2001	14.3		3.1		11.2		—
Diagnostic Products Segment
2004 vs. 2003	11.1		(1.2	)	6.9		5.4
2003 vs. 2002	5.0		—		(1.8	)	6.8
2002 vs. 2001	(1.1	)	(0.1	)	(0.6	)	(0.4	)
Ross Products Segment
2004 vs. 2003	8.9		(0.5	)	9.4		—
2003 vs. 2002	2.3		(0.9	)	3.2		—
2002 vs. 2001	—		(2.2	)	2.2		—
International Segment
2004 vs. 2003	15.9		(1.0	)	9.5		7.4
2003 vs. 2002	13.5		1.4		3.4		8.7
2002 vs. 2001	15.6		1.3		16.1		(1.8	)

A comparison of the product group sales by segment is as follows. Percentage changes are versus the prior year and are based on unrounded numbers.

	2004	Percent Change		2003	Percent Change		2002	Percent Change
	*(dollars in millions)*
Pharmaceutical Products —
Primary Care	3,975	23		3,220	26		2,549	22
Specialty	2,069	33		1,561	26		1,242	6
Hospital Pharmaceuticals	838	(1	)	847	5		805	19
Diagnostic Products —
Immunochemistry	2,141	2		2,094	3		2,030	(4	)
Diabetes Care	791	46		542	10		494	9
Ross Products —
Pediatric Nutritionals	1,146	5		1,093	9		1,004	(4	)
Adult Nutritionals	934	15		809	(3	)	838	1
International —
Other Pharmaceuticals	3,184	21		2,629	15		2,287	31
Anti-Infectives	804	5		766	10		696	(2	)
Hospital Pharmaceuticals	592	15		516	18		437	10
Pediatric Nutritionals	595	13		527	8		486	1
Adult Nutritionals	663	12		591	12		528	4

Sales of new products in 2004 are estimated to be approximately $1.8 billion, led by HUMIRA in the Pharmaceutical Products and International segments and incremental sales of approximately $300 million from the acquisitions of TheraSense, ZonePerfect and EAS. Sales in the Pharmaceutical Products segment of Mobic, TriCor and Flomax in 2004 and 2003 favorably impacted Primary Care Products sales, and increased sales of HUMIRA favorably impacted Specialty Products sales in 2004 and 2003. Increased sales of HUMIRA also favorably impacted Other Pharmaceuticals sales in the International Segment in 2004. Worldwide sales of HUMIRA totaled $852 million in 2004 and $280 million in 2003 and are forecasted to be more than $1.3 billion in 2005. Diagnostic Products and International segment products sales were favorably impacted in 2004 and 2003 by the effect of the relatively weaker U.S. dollar. Diabetes Care product sales for the Diagnostic Products segment were favorably impacted by the acquisition of TheraSense in the second quarter of 2004. In addition, Adult Nutritionals product sales for the Ross Products segment were favorably impacted by the acquisitions of ZonePerfect in the third quarter of 2003 and EAS in the fourth quarter of 2004. In Abbott's annual report on Form 10-K for the year ended December 31, 2003, Abbott disclosed that the FDA was studying conditions under which competitors could rely on Abbott's NDA to market a competitive product to Synthroid. In the second quarter 2004, the FDA granted approval for generic competition to Synthroid and generic competitors have entered the market. U.S. sales of Synthroid in 2004, 2003 and 2002 were $637 million, $565 million and $489 million, respectively. In late 2004, clarithromycin became subject to generic competition in the United Kingdom and Germany. In May of 2005 the composition of matter patent on clarithromycin in the U.S. expires. In the U.S., Abbott markets clarithromycin in two forms, the immediate release and the extended release forms, both of which are covered by additional non-composition of matter patents. There may be further generic competition for clarithromycin in the U.S. and other countries in 2005 depending on the results of legal proceedings related to the patents. U.S. sales of clarithromycin in 2004 were $458 million, and international sales were $725 million. Sevoflurane has been subject to generic competition in isolated markets outside of the U.S. and further generic competition in international markets is possible.

International sales of Sevoflurane were $484 million in 2004. Abbott has periodically sold product rights to non-strategic products and has recorded the related gains in net sales in accordance with Abbott's revenue recognition policies as discussed in footnote 1 to the consolidated financial statements. Related net sales were $144 million in 2004, $241 million in 2003 and $157 million in 2002.

The expiration of licenses or patent protection can affect the future revenues and operating income of Abbott. Significant patent expirations and activities in the next three years are as follows. The Pharmaceutical Products segment markets TriCor in the U.S. under a license agreement and patents covering TriCor are being challenged by competitors. Abbott is vigorously defending the patents. U.S. sales of TriCor were $779 million in 2004. In 2004 Abbott received approval for a form of TriCor that has additional therapeutic benefits. This form is covered under non-composition of matter patents which expire in 2017. The Pharmaceutical Products segment has an agreement with Boehringer Ingelheim to co-promote and distribute three of its products. The co-promotion rights for all three products phase out over time, beginning in 2004 and ending in 2006, and distribution rights expire predominately in 2007 and partially in 2008. Margins are disproportionately lower for these products than for the other products in this segment. Related revenues recorded in 2004 were $1.6 billion, an increase of 39 percent over 2003.

Gross profit margins were 54.9 percent of net sales in 2004, 55.0 percent in 2003 and 55.4 percent in 2002. The gross profit margin in 2004 was impacted by the favorable mix effect of exchange on the gross profit margin and by unfavorable product mix, primarily increased sales of lower margin Boehringer Ingelheim products, as discussed above, in the Pharmaceutical Products segment. The gross profit margin for 2003 was impacted by a charge of $88 million for an impairment of assets and other expenses as a result of a lower sales forecast for Abbokinase; partially offset by favorable product mix, resulting mainly from increased sales in the Pharmaceutical Products segment. The gross profit margin for 2002 included the effects of the Lake County diagnostic FDA consent decree charge, restructuring charges and unfavorable product mix; partially offset by the absence of goodwill amortization in 2002. Gross profit margins in all years were also affected by productivity improvements, higher project expenses for new products, higher manufacturing capacity costs for anticipated unit growth, and the effects of inflation and competitive pricing pressures.

In the U.S., states receive price rebates from manufacturers of infant formula under the federally subsidized Special Supplemental Food Program for Women, Infants, and Children. There are also rebate programs for pharmaceutical products. These rebate programs continue to have a negative effect on the gross profit margins of the Ross and Pharmaceutical Products segments. In addition, pricing pressures unfavorably impacted the gross profit margins for the Ross Products segment in 2004, 2003 and 2002.

The gross profit margins for the Pharmaceutical Products segment were unfavorably impacted in 2004 and 2002 by unfavorable product mix and favorably impacted in 2003 by favorable product mix. In addition, the gross profit margins in 2004 and 2003 for the Pharmaceutical Products segment were unfavorably impacted by increased sales of lower margin Boehringer Ingelheim products and higher other manufacturing costs. The gross profit margins in 2003 and 2002 for the Diagnostic Products segment were impacted by the effects of the FDA consent decree, as discussed below.

