Financial Statement Analysis

Financial Statement Analysis
October 18
2010
Abbott Laboratories and Target
Good Karma: Amanda Tryon, Kara Brown, Karen Allen, Melissa Masters
Financial Statement Analysis 2010 Table of Contents

Part I: Abbott Laboratories..3 Executive Summary ................................................................................................................................................4 I. Introduction of the company..............................................................................................................................5 II. Performance analysis .........................................................................................................................................6 III. Financial position ...............................................................................................................................................7 IV. Critique ..............................................................................................................................................................8 V. External perception of the company .............................................................................................................. 12 VI. Conclusions and recommendations ............................................................................................................... 13 Part II: Target ........................................................................................................................................................... 16 Executive Summary ............................................................................................................................................. 17 I. Introduction of the company ........................................................................................................................... 18 II. Performance analysis ...................................................................................................................................... 18 III. Financial position ............................................................................................................................................ 20 IV. Critique ........................................................................................................................................................... 22 V. External perception of the company: ............................................................................................................. 24 VI. Conclusions and recommendations. .............................................................................................................. 26 Appendix A - Abbott Competition ........................................................................................................................... 28 Appendix B- Target Competition ............................................................................................................................. 30 Appendix C- Customer Perceptions- Target ............................................................................................................ 31 Appendix D-Common Size Income Statement- Abbott ........................................................................................... 32 Appendix E- Common Size Balance Sheet- Abbott.................................................................................................. 34 Appendix F- Common Size Balance Sheet- Target................................................................................................... 38 Appendix G- Common Size Income Statement- Target ........................................................................................... 40 Appendix H- Key Financial Ratios- Target ................................................................................................................ 41 Appendix I- Key Financial Ratios- Abbott ................................................................................................................ 42 Appendix J- Targets Annual Report Fiscal year 2009 ........................................................................................... 43 Appendix K- Abbott Laboratories Annual Report -Fiscal Year 2009 .................................................................... 135 Works Cited ........................................................................................................................................................... 214
Financial Statement Analysis 2010
Part I:

Executive Summary
Abbott Laboratories is an international company based in Illinois. They are involved in the sale of a largely diversified line of healthcare products. This company has diversified itself in the areas of pharmaceutical, diagnostic, nutritional, and vascular products, which has benefited its ability to remain financially stable. In the healthcare industry, specifically pharmaceuticals, competition is fierce. Each company tries to be on the cutting edge of technology with their drugs and other miscellaneous products. Abbott has still proven to be a viable competitor in its market. Sales increased from 2008 to 2009. Also, the market price per each share of common stock was maintained. This shows that this corporation can perform and will continue to do so. With the passage of healthcare reform bill there is uncertainty about what the future holds. The nursing shortage, drug costs, and soaring health care plan premiums will rekindle fears of medical inflation. A considerable portion of Abbott Laboratories market is that of healthcare related products. Abbotts sales have been impacted significantly over the last three years with the purchase of several pharmaceutical products and joint ventures along with the loss of patent protections. Abbott has done well weathering the economic downturn with an increase in net sales and gross profit for the 2nd, 3rd and 4th quarters of 2009 as compared to 2008 and 2007. After creating and reviewing the common size income statement for Abbott Laboratories, we see that the numbers are strongly consistent from year to year. In order to compete, Abbott is actively buying and selling companies and divisions. This has helped them increase their growth in emerging markets. We recommend investing in Abbott, but conservatively. With health care reform looming over head, change is coming. All is not clear on how it will directly affect Abbotts performance, but they have proven before that they are a formidable competitor.

I. Introduction of the company.
Abbott Laboratories is involved in the sale of a largely diversified line of healthcare products. Abbott operates four segments: Pharmaceutical, Diagnostic Products, Nutritional, and Vascular Products. Its Pharmaceutical Products include adult and pediatric pharmaceuticals. Its Diagnostic Products include diagnostic systems and tests that are sold to blood banks, hospitals, commercial laboratories, clinics, physicians' offices, alternate-care testing sites and plasma protein therapeutic companies. The Company's Nutritional Products include a line of pediatric and adult nutritional products sold worldwide. Its Vascular Products include coronary, endovascular, and vessel closure devices for the treatment of vascular disease. Since Abbott is involved four different segments, they have different competition and competition strategies for each segment. For Pharmaceutical products, the competition is from other pharmaceutical companies. Searching for innovative products is the biggest part of the competition. Changes in medical practices and product releases from competitors can quickly result in changes in their business. They must also consider their product price, as many substitute generic drugs. The Diagnostic Product division faces the same types of competition in innovation and price. However, it must also consider product performance, contracts and productivity. Several products they have in this segment are subject to regulatory changes. Nutritional Products generally have competition from other consumer and health care manufacturers. They consider advertising, packaging, price and availability. A large part of competition in this area is ingredient innovations. New products by competitors and generic substitutes are an issue. The Vascular Products are facing many of the same challenges as above. They are highly competitive in product innovation, price and convenience. Many of the segments face the possibility of product obsolescence due to new product offerings by competitors, changes in medical practices, and government regulation. 5

II. Performance analysis
In reviewing the 2009 annual report of Abbott Laboratories, the strengths and weaknesses of the companys performance were analyzed. This company has diversified itself in the areas of pharmaceutical, diagnostic, nutritional, and vascular products, which has benefited its ability to remain financially stable. The sale of these types of products is not seasonal; therefore we expect their sales numbers to remain constant throughout the year. The business of healthcare and pharmaceuticals has many downfalls or weaknesses. Because Abbott depends heavily on its creation of new products and the research done, the risk of a product failing and resulting in a financial loss is high. However, when a product is successful, the financial benefits are great. With the creation of new products, it is the responsibility of Abbott to obtain patents on the creation and distribution. When these patents are held, Abbott becomes the only distributor of the product, therefore controlling the price. Patents only last for a certain length of time, causing a decrease in revenue and operating income once a patent expires. Legal expenses can also occur if there is a patent infringement claim by another company. These legal expenses can potentially affect cash flow; therefore budget allowances must be allowed. The creation and success of new products relies heavily on the amount of research performed. The more research a company performs, the more money they will spend. The research is done so a product will meet government regulations, along with hopefully preventing legal issues that can arise from a dangerous product. Abbott products are sold worldwide, so they must submit to the government regulations for each country where their products are sold. Even with the amount of research that is done, the corporation is still subject to product liability claims and safety concerns. If it is found that a product puts someone at risk, potential legal expenses may occur. In the healthcare industry, specifically pharmaceuticals, competition is fierce. Each company tries to be on the cutting edge of technology with their drugs and other miscellaneous products. Products that are 6

being researched are kept top secret until the research is mostly complete. Each company is kept in the dark until this time, making competition hard to predict. In spite of these weaknesses, Abbott has still proven to be a viable competitor in its market. Sales increased from 2008 to 2009. Also, the market price per each share of common stock was maintained. This shows that this corporation can perform and will continue to do so.
III. Financial position

Analyzing the strengths and weakness for Abbott Laboratories is tricky. In late 2009, when Abbott Laboratories acquired a unit of Solvay of Belgium for $6.6 billion, the large merger was praised as a signal for restored confidence (Sorkin, 2009). However, less than a year later, the Pharmaceutical giant announced that they would be cutting 3,000 jobs, or 3 percent of its work force (Reuters, 2010). As an investor, the declaration a company is downsizing 3 percent of its work force is not a comforting sign to reinvest. However, this downsizing came almost entirely from the Solvay positions. Probably, the downsizing which was found mainly in research and development, and commercial and manufacturing was planned for during the acquisition and prior to the merger being announced. In May 2010, Abbott Laboratories announced they would purchase the Indian drug maker Piramal Healthcare for $3.7 billion. Abbott stated even though paying $2.12 billion in cash upfront for Piramal, and then $400 million annually over the next four years, this purchase will add immediately to Abbotts earnings (Timmons, 2010). PricewaterhouseCoopers estimates that emerging markets will account for 30 40 percent of pharmaceutical sales growth in the next 10 years (Timmons, 2010). Pharmaceutical business in emerging markets is drastically different from the West. Consumers in emerging markets typically pay directly for their prescriptions, while those in the West typically rely on insurance and government care. As Abbott Labs and Piramal expand into India, the company will become the largest drug company in India with 7 percent of the market.

Abbott Laboratories has also had their share of bumps in the road. Facing competition from the generic drugs, sales of Humira, mostly used for treatment of Rheumatoid Arthritis, have been decreasing. Another casualty to the generic competition is the drug Depakote, typically used as an anti-seizure medicine. In 2009, sales of Depakote tumbled 75 percent, after losing exclusivity in 2008. (Bloomberg News, 2009). There are two polar views on the drug Meridia, an anti-obesity drug. In January 2010, European Medicines Agency advised doctors and pharmacists to stop prescribing and dispensing Meridia and equivalents of Meridia (Singer and Pollack, 2010). The Food and Drug Administration, looking at the same data asked Abbott Laboratories to put a stronger warning on its label. The key ingredient, sibutramine, is at the crux of this decision. The question is if this ingredient when given to a patient diagnosed with uncontrolled high blood pressure is at a higher risk of a heart attack or stroke. Most recently, in September 2010, Abbott Laboratories had to recall millions of containers of its bestselling Similac infant formula due to the possibility of being contaminated with insect parts, such as small beetles or larvae. This recall affected 5 million containers of formula. Abbott announced that they expected a $100 million dollar loss in connection with this recall. With this announcement, shares of Abbott Laboratories fell 16 cents (Perrone, 2010).
IV. Critique
Healthcare as we know it is about to change. With the passage of healthcare reform bill there is uncertainty about what the future holds. The nursing shortage, drug costs, and soaring health care plan premiums will rekindle fears of medical inflation. A considerable portion of Abbott Laboratories market is that of healthcare related products. Abbott operates in numerous countries and employs both internal and external tax professionals to minimize audit adjustment amounts where possible. Changes in foreign reimbursement, political and economic stability will also significantly impact their bottom line. Their operation in international markets is 50 percent of consolidated net sales for Abbott Laboratories. Their gross profit margin in 2008 was higher due, in part, to favorable product mix and foreign 8

exchange. However, there was a decline in their gross profit margins in 2009 due to the negative impact from lower sales of Depakote. One other important and detrimental part of the business is patents and trademarks. There are several legal proceedings that they are currently facing due to patent infringement both locally and internationally. The estimated loss due to litigation is $170 million to approximately $310 million. Abbott Laboratories revenues are derived primarily from the sale of a broad line of health care products under short-term receivable arrangements. Abbotts sales have been impacted significantly over the last three years with the purchase of several pharmaceutical products and joint ventures along with the loss of patent protections. One main focus of Abbott is that of Humira which has increased sales worldwide. However, they have seen a significant decline in sales of Omnicef and Clarithromycin, with Omnicef being the greater of the two. They are in a constant battle with products being produced in a generic form, which significantly affects the sales of their products. Abbott concludes that its 2009 long term debt is due to financing recent acquisitions. Operating cash flows in excess of capital expenditures and cash dividends have partially funded these acquisitions. As of December 31, 2009, Abbotts long term debt rating was AA by standard and A1 by Moodys Investors Service. One significant impact of Abbotts bottom line is the sales rebates that they provide. Approximately 50 percent of Abbotts consolidated gross revenues are subject to various forms of rebates and allowances which Abbott records as a reduction of revenue at the time of sale. They also offer discounts to those that pay within 15 to 30 days. One of the largest rebates that they provide are to the Womens Infant and Childrens (WIC) division which they have a contract with in 24 states. Indiana is not one of those states. Abbott has done well weathering the economic downturn with an increase in net sales and gross profit for the 2nd, 3rd and 4th quarters of 2009 as compared to 2008 and 2007. They record cash, cash 9

equivalents and investments with the cash equivalents consisting of time deposits and certificates of deposit. They use FIFO as their inventory method. Depreciation and amortization expenses are calculated using a straight-line method over the estimated useful lives of the assets. The estimated useful life as provided by the financial reports states that a buildings useful life is 10 to 50 years and equipment is 3 to 20 years. They also noted internal controls and the external audit being completed by Deloitte and Touche out of Chicago. Deloitte did report that the company adopted a new accounting standard related to business combinations in 2009. It states that research and development is accounted for as an indefinite-lived tangible asset until approval or discontinuation rather than as expense. Acquisition costs are expensed rather than added to the cost of an acquisition and the fair value of contingent consideration at the date of an acquisition is added to the cost of the acquisition. The report was very informative, as some of our groups members work in healthcare They have come to realize the amount of money that is required to run a health care system. This report helps us understand why some costs get passed on to the consumers. The companies pass the cost off to the hospitals which then pass it off to the consumer in order to effectively run a health care system. The notes supplied information regarding accounting policies and areas in which estimates were used. Among the many different products that Abbott develops, manufactures and sells the consolidated version of their statements made the report easier to read and understand. Also included within the notes was supplemental financial information. This involved discussion about their investment in Boston scientific and other expenses for 2009 related to long term liabilities and comprehensive income. Within the last 3 years Abbott has been involved in a joint venture with TAP pharmaceutical products and the selling of its spine business. However, the spine business was not presented as discontinued operations in the report because the effects were not significant. Abbott is involved in international markets and there are several tables within the notes that address foreign currency and foreign subsidiaries. They also included in depth information about post employment benefits. This 10

information is very interesting because with healthcare changing, companies are making changes to retirement benefits. Currently 70 percent of Abbotts medical and dental plans assets are invested in equity securities and 30 percent in fixed income securities. Other notes included that of taxes on earnings. It was interesting to read that their federal income tax returns through 2005 were settled, however, tax returns after 2005 were still open. They go on to describe the products they discover, develop, manufacture and sell within a geographic area. The main report contained extensive information regarding litigations of the company but also embedded within the notes there continues to be information regarding litigations and environmental matters. They currently are identified as a potentially responsible party for investigation and cleanup costs at a number of locations in the United States and Puerto Rico. The cost of these area clean ups are not expected to exceed $15 million. Abbott also goes in to detail about incentive stock programs and debt and lines of credit with mention in the annual report that they have some open lines of credit. There also is great detail about their intangible assets and several companies that they have acquired along with goodwill. Abbott positioned themselves appropriately in 2008 as the economy was starting to take a downturn by restructuring. This restructuring plan included streamlining global operations, reducing overall costs, and improving efficiencies which is important in a struggling economy. One last thing that they included in their notes was quarterly results. This seemed to be very helpful in regards to the breakdown of each quarter and how well the company did comparatively. The notes would have been more helpful to be presented with each area that it represented. One thing to remember is the length of these reports. It is understandable that the SEC requires such information to be included in the report but the length can be very intimidating. With all that Abbott is involved in, their report length was appropriate.
11

V. External perception of the company
Investors Investors like Abbott. They are a strong global company, and they give back to their investors in the form of dividends or share buybacks. They are actively acquiring other pharmaceutical and healthcare companies to ensure growth in emerging markets and they are able to maintain a high ROE. Competitors Competition in the healthcare and pharmaceutical industry is highly competitive. Because of this, Abbott and their competitors are constantly trying to come up with the latest drug and get it patented before their competitor. In these types of situations many companies will begin to acquire their competitors so they dont have to compete with them anymore. This is what Abbott has been doing with of AMO, Visiogen, Evalve Inc. and Solvay. Customers Abbotts customer is a wide variety of people and companies. Their different segments have different customers, including blood banks, hospitals, commercial laboratories, clinics, physicians' offices, alternate-care testing sites and plasma protein therapeutic companies. Abbotts recent Similac formula recall affects the way both customers and competitors view Abbott. Customers lose a little bit of the trust that they have in the brand whenever a recall is issued. I think in this case the consumers will view the recall more as Similac, since it is a well known brand. Analysts More than half of Abbott's revenue is generated by the pharmaceutical division. With expiring patents and an extremely competitive generic drug market, Abbott's pharmaceutical revenue could experience a decline in sales. The acquisitions of AMO, Visiogen, Evalve Inc. and Solvay in 2009 are considered to be solid additions to the companys ophthalmic, drug, and medical devices portfolios. Implementation of new healthcare reform is complex and creates uncertainty regarding the long-term financial impact on
12

the industry. Still analysts say that Abbott is a strong company that has the resources, knowledge, and know how to succeed.
VI. Conclusions and recommendations

Common Size Statement Analysis After creating and reviewing the common size income statement for Abbott Laboratories, we see that the numbers are strongly consistent from year to year. When a large corporation such as Abbott is reporting in billions of dollars, a change of 1 percent, which could be a million dollars is still not that significant of a change to warrant large concerns or alarms for the investors. There are trends, governmental changes, and economics that all need to be considered when reviewing such a large company. However, upon review of the common size income statement, we did not find too many critical values that caused great concern.
On the positive side, one sizeable increase that is noteworthy is the increase in net earnings in 2007 from 13.92% to 2009 of 18.68% in 2 years. Another significant number to follow is the continuing operations. In two years there was a significant increase from 2.31% to 3.69%. This signals that the core of their business is on the upward climb.
In regards to the balance sheet, we see that there is a net increase in cash of 10.62% between 2007 and 2009, as well as a rise in total current assets of 9.12%. In the 4th quarter of 2008, Abbott sold its spine business for approximately $360 million in cash resulting in an after tax gain of approximately $147 million dollars, which is presented as gain on sale of discontinued operations, net of taxes in their statement of income. Ratio Analysis Based on the analysis of key financial ratios, many observations were made. Abbott has improved their product turnover indicating there is more cash available for general operating expenses. The inventory 13

turnover has decreased from previous years, but not significantly. Overall, Abbotts debt ratio has not fluctuated much, which is good in the current economic state. However, Abbotts primary product is pharmaceuticals, which is not always impacted by the economy. The gross and net profit margins have stayed consistent. The net earnings have increased at least 2% each year, showing the company has been able to maintain and control its expenses well. The cash flow remains steady, which is positive in an unstable economy. Unfortunately their return on investments fluctuates, mainly because the nature of Abbotts business. It is expensive to fund research on new drugs and products. The return on equity has decreased due to some product trials that have not gone well and ongoing litigation from one of Abbotts products. Industry and Competitor Comparison Abbott Laboratories has competition among other pharmaceutical companies including Merck, Roche and Sanofi-Aventis. In part, the above mentioned companies are responsible for employing 357,867 people. As a whole the pharmaceutical industry generates $305.56 million in revenue with a gross margin of 73.14%. Abbotts revenue in 2009 was $33.08 billion with a gross margin of 57.60% which is lower than others within the industry. However, their quarterly revenue growth was higher than the industry with Merck being the only company having a larger revenue growth than Abbott. The operating margin for Abbott is slightly below the industry at 21.25%. It seems that they were responsible in controlling costs with the economic turmoil that has been going on in recent years. When comparing each of those companies, Abbotts net income is lower when compared to the competition. Abbotts net income in 2009 was $5.31 billion as compared to Mercks net income of $10.93 billion, Roche had $9.91 billion and Sanofi-Aventis had $8.10 billion. However, their price to earnings ratio is higher than each of the above mentioned companies. Many investors rely on this ratio due to the significant impact on stock price changes. The explanation may be that their net earnings are significantly higher with less outstanding stock compared to the other companies.
14

Due to the above reasons we recommend investing in Abbott, but conservatively. With health care reform looming over head, change is coming. All is not clear on how it will directly affect Abbotts performance, but they have proven before that they are a formidable competitor.
15
Part II:
16

Executive Summary
Targets main lines of business are retail and credit card. Target is well known for their operations in general merchandise and food items. They owe their success to positive perceptions of the Target brand and they have built their reputation over many years of serving guests, team members, community and shareholders. The company has successfully associated its name with a younger, hipper, edgier, and more fun image than its competitors. Target recently announced that their credit card holders will receive a 5% discount on all Target purchases. This is expected to increase earnings. Targets income depends greatly on the economy, so there were some effects noted. There was a decrease in accounts receivable, showing that they are not receiving their money from customers as quickly. There has also been a decrease in inventory turnover. This can be attributed directly to the economic downfall and the seasonal nature of Targets business. In spite of these decreases, Targets debt ratio has remained stable and it has also remained profitable. The gross and net profit margins have increased from the previous year. One indicator that shows Target to be financially stable and have high performance results is in the 2007 Board of Directors decision to repurchase $10 billion worth of common stock. Because of the economic downfall, this decision was suspended in 2008, only to be approved to resume in January 2010. Based on our analysis, we agree to invest in Target. They have been able to outperform or recover from the market fluctuations. It is obvious that they are making changes in order to perform and compete. Unlike most companies, Target doesnt want to be like their over-achieving competitor, they want to differentiate themselves and be on a completely different level.
17

I. Introduction of the company
Targets main lines of business are retail and credit card. Target is known for their operations in general merchandise and food items. Their general merchandise segment includes household essentials, electronics, apparel and accessories, and home furnishings and dcor. They have recently been working to expand their dry, dairy and frozen food assortment. They also operate Super Target stores with a deeper line of food items in addition to the general merchandise. Their website, Target.com offers even more variety, styles, sizes and colors than are available in store. Targets main strategy on the retail side is to maintain their inventory effectively. While this is true with most retail giants, Target is able to maintain its competitive advantage by having their core products instock and by sustaining established merchant relationships. In addition, they do considerable planning for seasonal shopping to decrease any post season discounts. On the credit side, the Target credit card offers credit to Target guests. Target believes that offering a separate store credit card strengthens the bond with their guests, drives sales and contributes to results of operations (Annual Report, 2010). Targets main credit strategy is to entice customers to spend more with special discounts, reward programs, and coupons, while decreasing the amount of delinquencies and charge offs.
II. Performance analysis

After reviewing Targets annual report, there were several strengths found that contribute to the performance of the company as a whole. Target has strived to create attractive value in their stores, as well as in the merchandise they offer. They want their customers to be satisfied in the quality of product they are purchasing. By accomplishing this, Target hopes to retain their customers. They pride themselves on maintaining a good reputation in each store location and feel that this reputation is built on the trust their customers have with the company. They hope this trust will not only remain between
18

the company and their current customers, but that new consumers will be attracted to the company based on their reputation. Target understands the economic conditions that have been facing the whole country, and although their financial status depends on the economy, they have strived to continue to provide quality brands and value. Because of this, their sales have not been severely affected from the current economic state. However, a downside to the poor economy has been the decrease in stock value in 2009. It is noted that by the end of the fiscal year in 2010, the stock value had almost recovered from the 2009 loss. This can be attributed to the effective management within Targets corporation down to the management in each individual store. Target is a strong leader in the retail market, but it is not without obstacles to overcome. Because Target is a younger company, founded in 1902, and does have the same quantity of stores as some primary competitors, its prices are perceived as being higher. The company attempts to overcome this weakness by depending on the good reputation it has with its consumers. However, its success also must depend on its vendors and supply chain. If there is a failure in production or delivery, Target will suffer. It relies on the vendors and supply chain to follow through with merchandise, which will produce the income it needs to succeed. It is stated in the annual report that the 3 states with the largest quantity of stores are states prone to natural disasters California is prone to earthquakes, while Texas and Florida are subject to hurricanes. The corporation monitors any event that could inhibit distribution or sales. One indicator that shows Target to be financially stable and have high performance results is in the 2007 Board of Directors decision to repurchase $10 billion worth of common stock. Because of the economic downfall, this decision was suspended in 2008, only to be approved to resume in January 2010. Therefore, as it becomes available, Target is currently purchasing its own stock to reinvest back into the corporation. 19

III. Financial position
After reviewing many articles regarding Minneapolis-based Target Corporation, it appears that the retail Giant is following through on its promises they claim in their mission statement. Target states it is committed to providing a fun and convenient shopping experience with access to unique and highly differentiated products at affordable prices. The key word in many of Targets strengths is technology. Just in time for the Christmas rush, Target announced that they would be offering the iPad at stores Nationwide on October 3rd. SVP of Merchandising, Mark Schindele, believes technology products, such as the iPad will be at the top of their guests holiday shopping lists (Target offers, 2010). Another technology addition to Target is a weekly online advertisement called, My TargetWeekly. This product offering allows guests to create customized shopping preferences, and allows the customer to be informed of specific deal alerts when their preferred items are on sale. Target boasts that currently, they are the only retailer who offers this technology (Target unveils, 2010). Keeping in line with the technology theme, Target is also expanding their electronic services, including technical and mobile experience. In August, Target announced 3 new consumer electronics services that will provide enhanced shopping experiences for their customers, both in-store and at home. The first service, 1.877.myTGTtech is a no-charge technical support hotline for all Target store consumer electronic purchases as well as pre-purchase questions. Guests will speak to a LIVE customer service representative for trouble shooting and technical support. The second service, Target Mobile, allows guests to maximize their dollars and time with a convenient cell phone shopping experience both instore and online. Partnering with RadioShack, they are now providing in-store wireless shopping stations that enable Target guests to purchase mobile phones and activate contracts from the nations top carriers (Target launches, 2010). Target Mobile, will also be available online, allowing comfortable cell phone shopping in the customers home. Product offerings will be from Android-powered smartphones, Motorola, Samsung, Nokia, LG and will have wireless plans from every major U. S.
20

service provider. The third service, Target Electronics Trade-In encourages guests to be eco-friendly by trading in old electronics devices and in return guests will receive credit towards any Target purchase. This program will launch in Northern California first and will rollout to additional stores in September and will be available in approximately 850 stores by year-end. To further expand on their direct marketing, Target has announced they will be the first retailer of Facebook Credits Gift Cards. This program will allow guests who play an active part in the gaming world of Facebook to enjoy free credits when purchasing gift cards at Target. Facebook has games such as FarmVille, Mafia Wars, PopCap Games, Bejeweled Blitz and Playdoms City of Wonder. When purchasing a gift card in the amount of $15, $25, or $50, the guest will also receive free credits for their specific Facebook game (Target stores to be, 2010). In late September, Target announced that they would be partnering with Procter & Gamble (P&G) to raise money and awareness for breast cancer early detection. Prior to Breast Cancer Awareness Month in October, guests will have the opportunity to purchase limited edition P&G pink products, using money saving coupons that will benefit the National Breast Cancer Foundation, Inc. (Procter, 2010). These coupons will be included in newspapers delivered to over 57 million homes across the country. P&G has pledged to honor every coupon redeemed from the booklet at a 2-cent donation. The uncapped donation from P&G will be solely based on the number of coupons redeemed starting September 26, 2010. Brands included in this promotion are some of P&Gs leading products, such as Tide, Downy, Iams, Crest, Oral-B, Pampers, Pantene, Gillette, Braun, Duracell and Head & Shoulders. Target has had to do some damage control recently. Target has a well-earned reputation for hiring and advancing the rights of people who are gay, lesbian, bisexual and transgender (Voter, 2010). Recently, Target made a $150,000 political donation to an antigay Republican candidate for governor of Minnesota, Tom Emmer. Target quickly tried to explain their contributions to Mr. Emmers campaign,
21

solely for his pro-business views. Many gay and lesbian groups have vowed to more closely monitor Targets donations as well as other retail giants. Given the drop in the economy and the high unemployment, it is no wonder retailers are aggressively competing for every dollar from every customer. Reuters reports 2010 may be more about winning sales from competitors than tempting consumers to buy more (Reuters, 2010). With the holiday season nearing kick off, Target thinks that their customers want to see more sales, better bargains, and better product offerings. Executives at Target cautioned investors that they did not expect a huge improvement in sales trends this year while unemployment remained high.
IV. Critique
Targets annual report, despite its 119 pages, was very easy to follow. It was very helpful to have the notes throughout the report because they were in the areas where the information was being referred to. Target actually submitted two financial reports for fiscal year end January 31, 2010. The second report was an addendum to the first report due to a correction in the number of shares of stock outstanding. One important aspect of Target is that all the stores are located within the US so they do not have involvement with foreign currency. Early on in the report they strive to positively differentiate themselves because they acknowledge if they are not able to do this, then operations will be adversely affected. They owe their success to positive perceptions of the Target brand and they have built their reputation over many years of serving guests, team members, community and shareholders. They too are aware of economic challenges and the effects that it has on the business. One area that they have been managing costs is in the workforce. In 2009 their retail segment had the highest EPIT in Corporation history despite store sales being down 2.5 percent. Also, despite sales being down they had an increase in cash flow and opened 76 new stores in 2009. They were also able to compensate their workers for better than expected performance. One surprising thing within the report is that their credit card late fee charges were down despite the economic turmoil along with bad debt declining. 22

Their future write offs are based on history, risk scores and aging trends with a write off period of 180 days. They say they owe it to managing expenses and finance charge revenue increasing to their success. In the receivables department they instituted tighter risk management that reduced available credit lines for high risk cardholders. Their debt rating on Moodys was A2 and on Standard and Poors A+. They also have access to an unsecured revolving credit of $2 billion dollars. One other area they cut back in 2009 was that of Capital expenses in 2009. This does not seem too farfetched since many corporations did the same. They are currently involved with two violations. The first one involves the State of California and environmental matters. It is alleged that hairspray contained levels of a volatile organic compound in excess of permissible levels. This may involve potential monetary sanctions in excess of $100,000. The other is an ongoing EPA investigation for alleged violations of the Clean Air Act. They anticipate penalties that are likely to exceed $100,000. According to Target, each of these will not be material to their financial positions, results of operations or cash flows. The inventory method that they use is LIFO. Depreciation is determined based on what product it is. Buildings are depreciated at an 8-39 year life, equipment at 3-15 years, and computers at 4-7 years. They use the Black-Scholes valuation model to estimate the fair value. In fiscal year 2010 they plan to adopt FASB No. 166 Accounting for transfers of financial assets which was an amendment to FASB No. 140. which is not anticipated to affect the consolidated net earnings, cash flows or financial position. Also in fiscal year 2010 they plan to adopt FASB statement No. 167 which amends the consolidated guidance applicable to variable interest entities. They suspect this amendment will significantly affect the overall consolidation analysis but will not affect consolidated net earnings, cash flows, or financial position. Ernst and Young out of Minnesota were the external auditing agency and the report also discusses internal controls. One important point made in the financial report was that of their gift card business. 23

The revenue is not recognized until redemption and if those gift cards are not redeemed they are considered breakage revenue. One thing that seemed very helpful was that of a table that explained the position of the company, such as cash and cash equivalents and the valuation technique of each. They also included a table that illustrated the primary costs of sales and selling, general and administrative expenses associated with it. This report was easy to follow because the flow was appropriate. The notes were included as you went which was very helpful. Unlike the Abbott report, where the notes were at the end, this report seemed to flow much better because the material that the notes were referring to where readily available.
V. External perception of the company:

Investors Due to the recent state of the economy, investors were skeptical about Targets ability to perform in 2009. Before November 2009, Target had 8 consecutive quarters with decreasing earnings (Investor Guide, 2010). During December 2009 the store saw overall sales increase 5%. Target believes this is due to sales growth in different product areas and the continual addition of new brands to their inventory. Currently investors say to buy. This isnt a huge surprise given that most stocks are low right now, but investors have hope for Target. They recently announced that they will start their share buyback program up again. The program began in 2007, and ran for a year, but was suspended in 2008 due to the failing market. By reinstating the program, Target is saying that its cash flow has improved. They plan to buy back $5.1 billion in shares in the next two to three years. This news satisfied investors and they believe that Target is making positive changes. Competitors Targets largest competitor is Wal-Mart. They also compete in certain areas with Costco and Kohls. Wal-Mart views Target as being a more expensive, more fashionable competitor. As a result, they recently picked up the Better Homes and Gardens brand as a way to compete in home goods. Wal-
24

Marts main focus is cost efficiency, while Targets key strategy is to differentiate itself by their product lines. Target has been able to maintain a positive image by continually advertising the things they do to give back to the community, while Wal-Mart struggles to maintain a favorable image. Customers Target has set itself apart as being Cheap Chic. The company has successfully associated its name with a younger, hipper, edgier, and more fun image than its competitors, namely Wal-Mart. Targets customers are more affluent than those of Wal-Mart and shop at Target because of their differentiated product line. They view Target as being more fashionable and as providing the full shopping experience and great value for the money. They also prefer the cleanliness of Target stores and shorter waiting time to pay. See Appendix C for customer perceptions.
Analysts Analysts believe that Targets recent decision to expand their food format will likely go over well with their customers and will increase store sales. Target recently announced that their credit card holders will receive a 5% discount on all Target purchases. This is expected to increase earnings as well. As stated before, their well-differentiated stores give it an edge over Wal-Mart. Analysts believe Targets cash flow and balance sheet remain strong. The competitive pricing environment and increased competition from Wal-Mart are likely to have an adverse effect on Target, especially during the downtrodden economy. The company has been losing focus on women's apparel, which represents over 10% of total sales, and analysts see this as a downfall. Target's credit business increases their risk to any decline in consumer credit trends, such as higher default rates, which could affect the companys success. As with many companies, increasing healthcare costs may lead to an increase in selling, general & administrative expenses.
25

VI. Conclusions and recommendations.
Common Size Statement Analysis When reviewing the common size statements for Target, it appears that overall; Target has remained consistent and upward in their growth. Target has reduced their expenses and taxes by a little over 1 percent and has kept their other expenses low as well. There are no significant company or financial changes that would cause an investor great concern. In regards to the balance sheet, marketable securities increased by 3 percent. The rise in Targets current liabilities was mainly due to the introduction of Target offering their own credit card to customers therefore increasing their receivables. Unsecured debt was reduced by 4 percent as well during this time. Finally, there was a shareholders investment increase of over 2.5 percent during this time. Ratio Analysis Analysis of key financial ratios of the Target Corporation has shown that it continues to be a stable company. Because Targets income depends greatly on the current economy, there were some effects noted. There was a decrease in accounts receivable, showing that they are not receiving their money from customers as quickly. There has also been a decrease in inventory turnover. This can be attributed directly to the economic downfall and the seasonal nature of Targets business. In spite of these decreases, Targets debt ratio has remained stable and it has also remained profitable in an unstable economy. The gross and net profit margins have increased from the previous year. The cash flow is up because of lower amounts of bad debt and an increase in sales. The return on investment has risen and the return on equity has remained stable. Industry and Competitor Comparison In regards to Target those direct competitors within the industry include that of Costco and Wal-Mart. These three companies collectively are responsible for employing 2.5 million employees nationwide with Wal-Mart being the largest employer of the three. With the economic downturn many people are
26

price surfing so that they can get the best bang for their buck. In regards to revenue, Wal-Mart has done an exceptional job in leading the competition. In 2009, their revenue was by far the largest at $416.88 billion with Costco next at $76.20 billion and Target following behind at $66.58 billion. However, Target did well in gross margin. They were able to control the cost of goods or perhaps sell more goods in order to maintain a higher gross margin than that of Wal-Mart. Target is higher compared to others within the industry regarding operating margin. However, this may be due to the opening of new stores in 2009. Because of their higher operating margin they still were able to achieve a net income of $2.72 billion dollars. One other important component to look at is that of the P/E ratio. Targets P/E ratio was higher than Wal-Mart but lower than that of Costco. Based on this analysis, we agree to invest in Target. They have been able to outperform or recover from the market fluctuations. It is obvious that they are making changes in order to perform and compete. Unlike most companies, Target doesnt want to be like their over-achieving competitor, they want to differentiate themselves and be on a completely different level.
27

Appendix A - Abbott Competition
Direct Competitor Comparison ABT Market Cap: Employees: Truly Rev Growth (you): Revenue (tom): Gross Margin (tom): EBITDA (tom): Operating Margin (tom): Net Income (tom): EPS (tom): P/E (tom): PEG (5 yr expected): P/S (tom): 80.20B 73,000 17.80% 33.08B 57.60% 9.35B 21.25% 5.31B 3.41 15.22 1.27 2.41 MRK 114.77B 100,000 92.30% 38.91B 64.10% 11.70B 17.39% 10.93B 3.92 9.52 1.82 2.90 RHHBY.PK 117.83B 80,000 1.60% 52.23B 71.98% 19.17B 31.58% 9.91B 2.88 11.84 1.28 2.26 SNY 88.77B 104,867 5.10% 42.15B 73.57% 16.37B 24.24% 8.10B 3.10 10.99 24.77 2.05 Industry 153.21M 142.00 15.30% 305.56M 73.14% 2.66M 27.58% N/A N/A 10.70 1.29 2.84
MRK = Merck & Co. Inc. RHHBY.PK = Roche Holding AG SNY = Sanofi-Aventis Industry = Drug Manufacturers - Major
28

Drug makers Ranked By Sales Company AstraZeneca PLC Abbott Laboratories Bristol-Myers Squibb Company Symbol AZN ABT BMY Price 52.69 51.94 27.62 Change 1.90% 0.66% -0.22% Market Cap 75.87B 80.20B 47.36B P/E 8.95 15.22 4.83
29

Appendix B- Target Competition
Direct Competitor Comparison
TGT
COST
WMT
Industry
Market Cap:
39.72B
28.13B
196.66B
2.35B
Employees:
351,000
79,000
2,100,000
12.48K
Truly Rev Growth (yoy):
3.10%
12.50%
2.80%
6.90%
Revenue (ttm):
66.58B
76.20B
416.66B
4.88B
Gross Margin (ttm):
29.72%
12.75%
25.26%
31.91%
EBITDA (ttm):
7.09B
2.79B
32.78B
356.86M
Operating Margin (ttm):
7.52%
2.63%
6.08%
5.53%
Net Income (ttm):
2.72B
1.24B
14.83B
N/A
EPS (ttm):
3.64
2.80
3.89
2.49
P/E (ttm):
15.13
22.92
13.89
18.16
PEG (5 yr expected):
1.07
1.68
1.28
1.24
P/S (ttm):
0.58
0.36
0.47
0.52
COST = Costco Wholesale Corporation WMT = Wal-Mart Stores Inc. Industry = Discount, Variety Stores
30

Appendix C- Customer Perceptions- Target
31

Appendix D-Common Size Income Statement- Abbott
Consolidated Statement of Earnings (Common Size Income Statement Percents)
2009
2008
2007
Net Sales Cost of products sold Research and development Acquired in-process research and development Selling, general and administrative Total Operating Cost and Expenses Operating Earnings Interest expense Interest (income) (Income) from the TAP Pharmaceutical Products Inc. joint venture Net foreign exchange (gain) loss Other (income) expense, net Earnings from Continuing Operations Before Taxes Taxes on Earnings from Continuing Operations Earnings from Continuing Operations Gain on Sale of Discontinued Operations, net of taxes Net Earnings Basic Earnings Per Common Share Continuing Operations Gain on Sale of Discontinued Operations, net of taxes Net Earnings Diluted Earnings Per Common Share Continuing Operations Gain on Sale of Discontinued Operations, net of taxes
100.00% 42.94% 8.92% 0.55% 27.32% 79.73% 20.27% 1.69% -0.45% 0.12% -4.47% 23.38% 4.71% 18.68% 18.68%
100.00% 42.71% 9.11% 0.33% 28.57% 80.72% 19.28% 1.79% -0.68% -0.40% 0.29% -1.54% 19.83% 3.80% 16.03% 0.50% 16.53%
100.00% 44.08% 9.67% 28.59% 82.33% 17.67% 2.29% -0.53% -1.92% 0.06% 0 17.25% 3.33% 13.92% 13.92%
3.71 3.71
3.06 0.1 3.16
2.34 2.34
3.69
3.03 0.09
2.31
32

Net Earnings Average Number of Common Shares Outstanding Used for Basic Earnings Per Common Share Dilutive Common Stock Options and Awards Average Number of Common Shares Outstanding Plus Dilutive Common Stock Options and Awards 3.69 3.12 2.31
5.03% 0.03%
5.23% 0.05%
5.95% 0.07%
5.05%
5.29%
6.02%
Outstanding Common Stock Options Having No Dilutive Effect
0.22%
0.10%
0.02%
33

Appendix E- Common Size Balance Sheet- Abbott
Consolidated Balance Sheet (Common Size in percents)
2009 2008 2007
Assets Current Assets: Cash and cash equivalents Investments, including $307,500 of investments measured at fair value at December 31, 2007 Trade receivables, less allowances of 2009: $311,546; 2008: $263,632; 2007: $258,288 Inventories: Finished products Work in process Materials 4.37% 0.86% 1.01% 3.64% 1.65% 1.25% 4.22% 1.72% 1.49% 16.81% 9.69% 6.19%
2.14%
2.28%
0.92%
12.48%
12.88%
12.46%
Total inventories Deferred income taxes Other prepaid expenses and receivables
6.23% 4.51% 2.31%
6.54% 5.81% 2.97%
7.43% 5.31% 3.06%
Total Current Assets Investments Property and Equipment, at Cost: Land Buildings Equipment Construction in progress
44.48% 2.16%
40.18% 2.53%
35.36% 2.83%
1.04% 7.65% 21.61% 1.15% 31.45%
1.20% 8.72% 24.44% 1.45% 35.81% 18.79% 17.02%
1.24% 9.04% 26.17% 2.82% 39.28% 20.34% 18.93%
Less: accumulated depreciation and amortization Net Property and Equipment
16.92% 14.54%
34

Intangible Assets, net of amortization Goodwill Deferred Income Taxes and Other Assets 12.00% 25.18% 1.64% 100.00% 12.14% 23.54% 4.59% 100.00% 14.40% 25.50% 2.97% 100.00%
Liabilities and Shareholders' Investment Current Liabilities: Short-term borrowings Trade accounts payable 9.50% 2.44% 3.99% 3.19% 4.60% 3.07%
Salaries, wages and commissions Other accrued liabilities Dividends payable Income taxes payable
2.13% 8.32% 1.18% 0.84%
2.38% 9.94% 1.32% 1.90%
2.16% 9.35% 1.27% 0.20%
Obligation in connection with conclusion of the TAP Pharmaceutical Products Inc. joint venture
0.07%
2.16%
Current portion of long-term debt
0.40%
2.45%
2.26%
Total Current Liabilities Long-term Debt
24.90% 21.49%
27.33% 20.54%
22.92% 23.89%
Post-employment Obligations and Other Long-term Liabilities
9.92%
10.83%
8.31%
35
Commitments and Contingencies Shareholders' Investment:
Preferred shares, one dollar par value
Authorized 1,000,000 shares, none issued
Common shares, without par value
Authorized 2,400,000,000 shares
Issued at stated capital amount
Shares: 2009: 1,612,683,987; 2008: 1,601,580,899; 2007: 1,580,854,677 15.75% 17.55% 15.37%
Common shares held in treasury, at cost
Shares: 2009: 61,516,398; 2008: 49,147,968; 2007: 30,944,537 -6.32% -6.19% -3.05%
Earnings employed in the business
32.54%
32.59%
27.21%
Accumulated other comprehensive income (loss)
1.63%
-2.74%
5.24%
Total Abbott Shareholders' Investment
43.60%
41.21%
44.77%
Noncontrolling Interests in Subsidiaries
0.08%
0.09%
0.11%
36
Total Shareholders' Investment
43.69% 100.00%
41.30% 100.00%
44.88% 100.00%
37

Appendix F- Common Size Balance Sheet- Target
Consolidated Statements of Financial Position (millions, except footnotes) Assets Cash and cash equivalents, including marketable securities of $1,617 and $302 Credit card receivables, net of allowance of $1,016 and $1,010 Inventory Other current assets
4.94% 15.64% 16.12% 4.67%
1.96% 18.33% 15.20% 4.16%
Total current assets Property and equipment Land Buildings and improvements Fixtures and equipment Computer hardware and software Construction-inprogress Accumulated depreciation Property and equipment, net Other noncurrent assets Total assets Liabilities and shareholders' investment Accounts payable Accrued and other current liabilities Unsecured debt and other borrowings Nonrecourse debt collateralized by credit card receivables
41.37% 13.01% 49.74% 10.65%
39.65% 13.08% 46.32% 9.68%
5.78% 1.13% -23.54%
5.86% 4.00% -20.54%
56.77% 1.86% 100.00%
58.40% 1.95% 100.00%
14.62% 7.01% 1.79% 2.02%
14.37% 6.60% 2.86%
Total current liabilities
25.44%
23.83%
38

Unsecured debt and other borrowings Nonrecourse debt collateralized by credit card receivables Deferred income taxes Other noncurrent liabilities Total noncurrent liabilities Shareholders' investment Common stock Additional paid-incapital Retained earnings 0.14% 6.55% 29.07% 0.14% 6.26% 25.94% 23.90% 10.05% 1.88% 4.28% 27.21% 12.45% 1.03% 4.39%
40.10%
45.08%
Accumulated other comprehensive loss
-1.30%
-1.26%
Total shareholders' investment Total liabilities and shareholders' investment
34.46% 100.00%
31.09% 100.00%
39

Appendix G- Common Size Income Statement- Target
Consolidated Statements of Operation
(millions, except per share data)
Sales Credit card revenues Total revenues Cost of sales Selling, general and administrative expenses Credit card expenses Depreciation and amortization Earnings before interest expense and income taxes Net interest expense Nonrecourse debt collateralized by credit card receivables Other interest expense Interest income Net interest expense Earnings before income taxes Provision for income taxes Net earnings Basic earnings per share Diluted earnings per share Weighted average common shares outstanding Basic Diluted
100.00% 3.03% 103.03% 69.46% 20.62% 2.40% 3.19%
100.00% 3.28% 103.28% 70.22% 20.60% 2.56% 2.90%
100.00% 3.08% 103.08% 69.84% 20.61% 1.36% 2.70%
7.37%
7.00%
8.58%
0.15% 1.11% 0.00% 1.26% 6.10% 2.18% 3.92% 3.31 3.3
0.27% 1.16% -0.04% 1.38% 5.62% 2.10% 3.52% 2.87 2.86
0.22% 0.87% -0.03% 1.05% 7.52% 2.89% 4.63% 3.37 3.33
1.19% 1.19%
1.23% 1.23%
1.38% 1.38%
40

Appendix H- Key Financial Ratios- Target
Target 2009 Activity Ratios Account Receivable Turnover Net Sales/Net Accounts Receivable Inventory Turnover COGS/Inventory Leverage Ratios Debt Ratio Total Liabilities/Total Assets Profitability Ratios Gross Profit Margin Gross profit/Net Sales Net Profit Margin Net earnings/Net Sales Cash Flow Margin Cash flow from operating activities/Net Sales Return on Investment (ROI) Net earnings/Total assets Return on Equity (ROE) Net Earnings/Stockholders' Equity Market Ratios: Earnings per Share Net Earnings/Avg shares outstanding Target 2008 Target 2007
9.11
7.78
6.14
6.59
0.66
0.69
30.54
29.78
30.16
3.92
3.52
4.63
9.27
7.04
6.71
5.59
5.02
16.21
16.15
3.37
41

Appendix I- Key Financial Ratios- Abbott
Abbott 2009 Activity Ratios Account Receivable Turnover Net Sales/Net Accounts Receivable Inventory Turnover COGS/Inventory Leverage Ratios Debt Ratio Total Liabilities/Total Assets Profitability Ratios Gross Profit Margin Gross profit/Net Sales Net Profit Margin Net earnings/Net Sales Cash Flow Margin Cash flow from operating activities/Net Sales Return on Investment (ROI) Net earnings/Total assets Return on Equity (ROE) Net Earnings/Stockholders' Equity Market Ratios: Earnings per Share Net Earnings/Avg shares outstanding Abbott 2008 Abbott 2007
4.7
5.4
5.24
4.05
4.54
3.87
0.56
0.59
0.55
57.06
57.29
55.92
18.68
16.53
13.92
23.65
23.69
20
10.06
11.51
9.08
25.09
27.86
20.23
3.7
42

Appendix J- Targets Annual Report Fiscal year 2009
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A Amendment No. 1

(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 30, 2010
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
Commission file number 1-6049
TARGET CORPORATION
(Exact name of registrant as specified in its charter) Minnesota (State or other jurisdiction of incorporation or organization) 41-0215170 (I.R.S. Employer Identification No.)
43

1000 Nicollet Mall, Minneapolis, Minnesota (Address of principal executive offices) 55403 (Zip Code)
Registrant's telephone number, including area code: 612/304-6073 Securities Registered Pursuant To Section 12(B) Of The Act:
Title of Each Class Name of Each Exchange on Which Registered
Common Stock, par value $0.0833 per share
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No Note Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Exchange Act from their obligations under those Sections. 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. Yes No Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) 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. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company (as defined in Rule 12b-2 of the Act). Large accelerated filer Accelerated filer Nonaccelerated filer
(Do not check if a smaller reporting company)
Smaller reporting company
44

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No Aggregate market value of the voting stock held by non-affiliates of the registrant on August 1, 2009 was $32,739,208,053, based on the closing price of $43.62 per share of Common Stock as reported on the New York Stock Exchange- Composite Index. Indicate the number of shares outstanding of each of registrant's classes of Common Stock, as of the latest practicable date. Total shares of Common Stock, par value $0.0833, outstanding at March 10, 2010 were 739,316,518. DOCUMENTS INCORPORATED BY REFERENCE 1. Portions of Target's Proxy Statement to be filed on or about April 29, 2010 are incorporated into Part III.
EXPLANATORY NOTE
The sole purpose of this Amendment No. 1 to the Annual Report on Form 10-K for the fiscal year ended January 30, 2010, as originally filed with the Securities and Exchange Commission on March 12, 2010, is to correct the number of shares of Common Stock outstanding at March 10, 2010 reported on the cover page. No other changes have been made to the Form 10-K other than the correction described above. This Amendment No. 1 does not reflect subsequent events occurring after the original filing date of the Form 10-K or modify or update in any way disclosures made in the Form 10-K.
Table of Contents TABLE OF CONTENTS PART I Item 1 Item 1A Item 1B Item 2 Item 3 Item 4 Item 4A Business Risk Factors Unresolved Staff Comments Properties Legal Proceedings Reserved Executive Officers 2 4 7 8 9 9 9
PART II
45

Item 5 Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Selected Financial Data Management's Discussion and Analysis of Financial Condition and Results of Operations Quantitative and Qualitative Disclosures About Market Risk Financial Statements and Supplementary Data Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Controls and Procedures Other Information 11 12
Item 6 Item 7
13 24 25
Item 7A Item 8 Item 9
55 55 55
Item 9A Item 9B
PART III Item 10 Item 11 Item 12 Directors, Executive Officers and Corporate Governance Executive Compensation Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Certain Relationships and Related Transactions, and Director Independence Principal Accountant Fees and Services 56 56
56 56 56
Item 13 Item 14
PART IV Item 15 Exhibits and Financial Statement Schedules 57
Signatures Schedule II Valuation and Qualifying Accounts Exhibit Index Exhibit 12 Computations of Ratios of Earnings to Fixed Charges for each of the Five Years in the Period Ended January 30, 2010
59 60 61
63
46