Under terms of a 1999 consent decree with the U.S. government, Abbott was prohibited from manufacturing certain diagnostic products for sale in the U.S. until its Lake County, Ill. manufacturing facilities were found to be in substantial conformity with the Food and Drug Administration's (FDA) Quality System Regulation. In December of 2003, the FDA found the facilities to be in substantial conformity and Abbott began the process of manufacturing impacted products for sale in the U.S. In connection with the consent decree, Abbott recorded remediation costs and payments to the government, including a pretax charge of $129 million in 2002.

Research and development expense, excluding acquired in-process research and development, was $1.7 billion in 2004, $1.6 billion in 2003 and $1.5 billion in 2002 and represented 8.6 percent of net sales in 2004 compared to 9.4 percent of net sales in 2003 and 9.7 percent of net sales in 2002. Research and development increased in 2004 and 2003, but not at the same rate as sales due, in part, to lower spending on Phase III clinical trials in 2004 and 2003 compared to 2002. The majority of research and development expenditures are concentrated on pharmaceutical products.

Selling, general and administrative expenses increased 2.4 percent in 2004 compared to increases of 29.1 percent in 2003 and 6.7 percent in 2002. In 2003, Abbott recorded in Selling, general and administrative expenses, a pretax charge of $614 million related to the settlement of the Ross enteral nutritional investigation. This 2003 charge reduced the increase in selling, general and administrative expenses by 15.0 percentage points for 2004 and increased selling, general and administration expenses by 16.5 percentage points over 2002. The increases in selling, general and administrative expenses, excluding the charge for the investigation, were due primarily to increased selling and marketing support for new and existing products, including spending for the launch of HUMIRA, as well as spending on other marketed pharmaceutical products. Increases in all three years also reflect inflation, the effect of acquisitions and additional selling and marketing support primarily in the Pharmaceutical Products and International segments.

In 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." The effect of this change reduced the post-employment medical and dental plan net cost for 2004 by approximately $33 million.

Abbott's income from the TAP Pharmaceutical Products Inc. (TAP) joint venture was lower in 2004 and 2003 due to decreased sales due to market contraction for prescription proton pump inhibitors, and in 2004 by approximately $40 million as a result of an agreement with plaintiffs to settle litigation.

Other (income) expense, net for 2002 includes a charge of $194 million as a result of other than temporary declines in the market values of certain equity securities.

Net interest expense increased in 2004 due to a higher level of debt, partially offset by higher interest income. Net interest expense decreased in 2003 and 2002 due to a lower level of borrowings and lower interest rates.

The effective income tax rates on income from continuing operations were 23.0 percent in 2004, 26.1 percent in 2003 and 23.3 percent in 2002. The effective tax rate for 2004 reflects adjustments of prior years' tax requirements primarily as a result of resolutions of prior years' tax audits. The 2004 effective tax rate also reflects the effect of non-deductible acquired in-process research and development. The effect of these items for 2004 was to decrease the effective tax rate by approximately 1.2 percentage points. The effective tax rate for 2003 includes the effect of the charge for the settlement of the Ross enteral nutritional investigation and the charges for acquired in-process research and development. The effect of these charges for 2003 was to increase the effective tax rate by approximately 2.4 percentage points. Abbott expects to apply an annual effective rate of around 24.0 percent in 2005, excluding the effects of adoption of the new stock compensation rules and for dividends that will be remitted under the American Jobs Creation Act of 2004, both as discussed below.

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 common stock on April 30, 2004. All of the shares of Hospira's common stock were distributed to Abbott shareholders on a pro-rata basis. Abbott has received a ruling from the Internal Revenue Service that the spin-off qualifies as a tax-free distribution to Abbott and its U.S. shareholders for U.S. federal income tax purposes. Cash, which is generally taxable to the recipient, was paid in lieu of fractional shares. 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 Consolidated Statement of Earnings and Statement of Cash Flows. Prior years' balance sheets have not been adjusted to reflect the effect of the spin-off.

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. 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 Consolidated Balance Sheet as of December 31, 2004. The assets and liabilities held for sale consist primarily of inventories, trade accounts receivable, equipment and trade accounts payable, salaries and other accruals.

In April 2004, Abbott borrowed and Hospira assumed $700 million of debt, the proceeds of which were retained by Abbott to reduce short-term borrowings. Hospira is solely responsible for repayment of the principal and for payment of interest on this debt. Abbott has retained liabilities for taxes on income prior to the spin-off, post-employment medical and dental benefits for most of Hospira's U.S. retired employees and U.S. retirement eligible employees, certain potential liabilities, if any, related to alleged improper pricing practices in connection with federal, state and private reimbursement for certain drugs, and the defined benefit retirement plan liabilities and plan assets for most of Hospira's retired employees. In connection with the spin-off, Abbott's defined benefit, medical and dental and employee stock option programs have been adjusted.

In 2004, Abbott paid approximately $2.3 billion for strategic business and technology acquisitions, as follows. In the fourth quarter 2004, Abbott acquired EAS, a nutritional company with a portfolio of nationally recognized brands, for approximately $320 million in cash and Spine Next, a manufacturer of orthopedic spinal implant devices, for approximately $58 million in cash plus additional milestone payments of up to $23 million upon achievement of future targets. These fourth quarter acquisitions resulted in a charge of $47 million for acquired in-process research and development, intangible assets of approximately $152 million, non-tax deductible goodwill of approximately $191 million and deferred income taxes of approximately $60 million. Acquired intangible assets, primarily trade names, are amortized over 5 to 20 years (average of approximately 18 years). In the second quarter 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. In the second quarter 2004, Abbott also acquired certain other product technologies for approximately $352 million. These second quarter 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 the first quarter 2004, Abbott acquired i-STAT Corporation, a manufacturer of point-of-care diagnostic products for blood analysis, for approximately $394 million in cash. This acquisition resulted in 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).

In 2003, Abbott paid approximately $459 million for strategic business and technology acquisitions, as follows. Abbott acquired ZonePerfect Nutrition Company, a marketer of healthy and nutritious products for active people, for approximately $160 million in cash; Integrated Vascular Systems, Inc., a developer of a novel vessel closure technology, for approximately $65 million in cash; and Spinal Concepts Inc., a marketer of spinal fixation products used in the treatment of spinal disorders, diseases and injuries, for approximately $166 million in cash plus additional milestone payments of up to $40 million if agreed upon targets are met. Abbott also acquired the assets of JOMED N.V.'s coronary and peripheral interventional business for approximately $68 million in cash. These acquisitions resulted in a charge of approximately $100 million for acquired in-process research and development, intangible assets of approximately $222 million and non-tax deductible goodwill of approximately $182 million. Acquired intangible assets, primarily product technology, are amortized over 9 to 25 years (average of approximately 16 years).