PART I
Item 1. General Target Corporation (the Corporation or Target) was incorporated in Minnesota in 1902. We operate as two reportable segments: Retail and Credit Card. Our Retail Segment includes all of our merchandising operations, including our large-format general merchandise and food discount stores in the United States and our fully integrated online business. We offer both everyday essentials and fashionable, differentiated merchandise at discounted prices. Our ability to deliver a shopping experience that is preferred by our customers, referred to as "guests," is supported by our strong supply chain and technology infrastructure, a devotion to innovation that is ingrained in our organization and culture, and our disciplined approach to managing our current business and investing in future growth. As a component of the Retail Segment, our online business strategy is designed to enable guests to purchase products seamlessly either online or by locating them in one of our stores with the aid of online research and location tools. Our online shopping site offers similar merchandise categories to those found in our stores, excluding food items and household essentials. Our Credit Card Segment offers credit to qualified guests through our branded proprietary credit cards, the Target Visa and the Target Card (collectively, REDcards). Our Credit Card Segment strengthens the bond with our guests, drives incremental sales and contributes to our results of operations. Financial Highlights Our fiscal year ends on the Saturday nearest January 31. Unless otherwise stated, references to years in this report relate to fiscal years, rather than to calendar years. Fiscal year 2009 (2009) ended January 30, 2010, and consisted of 52 weeks. Fiscal year 2008 (2008) ended January 31, 2009 and consisted of 52 weeks. Fiscal year 2007 (2007) ended February 2, 2008 and consisted of 52 weeks. For information on key financial highlights, see the items referenced in Item 6, Selected Financial Data, and Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, of this Annual Report on Form 10-K. Seasonality Due to the seasonal nature of our business, a larger share of annual revenues and earnings traditionally occurs in the fourth quarter because it includes the peak sales period from Thanksgiving to the end of December. Business
Merchandise We operate Target general merchandise stores, the majority of which offer a wide assortment of general merchandise and a limited assortment of food items. During 2009 we increased the offering within some of our general merchandise stores to include a deeper food assortment, including perishables and an expanded offering of dry, dairy and frozen items. In addition, we operate SuperTarget stores with a full line of food and general merchandise items. Target.com offers a wide assortment of general merchandise including many items found in our stores and a complementary assortment, such as extended sizes and colors, sold only online. A significant portion of our sales is from national brand merchandise. In addition, we sell merchandise under private-label
47

brands including, but not limited to, Archer Farms, Archer Farms Simply Balanced, Boots & Barkley, Choxie, Circo, Durabuilt, Embark, Gilligan & O'Malley, itso, Kaori, Market Pantry, Merona, Play Wonder, Room Essentials, Smith & Hawken, Sutton and Dodge, Target Home, Vroom, up & up, Wine SM Cube, and Xhilaration. We also sell merchandise through unique programs such as ClearRx , GO SM International, Great Save and Home Design Event. In addition, we sell merchandise under exclusive licensed and designer brands including, but not limited to, C9 by Champion, Chefmate, Cherokee, Converse One Star, Eddie Bauer, Fieldcrest, Genuine Kids by Osh Kosh, Kitchen Essentials by Calphalon, Liz Lange for Target, Michael Graves Design, Mossimo, Nick & Nora, Sean Conway, Simply Shabby Chic, Sonia SM Kashuk, Thomas O'Brien. We also generate revenue from in-store amenities such as Target Caf , Target SM Clinic, Target Pharmacy, and Target Photo , and from leased or licensed departments such as Optical, Pizza Hut, Portrait Studio and Starbucks. Effective inventory management is key to our future success. We utilize various techniques including demand forecasting and planning and various forms of replenishment management. We achieve effective inventory management by being in-stock in core product offerings, maintaining positive vendor relationships, and carefully planning inventory levels for seasonal and apparel items to minimize markdowns.
Sales by Product Category
Percentage of Sales 2009 2008 2007
23% Household essentials 22 Hardlines 20 Apparel and accessories 19 Home furnishings and dcor 16 Food and pet supplies 100% Total
22% 22 20 21 15
21% 22 22 22 13
100%
100%
Household essentials includes pharmacy, beauty, personal care, baby care, cleaning and paper products. Hardlines includes electronics (including video game hardware and software), music, movies, books, computer software, sporting goods and toys. Apparel and accessories includes apparel for women, men, boys, girls, toddlers, infants, and newborns. It also includes intimate apparel, jewelry, accessories and shoes. Home furnishings and dcor includes furniture, lighting, kitchenware, small appliances, home dcor, bed and bath, home improvement, automotive and seasonal merchandise such as patio furniture and holiday dcor. Food and pet supplies includes dry grocery, dairy, frozen food, beverages, candy, snacks, deli, bakery, meat, produce and pet supplies. Distribution The vast majority of our merchandise is distributed through our network of distribution centers. We operated 38 distribution centers, including 4 food distribution centers, at January 30, 2010. General merchandise is shipped to and from our distribution centers by common carriers. In addition, certain food items are distributed by third
48

parties. Merchandise sold through Target.com is distributed through our own distribution network, through third parties, or shipped directly from vendors. Employees At January 30, 2010, we employed approximately 351,000 full-time, part-time and seasonal employees, referred to as "team members." During our peak sales period from Thanksgiving to the end of December, our employment levels peaked at approximately 390,000 team members. We consider our team member relations to be good. We offer a broad range of company-paid benefits to our team members. Eligibility for, and the level of, these benefits varies, depending on team members' full-time or part-time status, compensation level, date of hire and/or length of service. These company-paid benefits include a pension plan, 401(k) plan, medical and dental plans, a retiree medical plan, short-term and long-term disability insurance, paid vacation, tuition reimbursement, various team member assistance programs, life insurance and merchandise discounts. Working Capital Because of the seasonal nature of our business, our working capital needs are greater in the months leading up to our peak sales period from Thanksgiving to the end of December. The increase in working capital during this time is typically financed with cash flow provided by operations and short-term borrowings. Additional details are provided in the Liquidity and Capital Resources section in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. Competition In our Retail Segment, we compete with traditional and off-price general merchandise retailers, apparel retailers, Internet retailers, wholesale clubs, category specific retailers, drug stores, supermarkets and other forms of retail commerce. Our ability to positively differentiate ourselves from other retailers largely determines our competitive position within the retail industry. In our Credit Card Segment, our primary mission is to deliver financial products and services that drive sales and deepen guest relationships at Target. Our financial products compete with those of other issuers for market share of sales volume. Our ability to differentiate the value of our financial products primarily through our rewards programs, terms, credit line management, and guest service determines our competitive position among credit card issuers. Intellectual Property Our brand image is a critical element of our business strategy. Our principal trademarks, including Target, SuperTarget and our "Bullseye Design," have been registered with the U.S. Patent and Trademark Office. We also seek to obtain intellectual property protection for our private-label brands. Geographic Information Substantially all of our revenues are generated in, and long-lived assets are located in, the United States. Available Information Our 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 Exchange Act are available free of charge at www.Target.com (click on "Investors" and "SEC Filings") as soon as reasonably practicable after we file such material with, or furnish it to, the Securities and Exchange Commission (SEC). Our
49

Corporate Governance Guidelines, Business Conduct Guide, Corporate Responsibility Report and the position descriptions for our Board of Directors and Board committees are also available free of charge in print upon request or at www.Target.com (click on "Investors" and "Corporate Governance"). Item 1A. Risk Factors
Our business is subject to a variety of risks. The most important of these is our ability to remain relevant to our guests with a brand they trust. Meeting our guests' expectations requires us to manage various strategic, operational, compliance, and financial risks. Set forth below are the most significant risks that we face. If we are unable to positively differentiate ourselves from other retailers, our results of operations could be adversely affected. The retail business is highly competitive. In the past we have been able to compete successfully by differentiating our shopping experience by creating an attractive value proposition through a careful combination of price, merchandise assortment, convenience, guest service and marketing efforts. Guest perceptions regarding the cleanliness and safety of our stores, our in-stock levels and other factors also affect our ability to compete. No single competitive factor is dominant, and actions by our competitors on any of these factors could have an adverse effect on our sales, gross margin and expenses. If we fail to anticipate and respond quickly to changing consumer preferences, our sales, gross margin and profitability could suffer. A substantial part of our business is dependent on our ability to make trend-right decisions in apparel, home dcor, seasonal offerings, food and other merchandise. Failure to accurately predict constantly changing consumer tastes, preferences, spending patterns and other lifestyle decisions may result in lost sales, spoilage and increased inventory markdowns, which would lead to a deterioration in our results of operations. Our continued success is substantially dependent on positive perceptions of the Target brand. We believe that one of the reasons our guests prefer to shop at Target and our team members choose Target as a place of employment is the reputation we have built over many years of serving our four primary constituencies: guests, team members, the communities in which we operate, and shareholders. To be successful in the future, we must continue to preserve, grow and leverage the value of our brand. Brand value is based in large part on perceptions of subjective qualities, and even isolated incidents that erode trust and confidence, particularly if they result in adverse publicity, governmental investigations or litigation, can have an adverse impact on these perceptions and lead to tangible adverse affects on our business, including consumer boycotts, loss of new store development opportunities, or team member recruiting difficulties. We are highly susceptible to the state of macroeconomic conditions and consumer confidence in the United States. All of our stores are located within the United States, making our results highly dependent on U.S. consumer confidence and the health of the U.S. economy. In addition, a significant portion of our total sales is derived from stores located in five states: California, Texas, Florida, Minnesota and Illinois, resulting in further dependence on local economic conditions in these states. Deterioration in macroeconomic conditions and consumer confidence could negatively affect our business in many ways, including slowing sales growth or reduction in overall sales, and reducing gross margins. In addition to the impact of macroeconomic conditions on our retail sales, these same considerations impact the success of our Credit Card Segment, as any deterioration can adversely affect cardholders' ability to pay their balances and we may not be able to anticipate and respond to changes in the risk profile of our cardholders when extending credit, resulting in higher bad debt expense. The recent Credit Card Accountability, Responsibility and
50

Disclosure Act of 2009 has significantly restricted our ability to make changes to cardholder terms that are commensurate with changes in the risk profile of our credit card receivables portfolio. Demand for consumer credit is also impacted by macroeconomic conditions and other factors, and our performance can also be adversely affected by consumer decisions to use debit cards or other forms of payment. If we do not effectively manage our large and growing workforce, our results of operations could be adversely affected. With over 350,000 team members, our workforce costs represent our largest operating expense, and our business is dependent on our ability to attract, train and retain a growing number of qualified team members. Many of those team members are in entry-level or part-time positions with historically high turnover rates. Our ability to meet our labor needs while controlling our costs is subject to external factors such as unemployment levels, prevailing wage rates, health care and other benefit costs and changing demographics. If we are unable to attract and retain adequate numbers of qualified team members, our operations, guest service levels and support functions could suffer. Those factors, together with increasing wage and benefit costs, could adversely affect our results of operations. Lack of availability of suitable locations in which to build new stores could slow our growth, and difficulty in executing plans for new stores, expansions and remodels could increase our costs and capital requirements. Our future growth is dependent, in part, on our ability to build new stores and expand and remodel existing stores in a manner that achieves appropriate returns on our capital investment. We compete with other retailers and businesses for suitable locations for our stores. In addition, for many sites we are dependent on a third party developer's ability to acquire land, obtain financing and secure the necessary zoning changes and permits for a larger project, of which our store may be one component. Turmoil in the financial markets has made it difficult for third party developers to obtain financing for new projects. Local land use and other regulations applicable to the types of stores we desire to construct may affect our ability to find suitable locations and also influence the cost of constructing, expanding and remodeling our stores. A significant portion of our expected new store development activity is planned to occur within fully developed markets, which is generally a more time-consuming and expensive undertaking than developments in undeveloped suburban and ex-urban markets. Interruptions with our vendors and within our supply chain could adversely affect our results. We are dependent on our vendors to supply merchandise in a timely and efficient manner. If a vendor fails to deliver on its commitments, whether due to financial difficulties or other reasons, we could experience merchandise out-of-stocks that could lead to lost sales. In addition, a large portion of our merchandise is sourced, directly or indirectly, from outside the United States, with China as our single largest source. Political or financial instability, trade restrictions, increased tariffs, currency exchange rates, the outbreak of pandemics, labor unrest, transport capacity and costs, port security or other events that could slow port activities and affect foreign trade are beyond our control and could disrupt our supply of merchandise and/or adversely affect our results of operations. Failure to address product safety concerns could adversely affect our sales and results of operations. If our merchandise offerings, including food, drug and children's products, do not meet applicable safety standards or our guests' expectations regarding safety, we could experience lost sales, experience increased costs and be exposed to legal and reputational risk. All of our vendors must comply with applicable product safety laws, and we are dependent on them to ensure that the products we buy comply with all safety standards. Events that give rise to actual, potential or perceived product safety concerns, including food or drug contamination, could expose us to government enforcement action or private litigation and result in costly product recalls and other liabilities. In addition, negative guest perceptions regarding the safety of the products we sell could cause our
51

guests to seek alternative sources for their needs, resulting in lost sales. In those circumstances, it may be difficult and costly for us to regain the confidence of our guests. If we fail to protect the security of personal information about our guests, we could be subject to costly government enforcement actions or private litigation and our reputation could suffer. The nature of our business involves the receipt and storage of personal information about our guests. If we experience a data security breach, we could be exposed to government enforcement actions and private litigation. In addition, our guests could lose confidence in our ability to protect their personal information, which could cause them to discontinue usage of our credit card products, decline to use our pharmacy services, or stop shopping at our stores altogether. Such events could lead to lost future sales and adversely affect our results of operations. Our failure to comply with federal, state or local laws, or changes in these laws could increase our expenses. Our business is subject to a wide array of laws and regulations. Significant legislative changes that affect our relationship with our workforce (which is not represented by unions as of the end of 2009) could increase our expenses and adversely affect our operations. Examples of possible legislative changes affecting our relationship with our workforce include changes to an employer's obligation to recognize collective bargaining units, the process by which collective bargaining agreements are negotiated or imposed, minimum wage requirements, and health care mandates. In addition, changes in the regulatory environment regarding topics such as banking and consumer credit, Medicare reimbursements, privacy and information security, product safety or environmental protection, among others, could cause our expenses to increase without an ability to pass through any increased expenses through higher prices. In addition, if we fail to comply with applicable laws and regulations, particularly wage and hour laws, we could be subject to legal risk, including government enforcement action and class action civil litigation, which could adversely affect our results of operations. Given the geographic concentration of our stores, natural disasters could adversely affect our results of operations. Our three largest states, by total sales, are California, Texas and Florida, areas where hurricanes and earthquakes are prevalent. Such events could result in significant physical damage to or closure of one or more of our stores or distribution centers, and cause delays in the distribution of merchandise from our vendors to our distribution centers and stores, which could adversely affect our results of operations. Changes in our effective income tax rate could affect our results of operations. Our effective income tax rate is influenced by a number of factors. Changes in the tax laws, the interpretation of existing laws, or our failure to sustain our reporting positions on examination could adversely affect our effective tax rate. In addition, our effective income tax rate generally bears an inverse relationship to capital market returns due to the tax-free nature of investment vehicles used to economically hedge our deferred compensation liabilities. If we are unable to access the capital markets or obtain bank credit, our growth plans, liquidity and results of operations could suffer. We are dependent on a stable, liquid and well-functioning financial system to fund our operations and growth plans. In particular, we have historically relied on the public debt markets to raise capital for new store development and other capital expenditures, the commercial paper market and bank credit facilities to fund seasonal needs for working capital, and the asset-backed securities markets to partially fund our accounts receivable portfolio. In addition, we use a variety of derivative products to manage our exposure to market risk, principally interest rate and equity price fluctuations. Disruptions or turmoil in the financial markets could
52

adversely affect our ability to meet our capital requirements, fund our working capital needs or lead to losses on derivative positions resulting from counterparty failures. A significant disruption in our computer systems could adversely affect our results of operations. We rely extensively on our computer systems to manage inventory, process transactions and summarize results. Our systems are subject to damage or interruption from power outages, telecommunications failures, computer viruses, security breaches and catastrophic events. If our systems are damaged or fail to function properly, we may incur substantial costs to repair or replace them, and may experience loss of critical data and interruptions or delays in our ability to manage inventories or process transactions, which could adversely affect our results of operations. Item 1B. Unresolved Staff Comments
Not applicable Item 2. Properties
At January 30, 2010, we had 1,740 stores in 49 states and the District of Columbia:
Number of Stores
Retail Sq. Ft. (in thousands)
Number of Stores
Retail Sq. Ft. (in thousands)
20 Alabama 3 Alaska 48 Arizona 8 Arkansas 244 California 42 Colorado 20 Connecticut 2 Delaware District of Columbia Florida 55 Georgia 3 Hawaii 6 Idaho 1 126
2,867 Montana 504 Nebraska 6,363 Nevada 1,028 New Hampshire 32,184 New Jersey 6,275 New Mexico 2,672 New York 268 North Carolina 179 North Dakota 17,644 Ohio 7,517 Oklahoma 542 Oregon 664 Pennsylvania
7 14 19 9 43 9 64 47 4 63 14 19 59
780 2,006 2,461 1,148 5,671 1,024 8,663 6,167 554 7,868 2,022 2,317 7,713
53

86 Illinois 33 Indiana 22 Iowa 19 Kansas 13 Kentucky 15 Louisiana 5 Maine 36 Maryland 33 Massachusetts 60 Michigan 73 Minnesota 6 Mississippi 36 Missouri 4,735 743 Wyoming 10,456 Wisconsin 2 187 7,141 West Virginia 37 4,482 4,279 Washington 6 755 4,663 Virginia 35 4,097 630 Vermont 56 7,448 2,108 Utah 1,525 Texas 11 1,679 2,577 Tennessee 148 20,838 3,015 South Dakota 32 4,087 4,377 South Carolina 5 580 11,697 Rhode Island 18 2,224 4 517
1,740 Total
231,941
The following table summarizes the number of owned or leased stores and distribution centers at January 30, 2010:
Stores
Distribution Centers (b)
1,492 Owned 81 Leased 167 Combined (a) 1,740 Total

(a) Properties within the "combined" category are primarily owned buildings on leased land. (b) The 38 distribution centers have a total of 48,588 thousand square feet.
29 8 1
38
54

We own our corporate headquarters buildings located in Minneapolis, Minnesota, and we lease and own additional office space in the United States. Our international sourcing operations have 27 office locations in 18 countries, all of which are leased. We also lease office space in Bangalore, India, where we operate various support functions. Our properties are in good condition, well maintained and suitable to carry on our business. For additional information on our properties, see also Capital Expenditures section in Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations and Notes 13 and 21 of the Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data. Item 3. Legal Proceedings
SEC Rule S-K Item 103 requires that companies disclose environmental legal proceedings involving a governmental authority when such proceedings involve potential monetary sanctions of $100,000 or more. We are one of many defendants in a lawsuit filed on February 13, 2008, by the State of California involving environmental matters that may involve potential monetary sanctions in excess of $100,000. The allegation, initially made by the California Air Resources Board in April 2006, involves a nonfood product (hairspray) that allegedly contained levels of a volatile organic compound in excess of permissible levels. We anticipate that the settlement, to be fully indemnified by the vendor, is likely to exceed $100,000 but will not be material to our financial position, results of operations or cash flows. In addition, we are a defendant in a civil lawsuit filed by the California Attorney General in June 2009 alleging that we did not handle and dispose of certain unsold products as a hazardous waste. The case is in its early stages. We anticipate that this lawsuit may involve potential monetary sanctions in excess of $100,000, but will not be material to our financial position, results of operations or cash flows. We are the subject of an ongoing Environmental Protection Agency (EPA) investigation for alleged violations of the Clean Air Act (CAA). In March 2009, the EPA issued a Finding of Violation (FOV) related to alleged violations of the CAA, specifically the National Emission Standards for Hazardous Air Pollutants (NESHAP) promulgated by the EPA for asbestos. The FOV pertains to the remodeling of 36 Target stores that occurred between January 1, 2003 and October 28, 2007. The EPA FOV process is ongoing and no specific relief has been sought to date by the EPA. We anticipate that any resolution of this matter will be in the form of monetary penalties that are likely to exceed $100,000 but will not be material to our financial position, results of operations or cash flows. The American Jobs Creation Act of 2004 requires SEC registrants to disclose if they have been required to pay certain penalties for failing to disclose to the Internal Revenue Service their participation in listed transactions. We have not been required to pay any of the penalties set forth in Section 6707A(e)(2) of the Internal Revenue Code. For a description of other legal proceedings, see Note 18 of the Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data. Item 4. Reserved
55

Item 4A. Executive Officers
The executive officers of Target as of March 10, 2010 and their positions and ages are as follows:
Name
Title
Age
Timothy R. Baer Michael R. Francis John D. Griffith Beth M. Jacob Jodeen A. Kozlak Troy H. Risch Douglas A. Scovanner Terrence J. Scully Gregg W. Steinhafel Kathryn A. Tesija
Executive Vice President, General Counsel and Corporate Secretary Executive Vice President and Chief Marketing Officer Executive Vice President, Property Development Executive Vice President, Technology Services and Chief Information Officer Executive Vice President, Human Resources Executive Vice President, Stores Executive Vice President and Chief Financial Officer President, Target Financial Services Chairman of the Board, President and Chief Executive Officer Executive Vice President, Merchandising
49 47 48 48 46 42 54 57 55 47
Each officer is elected by and serves at the pleasure of the Board of Directors. There is neither a family relationship between any of the officers named and any other executive officer or member of the Board of Directors nor any arrangement or understanding pursuant to which any person was selected as an officer. The service period of each officer in the positions listed and other business experience for the past five years is listed below. Timothy R. Baer Executive Vice President, General Counsel and Corporate Secretary since March 2007. Senior Vice President, General Counsel and Corporate Secretary from June 2004 to March 2007.
Michael R. Francis
Executive Vice President and Chief Marketing Officer since August 2008. Executive Vice President, Marketing from January 2003 to August 2008.
John D. Griffith
Executive Vice President, Property Development since January 2005.
Beth M. Jacob
Executive Vice President and Chief Information Officer since January 2010. Senior Vice President and Chief Information Officer from July 2008 to January 2010. Vice President, Guest Operations, Target Financial Services from August 2006 to July 2008. Vice President, Guest Contact Centers, Target Financial Services from September
56

2003 to August 2006.
Jodeen A. Kozlak
Executive Vice President, Human Resources since March 2007. Senior Vice President, Human Resources from February 2006 to March 2007. Vice President, Human Resources and Employee Relations General Counsel from November 2005 to February 2006. From June 2001 to November 2005 Ms. Kozlak held several positions in Employee Relations at Target.
Troy H. Risch
Executive Vice President, Stores since September 2006. Group Vice President from September 2005 to September 2006. Group Director from February 2002 to September 2005.
Douglas A. Scovanner
Executive Vice President and Chief Financial Officer since February 2000.
Terrence J. Scully
President, Target Financial Services since March 2003.
Gregg W. Steinhafel
Chief Executive Officer since May 2008. President since August 1999. Director since January 2007. Chairman of the Board since February 2009.
Kathryn A. Tesija
Executive Vice President, Merchandising since May 2008. Senior Vice President, Merchandising, from July 2001 to May 2008.
PART II
Item 5. Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Our common stock is listed on the New York Stock Exchange under the symbol "TGT." We are authorized to issue up to 6,000,000,000 shares of common stock, par value $0.0833, and up to 5,000,000 shares of preferred stock, par value $0.01. At March 10, 2010, there were 17,562 shareholders of record. Dividends declared per share and the high and low closing common stock price for each fiscal quarter during 2009 and 2008 are disclosed in Note 29 of the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data. In November 2007, our Board of Directors authorized the repurchase of $10 billion of our common stock. In November 2008 we announced a temporary suspension of our open-market share repurchase program. In January 2010, we resumed open-market purchases of shares under this program. Since the inception of this share repurchase program, we have repurchased 103.6 million common shares for a total cash investment of $5,320 million ($51.36 per share). The table below presents information with respect to Target common stock purchases made during the three months ended January 30, 2010, by Target or any "affiliated purchaser" of Target, as defined in Rule 10b-18(a)(3) under the Exchange Act.
57

Approximate Total Number of Shares Purchased Total Number of Shares Period Purchased Average Dollar Value of Shares that May
as Part of Yet Be Purchased Under the Program
Price Paid Publicly Announced per Share Program
November 1, 2009 through November 28, 2009 November 29, 2009 through January 2, 2010 January 3, 2010 through January 30, 2010
$ 8,335,800
50.74
95,235,594 $ 95,235,594 103,571,394
5,103,322,945 5,103,322,945 4,680,327,198
8,335,800 $
50.74
103,571,394 $
4,680,327,198
The table above includes shares of common stock reacquired from team members who wish to tender owned shares to satisfy the tax withholding on equity awards as part of our long-term incentive plans or to satisfy the exercise price on stock option exercises. For the three months ended January 30, 2010, 11,960 shares were acquired at an average per share price of $50.17 pursuant to our long-term incentive plans. The table above includes shares reacquired upon settlement of prepaid forward contracts. For the three months ended January 30, 2010, no shares were reacquired through these contracts. At January 30, 2010, we held asset positions in prepaid forward contracts for 1.5 million shares of our common stock, for a total cash investment of $66 million, or an average per share price of $42.77. Refer to Notes 24 and 26 of the Notes to Consolidated Financial Statements for further details of these contracts.
58

Comparison of Cumulative Five Year Total Return
Fiscal Years Ended January 29, 2005 January 28, February 3, February 2, 2006 2007 2008 January 31, 2009 January 30, 2010
$ Target
100.00 $ 100.00
108.57 $ 110.38 103.10
124.04 $ 127.29 116.21
115.10 $ 125.00 108.34
63.82 $ 75.79 79.13
106.62 100.90 107.73
S&P 500 Index 100.00 Peer Group
The graph above compares the cumulative total shareholder return on our common stock for the last five fiscal years with the cumulative total return on the S&P 500 Index and a peer group consisting of the companies comprising the S&P 500 Retailing Index and the S&P 500 Food and Staples Retailing Index (Peer Group) over the same period. The Peer Group index consists of 39 general merchandise, food and drug retailers and is weighted by the market capitalization of each component company. The graph assumes the investment of $100 in Target common stock, the S&P 500 Index and the Peer Group on January 29, 2005 and reinvestment of all dividends.
59

Item 6. Selected Financial Data
As of or for the Year Ended 2009 2008 2007 2006 (a) 2005 2004
Financial Results: (millions) $ 65,357 $ 64,948 $ 63,367 $ 59,490 $ 52,620 $ 46,839 Total revenues 2,488 Earnings from continuing operations 2,488 Net Earnings Per Share: 3.31 Basic earnings per share 3.30 Diluted earnings per share 0.67 Cash dividends declared per share Financial Position: (millions) 44,533 Total assets 16,814 Long-term debt, including current portion
(a) Consisted of 53 weeks.
2,214 2,214
2,849 2,849
2,787 2,787
2,408 2,408
1,885 3,198
2.87 2.86 0.62
3.37 3.33 0.54
3.23 3.21 0.46
2.73 2.71 0.38
2.09 2.07 0.31
44,106 18,752
44,560 16,590
37,349 10,037
34,995 9,872
32,293 9,538
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Executive Summary Our 2009 financial results in both of our business segments were affected by the challenging economy in which we operated. In light of that environment, performance in our Retail Segment was remarkable, as the segment generated the highest EBIT in the Corporation's history, in a year when comparable-store sales declined 2.5 percent. In the Credit Card Segment, disciplined management led to a 29.4 percent increase in segment profit in a year when Target's average investment in the portfolio declined about 32 percent, representing a neardoubling of segment pretax return on invested capital. Cash flow provided by operations was $5,881 million, $4,430 million, and $4,125 million for 2009, 2008, and 2007, respectively. In 2009, we opened 76 new stores representing 58 stores net of 13 relocations and 5 closings. In 2008, we opened 114 new stores representing 91 stores net of 21 relocations and two closings. Management's Discussion and Analysis is based on our Consolidated Financial Statements in Item 8, Financial Statements and Supplementary Data.
60

Analysis of Results of Operations Retail Segment
Percent Change Retail Segment Results (millions) 2009 2008 2007 2009/2008 2008/2007
$ 63,435 $ 62,884 $ 61,471 Sales 44,062 Cost of sales 19,373 Gross margin 12,989 SG&A expenses (a) 6,384 EBITDA 2,008 Depreciation and amortization $ 4,376 $ 4,081 $ 4,342 EBIT 1,808 1,643 5,889 5,985 12,838 12,557 18,727 18,542 44,157 42,929
0.9% (0.2)
2.3% 2.9
3.5 1.2
1.0 2.2
8.4 11.0
(1.6) 10.1
7.3%
(6.0)%
EBITDA is earnings before interest expense, income taxes, depreciation and amortization. EBIT is earnings before interest expense and income taxes. (a) New account and loyalty rewards redeemed by our guests reduce reported sales. Our Retail Segment charges these discounts to our Credit Card Segment, and the reimbursements of $89 million in 2009, $117 million in 2008, and $114 million in 2007, are recorded as a reduction to SG&A expenses within the Retail Segment.
Retail Segment Rate Analysis
2009
2008
2007
30.5% Gross margin rate 20.5 SG&A expense rate 10.1 EBITDA margin rate 3.2 Depreciation and amortization expense rate 6.9 EBIT margin rate
29.8% 20.4 9.4 2.9 6.5
30.2% 20.4 9.7 2.7 7.1
61
Retail Segment rate analysis metrics are computed by dividing the applicable amount by sales.
Sales Sales include merchandise sales, net of expected returns, from our stores and our online business, as well as gift card breakage. Refer to Note 2 of the Notes to Consolidated Financial Statements for a definition of gift card breakage. Total sales for the Retail Segment for 2009 were $63,435 million, compared with $62,884 million in 2008 and $61,471 million in 2007. All periods were 52-week years. Growth in total sales between 2009 and 2008 as well as between 2008 and 2007 resulted from sales from additional stores opened, offset by lower comparable-store sales. In 2009, deflation affected sales growth by approximately 4 percentage points, compared with an inflationary impact of approximately 2 percentage points in 2008 and a deflationary impact of 2 percentage points in 2007.
Percentage of Sales Sales by Product Category 2009 2008 2007
23% Household essentials 22 Hardlines 20 Apparel and accessories 19 Home furnishings and dcor 16 Food and pet supplies 100% Total
22% 22 20 21 15
21% 22 22 22 13
100%
100%
Refer to the Merchandise section in Item 1, Business, for a description of our product categories. Comparable-store sales is a measure that indicates the performance of our existing stores by measuring the growth in sales for such stores for a period over the comparable, prior-year period of equivalent length. The method of calculating comparable-store sales varies across the retail industry. As a result, our comparable-store sales calculation is not necessarily comparable to similarly titled measures reported by other companies. Comparable-store sales are sales from our online business and sales from general merchandise and SuperTarget stores open longer than one year, including: sales from stores that have been remodeled or expanded while remaining open sales from stores that have been relocated to new buildings of the same format within the same trade area, in which the new store opens at about the same time as the old store closes
62

Comparable-store sales do not include: sales from general merchandise stores that have been converted, or relocated within the same trade area, to a SuperTarget store format sales from stores that were intentionally closed to be remodeled, expanded or reconstructed
Comparable-Store Sales
2009
2008
2007
(2.5)% Comparable-store sales Drivers of changes in comparable-store sales: (0.2)% Number of transactions (2.3)% Average transaction amount (1.5)% Units per transaction (0.8)% Selling price per unit
(2.9)%
3.0%
(3.1)% 0.2% (2.1)% 2.3%
0.3% 2.6% 1.1% 1.5%
The comparable-store sales increases or decreases above are calculated by comparing sales in fiscal year periods with comparable prior fiscal year periods of equivalent length.
In fiscal 2009, the change in comparable-store sales was driven by a decline in the average transaction amount, primarily due to a decrease in the number of units per transaction. In 2008, the change in comparablestore sales was driven by a decline in the number of transactions, slightly offset by an increase in average transaction amount, which reflects the effect of a higher selling price per unit sold partially offset by a decrease in number of units per transaction. Transaction-level metrics are influenced by a broad array of macroeconomic, competitive and consumer behavioral factors, as well as sales mix, and comparable-store sales rates are negatively impacted by transfer of sales to new stores. Gross Margin Rate Gross margin rate represents gross margin (sales less cost of sales) as a percentage of sales. See Note 3 of the Notes to Consolidated Financial Statements for a description of expenses included in cost of sales. Markup is the difference between an item's cost and its retail price (expressed as a percentage of its retail price). Factors that affect markup include vendor offerings and negotiations, vendor income, sourcing strategies, market forces like raw material and freight costs, and competitive influences. Markdowns are the reduction in the original or previous price of retail merchandise. Factors that affect markdowns include inventory management, competitive influences and economic conditions. In 2009, our gross margin rate was 30.5 percent compared with 29.8 percent in 2008. Our 2009 gross margin rate benefitted from rate improvements within categories, partially offset by the mix impact of faster sales growth in lower margin rate categories (generally product categories of household essentials and food). The impact of rate performance within merchandise categories on gross margin rate was an approximate 1.1 percentage point increase for 2009. This increase is the result of improved markups and reduced markdowns. The impact of sales mix on gross margin rate was an approximate 0.4 percentage point reduction.
63

In 2008 our gross margin rate was 29.8 percent compared with 30.2 percent in 2007. Our 2008 gross margin rate was adversely affected by sales mix, which resulted in a 0.6 percentage point reduction in the gross margin rate. Sales in merchandise categories that yield lower gross margin rates outpaced sales in our higher margin apparel and home merchandise categories. This mix impact was partially offset by favorable supply chain expense rates, as well as higher gross margin rates within merchandise categories across our assortment, which had a combined impact on gross margin rate of an approximate 0.2 percentage point increase. Selling, General and Administrative Expense Rate Our selling, general and administrative (SG&A) expense rate represents SG&A expenses as a percentage of sales. See Note 3 of the Notes to Consolidated Financial Statements for a description of expenses included in SG&A expenses. SG&A expenses exclude depreciation and amortization, as well as expenses associated with our credit card operations, which are reflected separately in our Consolidated Statements of Operations. SG&A expense rate was 20.5 percent in 2009 compared with 20.4 percent in both 2008 and 2007. The change in the rate was primarily driven by an approximate 0.4 percentage point impact from an increase in incentive compensation due to better than expected 2009 performance compared with 2008 results. The rate increase was partially offset by an approximate 0.2 percentage point impact from sustained productivity gains in our stores. Within SG&A expenses in 2008 and 2007, there were no expense categories that experienced a significant fluctuation as a percentage of sales, when compared with prior periods. Depreciation and Amortization Expense Rate Our depreciation and amortization expense rate represents depreciation and amortization expense as a percentage of sales. In 2009, our depreciation and amortization expense rate was 3.2 percent compared with 2.9 percent in 2008 and 2.7 percent in 2007. The increase in the rate was primarily due to accelerated depreciation on assets that will be replaced as part of our 340-store 2010 remodel program. The comparative increase in 2008 was due to increased capital expenditures, specifically related to investments in new stores. Store Data
Number of Stores
Target general merchandise stores
SuperTarget stores
Total
1,443 January 31, 2009 63 Opened (17) Closed (a) 1,489 January 30, 2010 Retail Square Feet (b) (thousands) 180,321 January 31, 2009 9,039 Opened
239 13 (1)
1,682 76 (18)
251
1,740
42,267 2,404
222,588 11,443
64

(1,911) Closed (a) 187,449 January 30, 2010
(a) Includes 13 store relocations in the same trade area and 5 stores closed without replacement. (b) Reflects total square feet less office, distribution center and vacant space.
(179)
(2,090)
44,492
231,941
Credit Card Segment Credit card revenues are comprised of finance charges, late fees and other revenue, and third party merchant fees, or the amounts received from merchants who accept the Target Visa credit card.
2009 Credit Card Segment Results Amount (in millions)
2008 Amount Rate (d) (in millions)
2007 Amount Rate (d) (in millions)
Rate (d)
$ Finance charge revenue
1,450 349
17.4%$ 4.2 1.5
1,451 461 152
16.7%$ 5.3 1.7
1,308 422 166
18.0% 5.8 2.3
Late fees and other revenue 123 Third party merchant fees 1,922 Total revenues 1,185 Bad debt expense Operations and marketing expenses (a) Depreciation and amortization 1,624 Total expenses 298 EBIT Interest expense on nonrecourse debt collateralized by credit card receivables $ Segment profit 3.5 322 3.7 930 12.8 19.4 1,742 20.0 966 13.3 425 14 14.2 5.1 0.2 1,251 474 17 14.4 5.4 0.2 481 469 16 6.6 6.4 0.2 23.0 2,064 23.7 1,896 26.1
97
167
133
201
155
797
65

Average receivables funded by Target (b) Segment pretax ROIC (c)
(a) New account and loyalty rewards redeemed by our guests reduce reported sales. Our Retail Segment charges the cost of these discounts to our Credit Card Segment, and the reimbursements of $89 million in 2009, $117 million in 2008, and $114 million in 2007, are recorded as an increase to Operations and Marketing expenses within the Credit Card Segment. (b) Amounts represent the portion of average gross credit card receivables funded by Target. For 2009, 2008, and 2007, these amounts exclude $5,484 million, $4,503 million, and $2,387 million, respectively, of receivables funded by nonrecourse debt collateralized by credit card receivables. (c) ROIC is return on invested capital, and this rate equals our segment profit divided by average gross credit card receivables funded by Target, expressed as an annualized rate. (d) As an annualized percentage of average gross credit card receivables.
2,866 7.0%
4,192 3.7%
4,888 16.3%
2009 Spread Analysis Total Portfolio Amount (in millions)
2008 Amount (in millions)
2007 Amount (in millions)
Rate
Rate
Rate
$ EBIT
298
3.5% (b)$ 0.3%
322
3.7% (b)$ 2.3%
930
12.8% (b) 5.1%
LIBOR (a) $ Spread to LIBOR (c)

(a) Balance-weighted one-month LIBOR. (b) As a percentage of average gross credit card receivables. (c) Spread to LIBOR is a metric used to analyze the performance of our total credit card portfolio because the majority of our portfolio earned finance charge revenue at rates tied to the Prime Rate, and the interest rate on all nonrecourse debt securitized by credit card receivables is tied to LIBOR.
270
3.2% (b)$
118
1.4% (b)$
558
7.7% (b)
Our primary measure of segment profit in our Credit Card Segment is the EBIT generated by our total credit card receivables portfolio less the interest expense on nonrecourse debt collateralized by credit card receivables. We analyze this measure of profit in light of the amount of capital we have invested in our credit card receivables. In addition, we measure the performance of our overall credit card receivables portfolio by calculating the dollar Spread to LIBOR at the portfolio level. This metric approximates overall financial performance of the entire credit card portfolio we manage by measuring the difference between EBIT earned on the portfolio and a hypothetical benchmark rate financing cost applied to the entire portfolio. The interest rate on all nonrecourse debt securitized by credit card receivables is tied to LIBOR. For the first quarter of 2009, the vast majority of our portfolio accrued finance charge revenue at rates tied to the Prime Rate. Effective April 2009, we implemented a terms change to our portfolio that established a minimum annual percentage rate (APR) applied to cardholder account balances. Under these terms, finance charges accrue at a fixed APR if the benchmark Prime Rate is less than 6%; if the Prime Rate is greater than 6%, finance charges accrue at the benchmark Prime Rate, plus a spread. Because the Prime Rate was less than 6% during 2009, the majority of our portfolio accrued finance charges at a fixed APR subsequent to this terms change. As a result of regulatory actions that impact our portfolio, effective January
66

2010, we implemented a second terms change that converted the minimum APR for the majority of our accounts to a variable rate, and we eliminated penalty pricing for all current, or nondelinquent accounts. Penalty pricing is the charging of a higher interest rate for a period of time, generally 12 months, and is triggered when a cardholder repeatedly fails to make timely payments. In 2009, Credit Card Segment profit increased to $201 million from $155 million as a result of improved portfolio performance (Spread to LIBOR) and significantly lower funding costs. The reduction in our investment in the portfolio combined with these results produced a strong improvement in segment ROIC. Segment revenues were $1,922 million, a decrease of $143 million, or 6.9 percent, from the prior year. The decrease in revenue was driven by a lower Prime Rate, lower average receivables, higher finance charge and late-fee write-offs and lower late fees due to fewer delinquent accounts offset by the positive impacts of the terms changes implemented in late 2008 and April 2009. Segment expenses were $1,624 million, a decrease of $118 million, or 6.8 percent, from prior year driven by lower bad debt and operations and marketing expenses, on both a dollar and rate basis. Segment interest expense benefited from a significantly lower LIBOR rate compared to the prior year. Segment profit and dollar Spread to LIBOR measures in 2008 were significantly impacted on both a rate and dollar basis by bad debt expense. Segment revenues were $2,064 million, an increase of $168 million, or 8.9 percent, from the prior year, driven by a 19.5 percent increase in average receivables. On a rate basis, revenue yield decreased 2.4 percentage points primarily due to a reduction in the Prime Rate index used to determine finance charge rates in the portfolio and lower external sales volume contributing to the decline in third party merchant fees. This negative pressure on revenue yield was offset modestly by the positive impact of terms changes implemented in 2008 that increased our effective yield. Segment expenses were $1,742 million, an increase of $776 million, or 80.3 percent, from the prior year driven by an increase in bad debt expense of $770 million. The increase in bad debt expense resulted from the increase in our incurred net write-off rate from 5.9 percent in 2007 to 9.3 percent in 2008 and the increase in the allowance for doubtful accounts of $440 million for anticipated future write-offs of current receivables. Segment profit decreased from 16.3 percent in 2007 to 3.7 percent in 2008 primarily due to the effect of bad debt expense, the reduction in receivables owned and funded by Target, and the impact of a lower Prime Rate during 2008.
Receivables Rollforward Analysis (millions) 2009
Fiscal Year 2008 2007
Percent Change 2009/2008 2008/2007
$ Beginning gross credit card receivables
9,094 $ 3,553
8,624 $ 4,207 8,542 (13,482) 1,203
6,711 4,491 9,398 (13,388) 1,412
5.4% (15.5) (20.8) (10.5) (47.1)
28.5% (6.3) (9.1) 0.7 (14.8)
Charges at Target 6,763 Charges at third parties (12,065) Payments 637 Other $ Period-end gross credit card receivables $ Average gross credit card receivables Accounts with three or more payments (60+ days) past due as a percentage of period-end credit 6.3% 6.1% 4.0% 8,351 $ 8,695 $ 7,275 (4.0)% 19.5% 7,982 $ 9,094 $ 8,624 (12.2)% 5.4%
67

card receivables Accounts with four or more payments (90+ days) past due as a percentage of period-end gross credit card receivables
4.7%
4.3%
2.7%
5.6% Credit card penetration (a)
6.7%
7.3%
(a) Represents charges at Target (including sales taxes and gift cards) divided by sales (which excludes sales taxes and gift cards).
Allowance for Doubtful Accounts (millions) 2009
Fiscal Year 2008 2007
Percent Change 2009/2008 2008/2007
$ Allowance at beginning of period
1,010 $ 1,185
570 $ 1,251 (811)
517 481 (428)
77.1% (5.3) 45.2
10.4% 160.1 89.8
Bad debt expense (1,179) Net write-offs (a) $ Allowance at end of period As a percentage of period-end gross credit card receivables Net write-offs as a percentage of average gross credit card receivables (annualized) 12.7% 11.1% 6.6% 1,016 $ 1,010 $ 570 0.6% 77.1%
14.1%
9.3%
5.9%
(a) Net write-offs include the principal amount of losses (excluding accrued and unpaid finance charges) less current period principal recoveries.
Our 2009 period-end gross credit card receivables were $7,982 million compared with $9,094 million in 2008, a decrease of 12.2 percent. Average gross credit card receivables in 2009 decreased 4.0 percent compared with 2008 levels. This change was driven by tighter risk management and underwriting initiatives that have significantly reduced available credit lines for higher-risk cardholders, fewer new accounts being opened, and a decrease in charge activity resulting from reductions in card usage by our guests, partially offset by the impact of a decline in payment rates. Our 2008 period-end gross credit card receivables were $9,094 million compared with $8,624 million in 2007, an increase of 5.4 percent. Average gross credit card receivables in 2008 increased 19.5 percent compared with 2007 levels. This growth was driven by the annualization of the prior year's product change from proprietary Target Cards to higher-limit Target Visa cards and the impact of industry-wide declines in payment rates, offset in part by a reduction in charge activity resulting from reductions in card usage by our guests, and from risk management and underwriting initiatives that significantly reduced credit lines for higher risk cardholders. Other Performance Factors Net Interest Expense
68

Net interest expense was $801 million at the end of 2009, decreasing 7.5 percent, or $65 million from 2008. This decline was due to a decrease in the annualized average portfolio interest rate from 5.3 percent to 4.8 percent partially offset by a $16 million charge related to the early retirement of long-term debt. In 2008, net interest expense was $866 million compared with $647 million in 2007, an increase of 33.8 percent. This increase was due primarily to higher average debt balances supporting capital investment, share repurchase and the receivables portfolio, partially offset by a lower average portfolio net interest rate. Provision for Income Taxes Our effective income tax rate was 35.7 percent in 2009 and 37.4 percent in 2008. The decrease in the effective rate between periods is primarily due to nontaxable capital market returns on investments used to economically hedge the market risk in deferred compensation plans in 2009 compared with nondeductible losses in 2008. The 2009 effective income tax rate is also lower due to federal and state discrete items. Our effective income tax rate for 2008 was 37.4 percent compared with 38.4 percent in 2007. The decrease in 2008 was primarily due to tax reserve reductions resulting from audit settlements and the effective resolution of other issues. The 2008 effective income tax rate was also lower due to a comparatively greater proportion of earnings subject to rate differences between taxing jurisdictions. These rate declines were partially offset by lower capital market returns on investments used to economically hedge the market risk in deferred compensation plans. Gains and losses from these investments are not taxable. Analysis of Financial Condition Liquidity and Capital Resources Our 2009 operations were entirely funded by internally generated funds. Cash flow provided by operations was $5,881 in 2009 compared with $4,430 million in 2008. This strong cash flow allowed us to fund capital expenditures of $1,729 million and pay off $1.3 billion of maturing debt with internally generated funds. In addition we accelerated the payoff of a $550 million 2010 debt maturity, restarted our share repurchase program earlier than expected and experienced a $1.3 billion increase in marketable securities at January 30, 2010. Our 2009 period-end gross credit card receivables were $7,982 million compared with $9,094 million in 2008, a decrease of 12.2 percent. Average gross credit card receivables in 2009 decreased 4.0 percent compared with 2008 levels. This change was driven by the factors indicated in the Credit Card Segment above. This trend and the factors influencing it are likely to continue into 2010. Due to the decrease in gross credit card receivables, Target Receivables Corporation (TRC), using cash flows from the receivables, repaid an affiliate of JPMorgan Chase (JPMC) $163 million during 2009 under the terms of our agreement with them as described in Note 10 of the Notes to Consolidated Financial Statements. To the extent the receivables balance continues to decline, TRC expects to continue to pay JPMC a prorata portion of principal collections such that the portion owned by JPMC would not exceed 47 percent. Year-end inventory levels increased $474 million, or 7.1 percent from 2008, primarily due to unusually low inventory levels at the end of 2008 in response to the challenging economic environment. Inventory levels were also higher to support traffic-driving strategic initiatives, such as food and pharmacy, in addition to comparatively higher retail square footage. Accounts payable increased by $174 million, or 2.7 percent over the same period. During 2009, we repurchased 9.9 million shares of our common stock for a total cash investment of $479 million ($48.54 per share) under a $10 billion share repurchase plan authorized by our Board of Directors in November 2007. In 2008, we repurchased 67.2 million shares of our common stock for a total cash investment of $3,395 million ($50.49 per share). We paid dividends totaling $496 million in 2009 and $465 million in 2008, an increase of 6.7 percent. We declared dividends totaling $503 million ($0.67 per share) in 2009, an increase of 6.8 percent over 2008. In 2008,
69

we declared dividends totaling $471 million ($0.62 per share), an increase of 3.8 percent over 2007. We have paid dividends every quarter since our first dividend was declared following our 1967 initial public offering, and it is our intent to continue to do so in the future. Our financing strategy is to ensure liquidity and access to capital markets, to manage our net exposure to floating interest rate volatility, and to maintain a balanced spectrum of debt maturities. Within these parameters, we seek to minimize our borrowing costs. Maintaining strong investment-grade debt ratings is a key part of our financing strategy. Our current debt ratings are as follows:
Debt Ratings Moody's Standard and Poor's Fitch
A2 Long-term debt P-1 Commercial paper Aa2 Securitized receivables (a)
A+ A-1 A+
A F1 n/a
(a) These rated securitized receivables exclude the interest in our credit card receivables sold to JPMC. At January 30, 2010 and January 31, 2009, there were no amounts outstanding under our commercial paper program. In past years, we funded our peak sales season working capital needs through our commercial paper program and then used the cash generated from that sales season to repay the commercial paper issued. In 2009 we funded our working capital needs through internally generated funds. Additionally and as described in Note 10 of the Notes to Consolidated Financial Statements, during 2008 we sold to JPMC an interest in our credit card receivables for approximately $3.8 billion. We received proceeds of approximately $3.6 billion, reflecting a 7 percent discount. An additional source of liquidity is available to us through a committed $2 billion unsecured revolving credit facility obtained through a group of banks in April 2007, which will expire in April 2012. No balances were outstanding at any time during 2009 or 2008 under this facility. Most of our long-term debt obligations contain covenants related to secured debt levels. In addition to a secured debt level covenant, our credit facility also contains a debt leverage covenant. We are, and expect to remain, in compliance with these covenants. Additionally, at January 30, 2010, no notes or debentures contained provisions requiring acceleration of payment upon a debt rating downgrade, except that certain outstanding notes allow the note holders to put the notes to us if within a matter of months of each other we experience both (i) a change in control; and (ii) our long-term debt ratings are either reduced and the resulting rating is non-investment grade, or our long-term debt ratings are placed on watch for possible reduction and those ratings are subsequently reduced and the resulting rating is non-investment grade. Our interest coverage ratio represents the ratio of pretax earnings before fixed charges to fixed charges. Fixed charges include interest expense and the interest portion of rent expense. Our interest coverage ratio as calculated by the SEC's applicable rules was 5.1x in 2009, 4.3x in 2008, and 6.4x in 2007.
70

Capital Expenditures Capital expenditures were $1,729 million in 2009 compared with $3,547 million in 2008 and $4,369 million in 2007. This decrease was driven by lower capital expenditures for new stores, remodels and technology-related assets. Our 2009 capital expenditures include $232 million related to stores that will open in 2010 and later years. Net property and equipment decreased $475 million in 2009 following an increase of $1,661 million in 2008.
Capital Expenditures
Percentage of Capital Expenditures 2009 2008 2007
52% New stores 17 Remodels and expansions 31 Information technology, distribution and other 100% Total
66% 8 26
71% 7 22
100%
100%
Commitments and Contingencies At January 30, 2010, our contractual obligations were as follows:
Contractual Obligations
Payments Due by Period Less than 1 Year 1-3 Years 3-5 Years After 5 Years
(millions)
Total
Long-term debt (a) $ Unsecured 5,553 Nonrecourse Interest payments long-term debt 10,405 Unsecured 159 Nonrecourse (b) 472 Capital lease obligations (c) 4,000 Operating leases (c) 394 Deferred compensation 41 87 96 170 264 324 265 3,147 19 44 45 364 39 74 46 693 1,240 1,061 7,411 900 750 3,903 11,071 $ 786 $ 1,607 $ 502 $ 8,176
71

222 Real estate obligations 2,016 Purchase obligations Tax contingencies (d) $ Contractual obligations
(a) Required principal payments only. Excludes fair market value adjustments recorded in long-term debt, as required by derivative and hedging accounting rules. Principal amounts include the 47 percent interest in credit card receivables sold to JPMC at the principal amount. In the event of a decrease in the receivables principal balance, accelerated repayment of this obligation may occur. (b) These payments vary with LIBOR and are calculated assuming LIBOR of 0.25 percent plus a spread, for each year outstanding. (c)Total contractual lease payments include $2,016 million of operating lease payments related to options to extend the lease term that are reasonably assured of being exercised. These payments also include $196 million and $88 million of legally binding minimum lease payments for stores opening in 2010 or later for capital and operating leases, respectively. Capital lease obligations include interest. Refer to Note 21 of the Notes to Consolidated Financial Statements for a further description of leases. (d) Estimated tax contingencies of $579 million, including interest and penalties, are not included in the table above because we are not able to make reasonably reliable estimates of the period of cash settlement.
222 597
685
627
107
34,292
3,561
4,811
6,545
19,375
Real estate obligations include commitments for the purchase, construction or remodeling of real estate and facilities. Purchase obligations include all legally binding contracts such as firm minimum commitments for inventory purchases, merchandise royalties, equipment purchases, marketing-related contracts, software acquisition/license commitments and service contracts. We issue inventory purchase orders in the normal course of business, which represent authorizations to purchase that are cancelable by their terms. We do not consider purchase orders to be firm inventory commitments; therefore, they are excluded from the table above. We also issue trade letters of credit in the ordinary course of business, which are excluded from this table as these obligations are conditional on the purchase order not being cancelled. If we choose to cancel a purchase order, we may be obligated to reimburse the vendor for unrecoverable outlays incurred prior to cancellation. We have not included obligations under our pension and postretirement health care benefit plans in the contractual obligations table above. Our historical practice regarding these plans has been to contribute amounts necessary to satisfy minimum pension funding requirements, plus periodic discretionary amounts determined to be appropriate. Further information on these plans, including our expected contributions for 2010, is included in Note 27 of the Notes to Consolidated Financial Statements. We do not have any arrangements or relationships with entities that are not consolidated into the financial statements that are reasonably likely to materially affect our liquidity or the availability of capital resources. Critical Accounting Estimates Our analysis of operations and financial condition is based on our consolidated financial statements, prepared in accordance with U.S. generally accepted accounting principles (GAAP). Preparation of these consolidated financial statements requires us to make estimates and assumptions affecting the reported amounts of assets and liabilities at the date of the consolidated financial statements, reported amounts of revenues and expenses during the reporting period and related disclosures of contingent assets and liabilities. In the Notes to Consolidated Financial Statements, we describe the significant accounting policies used in preparing the consolidated financial statements. Our estimates are evaluated on an ongoing basis and are drawn from historical experience and other assumptions that we believe to be reasonable under the circumstances. Actual results could
72

differ under different assumptions or conditions. However we do not believe there is a reasonable likelihood that there will be a material change in future estimates or assumptions. Our senior management has discussed the development and selection of our critical accounting estimates with the Audit Committee of our Board of Directors. The following items in our consolidated financial statements require significant estimation or judgment: Inventory and cost of sales We use the retail inventory method to account for substantially our entire inventory and the related cost of sales. Under this method, inventory is stated at cost using the last-in, first-out (LIFO) method as determined by applying a cost-to-retail ratio to each merchandise grouping's ending retail value. Cost includes the purchase price as adjusted for vendor income. Since inventory value is adjusted regularly to reflect market conditions, our inventory methodology reflects the lower of cost or market. We reduce inventory for estimated losses related to shrink and markdowns. Our shrink estimate is based on historical losses verified by ongoing physical inventory counts. Historically our actual physical inventory count results have shown our estimates to be reliable. Markdowns designated for clearance activity are recorded when the salability of the merchandise has diminished. Inventory is at risk of obsolescence if economic conditions change. Relevant economic conditions include changing consumer demand, customer preferences, changing consumer credit markets or increasing competition. We believe these risks are largely mitigated because our inventory typically turns in less than three months. Inventory is further described in Note 11 of the Notes to Consolidated Financial Statements. Vendor income receivable Cost of sales and SG&A expenses are partially offset by various forms of consideration received from our vendors. This "vendor income" is earned for a variety of vendor-sponsored programs, such as volume rebates, markdown allowances, promotions and advertising allowances, as well as for our compliance programs. We establish a receivable for the vendor income that is earned but not yet received. Based on the agreements in place, this receivable is computed by estimating when we have completed our performance and when the amount is earned. The majority of all year-end vendor income receivables are collected within the following fiscal quarter. Vendor income is described further in Note 4 of the Notes to Consolidated Financial Statements. Allowance for doubtful accounts When receivables are recorded, we recognize an allowance for doubtful accounts in an amount equal to anticipated future write-offs. This allowance includes provisions for uncollectible finance charges and other credit-related fees. We estimate future write-offs based on historical experience of delinquencies, risk scores, aging trends and industry risk trends. Substantially all accounts continue to accrue finance charges until they are written off. Accounts are automatically written off when they become 180 days past due. Management believes the allowance for doubtful accounts is adequate to cover anticipated losses in our credit card accounts receivable under current conditions; however, unexpected, significant deterioration in any of the factors mentioned above or in general economic conditions could materially change these expectations. Credit card receivables are described in Note 10 of the Notes to Consolidated Financial Statements. Analysis of long-lived and intangible assets for impairment We review assets at the lowest level for which there are identifiable cash flows, usually at the store level, on an annual basis or whenever an event or change in circumstances indicates the carrying value of the asset may not be recoverable. An impairment loss on a longlived and identifiable intangible asset would be recognized when estimated undiscounted future cash flows from the operation and disposition of the asset are less than the asset carrying amount. Goodwill is tested for impairment by comparing its carrying value to a fair value estimated by discounting future cash flows. This test is performed at least annually or whenever an event or change in circumstances indicates the carrying value of the asset may not be recoverable. Impairment on long-lived assets of $49 million in 2009, $2 million in 2008 and $7 million in 2007 were recorded as a result of the tests performed. Our estimates of future cash flows require us to make assumptions and to apply judgment, including forecasting future sales and expenses and estimating useful lives of the assets. These estimates can be affected by factors such as future store results, real estate values, and economic conditions that can be difficult to predict. Insurance/self-insurance We retain a substantial portion of the risk related to certain general liability, workers' compensation, property loss and team member medical and dental claims. However, we maintain stop-loss
73

coverage to limit the exposure related to certain risks. Liabilities associated with these losses include estimates of both claims filed and losses incurred but not yet reported. We estimate our ultimate cost based on an analysis of historical data and actuarial estimates. General liability and workers' compensation liabilities are recorded at our estimate of their net present value; other liabilities referred to above are not discounted. We believe that the amounts accrued are adequate, although actual losses may differ from the amounts provided. Refer to Item 7A for further disclosure of the market risks associated with these exposures. Income taxes We pay income taxes based on the tax statutes, regulations and case law of the various jurisdictions in which we operate. Significant judgment is required in determining income tax provisions and in evaluating the ultimate resolution of tax matters in dispute with tax authorities. Historically, our assessments of the ultimate resolution of tax issues have been materially accurate. The current open tax issues are not dissimilar in size or substance from historical items. We believe the resolution of these matters will not have a material impact on our consolidated financial statements. Income taxes are described further in Note 22 of the Notes to Consolidated Financial Statements. Pension and postretirement health care accounting We fund and maintain a qualified defined benefit pension plan. We also maintain several smaller nonqualified plans and a postretirement health care plan for certain current and retired team members. The costs for these plans are determined based on actuarial calculations using the assumptions described in the following paragraphs. Eligibility for, and the level of, these benefits varies depending on team members' full-time or part-time status, date of hire and/or length of service. Our expected long-term rate of return on plan assets is determined by the portfolio composition, historical long-term investment performance and current market conditions. Benefits expense recorded during the year is partially dependent upon the long-term rate of return used, and a 0.1 percent decrease in the expected long-term rate of return used to determine net pension and postretirement health care benefits expense would increase annual expense by approximately $2 million. The discount rate used to determine benefit obligations is adjusted annually based on the interest rate for long-term high-quality corporate bonds as of the measurement date using yields for maturities that are in line with the duration of our pension liabilities. Historically, this same discount rate has also been used to determine net pension and postretirement health care benefits expense for the following plan year. The discount rates used to determine benefit obligations and benefits expense are included in Note 27 of the Notes to Consolidated Financial Statements. Benefits expense recorded during the year is partially dependent upon the discount rates used, and a 0.1 percent decrease to the weighted average discount rate used to determine net pension and postretirement health care benefits expense would increase annual expense by approximately $4 million. Based on our experience, we use a graduated compensation growth schedule that assumes higher compensation growth for younger, shorter-service pension-eligible team members than it does for older, longerservice pension-eligible team members. Pension and postretirement health care benefits are further described in Note 27 of the Notes to Consolidated Financial Statements. New Accounting Pronouncements Future Adoptions In June 2009, the FASB issued SFAS No. 166, "Accounting for Transfers of Financial Assets an amendment of FASB Statement No. 140" (SFAS 166), codified in the Transfers and Servicing accounting principles, which amends the derecognition guidance in former FASB Statement No. 140 and eliminates the exemption from consolidation for qualifying special-purpose entities. This guidance will be effective for the Corporation beginning in fiscal 2010 and adoption is not anticipated to affect our consolidated net earnings, cash flows or financial position.
74

In June 2009, the FASB issued SFAS No. 167, "Amendments to FASB Interpretation No. 46(R)" (SFAS 167), codified in the Consolidation accounting principles, which amends the consolidation guidance applicable to variable interest entities. The amendments will significantly affect the overall consolidation analysis under former FASB Interpretation No. 46(R). This guidance will be effective for the Corporation beginning in fiscal 2010 and adoption is not anticipated to affect our consolidated net earnings, cash flows or financial position. Outlook In the Retail Segment, we expect to generate increases in comparable-store sales, likely in the range of 2 to 4 percent for the year, including an expected 1 percentage point lift from our remodel program. While our comparable-store sales comparisons are easier in the spring than the fall, the expected incremental sales resulting from remodels will grow as the year progresses. Additionally, we expect total sales to increase by a midsingle digit percentage. In 2010 we expect to generally preserve our 2009 EBIT margin rate in our Retail Segment, which if achieved would result in our Retail Segment EBIT increasing in line with total sales growth. In our Credit Card Segment, we expect the lower consumer usage of credit and our risk management strategies to continue throughout 2010, resulting in a low double-digit percentage decline in gross credit card receivables by the end of the year. We also expect to maintain segment profit on a dollar basis at generally the level earned in 2009, generating a higher pretax segment ROIC in 2010 than in 2009. We expect our 2010 book effective tax rate to approximate our long-term structural rate, likely in the range of 37.0 to 37.5 percent. We also expect to continue to execute against our share repurchase authorization. We expect our 2010 capital expenditures to be in the range of $2 to $2.5 billion, reflective of projects we will complete in 2010 as well as initial spending for our 2011 and 2012 new store programs. Our expectation is that our 2010 new store program will result in approximately 13 new stores and that our 2011 new store program will be in the range of 20 to 30 stores. Due to the early repayment of an August 2010 debt maturity, the only significant remaining 2010 maturity, prior to our seasonal working capital peak (which typically occurs in October or November), is the $900 million public series borrowing collateralized by our credit card receivables due in October. Forward-Looking Statements This report contains forward-looking statements, which are based on our current assumptions and expectations. These statements are typically accompanied by the words "expect," "may," "could," "believe," "would," "might," "anticipates," or words of similar import. The principal forward looking statements in this report include: For our Retail Segment, our outlook for sales, expected merchandise returns, comparable-store sales trends and EBIT margin rates; for our Credit Card Segment, our outlook for year-end gross credit card receivables, portfolio size, future write-offs of current receivables, profit, ROIC, and the allowance for doubtful accounts; on a consolidated basis, the expected effective income tax rate, the continued execution of our share repurchase program, our expected capital expenditures and the number of stores to be opened in 2010 and 2011, the expected compliance with debt covenants, our intentions regarding future dividends, the anticipated impact of new accounting pronouncements, our expected future share-based compensation expense, our expected contributions and benefit payments related to our pension and postretirement health care plans, and the adequacy of our reserves for general liability, workers' compensation, property loss, and team member medical and dental, the expected outcome of claims and litigation, and the resolution of tax uncertainties.
75

All such forward-looking statements are intended to enjoy the protection of the safe harbor for forwardlooking statements contained in the Private Securities Litigation Reform Act of 1995, as amended. Although we believe there is a reasonable basis for the forward-looking statements, our actual results could be materially different. The most important factors which could cause our actual results to differ from our forward-looking statements are set forth on our description of risk factors in Item 1A to this Form 10-K, which should be read in conjunction with the forward-looking statements in this report. Forward-looking statements speak only as of the date they are made, and we do not undertake any obligation to update any forward-looking statement. Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Our exposure to market risk results primarily from interest rate changes on our debt obligations, some of which are at a LIBOR-plus floating rate, and on our credit card receivables, the majority of which are assessed finance charges at a Prime-based floating rate. To manage our net interest margin, we generally maintain levels of floating-rate debt to generate similar changes in net interest expense as finance charge revenues fluctuate. The degree of floating asset and liability matching may vary over time and in different interest rate environments. At January 30, 2010, the amount of floating-rate credit card assets exceeded the amount of net floating-rate debt obligations by approximately $1 billion. As a result, based on our balance sheet position at January 30, 2010, the annualized effect of a 0.1 percentage point decrease in floating interest rates on our floating rate debt obligations, net of our floating rate credit card assets and marketable securities, would be to decrease earnings before income taxes by approximately $1 million. See further description in Note 20 of the Notes to Consolidated Financial Statements. We record our general liability and workers' compensation liabilities at net present value; therefore, these liabilities fluctuate with changes in interest rates. Periodically, in certain interest rate environments, we economically hedge a portion of our exposure to these interest rate changes by entering into interest rate forward contracts that partially mitigate the effects of interest rate changes. Based on our balance sheet position at January 30, 2010, the annualized effect of a 0.5 percentage point decrease in interest rates would be to decrease earnings before income taxes by approximately $9 million. In addition, we are exposed to market return fluctuations on our qualified defined benefit pension plans. The annualized effect of a one percentage point decrease in the return on pension plan assets would decrease plan assets by $22 million at January 30, 2010. The value of our pension liabilities is inversely related to changes in interest rates. To protect against declines in interest rates we hold high-quality, long-duration bonds and interest rate swaps in our pension plan trust. At year end, we had hedged approximately 50 percent of the interest rate exposure of our funded status. As more fully described in Note 14 and Note 26 of the Notes to Consolidated Financial Statements, we are exposed to market returns on accumulated team member balances in our nonqualified, unfunded deferred compensation plans. We control the risk of offering the nonqualified plans by making investments in life insurance contracts and prepaid forward contracts on our own common stock that offset a substantial portion of our economic exposure to the returns on these plans. The annualized effect of a one percentage point change in market returns on our nonqualified defined contribution plans (inclusive of the effect of the investment vehicles used to manage our economic exposure) would not be significant. We do not have significant direct exposure to foreign currency rates as all of our stores are located in the United States, and the vast majority of imported merchandise is purchased in U.S. dollars. Overall, there have been no material changes in our primary risk exposures or management of market risks since the prior year.
76

Item 8. Financial Statements and Supplementary Data Report of Management on the Consolidated Financial Statements Management is responsible for the consistency, integrity and presentation of the information in the Annual Report. The consolidated financial statements and other information presented in this Annual Report have been prepared in accordance with accounting principles generally accepted in the United States and include necessary judgments and estimates by management. To fulfill our responsibility, we maintain comprehensive systems of internal control designed to provide reasonable assurance that assets are safeguarded and transactions are executed in accordance with established procedures. The concept of reasonable assurance is based upon recognition that the cost of the controls should not exceed the benefit derived. We believe our systems of internal control provide this reasonable assurance. The Board of Directors exercised its oversight role with respect to the Corporation's systems of internal control primarily through its Audit Committee, which is comprised of independent directors. The Committee oversees the Corporation's systems of internal control, accounting practices, financial reporting and audits to assess whether their quality, integrity and objectivity are sufficient to protect shareholders' investments. In addition, our consolidated financial statements have been audited by Ernst & Young LLP, independent registered public accounting firm, whose report also appears on this page.
Gregg W. Steinhafel Chief Executive Officer and President March 12, 2010
Douglas A. Scovanner Executive Vice President and Chief Financial Officer
Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements The Board of Directors and Shareholders Target Corporation We have audited the accompanying consolidated statements of financial position of Target Corporation and subsidiaries (the Corporation) as of January 30, 2010 and January 31, 2009, and the related consolidated statements of operations, cash flows, and shareholders' investment for each of the three years in the period ended January 30, 2010. Our audits also included the financial statement schedule listed in Item 15(a). These financial statements and schedule are the responsibility of the Corporation's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
77

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Target Corporation and subsidiaries at January 30, 2010 and January 31, 2009, and the consolidated results of their operations and their cash flows for each of the three years in the period ended January 30, 2010, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Corporation's internal control over financial reporting as of January 30, 2010, based on criteria established in Internal ControlIntegrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 12, 2010, expressed an unqualified opinion thereon.
Minneapolis, March 12, 2010 Report of Management on Internal Control
Minnesota
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f). Under the supervision and with the participation of our management, including our chief executive officer and chief financial officer, we assessed the effectiveness of our internal control over financial reporting as of January 30, 2010, based on the framework in Internal ControlIntegrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our assessment, we conclude that the Corporation's internal control over financial reporting is effective based on those criteria. Our internal control over financial reporting as of January 30, 2010, has been audited by Ernst & Young LLP, the independent registered accounting firm who has also audited our consolidated financial statements, as stated in their report which appears on this page.
Gregg W. Steinhafel Chief Executive Officer and President March 12, 2010
Douglas A. Scovanner Executive Vice President and Chief Financial Officer
78

Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting The Board of Directors and Shareholders Target Corporation We have audited Target Corporation and subsidiaries' (the Corporation) internal control over financial reporting as of January 30, 2010, based on criteria established in Internal ControlIntegrated Framework, issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Corporation's management is responsible for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Corporation's internal control over financial reporting based on our audit. We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the Corporation maintained, in all material respects, effective internal control over financial reporting as of January 30, 2010, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial position of Target Corporation and subsidiaries as of January 30, 2010 and January 31, 2009, and the related consolidated statements of operations, cash flows and shareholders' investment for each of the three years in the period ended January 30, 2010, and our report dated March 12, 2010, expressed an unqualified opinion thereon.
Minneapolis, March 12, 2010
Minnesota
79

Consolidated Statements of Operations
2009
2008
2007
$ Sales
63,435 $ 1,922
62,884 $ 2,064
61,471 1,896
Credit card revenues 65,357 Total revenues 44,062 Cost of sales 13,078 Selling, general and administrative expenses 1,521 Credit card expenses 2,023 Depreciation and amortization 4,673 Earnings before interest expense and income taxes Net interest expense 97 Nonrecourse debt collateralized by credit card receivables 707 Other interest expense (3) Interest income 801 Net interest expense 3,872 Earnings before income taxes 1,384 Provision for income taxes $ Net earnings $ Basic earnings per share $ Diluted earnings per share 3.30 $ 2.86 $ 3.33 3.31 $ 2.87 $ 3.37 2,488 $ 2,214 $ 2,849 1,322 1,776 3,536 4,625 866 647 (28) (21) 727 535 167 133 4,402 5,272 1,826 1,659 1,609 837 12,954 12,670 44,157 42,929 64,948 63,367
Weighted average common shares outstanding
80

752.0 Basic 754.8 Diluted 773.6 850.8 770.4 845.4
See accompanying Notes to Consolidated Financial Statements.
Consolidated Statements of Financial Position
(millions, except footnotes)
January 30, January 31, 2010 2009
Assets $ Cash and cash equivalents, including marketable securities of $1,617 and $302 6,966 Credit card receivables, net of allowance of $1,016 and $1,010 7,179 Inventory 2,079 Other current assets 18,424 Total current assets Property and equipment 5,793 Land 22,152 Buildings and improvements 4,743 Fixtures and equipment 2,575 Computer hardware and software 502 Construction-in-progress (10,485) Accumulated depreciation 25,280 Property and equipment, net 829 Other noncurrent assets $ Total assets 44,533 $ 44,106 862 25,756 (9,060) 1,763 2,586 4,270 20,430 5,767 17,488 1,835 6,705 8,084 2,200 $ 864
Liabilities and shareholders' investment
81

$ Accounts payable 3,120 Accrued and other current liabilities 796 Unsecured debt and other borrowings 900 Nonrecourse debt collateralized by credit card receivables 11,327 Total current liabilities 10,643 Unsecured debt and other borrowings 4,475 Nonrecourse debt collateralized by credit card receivables 835 Deferred income taxes 1,906 Other noncurrent liabilities 17,859 Total noncurrent liabilities Shareholders' investment 62 Common stock 2,919 Additional paid-in-capital 12,947 Retained earnings (581) Accumulated other comprehensive loss 15,347 Total shareholders' investment $ Total liabilities and shareholders' investment 44,533 $ 44,106 13,712 (556) 11,443 2,762 63 19,882 1,937 455 5,490 12,000 10,512 1,262 2,913 6,511 $ 6,337
Common Stock Authorized 6,000,000,000 shares, $0.0833 par value; 744,644,454 shares issued and outstanding at January 30, 2010; 752,712,464 shares issued and outstanding at January 31, 2009. Preferred Stock Authorized 5,000,000 shares, $0.01 par value; no shares were issued or outstanding at January 30, 2010 or January 31, 2009. See accompanying Notes to Consolidated Financial Statements.
82

Consolidated Statements of Cash Flows
(millions)
2009
2008
2007
Operating activities $ Net earnings Reconciliation to cash flow 2,023 Depreciation and amortization 103 Share-based compensation expense 364 Deferred income taxes 1,185 Bad debt expense 97 Loss / impairment of property and equipment, net 103 Other non-cash items affecting earnings Changes in operating accounts providing / (requiring) cash: (57) Accounts receivable originated at Target (474) Inventory (280) Other current assets (127) Other noncurrent assets 174 Accounts payable 257 Accrued and other current liabilities 25 Other noncurrent liabilities Other 5,881 Cash flow provided by operations 4,430 4,125 160 (79) (139) 124 (230) 62 (389) 111 (76) 101 (224) (139) 77 (525) (458) (602) 222 52 33 28 1,251 481 91 (70) 72 73 1,826 1,659 2,488 $ 2,214 $ 2,849
Investing activities (1,729) Expenditures for property and equipment 33 Proceeds from disposal of property and equipment (10) Change in accounts receivable originated at third parties (823) (1,739) 39 95 (3,547) (4,369)
83

3 Other investments (1,703) Cash flow required for investing activities (4,373) (6,195) (42) (182)
Financing activities Additions to short-term notes payable Reductions of short-term notes payable Additions to long-term debt (1,970) Reductions of long-term debt (496) Dividends paid (423) Repurchase of stock Premiums on call options 47 Stock option exercises and related tax benefit Other (2,842) Cash flow provided by / (required for) financing activities 1,336 Net increase / (decrease) in cash and cash equivalents 864 Cash and cash equivalents at beginning of year $ Cash and cash equivalents at end of year 2,200 $ 864 $ 2,450 2,450 813 (1,586) 1,637 (1,643) 3,707 (8) (44) 43 210 (331) (2,815) (2,477) (465) (442) (1,455) (1,326) 3,557 7,617 (500) (500) 1,000
Cash paid for income taxes was $1,040, $1,399, and $1,734 during 2009, 2008, and 2007, respectively. Cash paid for interest (net of interest capitalized) was $805, $873, and $633 during 2009, 2008, and 2007, respectively. See accompanying Notes to Consolidated Financial Statements.
84

Consolidated Statements of Shareholders' Investment
Accumulated Other Comprehensive Income/(Loss) Pension and Derivative Other Instruments, Benefit Foreign Retained Liability Currency Earnings Adjustments and Other
(millions, except footnotes)
Common Stock Shares
Stock Par Value
Additional Paid-in Capital
Total
859.8 $ February 3, 2007 Net earnings Other comprehensive income Pension and other benefit liability adjustments, net of taxes of $38 Unrealized losses on cash flow hedges, net of taxes of $31 Total comprehensive income Cumulative effect of adopting new accounting pronouncements Dividends declared (46.2) Repurchase of stock Premiums on call options Stock options and awards 5.1
72 $
2,387 $ 13,417 2,849
(247) $
4 $ 15,633 2,849
59
59
(48)
(48)
2,860
(4)
269
(31) (454) (2,689) (331)
54
23 (454) (2,693) (331) 269
818.7 $ February 2, 2008 Net earnings Other comprehensive income Pension and other benefit liability adjustments, net of taxes of $242
68 $
2,656 $ 12,761 2,214
(134) $
(44) $ 15,307 2,214
(376)
(376)
85

Unrealized losses on cash flow hedges, net of taxes of $2 Total comprehensive income Dividends declared (67.2) Repurchase of stock Stock options and awards 1.2 (5) 106 (3,061) (3,066) 106 (471) (2) (2)
1,836 (471)
752.7 $ January 31, 2009 Net earnings Other comprehensive income Pension and other benefit liability adjustments, net of taxes of $17 Unrealized gains on cash flow hedges, net of taxes of $2 Currency translation adjustment, net of taxes of $0 Total comprehensive income Dividends declared (9.9) Repurchase of stock Stock options and awards 1.8
63 $
2,762 $ 11,443 2,488
(510) $
(46) $ 13,712 2,488
(27)
(27)
(2)
(2)
2,463 (1) 157 (503) (481) (503) (482) 157
744.6 $ January 30, 2010
62 $
2,919 $ 12,947
(537) $
(44) $ 15,347
Dividends declared per share were $0.67, $0.62, and $0.54 in 2009, 2008, and 2007, respectively. See accompanying Notes to Consolidated Financial Statements.
86

Notes to Consolidated Financial Statements 1. Summary of Accounting Policies Organization Target Corporation (Target or the Corporation) operates two reportable segments: Retail and Credit Card. Our Retail Segment includes all of our merchandising operations, including our large-format general merchandise and food discount stores in the United States and our fully integrated online business. Our Credit Card Segment offers credit to qualified guests through our branded proprietary credit cards, the Target Visa and the Target Card (collectively, REDcards). Our Credit Card Segment strengthens the bond with our guests, drives incremental sales and contributes to our results of operations. Consolidation The consolidated financial statements include the balances of the Corporation and its subsidiaries after elimination of intercompany balances and transactions. All material subsidiaries are wholly owned. We consolidate variable interest entities where it has been determined that the Corporation is the primary beneficiary of those entities' operations. The variable interest entity consolidated is a bankruptcy-remote subsidiary through which we sell certain accounts receivable as a method of providing funding for our accounts receivable. Use of estimates The preparation of our consolidated financial statements in conformity with U.S. generally accepted accounting principles (GAAP) requires management to make estimates and assumptions affecting reported amounts in the consolidated financial statements and accompanying notes. Actual results may differ significantly from those estimates. Fiscal year Our fiscal year ends on the Saturday nearest January 31. Unless otherwise stated, references to years in this report relate to fiscal years, rather than to calendar years. Fiscal year 2009 (2009) ended January 30, 2010 and consisted of 52 weeks. Fiscal year 2008 (2008) ended January 31, 2009 and consisted of 52 weeks. Fiscal year 2007 (2007) ended February 2, 2008 and consisted of 52 weeks. Reclassifications presentation. Certain prior year amounts have been reclassified to conform to the current year
Accounting policies applicable to the items discussed in the Notes to the Consolidated Financial Statement are described in the respective notes. 2. Revenues Our retail stores generally record revenue at the point of sale. Sales from our online business include shipping revenue and are recorded upon delivery to the guest. Total revenues do not include sales tax as we consider ourselves a pass through conduit for collecting and remitting sales taxes. Generally, guests may return merchandise within 90 days of purchase. Revenues are recognized net of expected returns, which we estimate using historical return patterns as a percentage of sales. Commissions earned on sales generated by leased departments are included within sales and were $18 million in 2009, $19 million in 2008, and $17 million in 2007. Revenue from gift card sales is recognized upon gift card redemption. Our gift cards do not have expiration dates. Based on historical redemption rates, a small and relatively stable percentage of gift cards will never be redeemed, referred to as "breakage." Estimated breakage revenue is recognized over time in proportion to actual gift card redemptions and was immaterial in 2009, 2008, and 2007. Credit card revenues are recognized according to the contractual provisions of each credit card agreement. When accounts are written off, uncollected finance charges and late fees are recorded as a reduction of credit card revenues. Target retail sales charged to our credit cards totaled $3,277 million, $3,883 million, and $4,139 million in 2009, 2008, and 2007, respectively. We offer new account discounts and rewards programs on our REDcard products. These discounts are redeemable only on purchases made at Target. The discounts
87

associated with our REDcard products are included as reductions in sales in our Consolidated Statements of Operations and were $94 million in 2009, $114 million in 2008, and $110 million in 2007. 3. Cost of Sales and Selling, General and Administrative Expenses The following table illustrates the primary costs classified in each major expense category:
Cost of Sales
Selling, General and Administrative Expenses
Total cost of products sold including Freight expenses associated with moving merchandise from our vendors to our distribution centers and our retail stores, and among our distribution and retail facilities Vendor income that is not reimbursement of specific, incremental and identifiable costs Inventory shrink Markdowns Outbound shipping and handling expenses associated with sales to our guests Terms cash discount Distribution center costs, including compensation and benefits costs
Compensation and benefit costs including Stores Headquarters
Occupancy and operating costs of retail and headquarters facilities Advertising, offset by vendor income that is a reimbursement of specific, incremental and identifiable costs Preopening costs of stores and other facilities Other administrative costs
The classification of these expenses varies across the retail industry.
4. Consideration Received from Vendors We receive consideration for a variety of vendor-sponsored programs, such as volume rebates, markdown allowances, promotions and advertising allowances and for our compliance programs, referred to as "vendor income." Vendor income reduces either our inventory costs or SG&A expenses based on the provisions of the arrangement. Promotional and advertising allowances are intended to offset our costs of promoting and selling merchandise in our stores. Under our compliance programs, vendors are charged for merchandise shipments that do not meet our requirements (violations), such as late or incomplete shipments. These allowances are recorded when violations occur. Substantially all consideration received is recorded as a reduction of cost of sales.
88

We establish a receivable for vendor income that is earned but not yet received. Based on provisions of the agreements in place, this receivable is computed by estimating the amount earned when we have completed our performance. We perform detailed analyses to determine the appropriate level of the receivable in the aggregate. The majority of year-end receivables associated with these activities are collected within the following fiscal quarter. 5. Advertising Costs Advertising costs are expensed at first showing or distribution of the advertisement and were $1,167 million in 2009, $1,233 million in 2008, and $1,195 million in 2007. Advertising vendor income that offset advertising expenses was approximately $130 million, $143 million, and $123 million 2009, 2008, and 2007, respectively. Newspaper circulars and media broadcast made up the majority of our advertising costs in all three years. 6. Earnings per Share Basic earnings per share (EPS) is net earnings divided by the weighted average number of common shares outstanding during the period. Diluted EPS includes the incremental shares assumed to be issued upon the exercise of stock options and the incremental shares assumed to be issued under performance share and restricted stock unit arrangements.
Earnings Per Share (millions, except per share data) 2009
Basic EPS 2008 2007 2009
Diluted EPS 2008 2007
$ 2,488 Net earnings Adjustment for prepaid forward contracts $ 2,488 Net earnings for EPS calculation Basic weighted average common shares outstanding Incremental stock options, performance share units and restricted stock units Adjustment for prepaid forward contracts Weighted average common shares outstanding $ Earnings per share 752.0 752.0
$ 2,214
$ 2,849
$ 2,488
$ 2,214
$ 2,849 (11)
$ 2,214
$ 2,849
$ 2,488
$ 2,214
$ 2,838
770.4
845.4
752.0 2.8
770.4 3.2
845.4 6.0 (0.6)
770.4
845.4
754.8
773.6
850.8
3.31
$ 2.87
$ 3.37
3.30
$ 2.86
$ 3.33
For the 2009, 2008, and 2007 EPS computations, 16.8 million, 10.5 million, and 6.3 million stock options, respectively, were excluded from the calculation of weighted average shares for diluted EPS because their effects were antidilutive. Refer to Note 26 for a description of the prepaid forward contracts referred to in the table above.
89

7. Other Comprehensive Income/(Loss) Other comprehensive income/(loss) includes revenues, expenses, gains and losses that are excluded from net earnings under GAAP and are recorded directly to shareholders' investment. In 2009, 2008, and 2007, other comprehensive income/(loss) included gains and losses on certain hedge transactions, foreign currency translation adjustments and amortization of pension and postretirement plan amounts, net of related taxes. Significant items affecting other comprehensive income/(loss) are shown in the Consolidated Statements of Shareholders' Investment. 8. Fair Value Measurements Fair value is the price at which an asset could be exchanged in a current transaction between knowledgeable, willing parties. A liability's fair value is defined as the amount that would be paid to transfer the liability to a new obligor, not the amount that would be paid to settle the liability with the creditor. Fair value measurements are categorized into one of three levels based on the lowest level of significant input used: Level 1 (unadjusted quoted prices in active markets); Level 2 (observable market inputs available at the measurement date, other than quoted prices included in Level 1); and Level 3 (unobservable inputs that cannot be corroborated by observable market data). The following table presents financial assets and liabilities measured at fair value on a recurring basis:
Fair Value Measurements Recurring Basis (millions)
Fair Value at January 30, 2010 Level 1 Level 2 Level 3
Fair Value at January 31, 2009 Level 1 Level 2 Level 3
Assets Cash and cash equivalents $ 1,617 Marketable securities Other current assets 79 Prepaid forward contracts Equity swaps Other noncurrent assets Interest rate swaps (a) Company-owned life insurance investments (b) 131 305 163 296 1 68 $ $ $ 302 $ $
$ 1,696 Total
436
371
459
Liabilities
90

Other noncurrent liabilities $ Interest rate swaps $ Total
(a) There were no interest rate swaps designated as accounting hedges at January 30, 2010 or January 31, 2009. (b) Company-owned life insurance investments consist of equity index funds and fixed income assets. Amounts are presented net of loans that are secured by some of these policies of $244 million at January 30, 2010 and $197 million at January 31, 2009.
23
30
23
30
Position
Valuation Technique
Marketable securities
Initially valued at transaction price. Carrying value of cash equivalents (including money market funds) approximates fair value because maturities are less than three months.
Prepaid forward contracts
Initially valued at transaction price. Subsequently valued by reference to the market price of Target common stock.
Interest rate swaps/forward and equity swaps Valuation models are calibrated to initial trade price. Subsequent valuations are based on observable inputs to the valuation model (e.g., interest rates and credit spreads). Model inputs are changed only when corroborated by market data. A credit risk adjustment is made on each swap using observable market credit spreads. Company-owned life insurance investments Includes investments in separate accounts that are valued based on market rates credited by the insurer.
Certain assets are measured at fair value on a nonrecurring basis; that is, the instruments are not measured at fair value on an ongoing basis but are subject to fair value adjustments only in certain circumstances (for example, when there is evidence of impairment). The fair value measurements related to long-lived assets held for sale and held and used in the following table were determined using available market prices at the measurement date based on recent investments or pending transactions of similar assets, third-party independent appraisals, valuation multiples or public comparables. We classify these measurements as Level 2. The fair value measurement of an intangible asset was determined using unobservable inputs that reflect our own assumptions regarding how market participants price the intangible assets at the measurement date. We classify these measurements as Level 3.
Other current assets Property and equipment Other noncurrent assets Fair Value Measurements Nonrecurring Basis (millions)
Long-lived assets held for sale (a)
Long-lived assets held and used (b)
Intangible asset
91

For the year ended January 30, 2010: 74 Carrying amount 57 Fair value measurement (17) Gain/(loss)
(a) Reported measurement is fair value less cost to sell. Costs to sell were approximately $3 million at January 30, 2010. (b) Primarily relates to real estate and buildings intended for sale in the future but not currently meeting the held for sale criteria. Reported measurement is fair value less cost to sell. Costs to sell were approximately $3 million at January 30, 2010.
98 66
(32)
(6)
The following table presents the carrying amounts and estimated fair values of financial instruments not measured at fair value in the Consolidated Statements of Financial Position. The fair value of marketable securities is determined using available market prices at the reporting date. The fair value of debt is generally measured using a discounted cash flow analysis based on our current market interest rates for similar types of financial instruments.
Financial Instruments Not Measured at Fair Value
January 30, 2010 Carrying Amount Fair Value
(millions)
Financial assets Other current assets $ Marketable securities (a) Other noncurrent assets 5 Marketable securities (a) $ Total 32 $ 32 5 27 $ 27
Financial liabilities $ 16,447 Total debt (b) $ 16,447 Total

(a) Amounts include held-to-maturity government and money market investments that are held to satisfy the capital requirements of Target Bank and Target National Bank.
$ 17,487
$ 17,487
92

(b) Represents the sum of nonrecourse debt collateralized by credit card receivables and unsecured debt and other borrowings excluding unamortized swap valuation adjustments and capital lease obligations.
The carrying amounts of credit card receivables, net of allowance, accounts payable, and certain accrued and other current liabilities approximate fair value at January 30, 2010. 9. Cash Equivalents Cash equivalents include highly liquid investments with an original maturity of three months or less from the time of purchase. Cash equivalents also include amounts due from credit card transactions with settlement terms of less than five days. Receivables resulting from third-party credit card sales within our Retail Segment are included within cash equivalents and were $313 million and $323 million at January 30, 2010 and January 31, 2009, respectively. Payables resulting from the use of the Target Visa at third-party merchants are included within cash equivalents and were $40 million and $53 million at January 30, 2010 and January 31, 2009, respectively. 10. Credit Card Receivables Credit card receivables are recorded net of an allowance for doubtful accounts. The allowance, recognized in an amount equal to the anticipated future write-offs of existing receivables, was $1,016 million at January 30, 2010 and $1,010 million at January 31, 2009. This allowance includes provisions for uncollectible finance charges and other credit-related fees. We estimate future write-offs based on historical experience of delinquencies, risk scores, aging trends, and industry risk trends. Substantially all accounts continue to accrue finance charges until they are written off. Total receivables past due ninety days or more and still accruing finance charges were $371 million at January 30, 2010 and $393 million at January 31, 2009. Accounts are written off when they become 180 days past due. Under certain circumstances, we offer cardholder payment plans that modify finance charges and minimum payments, which meet the accounting definition of a troubled debt restructuring (TDRs). These concessions are made on an individual cardholder basis for economic or legal reasons specific to each individual cardholder's circumstances. As a percentage of period-end gross receivables, receivables classified as TDRs were 6.7 percent at January 30, 2010 and 4.9 percent at January 31, 2009. Receivables classified as TDRs are treated consistently with other aged receivables in determining our allowance for doubtful accounts. As a method of providing funding for our credit card receivables, we sell on an ongoing basis all of our consumer credit card receivables to Target Receivables Corporation (TRC), a wholly owned, bankruptcy remote subsidiary. TRC then transfers the receivables to the Target Credit Card Master Trust (the Trust), which from time to time will sell debt securities to third parties either directly or through a related trust. These debt securities represent undivided interests in the Trust assets. TRC uses the proceeds from the sale of debt securities and its share of collections on the receivables to pay the purchase price of the receivables to the Corporation. We consolidate the receivables within the Trust and any debt securities issued by the Trust, or a related trust, in our Consolidated Statements of Financial Position based upon the applicable accounting guidance. The receivables transferred to the Trust are not available to general creditors of the Corporation. The payments to the holders of the debt securities issued by the Trust or the related trust are made solely from the assets transferred to the Trust or the related trust and are nonrecourse to the general assets of the Corporation. Upon termination of the securitization program and repayment of all debt securities, any remaining assets could be distributed to the Corporation in a liquidation of TRC. In the second quarter of 2008, we sold an interest in our credit card receivables to JPMC. The interest sold represented 47 percent of the receivables portfolio at the time of the transaction. This transaction was accounted for as a secured borrowing, and accordingly, the credit card receivables within the Trust and the note payable issued are reflected in our Consolidated Statements of Financial Position. Notwithstanding this accounting treatment, the accounts receivable assets that collateralize the note payable supply the cash flow to pay principal
93

and interest to the note holder; the receivables are not available to general creditors of the Corporation; and the payments to JPMC are made solely from the Trust and are nonrecourse to the general assets of the Corporation. Interest and principal payments due on the note are satisfied provided the cash flows from the Trust assets are sufficient. If the cash flows are less than the periodic interest, the available amount, if any, is paid with respect to interest. Interest shortfalls will be paid to the extent subsequent cash flows from the assets in the Trust are sufficient. Future principal payments will be made from JPMC's prorata share of cash flows from the Trust assets. In the event of a decrease in the receivables principal amount such that JPMC's interest in the entire portfolio would exceed 47 percent for three consecutive months, TRC (using the cash flows from the assets in the Trust) would be required to pay JPMC a prorata amount of principal collections such that the portion owned by JPMC would not exceed 47 percent, unless JPMC provides a waiver. Conversely, at the option of the Corporation, JPMC may be required to fund an increase in the portfolio to maintain their 47 percent interest up to a maximum JPMC principal balance of $4.2 billion. If a three-month average of monthly finance charge excess (JPMC's prorata share of finance charge collections less write-offs and specified expenses) is less than 2 percent of the outstanding principal balance of JPMC's interest, the Corporation must implement mutually agreed upon underwriting strategies. If the three-month average finance charge excess falls below 1 percent of the outstanding principal balance of JPMC's interest, JPMC may compel the Corporation to implement underwriting and collections activities, provided those activities are compatible with the Corporation's systems, as well as consistent with similar credit card receivable portfolios managed by JPMC. If the Corporation fails to implement the activities, JPMC would cause the accelerated repayment of the note payable issued in the transaction. As noted in the preceding paragraph, payments would be made solely from the Trust assets. 11. Inventory Substantially all of our inventory and the related cost of sales are accounted for under the retail inventory accounting method (RIM) using the last-in, first-out (LIFO) method. Inventory is stated at the lower of LIFO cost or market. Cost includes purchase price as reduced by vendor income. Inventory is also reduced for estimated losses related to shrink and markdowns. The LIFO provision is calculated based on inventory levels, markup rates and internally measured retail price indices. Under RIM, inventory cost and the resulting gross margins are calculated by applying a cost-to-retail ratio to the retail value inventory. RIM is an averaging method that has been widely used in the retail industry due to its practicality. The use of RIM will result in inventory being valued at the lower of cost or market because permanent markdowns are currently taken as a reduction of the retail value of inventory. We routinely enter into arrangements with vendors whereby we do not purchase or pay for merchandise until the merchandise is ultimately sold to a guest. Revenues under this program are included in sales in the Consolidated Statements of Operations, but the merchandise received under the program is not included in inventory in our Consolidated Statements of Financial Position because of the virtually simultaneous purchase and sale of this inventory. Sales made under these arrangements totaled $1,820 million in 2009, $1,524 million in 2008, and $1,643 million in 2007. 12. Other Current Assets
Other Current Assets (millions)
January 30, 2010
January 31, 2009
$ Deferred taxes
724 $ 526
693 433
Other receivables (a)
94

390 Vendor income receivable 439 Other $ Total
(a) Includes pharmacy receivables and income taxes receivable.
236 473
2,079 $
1,835
13. Property and Equipment Property and equipment are recorded at cost, less accumulated depreciation. Depreciation is computed using the straight-line method over estimated useful lives or lease term if shorter. We amortize leasehold improvements purchased after the beginning of the initial lease term over the shorter of the assets' useful lives or a term that includes the original lease term, plus any renewals that are reasonably assured at the date the leasehold improvements are acquired. Depreciation expense for 2009, 2008, and 2007 was $1,999 million, $1,804 million, and $1,644 million, respectively. For income tax purposes, accelerated depreciation methods are generally used. Repair and maintenance costs are expensed as incurred and were $632 million in 2009, $609 million in 2008, and $592 million in 2007. Facility preopening costs, including supplies and payroll, are expensed as incurred.
Estimated Useful Lives
Life (in years)
8-39 Buildings and improvements 3-15 Fixtures and equipment 4-7 Computer hardware and software
Long-lived assets are reviewed for impairment annually and also when events or changes in circumstances indicate that the asset's carrying value may not be recoverable. Impairments of $49 million in 2009, $2 million in 2008 and $7 million in 2007 were recorded as a result of the tests performed. Additionally, we wrote off $37 million in 2009, $26 million in 2008 and $4 million in 2007 of capitalized construction in progress costs due to project scope changes. 14. Other Noncurrent Assets
Other Noncurrent Assets (millions)
January 30, 2010
January 31, 2009
$ Cash surrender value of life insurance (a)
319 $ 239
305 231
Goodwill and intangible assets
95

131 Interest rate swaps (b) 140 Other $ Total
(a) Company-owned life insurance policies on approximately 4,000 team members who are designated highly compensated under the Internal Revenue Code and have given their consent to be insured. (b) See Notes 8 and 20 for additional information relating to our interest rate swaps.
163 163
829 $
862
15. Goodwill and Intangible Assets Goodwill and intangible assets are recorded within other noncurrent assets at cost less accumulated amortization. Goodwill totaled $59 million at January 30, 2010 and $60 million at January 31, 2009. Goodwill is not amortized; instead, it is tested at least annually or whenever an event or change in circumstances indicates the carrying value of the asset may not be recoverable. Discounted cash flow models are used in determining fair value for the purposes of the required annual impairment analysis. An impairment loss on a long-lived and identifiable intangible asset would be recognized when estimated undiscounted future cash flows from the operation and disposition of the asset are less than the asset carrying amount. No material impairments related to goodwill and intangible assets were recorded in 2009, 2008, or 2007 as a result of the tests performed. Intangible assets by major classes were as follows:
Intangible Assets
Leasehold Acquisition Costs Jan. 31, 2009 Other (a) Jan. 30, 2010 Jan. 31, 2009 Total Jan. 30, 2010 Jan. 31, 2009
(millions)
Jan. 30, 2010
$ Gross asset
197 $ (62)
196 $ (54)
150 $ (105)
129 $ (100)
347 $ (167)
325 (154)
Accumulated amortization $ Net intangible assets

(a) Other intangible assets relate primarily to acquired trademarks and customer lists.
135 $
142 $
45 $
29 $
180 $
171
Amortization is computed on intangible assets with definite useful lives using the straight-line method over estimated useful lives that typically range from 9 to 39 years for leasehold acquisition costs and from 3 to 15 years for other intangible assets. Amortization expense for 2009, 2008, and 2007 was $24 million, $21 million, and $15 million, respectively.
96

Estimated Amortization Expense (millions)
2010
2011
2012
2013
2014
$23 Amortization expense
$18
$13
$11
$10
16. Accounts Payable We reclassify book overdrafts to accounts payable at period end. Overdrafts reclassified to accounts payable were $539 million at January 30, 2010 and $606 million at January 31, 2009. 17. Accrued and Other Current Liabilities
Accrued and Other Current Liabilities (millions)
January 30, 2010
January 31, 2009
$ Wages and benefits
959 $ 490
727 430 381 167 176 120 130 182 600
Taxes payable (a) 387 Gift card liability (b) 185 Straight-line rent accrual 163 Workers' compensation and general liability 127 Dividends payable 105 Interest payable 72 Construction in progress 632 Other $ Total
(a) Taxes payable consist of real estate, team member withholdings and sales tax liabilities. (b) Gift card liability represents the amount of gift cards that have been issued but have not been redeemed, net of estimated breakage.
3,120 $
2,913
18. Commitments and Contingencies Purchase obligations, which include all legally binding contracts, such as firm commitments for inventory purchases, merchandise royalties, equipment purchases, marketing-related contracts, software acquisition/license commitments and service contracts, were approximately $2,016 million and $570 million at
97