In 2002, Abbott acquired the cardiovascular stent business of Biocompatibles International plc and certain cardiovascular stent technology rights from Medtronic, Inc. In addition, Abbott acquired an additional 28.8 percent of the issued common shares of Hokuriku Seiyaku Co., Ltd., resulting in Abbott owning substantially all of the common shares of Hokuriku Seiyaku Co., Ltd. The aggregate cash purchase price ($586 million) of these acquisitions resulted in a charge for acquired in-process research and development of approximately $108 million, intangible assets of approximately $145 million and non-tax deductible goodwill of approximately $257 million. Acquired intangible assets, primarily product technology, are amortized over 4 to 13 years (average of approximately 8 years).

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

Net cash from operating activities of continuing operations amounted to $4.3 billion, $3.4 billion and $3.7 billion in 2004, 2003 and 2002, respectively. Net cash from operating activities in 2003 was lower than 2002 due, in part, to the payment of the Ross enteral nutritional settlement, as discussed above. In 2004, 2003 and 2002, $482 million, $200 million and $106 million, respectively, was contributed to the main domestic defined benefit plan. In addition, Abbott transferred approximately $45 million to Hospira in 2004 in accordance with the employee benefit agreement governing the assumption by Hospira of certain defined benefit plan assets and liabilities. In January 2005, approximately $640 million was contributed to the main domestic defined benefit plan and $140 million was contributed to the post-employment medical and dental benefit plans. Abbott expects pension funding for its main domestic pension plan in 2006 to 2010 to be between $200 million and $400 million annually. The increased contribution in 2005 is due, in part, to anticipation of investment of cash to be remitted under the American Jobs Creation Act of 2004.

At December 31, 2004, Abbott's long-term debt rating was AA by Standard and Poor's and A1 by Moody's Investors Service. Abbott has readily available financial resources, including unused lines of credit of $3.0 billion, which support domestic commercial paper borrowing arrangements.

In June 2000, the Board of Directors authorized the purchase of 25 million shares of Abbott's common stock and Abbott purchased 13.3 million shares from this authorization from 2000 through 2003. In 2004, Abbott purchased the remaining 11.7 million of its common shares under this authorization at a cost of approximately $500 million. In October 2004, the Board of Directors authorized the purchase of 50 million shares of Abbott's common stock from time to time. No purchases under this authorization were made in 2004.

Under a registration statement filed with the Securities and Exchange Commission in September 2003, Abbott issued $1.5 billion of long-term debt in 2004 that matures in 2009 through 2014 with interest rates ranging from 3.5 percent to 4.35 percent. Proceeds from this debt were used to fund the acquisition of TheraSense and to pay down domestic commercial paper borrowings. In connection with these borrowings, Abbott entered into interest rate hedge contracts totaling $1.5 billion to manage its exposure to changes in the fair value of the $1.5 billion of debt. 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 the fixed interest rate to a variable rate.

Abbott retained $700 million of proceeds from borrowings that Hospira assumed as a result of the spin-off and used these proceeds to reduce domestic commercial paper borrowings. In addition, Abbott retired long-term debt of $1.65 billion in 2004 with proceeds from domestic commercial paper borrowings.

At December 31, 2004, 2003 and 2002, working capital was $3.9 billion, $2.7 billion and $2.1 billion, respectively.

Capital expenditures of $1.3 billion in 2004 and $1.1 billion in 2003 and 2002 were principally for upgrading and expanding manufacturing, research and development, investments in information technology and administrative support facilities in all segments, and for laboratory instruments placed with customers. An increased proportion of the capital expenditures will be dedicated to domestic and international pharmaceutical operations.

Abbott has periodically entered into agreements in the ordinary course of business, such as assignment of product rights, with other companies which has resulted in Abbott becoming secondarily liable for obligations that Abbott was previously primarily liable. Since Abbott no longer maintains a business relationship with the other parties, Abbott is unable to develop an estimate of the maximum potential amount of future payments under these obligations. Based upon past experience, the likelihood of payments under these agreements is remote. In addition, Abbott periodically acquires small companies

in which Abbott agrees to pay contingent consideration based on attaining certain thresholds. The following table summarizes Abbott's estimated contractual obligations as of December 31, 2004.

In December 2004, the Financial Accounting Standards Board (FASB) issued a revised Statement of Financial Accounting Standards (SFAS) No. 123, "Share Based Payment." The revised SFAS No. 123 requires that the fair value of stock options be recorded in the results of operations beginning no later than July 1, 2005. Stock compensation expense under the prior rules would have reduced reported diluted earnings per share by 12 cents in 2004. Upon adoption of the revised standard, prior awards are charged to expense under the prior rules, and awards after adoption are charged to expense under the revised rules. Abbott has not determined the effect of the new standard on its earnings, however, expense under the new standard could be somewhat higher. The effect of adopting the new rules on reported diluted earnings per share is dependent on the number of options granted in the future; the terms of those awards and their fair values, and therefore, the effect on diluted earnings per share could change. Abbott expects to adopt the revised rules on July 1, 2005, but has not determined whether it would adopt prospectively, or retrospectively to January 1, 2005. See footnote 11 to the consolidated financial statements for assumptions used by management in calculating the fair value of employee stock options.

In November 2004, the FASB issued SFAS No. 151, "Inventory Costs." This statement clarifies the accounting for the abnormal amount of idle facilities expense, freight, handling costs and wasted material. This statement requires that those items be recognized as current-period expense. In addition the statement requires that allocation of fixed overhead to the cost of conversion be based on the normal capacity of the production facilities. This statement is effective for inventory costs incurred after December 31, 2005. Adoption of this statement will not have a material effect on the financial statements of Abbott.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146 requires that a liability for costs associated with an exit or disposal activity be recognized and measured initially at fair value only when the liability is incurred. SFAS No. 146 was effective for exit or disposal activities that are initiated after December 31, 2002 and did not have a material effect on the financial statements of Abbott. Abbott accounted for the 2002 restructuring plans in accordance with Emerging Issues Task Force (EITF) Issue No. 94-3 and, accordingly, charged to income in 2002 all appropriate exit costs for plans approved by management before December 31, 2002. Accounting for these restructuring plans under SFAS No. 146 would have resulted in some of the expenses that were

recorded in 2002 being recorded in 2003. However, a significant amount of expenses would have been charged against income in 2002 under either EITF No. 94-3 or SFAS No. 146.

On October 22, 2004, the President of the United States signed The American Jobs Creation Act of 2004. Among the provisions of the Act is a provision that allows for the exclusion from income of a portion of the remittances of earnings of foreign subsidiaries to U.S. shareholders through December 31, 2005. The portion of the earnings available for remittance are those earnings designated as reinvested indefinitely in foreign operations as disclosed in Abbott's 2002 financial statements. Abbott would have up to approximately $4.2 billion of such earnings available for remittance, with an estimated tax of up to $340 million if the entire amount were remitted under the current language of the legislation. The Act continues to be subject to interpretation and rulemaking, and the estimated expense could be affected by that activity. On January 13, 2005, the U.S. Treasury and IRS issued initial guidance covering the Act. Financial Accounting Staff Position 109-2 requires companies to recognize a tax liability for remittance of earnings under the Act in the period management concludes that it would remit those earnings. As of December 31, 2004, management had not decided to remit earnings under the Act. In February 2005, Abbott concluded that it would remit approximately $600 million in 2005 of foreign earnings previously reinvested indefinitely in accordance with the provisions of the Act. Abbott is continuing to evaluate whether it will remit all or a portion of the remaining $3.6 billion available for remittance under the Act, and expects to decide later in the year. The additional income tax expense required for the $600 million remittance would be up to approximately $60 million and will be recorded in the first quarter of 2005.

Other provisions of the Act include a new deduction for qualified domestic production activities and elimination of the extraterritorial income exclusion (ETI). Financial Accounting Staff Position 109-1 requires that the deduction for production activities be recognized in the year reported on the income tax return. The deduction for production activities will be gradually phased in from 2005 to 2009, while the ETI will be gradually phased out in 2005 and 2006. Abbott expects the net effect on these two changes to approximately offset once the phase-ins are completed, with 2005 neutral and with slightly higher expense for 2006 to 2009.

Effective January 1, 2005, the Medicare formula for reimbursement to providers for physician-administered drugs changed. Abbott has determined that the formula change is not expected to have a significant effect on its results of operations.

Abbott's primary markets are highly competitive and subject to substantial government regulation. Abbott expects debate to continue in the U.S. at both the federal and the state levels over the availability, method of delivery, and payment for health care products and services. Abbott believes that if further legislation is enacted, it could have the effect of reducing access to health care products and services, or reducing prices or the rate of price increases for health care products and services. International operations are also subject to a significant degree of government regulation. 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, in the Annual Report on Form 10-K.

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 Abbott's operations are discussed in Exhibit 99.1 to the Annual Report on Form 10-K.

At December 31, 2004 and 2003, Abbott had interest rate hedge contracts totaling $3.1 billion and $3.25 billion, respectively, to manage its exposure to changes in the fair value of debt due July 2006 through March 2014. Abbott does not use derivative financial instruments, such as interest rate swaps, to manage its exposure to changes in interest rates for its investment securities. As of December 31, 2004 and 2003, Abbott had $1.6 billion and $806 million, respectively, of domestic commercial paper outstanding with an average annual interest rate of 2.2% and 1.1%, respectively, with an average remaining life of 38 days and 29 days, respectively. The fair market value of long-term debt at December 31, 2004 and 2003, amounted to $5.0 billion and $5.4 billion, respectively, and consisted primarily of fixed-rate (average of 4.3% and 4.7%, respectively) debt with maturities through 2023. As of December 31, 2004 and 2003, the fair market value of current and long-term investment securities amounted to $854 million and $316 million, respectively. A hypothetical 100-basis point change in the interest rates would not have a material effect on cash flows, income or market values. (A 100-basis point change is believed to be a reasonably possible near-term change in rates.)

Abbott maintains a portfolio of available-for-sale equity securities from strategic technology acquisitions. The market value of these investments was approximately $96 million and $331 million, respectively, as of December 31, 2004 and 2003. Abbott monitors these investments for other than temporary declines in market value, and charges impairment losses to income when an other than temporary decline in value occurs. A hypothetical 20 percent decrease in the share prices of these investments would decrease their fair value at December 31, 2004 by approximately $19 million. (A 20 percent decrease is believed to be a reasonably possible near-term change in share prices.)

Abbott maintains a portfolio of equity securities from strategic technology acquisitions that are not traded on public stock exchanges. The carrying value of these investments was approximately $30 million and $50 million, respectively, as of December 31, 2004 and 2003. No individual investment is in excess of $14 million. Abbott monitors these investments for other than temporary declines in market value, and charges impairment losses to income when an other than temporary decline in estimated value occurs.

Abbott enters into foreign currency forward exchange contracts to manage its exposure to foreign currency denominated intercompany loans and trade payables and third-party trade payables and receivables. The contracts are marked-to-market, and resulting gains or losses are reflected in income and are generally offset by losses or gains on the foreign currency exposure being managed. At December 31, 2004 and 2003, Abbott held $3.3 billion and $3.0 billion, respectively, of such contracts, which all mature in the next calendar year.

In addition, 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 are designated as cash flow hedges of the variability of the cash flows due to changes in foreign exchange rates and are marked-to-market with the resulting gains or losses reflected in Accumulated other comprehensive income (loss). Gains or losses will be included in Cost of products sold at the time the products are sold,

generally within the next calendar year. At December 31, 2004 and 2003, Abbott held $984 million and $602 million, respectively, of such contracts, which all mature in the next calendar year.

The following table reflects the total foreign currency forward contracts outstanding at December 31, 2004 and 2003:

	2004						2003
	Contract Amount		Average Exchange Rate	Fair and Carrying Value Receivable/ (Payable)			Contract Amount		Average Exchange Rate	Fair and Carrying Value Receivable/ (Payable)
	*(dollars in millions)*
Receive primarily U.S. Dollars in exchange for the following currencies:
Euro	$	1,688	1.2843	$	(39.1	)	$	1,887	1.19	$	(11.8	)
British Pound		1,112	0.542		(26.7	)		799	0.59		(11.2	)
Japanese Yen		533	107.3		9.2			229	108.9		0.6
Canadian Dollar		301	0.785		(20.0	)		240	0.76		(2.4	)
All other currencies		601	N/A		(3.3	)		432	N/A		(5.5	)

Total	$	4,235		$	(79.9	)	$	3,587		$	(30.3	)

Consolidated Statement of Earnings
(dollars and shares in thousands except per share data)

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

Abbott Laboratories and Subsidiaries

Consolidated Balance Sheet
(dollars in thousands)

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

Consolidated Statement of Shareholders' Investment
(dollars in thousands except per share data)

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

NATURE OF BUSINESS — Abbott's principal business is the discovery, development, manufacture and sale of a broad line of health care products.

CONCENTRATION OF RISK AND GUARANTEES — Due to the nature of its operations, Abbott is not subject to significant concentration risks relating to customers, products or geographic locations, except that three U.S. wholesalers accounted for 20 percent of trade receivables as of December 31, 2004 and 2003 and 22 percent of trade receivables as of December 31, 2002. Product warranties are not significant.