January 30, 2010 and January 31, 2009, respectively. We issue inventory purchase orders, which represent authorizations to purchase that are cancelable by their terms. We do not consider purchase orders to be firm inventory commitments. We also issue trade letters of credit in the ordinary course of business, which are not firm commitments as they are conditional on the purchase order not being cancelled. If we choose to cancel a purchase order, we may be obligated to reimburse the vendor for unrecoverable outlays incurred prior to cancellation under certain circumstances. Trade letters of credit totaled $1,484 million and $1,359 million at January 30, 2010 and January 31, 2009, respectively, a portion of which are reflected in accounts payable. Standby letters of credit, relating primarily to retained risk on our insurance claims, totaled $72 million and $64 million at January 30, 2010 and January 31, 2009, respectively. We are exposed to claims and litigation arising in the ordinary course of business and use various methods to resolve these matters in a manner that we believe serves the best interest of our shareholders and other constituents. We believe the recorded reserves in our consolidated financial statements are adequate in light of the probable and estimable liabilities. We do not believe that any of the currently identified claims or litigation matters will have a material adverse impact on our results of operations, cash flows or financial condition. 19. Notes Payable and Long-Term Debt We obtain short-term financing throughout the year under our commercial paper program, a form of notes payable.
Commercial Paper (millions)
2009
2008
$ 112 Maximum amount outstanding during the year 1 Average amount outstanding during the year Amount outstanding at year-end 0.2% Weighted average interest rate
$ 1,385 274 2.1%
An additional source of liquidity is available to us through a committed $2 billion unsecured revolving credit facility obtained through a group of banks in April 2007, which will expire in April 2012. No balances were outstanding at any time during 2009 or 2008 under this credit facility. As further explained in Note 10, we maintain an accounts receivable financing program through which we sell credit card receivables to a bankruptcy remote, wholly owned subsidiary, which in turn transfers the receivables to a Trust. The Trust, either directly or through related trusts, sells debt securities to third parties. The following summarizes this activity for fiscal 2008 and 2009.
98

Nonrecourse Debt Collateralized by Credit Card Receivables (millions)
Amount
$ 2,400 At February 2, 2008 3,557 Issued, net of $268 discount 33 Accretion (a) (500) Repaid 5,490 At January 31, 2009 Issued 48 Accretion (a) (163) Repaid $ 5,375 At January 30, 2010
(a) Represents the accretion of the 7 percent discount on the 47 percent interest in credit card receivables sold to JPMC.
Other than debt backed by our credit card receivables and other immaterial borrowings, all of our outstanding borrowings are senior, unsecured obligations. At January 30, 2010, the carrying value and maturities of our debt portfolio, including swap valuation adjustments for our fair value hedges, was as follows:
January 30, 2010 Debt Maturities (millions) Rate (a) Balance
3.2%$ Due fiscal 2010-2014 5.7 Due fiscal 2015-2019 9.2 Due fiscal 2020-2024 6.7 Due fiscal 2025-2029 6.6 Due fiscal 2030-2034
8,271 3,232 213 326 905
99

6.8 Due fiscal 2035-2037 4.8 Total notes and debentures 197 Unamortized swap valuation adjustments from terminated/de-designated swaps 170 Capital lease obligations Less: (1,696) Amounts due within one year $ Long-term debt
(a) Reflects the weighted average stated interest rate as of year-end.
3,500
16,447
15,118
Required principal payments on notes and debentures over the next five years, excluding capital lease obligations, are as follows:
Required Principal Payments (a) (millions)
2010
2011
2012
2013
2014
$ Unsecured
786 $ 900
106 $
1,501 $ 750
501 $ 3,903
Nonrecourse $ Total required principal payments

(a) The required principal payments presented in this table do not consider the potential accelerated repayment requirements under our agreement with JPMC in the event of a decrease in credit card receivables.
1,686 $
106 $
2,251 $
4,404 $
Most of our long-term debt obligations contain covenants related to secured debt levels. In addition to a secured debt level covenant, our credit facility also contains a debt leverage covenant. We are, and expect to remain, in compliance with these covenants. 20. Derivative Financial Instruments Derivative financial instruments are reported at fair value on the Consolidated Statements of Financial Position. Our derivative instruments have been primarily interest rate swaps. We use these derivatives to mitigate our interest rate risk. We have counterparty credit risk resulting from our derivate instruments. This risk lies primarily with two global financial institutions. We monitor this concentration of counterparty credit risk on an ongoing basis. Prior to 2009, the majority of our derivative instruments qualified for fair value hedge accounting treatment. The changes in market value of an interest rate swap, as well as the offsetting change in market value of the hedged debt, were recognized within earnings in the current period. We assessed at the inception of the hedge
100

whether the hedging derivatives were highly effective in offsetting changes in fair value or cash flows of hedged items. Ineffectiveness resulted when changes in the market value of the hedged debt were not completely offset by changes in the market value of the interest rate swap. For those derivatives whose terms met the conditions of the "short-cut method", 100 percent hedge effectiveness was assumed. There was no ineffectiveness recognized in 2009, 2008, or 2007 related to our derivative instruments. As detailed below, at January 30, 2010, there were no derivative instruments designated as accounting hedges. During the first quarter of 2008, we terminated certain "pay floating" interest rate swaps with a combined notional amount of $3,125 million for cash proceeds of $160 million, which are classified within other operating cash flows in the Consolidated Statements of Cash Flows. These swaps were designated as hedges; therefore, concurrent with their terminations, we were required to stop making market value adjustments to the associated hedged debt. Gains realized upon termination will be amortized into earnings over the remaining life of the associated hedge debt. Additionally, during 2008, we de-designated certain "pay floating" interest rate swaps, and upon dedesignation, these swaps no longer qualified for hedge accounting treatment. As a result of the de-designation, the unrealized gains on these swaps determined at the date of de-designation will be amortized into earnings over the remaining lives of the previously hedged items. In 2009, 2008, and 2007, total net gains amortized into net interest expense for terminated and dedesignated swaps were $60 million, $55 million, and $6 million, respectively. The amount remaining on unamortized hedged debt valuation gains from terminated and de-designated interest rate swaps that will be amortized into earnings over the remaining lives totaled $197 million, $263 million, and $14 million, at the end of 2009, 2008, and 2007, respectively. Simultaneous to the de-designations during 2008, we entered into "pay fixed" swaps to economically hedge the risks associated with the de-designated "pay floating" swaps. These swaps are not designated as hedging instruments and along with the de-designated "pay floating" swaps are measured at fair value on a quarterly basis. Changes in fair value measurements are a component of net interest expense on the Consolidated Statements of Operations. At January 30, 2010, a characteristic summary of interest rate swaps outstanding was:
Outstanding Interest Rate Swap Characteristic Summary
Pay Floating
Pay Fixed
Weighted average rate: one-month LIBOR Pay 5.0% fixed one-month LIBOR Receive 4.4 years Weighted average maturity $1,250 Notional $1,250 4.4 years 2.6% fixed
101

Derivative Contracts Types, Balance Sheet Classifications and Fair Values (millions) Asset Fair Value At Jan. 30, 2010 Jan. 31, 2009 Liability Fair Value At Jan. 30, 2010 Jan. 31, 2009
Type
Classification
Classification
Not designated as hedging instruments: Interest rate swaps Total
Other noncurrent assets $
131 $
163
Other noncurrent $ liabilities $
23 $
30
131 $
163
23 $
30
During 2007, we entered into a series of interest rate lock agreements that effectively fixed the interest payments on our anticipated issuance of debt that would be affected by interest-rate fluctuations on the U.S. Treasury benchmark between the beginning date of the interest rate locks and the date of the issuance of the debt. Upon our issuance of fixed-rate debt in fiscal 2007, we terminated these rate lock agreements with a combined notional amount of $2.5 billion for cash payment of $79 million, which is classified within other operating cash flows on the Consolidated Statements of Cash Flows. The loss of $48 million, net of taxes of $31 million, has been recorded in accumulated other comprehensive loss and is being recognized as an adjustment to net interest expense over the same period in which the related interest costs on the debt are recognized in earnings. During 2007, the amount reclassified into earnings was not material. During 2008 and 2009, the amount reclassified into earnings as an increase to interest expense from accumulated other comprehensive income was $3 million ($5 million pre tax) and $3 million ($5 million pre tax). The amount expected to be reclassified into earnings from accumulated other comprehensive income for 2010 is $3 million ($5 million pre tax). Periodic payments, valuation adjustments and amortization of gains or losses from the termination or dedesignation of derivative contracts are summarized below:
Derivative Contracts Effect on Results of Operations (millions)
Income/(Expense) Type Classification of Income/(Expense) 2009 2008 2007
Other interest expense Interest rate swaps Selling, general and administrative Interest rate forward (a)
65 $
71 $ (15) 18
102

$ Total
(a) These derivatives are used to mitigate interest rate exposure on our discounted workers' compensation and general liability obligations.
65 $
71 $
21. Leases We lease certain retail locations, warehouses, distribution centers, office space, equipment and land. Assets held under capital lease are included in property and equipment. Operating lease rentals are expensed on a straight-line basis over the life of the lease beginning on the date we take possession of the property. At lease inception, we determine the lease term by assuming the exercise of those renewal options that are reasonably assured because of the significant economic penalty that exists for not exercising those options. The exercise of lease renewal options is at our sole discretion. The expected lease term is used to determine whether a lease is capital or operating and is used to calculate straight-line rent expense. Additionally, the depreciable life of buildings and leasehold improvements is limited by the expected lease term. Rent expense on buildings is included in SG&A. Some of our lease agreements include rental payments based on a percentage of retail sales over contractual levels. Total rent expense was $174 million in 2009, $169 million in 2008, and $165 million in 2007, including immaterial amounts of percentage rent expense in 2009, 2008 and 2007. Certain leases require us to pay real estate taxes, insurance, maintenance and other operating expenses associated with the leased premises. These expenses are classified in SG&A consistent with similar costs for owned locations. Most long-term leases include one or more options to renew, with renewal terms that can extend the lease term from one to more than fifty years. Certain leases also include options to purchase the leased property.
Future Minimum Lease Payments (millions)
Operating Leases (a)
Capital Leases
$ 2010
264 181
16 17 18 18 17 190
2011 143 2012 138 2013 127 2014 3,147 After 2014 $ Total future minimum lease payments (106) Less: Interest (b) $ Present value of future minimum capital lease payments (c) 170 4,000 276
103

(a) Total contractual lease payments include $2,016 million related to options to extend lease terms that are reasonably assured of being exercised and also includes $88 million of legally binding minimum lease payments for stores that will open in 2010 or later. (b) Calculated using the interest rate at inception for each lease. (c) Includes the current portion of $5 million.
22. Income Taxes Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted income tax rates in effect for the year the temporary differences are expected to be recovered or settled. Tax rate changes affecting deferred tax assets and liabilities are recognized in income at the enactment date. We have not recorded deferred taxes when earnings from foreign operations are considered to be indefinitely invested outside the U.S. Such amounts are not significant.
Tax Rate Reconciliation
2009
2008
2007
35.0% Federal statutory rate 3.8 State income taxes, net of federal tax benefit (3.1) Other 35.7% Effective tax rate
35.0% 4.0 (1.6)
35.0% 4.0 (0.6)
37.4%
38.4%
The decrease in the effective rates between 2009 and 2008 is primarily due to nontaxable capital market returns on investments used to economically hedge the market risk in deferred compensation obligations in 2009 compared with nondeductible losses in 2008. The 2009 effective income tax rate is also lower due to federal and state discrete items. The decrease in 2008 was primarily due to tax reserve reductions resulting from audit settlements and the effective resolution of other issues. The 2008 effective income tax rate was also lower due to a comparatively greater proportion of earnings subject to rate differences between taxing jurisdictions. These rate declines were partially offset by lower capital market returns on investments used to economically hedge the market risk in deferred compensation plans. Gains and losses from these investments are not taxable.
Provision for Income Taxes: Expense/(Benefit) (millions)
2009
2008
2007
Current: $ Federal 143 State/other 197 278 877 $ 1,034 $ 1,568
104

1,020 Total current 1,231 1,846
Deferred: 339 Federal 25 State/other 364 Total deferred $ Total provision 1,384 $ 1,322 $ 1,776 91 (70) 3 (3) 88 (67)
Net Deferred Tax Asset/(Liability) (millions)
January 30, 2010
January 31, 2009
Gross deferred tax assets: $ Accrued and deferred compensation 393 Allowance for doubtful accounts 380 Accruals and reserves not currently deductible 260 Self-insured benefits 92 Other 1,663 Total gross deferred tax assets 1,671 223 289 349 390 538 $ 420
Gross deferred tax liabilities: (1,543) Property and equipment (166) Deferred credit card income (64) Other (1,773) Total gross deferred tax liabilities (1,433) (55) (144) (1,234)
105

$ Total net deferred tax asset/(liability) (110) $ 238
We file a U.S. federal income tax return and income tax returns in various states and foreign jurisdictions. We are no longer subject to U.S. federal income tax examinations for years before 2006 and, with few exceptions, are no longer subject to state and local or non-U.S. income tax examinations by tax authorities for years before 2003.
Reconciliation of Unrecognized Tax Benefit Liabilities (millions)
2009
2008
$ Balance at beginning of period
434 $ 119
442 27 100 (101) (34)
Additions based on tax positions related to the current year 47 Additions for tax positions of prior years (61) Reductions for tax positions of prior years (87) Settlements $ Balance at end of period 452 $ 434
If the Corporation were to prevail on all unrecognized tax benefit liabilities recorded, approximately $210 million of the $452 million reserve would benefit the effective tax rate. In addition, the reversal of accrued penalties and interest would also benefit the effective tax rate. Interest and penalties associated with unrecognized tax benefit liabilities are recorded within income tax expense. During the year ended January 30, 2010, we reversed accrued penalties and interest of approximately $10 million. During the years ended January 31, 2009 and February 2, 2008, we recognized approximately $33 million, and $37 million, respectively, in interest and penalties. We had accrued for the payment of interest and penalties of approximately $127 million at January 30, 2010 and $153 million at January 31, 2009. Included in the balance at January 30, 2010 and January 31, 2009 are $133 million and $116 million, respectively, of liabilities for tax positions for which the ultimate deductibility is highly certain, but for which there is uncertainty about the timing of such deductibility. Because of the impact of deferred tax accounting, other than interest and penalties, the disallowance of the shorter deductibility period would not affect the annual effective tax rate, but would accelerate the cash payment to the taxing authority to an earlier period. During 2010, we will file a tax accounting method change allowed under applicable tax regulations that will determine the timing of deductions for one of our tax positions. Accordingly, this change will result in a decrease in the unrecognized tax benefit liability of approximately $130 million in the next twelve months. Additionally, it is reasonably possible that the amount of the unrecognized tax benefit liabilities with respect to other of our unrecognized tax positions will increase or decrease during the next twelve months; however, we do not currently expect any change to have a significant effect on our results of operations or our financial position. During 2009, we filed income tax returns that included tax accounting method changes allowed under applicable tax regulations. These changes resulted in a substantial increase in tax deductions related to property and equipment, resulting in an increase in noncurrent deferred income tax liabilities of approximately $300 million
106

and a corresponding increase in current income taxes receivable, which is classified as other current assets in the Consolidated Statements of Financial Position. These changes did not affect income tax expense for 2009. 23. Other Noncurrent Liabilities
Other Noncurrent Liabilities (millions)
January 30, 2010
January 31, 2009
$ Income tax liability
579 $ 490
506 506 309 318 298
Workers' compensation and general liability 369 Deferred compensation 178 Pension and postretirement health care benefits 290 Other $ Total 1,906 $ 1,937
We retain a substantial portion of the risk related to certain general liability and workers' compensation claims. Liabilities associated with these losses include estimates of both claims filed and losses incurred but not yet reported. We estimate our ultimate cost based on analysis of historical data and actuarial estimates. General liability and workers' compensation liabilities are recorded at our estimate of their net present value. 24. Share Repurchase In November 2007, our Board of Directors approved a share repurchase program totaling $10 billion that replaced a prior program. In November 2008, we announced that, in light of our business outlook, we were temporarily suspending our open-market share repurchase program. In January 2010, we resumed open-market purchases of shares under this program. Share repurchases for the last three years, repurchased primarily through open market transactions, were as follows:
Share Repurchases (millions, except per share data)
Total Number of Shares Purchased
Average Price Paid per Share
Total Investment
19.7 2007 Under a prior program 26.5 2007 Under the 2007 program 67.2 2008
60.72 54.64 50.49
1,197 1,445 3,395
107

9.9 2009 123.3 Total $ 52.85 $ 6,516 48.54 479
Of the shares reacquired and included above, a portion was delivered upon settlement of prepaid forward contracts. The prepaid forward contracts settled in 2009 had a total cash investment of $56 million and an aggregate market value of $60 million at their respective settlement dates. The prepaid forward contracts settled in 2008 had a total cash investment of $249 million and an aggregate market value of $251 million at their respective settlement dates. The prepaid forward contracts settled in 2007 had a total cash investment of $165 million and an aggregate market value of $215 million at their respective settlement dates. These contracts are among the investment vehicles used to reduce our economic exposure related to our nonqualified deferred compensation plans. The details of our positions in prepaid forward contracts have been provided in Note 26. Our share repurchases during 2008 included 30 million shares that were acquired through the exercise of call options.
Call Option Repurchase Details
Series
(amounts per share) Number of Options Exercised Exercise Date Premium (a) Strike Price Total
Total Cost (millions)
10,000,000 Series I 10,000,000 Series II 10,000,000 Series III 30,000,000 Total

(a) Paid in January 2008.
April 2008 May 2008 June 2008
11.04 $ 10.87 11.20
40.32 $ 39.31 39.40
51.36 $ 50.18 50.60
514 502 506
11.04 $
39.68 $
50.71 $
1,522
25. Share-Based Compensation We maintain a long-term incentive plan for key team members and nonemployee members of our Board of Directors. Our long-term incentive plan allows us to grant equity-based compensation awards, including stock options, stock appreciation rights, performance share unit awards, restricted stock unit awards, restricted stock awards or a combination of awards. A majority of granted awards are nonqualified stock options that vest annually in equal amounts over a fouryear period and expire no later than 10 years after the grant date. Options granted to the nonemployee members of our Board of Directors become exercisable after one year and have a 10-year term.
108

We have issued performance share unit awards annually since January 2003. These awards represent shares potentially issuable in the future; historically, awards have been issued based upon the attainment of compound annual growth rates in revenue and EPS over a three year performance period. Beginning with the March 2009 grant, issuance is based upon the attainment of compound annual EPS growth rate and domestic market share change relative to a retail peer group over a three-year performance period. We regularly issue restricted stock units with three-year cliff vesting to select team members. We also regularly issue restricted stock units to our Board of Directors. The number of unissued common shares reserved for future grants under the share-based compensation plans was 21,450,009 at January 30, 2010 and 25,755,800 at January 31, 2009.
Share-Based Compensation Award Activity

Stock Options (a) Total Outstanding (number of options and units in thousands) Exercisable
No. of Options
Exercise Price (b)
Intrinsic Value (c)
No. of Options
Exercise Price (b)
Intrinsic Value (c)
Performance Share Units (d)
Restricted Stock Units
27,910 February 3, 2007 5,725 Granted (434) Expired/forfeited (5,061) Exercised/issued 28,140 February 2, 2008 9,914 Granted (756) Expired/forfeited (937) Exercised/issued 36,361 January 31, 2009 5,127 Granted (1,507) Expired/forfeited (1,767) Exercised/issued 38,214 January 30, 2010
41.95 49.54 52.67 28.00
558
17,659
35.32
470
1,895 650 (370)
221 21 (4)
45.84 34.64 51.28 33.36
298
16,226
41.07
245
2,175 764 (176) (740)
238 315 (2) (2)
43.00 49.08 46.14 35.34
19,292
43.80
2,023 826 (662) (14)
549 224 (203)
44.05
331
22,446
44.59
189
2,173 (e)
570
(a) Includes Stock Appreciation Rights granted to certain non-U.S. team members. (b)Weighted average per share. (c) Represents stock price appreciation subsequent to the grant date, in millions.
109

(d) Assumes attainment of maximum payout rates as set forth in the performance criteria. (e) Because the performance criteria were not met, approximately 644 thousand of these performance share units outstanding at January 30, 2010 were not earned and will be forfeited in the first quarter of 2010.
We used a Black-Scholes valuation model to estimate the fair value of the options at grant date based on the assumptions noted in the following table. Volatility represents an average of market estimates for implied volatility of 5.5-year options on Target common stock. The expected life is estimated based on an analysis of options already exercised and any foreseeable trends or changes in recipients' behavior. The risk-free interest rate is an interpolation of the relevant U.S. Treasury security maturities as of each applicable grant date. The assumptions disclosed below represent a weighted average of the assumptions used for all of our stock option grants throughout the years.
Valuation of Share-Based Compensation
2009
2008
2007
Stock options weighted average valuation assumptions: 1.4% Dividend yield 31% Volatility 2.7% Risk-free interest rate 5.5 Expected life in years $ Stock options grant date weighted average fair value Performance share units grant date weighted average fair value Restricted stock units grant date weighted average fair value $ $ 14.18 $ 27.18 $ 48.94 $ 12.87 $ 51.68 $ 34.78 $ 18.08 59.45 57.70 5.5 5.5 1.5% 3.2% 47% 39% 1.9% 1.1%
Total share-based compensation expense recognized in the Consolidated Statements of Operations was $103 million, $72 million, and $73 million in 2009, 2008, and 2007, respectively. The related income tax benefit was $40 million, $28 million, and $28 million in 2009, 2008, and 2007, respectively.
Stock Options Exercises (millions)
2009
2008
2007
$ Compensation expense realized
21 $ 8
14 $ 5
187 73
Related income tax benefit 62 Net cash proceeds 31 142
110

At January 30, 2010, there was $147 million of total unrecognized compensation expense related to nonvested stock options, which is expected to be recognized over a weighted average period of 1.4 years. The weighted average remaining life of currently exercisable options is 4.9 years, and the weighted average remaining life of all outstanding options is 8.8 years. The total fair value of options vested was $85 million, $69 million, and $55 million, in 2009, 2008, and 2007, respectively. Compensation expense associated with outstanding performance share units is recorded over the life of the awards. The expense recorded each period is dependent upon our estimate of the number of shares that will ultimately be issued. Future compensation expense for currently outstanding awards could reach a maximum of $51 million assuming payout of all outstanding awards. There were no share based liabilities paid during 2009. The total share based liabilities paid were $15 million in 2008 and $18 million in 2007. Total unrecognized compensation expense related to restricted stock unit awards was $16 million as of January 30, 2010. 26. Defined Contribution Plans Team members who meet certain eligibility requirements can participate in a defined contribution 401(k) plan by investing up to 80 percent of their compensation, as limited by statute or regulation. Generally, we match 100 percent of each team member's contribution up to 5 percent of total compensation. Company match contributions are made to the fund designated by the participant. In addition, we maintain nonqualified, unfunded deferred compensation plans for approximately 3,500 current and retired team members. These team members choose from a menu of crediting rate alternatives that are the same as the investment choices in our 401(k) plan, including Target common stock. We credit an additional 2 percent per year to the accounts of all active participants, excluding executive officer participants, in part to recognize the risks inherent to their participation in a plan of this nature. We also maintain a nonqualified, unfunded deferred compensation plan that was frozen during 1996, covering 11 active and 50 retired participants. In this plan deferred compensation earns returns tied to market levels of interest rates, plus an additional 6 percent return, with a minimum of 12 percent and a maximum of 20 percent, as determined by the plan's terms. The American Jobs Creation Act of 2004 added Section 409A to the Internal Revenue Code, changing the federal income tax treatment of nonqualified deferred compensation arrangements. Failure to comply with the new requirements would result in early taxation of nonqualified deferred compensation arrangements, as well as a 20 percent penalty tax and additional interest payable to the IRS. In response to these new requirements, we allowed participants to elect to accelerate the distribution dates for their account balances. Participant elections resulted in payments of $29 million in 2009 and $86 million in 2008. We control some of our risk of offering the nonqualified plans through investing in vehicles, including company-owned life insurance and prepaid forward contracts in our own common stock that offset a substantial portion of our economic exposure to the returns of these plans. These investment vehicles are general corporate assets and are marked to market with the related gains and losses recognized in the Consolidated Statements of Operations in the period they occur. The total change in fair value for contracts indexed to our own common stock recorded in earnings was pretax income/(loss) of $36 million in 2009, $(19) million in 2008, and $6 million in 2007. During 2009 and 2008, we invested approximately $34 million and $215 million, respectively, in such investment instruments, and these investments are included in the Consolidated Statements of Cash Flows within other investing activities. Adjusting our position in these investment vehicles may involve repurchasing shares of Target common stock when settling the forward contracts. In 2009, 2008, and 2007, these repurchases totaled 1.5 million, 4.7 million, and 3.4 million shares, respectively, and are included in the total share repurchases described in Note 24.
111

Prepaid Forward Contracts on Target Common Stock Contractual Number of Price Paid Shares per Share Fair Total Cash Value Investment
2.2 $ January 31, 2009 1.5 $ January 30, 2010
39.98 $ 42.77 $
68 $ 79 $
88 66
The settlement dates of these instruments are regularly renegotiated with the counterparty.
Plan Expenses (millions)
2009
2008
2007
401(k) Defined Contribution Plan $ Matching contributions expense Nonqualified Deferred Compensation Plans $ Benefits expense/(income) (77) Related investment loss/(income) (a) $ Nonqualified plan net expense
(a) Investment loss/(income) includes changes in unrealized gains and losses on prepaid forward contracts and unrealized and realized gains and losses on company-owned life insurance policies.
178 $
178 $
172
83 $
(80) $ 83
46 (26)
6 $
3 $
20
27. Pension and Postretirement Health Care Plans We have qualified defined benefit pension plans covering all U.S. team members who meet age and service requirements, including in certain circumstances, date of hire. We also have unfunded nonqualified pension plans for team members with qualified plan compensation restrictions. Eligibility for, and the level of, these benefits varies depending on team members' date of hire, length of service and/or team member compensation. Upon retirement, team members also become eligible for certain health care benefits if they meet minimum age and service requirements and agree to contribute a portion of the cost. Effective January 1, 2009, our qualified defined benefit pension plan was closed to new participants, with limited exceptions. We recognize that our obligations to plan participants can only be met over time through a combination of company contributions to these plans and earnings on plan assets. In light of this concept and as a result of declines in the market value of plan assets in 2008 (which were only partially offset by increases in 2009), we elected to contribute $252 million to our qualified plans during 2009. This restored the qualified plans to a fullyfunded status at year-end on an ABO (Accumulated Benefit Obligation) basis.
112

During 2009 we amended our postretirement health care plan, resulting in a $46 million reduction to our recorded liability, with a corresponding increase to shareholders' equity of $28 million, net of taxes of $18 million. The financial benefits of this amendment will be recognized though a reduction of benefit plan expense over the next 6 years. The following tables provide a summary of the changes in the benefit obligations, fair value of plan assets, and funded status and amounts recognized in our Consolidated Statement of Financial Position for our postretirement benefit plans:
Pension Benefits Change in Projected Benefit Obligation (millions) Qualified Plans Nonqualified Plans Postretirement Health Care Benefits
2009
2008
2009
2008
2009
2008
Benefit obligation at beginning of measurement period Service cost
$1,948 99 123
$1,811 93 114 21 (94) 3
$36 1 2 (3) (3)
$33 1 2 4 (4)
$117 7 6 33 6 (18) (64)
$108 5 7 10 6 (19)
Interest cost Actuarial (gain)/loss Participant contributions Benefits paid
155 1 (99)
Plan amendments Benefit obligation at end of measurement period
$2,227
$1,948
$33
$36
$87
$117
113
Pension Benefits Change in Plan Assets Qualified Plans Nonqualified Plans Postretirement Health Care Benefits
(millions)
2009
2008
2009
2008
2009
2008
Fair value of plan assets at beginning of measurement period Actual return on plan assets Employer contributions Participant contributions Benefits paid Fair value of plan assets at end of measurement period Benefit obligation at end of measurement period
1,771 $ 232 252 1 (99)
2,192 $ (430) 103 (94)
$ 3 (3)
$ 4 (4)
12 6 (18)
13 6 (19)
2,157
1,771
2,227
1,948
33
36
87
117
$ Funded status
(70) $
(177) $
(33) $
(36) $
(87)
(117)
Amounts recognized in the Consolidated Statements of Financial Position consist of the following:
114
Qualified Plans Recognition of Funded/(Underfunded) Status (millions) 2009 2008
Nonqualified Plans (a) 2009 2008
$ Other noncurrent assets
2 $ (1)
1 $ (1) (177)
$ (13) (107)
(13) (140)
Accrued and other current liabilities (71) Other noncurrent liabilities $ Net amounts recognized
(a) Includes postretirement health care benefits.
(70) $
(177) $
(120) $
(153)
The following table summarizes the amounts recorded in accumulated other comprehensive income, which have not yet been recognized as a component of net periodic benefit expense:
Amounts in Accumulated Other Comprehensive Income
Pension Plans
Postretirement Health Care Plans
(millions)
2009
2008
2009
2008
$ Net actuarial loss
900 $ (5)
828 $ (7)
50 $ (62)
19
Prior service credits $ Amounts in accumulated other comprehensive income 895 $ 821 $ (12) $ 19
The following table summarizes the changes in accumulated other comprehensive income for the years ended January 30, 2010 and January 31, 2009, related to our pension and postretirement health care plans:
Postretirement
115

Health Care Benefits Change in Accumulated Other Comprehensive Income Pension Benefits
(millions)
Pretax
Net of tax
Pretax
Net of tax
$ February 2, 2008
212 $ 618
129 $ 376 (10) 4
9 $ 10
5 6
Net actuarial loss (16) Amortization of net actuarial losses 7 Amortization of prior service costs and transition $ January 31, 2009 96 Net actuarial loss (24) Amortization of net actuarial losses 2 Amortization of prior service costs and transition Plan amendments $ January 30, 2010 895 $ 544 $ (12) $ (7) (64) (38) 1 2 1 (14) (2) (1) 58 33 20 821 $ 499 $ 19 $ 11
The following table summarizes the amounts in accumulated other comprehensive income expected to be amortized and recognized as a component of net periodic benefit expense in 2010:
Expected Amortization of Amounts in Accumulated Other Comprehensive Income (millions)
Pretax
Net of tax
$ Net actuarial loss
49 $ (13)
30 (8)
Prior service credits $ Total amortization expense 36 $ 22
The following table summarizes our net pension and postretirement health care benefits expense for the years 2009, 2008, and 2007:
116
Net Pension and Postretirement Health Care Benefits Expense (millions)
Pension Benefits
Postretirement Health Care Benefits
2009
2008
2007
2009
2008
2007
Service cost benefits earned during the period Interest cost on projected benefit obligation Expected return on assets
100 $ 125 (177) 24
94 $ 116 (162) 16 (4)
97 $ 105 (152) 38 (4)
7 $ 6 2 (2)
5 $ 7
4 7 1
Amortization of losses Amortization of prior service cost $ Total
(2)
70 $
60 $
84 $
13 $
12 $
12
Prior service cost amortization is determined using the straight-line method over the average remaining service period of team members expected to receive benefits under the plan.
Defined Benefit Pension Plan Information (millions)
2009
2008
$ Accumulated benefit obligation (ABO) for all plans (a) Projected benefit obligation for pension plans with an ABO in excess of plan assets (b) Total ABO for pension plans with an ABO in excess of plan assets
2,118 $ 48 42
1,812 1,979 1,808 1,765
Fair value of plan assets for pension plans with an ABO in excess of plan assets
(a) The present value of benefits earned to date assuming no future salary growth. (b) The present value of benefits earned to date by plan participants, including the effect of assumed future salary increases.
Assumptions Weighted average assumptions used to determine benefit obligations as of the measurement date were as follows:
117

Weighted Average Assumptions Pension Benefits 2009 2008 Postretirement Health Care Benefits 2009 2008
5.85% Discount rate 4.00% Average assumed rate of compensation increase
6.50% 4.25%
4.85% n/a
6.50% n/a
Weighted average assumptions used to determine net periodic benefit expense for each fiscal year were as follows:
Weighted Average Assumptions
Pension Benefits 2009 2008 2007
Postretirement Health Care Benefits 2009 2008 2007
6.50% Discount rate Expected long-term rate of return on plan assets Average assumed rate of compensation increase 8.00% 4.25%
6.45% 8.00% 4.25%
5.95% 8.00% 4.25%
6.50% (a) n/a n/a
6.45% n/a n/a
5.95% n/a n/a
(a) Due to the remeasurement from the plan amendment in the third quarter of 2009, the discount rate was decreased from 6.50 percent to 4.85 percent.
The discount rate used to measure net periodic benefit expense each year is the rate as of the beginning of the year (i.e., the prior measurement date). With an essentially stable asset allocation over the following time periods, our annualized rate of return on qualified plans' assets has averaged 4.6 percent, 4.5 percent and 8.9 percent for the 5-year, 10-year and 15-year periods, respectively, ended January 30, 2010. The expected Market-Related Value of Assets ("MRV") is determined each year by adjusting the previous year's value by expected return, benefit payments, and cash contributions. The expected MRV is adjusted for asset gains and losses in equal 20 percent adjustments over a 5-year period. Our expected annualized long-term rate of return assumptions as of January 30, 2010 were 8.5 percent for domestic and international equity securities, 5.5 percent for long-duration debt securities, 8.5 percent for balanced funds, and 10.0 percent for other investments. Balanced funds primarily invest in equities, nominal and inflationlinked fixed income securities, commodities, and public real estate. They seek to generate capital market returns while reducing market risk by investing globally in highly diversified portfolios of public securities. These estimates are a judgmental matter in which we consider the composition of our asset portfolio, our historical long-term investment performance and current market conditions. We review the expected long-term rate of return on an annual basis, and revise it accordingly. Additionally, we monitor the mix of investments in our portfolio to ensure alignment with our long-term strategy to manage pension cost and reduce volatility in our assets. An increase in the cost of covered health care benefits of 7.5 percent for non-Medicare eligible individuals and 8.5 percent for Medicare eligible individuals was assumed for 2009. In 2010, the rate is assumed to be
118

7.5 percent for non-Medicare eligible individuals and 7.5 percent for Medicare eligible individuals. Both rates will be reduced to 5.0 percent in 2019 and thereafter. A one percent change in assumed health care cost trend rates would have the following effects at January 30, 2010:
Health Care Cost Trend Rates 1% Change (millions)
1% Increase
1% Decrease
Effect on total of service and interest cost components of net periodic postretirement health care benefit expense Effect on the health care component of the accumulated postretirement benefit obligation
$ $
1 $ 5 $
(1) (5)
Plan Assets The plan's asset allocation policy is designed to reduce the long-term cost of funding our pension obligations. The plan invests with both passive and active investment managers depending on the investment's asset class. The plan also seeks to reduce the risk associated with adverse movements in interest rates by employing an interest rate hedging program, which may include the use of interest rate swaps, total return swaps, and other instruments. Our pension plan weighted average asset allocations at the measurement date by asset category were as follows:
Asset Category
Current targeted allocation
Actual allocation 2009 2008
20% Domestic equity securities (a) 11 International equity securities 25 Debt securities 30 Balanced funds 14 Other (b) 100% Total
19% 10 28 19 24
25% 13 27 5 30
100%
100%
(a) Equity securities include our common stock in amounts substantially less than 1 percent of total plan assets as of January 30, 2010 and January 31, 2009. (b) Other assets include private equity, mezzanine and distressed debt, timber-related assets, and a 4 percent allocation to real estate.
119

The fair values of our pension plan assets as of the measurement date, by asset category are as follows:
Fair Value at January 30, 2010 (millions)
Total
Level 1
Level 2
Level 3
$ Cash and cash equivalents
206 $ 490
206 $ 26
$ 464 588 404 14
455
Equity securities (a) 588 Fixed income (b) 404 Balanced funds 469 Other (c) $ Total
(a) This category includes investments in US small, mid, and large cap companies as well as common collective funds that represent passively managed index funds with holdings in domestic and international equities. (b) This category primarily consists of investments in government securities, corporate bonds, mortgage-backed securities and passively managed index funds with holdings in long-term government and corporate bonds. (c) This category invests primarily in private equity funds (including venture capital, mezzanine and high yield debt, natural resources, and timberland), multi-strategy hedge funds (including domestic and international equity securities, convertible bonds and other alternative investments), and real estate.
2,157 $
232 $
1,470 $
455
Level 3 Reconciliation
Actual return on plan assets (a) Relating to assets still held at the reporting date Relating to assets sold during the period
(millions)
Balance at February 1, 2009
Purchases, Transfers in sales and and/or out settlements of Level 3
Balance at January 30, 2010
$ Other
448
(1) $
7 $
455
(a) Represents realized and unrealized gains (losses) from changes in values of those financial instruments only for the period in which the instruments were classified as Level 3.
Position
Valuation Technique
Cash and cash equivalents
Initially valued at transaction price. Carrying value of cash equivalents (including money market funds)
120

approximates fair value because maturities are generally less than three months.
Equity securities
Valued at the closing price reported on the major market on which the individual securities are traded. Valued using the net asset value ("NAV") provided by the administrator of the fund. The NAV is a quoted transactional price for participants in the fund, which do not represent an active market. Valued using matrix pricing models and quoted prices of securities with similar characteristics. Valued by deriving Target's proportionate share of equity investment from audited financial statements. Private equity and real estate investments require significant judgment on the part of the fund manager due to the absence of quoted market prices, inherent lack of liquidity, and the long-term nature of such investments. Certain multi-strategy hedge funds represent funds of funds that include liquidity restrictions and for which timely valuation information is not available.
Common collective funds/balanced funds/certain multi-strategy hedge funds
Fixed income securities
Private equity/real estate/certain multi-strategy hedge funds
Contributions In 2009, we made discretionary contributions of $252 million to our qualified defined benefit pension plans. We are not required to make any contributions in 2010, although we may choose to make discretionary contributions of up to $100 million. We expect to make contributions in the range of $10 million to $15 million to our postretirement health care benefit plan in 2010. Estimated Future Benefit Payments Benefit payments by the plans, which reflect expected future service as appropriate, are expected to be paid as follows:
121

Estimated Future Benefit Payments (millions) Pension Benefits Postretirement Health Care Benefits
$ 2010
122 131
10 9 7 8 8 60
2011 138 2012 145 2013 155 2014 895 2015-2019
28. Segment Reporting Our measure of profit for each segment is a measure that management considers analytically useful in measuring the return we are achieving on our investment.
2009 Business Segment Results (millions) Retail Credit Card Total Retail
2008
2007
Credit Card
Total
Retail
Credit Card
Total
$ 63,435 Sales/Credit card revenues 44,062 Cost of sales Bad debt expense (a) Selling, general and administrative/ Operations and marketing expenses (a) (b) Depreciation and amortization Earnings before interest expense and income taxes Interest expense on nonrecourse debt collateralized by credit card receivables $ Segment profit
1,922 1,185
$ 65,357 44,062 1,185
$ 62,884 44,157
2,064 1,251
$ 64,948 44,157 1,251
$ 61,471 42,929
1,896 481
$ 63,367 42,929 481
12,989 2,008
425 14
13,414 2,023
12,838 1,808
474 17
13,312 1,826
12,557 1,643
469 16
13,026 1,659
4,376
298
4,673
4,081
322
4,402
4,342
930
5,272
97
97
167
167
133
133
4,376
201
4,576
4,081
155
4,236
4,342
797
5,139
122

Unallocated (income)/expense: 707 Other interest expense (3) Interest income Earnings before income taxes $ 3,872 $ 3,536 $ 4,625 (28) (21) 727 535
(a) The combination of bad debt expense and operations and marketing expenses within the Credit Card Segment represent credit card expenses on the Consolidated Statements of Operations. (b) New account and loyalty rewards redeemed by our guests reduce reported sales. Our Retail Segment charges the cost of these discounts to our Credit Card Segment, and the reimbursements of $89 million in 2009, $117 million in 2008, and $114 million in 2007 are recorded as a reduction to SG&A expenses within the Retail Segment and an increase to operations and marketing expenses within the Credit Card Segment. Note: The sum of the segment amounts may not equal the total amounts due to rounding.
Total Assets by Business Segment 2009 Credit Card 2008 Credit Card
(millions)
Retail
Total
Retail
Total
$ Total assets
37,200
7,333
44,533
35,651
8,455
44,106
Substantially all of our revenues are generated in, and long-lived assets are located in, the United States. 29. Quarterly Results (Unaudited) Due to the seasonal nature of our business, fourth quarter operating results typically represent a substantially larger share of total year revenues and earnings because they include our peak sales period from Thanksgiving through the end of December. We follow the same accounting policies for preparing quarterly and annual financial data. The table below summarizes quarterly results for 2009 and 2008:
Quarterly Results (millions, except per share data)
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Total Year
2009
2008
2009
2008
2009
2008
2009
2008
2009
2008
$ 14,833 $ 14,802 $ 15,067 $ 15,472 $ 15,276 $ 15,114 $ 20,181 $ 19,560 $ 65,357 $ 64,948 Total revenues 824 Earnings before income taxes 522 Net earnings 0.69 Basic earnings per share 0.75 0.79 0.82 0.58 0.49 1.25 0.81 3.31 2.87 602 594 634 436 369 936 609 2,488 2,214 957 957 1,003 683 633 1,409 943 3,872 3,536
123

0.69 Diluted earnings per share 0.16 Dividends declared per share Closing common stock price 41.26 High 25.37 Low 48.50 36.75 43.68 41.38 32.69 45.30 26.96 25.37 26.96 54.89 43.79 55.10 51.35 57.89 52.02 41.35 52.02 57.89 0.14 0.17 0.16 0.17 0.16 0.17 0.16 0.67 0.62 0.74 0.79 0.82 0.58 0.49 1.24 0.81 3.30 2.86
Note: Per share amounts are computed independently for each of the quarters presented. The sum of the quarters may not equal the total year amount due to the impact of changes in average quarterly shares outstanding and all other quarterly amounts may not equal the total year due to rounding.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Not applicable Item 9A. Controls and Procedures
As of the end of the period covered by this Annual Report, we conducted an evaluation, under supervision and with the participation of management, including the chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended (Exchange Act). Based upon that evaluation, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective. Disclosure controls and procedures are defined by Rules 13a-15(e) and 15d-15(e) of the Exchange Act as controls and other procedures that are designed to ensure that information required to be disclosed by us in reports filed with the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officers, or person performing similar functions, as appropriate to allow timely decisions regarding required disclosure. There were no changes in our internal control over financial reporting during the fourth quarter of fiscal year 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. For the Report of Management on Internal Control and the Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting, see Item 8, Financial Statements and Supplementary Data. Item 9B. Other Information
Not applicable
124

PART III
Certain information required by Part III is incorporated by reference from Target's definitive Proxy Statement to be filed on or about April 29, 2010. Except for those portions specifically incorporated in this Form 10-K by reference to Target's Proxy Statement, no other portions of the Proxy Statement are deemed to be filed as part of this Form 10-K. Item 10. Directors, Executive Officers and Corporate Governance
Election of Directors, Section 16(a) Beneficial Ownership Reporting Compliance, Additional Information Business Ethics and Conduct and General Information About the Board of DirectorsBoard Meetings and Committees, of Target's Proxy Statement to be filed on or about April 29, 2010, are incorporated herein by reference. See also Item 4A, Executive Officers of Part I hereof. Item 11. Executive Compensation
Executive and Director Compensation, of Target's Proxy Statement to be filed on or about April 29, 2010, is incorporated herein by reference. Item 12. Matters Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Equity Compensation Plan Information Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights as of January 30, 2010 Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans as of January 30, 2010 (Excluding Securities Reflected in Column (a))
Weighted Average Exercise Price of Outstanding Options, Warrants and Rights as of January 30, 2010
Plan Category
(a)
(b)
(c)
Equity compensation plans approved by security holders Equity compensation plans not approved by security holders
40,313,999 (1) $
44.05
22,093,550
40,313,999 Total
44.05
22,093,550
(1) This amount includes 2,100,139 performance shares and RSU shares potentially issuable under our Long-Term Incentive Plan. The actual number of performance shares to be issued, or credits to be made to deferred compensation accounts, if any, depends on our financial performance over a period of time. Performance shares do not have an exercise price and thus they have been excluded from the weighted average exercise price calculation in column (b).
125

Beneficial Ownership of Certain Shareholders and Securities Authorized for Issuance Under Equity Compensation Plans, of Target's Proxy Statement to be filed on or about April 29, 2010, is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions, and Director Independence
Certain Relationships and General Information About the Board of DirectorsDirector Independence, of Target's Proxy Statement to be filed on or about April 29, 2010, are incorporated herein by reference. Item 14. Principal Accountant Fees and Services
Audit and Non-audit Fees, of Target's Proxy Statement to be filed on or about April 29, 2010, is incorporated herein by reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules
The following information required under this item is filed as part of this report: a) Financial Statements Consolidated Statements of Operations for the Years Ended January 30, 2010, January 31, 2009, and February 2, 2008 Consolidated Statements of Financial Position at January 30, 2010 and January 31, 2009 Consolidated Statements of Cash Flows for the Years Ended January 30, 2010, January 31, 2009, and February 2, 2008 Consolidated Statements of Shareholders' Investment for the Years Ended January 30, 2010, January 31, 2009 and February 2, 2008 Notes to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm on Consolidated Financial Statements Financial Statement Schedules For the Years Ended January 30, 2010, January 31, 2009, and February 2, 2008: IIValuation and Qualifying Accounts Other schedules have not been included either because they are not applicable or because the information is included elsewhere in this Report.
126

b) Exhibits (3)A B (4)A Restated Articles of Incorporation (as amended May 24, 2007) (1) By-Laws (as amended through September 10, 2009) (2) Indenture, dated as of August 4, 2000 between Target Corporation and Bank One Trust Company, N.A. (3) First Supplemental Indenture dated as of May 1, 2007 to Indenture dated as of August 4, 2000 between Target Corporation and The Bank of New York Trust Company, N.A. (as successor in interest to Bank One Trust Company N.A.) (4) Registrant agrees to furnish to the Commission on request copies of other instruments with respect to long-term debt. Target Corporation Officer Short-Term Incentive Plan (5) Amended and Restated Director Stock Option Plan of 1995 (6) Amended and Restated Executive Long-Term Incentive Plan of 1981 (7) Target Corporation Long-Term Incentive Plan (as amended and restated on May 28, 2009) (8) Target Corporation SPP I (2010 Plan Statement) Target Corporation SPP II (2010 Plan Statement) Target Corporation SPP III (2010 Plan Statement) Target Corporation Officer Deferred Compensation Plan Target Corporation Officer EDCP (2010 Plan Statement) Amended and Restated Deferred Compensation Plan Directors (9) Target Corporation DDCP (2009 Plan Statement) (10) Target Corporation Officer Income Continuance Policy Statement (as amended and restated January 13, 2010) Executive Excess Long Term Disability Plan (11) Director Retirement Program (12) Target Corporation Deferred Compensation Trust Agreement (as amended and restated effective January 1, 2009) (13) Five-Year Credit Agreement dated as of April 12, 2007 among Target Corporation, Bank of America, N.A. as Administrative Agent and the Banks listed therein (14) Note Purchase Agreement dated May 5, 2008 among Target Corporation, Target Receivables Corporation, BOTAC, Inc. and Chase Bank USA, National Association (15)
(10)A * B * C * D * E * F * G * H * I * J * K * L *
M * N * O *
127

R Indenture dated as of May 19, 2008 between Target Credit Card Owner Trust 2008-1 and Wells Fargo Bank, National Association (16) Series 2008-1 Supplement dated as of May 19, 2008 to Amended and Restated Pooling and Servicing Agreement among Target Receivables Corporation, Target National Bank, and Wells Fargo Bank, National Association (17) Amended and Restated Pooling and Servicing Agreement dated as of April 28, 2000 among Target Receivables Corporation, Target National Bank (formerly known as Retailers National Bank), and Wells Fargo Bank, National Association (formerly known as Norwest Bank Minnesota, National Association) (18) Amendment No. 1 dated as of August 22, 2001 to Amended and Restated Pooling and Servicing Agreement among Target Receivables Corporation, Target National Bank (formerly known as Retailers National Bank) and Wells Fargo Bank, National Association (formerly known as Norwest Bank Minnesota, National Association) (19) Statements of Computations of Ratios of Earnings to Fixed Charges List of Subsidiaries Consent of Independent Registered Public Accounting Firm Powers of Attorney Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of the Chief Executive Officer Pursuant to Section 18 U.S.C. Section 1350 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Certification of the Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 XBRL Instance Document XBRL Taxonomy Extension Schema XBRL Taxonomy Extension Calculation Linkbase XBRL Taxonomy Extension Definition Linkbase XBRL Taxonomy Extension Label Linkbase XBRL Taxonomy Extension Presentation Linkbase
(12) (21) (23) (24) (31)A
(31)B
(32)A
(32)B
101.INS 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE
Copies of exhibits will be furnished upon written request and payment of Registrant's reasonable expenses in furnishing the exhibits.
128
* Management contract or compensation plan or arrangement required to be filed as an exhibit to this Form 10-K. Certain portions of this exhibit have been omitted pursuant to a request for confidential treatment and have been filed separately with the Securities and Exchange Commission. (1) Incorporated by reference to Exhibit (3)A to Target's Form 8-K Report filed May 25, 2007. (2) Incorporated by reference to Exhibit (3)B to Target's Form 8-K Report filed September 10, 2009. (3) Incorporated by reference to Exhibit 4.1 to Target's Form 8-K Report filed August 10, 2000. (4)Incorporated by reference to Exhibit 4.1 to the Registrant's Form 8-K Report filed May 1, 2007. (5) Incorporated by reference to Appendix B to the Registrant's Proxy Statement filed April 9, 2007. (6) Incorporated by reference to Exhibit (10)C to Target's Form 10-K Report for the year ended February 3, 2007. (7) Incorporated by reference to Exhibit (10)E to Target's Form 10-K Report for the year ended February 3, 2007. (8) Incorporated by reference to Exhibit (10)D to Target's Form 10-Q Report for the quarter ended August 1, 2009. (9) Incorporated by reference to Exhibit (10)I to Target's Form 10-K Report for the year ended February 3, 2007. (10) Incorporated by reference to Exhibit (10)K to Target's Form 10-K Report for the year ended January 31, 2009. (11) Incorporated by reference to Exhibit (10)O to Target's Form 10-K Report for the year ended February 3, 2001. (12)Incorporated by reference to Exhibit (10)O to Target's Form 10-K Report for the year ended January 29, 2005. (13) Incorporated by reference to Exhibit (10)O to Target's Form 10-K Report for the year ended January 31, 2009. (14) Incorporated by reference to Exhibit (10)A to Target's Form 10-Q Report for the quarter ended May 5, 2007. (15) Incorporated by reference to Exhibit (10)A to Target's Form 10-Q Report for the quarter ended August 2, 2008. (16) Incorporated by reference to Exhibit (10)B to Target's Form 10-Q Report for the quarter ended August 2, 2008. (17) Incorporated by reference to Exhibit (10)C to Target's Form 10-Q Report for the quarter ended August 2, 2008. (18) Incorporated by reference to Exhibit (10)D to Target's Form 10-Q Report for the quarter ended August 2, 2008. (19) Incorporated by reference to Exhibit (10)E to Target's Form 10-Q Report for the quarter ended August 2, 2008.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Target has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. TARGET CORPORATION
By:
129