Abbott has no material exposures to off-balance sheet arrangements; no special purpose entities; nor activities that include non-exchange-traded contracts accounted for at fair value. Abbott has periodically entered into agreements in the ordinary course of business, such as assignment of product rights, with other companies which has resulted in Abbott becoming secondarily liable for obligations that Abbott was previously primarily liable. Since Abbott no longer maintains a business relationship with the other parties, Abbott is unable to develop an estimate of the maximum potential amount of future payments under these obligations. Based upon past experience, the likelihood of payments under these agreements is remote. In addition, Abbott periodically acquires small companies in which Abbott agrees to pay contingent consideration based on attaining certain thresholds.

BASIS OF CONSOLIDATION — The consolidated financial statements include the accounts of the parent company and subsidiaries, after elimination of intercompany transactions. The accounts of foreign subsidiaries are consolidated as of November 30, due to the time needed to consolidate these subsidiaries. No events occurred related to these foreign subsidiaries in December 2004, 2003 and 2002 that materially affected the financial position or results of operations.

USE OF ESTIMATES — The financial statements have been prepared in accordance with generally accepted accounting principles in the United States and necessarily include amounts based on estimates and assumptions by management. Actual results could differ from those amounts. Significant estimates include amounts for sales rebates, income taxes, pension and other post-employment benefits, valuation of intangibles, litigation, stock compensation, and inventory and accounts receivable exposures.

REVENUE RECOGNITION — Revenue from product sales is recognized upon passage of title and risk of loss to customers (when product is delivered to common carrier for shipment to domestic customers). Provisions for discounts, rebates and sales incentives to customers, and returns and other adjustments are provided for in the period the related sales are recorded. Sales incentives to customers are not material. Historical data is readily available and reliable, and is used for estimating the amount of the reduction in gross sales. Revenue from the launch of a new product, from an improved version of an existing product, or for shipments in excess of a customer's normal requirements are recorded when the conditions noted above are met. In those situations, management records a returns reserve for such revenue, if necessary. Sales of product rights for marketable products are recorded as revenue upon disposition of the rights. Revenue from license of product rights, or for performance of research or selling activities, is recorded over the periods earned.

INCOME TAXES — Deferred income taxes are provided for the tax effect of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements at the enacted statutory rate to be in effect when the taxes are paid. U.S. income taxes are provided on those earnings of foreign subsidiaries and subsidiaries operating in Puerto Rico under tax incentive grants, which are intended to be remitted to the parent company. Except for dividends that will be remitted under the American Jobs Creation Act of 2004, deferred income taxes are not provided on undistributed earnings

reinvested indefinitely in foreign subsidiaries as working capital and plant and equipment. Loss contingency provisions are recorded for the estimated amount of audit settlements under the provisions of Statement of Financial Accounting Standards (SFAS) No. 5, "Accounting for Contingencies."

PENSION AND POST-EMPLOYMENT BENEFITS — Abbott accrues for the actuarially determined cost of pension and post-employment benefits over the service attribution periods of the employees. With the assistance of outside actuaries, Abbott must develop long-term assumptions, the most significant of which are the health care costs trend rate, discount rate and the expected return on plan assets. Differences between the expected long-term return on plan assets and the actual annual return are amortized over a five-year period. Unrecognized actuarial losses and gains are amortized over the remaining service attribution periods of the employees under the corridor method.

VALUATION OF INTANGIBLE ASSETS — Purchased intangible assets are recorded at fair value. The fair value of significant purchased intangible assets is based on independent appraisals. Abbott uses a discounted cash flow model to value intangible assets. The discounted cash flow model requires assumptions about the timing and amount of future net cash inflows, risk, the cost of capital and terminal values. Intangible assets and goodwill are reviewed for impairment at least on a quarterly and annual basis, respectively.

STOCK-BASED COMPENSATION — Abbott measures compensation cost using the intrinsic value-based method of accounting for stock options and replacement stock options granted to employees. In December 2004, the Financial Accounting Standards Board issued a revised SFAS No. 123, "Share Based Payment," which requires that fair value be recorded in the results of operations beginning no later than July 1, 2005. Restricted stock awards are amortized over their vesting period with a charge to compensation expense.

LITIGATION — Abbott accounts for litigation losses in accordance with SFAS No. 5. Under SFAS No. 5, loss contingency provisions are recorded for probable losses at management's best estimate of a loss, or when a best estimate cannot be made, a minimum loss contingency amount is recorded.

CASH, CASH EQUIVALENTS AND INVESTMENT SECURITIES — Cash equivalents consist of time deposits and certificates of deposit with original maturities of three months or less. Investments in marketable equity securities are classified as available-for-sale and are recorded at fair value with any unrealized holding gains or losses, net of tax, included in Accumulated other comprehensive income (loss). Investments in equity securities that are not traded on public stock exchanges are recorded at cost. Abbott monitors equity investments for other than temporary declines in fair value and charges impairment losses to income when an other than temporary decline in estimated value occurs. Investments in debt securities are classified as held-to-maturity, as management has both the intent and ability to hold these securities to maturity, and are reported at cost, net of any unamortized premium or discount. Income relating to these securities is reported as a component of interest income.

INVENTORIES — Inventories are stated at the lower of cost (first-in, first-out basis) or market. Cost includes material and conversion costs.

PROPERTY AND EQUIPMENT — Depreciation and amortization are provided on a straight-line basis over the estimated useful lives of the assets. The following table shows estimated useful lives of property and equipment:

Classification		Estimated Useful Lives
Buildings		10 to 50 years (average 27 years)
Equipment		3 to 20 years (average 11 years)

PRODUCT LIABILITY — Provisions are made for probable losses that are not covered by product liability insurance. Abbott carries third-party insurance coverage in amounts that reflect historical loss experience, which does not include coverage for catastrophic losses.

TRANSLATION ADJUSTMENTS — For foreign operations in highly inflationary economies, translation gains and losses are included in Net foreign exchange (gain) loss. For remaining foreign operations, translation adjustments are included as a component of Accumulated other comprehensive income (loss).

RESEARCH AND DEVELOPMENT COSTS — Internal research and development costs are expensed as incurred. Clinical trial costs incurred by third parties are expensed as the contracted work is performed. Where contingent milestone payments are due to third parties under research and development arrangements, the milestone payment obligations are expensed when the milestone results are achieved.

RECLASSIFICATIONS — The income and cash flows of Hospira and direct transaction costs of the spin-off have been presented as discontinued operations in the Consolidated Statement of Earnings and Statement of Cash Flows. Prior years' balance sheets have not been adjusted to reflect the effect of the spin-off. In addition, Other prepaid expenses and receivables and Trade accounts payable related to TAP's trade accounts receivable as of December 31, 2003 and 2002 have been reclassified to conform to the December 31, 2004 classification.

		2004		2003		2002
Current Investment Securities:
Time deposits and certificates of deposit		$	833,334	$	291,297	$	120,000
Other			—		—		141,677

	Total	$	833,334	$	291,297	$	261,677

		2004		2003		2002
Long-term Investment Securities:
Equity securities		$	125,541	$	381,053	$	222,667
Other			20,308		25,304		28,112

	Total	$	145,849	$	406,357	$	250,779

Abbott reviews the carrying value of investments in equity securities each quarter to determine whether an other than temporary decline in market value exists. Abbott considers factors affecting the investee, factors affecting the industry the investee operates in, and general equity market trends. Abbott considers the length of time an investment's market value has been below carrying value and the near-term prospects for recovery to carrying value. When Abbott determines that an other than temporary decline has occurred, the investment is written down with a charge to Other (income) expense, net. Other (income) expense, net for 2002 includes a charge of $193,862 for an other than temporary decline in the market value of certain equity securities.

Gross unrealized holding gains (losses) on current and long-term held-to-maturity investment securities totaled $1,200 and $(900), respectively, at December 31, 2004; $1,400 and $(2,200), respectively, at December 31, 2003; and $1,500 and $(8,500), respectively, at December 31, 2002. Gross unrealized holding gains (losses) on available-for-sale equity securities totaled $30,800 and $(1,100), respectively, at December 31, 2004; $162,700 and $(4,000), respectively, at December 31, 2003; and $24,400 and $(9,200), respectively, at December 31, 2002.

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 $984 million, $602 million and $857 million at December 31, 2004, 2003 and 2002, respectively, are designated as cash flow hedges of the variability of the cash flows due to changes in foreign exchange rates. Abbott records the contracts at fair value, resulting in charges of $40.0 million and $28.8 million to Accumulated other comprehensive income (loss) in 2004 and 2002, respectively, and a $3.6 million credit to Accumulated other comprehensive income (loss) in 2003. No hedge ineffectiveness was recorded in income in 2004, 2003 or 2002. Accumulated gains and losses as of December 31, 2004 will be included in Cost of products sold at the time the products are sold, generally through the end of 2005.

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. These contracts are recorded at fair value, with the resulting gains or losses reflected in income as Net foreign exchange (gain) loss. At December 31, 2004, 2003 and 2002, Abbott held $3.3 billion, $3.0 billion and $1.9 billion, respectively, of such foreign currency forward exchange contracts.

Abbott is a party to interest rate hedge contracts totaling $3.1 billion to manage its exposure to changes in the fair value of $3.1 billion of fixed-rate debt due July 2006 through March 2014. 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 2004, 2003 and 2002.

The carrying values and fair values of certain financial instruments as of December 31 are shown in the table below. The carrying values of all other financial instruments approximate their estimated fair values. Fair value is the quoted market price of the instrument held or the quoted market price of a similar instrument. The counter parties to financial instruments consist of select major international financial institutions. Abbott does not expect any losses from nonperformance by these counter parties.

Retirement plans consist of defined benefit, defined contribution, and medical and dental plans. Information for Abbott's major defined benefit plans and post-employment medical and dental benefit plans is as follows:

The accumulated benefit obligations for all defined benefit plans was approximately $3,954,000, $3,762,000 and $3,037,000 at December 31, 2004, 2003 and 2002, respectively. In 2004, 2003 and 2002, Abbott recorded minimum pension liability adjustments of $120,475, $155,134 and $342,874, respectively, because the accumulated benefit obligations for certain defined benefit plans exceeded the market value of the plans' assets. This resulted in charges to Accumulated other comprehensive income (loss) of $75,947 in 2004, $99,155 in 2003 and $203,182 in 2002, net of taxes. As a result of the spin-off on April 30, 2004, Abbott transferred to Hospira a minimum pension liability adjustment and a charge to Accumulated other comprehensive income (loss), net of income taxes, of $41,051 and $23,181, respectively. For plans where the accumulated benefit obligations exceeded plan assets at December 31, 2004, 2003 and 2002, the aggregate accumulated benefit obligations were $3,053,000, $3,033,000 and $2,383,000, respectively; the projected benefit obligations were $3,738,000, $3,824,000 and $3,053,000, respectively; and the aggregate plan assets were $2,909,000, $2,567,000 and $1,981,000, respectively. The weighted average discount rate used at December 31, 2004 for determining the accumulated benefit obligations for defined benefit plans whose accumulated benefit obligations were in excess of plan assets was 5.7 percent. A one-percentage point reduction in the discount rate at December 31, 2004 would result in an increase in the minimum pension liability adjustments and an increase in the charge to Accumulated other comprehensive income (loss) of approximately $779,000 and $507,000, respectively.

The weighted average assumptions used to determine benefit obligations for defined benefit plans and medical and dental plans as of December 31, the measurement date of the plans, are as follows:

		2004		2003		2002
Discount rate		5.6	%	5.8	%	6.5	%
Expected aggregate average long-term change in compensation		4.2	%	4.2	%	4.2	%

The weighted average assumptions used to determine the net cost for defined benefit plans and medical and dental plans are as follows:

	2004		2003		2002
Discount rate	6.0	%	6.5	%	6.9	%
Expected return on plan assets	8.4	%	8.6	%	9.0	%
Expected aggregate average long-term change in compensation	4.2	%	4.1	%	4.6	%

The assumed health care cost trend rates for medical and dental plans at December 31 were as follows:

	2004		2003		2002
Health care cost trend rate assumed for the next year	7	%	8	%	9	%
Rate that the cost trend rate gradually declines to	5	%	5	%	5	%
Year that rate reaches the assumed ultimate rate	2007		2007		2007

A one-percentage point increase/(decrease) in the assumed health care cost trend rate would increase/(decrease) the accumulated post-employment benefit obligations as of December 31, 2004, by $179,052/$(134,289), and the total of the service and interest cost components of net post-employment health care cost for the year then ended by approximately $20,135/$(15,907).

In 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 $210,000 and the net cost recognized in 2004 was reduced by approximately $33,000.

The weighted average asset allocation for Abbott's U.S. defined benefit plans by asset category is shown in the table below. Abbott's international defined benefit plans have similar equity content.