Douglas A. Scovanner Executive Vice President, Chief Financial Officer and Chief Accounting Officer
Dated: March 18, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934, the report has been signed below by the following persons on behalf of Target and in the capacities and on the dates indicated.
Gregg W. Steinhafel Chairman of the Board, Chief Executive Officer and President
Douglas A. Scovanner Executive Vice President, Chief Financial Officer and Chief Accounting Officer
ROXANNE S. AUSTIN CALVIN DARDEN MARY N. DILLON JAMES A. JOHNSON RICHARD M. KOVACEVICH MARY E. MINNICK ANNE M. MULCAHY
DERICA W. RICE STEPHEN W. SANGER JOHN G. STUMPF SOLOMON D. TRUJILLO
Directors
Douglas A. Scovanner, by signing his name hereto, does hereby sign this document pursuant to powers of attorney duly executed by the Directors named, filed with the Securities and Exchange Commission on behalf of such Directors, all in the capacities and on the date stated.
130

By:
Douglas A. Scovanner Attorney-in-fact
TARGET CORPORATION Schedule II Valuation and Qualifying Accounts Fiscal Years 2009, 2008, and 2007
(millions)
Column A
Column B
Column C
Column D
Column E
Description
Balance at Additions Beginning of Charged to Balance at End Period Cost, Expenses Deductions of Period
Allowance for doubtful accounts: $ 2009 $ 2008 $ 2007 517 481 (428) $ 570 570 1,251 (811) $ 1,010 1,010 1,185 (1,179) $ 1,016
Sales returns reserves (a): $ 2009 $ 2008 $ 2007

(a) These amounts represent the gross margin effect of sales returns during the respective years. Expected merchandise returns after year end for sales made before year end were $99 million, $100 million and $93 million for 2009, 2008 and 2007, respectively.
29 29 31
1,118 1,088 1,103
(1,106) $ (1,088) $ (1,105) $
41 29 29
131

Exhibit Index
Exhibit Description Manner of Filing
(3)A (3)B (4)A
Restated Articles of Incorporation (as amended May 24, 2007) By-Laws (as amended through September 10, 2009)
Incorporated by Reference Incorporated by Reference
Indenture, dated as of August 4, 2000 between Target Corporation and Incorporated by Reference Bank One Trust Company, N.A. First Supplemental Indenture dated as of May 1, 2007 to Indenture Incorporated by Reference dated as of August 4, 2000 between Target Corporation and The Bank of New York Trust Company, N.A. (as successor in interest to Bank One Trust Company N.A.) Target Corporation Officer Short-Term Incentive Plan Amended and Restated Director Stock Option Plan of 1995 Amended and Restated Executive Long-Term Incentive Plan of 1981 Target Corporation Long-Term Incentive Plan (as amended and restated on May 28, 2009) Target Corporation SPP I (2010 Plan Statement) Target Corporation SPP II (2010 Plan Statement) Target Corporation SPP III (2010 Plan Statement) Target Corporation Officer Deferred Compensation Plan Target Corporation Officer EDCP (2010 Plan Statement) Amended and Restated Deferred Compensation Plan Directors Target Corporation DDCP (2009 Plan Statement) Target Corporation Officer Income Continuance Policy Statement (as amended and restated January 13, 2010) Executive Excess Long Term Disability Plan Director Retirement Program Target Corporation Deferred Compensation Trust Agreement (as amended and restated effective January 1, 2009) Five-Year Credit Agreement dated as of June 9, 2005 among Target Corporation, Bank of America, N.A. as Administrative Agent and the Incorporated by Reference Incorporated by Reference Incorporated by Reference Incorporated by Reference
(4)B
(10)A (10)B (10)C (10)D
(10)E (10)F (10)G (10)H (10)I (10)J (10)K (10)L
Filed Electronically Filed Electronically Filed Electronically Filed Electronically Filed Electronically Incorporated by Reference Incorporated by Reference Filed Electronically
(10)M (10)N (10)O
Incorporated by Reference Incorporated by Reference Incorporated by Reference
(10)P
Incorporated by Reference
132

Banks listed therein (10)Q Note Purchase Agreement dated May 5, 2008 among Target Incorporated by Reference Corporation, Target Receivables Corporation, BOTAC, Inc. and Chase Bank USA, National Association Indenture dated as of May 19, 2008 between Target Credit Card Owner Trust 2008-1 and Wells Fargo Bank, National Association Incorporated by Reference
(10)R
(10)S
Series 2008-1 Supplement dated as of May 19, 2008 to Amended and Incorporated by Reference Restated Pooling and Servicing Agreement among Target Receivables Corporation, Target National Bank, and Wells Fargo Bank, National Association Amended and Restated Pooling and Servicing Agreement dated as of Incorporated by Reference April 28, 2000 among Target Receivables Corporation, Target National Bank (formerly known as Retailers National Bank), and Wells Fargo Bank, National Association (formerly known as Norwest Bank Minnesota, National Association) Amendment No. 1 dated as of August 22, 2001 to Amended and Incorporated by Reference Restated Pooling and Servicing Agreement among Target Receivables Corporation, Target National Bank (formerly known as Retailers National Bank) and Wells Fargo Bank, National Association (formerly known as Norwest Bank Minnesota, National Association) Statements of Computations of Ratios of Earnings to Fixed Charges List of Subsidiaries Consent of Independent Registered Public Accounting Firm Powers of Attorney Certification of the Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Certification of the Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Filed Electronically Filed Electronically Filed Electronically Filed Electronically Filed Electronically
(10)T
(10)U
(12) (21) (23) (24) (31)A
(31)B
Filed Electronically
Exhibit
Description
Manner of Filing
(32)A
Certification of the Chief Executive Officer Pursuant to Section 18 U.S.C. Section 1350 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 Certification of the Chief Financial Officer Pursuant to Section 18 U.S.C. Section 1350 Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
(32)B
133

101.INS 101.SCH 101.CAL 101.DEF 101.LAB 101.PRE XBRL Instance Document XBRL Taxonomy Extension Schema XBRL Taxonomy Extension Calculation Linkbase XBRL Taxonomy Extension Definition Linkbase XBRL Taxonomy Extension Label Linkbase XBRL Taxonomy Extension Presentation Linkbase Filed Electronically Filed Electronically Filed Electronically Filed Electronically Filed Electronically Filed Electronically
134

Appendix K- Abbott Laboratories Annual Report -Fiscal Year 2009
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(MARK ONE) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2009
Commission file number 1-2189
Abbott Laboratories
An Illinois Corporation 100 Abbott Park Road Abbott Park, Illinois 60064-6400 36-0698440 (I.R.S. employer identification number) (847) 937-6100 (telephone number)
Securities Registered Pursuant to Section 12(b) of the Act:

Title of Each Class Name of Each Exchange on Which Registered
Common Shares, Without Par Value
New York Stock Exchange Chicago Stock Exchange
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes No
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. Yes No
135

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) 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. Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer Accelerated Filer Non-accelerated Filer Smaller Reporting Company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes No
The aggregate market value of the 1,492,249,135 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, 2009), was $70,195,399,310. Abbott has no non-voting common equity. Number of common shares outstanding as of January 31, 2010: 1,552,643,385 DOCUMENTS INCORPORATED BY REFERENCE Portions of the 2010 Abbott Laboratories Proxy Statement are incorporated by reference into Part III. The Proxy Statement will be filed on or about March 15, 2010.
PART I ITEM 1. BUSINESS GENERAL DEVELOPMENT OF BUSINESS 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" and the sales information related to Humira included in "Financial Review."
136

NARRATIVE DESCRIPTION OF BUSINESS Abbott has four reportable revenue segments: Pharmaceutical Products, Diagnostic Products, Nutritional Products, and Vascular Products. On February 15, 2010, Abbott completed its acquisition of the Solvay Group's pharmaceuticals business for EUR 4.5 billion (approximately $6.2 billion), in cash, plus additional payments of up to EUR 300 million if certain sales milestones are met. This acquisition will provide Abbott with a large and complementary portfolio of pharmaceutical products and a significant presence in key global emerging markets and will add approximately $500 million to Abbott's research and development spending. In February 2009, Abbott acquired the outstanding shares of Advanced Medical Optics, Inc. (AMO) for approximately $1.4 billion in cash, net of cash held by AMO.
* As used throughout the text of this report on Form 10-K, the term "Abbott" refers to Abbott Laboratories, an Illinois corporation, or Abbott Laboratories and its consolidated subsidiaries, as the context requires. Pharmaceutical Products These products include a broad line of adult and pediatric pharmaceuticals manufactured, marketed, and sold worldwide and are generally sold directly to wholesalers, distributors, government agencies, health care facilities, specialty pharmacies, and independent retailers 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. Certain products are co-marketed or co-promoted with other companies. The principal products included in the Pharmaceutical Products segment are: Humira, for the treatment of rheumatoid arthritis, psoriatic arthritis, ankylosing spondylitis, psoriasis, and Crohn's disease; TriCor, Trilipix, Simcor, and Niaspan, for the treatment of dyslipidemia; Kaletra, Aluvia, and Norvir, protease inhibitors for the treatment of HIV infection; Synthroid, for the treatment of hypothyroidism; Lupron, also marketed as Lucrin, and Lupron Depot, used for the palliative treatment of advanced prostate cancer, treatment of endometriosis and central precocious puberty, and for the preoperative treatment of patients with anemia caused by uterine fibroids; Depakote, an agent for the treatment of epilepsy and bipolar disorder and the prevention of migraines; the anesthesia products sevoflurane (sold in the United States under the trademark Ultane and outside of the United States primarily under the trademark Sevorane and in a few other markets as Ultane), isoflurane, and enflurane; the anti-infective clarithromycin (sold under the trademarks Biaxin, Klacid, and Klaricid), and various forms of the antibiotic erythromycin, sold primarily as PCE or polymercoated erythromycin, Erythrocin, and E.E.S.; Zemplar, for the prevention and treatment of secondary hyperparathyroidism associated with chronic kidney disease and Stage 5 treatment; and Ogastro (lansoprazole), a proton pump inhibitor that is marketed outside of the United States and used principally for the short-term treatment of gastroesophageal reflux disease, duodenal ulcers, gastric ulcers, and erosive esophagitis. The Pharmaceutical Products segment directs its primary marketing efforts toward securing the prescription, or recommendation, of Abbott's brand of products by physicians. Managed care providers (for example, health maintenance
137

organizations and pharmacy benefit managers) and state and federal governments and agencies (for example, the United States Department of Veterans Affairs and the United States 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. Price can also be a factor. In addition, the substitution of generic drugs for the brand prescribed has increased competitive pressures on pharmaceutical products that are off-patent. Diagnostic Products These products include a broad line of diagnostic systems and tests manufactured, marketed, and sold worldwide to blood banks, hospitals, commercial laboratories, clinics, physicians' offices, alternate-care testing sites, and plasma protein therapeutic companies. The segment's products are generally marketed and sold directly from Abbott-owned distribution centers and public warehouses and third-party distributors. Outside the United States, sales are made either directly to customers or through distributors, depending on the market served. In January 2009, Abbott acquired Ibis Biosciences, Inc. for $175 million, in cash, to expand Abbott's position in molecular diagnostics for infectious disease. Including a $40 million investment in Ibis in 2008, Abbott has acquired 100 percent of the outstanding shares of Ibis. The principal products included in the Diagnostic Products segment are: immunoassay systems, including ARCHITECT, AxSYM, IMx, Commander, Abbott PRISM, TDx, and TDxFlx; chemistry systems such as ARCHITECT c4000, c8000, and c16000; assays used for screening and/or diagnosis for drugs of abuse, cancer, therapeutic drug monitoring, fertility, physiological diseases, and infectious diseases such as hepatitis and HIV; the m2000, an instrument that automates the extraction, purification, and preparation of DNA and RNA from patient samples and detects and measures infectious agents including HIV, HBV, HCV, HPV, and CT/NG; the Vysis product line of genomic-based tests, including the PathVysion HER-2 DNA probe kit and the UroVysion bladder cancer recurrence kit; a full line of hematology systems and reagents known as the Cell-Dyn series; and the i-STAT point-of-care diagnostic systems and tests for blood analysis. In addition, under a distribution agreement with Celera Group, the Diagnostic Products segment exclusively distributes certain Celera molecular diagnostic products, including the Viroseq HIV genotyping system and products used for the detection of mutations in the CFTR gene, which causes cystic fibrosis. 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 or regulatory changes. 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. Nutritional Products These products include a broad line of pediatric and adult nutritional products manufactured, marketed, and sold worldwide. These products are generally marketed and sold to institutions, wholesalers, retailers, health care facilities, government agencies, and third-party distributors from Abbott-owned distribution centers or third-party distributors. Outside the United States, sales are made either directly to customers or through distributors, depending on the market served. Principal products in the Nutritional Products segment include:
138

various forms of prepared infant formula and follow-on formula, including SimilacAdvance, SimilacAdvance EarlyShield, Similac, Similac with Iron, Similac Sensitive, Similac Sensitive RS, Similac Go&Grow, Similac NeoSure, Similac Organic, Similac Special Care, Isomil Advance, Isomil, Isomil Go&Grow, Alimentum, Gain, and Grow; adult and other pediatric nutritional products, including Ensure, Ensure Plus, Ensure High Protein, Glucerna, ProSure, PediaSure, PediaSure NutriPals, EleCare, Juven, Abound, and Pedialyte; nutritional products used in enteral feeding in health care institutions, including Jevity, Glucerna 1.2 Cal, Glucerna 1.5 Cal, Osmolite, Oxepa, and Nepro; and ZonePerfect bars and the EAS family of nutritional brands, including Myoplex and AdvantEdge. 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, certain nutritional products sold as Gain, Grow, PediaSure, PediaSure NutriPals, Pedialyte, Ensure, ZonePerfect, EAS/Myoplex, and Glucerna are also promoted directly to the public by consumer marketing efforts in select markets. Competition for nutritional products in the segment is generally from other diversified consumer and health care manufacturers. Competitive factors include consumer advertising, formulation, packaging, scientific innovation, intellectual property, price, and availability of product forms. A significant aspect of competition is the search for ingredient innovations. The introduction of new products by competitors, changes in medical practices and procedures, and regulatory changes can result in product obsolescence. In addition, private label and local manufacturers' products may increase competitive pressure. Vascular Products These products include a broad line of coronary, endovascular, and vessel closure devices for the treatment of vascular disease manufactured, marketed and sold worldwide. The segment's products are generally marketed and sold directly to hospitals 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. On October 30, 2009, Abbott acquired Evalve, Inc. for $320 million, in cash, plus an additional payment of $90 million to be made upon completion of certain regulatory milestones. Abbott acquired Evalve to obtain a presence in the growing area of percutaneous treatment for structural heart disease. Including a previous investment in Evalve, Abbott has acquired 100 percent of the outstanding shares of Evalve. The principal products included in the Vascular Products segment are: Xience Prime and Xience V, drug-eluting stent systems developed on the Multi-Link Vision platform; Multi-Link 8, Multi-Link Vision and Multi-Link Mini Vision, coronary metallic stents; Voyager balloon dilatation products; Hi-Torque Balance Middleweight and Asahi coronary guidewires; StarClose and Perclose vessel closure devices; Acculink/Accunet and Xact/Emboshield NAV6, carotid stent systems; and MitraClip, a percutaneous valve repair system. The Vascular Products segment's products are subject to competition in technological innovation, price, convenience of use, service, 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 or regulatory changes. 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. Other Products
139

The principal products in Abbott's other businesses include blood glucose monitoring meters, test strips, data management software and accessories for people with diabetes, including the FreeStyle product line, and medical devices for the eye, including cataract surgery, lasik surgery, contact lens, and dry eye products. These products are mostly marketed worldwide and generally sold directly to wholesalers, government agencies, health care facilities, mail order pharmacies, and independent retailers from Abbott-owned distribution centers and public warehouses. Some of these products are marketed and distributed through distributors. Blood glucose monitoring meters, contact lens care products, and dry eye products are also marketed and sold over-the-counter to consumers. These products are subject to competition in technological innovation, price, convenience of use, service, and product performance, and these products can be subject to rapid product obsolescence or regulatory changes. In October 2009, Abbott acquired 100 percent of Visiogen, Inc. for $400 million in cash, providing Abbott with a next-generation accommodating intraocular lens (IOL) technology to address presbyopia for cataract patients.
INFORMATION WITH RESPECT TO ABBOTT'S BUSINESS IN GENERAL Sources and Availability of Raw Materials 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. Patents, Trademarks, and Licenses 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 5. These, and various patents which expire during the period 2010 to 2029, 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), are material in relation to Abbott's business as a whole. The United States composition of matter (that is, compound) patents covering adalimumab will expire in December 2016. In addition, the following patents, licenses, and trademarks are significant for Abbott's Pharmaceutical Products segment: those related to lopinavir/ritonavir (which is sold under the trademarks Kaletra and Aluvia), those related to fenofibrate (which is sold under the trademarks TriCor and Trilipix), and those related to niacin (which is sold under the trademarks Niaspan and Simcor). The United States composition of matter patent covering lopinavir will expire in 2016. The United States non-composition of matter patent covering lopinavir/ritonavir will expire in 2016. The principal United States non-composition of matter patents covering the fenofibrate products will expire in 2011, 2018, 2020, 2023, and 2025. The principal United States non-composition of matter patents covering the niacin products will expire in 2013, 2014, 2017, and 2018. Litigation related to the products listed above is discussed in Legal Proceedings on pages 15 through 18. Although the expiration of a composition of matter patent may lead to increased competition, in most cases Abbott owns or has a license to other patents that expire after the composition of matter patent related to particular formulations, uses, or processes for manufacturing the pharmaceutical. These non-composition of matter 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 have commercial advantages after the expiration of the composition of matter patent, including in some instances exclusivity. Seasonal Aspects, Customers, Backlog, and Renegotiation There are no significant seasonal aspects to Abbott's business. Abbott has no single customer that, if the customer were lost, would have a material adverse effect on Abbott. Orders for Abbott's products are generally filled on a current basis, and order backlog is not material to Abbott's business. No material portion of Abbott's business is subject to renegotiation of profits or termination of contracts at the election of the government.
140
Research and Development Abbott spent $2,743,733,000 in 2009, $2,688,811,000 in 2008, and $2,505,649,000 in 2007 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. Environmental Matters 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 2009 were approximately $16 million and $58 million, respectively. Capital and operating expenditures for pollution control in 2010 are estimated to be $8 million and $63 million, respectively. Abbott has been identified as one of many potentially responsible parties in investigations and/or remediations at several locations in the United States, including Puerto Rico, under the Comprehensive Environmental Response, Compensation, and Liability Act, commonly known as Superfund. Abbott is also engaged in remediation at several other sites, some of which are owned by Abbott, in cooperation with the Environmental Protection Agency (EPA) or similar agencies. While it is not feasible to predict with certainty the final costs related to those investigations and remediation 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. Employees Abbott employed approximately 73,000 persons as of December 31, 2009. Regulation 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, both domestic and international, 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, and achieving compliance with these regulations, 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, including fines and penalties. In addition, governmental regulatory agencies require prescription drug and medical device manufacturers to pay fees, such as application, product, and establishment fees. 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 to the U.S. Food and Drug Administration's (FDA) Quality System Regulation and restricts the sale in the United States of certain products in the Diagnostic Products segment. In 2003, the FDA concluded that those operations were in substantial conformity with the Quality System Regulation.
141

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 or pricing 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, efficacy, and outcomes 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 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 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 the diagnosis and/or procedure 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. Medicare enters into contracts with private plans to negotiate prices for medicine delivered under Part D and must develop a competitive bid system for durable medical equipment, enteral nutrition products, and supplies. Under federal law, manufacturers must pay certain statutorily-prescribed rebates to state Medicaid programs on prescription drugs reimbursed under state Medicaid plans. In addition, a majority of 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, Public Health Service entities and institutions, as well as certain other covered entities. 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 are mandated to have in place a cost containment program for infant formula. As a result, states obtain rebates from manufacturers of infant formula whose products are used in the program through competitive bidding. Abbott expects debate to continue during 2010 at all government levels over marketing, availability, method of delivery, and payment for health care products and services. Abbott believes that if legislation is enacted, it could change access to health care products and services, increase rebates, reduce prices or the rate of price increases for health care products and services, create new fees for the pharmaceutical and medical device industries, or require additional reporting and disclosure. 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.
INTERNATIONAL OPERATIONS Abbott markets products worldwide 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.
142

INTERNET INFORMATION 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). ITEM 1A. RISK FACTORS
In addition to the other information in this report, the following risk factors should be considered before deciding to invest in any of Abbott's securities. Additional risks and uncertainties not presently known to Abbott, or risks Abbott currently considers immaterial, could also affect Abbott's actual results. Abbott's business, financial condition, results of operations, or prospects could be materially adversely affected by any of these risks. Abbott may acquire other businesses, license rights to technologies or products, form alliances, or dispose of or spinoff businesses, which could cause it to incur significant expenses and could negatively affect profitability. Abbott may pursue acquisitions, technology licensing arrangements, and strategic alliances, or dispose of or spin-off some of its businesses, as part of its business strategy. Abbott may not complete these transactions in a timely manner, on a cost-effective basis, or at all, and may not realize the expected benefits. If Abbott is successful in making an acquisition, the products and technologies that are acquired may not be successful or may require significantly greater resources and investments than originally anticipated. Abbott may not be able to integrate acquisitions successfully into its existing business and could incur or assume significant debt and unknown or contingent liabilities. Abbott could also experience negative effects on its reported results of operations from acquisition or disposition-related charges, amortization of expenses related to intangibles and charges for impairment of long-term assets. These effects could cause a deterioration of Abbott's credit rating and result in increased borrowing costs and interest expense. The expiration or loss of patent protection and licenses may affect Abbott's future revenues and operating income. Many of Abbott's businesses rely on patent and trademark and other intellectual property protection. Although most of the challenges to Abbott's intellectual property have come from other businesses, governments may also challenge intellectual property protections. To the extent Abbott's intellectual property is successfully challenged, invalidated, or circumvented or to the extent it does not allow Abbott to compete effectively, Abbott's business will suffer. To the extent that countries do not enforce Abbott's intellectual property rights or to the extent that countries require compulsory licensing of its intellectual property, Abbott's future revenues and operating income will be reduced. Abbott's principal patents and trademarks are described in greater detail in the sections captioned, "Patents, Trademarks, and Licenses" and "Financial Review," and litigation regarding these patents is described in the section captioned "Legal Proceedings." Abbott faces increasing competition from lower-cost generic products. The expiration or loss of patent protection for a product typically is followed promptly by generic substitutes that may significantly reduce Abbott's sales for that product in a short amount of time. If Abbott's competitive position is compromised because of generics or otherwise, it could have a material adverse effect on its revenues, margins, business, and results of operations. Competitors' intellectual property may prevent Abbott from selling its products or have a material adverse effect on Abbott's future profitability and financial condition. Competitors may claim that an Abbott product infringes upon their intellectual property. Resolving an intellectual property infringement claim can be costly and time consuming and may require Abbott to enter into license agreements.
143

Abbott cannot guarantee that it would be able to obtain license agreements on commercially reasonable terms. A successful claim of patent or other intellectual property infringement could subject Abbott to significant damages or an injunction preventing the manufacture, sale or use of affected Abbott products. Any of these events could have a material adverse effect on Abbott's profitability and financial condition. Abbott is subject to cost-containment efforts that could cause a reduction in future revenues and operating income. In the United States and other countries, Abbott's businesses have experienced downward pressure on product pricing. Cost-containment efforts by governments and private organizations are described in greater detail in the section captioned "Regulation." To the extent these cost containment efforts are not offset by greater patient access to healthcare or other factors, Abbott's future revenues and operating income will be reduced. Abbott is subject to numerous governmental regulations and it can be costly to comply with these regulations and to develop compliant products and processes. Abbott's products are subject to rigorous regulation by the U.S. Food and Drug Administration, and numerous international, supranational, federal, and state authorities. The process of obtaining regulatory approvals to market a drug or medical device can be costly and time-consuming, and approvals might not be granted for future products, or additional indications or uses of existing products, on a timely basis, if at all. Delays in the receipt of, or failure to obtain approvals for, future products, or new indications and uses, could result in delayed realization of product revenues, reduction in revenues, and in substantial additional costs. In addition, no assurance can be given that Abbott will remain in compliance with applicable FDA and other regulatory requirements once clearance or approval has been obtained for a product. These requirements include, among other things, regulations regarding manufacturing practices, product labeling, and advertising and postmarketing reporting, including adverse event reports and field alerts due to manufacturing quality concerns. Many of Abbott's facilities and procedures and those of Abbott's suppliers are subject to ongoing regulation, including periodic inspection by the FDA and other regulatory authorities. Abbott must incur expense and spend time and effort to ensure compliance with these complex regulations. Possible regulatory actions could include warning letters, fines, damages, injunctions, civil penalties, recalls, seizures of Abbott's products, and criminal prosecution. These actions could result in, among other things, substantial modifications to Abbott's business practices and operations; refunds, recalls, or seizures of Abbott's products; a total or partial shutdown of production in one or more of Abbott's facilities while Abbott or Abbott's suppliers remedy the alleged violation; the inability to obtain future pre-market clearances or approvals; and withdrawals or suspensions of current products from the market. Any of these events could disrupt Abbott's business and have a material adverse effect on Abbott's revenues, profitability and financial condition. Laws and regulations affecting government benefit programs could impose new obligations on Abbott, require Abbott to change its business practices, and restrict its operations in the future. Abbott's industry is also subject to various federal, state, and international laws and regulations pertaining to government benefit program reimbursement, price reporting and regulation, and health care fraud and abuse, including anti-kickback and false claims laws, the Medicaid Rebate Statute, the Veterans Health Care Act, and individual state laws relating to pricing and sales and marketing practices. Violations of these laws may be punishable by criminal and/or civil sanctions, including, in some instances, substantial fines, imprisonment, and exclusion from participation in federal and state health care programs, including Medicare, Medicaid, and Veterans Administration health programs. These laws and regulations are broad in scope and they are subject to evolving interpretations, which could require Abbott to incur substantial costs associated with compliance or to alter one or more of its sales or marketing practices. In addition, violations of these laws, or allegations of such violations, could disrupt Abbott's business and result in a material adverse effect on Abbott's revenues, profitability, and financial condition. Abbott's research and development efforts may not succeed in developing commercially successful products and technologies, which may cause Abbott's revenue and profitability to decline.
144

To remain competitive, Abbott must continue to launch new products and technologies. To accomplish this, Abbott commits substantial efforts, funds, and other resources to research and development. A high rate of failure is inherent in the research and development of new products and technologies. Abbott must make ongoing substantial expenditures without any assurance that its efforts will be commercially successful. Failure can occur at any point in the process, including after significant funds have been invested. Promising new product candidates may fail to reach the market or may only have limited commercial success because of efficacy or safety concerns, failure to achieve positive clinical outcomes, inability to obtain necessary regulatory approvals, limited scope of approved uses, excessive costs to manufacture, the failure to establish or maintain intellectual property rights, or infringement of the intellectual property rights of others. Even if Abbott successfully develops new products or enhancements or new generations of Abbott's existing products, they may be quickly rendered obsolete by changing customer preferences, changing industry standards, or competitors' innovations. Innovations may not be accepted quickly in the marketplace because of, among other things, entrenched patterns of clinical practice or uncertainty over third-party reimbursement. Abbott cannot state with certainty when or whether any of its products under development will be launched, whether it will be able to develop, license, or otherwise acquire compounds or products, or whether any products will be commercially successful. Failure to launch successful new products or new indications for existing products may cause Abbott's products to become obsolete, causing Abbott's revenues and operating results to suffer. New products and technological advances by Abbott's competitors may negatively affect Abbott's results of operations. Abbott's products face intense competition from its competitors' products. Competitors' products may be safer, more effective, more effectively marketed or sold, or have lower prices or superior performance features than Abbott's products. Abbott cannot predict with certainty the timing or impact of the introduction of competitors' products. The manufacture of many of Abbott's products is a highly exacting and complex process, and if Abbott or one of its suppliers encounters problems manufacturing products, Abbott's business could suffer. The manufacture of many of Abbott's products is a highly exacting and complex process, due in part to strict regulatory requirements. Problems may arise during manufacturing for a variety of reasons, including equipment malfunction, failure to follow specific protocols and procedures, problems with raw materials, natural disasters, and environmental factors. In addition, single suppliers are currently used for certain products and materials. If problems arise during the production of a batch of product, that batch of product may have to be discarded. This could, among other things, lead to increased costs, lost revenue, damage to customer relations, time and expense spent investigating the cause and, depending on the cause, similar losses with respect to other batches or products. If problems are not discovered before the product is released to the market, recall and product liability costs may also be incurred. To the extent Abbott or one of its suppliers experiences significant manufacturing problems, this could have a material adverse effect on Abbott's revenues and profitability. Significant safety issues could arise for Abbott's products, which could have a material adverse effect on Abbott's revenues and financial condition. All health care products receive regulatory approval based on data obtained in controlled clinical trials of limited duration. Following regulatory approval, these products will be used over longer periods of time in many patients. Investigators may also conduct additional, and perhaps more extensive, studies. If new safety issues are reported, Abbott may be required to amend the conditions of use for a product. For example, Abbott may be required to provide additional warnings on a product's label or narrow its approved indication, either of which could reduce the product's market acceptance. If serious safety issues with an Abbott product arise, sales of the product could be halted by Abbott or by regulatory authorities. Safety issues affecting suppliers' or competitors' products also may reduce the market acceptance of Abbott's products. In addition, in the ordinary course of business, Abbott is the subject of product liability claims and lawsuits alleging that its products or the products of other companies that Abbott promotes have resulted or could result in an unsafe condition for or injury to patients. Product liability claims and lawsuits and safety alerts or product recalls, regardless of their ultimate
145

outcome, may have a material adverse effect on Abbott's business and reputation and on Abbott's ability to attract and retain customers. Product liability losses are self-insured. Product liability claims could have a material adverse effect on Abbott's profitability and financial condition. The international nature of Abbott's business subjects it to additional business risks that may cause its revenue and profitability to decline. Abbott's business is subject to risks associated with doing business internationally. Sales outside of the United States make up approximately 50% of Abbott's net sales. The risks associated with Abbott's operations outside the United States include: changes in foreign medical reimbursement policies and programs; multiple foreign regulatory requirements that are subject to change and that could restrict Abbott's ability to manufacture, market, and sell its products; differing local product preferences and product requirements; trade protection measures and import or export licensing requirements; difficulty in establishing, staffing, and managing foreign operations; differing labor regulations; potentially negative consequences from changes in or interpretations of tax laws; political and economic instability; price and currency exchange controls, limitations on foreign participation in local enterprises, expropriation, nationalization, and other governmental action; inflation, recession and fluctuations in foreign currency exchange and interest rates; and compulsory licensing or diminished protection of intellectual property. These risks may, individually or in the aggregate, have a material adverse effect on Abbott's revenues and profitability. Other factors can have a material adverse effect on Abbott's future profitability and financial condition. Many other factors can affect Abbott's profitability and its financial condition, including: Differences between the fair value measurement of assets and liabilities and their actual value, particularly for pensions, retiree health care, stock compensation, intangibles, and goodwill; and for contingent liabilities such as litigation, the absence of a recorded amount, or an amount recorded at the minimum, compared to the actual amount. Changes in or interpretations of laws and regulations including changes in accounting standards, taxation requirements, product marketing application standards, and environmental laws in domestic or foreign jurisdictions. Changes in the rate of inflation (including the cost of raw materials, commodities, and supplies), interest rates, market value of Abbott's equity investments, and the performance of investments held by Abbott or Abbott's employee benefit trusts. Changes in the creditworthiness of counterparties that transact business with or provide services to Abbott or Abbott's employee benefit trusts. Changes in business, economic, and political conditions, including: war, political instability, terrorist attacks in the U.S. and other parts of the world, the threat of future terrorist activity in the U.S. and other parts of the world and related military action; natural disasters; the cost and availability of insurance due to any of the foregoing events; labor disputes, strikes, slow-downs, or other forms of labor or union activity; and pressure from third-party interest groups. Changes in Abbott's business units and investments and changes in the relative and absolute contribution of each to earnings and cash flow resulting from evolving business strategies, changing product mix, changes in tax rates both in the U.S. and abroad and opportunities existing now or in the future. Changes in the buying patterns of a major distributor, retailer, or wholesale customer resulting from buyer purchasing decisions, pricing, seasonality, or other factors, or other problems with licensors, suppliers, distributors, and business partners. Difficulties related to Abbott's information technology systems, any of which could adversely affect business operations, including any significant breakdown, invasion, destruction, or interruption of these systems.
146

Changes in credit markets impacting Abbott's ability to obtain financing for its business operations. In connection with Abbott's acquisition of the vascular intervention and endovascular solutions businesses of Guidant Corporation, Abbott loaned BSC International Holding, Limited (a wholly-owned subsidiary of Boston Scientific) $900 million on a subordinated basis. As long as the loan is outstanding, Abbott will be a creditor of Boston Scientific with respect to the $900 million loan and, as such, is subject to credit risk. Legal difficulties, any of which could preclude or delay commercialization of products or adversely affect profitability, including claims asserting statutory or regulatory violations, adverse litigation decisions, and issues regarding compliance with any governmental consent decree.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS This Form 10-K contains forward-looking statements that are based on management's current expectations, estimates, and projections. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates," "forecasts," variations of these words, and similar expressions are intended to identify these forward-looking statements. Certain factors, including but not limited to those identified under "Item 1A. Risk Factors" of this Form 10-K, may cause actual results to differ materially from current expectations, estimates, projections, forecasts, and from past results. No assurance can be made that any expectation, estimate, or projection contained in a forward-looking statement will be achieved or will not be affected by the factors cited above or other future events. Abbott undertakes no obligation to release publicly any revisions to forward-looking statements as the result of subsequent events or developments. ITEM 1B. None. ITEM 2. PROPERTIES UNRESOLVED STAFF COMMENTS
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, 2009, are listed below.
Location Segments of Products Produced
Abbott Park, Illinois Alameda, California* Altavista, Virginia Anasco, Puerto Rico* Barceloneta, Puerto Rico Brockville, Canada Buenos Aires, Argentina Campoverde di Aprilia, Italy Casa Grande, Arizona Clonmel, Ireland Columbus, Ohio Cootehill, Ireland Dartford, England* Des Plaines, Illinois Fairfield, California* Granada, Spain Irving, Texas Jayuya, Puerto Rico Karachi, Pakistan Katsuyama, Japan Longford, Ireland Ludwigshafen, Germany Milpitas, California*
Pharmaceutical and Diagnostic Products Non-Reportable Nutritional Products Medical Devices Pharmaceutical and Diagnostic Products Nutritional Products Pharmaceutical Products Pharmaceutical Products Nutritional Products Vascular Products Nutritional Products Nutritional Products Diagnostic Products Diagnostic Products Nutritional Products Nutritional Products Diagnostic Products Pharmaceutical Products Pharmaceutical Products Pharmaceutical Products Diagnostic Products Pharmaceutical Products Medical Devices
147

North Chicago, Illinois Ottawa, Ontario, Canada* Redwood City, California* Rio de Janeiro, Brazil Santa Clara, California Singapore Sligo, Ireland Sturgis, Michigan Temecula, California Tlalpan, Mexico Wiesbaden, Delkenheim, Germany Witney, Oxon, England Worcester, Massachusetts Zwolle, the Netherlands * Leased property In addition to the above, Abbott has manufacturing facilities in nine other locations in the United States, including Puerto Rico, and in five other countries outside the United States. Abbott's facilities are deemed suitable and provide adequate productive capacity. In the United States, including Puerto Rico, Abbott owns nine distribution centers. Outside the United States, Abbott owns six distribution centers. Abbott also has twenty United States research and development facilities located at: Abbott Park, Illinois; Alameda, California; Albuquerque, New Mexico; Carlsbad, California; Columbus, Ohio (two locations); Des Plaines, Illinois; Fairfield, California; Irving, Texas; Long Grove, Illinois; Milpitas, California; Mountain View, California; North Chicago, Illinois; Princeton, New Jersey; Redwood City, California; Santa Ana, California; Santa Clara, California; South Irvine, California; Temecula, California; and Worcester, Massachusetts. Outside the United States, Abbott has research and development facilities in Canada, China, Germany, Ireland, Japan, the Netherlands, Singapore, South Africa, Spain, Sweden, 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. ITEM 3. LEGAL PROCEEDINGS Pharmaceutical Products Diagnostic Products Vascular Products Pharmaceutical Products Diagnostic Products Nutritional Products Nutritional and Diagnostic Products Nutritional Products Vascular Products Pharmaceutical Products Diagnostic Products Non-Reportable Pharmaceutical Products Nutritional Products
Abbott is involved in various claims, legal proceedings and investigations, including (as of January 31, 2010) those described below. While it is not feasible to predict the outcome of such pending claims, proceedings and investigations with certainty, management is of the opinion that their ultimate resolution should not have a material adverse effect on Abbott's financial position, cash flows, or results of operations, except where noted below. A case is pending against Abbott in which New York University (NYU) and Centocor, Inc. assert that adalimumab (a drug Abbott sells under the trademark Humira) infringes a patent co-owned by NYU and Centocor and exclusively licensed to Centocor. In June 2009, a jury found that Abbott had willfully infringed the patent and awarded NYU and Centocor approximately $1.67 billion in past compensatory damages. In October 2009, the United States District Court for the Eastern District of Texas overturned the jury's finding that Abbott's infringement was willful, but denied Abbott's request to overturn the jury's verdict on validity, infringement, and damages. In December 2009, the district court issued a final judgment and awarded the plaintiffs an additional $175 million in prejudgment interest. In December 2009, Centocor filed a separate action seeking enhanced damages and interest for the continuing sale of Humira after the jury verdict. In December 2009, Abbott filed a notice of appeal with the United States Court of Appeals for the Federal Circuit. Abbott is confident in the merits of its case and believes that it will prevail on appeal. While it is not feasible to predict with certainty the outcome of this litigation, its ultimate resolution could be material to cash flows or results of operations.
148

As previously reported, a case brought by the University of Iowa in June 2009 was pending against Abbott in the United States District Court for the Southern District of Iowa alleging that Humira infringed two University of Iowa patents. In November 2009, the parties settled the case and it was dismissed with prejudice. In response to a patent infringement action filed in December 2008 by Bayer HealthCare LLC (Bayer) in the United States District Court for the Eastern District of Texas, in January 2009 Abbott filed an action against Bayer in the United States District Court for the District of Massachusetts seeking a declaration that Humira does not infringe Bayer's patent and that Bayer's patent is invalid and unenforceable. The Massachusetts court consolidated the Texas case with the Massachusetts proceeding. Bayer seeks damages, including treble damages, but does not seek injunctive relief. In November 2009, Bayer filed infringement actions in the Court of the Hague in the Netherlands and in the District Court in Dusseldorf, Germany, asserting that Humira infringes Bayer's patent and seeking damages, but not an injunction. In December 2009, Abbott, Fournier Industrie et Sante, and Laboratories Fournier, S.A. (Fournier) settled the case brought by twenty-six State Attorneys General, State of Florida, et al. (filed in March 2008). Twenty-four of the twenty-six State Attorneys General are parties to the settlement and two State Attorneys General voluntarily dismissed their claims against the defendants. Several cases, brought as purported class actions or representative actions on behalf of individuals or entities, are pending against Abbott that allege generally that Abbott and numerous other pharmaceutical companies reported false pricing information in connection with certain drugs that are reimbursable under Medicare and Medicaid and by private payors. These cases, brought by private plaintiffs, the United States Department of Justice, state Attorneys General, and other state government entities, generally seek monetary damages and/or injunctive relief and attorneys' fees. The federal court cases have been consolidated for pre-trial purposes in the United States District Court for the District of Massachusetts under the Multi District Litigation Rules as In re: Pharmaceutical Industry Average Wholesale Price Litigation, MDL 1456. MDL 1456 includes: (a) a civil whistle-blower suit brought by the United States Department of Justice, filed in the United States District Court for the Southern District of Florida in May 2006; (b) a civil whistle-blower suit brought by Ven-A-Care of the Florida Keys, Inc., unsealed against Abbott in August 2007 and in which the United States declined to intervene; (c) two state Attorneys General suits, filed in August 2006 (State of South Carolina) and July 2009 (State of Mississippi on behalf of its state health plan); and (d) a purported class action case in which the plaintiffs seek to certify nationwide classes of Medicare Part B consumers and third party payors and other consumers, filed in June 2003. Eighteen named defendants, including Abbott, collectively settled this case, subject to final approval of the district court. In addition, several cases are pending against Abbott in state courts: Commonwealth of Kentucky, filed in September 2003 in the Circuit Court of Franklin County, Kentucky; State of Wisconsin, filed in June 2004 in the Circuit Court of Dane County, Wisconsin; State of Illinois, filed in February 2005 in the Circuit Court of Cook County, Illinois; County of Erie, filed in March 2005 in the Supreme Court of Erie County, New York; State of Mississippi, filed in October 2005 in the Circuit Court of Rankin County, Mississippi; State of Hawaii, filed in April 2006 in the First Circuit Court of Hawaii; County of Oswego, filed in August 2006 in the Supreme Court of Oswego County, New York; County of Schenectady, filed in August 2006 in the Supreme Court of Schenectady County, New York; State of South Carolina (on behalf of its state health plan), filed in August 2006 in the Court of Common Pleas, Fifth Judicial Circuit of Richland County, South Carolina; State of Alaska, filed in October 2006 in the Superior Court for the Third Judicial District in Anchorage, Alaska; State of Idaho, filed in January 2007 in the District Court of the Fourth Judicial District in Ada County, Idaho; State of Utah, filed in November 2007 in the Third Judicial District in Salt Lake County, Utah; and State of Kansas, filed in October 2008 in the District Court of Wyandotte County, Kansas. In 2009, Abbott settled State of West Virginia, filed in October 2001 in the Circuit Court of Kanawha County, West Virginia, and State of Alabama, filed in January 2005 in the Circuit Court of Montgomery County, Alabama. While it is not feasible to predict with certainty the outcome of the proceedings and investigations related to pricing information for drugs reimbursable under Medicare and Medicaid, their ultimate resolution could be material to cash flows or results of operations for a quarter. Four cases are pending against Abbott in the United States District Court for the Northern District of California that allege antitrust violations in connection with the 2003 Norvir re-pricing: (a) a consolidated class action filed on behalf of all direct purchasers by three individual plaintiffs, Meijer, Inc., filed in November 2007, Louisiana Wholesale Drug Company, Inc., filed in December 2007, and Rochester Drug Co-Operative, Inc., filed in November 2007; (b) two cases filed on behalf of director purchaser class opt-outs, Rite Aid, Inc., filed in December 2007 and Safeway, Inc., filed in October 2007; and (c) one case filed by a competitor, GlaxoSmithKline, filed in November 2007. All of the cases have been consolidated for discovery and trial. The plaintiffs seek damages, injunctive relief, and costs.
149

A class action case is pending against Abbott in the United States District Court for the Northern District of Illinois under the name Myla Nauman, Jane Roller and Michael Loughery v. Abbott Laboratories and Hospira, Inc. The plaintiffs are former Abbott employees who allege that their transfer to Hospira, Inc., as part of the spin-off of Hospira, adversely affected their employee benefits in violation of the Employee Retirement Income Security Act, and that in their transfer, Abbott breached a fiduciary duty to plaintiffs involving employee benefits. The plaintiffs generally seek reinstatement as Abbott employees, or reinstatement as participants in Abbott's employee benefit plans, or an award for the employee benefits they have allegedly lost. Abbott filed a response denying all substantive allegations. The Office of the Inspector General of the United States Department of Health and Human Services in conjunction with the United States Department of Justice, through the United States Attorneys for the Eastern District of Wisconsin, the Western District of Louisiana, and the Middle District of Louisiana are investigating the sales and marketing practices of Kos Pharmaceuticals, Inc. In addition, the United States Attorney for Louisiana is investigating Kos' calculation and reporting of Medicaid rebates. The government is seeking to determine whether any of these practices resulted in any violations of civil and/or criminal laws, including the Federal False Claims Act, the Anti-Kickback Statute, and the Medicaid Rebate Statute in connection with the Medicare and/or Medicaid reimbursement paid to third parties. Abbott acquired Kos in December 2006, and these investigations relate to conduct that occurred prior to Abbott's acquisition. The United States Department of Justice, through the United States Attorney for Maryland, is investigating the sales and marketing practices of Abbott for Micardis, a drug co-promoted for (until March 31, 2006) and manufactured by Boehringer Ingelheim. The government is seeking to determine whether any of these practices resulted in any violations of civil and/or criminal laws, including the Federal False Claims Act and the Anti-Kickback Statute, in connection with the Medicare and/or Medicaid reimbursement paid to third parties. The United States Department of Justice, through the Unites States Attorney for the Western District of Virginia, is investigating Abbott's sales and marketing activities for Depakote. The government is seeking to determine whether any of these activities violated civil and/or criminal laws, including the Federal False Claims Act, the Food and Drug Cosmetic Act, and the Anti-Kickback Statute in connection with Medicare and/or Medicaid reimbursement to third parties. The United States Department of Justice, through the United States Attorney for the District of Massachusetts, is investigating the sales and marketing activities of Abbott's and other companies' biliary stent products. The government is seeking to determine whether any of these activities violated civil and/or criminal laws, including the Federal False Claims Act, the Food and Drug Cosmetic Act, and the Anti-Kickback Statute in connection with Medicare and/or Medicaid reimbursement paid to third parties. In 2007, Johnson & Johnson, Inc. and Cordis Corporation, a wholly-owned subsidiary of Johnson & Johnson (collectively Johnson & Johnson), filed suits against Abbott in the United States District Court for the District of New Jersey asserting infringement of four Johnson & Johnson patents by Abbott's Xience V stent and seeking an injunction, an award of damages, and a determination of willful infringement. In January 2010, the court issued an Order of Judgment finding that Johnson & Johnson's four patents are invalid and dismissing the suits against Abbott. In January 2008, Cordis Corporation and Wyeth filed suit against Abbott in the United States District Court for the District of New Jersey alleging the Xience V stent infringes three additional patents and seeking an injunction, an award of damages, and a determination of willful infringement. In September 2009, Wyeth, Cordis Corporation and Cordis LLC filed suit against Abbott in the United States District Court for the District of New Jersey alleging the Xience V stent infringes an additional patent and seeking an injunction and an award of damages. Abbott denies all substantive allegations in each remaining case. A case is pending against Abbott in the United States District Court for the Eastern District of Texas brought in July 2008 by Wall Cardiovascular Technologies, LLC in which it asserts that Abbott's Xience V stent infringes a patent. Wall seeks an injunction, damages, and enhanced damages for alleged willful infringement. Abbott asserts that the patent is not infringed, invalid, and unenforceable. In December 2008, Medinol Limited sued Abbott in the High Court of Ireland, the District Court in The Hague, Netherlands, and the Regional Court in Dusseldorf, Germany asserting that Abbott's Vision and Xience V stents infringe one of its European stent design patents and seeking damages and injunctions. Medinol has since accused Abbott's Multi-Link 8 and Xience Prime stents of infringement. In Ireland, Abbott asserts that Medinol's patent is invalid and not infringed. In
150

December 2009, the Dutch court found that Abbott's Vision and Xience V stents do not infringe Medinol's patent. In Germany, Medinol further asserts that Abbott's Vision, Xience V, Penta, Xience Prime, Multi-Link 8, and Zeta stents infringe two Medinol German stent design patents and one Medinol German stent design utility model. Abbott initiated an action in the German patent court asserting that its stents do not infringe Medinol's patents and seeking a declaration that Medinol's patents are invalid. Abbott also initiated an action in the High Court of Justice in the United Kingdom asserting that Abbott's stents do not infringe Medinol's patent and seeking a declaration that Medinol's patent is invalid. Abbott denies all substantive allegations in each remaining case. Abbott is seeking to enforce its patent rights relating to fenofibrate tablets (a drug Abbott sells under the trademark Tricor). In a case filed in the United States District Court for the Northern District of Illinois in February 2008, Abbott and the patent owner, Laboratories Fournier, S.A. (Fournier), allege infringement of three patents and seek injunctive relief against Teva Pharmaceuticals USA Inc. In November 2009, the parties reached a settlement and this case was dismissed. In a second case filed in the Northern District of Illinois in November 2008, Abbott and Fournier allege infringement of the three patents and seek injunctive relief against Biovail Laboratories International SRL. This case has been transferred to the United States District Court for the District of New Jersey. In a third case filed in the United States District Court for the District of New Jersey in March 2009, Abbott and Fournier allege that Lupin Pharmaceuticals and Lupin Limited's proposed generic products infringe the three patents and seek declaratory and injunctive relief. In a fourth case filed in the United States District Court for the District of New Jersey in October 2009, Abbott and Fournier allege infringement of the three patents and seek injunctive relief against Impax Laboratories. Abbott is seeking to enforce its patents rights relating to ritonavir/lopinavir tablets (a drug Abbott sells under the trademark Kaletra). In cases filed in the United States District Courts for the Northern District of Illinois and for the District of Delaware in March 2009, Abbott alleges that Matrix Laboratories, Inc., Matrix Laboratories, Ltd., and Mylan, Inc.'s proposed generic products infringe Abbott's patents and seeks declaratory and injunctive relief. Upon Matrix's motion, the court granted a five-year stay of the litigation unless good cause to lift the stay is shown. Abbott is seeking to enforce its patent rights relating to niacin extended release tablets (a drug Abbott sells under the trademark Niaspan). In a case pending in the United States District Courts for the District of Delaware in March 2009, Abbott alleges that Lupin Pharmaceuticals and Lupin Limited's proposed generic products infringe Abbott's patents and seeks declaratory and injunctive relief. ITEM 4. None. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
EXECUTIVE OFFICERS OF THE REGISTRANT Executive officers of Abbott are elected annually by the board of directors. All other officers are 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. Abbott's executive officers, their ages as of February 19, 2010, and the dates of their first election as officers of Abbott are listed below. The executive officers' principal occupations and employment for the past five years and the year of appointment to the earliest reported office are also shown. Unless otherwise stated, employment was by Abbott. There are no family relationships between any corporate officers or directors. Miles D. White, 54
151