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

An Illinois Corporation		36-0698440
		(I.R.S. employer identification number)
100 Abbott Park Road		(847) 937-6100
Abbott Park, Illinois 60064-6400		(telephone number)

Title of Each Class		Name of Each Exchange on Which Registered


Common Shares, Without Par Value (including Preferred Stock Purchase Rights)		New York Stock Exchange Chicago Stock Exchange Pacific Exchange

	Year ended December 31
	2004		2003		2002		2001			2000
	*(dollars in millions, except per share data)*
Net sales (a)	$	19,680.0	$	17,280.3	$	15,279.5	$	13,918.5		$	11,520.6
Earnings from continuing operations		3,175.8		2,504.7		2,547.0		1,277.7			2,488.9
Net earnings		3,235.9		2,753.2		2,793.7		1,550.4	(b)		2,786.0
Basic earnings per common share from continuing operations		2.03		1.60		1.63		0.82			1.61
Basic earnings per common share		2.07		1.76		1.79		1.00	(b)		1.80
Diluted earnings per common share from continuing operations		2.02		1.59		1.62		0.82			1.59
Diluted earnings per common share		2.06		1.75		1.78		0.99	(b)		1.78
Total assets		28,767.5		26,039.3		23,592.7		22,755.5			14,796.7
Long-term debt		4,787.9		3,452.3		4,274.0		4,335.5			1,076.4
Cash dividends declared per common share		1.04		0.98		0.94		0.84			0.76

				Pharmaceutical Products
	Ross Products WIC Rebates			Medicaid Rebates			Pharmacy Benefit Manager Rebates			Wholesaler Chargebacks
Balance at January 1, 2004	$	113,362		$	229,070		$	145,195		$	37,093
Provisions		671,817			596,330			279,681			419,486
Payments		(687,132	)		(452,342	)		(271,078	)		(412,526	)

Balance at December 31, 2004	$	98,047		$	373,058		$	153,798		$	44,053

		Payment Due By Period
		Total		2005		2006-2007		2008-2009		2010 and Thereafter
		*(dollars in millions)*
Long-term debt, including current maturities and future interest payments		$	5,829	$	371	$	2,269	$	1,549	$	1,640
Operating lease obligations			366		100		131		84		51
Capitalized auto lease obligations			89		30		59		—		—
Purchase commitments (a)			1,707		1,571		121		11		4
Other long-term liabilities reflected on the consolidated balance sheet —
	Benefit plan obligations, including minimum pension liability adjustments of $577		1,913		—		201		198		1,514
	Other		855		—		310		148		397

Total		$	10,759	$	2,072	$	3,091	$	1,990	$	3,606

		Page
Abbott Laboratories Financial Statements:
	Consolidated Statement of Earnings	41
	Consolidated Statement of Cash Flows	42
	Consolidated Balance Sheet	43
	Consolidated Statement of Shareholders' Investment	45
	Notes to Consolidated Financial Statements	46
	Management Report on Internal Control Over Financial Reporting	68
	Reports of Independent Registered Public Accounting Firm	69
TAP Pharmaceutical Products Inc. Financial Statements:
	Consolidated Statements of Income and Comprehensive Income	71
	Consolidated Statements of Cash Flows	72
	Consolidated Balance Sheets	73
	Consolidated Statements of Shareholders' Equity	74
	Notes to Consolidated Financial Statements	75
	Report of Independent Registered Public Accounting Firm	84

		2004		2003		2002
Other Accrued Liabilities:
Accrued rebates payable to government agencies		$	519,653	$	381,898	$	288,076
Accrued other rebates (a)			202,363		212,459		205,489
All other			1,769,940		1,585,741		1,708,912

	Total	$	2,491,956	$	2,180,098	$	2,202,477

		2004			2003			2002
Post-employment Obligations and Other Long-term Liabilities:
Accrued post-employment medical and dental costs		$	747,406		$	797,127		$	746,352
Minimum pension liability adjustments			577,432			498,008			342,874
All other			1,281,572			1,256,085			1,229,148

	Total	$	2,606,410		$	2,551,220		$	2,318,374

		2004			2003			2002
Net Interest Expense:
Interest expense		$	200,206		$	188,288		$	238,945
Interest income			(51,119	)		(41,923	)		(33,466	)

	Total	$	149,087		$	146,365		$	205,479

		2004			2003			2002
Comprehensive Income, net of tax:
Foreign currency translation adjustments		$	861,139		$	1,162,004		$	327,680
Minimum pension liability adjustments, net of taxes of $45,690 in 2004, $57,219 in 2003 and $115,992 in 2002			(75,947	)		(99,155	)		(203,182	)
Unrealized (losses) gains on marketable equity securities			(43,613	)		106,673			(20,307	)
Net (losses) gains on derivative instruments designated as cash flow hedges			(39,951	)		3,550			(28,774	)
Reclassification adjustments for realized (gains)			(30,547	)		(20,538	)		(489	)

Other comprehensive income			671,081			1,152,534			74,928
Net Earnings			3,235,851			2,753,233			2,793,703

Comprehensive Income		$	3,906,932		$	3,905,767		$	2,868,631

		2004			2003			2002
Supplemental Comprehensive Income Information, net of tax:
Cumulative foreign currency translation (gain) loss adjustments		$	(1,714,901	)	$	(853,762	)	$	308,242
Cumulative minimum pension liability adjustments			355,103			302,337			203,182
Cumulative unrealized (gains) on marketable equity securities			(17,701	)		(95,143	)		(9,008	)
Cumulative losses on derivative instruments designated as cash flow hedges			53,767			13,816			17,366

	2004		2003		2002
Supplemental Cash Flow Information:
Income taxes paid	$	675,728	$	832,380	$	880,569
Interest paid		197,554		207,045		265,698

		2004						2003						2002
		Carrying Value			Fair Value			Carrying Value			Fair Value			Carrying Value			Fair Value
		*(dollars in millions)*
Investment Securities:
Current		$	833.3		$	833.3		$	291.3		$	291.3		$	261.7		$	259.4
Long-term:
	Available-for-Sale Equity Securities		125.5			125.5			381.1			381.1			222.7			222.7
	Other		20.3			20.6			25.3			24.5			28.1			23.4
Total Long-term Debt			(4,944.0	)		(5,012.6	)		(5,161.6	)		(5,407.2	)		(4,495.1	)		(4,640.4	)
Foreign Currency Forward Exchange Contracts:
	(Payable) position		(117.1	)		(117.1	)		(33.3	)		(33.3	)		(34.3	)		(34.3	)
	Receivable position		37.2			37.2			3.0			3.0			16.5			16.5
Interest Rate Hedge Contracts			(3.7	)		(3.7	)		128.7			128.7			160.2			160.2

	2004		2003		2002
Asset Category:
Equity securities	73	%	68	%	60	%
Fixed income securities	27		32		40

			December 31
			2004		2003		2002
Assets
Current Assets:
Cash and cash equivalents			$	1,225,628	$	995,124	$	704,450
Investment securities				833,334		291,297		261,677
Trade receivables, less allowances of — 2004: $231,704; 2003: $259,514; 2002: $198,116				3,696,115		3,313,377		2,927,370
Inventories —
	Finished products			1,488,939		1,467,441		1,274,760
	Work in process			582,787		545,977		563,659
	Materials			548,737		725,021		602,883

		Total inventories		2,620,463		2,738,439		2,441,302
Deferred income taxes				1,031,746		1,165,259		1,022,861
Other prepaid expenses and receivables				1,080,143		1,110,885		1,097,690
Assets held for sale				247,056		—		—

		Total Current Assets		10,734,485		9,614,381		8,455,350

Investment Securities				145,849		406,357		250,779

Property and Equipment, at Cost:
Land				338,428		356,757		335,566
Buildings				2,519,492		2,662,023		2,387,583
Equipment				8,681,655		9,479,044		8,790,209
Construction in progress				962,114		792,923		634,315