1999 to present Chairman of the Board and Chief Executive Officer, and Director. Elected Corporate Officer 1993. Richard W. Ashley, 66 2004 to present Executive Vice President, Corporate Development. Elected Corporate Officer 2004. Olivier Bohuon, 51 2009 to present Executive Vice President, Pharmaceutical Products. 2008 to 2009 Senior Vice President, International Pharmaceuticals. 2006 to 2008 Senior Vice President, International Operations. 2003 to 2006 Vice President, European Operations. Elected Corporate Officer 2003. John M. Capek, 48 2007 to present Executive Vice President, Medical Devices. 2006 to 2007 Senior Vice President, Abbott Vascular. 2006 Vice President and President, Cardiac Therapies. 2005 to 2006 President, Guidant Vascular Intervention. 2003 to 2005 Vice President and General Manager, Bioabsorbable Vascular Solutions (a subsidiary of Guidant Corporation). Elected Corporate Officer 2006.
Thomas C. Freyman, 55 2004 to present Executive Vice President, Finance and Chief Financial Officer. Elected Corporate Officer 1991. Holger A. Liepmann, 58 2008 to present Executive Vice President, Nutritional Products. 2006 to 2008 Executive Vice President, Global Nutrition.
152

2006 Executive Vice President, Pharmaceutical Products Group. 2004 to 2006 Senior Vice President, International Operations. Elected Corporate Officer 2001. Edward L. Michael, 53 2008 to present Executive Vice President, Diagnostic Products. 2007 to 2008 Executive Vice President, Diagnostics. 2007 Senior Vice President, Medical Products. 2003 to 2007 Vice President and President, Molecular Diagnostics. Elected Corporate Officer 1997. Laura J. Schumacher, 46 2007 to present Executive Vice President, General Counsel and Secretary. 2005 to 2007 Senior Vice President, Secretary and General Counsel. Elected Corporate Officer 2003. Carlos Alban, 47 2009 to present Senior Vice President, International Pharmaceuticals. 2008 to 2009 Vice President, Pharmaceuticals, Western Europe and Canada. 2007 to 2008 Vice President, Western Europe and Canada. 2006 to 2007 Vice President, Pharmaceutical European Operations. 2004 to 2006 Regional Director, North Europe. Elected Corporate Officer 2006. Thomas F. Chen, 60 2008 to present Senior Vice President, International Nutrition. 2006 to 2008 Senior Vice President, Nutrition International Operations. 2005 to 2006 Vice President, Nutrition International, Asia and Latin America. 2005 Vice President, Nutrition International, Asia, Canada, Latin America.
153

1998 to 2005 Vice President, Abbott International, Pacific/Asia/Africa Operations. Elected Corporate Officer 1998.
Stephen R. Fussell, 52 2005 to present Senior Vice President, Human Resources. 1999 to 2005 Vice President, Compensation and Development. Elected Corporate Officer 1999. Robert B. Hance, 50 2008 to present Senior Vice President, Vascular. 2006 to 2008 Senior Vice President, Diabetes Care Operations. 2006 Vice President and President, Vascular Solutions. 2003 to 2006 Vice President and President, Abbott Vascular Devices. Elected Corporate Officer 1999. John C. Landgraf, 57 2008 to present Senior Vice President, Pharmaceuticals, Manufacturing and Supply. 2004 to 2008 Senior Vice President, Global Pharmaceutical Manufacturing and Supply. Elected Corporate Officer 2000. Heather L. Mason, 49 2008 to present Senior Vice President, Diabetes Care. 2007 to 2008 Vice President, Latin America Pharmaceuticals. 2005 to 2007 Vice President, International Marketing. 2001 to 2005 Vice President, Specialty Operations. Elected Corporate Officer 2001. James V. Mazzo, 52 2009 to present Senior Vice President, Abbott Medical Optics.
154

2006 to 2009 Chairman of the Board of Directors, Advanced Medical Optics, Inc. (a global leader in the development, manufacture, and marketing of medical devices for the eye). 2004 to 2009 Chief Executive Officer, Advanced Medical Optics, Inc. 2004 to 2007 President, Advanced Medical Optics, Inc. Elected Corporate Officer 2009. Donald V. Patton Jr., 57 2010 to present Senior Vice President, U.S. Pharmaceuticals. 2007 to 2009 Senior Vice President, U.S. Nutrition. 2007 Senior Vice President, Abbott Nutrition Products Division. 2006 to 2007 Vice President, Diagnostic Global Commercial Operations. 2005 to 2006 Vice President, Commercial Operations. 2004 to 2005 Vice President, International Marketing. Elected Corporate Officer 2004. Mary T. Szela, 46 2010 to present Senior Vice President, Global Strategic Marketing and Services, Pharmaceutical Products Group. 2008 to 2009 Senior Vice President, U.S. Pharmaceuticals. 2007 to 2008 Senior Vice President, Pharmaceutical Operations. 2006 Vice President, Commercial Pharmaceutical Operations. 2001 to 2006 Vice President, Pharmaceutical Products, Primary Care Operations. Elected Corporate Officer 2001. Michael J. Warmuth, 47 2008 to present Senior Vice President, Diagnostics. 2008 Vice President, Hematology Diagnostics. 2007 to 2008 Vice President, Global Engineering Services. 2006 to 2007 Divisional Vice President, Global Engineering Services.
155

2004 to 2006 Divisional Vice President of Quality, Global Pharmaceutical Operations. Elected Corporate Officer 2007. J. Scott White, 41 2010 to present Senior Vice President, U.S. Nutrition. 2007 to 2009 Division Vice President and Regional Director for Latin America, Abbott Nutrition International. 2005 to 2007 Division Vice President and General Manager for Pediatric Nutrition, Abbott Nutrition International. Elected Corporate Officer 2009. Greg W. Linder, 53 2001 to present Vice President and Controller. Elected Corporate Officer 1999.
PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Principal Market The principal market for Abbott's common shares is the New York Stock Exchange. Shares are also listed on the Chicago Stock Exchange and traded on various regional and electronic exchanges. Outside the United States, Abbott's shares are listed on the London Stock Exchange and the Swiss Stock Exchange.
Market Price Per Share 2009 2008 high low high low
First Quarter Second Quarter Third Quarter Fourth Quarter Shareholders
$ 57.39 $ 44.10 $ 61.09 $ 50.09 48.37 41.27 57.04 50.09 49.69 43.45 60.78 52.63 54.97 48.41 59.93 45.75
There were 67,461 shareholders of record of Abbott common shares as of December 31, 2009. Dividends Quarterly dividends of $.40 and $.36 per share were declared on common shares in 2009 and 2008, respectively.
156

Abbott Laboratories is an Illinois High Impact Business (HIB) and is located in a federal Foreign Trade Sub-Zone (SubZone 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.
Issuer Purchases of Equity Securities

(c) Total Number of (d) Maximum Number (or (a) Total Number Shares (or Units) Approximate Dollar Value) of of Shares (b) Average Price Purchased as Part of Shares (or Units) that May (or Units) Paid per Share Publicly Announced Yet Be Purchased Under the Purchased (or Unit) Plans or Programs Plans or Programs
Period
October 1, 2009 October 31, 2009 November 1, 2009 November 30, 2009 December 1, 2009 December 31, 2009 Total 1. These shares represent:
214,3371 104,5041 316,0831 634,9241
$ $ $ $
51.598 53.213 54.076 53.098
0 0 0 0
$ $ $ $
4,192,197,7032 4,192,197,7032 4,192,197,7032 4,192,197,7032
(i) the shares deemed surrendered to Abbott to pay the exercise price in connection with the exercise of employee stock options 199,837 in October; 90,004 in November; and 301,583 in December; and (ii) the shares purchased on the open market for the benefit of participants in the Abbott Laboratories, Limited Employee Stock Purchase Plan 14,500 in October; 14,500 in November; and 14,500 in December. These shares do not include the shares surrendered to Abbott to satisfy tax withholding obligations in connection with the vesting of restricted stock or restricted stock units. 2. On October 13, 2008, Abbott announced that its board of directors approved the purchase of up to $5 billion of its common shares, from time to time. ITEM 6. SELECTED FINANCIAL DATA
Year ended December 31 2009 2008 2007 2006 (dollars in millions, except per share data) 2005
Net sales Earnings from continuing operations Net earnings Basic earnings per common share from continuing operations Basic earnings per common share Diluted earnings per common share from continuing operations Diluted earnings per common share Total assets Long-term debt Cash dividends declared per common share 1.
$ 30,764.7 $ 29,527.6 $ 25,914.2 $ 22,476.3 $ 22,337.8 5,745.8 4,734.2 3,606.3 1,716.81 3,372.1 5,745.8 4,880.7 3,606.3 1,716.81 3,372.1 3.71 3.06 2.34 1.121 2.17 3.71 3.16 2.34 1.121 2.17 3.69 3.03 2.31 1.121 2.16 3.69 3.12 2.31 1.121 2.16 52,416.6 42,419.2 39,713.9 36,178.2 29,141.2 11,266.3 8,713.3 9,487.8 7,009.7 4,571.5 1.60 1.44 1.30 1.18 1.10
In 2006, Abbott recorded pre-tax charges of $2,014 for acquired in-process and collaborations research and development primarily related to the acquisition of Guidant's vascular intervention and endovascular solutions businesses and Kos Pharmaceuticals Inc. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Financial Review
157

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 and costs. Abbott's primary products are prescription pharmaceuticals, nutritional products, diagnostic testing products and vascular products. Sales in international markets are approximately 50 percent of consolidated net sales. The worldwide launch of additional indications for HUMIRA, the conclusion of the TAP Pharmaceutical Products Inc. joint venture, the acquisitions of Advanced Medical Optics, Inc., Kos Pharmaceuticals Inc. and Guidant's vascular intervention and endovascular solutions businesses, followed by the launch of the Xience V drug eluting stent, the loss of patent protection for some pharmaceutical products, the amendment ending the U.S. Synagis co-promotion agreement, and realized gains and unrealized losses on the Boston Scientific common stock have impacted Abbott's sales, costs and financial position over the last three years. Pharmaceutical research and development is focused on therapeutic areas that include immunology, oncology, neuroscience, pain management and infectious diseases. In 2003, Abbott began the worldwide launch of HUMIRA for rheumatoid arthritis, followed by launches for five additional indications, which increased HUMIRA's worldwide sales to $5.5 billion in 2009 compared to $4.5 billion in 2008, and $3.0 billion in 2007. Abbott forecasts worldwide HUMIRA sales to increase by approximately 20 percent in 2010. Abbott is studying additional indications for HUMIRA. Substantial research and development and selling support has been and continues to be dedicated to maximizing the worldwide potential of HUMIRA. In December 2006, Abbott acquired Kos Pharmaceuticals Inc. which complemented Abbott's existing franchise in the dyslipidemia market and strengthened the pharmaceutical pipeline for cholesterol management. Abbott's Trilipix, a nextgeneration product for management of triglycerides and the first product approved for use in combination with a statin was launched in 2008. Increased generic competition has resulted in worldwide Depakote sales declining from $1.6 billion in 2007 to $426 million in 2009, U.S. sales of Omnicef declining from $235 million in 2007 to $3 million in 2009 and worldwide sales of clarithromycin declining from $724 million in 2007 to $599 million in 2009. In 2007, Abbott's nutritional products businesses were reorganized into a worldwide business to better leverage the opportunities available for strong nutritional brands. Significant efforts have been focused on capturing those opportunities, particularly in developing markets where growth has been strong. In 2008, Abbott received FDA approval to market the Xience V drug eluting stent in the U.S. and in 2006 received European Union approval. Xience V became the market-leading drug eluting stent in the U.S. in the fourth quarter of 2008. In June 2009, Xience PRIME, Abbott's next generation drug eluting stent, received CE Mark approval and was launched in Europe in August 2009. Abbott received approval to market Xience V in Japan in January 2010. In April 2006, Abbott acquired 64.6 million shares of Boston Scientific in connection with Abbott's acquisition of the vascular intervention and endovascular solutions businesses of Guidant. In 2007, the net loss charged to expense for the investment was $153 million. At December 31, 2007, Abbott held 26.4 million shares of Boston Scientific common stock. In 2008, all of these shares were sold resulting in a small gain. Abbott's short- and long-term debt totaled $16.5 billion at December 31, 2009, largely incurred to finance recent acquisitions. Operating cash flows in excess of capital expenditures and cash dividends have partially funded acquisitions over the last three years. At December 31, 2009, Abbott's long-term debt rating was AA by Standard and Poor's Corporation and A1 by Moody's Investors Service. Abbott's access to short-term financing was not affected by the credit market conditions in 2008 and early 2009. In April 2008, Abbott and Takeda concluded their TAP Pharmaceutical Products Inc. (TAP) joint venture, evenly splitting the value and assets of the joint venture in a tax-free exchange. Abbott received TAP's Lupron business in exchange for Abbott's 50 percent ownership in TAP. Lupron's U.S. results are included in the Pharmaceutical Products segment beginning in May 2008. Abbott also receives payments based on specified development, approval and commercial events being achieved with respect to products retained by Takeda and payments from Takeda based on sales of products retained by Takeda.
158

In 2010, Abbott will focus on several key initiatives. In the pharmaceutical business, Abbott will continue to build its global presence, expand its presence in emerging markets and diversify its sources of growth with its previously announced acquisition of Solvay's pharmaceuticals business, which closed on February 15, 2010. Abbott will also continue maximizing the market potential for HUMIRA and continue to leverage the product and pipeline opportunities of its lipid franchise, including Certriad, which is expected to receive approval in the first half of 2010. Pharmaceutical research and development efforts will continue to focus on the therapeutic areas noted above with a significant portion of the development expenditures allocated to compounds in early and mid-stage development for oncology, immunology, Hepatitis C, neuroscience, and pain management. Such compounds include two oncology compounds in advanced clinical trials, ABT-874 (a biologic for psoriasis), three HCV compounds in human studies, and two compounds in Phase II clinical trials for Alzheimer's disease. In the vascular business, Abbott launched the Xience V drug-eluting stent in Japan after receiving approval in January 2010, and will also focus on marketing Xience PRIME in Europe and other markets as well as development of Xience PRIME in the U.S. and its bioabsorbable stent. In the other business segments, Abbott will focus on developing or acquiring differentiated technologies in higher growth segments of those markets. Critical Accounting Policies Sales Rebates Approximately 50 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 rebates and allowances are in the Pharmaceutical Products segment and the Nutritional Products segment. Abbott provides rebates to pharmacy benefit management companies, state agencies that administer the federal Medicaid program, insurance companies that administer Medicare drug plans, state agencies that administer the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC), wholesalers, group purchasing organizations, and other government agencies 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 agency 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 generally 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 2009, 2008 and 2007 amounted to approximately $4.4 billion, $3.8 billion and $3.2 billion, respectively, or 23.8 percent, 22.8 percent and 21.5 percent, respectively, based on gross sales of approximately $18.4 billion, $16.8 billion and $15.0 billion, respectively, subject to rebate. A one-percentage point increase in the percentage of rebates to related gross sales would decrease net sales by approximately $184 million in 2009. Abbott considers a one-percentage point increase to be a reasonably likely increase in the percentage of rebates to related gross sales. Other allowances charged against gross sales were approximately $414 million, $362 million and $325 million for cash discounts in 2009, 2008 and 2007, respectively, and $456 million, $439 million and $269 million for returns in 2009, 2008 and 2007, 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 rebate accrual balances each quarter. In the domestic nutritional business, management uses both internal and external data available to estimate the level of inventory in the distribution channel. Management has access to several large customers' inventory management data, and for other customers, utilizes data from a third party that measures time on the retail shelf. These sources allow management to make reliable estimates of inventory 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 determinable. 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 research. The USDA has been making its data available for many years. Internal data includes historical redemption rates and pricing data. At December 31, 2009, Abbott had the exclusive WIC business in 24 states.
159

In the domestic pharmaceutical business, the most significant charges against gross sales are for Medicaid and Medicare 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 data to estimate 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 reliable. The following table is an analysis of the four largest rebate accruals, which comprise approximately 67 percent of the consolidated rebate provisions charged against revenues in 2009. Remaining rebate provisions charged against gross sales are not significant in the determination of operating earnings. (dollars in millions)
Domestic Pharmaceutical Products Domestic Nutritionals WIC Rebates Medicaid and Medicare Rebates Pharmacy Benefit Manager Rebates Wholesaler Chargebacks
Balance at January 1, 2007 Provisions Payments Balance at December 31, 2007 Provisions Payments Balance at December 31, 2008 Provisions Payments Balance at December 31, 2009
136 $ 754 (691) 199 808 (845) 162 747 (756) 153 $
485 $ 438 (503) 420 556 (681) 295 563 (506) 352 $
220 $ 412 (395) 237 397 (406) 228 505 (494) 239 $
87 786 (781) 92 1,034 (980) 146 1,134 (1,120) 160
Historically, adjustments to prior years' rebate accruals have not been material to net income. In 2007, adjustments were made to prior years' rebate accruals. The Medicaid and Medicare rebate accrual was reduced by approximately $69 million and the WIC rebate accrual was increased by approximately $19 million. 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, Medicare 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. In accordance with the accounting rules relating to the measurement of tax contingencies, in order to recognize an uncertain tax benefit, the taxpayer must be more likely than not of sustaining the position, and the measurement of the benefit is calculated as the largest amount that is more than 50 percent likely to be realized upon resolution of the benefit. Application of these rules requires a significant amount of judgment. In the U.S., Abbott's federal income tax returns through 2005 are settled, and the income tax returns for years after 2005 are open. 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 assist in the determination of the obligations and costs under these programs. Abbott must develop long-term assumptions, the most significant of which are the health care cost trend rates, discount rates and the expected return on plan assets. The discount rates used to measure liabilities were determined based on high-quality fixed income securities that match the duration of the expected retiree benefits. The health care cost trend rates represent Abbott's expected annual rates of change in the cost of health care benefits and is a forward projection of health care costs as of the measurement date. A difference between the assumed rates and the actual rates, which will not be known
160

for decades, can be significant in relation to the obligations and the annual cost recorded for these programs. Negative asset returns in 2008 due to poor market conditions and low interest rates have significantly increased actuarial losses for these plans. At December 31, 2009, pretax net actuarial losses and prior service costs and (credits) recognized in Accumulated other comprehensive income (loss) for Abbott's defined benefit plans and medical and dental plans were losses of $2.7 billion and $501 million, respectively. Actuarial losses and gains are amortized over the remaining service attribution 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. Note 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. Valuation of Intangible Assets Abbott has acquired and continues to acquire significant intangible assets that Abbott records at fair value. 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. The discounted cash flow model requires assumptions about the timing and amount of future net cash flows, risk, the cost of capital, terminal values and market participants. 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 acquisitions of significant intangibles. Abbott reviews definite-lived 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 and indefinite-lived intangible assets, which relate to in-process research and development acquired in a business combination, are reviewed for impairment annually or when an event that could result in an impairment occurs. At December 31, 2009, goodwill and intangibles amounted to $13.2 billion and $6.3 billion, respectively, and amortization expense for intangible assets amounted to $879 million in 2009. There were no impairments of goodwill in 2009, 2008 or 2007. Litigation Abbott accounts for litigation losses in accordance with FASB Accounting Standards Codification No. 450, "Contingencies." Under ASC No. 450, 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. Except for the cases discussed in Note 8 for which Abbott is unable to estimate a loss, if any, Abbott estimates the range of possible loss to be from approximately $170 million to $310 million for its legal proceedings and environmental exposures. Reserves of approximately $215 million have been recorded at December 31, 2009 for these proceedings and exposures. These reserves represent management's best estimate of probable loss, as defined by FASB ASC No. 450, "Contingencies." Stock Compensation Abbott records the fair value of stock options in its results of operations. Since there is no market for trading employee stock options, management must use a fair value method. There is no certainty that the results of a fair value method would be the value at which employee stock options would be traded for cash. Fair value methods require management to make several assumptions, the most significant of which are the selection of a fair value model, stock price volatility and the average life of an option. Abbott has readily available grant-by-grant historical activity for several years in its option administration system that it uses in developing some of its assumptions. Abbott uses the Black-Scholes method to value stock options. Abbott uses both historical volatility of its stock price and the implied volatility of traded options to develop the volatility assumptions. Abbott uses the historical grant activity, combined with expectations about future exercise activity, to develop the average life assumptions. Abbott has also used the historical grant data to evaluate whether certain holders of stock options exercised their options differently than other holders and has not found any differentiating pattern among holders.
161
Results of Operations Sales The following table details the components of sales growth by reportable segment for the last three years:
Total % Change
Components of Change % Price Volume Exchange
Total Net Sales 2009 vs. 2008 2008 vs. 2007 2007 vs. 2006 Total U.S. 2009 vs. 2008 2008 vs. 2007 2007 vs. 2006 Total International 2009 vs. 2008 2008 vs. 2007 2007 vs. 2006 Pharmaceutical Products Segment 2009 vs. 2008 2008 vs. 2007 2007 vs. 2006 Nutritional Products Segment 2009 vs. 2008 2008 vs. 2007 2007 vs. 2006 Diagnostic Products Segment 2009 vs. 2008 2008 vs. 2007 2007 vs. 2006 Vascular Products Segment 2009 vs. 2008 2008 vs. 2007 20.1 34.7 (2.9) (4.6) 26.0 35.8 (3.0) 3.5 0.1 13.2 11.1 1.4 1.3 (0.6) 3.7 6.8 7.0 (5.0) 5.1 4.7 7.3 12.2 1.7 1.5 3.4 1.4 8.6 6.9 (1.4) (2.8) 1.9 1.7 (1.3) 14.2 18.0 (0.1) 1.9 2.4 3.0 9.1 12.3 (4.2) 3.2 3.3 7.7 17.8 18.8 0.2 (0.5) (1.7) 15.1 12.0 14.0 (7.6) 6.3 6.5 0.4 10.1 12.0 (0.3) 3.4 4.0 0.7 6.7 8.0 4.2 13.9 15.3 (0.1) 1.4 1.2 8.3 9.3 10.9 (4.0) 3.2 3.2
162

2007 vs. 2006 53.8 (4.7) 55.4 3.1 Worldwide sales growth in 2009 reflects unit growth and the acquisition of Advanced Medical Optics, Inc. on February 25, 2009, partially offset by the negative effect of the relatively stronger U.S. dollar. Worldwide, U.S. and Pharmaceutical Products segment sales also reflect decreased sales of Depakote due to generic competition. Excluding U.S. Depakote sales in 2009 and 2008, worldwide sales increased 7.7 percent, U.S. sales increased 7.6 percent and Pharmaceutical Products segment sales increased 4.3 percent. Worldwide 2008 sales growth reflects unit growth and the positive effect of the relatively weaker U.S. dollar. Worldwide 2007 sales growth reflects the acquisitions of Guidant's vascular intervention and endovascular solutions businesses on April 21, 2006 and Kos Pharmaceuticals Inc. in the fourth quarter of 2006. Sales growth in 2007 for the Nutritional Products segment reflects the completion of the U.S. co-promotion of Synagis in 2006. Excluding sales of Synagis in 2006, Nutritional Products segment sales increased 11.3 percent in 2007. A comparison of significant product group sales is as follows. Percent changes are versus the prior year and are based on unrounded numbers.
2009 Percent Change 2008 Percent Change 2007 Percent Change
(dollars in millions)
Pharmaceuticals U.S. Specialty U.S. Primary Care International Pharmaceuticals Nutritionals U.S. Pediatric Nutritionals International Pediatric Nutritionals U.S. Adult Nutritionals International Adult Nutritionals Diagnostics Immunochemistry 2,798 (2) 2,843 13 2,517 11 1,306 1,543 1,269 1,106 3 12 9 3 1,268 1,374 1,162 1,070 3 26 8 13 1,233 1,093 1,077 947 9 22 2 15 $ 4,676 3,043 7,861 (10) $ 5,211 (2) 3,102 6 7,399 20 $ 4,349 (1) 3,139 23 6,002 24 23 16
Decreased sales of Depakote due to generic competition impacted U.S. Specialty product sales in 2009 and 2008. This was partially offset by increased sales of HUMIRA and by the addition of Lupron sales from the conclusion of the TAP joint venture in April 2008. Increased sales of HUMIRA and Depakote impacted U.S. Specialty product sales in 2007. U.S. sales of HUMIRA were $2.5 billion, $2.2 billion and $1.6 billion in 2009, 2008 and 2007, respectively, and U.S. sales of Depakote were $331 million, $1.3 billion and $1.5 billion in 2009, 2008 and 2007, respectively. U.S. Primary Care sales in all three years were impacted by decreased sales of Omnicef, Synthroid and Biaxin due to generic competition. This was partially offset in 2009 and 2008 by increased sales of Niaspan and in 2008 by higher TriCor/Trilipix franchise sales. U.S. Primary Care sales in 2007 were favorably impacted by sales of TriCor and Niaspan, a new product from the acquisition of Kos Pharmaceuticals Inc. in the fourth quarter of 2006. Increased sales volume of HUMIRA in all three years favorably impacted International Pharmaceuticals sales, partially offset by decreased sales of clarithromycin in 2009 and 2008 due to generic competition. International sales of HUMIRA were $3.0 billion, $2.3 billion and $1.4 billion in 2009, 2008 and 2007, respectively. The relatively stronger U.S. dollar decreased International Pharmaceutical sales in 2009 by 8.6 percent and the relatively weaker U.S. dollar increased International Pharmaceutical sales in 2008 and 2007 by 7.3 percent and 7.1 percent, respectively. International Pediatric Nutritionals sales increases were due primarily to volume growth in developing countries. International Adult Nutritionals sales and Immunochemistry sales in 2009 were negatively impacted by the effect of the relatively stronger U.S. dollar. 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 Note 1 to the consolidated financial statements. Related net sales were $120 million, $111 million and $184 million in 2009, 2008 and 2007, respectively.
163

The expiration of licenses, patent protection and generic competition can affect the future revenues and operating income of Abbott. There are currently no significant patent or license expirations in the next three years. Operating Earnings Gross profit margins were 57.1 percent of net sales in 2009, 57.3 percent in 2008 and 55.9 percent in 2007. The decrease in the gross profit margin in 2009 was due, in part, to the negative impact from lower sales of Depakote and the unfavorable effect of exchange on the gross profit margin ratio; partially offset by improved margins in the vascular and diagnostics businesses. The increase in the gross profit margin in 2008 was due, in part, to favorable product mix and the favorable impact of foreign exchange. The decrease in the gross profit margin in 2007 was due, in part, to the unfavorable impact in 2007 of the completion of the U.S. co-promotion of Synagis in 2006 as well as generic competition for Omnicef and Biaxin sales in 2007. In the U.S., states receive price rebates from manufacturers of infant formula under the federally subsidized Special Supplemental Nutrition 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 Nutritional and Pharmaceutical Products segments. Research and development expense was $2.744 billion in 2009, $2.689 billion in 2008 and $2.506 billion in 2007 and represented increases of 2.0 percent in 2009, 7.3 percent in 2008 and 11.1 percent in 2007. The increase in 2009 reflects the favorable effect of exchange rates which reduced research and development expense in 2009. Excluding the effect of exchange, research and development expenses increased 3.4 percent in 2009. The increase in 2007 was affected by the acquisitions of Guidant's vascular intervention and endovascular solutions businesses in April 2006 and Kos Pharmaceuticals Inc. in the fourth quarter of 2006. These increases, excluding the effects of exchange, also reflect continued pipeline spending, including programs in vascular devices, immunology, neuroscience, oncology, Hepatitis C and pain management. The majority of research and development expenditures are concentrated on pharmaceutical products. Selling, general and administrative expenses decreased 0.4 percent in 2009 compared to increases of 13.9 percent in 2008 and 16.7 percent in 2007. The 2009 decrease reflects the favorable effect of exchange rates which was offset by expenses relating to the acquisition of Advanced Medical Optics, Inc. and the settlement of litigation. Excluding the effects of the charges and exchange, selling, general and administrative expenses increased 0.9 percent in 2009. The 2008 increase reflects the settlement of litigation relating to TriCor, which increased selling, general and administration expenses by 3.1 percentage points. The 2007 increase reflects the acquisitions of Guidant's vascular intervention and endovascular solutions businesses and Kos Pharmaceuticals Inc. The remaining increases in selling, general and administrative expenses were due primarily to increased selling and marketing support for new and existing products, including continued spending for HUMIRA and Xience V, and inflation. Conclusion of TAP Pharmaceutical Products Inc. Joint Venture and Sale of Abbott's Spine Business On April 30, 2008, Abbott and Takeda concluded their TAP Pharmaceutical Products Inc. (TAP) joint venture, evenly splitting the value and assets of the joint venture. Abbott exchanged its 50 percent equity interest in TAP for the assets, liabilities and employees related to TAP's Lupron business. Subsequent to the conclusion of the joint venture, TAP was merged into two Takeda entities. The exchange of Abbott's investment in TAP for TAP's Lupron business resulted in a gain at closing of approximately $94 million. The Internal Revenue Service has issued a private letter ruling that the transaction qualifies as tax-free for U.S. income tax purposes. Beginning on May 1, 2008, Abbott began recording U.S. Lupron net sales and costs in its operating results and no longer records income from the TAP joint venture. TAP's sales of Lupron were $182 million for the four months ended April 30, 2008 and $645 million in 2007. Abbott also receives payments based on specified development, approval and commercial events being achieved with respect to products retained by Takeda and payments from Takeda based on sales of products retained by Takeda, which are recorded by Abbott as Other (income) expense, net as earned.
164

The exchange transaction was accounted for as a sale of Abbott's equity interest in TAP and as an acquisition of TAP's Lupron business. The sale of Abbott's equity interest in TAP resulted in the recording of net assets related to the Lupron business, primarily cash, receivables, inventory and other assets, net of accounts payable and other accrued liabilities, offset by a credit to Abbott's investment in TAP in the amount of approximately $280 million. For the acquired Lupron business, Abbott recorded intangible assets, primarily Lupron product rights, of approximately $700 million, goodwill of approximately $350 million and deferred tax liabilities related primarily to the intangible assets of approximately $260 million. The intangible assets are being amortized over 15 years. Abbott has also agreed to remit cash to Takeda if certain research and development events are not achieved on the development assets retained by Takeda. These amounts were recorded as a liability at closing in the amount of approximately $1.1 billion. Related deferred tax assets of approximately $410 million were also recorded. Of the $1.1 billion, Abbott made tax-deductible payments of $83 million and $200 million in 2009 and 2008, respectively, and Abbott will make a tax-deductible payment of approximately $36 million in 2010. In 2009, events occurred resulting in the remaining payments not being required and the remaining liability in the amount of $797 million was derecognized and recorded as income in Other (income) expense, net. The 50 percent-owned joint venture was accounted for under the equity method of accounting. Summarized financial information for TAP follows below. The results for 2008 include results through April 30. (dollars in millions)
Year Ended December 31 2008 2007
Net sales Cost of sales Income before taxes Net income
853 $ 229 356 238
3,002 720 1,564 996
In the fourth quarter of 2008, Abbott sold its spine business for approximately $360 million in cash, resulting in an aftertax gain of approximately $147 million which is presented as Gain on sale of discontinued operations, net of taxes, in the accompanying statement of income. The operations and financial position of the spine business are not presented as discontinued operations because the effects would not be significant. Restructurings In 2008, Abbott management approved a plan to streamline global manufacturing operations, reduce overall costs, and improve efficiencies in Abbott's core diagnostic business. In 2008, Abbott recorded a charge to Cost of products sold of approximately $129 million under the plan. Additional charges of approximately $54 million and $16 million were recorded in 2009 and 2008, respectively, relating to this restructuring, primarily for accelerated depreciation and product transfer costs. Additional charges will be incurred through 2011 as a result of product re-registration timelines required under manufacturing regulations in a number of countries and product transition timelines. The following summarizes the activity for this restructuring: (dollars in millions) 2008 restructuring charge Payments and other adjustments Accrued balance at December 31, 2008 Payments and other adjustments Accrued balance at December 31, 2009 $ 129 (19) 110 (12) $ 98
In 2009 and prior years, Abbott management approved plans to realign its worldwide pharmaceutical and vascular manufacturing operations and selected domestic and international commercial and research and development operations in order to reduce costs. In 2009, 2008 and 2007, Abbott recorded charges of approximately $114 million, $36 million and $107 million, respectively, reflecting the impairment of manufacturing facilities and other assets, employee severance and other related charges. Approximately $94 million in 2007 is classified as cost of products sold, $3 million in 2007 as research and development and $114 million, $36 million and $10 million in 2009, 2008 and 2007, respectively, as selling, general and
165

administrative. Fair value for the determination of the amount of asset impairments was determined primarily based on a discounted cash flow method. An additional $47 million, $81 million and $90 million were subsequently recorded in 2009, 2008 and 2007, respectively, relating to these restructurings, primarily for accelerated depreciation. In addition, Abbott implemented facilities restructuring plans in 2007 related to the acquired operations of Kos Pharmaceuticals Inc. which resulted in an increase to goodwill of approximately $52 million. The following summarizes the activity for these restructurings: (dollars in millions) Accrued balance at January 1, 2007 2007 restructuring charges Payments, impairments and other adjustments Accrued balance at December 31, 2007 2008 restructuring charges Payments, impairments and other adjustments Accrued balance at December 31, 2008 2009 restructuring charges Payments and other adjustments Accrued balance at December 31, 2009 Interest expense and Interest (income) In 2009 and 2008, interest expense decreased primarily as a result of lower interest rates, partially offset by increased debt levels in 2009 related to the acquisition of Advanced Medical Optics, Inc. Interest expense increased in 2007 due primarily to higher borrowings as a result of the acquisitions of Guidant's vascular intervention and endovascular solutions businesses and Kos Pharmaceuticals Inc. and Abbott's investment in the Boston Scientific common stock and note receivable. Interest income decreased in 2009 due to lower interest rates and increased in 2008 and 2007 due to higher investment balances. Other (income) expense, net Other (income) expense, net, for 2009 includes the derecognition of a contingent liability of $797 million associated with the conclusion of the TAP Pharmaceutical Products Inc. joint venture as discussed above, a $287 million gain from the settlement reached between Abbott and Medtronic, Inc. resolving all outstanding intellectual property litigation between the two parties and income from the recording of certain investments at fair value in connection with business acquisitions. Other (income) expense, net, for 2009 and 2008 also includes ongoing contractual payments from Takeda associated with the conclusion of the TAP joint venture and a gain in 2008 on the sale of an equity investment accounted for as an available-forsale investment. In addition, Abbott recorded a gain of approximately $94 million in connection with the dissolution of the TAP joint venture in 2008. Other (income) expense, net for 2007 includes a $190 million fair market value loss adjustment to Abbott's investment in Boston Scientific common stock and a realized gain of $37 million on the sales of Boston Scientific common stock. Taxes on Earnings The income tax rates on earnings from continuing operations were 20.1 percent in 2009, 19.2 percent in 2008 and 19.3 percent in 2007. The tax rate in 2009 was effected by a higher tax rate applied to the derecognition of a contingent liability associated with the conclusion of the TAP Pharmaceutical Products Inc. joint venture and the Medtronic intellectual property litigation settlement. Abbott expects to apply an annual effective rate of between 16 percent and 16.5 percent in 2010. Business Combinations, Technology Acquisitions and Related Transactions On January 1, 2009, Abbott adopted the provisions of SFAS No. 141 (revised 2007), "Business Combinations," as codified in FASB ASC No. 805, "Business Combinations." Under ASC No. 805, acquired in-process research and $ 193 159 (158) 194 36 (125) 105 114 (74) $ 145
166

development is accounted for as an indefinite-lived intangible asset until approval or discontinuation rather than as expense, acquisition costs in connection with an acquisition are expensed rather than added to the cost of an acquisition and the fair value of contingent consideration at the date of an acquisition is added to the cost of the acquisition. In February 2009, Abbott acquired the outstanding shares of Advanced Medical Optics, Inc. (AMO) for approximately $1.4 billion in cash, net of cash held by AMO. Prior to the acquisition, Abbott held a small investment in AMO. Abbott acquired AMO to take advantage of increasing demand for vision care technologies due to population growth and demographic shifts and AMO's premier position in its field. Abbott acquired control of this business on February 25, 2009 and the financial results of the acquired operations are included in these financial statements beginning on that date. The acquisition was financed with long-term debt. The allocation of the fair value of the acquisition is shown in the table below: (dollars in billions) Goodwill, non-deductible Acquired intangible assets, non-deductible Acquired in-process research and development, non-deductible Acquired net tangible assets Acquired debt Deferred income taxes recorded at acquisition Total allocation of fair value $ 1.7 0.9 0.2 0.4 (1.5) (0.3) $ 1.4
Acquired intangible assets consist of established customer relationships, developed technology and trade names and will be amortized over 2 to 30 years (average of 15 years). Acquired in-process research and development will be accounted for as an indefinite-lived intangible asset until regulatory approval or discontinuation. The net tangible assets acquired consist primarily of trade accounts receivable, inventory, property and equipment and other assets, net of assumed liabilities, primarily trade accounts payable, accrued compensation and other liabilities. Abbott incurred approximately $89 million of acquisition-related expenses in 2009 which are classified as Selling, general and administrative expense. In addition, subsequent to the acquisition, Abbott repaid substantially all of the acquired debt of AMO. In October 2009, Abbott acquired 100 percent of Visiogen, Inc. for $400 million, in cash, providing Abbott with a nextgeneration accommodating intraocular lens (IOL) technology to address presbyopia for cataract patients. The preliminary allocation of the fair value of the acquisition resulted in non-deductible acquired in-process research and development of approximately $195 million which will be accounted for as an indefinite-lived intangible asset until regulatory approval or discontinuation, non-deductible definite-lived intangible assets of approximately $33 million, goodwill of approximately $260 million and deferred income taxes of approximately $89 million. Acquired intangible assets consist of developed technology and will be amortized over 12 years. The allocation of the fair value of the acquisition will be finalized when the valuation is completed. In October 2009, Abbott acquired Evalve, Inc. for $320 million, in cash, plus an additional payment of $90 million to be made upon completion of certain regulatory milestones. Abbott acquired Evalve to obtain a presence in the growing area of percutaneous treatment for structural heart disease. Including a previous investment in Evalve, Abbott has acquired 100 percent of the outstanding shares of Evalve. In connection with the acquisition, the carrying amount of this investment was revalued to fair value resulting in recording $28 million of income, which is reported as Other (income) expense, net. The preliminary allocation of the fair value of the acquisition resulted in non-deductible definite-lived intangible assets of approximately $145 million, non-deductible acquired in-process research and development of approximately $228 million which will be accounted for as an indefinite-lived intangible asset until regulatory approval or discontinuation, goodwill of approximately $158 million and deferred income taxes of approximately $136 million. Acquired intangible assets consist of developed technology and will be amortized over 12 years. The allocation of the fair value of the acquisition will be finalized when the valuation is completed. In January 2009, Abbott acquired Ibis Biosciences, Inc. (Ibis) for $175 million, in cash, to expand Abbott's position in molecular diagnostics for infectious disease. Including a $40 million investment in Ibis in 2008, Abbott has acquired 100 percent of the outstanding shares of Ibis. A substantial portion of the fair value of the acquisition has been allocated to goodwill and amortizable intangible assets, and acquired in-process research and development that will be accounted for as
167

an indefinite-lived intangible asset until regulatory approval or discontinuation. The investment in Ibis in 2008 resulted in a charge to acquired in-process research and development. In connection with the acquisition, the carrying amount of this investment was revalued to fair value resulting in recording $33 million of income, which is reported as Other (income) expense, net. Had the above acquisitions taken place on January 1 of the previous year, consolidated net sales and income would not have been significantly different from reported amounts. In December 2009, Abbott acquired the global rights to a novel biologic for the treatment of chronic pain for $170 million, in cash, resulting in a charge to acquired in-process research and development. In September 2009, Abbott announced an agreement to acquire Solvay's pharmaceuticals business for EUR 4.5 billion (approximately $6.2 billion), in cash, plus additional payments of up to EUR 300 million if certain sales milestones are met. This acquisition will provide Abbott with a large and complementary portfolio of pharmaceutical products and a significant presence in key global emerging markets and will add approximately $500 million to Abbott's research and development spending. The transaction closed on February 15, 2010. Sales for the acquired business are forecast to be approximately $2.9 billion in 2010. The allocation of the fair value of the acquisition will be finalized when the valuation is completed. Financial Condition Cash Flow Net cash from operating activities of continuing operations amounted to $7.3 billion, $7.0 billion and $5.2 billion in 2009, 2008 and 2007, respectively. Cash from operating activities of continuing operations in 2008 compared to 2007 is higher due to higher operating earnings, decreased prepaid expenses and other assets, and increased trade accounts payable and other liabilities. Abbott funds its domestic pension plans according to IRS funding limitations. Abbott funded $700 million in 2009, and $200 million annually in 2008 and 2007 to the main domestic pension plan. Abbott expects pension funding for its main domestic pension plan of $200 million annually. Abbott expects annual cash flow from operating activities to continue to exceed Abbott's capital expenditures and cash dividends. Debt and Capital At December 31, 2009, Abbott's long-term debt rating was AA by Standard & Poor's Corporation and A1 by Moody's Investors Service. Abbott has readily available financial resources, including unused lines of credit of $6.3 billion that support commercial paper borrowing arrangements of which a $3.3 billion facility expires in October 2010 and a $3.0 billion facility expires in 2012. Related compensating balances, which are subject to withdrawal by Abbott at its option, and commitment fees are not material. Abbott's access to short-term financing was not affected by the credit market conditions in 2008 and early 2009. In October 2008, the board of directors authorized the purchase of up to $5 billion of Abbott's common shares from time to time. Under this authorization, 14.5 million shares were purchased in 2009 at a cost of approximately $800 million and 146,400 shares were purchased in 2008 at a cost of approximately $8 million. In 2008 and 2007, Abbott purchased approximately 19.0 million of its common shares in each period at a cost of approximately $1.1 billion and $1.0 billion, respectively, under a prior authorization. Under a registration statement filed with the Securities and Exchange Commission in February 2009, Abbott issued $3.0 billion of long-term debt in the first quarter of 2009 that matures in 2019 and 2039 with interest rates of 5.125 percent and 6.0 percent, respectively. Proceeds from this debt were used to fund the acquisition of Advanced Medical Optics, Inc. and to repay debt of Advanced Medical Optics, Inc. In addition, Abbott repaid $1 billion of long-term notes that were due in 2009 using short-term borrowings. Under a registration statement filed with the Securities and Exchange Commission in February 2006, Abbott issued $3.5 billion of long-term debt in 2007 that matures in 2012 through 2037 with interest rates ranging from 5.15 percent to 6.15 percent. Proceeds from this debt were used to pay down short-term borrowings that were incurred to partially fund the acquisition of Kos Pharmaceuticals Inc.
168

The acquisition of Solvay's pharmaceuticals business on February 15, 2010 was funded with current cash and short-term investments. The judgment entered by the U.S. District Court for the Eastern District of Texas against Abbott in its litigation with New York University and Centocor, Inc. requires Abbott to secure the judgment in the event that its appeal to the Federal Circuit court is unsuccessful in overturning the district court's decision. Abbott expects to deposit approximately $1.8 billion with an escrow agent during the first quarter of 2010 and will consider these assets to be restricted. Working Capital Working capital was $10.3 billion at December 31, 2009, $5.5 billion at December 31, 2008 and $4.9 billion at December 31, 2007. The increase in working capital in 2009 was due, primarily, to increased levels of cash and investments and the derecognition of a contingent liability associated with the conclusion of the TAP joint venture; partially offset by increased debt levels. Capital Expenditures Capital expenditures of $1.1 billion in 2009, $1.3 billion in 2008 and $1.7 billion in 2007 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. Contractual Obligations The following table summarizes Abbott's estimated contractual obligations as of December 31, 2009: (dollars in millions)
Payment Due By Period Total 2010 20112012 20132014 2015 and Thereafter
Long-term debt, including current maturities and future interest payments Operating lease obligations Capitalized auto lease obligations Purchase commitments (a) Other long-term liabilities reflected on the consolidated balance sheet Benefit plan obligations Other Total
$ 18,008 $ 816 $ 484 99 84 28 3,307 3,118 2,981 2,165 $ 27,029 $ 4,061 $
4,162 $ 152 56 159 479 1,417 6,425 $
1,743 $ 101 23 420 229 2,516 $
11,287 132 7 2,082 519 14,027
(a) Purchase commitments are for purchases made in the normal course of business to meet operational and capital expenditure requirements. Contingent Obligations 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, if any, under these obligations. Based upon past experience, the likelihood of payments under these agreements is remote. In addition, Abbott periodically acquires a business or product rights in which Abbott agrees to pay contingent consideration based on attaining certain thresholds or based on the occurrence of certain events. In connection with the acquisition of Guidant's vascular intervention and endovascular solutions businesses, Abbott paid $250 million to Boston Scientific in January 2010 upon government approval to market the Xience V drug-eluting stent in Japan. In addition, Abbott has retained liabilities for taxes on income prior to the spin-off of Hospira and
169

certain potential liabilities, if any, related to alleged improper pricing practices in connection with federal, state and private reimbursement for certain drugs. Recently Issued Accounting Standards In 2009, the FASB issued SFAS No. 167, "Amendments to FASB Interpretation No. 46(R)," as codified in FASB ASC No. 810, "Consolidation." FASB ASC No. 810 provides consolidation guidance relating to variable interest entities. These provisions are effective for fiscal years beginning after November 15, 2009. Adoption of these provisions is not expected to have a material effect on the results of operations or financial position of Abbott. Legislative Issues Abbott's primary markets are highly competitive and subject to substantial government regulation throughout the world. Abbott expects debate to continue over the availability, method of delivery, and payment for health care products and services. Abbott believes that if legislation is enacted, it could change access to health care products and services, increase rebates, reduce prices or the rate of price increases for health care products and services, create new fees for the pharmaceutical and medical device industries or require additional reporting and disclosure. It is not possible to predict the extent to which Abbott or the health care industry in general might be adversely affected by these factors in the future. A more complete discussion of these factors is contained in Item 1, Business, and Item 1A, Risk Factors, to 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 Item 1A, Risk Factors, to the Annual Report on Form 10-K. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Financial Instruments and Risk Management Investment in Boston Scientific Note Receivable At December 31, 2009 and 2008, Abbott has a $900 million loan to a wholly-owned subsidiary of Boston Scientific which is payable to Abbott in April 2011 and, as such, is subject to credit risk. Other Market Price Sensitive Investments Abbott holds available-for-sale equity securities from strategic technology acquisitions. The market value of these investments was approximately $75 million and $105 million, respectively, as of December 31, 2009 and 2008. 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, 2009 by approximately $15 million. (A 20 percent decrease is believed to be a reasonably possible near-term change in share prices.) Non-Publicly Traded Equity Securities Abbott holds equity securities from strategic technology acquisitions that are not traded on public stock exchanges. The carrying value of these investments was approximately $78 million and $42 million as of December 31, 2009 and 2008, respectively. No individual investment is in excess of $18 million. Abbott monitors these investments for other than
170

temporary declines in market value, and charges impairment losses to income when an other than temporary decline in estimated value occurs. Interest Rate Sensitive Financial Instruments At December 31, 2009 and 2008, Abbott had interest rate hedge contracts totaling $5.5 billion and $2.5 billion, respectively, to manage its exposure to changes in the fair value of debt due in 2011 through 2019. The effect of these hedges is to change the fixed interest rate to a variable rate. 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. At December 31, 2009, Abbott had $2.9 billion of domestic commercial paper outstanding with an average annual interest rate of 0.1% with an average remaining life of 22 days. The fair value of long-term debt at December 31, 2009 and 2008 amounted to $12.3 billion and $10.5 billion, respectively (average interest rates of 5.3% and 5.2%, respectively) with maturities through 2039. At December 31, 2009 and 2008, the fair value of current and long-term investment securities amounted to $2.1 billion and $1.8 billion, 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.) Foreign Currency Sensitive Financial Instruments 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, 2009 and 2008, Abbott held $7.5 billion and $8.3 billion, respectively, of such contracts, which mature in the next twelve months. 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 currency 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 twelve months. At December 31, 2009 and 2008, Abbott held $2.0 billion and $129 million, respectively, of such contracts, which all mature in the following calendar year. Abbott has designated foreign denominated short-term debt of approximately $575 million and approximately $585 million as of December 31, 2009 and 2008, respectively, as a hedge of the net investment in certain foreign subsidiaries. Accordingly, changes in the fair value of this debt due to changes in exchange rates are recorded in Accumulated other comprehensive income (loss), net of tax. The following table reflects the total foreign currency forward contracts outstanding at December 31, 2009 and 2008: (dollars in millions)
2008 Fair and Fair and Average Carrying Value Average Carrying Value Contract Exchange Receivable/ Contract Exchange Receivable/ Amount Rate (Payable) Amount Rate (Payable) Receive primarily U.S. Dollars in exchange for the following currencies: 2009
Euro British Pound Japanese Yen Canadian Dollar All other currencies Total
$ 4,045 1,246 2,057 448 1,714 $ 9,510
1.482 $ 1.658 89.8 1.064 N/A $
(20)$ 3,963 (2) 1,208 (46) 1,788 (4) 163 (11) 1,254 (83)$ 8,376
1.286 $ 1.553 99.6 1.240 N/A $
3 (31) 54 3 19 48
171
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Page
Consolidated Statement of Earnings Consolidated Statement of Cash Flows Consolidated Balance Sheet Consolidated Statement of Shareholders' Investment Notes to Consolidated Financial Statements Management Report on Internal Control Over Financial Reporting Reports of Independent Registered Public Accounting Firm
44 45 46 48 49 75 76
Abbott Laboratories and Subsidiaries Consolidated Statement of Earnings (dollars and shares in thousands except per share data)
Year Ended December 31 2009 2008 2007
Net Sales Cost of products sold Research and development Acquired in-process research and development Selling, general and administrative Total Operating Cost and Expenses Operating Earnings Interest expense Interest (income) (Income) from the TAP Pharmaceutical Products Inc. joint venture Net foreign exchange (gain) loss Other (income) expense, net Earnings from Continuing Operations Before Taxes Taxes on Earnings from Continuing Operations Earnings from Continuing Operations Gain on Sale of Discontinued Operations, net of taxes Net Earnings Basic Earnings Per Common Share Continuing Operations Gain on Sale of Discontinued Operations, net of taxes Net Earnings Diluted Earnings Per Common Share Continuing Operations Gain on Sale of Discontinued Operations, net of taxes
$ 30,764,707 $ 29,527,552 $ 25,914,238 13,209,329 12,612,022 11,422,046 2,743,733 2,688,811 2,505,649 170,000 97,256 8,405,904 8,435,624 7,407,998 24,528,966 23,833,713 21,335,693 6,235,741 5,693,839 4,578,545 519,656 528,474 593,142 (137,779) (201,229) (136,752) (118,997) (498,016) 35,584 84,244 14,997 (1,375,494) (454,939) 135,526 7,193,774 5,856,286 4,469,648 1,447,936 1,122,070 863,334 5,745,838 4,734,216 3,606,314 146,503 $ 5,745,838 $ 4,880,719 $ 3,606,314 $ $ $ 3.71 $ 3.71 $ 3.69 $ 3.06 $ 0.10 3.16 $ 3.03 $ 0.09 2.34 2.34 2.31
172

Net Earnings Average Number of Common Shares Outstanding Used for Basic Earnings Per Common Share Dilutive Common Stock Options and Awards Average Number of Common Shares Outstanding Plus Dilutive Common Stock Options and Awards Outstanding Common Stock Options Having No Dilutive Effect $ 3.69 $ 1,546,983 8,143 1,555,126 66,189 3.12 $ 1,545,355 15,398 1,560,753 30,579 2.31 1,543,082 16,975 1,560,057 6,406
The accompanying notes to consolidated financial statements are an integral part of this statement.
Abbott Laboratories and Subsidiaries Consolidated Statement of Cash Flows (dollars in thousands)
Cash Flow From (Used in) Operating Activities of Continuing Operations: Net earnings Less: Gain on sale of discontinued operations Earnings from continuing operations Adjustments to reconcile earnings from continuing operations to net cash from operating activities of continuing operations Depreciation Amortization of intangible assets Derecognition of a contingent liability associated with the conclusion of the TAP Pharmaceutical Products Inc. joint venture Share-based compensation Gain on dissolution of the TAP Pharmaceutical Products Inc. joint venture Acquired in-process research and development Investing and financing (gains) losses, net Trade receivables Inventories Prepaid expenses and other assets Trade accounts payable and other liabilities Income taxes Net Cash From Operating Activities of Continuing Operations Cash Flow From (Used in) Investing Activities of Continuing Operations: Acquisitions of businesses and technologies, net of cash acquired Acquisitions of property and equipment Sales of Boston Scientific common stock Purchases of investment securities Proceeds from sales of investment securities Other Net Cash (Used in) Investing Activities of Continuing Operations Cash Flow From (Used in) Financing Activities of Continuing Operations: Proceeds from issuance of (repayments of) short-term debt and other Proceeds from issuance of long-term debt Repayments of long-term debt Purchases of common shares Proceeds from stock options exercised, including income tax benefit
$ 5,745,838 $ 4,880,719 $ 3,606,314 146,503 5,745,838 4,734,216 3,606,314 1,210,977 878,533 (797,130) 366,357 170,000 41,967 (387,749) 230,555 (386,889) (374,715) 577,416 7,275,160 (2,370,630) (1,089,048) (248,970) 16,306 (6,368) (3,698,710) 3,217,331 3,000,000 (2,483,176) (826,345) 508,669 1,051,728 787,101 347,015 (94,248) 97,256 111,238 (948,314) (257,476) 436,218 569,056 160,830 6,994,620 (250,000) (1,287,724) 318,645 (923,937) 130,586 (75,061) (2,087,491) (324,739) (913,948) (1,081,806) 1,008,843 1,072,855 782,031 429,677 356,331 (431,846) 131,324 (418,344) (82,960) (261,539) 5,183,843 (1,656,207) 568,437 (32,852) 17,830 (33,485) (1,136,277) (3,603,481) 3,500,000 (441,012) (1,058,793) 1,249,804
173

Dividends paid Net Cash From (Used in) Financing Activities of Continuing Operations Effect of exchange rate changes on cash and cash equivalents Net cash provided from the sale of discontinued operations Net Increase in Cash and Cash Equivalents Cash and Cash Equivalents, Beginning of Year Cash and Cash Equivalents, End of Year (2,414,460) 1,002,019 118,848 4,697,317 4,112,022 $ 8,809,339 $ (2,174,252) (3,485,902) (115,160) 349,571 1,655,638 2,456,384 4,112,022 $ (1,959,150) (2,312,632) 200,258 1,935,192 521,192 2,456,384
Abbott Laboratories and Subsidiaries Consolidated Balance Sheet (dollars in thousands)

December 31 2009 2008 2007
Assets Current Assets: Cash and cash equivalents Investments, including $307,500 of investments measured at fair value at December 31, 2007 Trade receivables, less allowances of 2009: $311,546; 2008: $263,632; 2007: $258,288 Inventories: Finished products Work in process Materials Total inventories Deferred income taxes Other prepaid expenses and receivables Total Current Assets Investments Property and Equipment, at Cost: Land Buildings Equipment Construction in progress Less: accumulated depreciation and amortization Net Property and Equipment Intangible Assets, net of amortization Goodwill Deferred Income Taxes and Other Assets
8,809,339 $ 1,122,709 6,541,941 2,289,280 448,487 527,110 3,264,877 2,364,142 1,210,883 23,313,891 1,132,866
4,112,022 $ 967,603 5,465,660 1,545,950 698,140 531,759 2,775,849 2,462,871 1,258,554 17,042,559 1,073,736
2,456,384 364,443 4,946,876 1,677,083 681,634 592,725 2,951,442 2,109,872 1,213,716 14,042,733 1,125,262 494,021 3,589,050 10,393,402 1,121,328 15,597,801 8,079,652 7,518,149 5,720,478 10,128,841 1,178,461 39,713,924
546,204 509,606 4,010,439 3,698,861 11,325,450 10,366,267 604,813 613,939 16,486,906 15,188,673 8,867,417 7,969,507 7,619,489 7,219,166 6,291,989 5,151,106 13,200,174 9,987,361 858,214 1,945,276 $ 52,416,623 $ 42,419,204 $
174
Abbott Laboratories and Subsidiaries Consolidated Balance Sheet (dollars in thousands)

December 31 2009 2008 2007
Liabilities and Shareholders' Investment Current Liabilities: Short-term borrowings Trade accounts payable Salaries, wages and commissions Other accrued liabilities Dividends payable Income taxes payable Obligation in connection with conclusion of the TAP Pharmaceutical Products Inc. joint venture Current portion of long-term debt Total Current Liabilities Long-term Debt Post-employment Obligations and Other Long-term Liabilities Commitments and Contingencies Shareholders' Investment: Preferred shares, one dollar par value Authorized 1,000,000 shares, none issued Common shares, without par value Authorized 2,400,000,000 shares Issued at stated capital amount Shares: 2009: 1,612,683,987; 2008: 1,601,580,899; 2007: 1,580,854,677 Common shares held in treasury, at cost Shares: 2009: 61,516,398; 2008: 49,147,968; 2007: 30,944,537 Earnings employed in the business Accumulated other comprehensive income (loss) Total Abbott Shareholders' Investment Noncontrolling Interests in Subsidiaries Total Shareholders' Investment
$ 4,978,438 $ 1,691,069 $ 1,827,361 1,280,542 1,351,436 1,219,529 1,117,410 1,011,312 859,784 4,363,032 4,216,742 3,713,104 620,640 559,064 504,540 442,140 805,397 80,406 36,105 915,982 211,182 1,040,906 13,049,489 11,591,908 11,266,294 8,713,327 5,202,111 4,595,278 898,554 9,103,278 9,487,789 3,298,912
8,257,873
7,444,411
6,104,102
(3,310,347) (2,626,404) (1,213,134) 17,054,027 13,825,383 10,805,809 854,074 (1,163,839) 2,081,763 22,855,627 17,479,551 17,778,540 43,102 39,140 45,405 22,898,729 17,518,691 17,823,945 $52,416,623 $42,419,204 $39,713,924
175
Abbott Laboratories and Subsidiaries Consolidated Statement of Shareholders' Investment (dollars in thousands except per share data)
Common Shares: Beginning of Year Shares: 2009: 1,601,580,899; 2008: 1,580,854,677; 2007: 1,550,590,438 Issued under incentive stock programs Shares: 2009: 11,103,088; 2008: 20,726,222; 2007: 30,264,239 Tax benefit from option shares and vesting of restricted stock awards (no share effect) Share-based compensation Issuance of restricted stock awards End of Year Shares 2009: 1,612,683,987; 2008: 1,601,580,899; 2007: 1,580,854,677 Common Shares Held in Treasury: Beginning of Year Shares: 2009: 49,147,968; 2008: 30,944,537; 2007: 13,347,272 Private transaction Shares purchased: 15,176,500; Shares issued: 14,870,195 Issued under incentive stock programs Shares: 2009: 2,477,853; 2008: 1,607,326; 2007: 2,063,123 Purchased Shares: 2009: 14,846,283; 2008: 19,504,452; 2007: 19,660,388 End of Year Shares: 2009: 61,516,398; 2008: 49,147,968; 2007: 30,944,537 Earnings Employed in the Business: Beginning of Year Net earnings Cash dividends declared on common shares (per share 2009: $1.60; 2008: $1.44; 2007: $1.30) Reclassification resulting from the application of the fair value option to Boston Scientific common stock, net of tax Cost of common shares retired in excess of stated capital amount Cost of treasury shares issued (above) below market value End of Year Accumulated Other Comprehensive Income (Loss):
$ 7,444,411 $ 6,104,102 $ 4,290,929 530,373 15,351 366,128 (98,390) 1,001,507 64,714 342,315 (68,227) 1,316,294 163,808 433,319 (100,248)
$ 8,257,873 $ 7,444,411 $ 6,104,102
$ (2,626,404) $ (1,213,134) $ (195,237) 133,042 (816,985) (378,931) 40,946 (1,075,285) 37,080 (1,054,977)
$ (3,310,347) $ (2,626,404) $ (1,213,134) $ 13,825,383 $ 10,805,809 $ 9,568,728 5,745,838 4,880,719 3,606,314 (2,476,036) (2,228,776) (2,009,696)
(188,534) (25,040) (70,590) (237,958) (16,118) 438,221 66,955 $ 17,054,027 $ 13,825,383 $ 10,805,809
176

Beginning of Year Reclassification resulting from the application of the fair value option to Boston Scientific common stock, net of tax Other comprehensive income (loss) End of Year Comprehensive Income Noncontrolling Interests in Subsidiaries: Beginning of Year Noncontrolling Interests' share of income, net of distributions and share repurchases End of Year $ (1,163,839) $ 2,081,763 $ 389,766 181,834 2,017,913 (3,245,602) 1,510,163 $ 854,074 $ (1,163,839) $ 2,081,763 $ 7,763,751 $ 1,635,117 $ 5,116,477 $ 39,140 $ 3,962 43,102 $ 45,405 $ (6,265) 39,140 $ 43,945 1,460 45,405
Abbott Laboratories and Subsidiaries Notes to Consolidated Financial Statements Note 1 Summary of Significant Accounting Policies 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 23 percent, 27 percent and 25 percent of trade receivables as of December 31, 2009, 2008 and 2007, respectively. 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, if any, under these obligations. Based upon past experience, the likelihood of payments under these agreements is remote. Abbott periodically acquires a business or product rights in which Abbott agrees to pay contingent consideration based on attaining certain thresholds or based on the occurrence of certain events. In connection with the spinoff of Hospira, Inc., Abbott has retained liabilities for taxes on income prior to the spin-off and certain potential liabilities, if any, related to alleged improper pricing practices in connection with federal, state and private reimbursement for certain drugs. 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. In December 2009, a foreign subsidiary acquired certain technology that was accounted for as acquired in-process research and development. This transaction was recorded in 2009 due to the significance of the amount. No other events occurred related to these foreign subsidiaries in December 2009, 2008 and 2007 that materially affected the financial position, results of operations or cash flows. Events that occurred after December 31, 2009 through the date that these financial statements have been filed with the Securities and Exchange Commission were considered in the preparation of these financial statements.
177

Effective January 1, 2009, Abbott adopted SFAS No. 160, "Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No. 51," as codified in FASB ASC No. 810, "Consolidation" and accordingly, noncontrolling interests in subsidiaries are presented as a component of total equity as of December 31, 2009, 2008 and 2007. 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 intangible assets, litigation, share-based compensation, derivative financial instruments, and inventory and accounts receivable exposures. REVENUE RECOGNITION Revenue from product sales is recognized upon passage of title and risk of loss to 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 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 which are intended to be remitted to the parent company. Deferred income taxes are not provided on undistributed earnings reinvested indefinitely in foreign subsidiaries as working capital and plant and equipment. Interest and penalties on income tax obligations are included in taxes on income. EARNINGS PER SHARE Effective January 1, 2009, Abbott adopted FSP EITF 03-6-1, "Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities," as codified in FASB ASC No. 260, "Earnings Per Share," which requires that unvested restricted stock units that contain non-forfeitable rights to dividends be treated as participating securities and be included in the computation of earnings per share under the two-class method. Under the two-class method, net earnings are allocated between common shares and participating securities. Net earnings allocated to common shares for 2009 were $5.733 billion. Net earnings allocated to common shares in 2008 and 2007 were not significantly different than net earnings. 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. Abbott must develop long-term assumptions, the most significant of which are the health care cost trend rates, discount rates and the expected return on plan assets. Differences between the expected long-term return on plan assets and the actual return are amortized over a five-year period. Actuarial losses and gains are amortized over the remaining service attribution periods of the employees under the corridor method. FAIR VALUE MEASUREMENTS For assets and liabilities that are measured using quoted prices in active markets, total fair value is the published market price per unit multiplied by the number of units held without consideration of transaction costs. Assets and liabilities that are measured using significant other observable inputs are valued by reference to similar assets or liabilities, adjusted for contract restrictions and other terms specific to that asset or liability. For these items, a significant portion of fair value is derived by reference to quoted prices of similar assets or liabilities in active markets. For all remaining assets and liabilities, fair value is derived using a fair value model, such as a discounted cash flow model or Black-Scholes model. 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 flows, risk, the cost of capital, terminal values and market participants. Intangible assets, and goodwill and indefinite-lived intangible assets are reviewed for impairment at least on a quarterly and annual basis, respectively.
178

SHARE-BASED COMPENSATION The value of stock options and restricted stock awards and units are amortized over their service period, which could be shorter than the vesting period if an employee is retirement eligible, with a charge to compensation expense. LITIGATION Abbott accounts for litigation losses in accordance with FASB ASC No. 450, "Contingencies." Under ASC No. 450, 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 INVESTMENTS Cash equivalents consist of time deposits and certificates of deposit with original maturities of three months or less. Except for Abbott's investment in the common stock of Boston Scientific, 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). Beginning on January 1, 2007, the investment in the common stock of Boston Scientific was accounted for as a trading security with changes in fair value recorded in income. Investments in equity securities that are not traded on public stock exchanges are recorded at cost. 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 interest income. Abbott reviews the carrying value of investments 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. 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 Equipment
10 to 50 years (average 27 years) 3 to 20 years (average 11 years)
PRODUCT LIABILITY Abbott accrues for product liability claims, on an undiscounted basis, when it is probable that a liability has been incurred and the amount of the liability can be reasonably estimated based on existing information. The liabilities are adjusted quarterly as additional information becomes available. Receivables for insurance recoveries for product liability claims are recorded as assets, on an undiscounted basis, when it is probable that a recovery will be realized. Prior to 2009, Abbott carried third-party insurance coverage in amounts that reflect historical loss experience, which did not include coverage for sizable losses. Beginning in 2009, product liability losses are self-insured. 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. Note 2 Supplemental Financial Information
2009 2008 (dollars in millions) 2007
Current Investments: Time deposits and certificates of deposit Boston Scientific common stock
$ 1,123 $
968 $
56 308
179

Total $ 1,123 $
2009
968 $
2008
364
2007
Long-term Investments: Equity securities Note receivable from Boston Scientific, 4% interest, due in 2011 Other Total
153 $ 147 $ 229 880 865 851 100 62 45 $ 1,133 $ 1,074 $ 1,125
The fair value option for the investment in Boston Scientific common stock was applied effective January 1, 2007. Under the fair value option, any cumulative unrealized gains or losses on an equity investment previously accounted for as an available-for-sale security is recorded as a cumulative effect adjustment to retained earnings as of the date of the election to apply the fair value option. The pretax and after tax adjustment to Earnings employed in the business upon election to apply the fair value option was $297 million and $189 million, respectively, and the fair value and carrying amount of the investment before and after the election was approximately $1.0 billion. The pretax and after tax adjustment to Accumulated other comprehensive income (loss) was $303 million and $182 million, respectively. The effect on deferred income taxes of applying the fair value option was not significant. Other (income) expense, net, for 2009 includes the derecognition of a contingent liability of $797 million associated with the conclusion of the TAP Pharmaceutical Products Inc. joint venture as discussed in Note 3, a $287 million gain from the settlement reached between Abbott and Medtronic, Inc. resolving all outstanding intellectual property litigation between the two parties and income from the recording of certain investments at fair value in connection with business acquisitions. Other (income) expense, net, for 2009 and 2008 also includes ongoing contractual payments from Takeda associated with the conclusion of the TAP joint venture and a gain in 2008 on the sale of an equity investment accounted for as an available-forsale investment. In addition, Abbott recorded a gain of approximately $94 million in connection with the dissolution of the TAP joint venture in 2008. Other (income) expense, net for 2007 includes a $190 million fair market value loss adjustment to Abbott's investment in Boston Scientific common stock and a realized gain of $37 million on the sales of Boston Scientific common stock.
Other Accrued Liabilities: Accrued rebates payable to government agencies Accrued other rebates (a) All other Total
641 $ 668 3,054 4,363 $
577 $ 455 3,185 4,217 $
662 444 2,607 3,713
(a) Accrued wholesaler chargeback rebates of $217, $210 and $157 at December 31, 2009, 2008 and 2007, respectively, are netted in trade receivables because Abbott's customers are invoiced at a higher catalog price but only remit to Abbott their contract price for the products.
Post-employment Obligations and Other Long-term Liabilities: Defined benefit pension plans and post-employment medical and dental plans for significant plans All other Total
$ $
2,394 $ 2,808 5,202 $

2009
2,713 $ 1,882 4,595 $

2008
1,872 1,427 3,299

2007
Comprehensive Income, net of tax: Foreign currency gain (loss) translation adjustments
2,295 $ (2,208) $
1,153
180

Net actuarial (losses) and prior service cost and credits and amortization of net actuarial losses and prior service cost and credits, net of taxes of $8 in 2009, $638 in 2008 and $(226) in 2007 Unrealized gains (losses) on marketable equity securities, net of taxes of $(4) in 2009, $28 in 2008 and $(31) in 2007 Net adjustments for derivative instruments designated as cash flow hedges Other comprehensive income (loss) Net Earnings Comprehensive Income (260) (987) 343 54 (40) 1,510 3,606 5,116
2007
7 (49) (24) (2) 2,018 (3,246) 5,746 4,881 7,764 $ 1,635 $

2009 2008 (dollars in millions)
Supplemental Accumulated Other Comprehensive Income Information, net of tax: Cumulative foreign currency translation (gain) adjustments Net actuarial losses and prior service cost and credits Cumulative unrealized (gains) on marketable equity securities Cumulative losses on derivative instruments designated as cash flow hedges
$ (3,035) $ 2,161 (24) 44

2009
(740) $ (2,948) 1,901 914 (17) (66) 20 18

2008 2007
Supplemental Cash Flow Information: Income taxes paid Interest paid
635 $ 514
772 $ 561
952 564
For the acquired Lupron business in 2008, as discussed in Note 3, Abbott recorded intangible assets, primarily Lupron product rights, of approximately $700 million, goodwill of approximately $350 million and deferred tax liabilities related to the intangible assets of approximately $260 million. Abbott also recorded a liability of approximately $1.1 billion relating to an agreement to remit cash to Takeda if certain research and development events are not achieved on the development assets retained by Takeda. Related deferred tax assets of approximately $410 million were also recorded. The sale of Abbott's equity interest in TAP resulted in the recording of net assets related to the Lupron business, primarily cash, receivables, inventory and other assets, net of accounts payable and other accrued liabilities, offset by a credit to Abbott's investment in TAP in the amount of approximately $280 million. Note 3 Conclusion of TAP Pharmaceutical Products Inc. Joint Venture and Sale of Abbott's Spine Business On April 30, 2008, Abbott and Takeda concluded their TAP Pharmaceutical Products Inc. (TAP) joint venture, evenly splitting the value and assets of the joint venture. Abbott exchanged its 50 percent equity interest in TAP for the assets, liabilities and employees related to TAP's Lupron business. Subsequent to the conclusion of the joint venture, TAP was merged into two Takeda entities. The exchange of Abbott's investment in TAP for TAP's Lupron business resulted in a gain at closing of approximately $94 million. The Internal Revenue Service has issued a private letter ruling that the transaction qualifies as tax-free for U.S. income tax purposes. Beginning on May 1, 2008, Abbott began recording U.S. Lupron net sales and costs in its operating results and no longer records income from the TAP joint venture. TAP's sales of Lupron were $182 million for the four months ended April 30, 2008 and $645 million in 2007. Abbott also receives payments based on specified development, approval and commercial events being achieved with respect to products retained by Takeda and payments from Takeda based on sales of products retained by Takeda, which are recorded by Abbott as Other (income) expense, net as earned. The exchange transaction was accounted for as a sale of Abbott's equity interest in TAP and as an acquisition of TAP's Lupron business. The sale of Abbott's equity interest in TAP resulted in the recording of net assets related to the Lupron business, primarily cash, receivables, inventory and other assets, net of accounts payable and other accrued liabilities, offset by a credit to Abbott's investment in TAP in the amount of approximately $280 million.
181

For the acquired Lupron business, Abbott recorded intangible assets, primarily Lupron product rights, of approximately $700 million, goodwill of approximately $350 million and deferred tax liabilities related primarily to the intangible assets of approximately $260 million. The intangible assets are being amortized over 15 years. Abbott has also agreed to remit cash to Takeda if certain research and development events are not achieved on the development assets retained by Takeda. These amounts were recorded as a liability at closing in the amount of approximately $1.1 billion. Related deferred tax assets of approximately $410 million were also recorded. Of the $1.1 billion, Abbott made tax-deductible payments of $83 million and $200 million in 2009 and 2008, respectively, and Abbott will make a tax-deductible payment of approximately $36 million in 2010. In 2009, events occurred resulting in the remaining payments not being required and the remaining liability in the amount of $797 million was derecognized and recorded as income in Other (income) expense, net. The 50 percent-owned joint venture was accounted for under the equity method of accounting. Summarized financial information for TAP follows below. The results for 2008 include results through April 30. (dollars in millions)
Year Ended December 31 2008 2007
Net sales Cost of sales Income before taxes Net income
853 $ 229 356 238
3,002 720 1,564 996
In the fourth quarter of 2008, Abbott sold its spine business for approximately $360 million in cash, resulting in an aftertax gain of approximately $147 million which is presented as Gain on sale of discontinued operations, net of taxes, in the accompanying statement of income. The operations and financial position of the spine business are not presented as discontinued operations because the effects would not be significant. Note 4 Financial Instruments, Derivatives and Fair Value Measures Certain Abbott foreign subsidiaries enter into foreign currency forward exchange contracts to manage exposures to changes in foreign exchange rates for anticipated intercompany purchases by those subsidiaries whose functional currencies are not the U.S. dollar. These contracts, totaling $2.0 billion, $129 million and $281 million at December 31, 2009, 2008 and 2007, respectively, are designated as cash flow hedges of the variability of the cash flows due to changes in foreign exchange rates and are recorded at fair value. Accumulated gains and losses as of December 31, 2009 will be included in Cost of products sold at the time the products are sold, generally through the next twelve months. Abbott enters into foreign currency forward exchange contracts to manage currency exposures for foreign currency denominated third-party trade payables and receivables, and for intercompany loans and trade accounts payable where the receivable or payable is denominated in a currency other than the functional currency of the entity. For intercompany loans, the contracts require Abbott to sell or buy foreign currencies, primarily European currencies and Japanese yen, in exchange for primarily U.S. dollars and other European currencies. For intercompany and trade payables and receivables, the currency exposures are primarily the U.S. dollar, European currencies and Japanese yen. At December 31, 2009, 2008 and 2007, Abbott held $7.5 billion, $8.3 billion and $5.5 billion, respectively, of such foreign currency forward exchange contracts. Abbott has designated foreign denominated short-term debt as a hedge of the net investment in certain foreign subsidiaries of approximately $575 million, $585 million and $1.7 billion as of December 31, 2009, 2008 and 2007, respectively. Accordingly, changes in the fair value of this debt due to changes in exchange rates are recorded in Accumulated other comprehensive income (loss), net of tax. Abbott is a party to interest rate hedge contracts totaling $5.5 billion, $2.5 billion and $1.5 billion at December 31, 2009, 2008 and 2007, respectively, to manage its exposure to changes in the fair value of fixed-rate debt due 2011 through 2019. These contracts are designated as fair value hedges of the variability of the fair value of fixed-rate debt due to changes in the long-term benchmark interest rates. The effect of the hedge is to change a fixed-rate interest obligation to a variable rate for that portion of the debt. Abbott records the contracts at fair value and adjusts the carrying amount of the fixed-rate debt by an offsetting amount. No hedge ineffectiveness was recorded in income in 2009, 2008 and 2007 for these hedges.
182

Gross unrealized holding gains (losses) on available-for-sale equity securities totaled $42 million and $(3) million, respectively, at December 31, 2009; $55 million and $(23) million, respectively, at December 31, 2008 and $108 million and $(3) million, respectively, at December 31, 2007
The following table summarizes the amounts and location of certain derivative financial instruments as of December 31:
2009 Interest rate swaps designated as fair value hedges Foreign currency forward exchange contracts Hedging instruments Others not designated as hedges Debt designated as a hedge of net investment in certain foreign subsidiaries $ Fair Value Assets Fair Value Liabilities 2007 Balance Sheet Caption 2009 2008 2007 Balance Sheet Caption (dollars in millions) Deferred income taxes and Post-employment obligations 80 $ 170 $ other assets $ 218 $ $ 25 and other long-term liabilities 2008 31 148 Other prepaid 24 expenses and receivables n/a 27 87 575 7 93 585 2 Other accrued 43 liabilities 1,658 Short-term borrowings
$ 111 $ 318 $ 24
$ 907 $ 685 $ 1,728
The following table summarizes the activity for foreign currency forward exchange contracts designated as cash flow hedges, debt designated as a hedge of net investment in certain foreign subsidiaries and the amounts and location of income (expense) and gain (loss) reclassified into income and for certain other derivative financial instruments. The amount of hedge ineffectiveness was not significant in 2009, 2008 and 2007 for these hedges.
Gain (loss) Recognized in Income (expense) and Gain Other Comprehensive Income (loss) Reclassified into (loss) Income 2009 2008 2007 2009 2008 2007 (dollars in millions) Foreign currency forward exchange contracts designated as cash flow hedges $ Debt designated as a hedge of net investment in certain foreign subsidiaries Interest rate swaps designated as fair value hedges Foreign currency forward exchange contracts not designated as hedges (65) $ 15 n/a n/a (7) $ (212) n/a n/a (5) $ (114) n/a n/a (64) $ (309) (106) (8) $ 195 292
Income Statement Caption
Cost of products sold n/a 60 Interest expense 48 Net foreign exchange (gain) loss
The interest rate swaps 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 hedged debt is marked to market, offsetting the effect of marking the interest rate swaps to market. 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. The counterparties to financial instruments consist of select major international financial institutions. Abbott does not expect any losses from nonperformance by these counterparties.
2009 Carrying Fair Value Value Long-term Investments: Available-for-sale equity securities Note receivable Other $ 153 880 100 $ 153 925 79 2008 Carrying Fair Value Value (dollars in millions) $ 147 865 62 $ 147 824 56 2007 Carrying Fair Value Value $ 229 851 45 $ 229 809 40
183

Total Long-term Debt Foreign Currency Forward Exchange Contracts: Receivable position (Payable) position Interest Rate Hedge Contracts: Receivable position (Payable) position (11,477) 31 (114) 80 (218) (12,304) 31 (114) 80 (218) (9,754) 148 (100) 170 (10,458) 148 (100) 170 (10,386) 24 (45) (25) (10,593) 24 (45) (25)
The following table summarizes the bases used to measure certain assets and liabilities at fair value on a recurring basis in the balance sheet:
Basis of Fair Value Measurement Quoted Significant Other Significant Prices in Observable Unobservable Active Markets Inputs Inputs (dollars in millions) $ 75 75 $ 80 31 111 5,362 218 114 5,694 $ 29 29
Outstanding Balances December 31, 2009: Equity and other securities Interest rate swap financial instruments Foreign currency forward exchange contracts Total Assets Fair value of hedged long-term debt Interest rate swap financial instruments Foreign currency forward exchange contracts Total Liabilities December 31, 2008: Equity and other securities Interest rate swap financial instruments Foreign currency forward exchange contracts Total Assets Fair value of hedged long-term debt Foreign currency forward exchange contracts Total Liabilities December 31, 2007: Trading securities Marketable available-for-sale securities Foreign currency forward exchange contracts Total Assets Fair value of hedged long-term debt Interest rate swap financial instruments Foreign currency forward exchange contracts Total Liabilities $ 104 80 31 215 5,362 218 114 5,694
$ $
$ $
$ $
$ $
$ $ $
144 170 148 462 2,670 100 2,770
$ $ $
105 105
$ $ $
10 170 148 328 2,670 100 2,770
$ $ $
29 29
308 193 24 525 1,475 25 45 1,545
308 193 501
24 24 1,475 25 45 1,545
$ $
$ $
$ $
$ $
In connection with the conclusion of the TAP Pharmaceutical Products Inc. joint venture, Abbott received investments in 2008 that are valued using significant unobservable inputs. The recorded value of these investments has not changed significantly. Note 5 Post-Employment Benefits 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: (dollars in millions)
Defined Benefit Plans Medical and Dental Plans
184

2009 2008 2007 2009 2008 2007
Projected benefit obligations, January 1 Service cost benefits earned during the year Interest cost on projected benefit obligations Losses (gains), primarily changes in discount rates, plan design changes, law changes and differences between actual and estimated health care costs Benefits paid Other, primarily foreign currency translation Projected benefit obligations, December 31 Plans' assets at fair value, January 1 Actual return on plans' assets Company contributions Benefits paid Other, primarily foreign currency translation Plans' assets at fair value, December 31 Projected benefit obligations greater than plans' assets, December 31 Long-term assets Short-term liabilities Long-term liabilities Net liability Amounts Recognized in Accumulated Other Comprehensive Income (loss): Actuarial losses, net Prior service cost (credits) Total
$ 5,541 $ 5,783 $ 5,614 $ 1,443 $ 1,514 $ 1,520 221 233 249 45 43 58 368 353 316 94 92 97 747 (278) (309) 175 (158) (100) (251) (241) (228) (58) (68) (61) 226 (309) 141 6 20 $ 6,852 $ 5,541 $ 5,783 $ 1,705 $ 1,443 $ 1,514 $ 3,997 $ 5,667 $ 5,086 $ 1,096 (1,568) 442 862 285 283 (251) (241) (228) 108 (146) 84 $ 5,812 $ 3,997 $ 5,667 $ 266 $ 62 71 (58) 341 $ 307 $ (106) 133 (68) 266 $ 212 20 136 (61) 307
$ (1,040) $ (1,544) $ (116) $ (1,364) $ (1,177) $ (1,207) $ 21 $ 16 $ 576 $ $ $ (31) (24) (27) (1,030) (1,536) (665) (1,364) (1,177) (1,207) $ (1,040) $ (1,544) $ (116) $ (1,364) $ (1,177) $ (1,207)
$ 2,699 $ 2,554 $ 34 38 $ 2,733 $ 2,592 $
920 $ 40 960 $
685 $ (184) 501 $
587 $ (206) 381 $
635 (227) 408
The projected benefit obligations for non-U.S. defined benefit plans was $2.0 billion, $1.3 billion and $1.8 billion at December 31, 2009, 2008 and 2007, respectively. The accumulated benefit obligations for all defined benefit plans was $5.8 billion, $4.7 billion and $4.9 billion at December 31, 2009, 2008 and 2007, respectively. For plans where the accumulated benefit obligations exceeded plan assets at December 31, 2009, 2008 and 2007, the aggregate accumulated benefit obligations were $1.5 billion, $4.2 billion and $697 million, respectively; the projected benefit obligations were $1.8 billion, $4.8 billion and $770 million, respectively; and the aggregate plan assets were $780 million, $3.3 billion and $84 million, respectively.
Defined Benefit Plans 2009 2008 2007 Medical and Dental Plans 2009 2008 2007
Service cost benefits earned during the year Interest cost on projected benefit obligations Expected return on plans' assets Amortization of actuarial losses Amortization of prior service cost (credits) Total cost
$ 221 $ 233 $ 368 353 (506) (487) 52 34 4 4 $ 139 $ 137 $
249 $ 45 $ 43 $ 58 316 94 92 97 (426) (24) (33) (24) 81 30 29 55 4 (22) (21) (22) 224 $ 123 $ 110 $ 164
Other comprehensive income (loss) for 2009 includes amortization of actuarial losses and prior service cost of $52 million and $4 million, respectively, and net actuarial losses of $197 million for defined benefit plans and amortization of actuarial losses and prior service credits of $30 million and $22 million, respectively, and net actuarial losses of $128 million for medical and dental plans. Other comprehensive income (loss) for 2008 includes amortization of actuarial losses and prior service cost of $34 million and $4 million, respectively, and net actuarial losses of $1.6 billion for defined
185

benefit plans and amortization of actuarial losses and prior service credits of $29 million and $21 million, respectively, and net actuarial gains of $19 million for medical and dental plans. Other comprehensive income (loss) for 2007 includes amortization of actuarial losses and prior service cost of $81 million and $4 million, respectively, and net actuarial gains of $341 million for defined benefit plans and amortization of actuarial losses and prior service credits of $55 million and $22 million, respectively, and net actuarial gains of $96 million for medical and dental plans. The pretax amount of actuarial losses and prior service cost (credits) included in Accumulated other comprehensive income (loss) at December 31, 2009 that is expected to be recognized in the net periodic benefit cost in 2010 is $117 million and $4 million, respectively, for defined benefit pension plans and $39 million and $(22) million, respectively, for medical and dental plans. The weighted average assumptions used to determine benefit obligations for defined benefit plans and medical and dental plans are as follows:
2009 2008 2007
Discount rate Expected aggregate average long-term change in compensation
5.8% 5.2%
6.7% 4.3%
6.2% 4.2%
The weighted average assumptions used to determine the net cost for defined benefit plans and medical and dental plans are as follows:
2009 2008 2007
Discount rate Expected return on plan assets Expected aggregate average long-term change in compensation
6.7% 8.2% 4.3%
6.2% 8.4% 4.2%
5.7% 8.3% 4.2%
The assumed health care cost trend rates for medical and dental plans at December 31 were as follows:
2009 2008 2007
Health care cost trend rate assumed for the next year Rate that the cost trend rate gradually declines to Year that rate reaches the assumed ultimate rate
7% 5% 2016
7% 5% 2012
7% 5% 2012
The discount rates used to measure liabilities were determined based on high-quality fixed income securities that match the duration of the expected retiree benefits. The health care cost trend rates represent Abbott's expected annual rates of change in the cost of health care benefits and is a forward projection of health care costs as of the measurement date. A onepercentage point increase/(decrease) in the assumed health care cost trend rate would increase/(decrease) the accumulated post-employment benefit obligations as of December 31, 2009, by $232 million/$(189) million, and the total of the service and interest cost components of net post-employment health care cost for the year then ended by approximately $23 million/$(18) million. The following table summarizes the bases used to measure defined benefit plans' assets at fair value at December 31, 2009:
Basis of Fair Value Measurement Quoted Significant Other Significant Prices in Observable Unobservable Active Markets Inputs Inputs (dollars in millions)
Outstanding Balances
Equities: U.S. large cap (a) U.S. mid cap (b) International (c) Fixed income securities: U.S. government securities (d) Corporate debt instruments (e)
1,267 $ 339 1,186 753 478
1,247 $ 105 455 321 203
20 $ 234 731 430 272
2 3
186

Non-U.S. government securities (f) Other (g) Absolute return funds (h) Other (i) $ 346 46 1,296 101 5,812 $ 163 21 237 74 2,826 $ 183 23 536 27 2,456 $ 2 523 530
(a) A mix of low-cost index funds not actively managed that track the S&P 500 (40 percent) and separate actively managed equity accounts that track the Russell 1000 (60 percent). (b) A mix of low-cost index funds not actively managed (75 percent) and separate actively managed equity accounts (25 percent) that track the S&P 400 midcap index. (c) Primarily separate actively managed pooled investment accounts that track the MSCI and MSCI emerging market indices. (d) Low-cost index funds not actively managed (75 percent) and separate actively managed accounts (25 percent). (e) Low-cost index funds not actively managed (75 percent) and separate actively managed accounts (25 percent). (f) Primarily United Kingdom and Irish government-issued bonds. (g) Primarily mortgage backed securities. (h) Primarily funds invested by managers that have a global mandate with the flexibility to allocate capital broadly across a wide range of asset classes and strategies including, but not limited to equities, fixed income, commodities, interest rate futures, currencies and other securities to outperform an agreed upon benchmark with specific return and volatility targets. (i) Primarily cash and cash equivalents. Equities that are valued using quoted prices are valued at the published market prices. Equities in a common collective trust or a registered investment company that are valued using significant other observable inputs are valued at the net asset value (NAV) provided by the fund administrator. The NAV is based on the value of the underlying assets owned by the fund minus its liabilities. Fixed income securities that are valued using significant other observable inputs are valued at prices obtained from independent financial service industry-recognized vendors. Absolute return funds are valued at the NAV provided by the fund administrator. The following table summarizes the change in the value of assets that are measured using significant unobservable inputs: (dollars in millions) January 1, 2009 Transfers in from other categories Actual return on plan assets: Assets on hand at year end Assets sold during the year Purchases, sales and settlements, net December 31, 2009 $ 303 3 99 (5) 130 $ 530
The investment mix of equity securities, fixed income and other asset allocation strategies is based upon achieving a desired return, balancing higher return, more volatile equity securities, and lower return, less volatile fixed income securities. Investment allocations are made across a range of markets, industry sectors, capitalization sizes, and in the case of fixed income securities, maturities and credit quality. The plans do not directly hold any securities of Abbott. There are no known significant concentrations of risk in the plans' assets. The plans' expected return on assets, as shown above, is based on management's expectations of long-term average rates of return to be achieved by the underlying investment portfolios. In establishing this assumption, management considers historical and expected returns for the asset classes in which the plans are invested, as well as current economic and capital market conditions. Approximately 70 percent of Abbott's medical and dental plans' assets are invested in equity securities and 30 percent in fixed income securities and are measured using quoted prices in active markets or significant other observable inputs.
187

Abbott funds its domestic pension plans according to IRS funding limitations. In 2009, $700 million was funded to the main domestic pension plan and $200 million was funded annually to the main domestic pension plan in 2008 and in 2007. International pension plans are funded according to similar regulations. Abbott expects pension funding for its main domestic pension plan of $200 million annually.
Total benefit payments expected to be paid to participants, which includes payments funded from company assets as well as paid from the plans, are as follows: (dollars in millions)
Defined Benefit Plans Medical and Dental Plans
2010 2011 2012 2013 2014 2015 to 2019
252 $ 261 271 282 294 1,723
79 84 89 94 100 602
The Abbott Stock Retirement Plan is the principal defined contribution plan. Abbott's contributions to this plan were $137 million in 2009, $129 million in 2008 and $119 million in 2007. Abbott provides certain other post-employment benefits, primarily salary continuation plans, to qualifying domestic employees, and accrues for the related cost over the service lives of the employees. Note 6 Taxes on Earnings Taxes on earnings from continuing operations reflect the annual effective rates, including charges for interest and penalties. Deferred income taxes reflect the tax consequences on future years of differences between the tax bases of assets and liabilities and their financial reporting amounts. U.S. income taxes are provided on those earnings of foreign subsidiaries which are intended to be remitted to the parent company. Abbott does not record deferred income taxes on earnings reinvested indefinitely in foreign subsidiaries. Undistributed earnings reinvested indefinitely in foreign subsidiaries as working capital and plant and equipment aggregated $20.6 billion at December 31, 2009. It is not practicable to determine the amount of deferred income taxes not provided on these earnings. In the U.S., Abbott's federal income tax returns through 2005 are settled, and the income tax returns for years after 2005 are open. There are numerous other income tax jurisdictions for which tax returns are not yet settled, none of which are individually significant. Reserves for interest and penalties are not significant. Earnings from continuing operations before taxes, and the related provisions for taxes on earnings from continuing operations, were as follows: (dollars in millions)
2009 2008 2007
Earnings From Continuing Operations Before Taxes: Domestic Foreign Total
$ 1,502 $ (81) $ 670 5,692 5,937 3,800 $ 7,194 $ 5,856 $ 4,470

2009 2008 2007
Taxes on Earnings From Continuing Operations: Current: U.S. Federal, State and Possessions
194 $ 1,188 $
564
188

Foreign Total current Deferred: Domestic Foreign Total deferred Total 521 715 782 1,970 675 1,239 (304) (72) (376) 863
905 (845) (172) (3) 733 (848) $ 1,448 $ 1,122 $
Differences between the effective income tax rate and the U.S. statutory tax rate were as follows:
2009 2008 2007
Statutory tax rate on earnings from continuing operations Benefit of lower foreign tax rates and tax exemptions State taxes, net of federal benefit Adjustments primarily related to resolution of prior years' accrual requirements Domestic dividend exclusion All other, net Effective tax rate on earnings from continuing operations
35.0% (16.4) 1.0 0.5 20.1%
35.0% (16.7) 0.2 (0.5) (0.6) 1.8 19.2%
35.0% (12.6) 0.4 (3.1) (0.4) 19.3%
As of December 31, 2009, 2008 and 2007, total deferred tax assets were $4.4 billion, $5.4 billion and $3.6 billion, respectively, and total deferred tax liabilities were $1.8 billion, $1.4 billion and $1.4 billion, respectively. Abbott has incurred losses in a foreign jurisdiction where realization of the future economic benefit is so remote that the benefit is not reflected as a deferred tax asset. Valuation allowances for recorded deferred tax assets were not significant. The tax effect of the differences that give rise to deferred tax assets and liabilities were as follows: (dollars in millions)
2009 2008 2007
Compensation and employee benefits Trade receivable reserves Inventory reserves Deferred intercompany profit State income taxes Depreciation Acquired in-process research and development and other accruals and reserves not currently deductible Other, primarily the excess of book basis over tax basis of intangible assets Total
1,332 $ 369 251 232 187 (93)
1,496 $ 434 261 248 137 (64)
862 337 220 262 84 (105)
1,889 2,771 1,751 (1,593) (1,293) (1,197) $ 2,574 $ 3,990 $ 2,214
The following table summarizes the gross amounts of unrecognized tax benefits without regard to reduction in tax liabilities or additions to deferred tax assets and liabilities if such unrecognized tax benefits were settled. (dollars in millions)
2009 2008 2007
January 1 Increase due to current year tax positions Increase due to prior year tax positions Decrease due to current year tax positions Decrease due to prior year tax positions Settlements Lapse of statute December 31
$ 1,523 $ 1,126 $ 713 544 385 339 234 418 147 (25) (90) (240) (11) (39) (121) (62) (20) $ 2,172 $ 1,523 $ 1,126
189

The total amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate is approximately $2.0 billion. Abbott believes that it is reasonably possible that unrecognized tax benefits will be settled within the next twelve months as a result of concluding various tax matters. Abbott expects the range of the decrease in the recorded amounts of unrecognized tax benefits, primarily as a result of cash adjustments, to range from zero to $680 million, arising from the conclusion of these tax matters.
Note 7 Segment and Geographic Area Information Abbott's principal business is the discovery, development, manufacture and sale of a broad line of health care products. Abbott's products are generally sold directly to retailers, wholesalers, hospitals, health care facilities, laboratories, physicians' offices and government agencies throughout the world. Abbott's reportable segments are as follows: Pharmaceutical Products Worldwide sales of a broad line of pharmaceuticals. For segment reporting purposes, two pharmaceutical divisions are aggregated and reported as the Pharmaceutical Products segment. Nutritional Products Worldwide sales of a broad line of adult and pediatric nutritional products. Diagnostic Products Worldwide sales of diagnostic systems and tests for blood banks, hospitals, commercial laboratories and alternate-care testing sites. For segment reporting purposes, three diagnostic divisions are aggregated and reported as the Diagnostic Products segment. Vascular Products Worldwide sales of coronary, endovascular and vessel closure products. Abbott's underlying accounting records are maintained on a legal entity basis for government and public reporting requirements. Segment disclosures are on a performance basis consistent with internal management reporting. Intersegment transfers of inventory are recorded at standard cost and are not a measure of segment operating earnings. The cost of some corporate functions and the cost of certain employee benefits are charged to segments at predetermined rates that approximate cost. Remaining costs, if any, are not allocated to segments. For acquisitions prior to 2006, substantially all intangible assets and related amortization are not allocated to segments. The following segment information has been prepared in accordance with the internal accounting policies of Abbott, as described above, and are not presented in accordance with generally accepted accounting principles applied to the consolidated financial statements. (dollars in millions)
Net Sales to Operating Earnings Depreciation and Additions to External Customers (a) (Loss) (a) Amortization Long-term Assets Total Assets 2009 2008 2007 2009 2008 2007 2009 2008 2007 2009 2008 2007 2009 2008 2007 Pharmaceuticals (b) $16,486 $16,708 $14,632 $6,443 $6,331 $5,509 $ 384 $ 323 $330 $ 239 $ 831 $ 407 $11,215 $10,356 $ 9,197 Nutritionals 5,284 4,924 4,388 910 859 855 157 135 115 173 281 388 3,368 3,220 3,261 Diagnostics 3,578 3,575 3,158 406 375 252 282 312 286 453 270 374 3,688 3,218 3,792 Vascular (b) 2,692 2,241 1,663 557 205 (188) 238 240 234 611 489 312 5,403 4,822 4,706 Total Reportable Segments 28,040 27,448 23,841 $8,316 $7,770 $6,428 $1,061 $1,010 $965 $1,476 $1,871 $1,481 $23,674 $21,616 $20,956 Other Net Sales 2,725 2,080 2,073 $30,765 $29,528 $25,914
(a) Net sales and operating earnings for 2009 were unfavorably affected by the relatively stronger U.S. dollar and were favorably affected by the relatively weaker U.S. dollar in 2008 and 2007. (b) Additions to long-term assets in 2009 for the Vascular Products segment include goodwill of $158 and intangibles of $373. Additions to long-term assets in 2008 for the Pharmaceutical Products segment includes acquired intangible assets of $700 and for the Vascular Products segment includes goodwill of $321.
Total Reportable Segment Operating Earnings
$ 8,316 $
7,770 $
6,428
190

Corporate functions and benefit plans costs Non-reportable segments Net interest expense Acquired in-process research and development Income from the TAP Pharmaceutical Products Inc. joint venture Share-based compensation Other, net (c) Consolidated Earnings from Continuing Operations Before Taxes (354) (377) (421) 209 133 298 (382) (327) (456) (170) (97) 119 498 (366) (347) (430) (59) (1,018) (1,447) $ 7,194 $ 5,856 $ 4,470
(c) Other, net, for 2009, includes the derecognition of a contingent liability of $797 established in connection with the conclusion of the TAP joint venture and a $287 gain from a patent litigation settlement.
Total Reportable Segment Assets Cash and investments Current deferred income taxes Non-reportable segments All other, net, primarily goodwill and intangible assets not allocated to reportable segments Total Assets
Net Sales to External Customers (d) 2009 2008 2007 (dollars in millions)
$ 23,674 $ 21,616 $ 20,956 11,065 6,153 3,946 2,364 2,463 2,110 5,371 1,094 1,575 9,943 11,093 11,127 $ 52,417 $ 42,419 $ 39,714
Long-term Assets 2009 2008 2007
United States Japan Germany The Netherlands Italy Canada France Spain United Kingdom All Other Countries Consolidated
14,453 1,590 1,481 1,801 1,172 902 959 970 779 6,658 30,765
14,495 1,249 1,381 1,753 1,089 924 977 909 725 6,026 29,528
13,252 $ 14,886 $ 14,271 $ 12,870 1,111 1,161 1,046 987 1,235 6,914 5,833 6,822 1,271 365 175 211 974 274 248 288 832 166 131 156 854 106 114 142 731 342 284 336 627 1,095 1,008 1,371 5,027 3,794 2,267 2,488 25,914 $ 29,103 $ 25,377 $ 25,671
(d) Sales by country are based on the country that sold the product. Note 8 Litigation and Environmental Matters Abbott has been identified as a potentially responsible party for investigation and cleanup costs at a number of locations in the United States and Puerto Rico under federal and state remediation laws and is investigating potential contamination at a number of company-owned locations. Abbott has recorded an estimated cleanup cost for each site for which management believes Abbott has a probable loss exposure. No individual site cleanup exposure is expected to exceed $3 million, and the aggregate cleanup exposure is not expected to exceed $15 million. There are a number of patent disputes with third parties who claim Abbott's products infringe their patents. In April 2007, New York University (NYU) and Centocor, Inc. filed a lawsuit in the Eastern District of Texas asserting that HUMIRA infringes a patent co-owned by NYU and Centocor and exclusively licensed to Centocor. In June 2009, a jury found that Abbott had willfully infringed the patent and awarded NYU and Centocor approximately $1.67 billion in past compensatory damages. In October 2009, the district court overturned the jury's finding that Abbott's infringement was willful, but denied
191