				12,501,689		13,290,747		12,147,673
Less: accumulated depreciation and amortization				6,493,815		7,008,941		6,319,551

Net Property and Equipment				6,007,874		6,281,806		5,828,122

Intangible Assets, net of amortization				5,171,594		4,089,882		3,919,248
Goodwill				5,685,124		4,449,408		3,732,533
Investments in Joint Ventures, Deferred Income Taxes and Other Assets				952,929		1,197,474		1,406,648
Assets Held for Sale				69,639		—		—

			$	28,767,494	$	26,039,308	$	23,592,680

		Year Ended December 31
		2004			2003			2002
Common Shares:
Beginning of Year
	Shares: 2004: 1,580,247,227; 2003: 1,578,944,551; 2002: 1,571,816,976	$	3,034,054		$	2,891,266		$	2,643,443
Issued under incentive stock programs
	Shares: 2004: 6,811,550; 2003: 4,186,710; 2002: 7,331,098		208,880			118,119			202,741
Tax benefit from option shares and vesting of restricted stock awards (no share effect)			22,871			29,980			46,755
Retired — Shares: 2004: 11,911,359; 2003: 2,884,034; 2002: 203,523			(26,230	)		(5,311	)		(1,673	)

End of Year
	Shares: 2004: 1,575,147,418; 2003: 1,580,247,227; 2002: 1,578,944,551	$	3,239,575		$	3,034,054		$	2,891,266

Common Shares Held in Treasury:
Beginning of Year
	Shares: 2004: 15,729,296; 2003: 15,876,449; 2002: 17,286,684	$	(229,696	)	$	(231,845	)	$	(252,438	)
Issued under incentive stock programs
	Shares: 2004: 605,496; 2003: 147,153; 2002: 1,410,235		8,842			2,149			20,593

End of Year
	Shares: 2004: 15,123,800; 2003: 15,729,296; 2002: 15,876,449	$	(220,854	)	$	(229,696	)	$	(231,845	)

Unearned Compensation — Restricted Stock Awards:
Beginning of Year		$	(56,336	)	$	(76,472	)	$	(18,258	)
Issued at market value — Shares: 2004: 589,000; 2003: 130,000; 2002: 1,396,000			(25,528	)		(5,429	)		(78,835	)
Lapses — Shares: 2004: 57,899; 2002: 25,105			3,029			—			1,362
Amortization			28,725			25,565			19,259

End of Year		$	(50,110	)	$	(56,336	)	$	(76,472	)

Earnings Employed in the Business:
Beginning of Year		$	9,691,484		$	8,601,386		$	7,281,395
Net earnings			3,235,851			2,753,233			2,793,703
Cash dividends declared on common shares (per share — 2004: $1.04; 2003: $.98; 2002: $.94)			(1,622,148	)		(1,531,710	)		(1,468,643	)
Spin-off of Hospira, Inc.			(761,916	)		—			—
Cost of common shares retired in excess of stated capital amount			(527,197	)		(135,390	)		(64,066	)
Cost of treasury shares issued below market value			17,366			3,965			58,997

End of Year		$	10,033,440		$	9,691,484		$	8,601,386

Accumulated Other Comprehensive Income (Loss):

	Defined Benefit Plans									Medical and Dental Plans
	2004			2003			2002			2004			2003			2002
Projected benefit obligations, January 1	$	4,646,321		$	3,748,425		$	3,240,523		$	1,241,845		$	1,286,831		$	963,411
Service cost — benefits earned during the year		187,146			192,529			172,191			34,628			43,737			40,541
Interest cost on projected benefit obligations		253,249			247,117			225,509			64,054			69,365			74,093
Losses (gains), primarily changes in discount and medical trend rates, plan design changes, law changes and differences between actual and estimated health care costs		174,669			497,468			220,789			(44,707	)		(100,158	)		269,841
Benefits paid		(191,543	)		(169,560	)		(144,010	)		(67,232	)		(57,930	)		(61,055	)
Spin-off of Hospira		(425,069	)		—			—			(116,464	)		—			—
Other, primarily foreign currency translation		108,452			130,342			33,423			—			—			—

Projected benefit obligations, December 31	$	4,753,225		$	4,646,321		$	3,748,425		$	1,112,124		$	1,241,845		$	1,286,831

Plans' assets at fair value, January 1, principally listed securities	$	3,017,732		$	2,373,415		$	2,643,704		$	—		$	—		$	293
Actual return on plans' assets		285,794			441,307			(310,375	)		—			—			—
Company contributions		565,909			309,473			162,872			67,232			57,930			60,762
Benefits paid		(191,543	)		(169,560	)		(144,010	)		(67,232	)		(57,930	)		(61,055	)
Spin-off of Hospira		(262,109	)		—			—			—			—			—
Other, primarily foreign currency translation		49,883			63,097			21,224			—			—			—

Plans' assets at fair value, December 31	$	3,465,666		$	3,017,732		$	2,373,415		$	—		$	—		$	—

Projected benefit obligations greater than plans' assets, December 31	$	(1,287,559	)	$	(1,628,589	)	$	(1,375,010	)	$	(1,112,124	)	$	(1,241,845	)	$	(1,286,831	)
Unrecognized actuarial losses, net		1,494,915			1,436,013			1,113,143			587,976			718,215			568,340
Unrecognized prior service cost		(5,835	)		13,575			15,047			(285,659	)		(334,662	)		(77,861	)

Net prepaid (accrued) benefit cost	$	201,521		$	(179,001	)	$	(246,820	)	$	(809,807	)	$	(858,292	)	$	(796,352	)

Accrued benefit cost	$	(617,533	)	$	(883,358	)	$	(741,449	)	$	(809,807	)	$	(858,292	)	$	(796,352	)
Prepaid benefit cost		241,622			206,349			151,755			—			—			—
Intangible assets		17,261			22,460			23,700			—			—			—
Accumulated other comprehensive income (loss)		560,171			475,548			319,174			—			—			—

Net prepaid (accrued) benefit cost	$	201,521		$	(179,001	)	$	(246,820	)	$	(809,807	)	$	(858,292	)	$	(796,352	)

Service cost — benefits earned during the year	$	187,146		$	192,529		$	172,191		$	34,628		$	43,737		$	40,541
Interest cost on projected benefit obligations		253,249			247,117			225,509			64,054			69,365			74,093
Expected return on plans' assets		(295,294	)		(288,454	)		(282,721	)		—			—			—
Net amortization		30,809			6,452			4,340			5,650			6,768			10,491

Total cost		175,910			157,644			119,319			104,332			119,870			125,125
Discontinued operations		(9,781	)		(20,404	)		(14,543	)		(14,349	)		(33,630	)		(36,696	)