Abbott's request to overturn the jury's verdict on validity, infringement, and damages. In December 2009, the district court issued a final judgment and awarded the plaintiffs an additional $175 million in prejudgment interest. Abbott has appealed the jury's verdict. Abbott is confident in the merits of its case and believes that it will prevail on appeal. As a result, no reserves have been recorded in this case. Abbott's acquisition of Kos Pharmaceuticals Inc. resulted in the assumption of various cases and investigations and Abbott has recorded a reserve. There are several civil actions pending brought by individuals or entities that allege generally that Abbott and numerous pharmaceutical companies reported false or misleading pricing information relating to the average wholesale price of certain pharmaceutical products in connection with federal, state and private reimbursement. Civil actions have also been brought against Abbott, and in some cases other members of the pharmaceutical industry, by state attorneys general seeking to recover alleged damages on behalf of state Medicaid programs. In May 2006, Abbott was notified that the U.S. Department of Justice intervened in a civil whistle-blower lawsuit alleging that Abbott inflated prices for Medicaid and Medicare reimbursable drugs. Abbott has settled a few of the cases and recorded reserves for its estimated losses in a few other cases, however, Abbott is unable to estimate the range or amount of possible loss for the remaining cases, and no loss reserves have been recorded for them. Many of the products involved in these cases are Hospira products. Hospira, Abbott's former hospital products business, was spun off to Abbott's shareholders in 2004. Abbott retained liability for losses that result from these cases and investigations to the extent any such losses both relate to the sale of Hospira's products prior to the spin-off of Hospira and relate to allegations that were made in such pending and future cases and investigations that were the same as allegations existing at the date of the spin-off. Within the next year, legal proceedings may occur that may result in a change in the estimated reserves recorded by Abbott. For its legal proceedings and environmental exposures, except as noted above, Abbott estimates the range of possible loss to be from approximately $170 million to $310 million. The recorded reserve balance at December 31, 2009 for these proceedings and exposures was approximately $215 million. These reserves represent management's best estimate of probable loss, as defined by FASB ASC No. 450, "Contingencies." While it is not feasible to predict the outcome of all such proceedings and exposures with certainty, management believes that their ultimate disposition should not have a material adverse effect on Abbott's financial position, cash flows, or results of operations, except for the cases and investigations discussed in the third paragraph and the patent case discussed in the second paragraph of this footnote, the resolution of which could be material to cash flows or results of operations. In 2009, Abbott and Medtronic, Inc. reached a settlement resolving all outstanding intellectual property litigation between the two parties. Under the terms of the settlement, Medtronic paid Abbott $400 million. The settlement also includes a mutual agreement not to pursue additional litigation on current and future vascular products, subject to specific conditions and time limits. In connection with the settlement, Abbott recognized a gain of $287 million which is included in Other (income) expense, net. The remaining amounts are being recognized as royalty income as earned. Note 9 Incentive Stock Program The 2009 Incentive Stock Program authorizes the granting of nonqualified stock options, replacement stock options, restricted stock awards, restricted stock units, performance awards, foreign benefits and other share-based awards. Stock options, replacement stock options and restricted stock awards and units comprise the majority of benefits that have been granted and are currently outstanding under this program and a prior program. In 2009, Abbott granted 1,783,300 stock options, 1,449,301 replacement stock options, 1,278,467 restricted stock awards and 5,677,322 restricted stock units under this program. In addition, 2,899,411 options were issued in connection with the conversion of Advanced Medical Optics, Inc. options to Abbott options. The purchase price of shares under option must be at least equal to the fair market value of the common stock on the date of grant, and the maximum term of an option is 10 years. Options vest equally over three years except for replacement options, which vest in six months. Options granted before January 1, 2005 included a replacement feature. Except for options outstanding that have a replacement feature, options granted after December 31, 2004 do not include a replacement feature. When an employee tenders mature shares to Abbott upon exercise of a stock option, a replacement stock option may be granted equal to the amount of shares tendered. Replacement options are granted at the then current market price for a term that expires on the date of the underlying option grant. Upon a change in control of Abbott, all outstanding stock options become fully exercisable, and all terms and conditions of all restricted stock awards and units are deemed satisfied. Restricted stock awards generally vest between 3 and 5 years and for restricted stock awards that vest over
192

5 years, no more than one-third of the award vests in any one year upon Abbott reaching a minimum return on equity target. Restricted stock units vest over three years and upon vesting, the recipient receives one share of Abbott stock for each vested restricted stock unit. The aggregate fair market value of restricted stock awards and units is recognized as expense over the service period. Restricted stock awards and settlement of vested restricted stock units are issued out of treasury shares. Abbott generally issues new shares for exercises of stock options. Abbott does not have a policy of purchasing its shares relating to its share-based programs. At December 31, 2009, approximately 220 million shares were reserved for future grants, including 175 million shares authorized by Abbott's shareholders in April 2009. Subsequent to year-end, the reserve was reduced by approximately 23 million shares for stock options and restricted stock awards and units granted by the Board of Directors. The number of restricted stock awards and units outstanding and the weighted-average grant-date fair value at December 31, 2008 and December 31, 2009 was 3,574,445 and $52.21 and 8,703,247 and $53.64, respectively. The number of restricted stock awards and units, and the weighted-average grant-date fair value, that were granted, vested and lapsed during 2009 were 6,955,789 and $53.54, 1,556,472 and $49.98 and 270,515 and $53.39, respectively. The fair market value of restricted stock awards and units vested in 2009, 2008 and 2007 was $81 million, $76 million and $114 million, respectively.
Options Outstanding Weighted Weighted Average Average Exercise Remaining Shares Price Life (Years) Exercisable Options Weighted Weighted Average Average Exercise Remaining Shares Price Life (Years)
December 31, 2008 128,827,135 $ 49.16 Granted 6,132,012 Exercised (13,281,445) Lapsed (2,817,581) December 31, 2009 118,860,121 $ 58.50 43.91 54.94 50.09
6.4 87,770,715 $ 47.39
5.4
5.7 98,251,406 $ 49.16
5.2
The aggregate intrinsic value of options outstanding and exercisable at December 31, 2009 was $574 million and $565 million, respectively. The total intrinsic value of options exercised in 2009, 2008 and 2007 was $129 million, $314 million and $613 million, respectively. The total unrecognized compensation cost related to all share-based compensation plans at December 31, 2009 amounted to approximately $230 million which is expected to be recognized over the next three years. Total non-cash compensation expense charged against income in 2009, 2008 and 2007 for share-based plans totaled approximately $365 million, $350 million and $430 million, respectively, and the tax benefit recognized was approximately $118 million, $117 million and $142 million, respectively. Compensation cost capitalized as part of inventory is not significant. The fair value of an option granted in 2009, 2008 and 2007 was $9.28, $11.42 and $12.88, respectively. The fair value of an option grant was estimated using the Black-Scholes option-pricing model with the following assumptions:
2009 2008 2007
Risk-free interest rate Average life of options (years) Volatility Dividend yield
2.7% 6.0 22.0% 3.0%
3.0% 6.0 24.0% 2.6%
4.5% 5.9 25.0% 2.5%
The risk-free interest rate is based on the rates available at the time of the grant for zero-coupon U.S. government issues with a remaining term equal to the option's expected life. The average life of an option is based on both historical and projected exercise and lapsing data. Expected volatility is based on implied volatilities from traded options on Abbott's stock and historical volatility of Abbott's stock over the expected life of the option. Dividend yield is based on the option's exercise price and annual dividend rate at the time of grant.
193

Note 10 Debt and Lines of Credit The following is a summary of long-term debt at December 31: (dollars in millions)
2009 2008 2007
Various notes, due 2009 1.51% Yen notes, due 2010 3.75% Notes, due 2011 5.6% Notes, due 2011 5.15% Notes, due 2012 4.35% Notes, due 2014 5.875% Notes, due 2016 5.6% Notes, due 2017 5.125% Notes, due 2019 6.15% Notes, due 2037 6.0% Notes, due 2039 Other, including fair value adjustments relating to interest rate hedge contracts designated as fair value hedges Total, net of current maturities Current maturities of long-term debt Total carrying amount
$ $ 157 500 500 1,500 1,500 1,000 1,000 500 500 2,000 2,000 1,500 1,500 2,000 1,000 1,000 1,000
1,000 135 500 1,500 1,000 500 2,000 1,500 1,000
266 556 353 11,266 8,713 9,488 211 1,041 898 $ 11,477 $ 9,754 $ 10,386
Principal payments required on long-term debt outstanding at December 31, 2009, are $211 million in 2010, $2.0 billion in 2011, $1.0 billion in 2012, $291 million in 2013, $502 million in 2014 and $7.6 billion thereafter. At December 31, 2009, Abbott's long-term debt rating was AA by Standard & Poor's Corporation and A1 by Moody's Investors Service. Abbott has readily available financial resources, including unused lines of credit of $6.3 billion that support commercial paper borrowing arrangements of which a $3.3 billion facility expires in October 2010 and a $3.0 billion facility expires in 2012. Related compensating balances, which are subject to withdrawal by Abbott at its option, and commitment fees are not material. Abbott's weighted-average interest rate on short-term borrowings was 0.2% at December 31, 2009, 0.5% at December 31, 2008 and 3.7% at December 31, 2007. Note 11 Business Combinations, Technology Acquisitions and Related Transactions On January 1, 2009, Abbott adopted the provisions of SFAS No. 141 (revised 2007), "Business Combinations," as codified in FASB ASC No. 805, "Business Combinations." Under ASC No. 805, acquired in-process research and development is accounted for as an indefinite-lived intangible asset until approval or discontinuation rather than as expense, acquisition costs in connection with an acquisition are expensed rather than added to the cost of an acquisition and the fair value of contingent consideration at the date of an acquisition is added to the cost of the acquisition. In February 2009, Abbott acquired the outstanding shares of Advanced Medical Optics, Inc. (AMO) for approximately $1.4 billion in cash, net of cash held by AMO. Prior to the acquisition, Abbott held a small investment in AMO. Abbott acquired AMO to take advantage of increasing demand for vision care technologies due to population growth and demographic shifts and AMO's premier position in its field. Abbott acquired control of this business on February 25, 2009 and the financial results of the acquired operations are included in these financial statements beginning on that date. The acquisition was financed with long-term debt. The allocation of the fair value of the acquisition is shown in the table below: (dollars in billions) Goodwill, non-deductible Acquired intangible assets, non-deductible Acquired in-process research and development, non-deductible Acquired net tangible assets Acquired debt $ 1.7 0.9 0.2 0.4 (1.5)
194

Deferred income taxes recorded at acquisition Total allocation of fair value $ (0.3) 1.4
Acquired intangible assets consist of established customer relationships, developed technology and trade names and will be amortized over 2 to 30 years (average of 15 years). Acquired in-process research and development will be accounted for as an indefinite-lived intangible asset until regulatory approval or discontinuation. The net tangible assets acquired consist primarily of trade accounts receivable, inventory, property and equipment and other assets, net of assumed liabilities, primarily trade accounts payable, accrued compensation and other liabilities. Abbott incurred approximately $89 million of acquisition-related expenses in 2009 which are classified as Selling, general and administrative expense. In addition, subsequent to the acquisition, Abbott repaid substantially all of the acquired debt of AMO. In October 2009, Abbott acquired 100 percent of Visiogen, Inc. for $400 million, in cash, providing Abbott with a nextgeneration accommodating intraocular lens (IOL) technology to address presbyopia for cataract patients. The preliminary allocation of the fair value of the acquisition resulted in non-deductible acquired in-process research and development of approximately $195 million which will be accounted for as an indefinite-lived intangible asset until regulatory approval or discontinuation, non-deductible definite-lived intangible assets of approximately $33 million, goodwill of approximately $260 million and deferred income taxes of approximately $89 million. Acquired intangible assets consist of developed technology and will be amortized over 12 years. The allocation of the fair value of the acquisition will be finalized when the valuation is completed. In October 2009, Abbott acquired Evalve, Inc. for $320 million, in cash, plus an additional payment of $90 million to be made upon completion of certain regulatory milestones. Abbott acquired Evalve to obtain a presence in the growing area of non-surgical treatment for structural heart disease. Including a previous investment in Evalve, Abbott has acquired 100 percent of the outstanding shares of Evalve. In connection with the acquisition, the carrying amount of this investment was revalued to fair value resulting in recording $28 million of income, which is reported as Other (income) expense, net. The preliminary allocation of the fair value of the acquisition resulted in non-deductible definite-lived intangible assets of approximately $145 million, non-deductible acquired in-process research and development of approximately $228 million which will be accounted for as an indefinite-lived intangible asset until regulatory approval or discontinuation, goodwill of approximately $158 million and deferred income taxes of approximately $136 million. Acquired intangible assets consist of developed technology and will be amortized over 12 years. The allocation of the fair value of the acquisition will be finalized when the valuation is completed. In January 2009, Abbott acquired Ibis Biosciences, Inc. (Ibis) for $175 million, in cash, to expand Abbott's position in molecular diagnostics for infectious disease. Including a $40 million investment in Ibis in 2008, Abbott has acquired 100 percent of the outstanding shares of Ibis. A substantial portion of the fair value of the acquisition has been allocated to goodwill and amortizable intangible assets, and acquired in-process research and development that will be accounted for as an indefinite-lived intangible asset until regulatory approval or discontinuation. The investment in Ibis in 2008 resulted in a charge to acquired in-process research and development. In connection with the acquisition, the carrying amount of this investment was revalued to fair value resulting in recording $33 million of income, which is reported as Other (income) expense, net. Had the above acquisitions taken place on January 1 of the previous year, consolidated net sales and income would not have been significantly different from reported amounts. In December 2009, Abbott acquired the global rights to a novel biologic for the treatment of chronic pain for $170 million, in cash, resulting in a charge to acquired in-process research and development. In September 2009, Abbott announced an agreement to acquire Solvay's pharmaceuticals business for EUR 4.5 billion (approximately $6.2 billion), in cash, plus additional payments of up to EUR 300 million if certain sales milestones are met. This acquisition will provide Abbott with a large and complementary portfolio of pharmaceutical products and a significant presence in key global emerging markets and will add approximately $500 million to Abbott's research and development spending. The transaction closed on February 15, 2010. Sales for the acquired business are forecast to be approximately $2.9 billion in 2010. The allocation of the fair value of the acquisition will be finalized when the valuation is completed.
195

Note 12 Goodwill and Intangible Assets Abbott recorded goodwill of approximately $2.2 billion in 2009 related to the acquisitions of Advanced Medical Optics, Inc., Ibis Biosciences, Inc., Visiogen, Inc. and Evalve, Inc. Goodwill of approximately $120 million related to the Ibis acquisition was allocated to the Diagnostic Products segment and goodwill of approximately $160 million related to the Evalve acquisition was allocated to the Vascular Products segment. In connection with the dissolution of the TAP Pharmaceutical Products Inc. (TAP) joint venture in 2008, Abbott recorded approximately $350 million of goodwill related to the Pharmaceutical Products segment. In 2008, Abbott paid $250 million to Boston Scientific as a result of the FDA's approval to market the Xience V drug-eluting stent in the U.S., resulting in an increase in goodwill in the Vascular Products segment. Abbott recorded goodwill of $53 million in 2007 related to acquisitions. Goodwill adjustments recorded in 2007 allocated to the Pharmaceutical Products segment amounted to $194 million and adjustments allocated to the Vascular Products segment amounted to $(141) million. Foreign currency translation and other adjustments increased (decreased) goodwill in 2009, 2008 and 2007 by $997 million, $(677) million and $627 million, respectively. The amount of goodwill related to reportable segments at December 31, 2009 was $6.7 billion for the Pharmaceutical Products segment, $206 million for the Nutritional Products segment, $385 million for the Diagnostic Products segment, and $2.7 billion for the Vascular Products segment. Goodwill was reduced by approximately $64 million in connection with the sale of Abbott's spine business in 2008. There were no other reductions of goodwill relating to impairments or disposal of all or a portion of a business. The gross amount of amortizable intangible assets, primarily product rights and technology was $10.8 billion, $9.4 billion and $9.0 billion as of December 31, 2009, 2008 and 2007, respectively, and accumulated amortization was $5.1 billion, $4.2 billion and $3.3 billion as of December 31, 2009, 2008 and 2007, respectively. Indefinite-lived intangible assets, which relate to in-process research and development acquired in a business combination, were approximately $610 million at December 31, 2009. The estimated annual amortization expense for intangible assets recorded at December 31, 2009 is approximately $899 million in 2010, $884 million in 2011, $865 million in 2012, $739 million in 2013 and $656 million in 2014. Amortizable intangible assets are amortized over 2 to 30 years (average 11 years). Note 13 Restructuring Plans In 2008, Abbott management approved a plan to streamline global manufacturing operations, reduce overall costs, and improve efficiencies in Abbott's core diagnostic business. In 2008, Abbott recorded a charge to Cost of products sold of approximately $129 million under the plan. Additional charges of approximately $54 million and $16 million were recorded in 2009 and 2008, respectively, relating to this restructuring, primarily for accelerated depreciation and product transfer costs. Additional charges will be incurred through 2011 as a result of product re-registration timelines required under manufacturing regulations in a number of countries and product transition timelines. The following summarizes the activity for this restructuring: (dollars in millions) 2008 restructuring charge Payments and other adjustments Accrued balance at December 31, 2008 Payments and other adjustments Accrued balance at December 31, 2009 $ 129 (19) 110 (12) $ 98
In 2009 and prior years, Abbott management approved plans to realign its worldwide pharmaceutical and vascular manufacturing operations and selected domestic and international commercial and research and development operations in order to reduce costs. In 2009, 2008 and 2007, Abbott recorded charges of approximately $114 million, $36 million and $107 million, respectively, reflecting the impairment of manufacturing facilities and other assets, employee severance and other related charges. Approximately $94 million in 2007 is classified as cost of products sold, $3 million in 2007 as research and development and $114 million, $36 million and $10 million in 2009, 2008 and 2007, respectively, as selling, general and administrative. Fair value for the determination of the amount of asset impairments was determined primarily based on a discounted cash flow method. An additional $47 million, $81 million and $90 million were subsequently recorded in 2009, 2008 and 2007, respectively, relating to these restructurings, primarily for accelerated depreciation. In addition, Abbott implemented facilities restructuring plans in 2007 related to the acquired operations of Kos Pharmaceuticals Inc. which
196

resulted in an increase to goodwill of approximately $52 million. The following summarizes the activity for these restructurings: (dollars in millions) Accrued balance at January 1, 2007 2007 restructuring charges Payments, impairments and other adjustments Accrued balance at December 31, 2007 2008 restructuring charges Payments, impairments and other adjustments Accrued balance at December 31, 2008 2009 restructuring charges Payments and other adjustments Accrued balance at December 31, 2009 Note 14 Subsequent Events As of the beginning of 2010, Venezuela has been designated as a highly inflationary economy under U.S. GAAP. As a result, beginning in 2010, the U.S. dollar will be the functional currency for Abbott's operations in Venezuela. In January 2010, the Venezuelan government announced a devaluation of its bolivar currency relative to the U.S. dollar. Excluding the one-time balance sheet devaluation and local tax liability impact of approximately $110 million, Abbott does not expect the bolivar devaluation to have a significant impact on consolidated results of operations, financial position or cash flows. In January 2010, Abbott suspended its sales of sibutramine in the European Union (EU) following the recommendation by the Committee for Medicinal Products for Human Use (CHMP) of the European Medicines Agency (EMA). Abbott reflected the 2009 impact of the suspension, primarily related to inventory exposures, in its 2009 results. Abbott does not expect the suspension of EU sibutramine sales to have a significant impact on consolidated results of operations, financial position or cash flows. The judgment entered by the U.S. District Court for the Eastern District of Texas against Abbott in its litigation with New York University and Centocor, Inc. requires Abbott to secure the judgment in the event that its appeal to the Federal Circuit court is unsuccessful in overturning the district court's decision. Abbott expects to deposit approximately $1.8 billion with an escrow agent during the first quarter of 2010 and will consider these assets to be restricted. Note 15 Quarterly Results (Unaudited) (dollars in millions except per share data)
2009 2008 2007
193 159 (158) 194 36 (125) 105 114 (74) $ 145
First Quarter Net Sales Gross Profit Net Earnings Basic Earnings Per Common Share (a) Diluted Earnings Per Common Share (a) Market Price Per Share High Market Price Per Share Low Second Quarter Net Sales Gross Profit Net Earnings Basic Earnings Per Common Share (a)
$ 6,718.4 $ 6,765.6 $ 5,945.5 3,782.4 3,804.5 3,353.5 1,438.6 937.9 697.6 .93 .61 .45 .92 .60 .45 57.39 61.09 57.26 44.10 50.09 48.75 $ 7,494.9 $ 7,314.0 $ 6,370.6 4,365.9 4,194.4 3,566.3 1,288.1 1,322.0 988.7 .83 .86 .64
197

Diluted Earnings Per Common Share (a) Market Price Per Share High Market Price Per Share Low Third Quarter Net Sales Gross Profit Net Earnings Basic Earnings Per Common Share (a) Diluted Earnings Per Common Share (a) Market Price Per Share High Market Price Per Share Low .83 48.37 41.27 .85 57.04 50.09 .63 59.50 52.80
$ 7,761.3 $ 7,497.7 $ 6,376.7 4,401.2 4,144.8 3,512.7 1,480.4 1,084.6 717.0 .95 .70 .46 .95 .69 .46 49.69 60.78 56.91 43.45 52.63 49.58
Fourth Quarter Net Sales $ 8,790.1 $ 7,950.3 $ 7,221.4 Gross Profit 5,005.9 4,771.9 4,059.7 Net Earnings 1,538.7 1,536.2 1,203.0 Basic Earnings Per Common Share (a) .99 .99 .78 Diluted Earnings Per Common Share (a) .98 .98 .77 Market Price Per Share High 54.97 59.93 59.48 Market Price Per Share Low 48.41 45.75 50.51 (a) The sum of the quarters' basic earnings per share for 2009 and 2007 and the sum of the quarters' diluted earnings per share for 2009 do not add to the full year earnings per share amounts due to rounding.
Management Report on Internal Control Over Financial Reporting The management of Abbott Laboratories is responsible for establishing and maintaining adequate internal control over financial reporting. Abbott's internal control system was designed to provide reasonable assurance to the company's management and board of directors regarding the preparation and fair presentation of published financial statements. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Abbott's management assessed the effectiveness of the company's internal control over financial reporting as of December 31, 2009. In making this assessment, it used the criteria set forth in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As allowed by SEC guidance, management excluded from its assessment Abbott Medical Optics which was acquired in 2009 and accounted for approximately 7 percent of consolidated total assets and 3 percent of consolidated net sales as of and for the year ended December 31, 2009. Based on our assessment, we believe that, as of December 31, 2009, the company's internal control over financial reporting was effective based on those criteria. Abbott's independent registered public accounting firm has issued an audit report on their assessment of the effectiveness of the company's internal control over financial reporting. This report appears on page 77. Miles D. CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER Thomas C. EXECUTIVE VICE PRESIDENT, FINANCE AND CHIEF FINANCIAL OFFICER White
Freyman
198

Greg W. VICE PRESIDENT AND CONTROLLER February 19, 2010 Linder
Reports of Independent Registered Public Accounting Firm To the Board of Directors and Shareholders of Abbott Laboratories: We have audited the accompanying consolidated balance sheets of Abbott Laboratories and subsidiaries (the "Company") as of December 31, 2009, 2008, and 2007, and the related consolidated statements of earnings, shareholders' investment, and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2009, 2008, and 2007, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America. As discussed in Note 11 to the consolidated financial statements, the Company adopted the provisions of a new accounting standard relating to business combinations in 2009. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 19, 2010 expressed an unqualified opinion on the Company's internal control over financial reporting. /s/ DELOITTE & TOUCHE LLP Chicago, February 19, 2010 To the Board of Directors and Shareholders of Abbott Laboratories: We have audited the internal control over financial reporting of Abbott Laboratories and subsidiaries (the "Company") as of December 31, 2009, based on criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in Management Report on Internal Control Over Financial Reporting, management excluded from its assessment Abbott Medical Optics which was acquired in 2009 and accounted for approximately 7% of consolidated total assets and approximately 3% of consolidated net sales as of and for the year ended December 31, 2009. Accordingly, our audit did not include the internal control over financial reporting at Abbott Medical Optics. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. Illinois
199

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2009, based on the criteria established in Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements of the Company as of and for the year ended December 31, 2009 and our report dated February 19, 2010 expresses an unqualified opinion on those financial statements and includes an explanatory paragraph regarding the Company's adoption of a new accounting standard in 2009. /s/ DELOITTE & TOUCHE LLP Chicago, February 19, 2010 Illinois
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures Evaluation of disclosure controls and procedures. The Chief Executive Officer, Miles D. White, and the Chief Financial Officer, Thomas C. Freyman, evaluated the effectiveness of Abbott Laboratories' disclosure controls and procedures as of the end of the period covered by this report, and concluded that Abbott Laboratories' disclosure controls and procedures were effective to ensure that information Abbott is required to disclose in the reports that it files or submits with
200

the Securities and Exchange Commission under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Commission's rules and forms, and to ensure that information required to be disclosed by Abbott in the reports that it files or submits under the Exchange Act is accumulated and communicated to Abbott's management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Internal Control Over Financial Reporting Management's annual report on internal control over financial reporting. Management's report on Abbott's internal control over financial reporting is included on page 75 hereof. The report of Abbott's independent registered public accounting firm related to their assessment of the effectiveness of internal control over financial reporting is included on page 77 hereof. Changes in internal control over financial reporting. During the quarter ended December 31, 2009, there were no changes in Abbott's internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that have materially affected, or are reasonably likely to materially affect, Abbott's internal control over financial reporting. ITEM 9B. None. OTHER INFORMATION
PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Incorporated herein by reference are "Information Concerning Nominees for Directors," "Committees of the Board of Directors," "Section 16(a) Beneficial Ownership Reporting Compliance," and "Procedure for Recommendation and Nomination of Directors and Transaction of Business at Annual Meeting" to be included in the 2010 Abbott Laboratories Proxy Statement. The 2010 Proxy Statement will be filed on or about March 15, 2010. Also incorporated herein by reference is the text found under the caption, "Executive Officers of the Registrant" on pages 19 through 22 hereof. Abbott has adopted a code of ethics that applies to its principal executive officer, principal financial officer, and principal accounting officer and controller. That code is part of Abbott's code of business conduct which is available free of charge through Abbott's investor relations website (www.abbottinvestor.com). Abbott intends to include on its website (www.abbott.com) any amendment to, or waiver from, a provision of its code of ethics that applies to Abbott's principal executive officer, principal financial officer, and principal accounting officer and controller that relates to any element of the code of ethics definition enumerated in Item 406(b) of Regulation S-K. ITEM 11. EXECUTIVE COMPENSATION
The material to be included in the 2010 Proxy Statement under the headings "Director Compensation," "Executive Compensation," and "Compensation Committee Report" is incorporated herein by reference. The 2010 Proxy Statement will be filed on or about March 15, 2010. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS (a) Equity Compensation Plan Information.
Plan Category (a) Number of securities to be issued upon exercise of outstanding options, warrants (b) Weighted-average exercise price of outstanding options, warrants (c) Number of securities remaining available for future issuance under equity compensation plans (excluding
201

and rights and rights securities reflected in column (a))
Equity compensati on plans approved by security holders1 Equity compensati on plans not approved by security holders Total1 1.
118,860,121 $
50.09
231,795,260
0 $ 118,860,121 $
0.00 50.09
0 231,795,260
(i) Abbott Laboratories 1996 Incentive Stock Program. Benefits under the 1996 Program include stock options intended to qualify for special tax treatment under Section 422 of the Internal Revenue Code ("incentive stock options"), stock options that do not qualify for that special tax treatment ("non-qualified stock options"), restricted stock, restricted stock units, stock appreciation rights, performance awards, and foreign qualified benefits. The shares that remain available for issuance under the 1996 Program may be issued in connection with any one of these benefits and may be either authorized but unissued shares or treasury shares (except that restricted stock awards may be satisfied only from treasury shares). If there is a lapse, expiration, termination, forfeiture or cancellation of any benefit granted under the 1996 Program without the issuance of shares or payment of cash thereunder, the shares subject to or reserved for that benefit, or so reacquired, may again be used for new stock options, rights, or awards of any type authorized under the 1996 Program. If shares are issued under any benefit under the 1996 Program and thereafter are reacquired by Abbott pursuant to rights reserved upon their issuance, or pursuant to the payment of the purchase price of shares under stock options by delivery of other common shares of Abbott, the shares subject to or reserved for that benefit, or so reacquired, may not again be used for new stock options, rights, or awards of any type authorized under the 1996 Program. In April 2009, the 1996 Program was replaced by the Abbott Laboratories 2009 Incentive Stock Program. No further awards will be granted under the 1996 Program. (ii) Abbott Laboratories 2009 Incentive Stock Program. Benefits under the 2009 Program include stock options that do not qualify for special tax treatment under Section 422 of the Internal Revenue Code ("non-qualified stock options"), restricted stock, restricted stock units, performance awards, other share-based awards (including stock appreciation rights, dividend equivalents and recognition awards), awards to non-employee directors, and foreign benefits. The shares that remain available for issuance under the 2009 Program may be issued in connection with any one of these benefits and may be either authorized but unissued shares or treasury shares (except that restricted stock awards may be satisfied only from treasury shares). If there is a lapse, expiration, termination, forfeiture or cancellation of any benefit granted under the 2009 Program without the issuance of shares or payment of cash thereunder, the shares subject to or reserved for that benefit, or so reacquired, may again be used for new stock options, rights, or awards of any type authorized under the 2009 Program. If shares are issued under any benefit under the 2009 Program and thereafter are reacquired by Abbott pursuant to rights reserved upon their issuance, or pursuant to the payment of the purchase price of shares under stock options by delivery of other common shares of Abbott, the shares subject to or reserved for that benefit, or so reacquired, may not again be used for new stock options, rights, or awards of any type authorized under the 2009 Program.
202

(iii) Abbott Laboratories 2009 Employee Stock Purchase Plan for Non-U.S. Employees. Eligible employees of participating non-U.S. affiliates of Abbott may participate in this plan. An eligible employee may authorize payroll deductions at the rate of 1% to 10% of eligible compensation (in multiples of one percent) subject to a limit of US $12,500 during any purchase cycle. Purchase cycles are generally six months long and usually begin on August 1 and February 1. On the last day of each purchase cycle, Abbott uses participant contributions to acquire Abbott common shares. The shares acquired come from treasury shares. The purchase price is 85% of the lower of the fair market value of the shares on that date or on the first day of that purchase cycle. (iv) Advanced Medical Optics, Inc. Plans. In 2009, in connection with its acquisition of Advanced Medical Optics, Inc., Abbott assumed options outstanding under the Amended and Restated Advanced Medical Optics, Inc. 2002 Incentive Compensation Plan, as amended; AMO's 2004 Stock Incentive Plan, as amended and restated; the Advanced Medical Optics, Inc. 2005 Incentive Compensation Plan; the VISX, Incorporated 1995 Director Option and Stock Deferral Plan, as amended and restated; the VISX, Incorporated 1995 Stock Plan, as amended; the VISX, Incorporated 2000 Stock Plan; and the VISX, Incorporated 2001 Nonstatutory Stock Option Plan. As of December 31, 2009, 2,684,617 options remained outstanding under the plans. These options have a weighted average purchase price of $65.65. No further awards will be granted under the plans. For additional information concerning the Abbott Laboratories 1996 Incentive Stock Program, the Abbott Laboratories 2009 Incentive Stock Program, and the Abbott Laboratories 2009 Employee Stock Purchase Plan for Non-U.S. Employees, see the discussion in Note 9 entitled "Incentive Stock Program" of the Notes to Consolidated Financial Statements included under Item 8, "Financial Statements and Supplementary Data." (b) Information Concerning Security Ownership. Incorporated herein by reference is the material under the heading "Security Ownership of Executive Officers and Directors" in the 2010 Proxy Statement. The 2010 Proxy Statement will be filed on or about March 15, 2010. ITEM 13. CERTAIN INDEPENDENCE RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
The material to be included in the 2010 Proxy Statement under the headings "The Board of Directors," "Committees of the Board of Directors," "Corporate Governance Materials," and "Approval Process for Related Person Transactions" is incorporated herein by reference. The 2010 Proxy Statement will be filed on or about March 15, 2010. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The material to be included in the 2010 Proxy Statement under the headings "Audit Fees and Non-Audit Fees" and "Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of the Independent Auditor" is incorporated herein by reference. The 2010 Proxy Statement will be filed on or about March 15, 2010.
PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as part of this Form 10-K. (1) Financial Statements: See Item 8, "Financial Statements and Supplementary Data," on page 43 hereof, for a list of financial statements. (2) Financial Statement Schedules: The required financial statement schedules are found on the pages indicated below. These schedules should be read in conjunction with the Consolidated Financial Statements of Abbott Laboratories:
Abbott Laboratories Financial Statement Schedules Page No.
203

Valuation and Qualifying Accounts (Schedule II) 85 Schedules I, III, IV, and V are not submitted because they are not applicable or not required Report of Independent Registered Public Accounting Firm 86 Individual Financial Statements of businesses acquired by the registrant have been omitted pursuant to Rule 3.05 of Regulation S-X (3) Exhibits Required by Item 601 of Regulation S-K: The information called for by this paragraph is incorporated herein by reference to the Exhibit Index on pages 87 through 95 of this Form 10-K. (b) Exhibits filed (see Exhibit Index on pages 87 through 95). (c) Financial Statement Schedule filed (page 85). SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Abbott Laboratories has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ABBOTT LABORATORIES By /s/ MILES D. WHITE Miles D. White Chairman of the Board and Chief Executive Officer Date: February 19, 2010 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Abbott Laboratories on February 19, 2010 in the capacities indicated below. /s/ MILES D. WHITE Miles D. White Chairman of the Board, Chief Executive Officer and Director of Abbott Laboratories (principal executive officer) /s/ GREG W. LINDER Greg W. Linder Vice President and Controller (principal accounting officer) /s/ ROXANNE S. AUSTIN Roxanne S. Austin Director of Abbott Laboratories /s/ W. JAMES FARRELL W. James Farrell Director of Abbott Laboratories /s/ THOMAS C. FREYMAN Thomas C. Freyman Executive Vice President, Finance and Chief Financial Officer (principal financial officer)
/s/ ROBERT J. ALPERN, M.D. Robert J. Alpern, M.D. Director of Abbott Laboratories
/s/ WILLIAM M. DALEY William M. Daley Director of Abbott Laboratories /s/ H. LAURANCE FULLER H. Laurance Fuller Director of Abbott Laboratories
204

/s/ WILLIAM A. OSBORN William A. Osborn Director of Abbott Laboratories 83 /s/ DAVID A. L. OWEN David A. L. Owen Director of Abbott Laboratories
/s/ W. ANN REYNOLDS, PH.D. W. Ann Reynolds, Ph.D. Director of Abbott Laboratories /s/ SAMUEL C. SCOTT III Samuel C. Scott III Director of Abbott Laboratories /s/ GLENN F. TILTON Glenn F. Tilton Director of Abbott Laboratories
/s/ ROY S. ROBERTS Roy S. Roberts Director of Abbott Laboratories /s/ WILLIAM D. SMITHBURG William D. Smithburg Director of Abbott Laboratories
ABBOTT LABORATORIES AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS FOR THE YEARS ENDED DECEMBER 31, 2009, 2008, AND 2007 (in thousands of dollars)
Balance at Beginning of Year Provisions/ Charges to Income Amounts Charged Off Net of Recoveries
Allowances for Doubtful Accounts
Balance at End of Year
2009 2008 2007
$ $
263,632 $ 258,288 $ 215,443
75,703 $ 20,057 $ 70,893
(27,789) $ 311,546 (14,713) $ 263,632 (28,048) 258,288
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Abbott Laboratories: We have audited the consolidated financial statements of Abbott Laboratories and subsidiaries (the "Company") as of and for the years ended December 31, 2009, 2008, and 2007, and the Company's internal control over financial reporting as of December 31, 2009, and have issued our reports thereon dated February 19, 2010, which report relating to the consolidated financial statements expresses an unqualified opinion and includes an explanatory paragraph regarding the Company's adoption of a new accounting standard in 2009; such reports are included elsewhere in this Form 10-K. Our audits also included the consolidated financial statement schedule of the Company listed in Item 15. This consolidated financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion based on
205

our audits. In our opinion, such consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. /s/ DELOITTE & TOUCHE LLP Chicago, February 19, 2010 Illinois
EXHIBIT INDEX ABBOTT LABORATORIES ANNUAL REPORT FORM 10-K 2009 Exhibits 32.1 and 32.2 are furnished herewith and should not be deemed to be "filed under the Securities Exchange Act of 1934." 2.1 *Stock and Asset Purchase Agreement among Solvay SA and the other Sellers (as defined in the Agreement) and Abbott Laboratories and the other Buyers (as defined in the Agreement), dated as of September 26, 2009, filed as Exhibit 2.1 to the Abbott Laboratories Quarterly Report on Form 10-Q for the quarter ended September 30, 2009. 2.2 *Amendment No. 1, dated February 15, 2010, to Stock and Asset Purchase Agreement among Solvay SA and the other Sellers (as defined in the Agreement) and Abbott Laboratories and the other Buyers (as defined in the Agreement), dated as of September 26, 2009, filed as Exhibit 2.2 to the Abbott Laboratories Current Report on Form 8-K dated February 15, 2010. 2.3 *Agreement and Plan of Merger, dated as of January 11, 2009, by and among Abbott Laboratories, Rainforest Acquisition Inc. and Advanced Medical Optics, Inc., filed as Exhibit 2.1 to the Abbott Laboratories Current Report on Form 8-K dated January 11, 2009. 3.1 *Articles of Incorporation, Abbott Laboratories, filed as Exhibit 3.1 to the Abbott Laboratories Quarterly Report on Form 10-Q for the quarter ended March 31, 1998. 3.2 *Corporate By-Laws of Abbott Laboratories, as amended and restated effective as of February 20, 2009, filed as Exhibit 3.2 to the Abbott Laboratories Current Report on Form 8-K dated February 20, 2009. 3.3 *Corporate By-Laws of Abbott Laboratories, as amended and restated effective as of April 24, 2009, filed as Exhibit 3.1 to the Abbott Laboratories Current Report on Form 8-K dated February 20, 2009. 4.1 *Indenture dated as of February 9, 2001, between Abbott Laboratories and The Bank of New York Mellon Trust Company, N.A. (as successor to J.P. Morgan Trust Company, National Association, successor to Bank One Trust Company, N.A.) (including form of Security), filed as Exhibit 4.1 to the Abbott Laboratories Registration Statement on Form S-3 dated February 12, 2001. 4.2 *Supplemental Indenture dated as of February 27, 2006, between Abbott Laboratories and The Bank of New York Mellon Trust Company, N.A. (as successor to J.P. Morgan Trust Company, National Association), filed as Exhibit 4.2 to the Abbott Laboratories Registration Statement on Form S-3 dated February 28, 2006. 4.3 *Form of 3.5% Note, filed as Exhibit 4.29 to the 2003 Abbott Laboratories Annual Report on Form 10-K. *Actions of Authorized Officers with Respect to Abbott's 3.5% Notes, filed as Exhibit 4.30 to the 2003 Abbott
206

Laboratories Annual Report on Form 10-K.
4.5 4.6 4.7 4.8 4.9 4.10 4.11 4.12 4.13 4.14 4.15 4.16 4.17 4.18
*Officers' Certificate and Company Order with respect to Abbott's 3.5% Notes, filed as Exhibit 4.31 to the 2003 Abbott Laboratories Annual Report on Form 10-K. *Form of 3.75% Note, filed as Exhibit 4.28 to the 2004 Abbott Laboratories Annual Report on Form 10-K. *Form of 4.35% Note, filed as Exhibit 4.29 to the 2004 Abbott Laboratories Annual Report on Form 10-K. *Actions of Authorized Officers with respect to Abbott's 3.75% Notes and 4.35% Notes, filed as Exhibit 4.30 to the 2004 Abbott Laboratories Annual Report on Form 10-K. *Officers' Certificate and Company Order with respect to Abbott's 3.75% Notes and 4.35% Notes, filed as Exhibit 4.31 to the 2004 Abbott Laboratories Annual Report on Form 10-K. *Form of 5.375% Note, filed as Exhibit 99.3 to the Abbott Laboratories Current Report on Form 8-K dated May 9, 2006. *Form of 5.600% Note, filed as Exhibit 99.3 to the Abbott Laboratories Current Report on Form 8-K dated May 9, 2006. *Form of 5.875% Note, filed as Exhibit 99.3 to the Abbott Laboratories Current Report on Form 8-K dated May 9, 2006. *Actions of the Authorized Officers with respect to Abbott's 5.375% Notes, 5.600% Notes and 5.875% Notes, filed as Exhibit 99.3 to the Abbott Laboratories Current Report on Form 8-K dated May 9, 2006. *Officers' Certificate and Company Order with respect to Abbott's 5.375% Notes, 5.600% Notes and 5.875% Notes, filed as Exhibit 4.25 to the 2006 Abbott Laboratories Report on Form 10-K. *Form of $1,000,000,000 5.150% Note due 2012, filed as Exhibit 99.4 to the Abbott Laboratories Current Report on Form 8-K dated November 6, 2007. *Form of $1,500,000,000 5.600% Note due 2017, filed as Exhibit 99.5 to the Abbott Laboratories Current Report on Form 8-K dated November 6, 2007. *Form of $1,000,000,000 6.150% Note due 2037, filed as Exhibit 99.6 to the Abbott Laboratories Current Report on Form 8-K dated November 6, 2007. *Actions of the Authorized Officers with respect to Abbott's 5.150% Notes due 2012, 5.600% Notes due 2017 and 6.150% Notes due 2037, filed as Exhibit 99.3 to the Abbott Laboratories Current Report on Form 8-K dated November 6, 2007. *Form of $2,000,000,000 5.125% Note due 2019, filed as Exhibit 99.4 to the Abbott Laboratories Current Report on Form 8-K dated February 26, 2009. *Form of $1,000,000,000 6.000% Note due 2039, filed as Exhibit 99.5 to the Abbott Laboratories Current Report on Form 8-K dated February 26, 2009.
4.19 4.20
207

4.22 *Indenture, dated as of June 22, 2004, between AMO and U.S. Bank National Association, as trustee (relating to the 2.50% Notes), filed as Exhibit 4.1 to the Abbott Laboratories Current Report on Form 8-K dated February 25, 2009. *Supplemental Indenture, dated as of February 26, 2009, between AMO and U.S. Bank National Association, as trustee (relating to the 2.50% Notes), filed as Exhibit 4.2 to the Abbott Laboratories Current Report on Form 8-K dated February 25, 2009. *Indenture, dated as of July 18, 2005, between AMO and U.S. Bank National Association, as trustee (relating to the 1.375% Notes), filed as Exhibit 4.3 to the Abbott Laboratories Current Report on Form 8-K dated February 25, 2009. *Supplemental Indenture, dated as of February 26, 2009, between AMO and U.S. Bank National Association, as trustee (relating to the 1.375% Notes), filed as Exhibit 4.4 to the Abbott Laboratories Current Report on Form 8-K dated February 25, 2009. *Indenture, dated as of June 13, 2006, between AMO and U.S. Bank National Association, as trustee (relating to the 3.25% Notes), filed as Exhibit 4.5 to the Abbott Laboratories Current Report on Form 8-K dated February 25, 2009. *Supplemental Indenture, dated as of August 15, 2006, between AMO and U.S. Bank National Association, as trustee (relating to the 3.25% Notes), filed as Exhibit 4.6 to the Abbott Laboratories Current Report on Form 8-K dated February 25, 2009. *Second Supplemental Indenture, dated as of February 26, 2009, between AMO and U.S. Bank National Association, as trustee (relating to the 3.25% Notes), filed as Exhibit 4.7 to the Abbott Laboratories Current Report on Form 8-K dated February 25, 2009. Other debt instruments are omitted in accordance with Item 601(b)(4)(iii)(A) of Regulation S-K. Copies of such agreements will be furnished to the Securities and Exchange Commission upon request. 10.1 10.2 10.3 10.4 10.5 10.6 10.7 10.8 *Supplemental Plan Abbott Laboratories Extended Disability Plan, filed as an exhibit (pages 50-51) to the 1992 Abbott Laboratories Annual Report on Form 10-K.** *Abbott Laboratories Deferred Compensation Plan, as amended effective January 1, 2008, filed as Exhibit 4.1 to the 2008 Abbott Laboratories Annual Report on Form 10-K.** Abbott Laboratories 401(k) Supplemental Plan, as amended and restated.** Abbott Laboratories Supplemental Pension Plan, as amended and restated.** The 1986 Abbott Laboratories Management Incentive Plan, as amended and restated.** *1998 Abbott Laboratories Performance Incentive Plan, as amended effective January 1, 2008, filed as Exhibit 10.7 to the 2008 Abbott Laboratories Annual Report on Form 10-K.** Rules for the 1998 Abbott Laboratories Performance Incentive Plan, as amended and restated.** *The Abbott Laboratories 1996 Incentive Stock Program, as amended and restated through the 6th Amendment February 20, 2009, filed as Exhibit 10.11 to the Abbott Laboratories Quarterly Report on Form 10-Q for the quarter ended March 31, 2009.** *Abbott Laboratories 2009 Incentive Stock Program, filed as Exhibit B to the Abbott Laboratories Definitive Proxy Statement on Schedule 14A dated March 13, 2009.**
4.23
4.24
4.25
4.26
4.27
4.28
208

10.10 10.11 Abbott Laboratories Non-Employee Directors' Fee Plan, as amended and restated.** *Form of Non-Employee Director Stock Option Agreement under the Abbott Laboratories 1996 Incentive Stock Program granted on or after February 18, 2005, filed as Exhibit 10.7 to the Abbott Laboratories Current Report on Form 8-K dated February 18, 2005.** *Form of Employee Stock Option Agreement for a Non-Qualified Stock Option granted with an Incentive Stock Option under the Abbott Laboratories 1996 Incentive Stock Program, filed as Exhibit 10.1 to the Abbott Laboratories Current Report on Form 8-K dated August 20, 2004.** *Form of Employee Stock Option Agreement for a Non-Qualified Stock Option under the Abbott Laboratories 1996 Incentive Stock Program, filed as Exhibit 10.2 to the Abbott Laboratories Current Report on Form 8-K dated August 20, 2004.** *Form of Employee Stock Option Agreement for an Incentive Stock Option granted with a Non-Qualified Stock Option under the Abbott Laboratories 1996 Incentive Stock Program, filed as Exhibit 10.3 to the Abbott Laboratories Current Report on Form 8-K dated August 20, 2004.** *Form of Employee Stock Option Agreement for an Incentive Stock Option under the Abbott Laboratories 1996 Incentive Stock Program, filed as Exhibit 10.4 to the Abbott Laboratories Current Report on Form 8-K dated August 20, 2004.** *Form of Employee Stock Option Agreement for a Replacement Stock Option under the Abbott Laboratories 1996 Incentive Stock Program, filed as Exhibit 10.5 to the Abbott Laboratories Current Report on Form 8-K dated August 20, 2004.** *Form of Employee Restricted Stock Agreement under the Abbott Laboratories 1996 Incentive Stock Program, filed as Exhibit 10.6 to the Abbott Laboratories Current Report on Form 8-K dated August 20, 2004.** *Form of Employee Restricted Stock Unit Agreement under the Abbott Laboratories 1996 Incentive Stock Program, filed as Exhibit 10.7 to the Abbott Laboratories Current Report on Form 8-K dated August 20, 2004.** *Form of Non-Employee Director Stock Option Agreement under the Abbott Laboratories 1996 Incentive Stock Program, filed as Exhibit 10.8 to the Abbott Laboratories Current Report on Form 8-K dated August 20, 2004.** *Form of Non-Employee Director Restricted Stock Unit Agreement under Abbott Laboratories 1996 Incentive Stock Program, filed as Exhibit 10.2 to the Abbott Laboratories Current Report on Form 8-K dated December 10, 2004.** *Form of Employee Stock Option Agreement for a Non-Qualified Stock Option granted with an Incentive Stock Option under the Abbott Laboratories 1996 Incentive Stock Program on or after February 18, 2005, filed as Exhibit 10.1 to the Abbott Laboratories Current Report on Form 8-K dated February 18, 2005.**
10.12
10.13
10.14
10.15
10.16
10.17 10.18
10.19
10.20
10.21
10.23 *Form of Employee Stock Option Agreement for an Incentive Stock Option granted with a Non-Qualified Stock Option under the Abbott Laboratories 1996 Incentive Stock Program on or after February 18, 2005, filed as Exhibit 10.3 to the Abbott Laboratories Current Report on Form 8-K dated February 18, 2005.** 10.24 *Form of Employee Stock Option Agreement for an Incentive Stock Option under the Abbott Laboratories 1996 Incentive Stock Program granted on or after February 18, 2005, filed as Exhibit 10.4 to the Abbott Laboratories Current Report on Form 8-K dated February 18, 2005.**
209

10.25 *Form of Employee Restricted Stock Agreement under the Abbott Laboratories 1996 Incentive Stock Program, filed as Exhibit 10.5 to the Abbott Laboratories Current Report on Form 8-K dated February 18, 2005.** 10.26 *Form of Employee Restricted Stock Unit Agreement under the Abbott Laboratories 1996 Incentive Stock Program, filed as Exhibit 10.6 to the Abbott Laboratories Current Report on Form 8-K dated February 18, 2005.** 10.27 *Form of Performance Restricted Stock Agreement for an award of performance restricted stock under Section 10 of the Abbott Laboratories 1996 Incentive Stock Program granted on or after February 17, 2006, filed as Exhibit 10.1 to the Abbott Laboratories Current Report on Form 8-K dated February 16, 2006.** 10.28 *Form of Performance Restricted Stock Agreement for an award of performance restricted stock under Section 11 of the Abbott Laboratories 1996 Incentive Stock Program granted on or after February 17, 2006, filed as Exhibit 10.2 to the Abbott Laboratories Current Report on Form 8-K dated February 16, 2006.** 10.29 *Form of Performance Restricted Stock Unit Agreement for an award of performance restricted stock units under the Abbott Laboratories 1996 Incentive Stock Program granted on or after February 17, 2006, filed as Exhibit 10.3 to the Abbott Laboratories Current Report on Form 8-K dated February 16, 2006.** 10.30 *Form of Non-Qualified Stock Option Agreement for an award of non-qualified stock options under the Abbott Laboratories 1996 Incentive Stock Program granted on or after February 17, 2006, filed as Exhibit 10.4 to the Abbott Laboratories Current Report on Form 8-K dated February 16, 2006.** 10.31 *Form of Restricted Stock Unit Agreement for an award of restricted stock units under the Abbott Laboratories 1996 Incentive Stock Program granted on or after February 17, 2006, filed as Exhibit 10.5 to the Abbott Laboratories Current Report on Form 8-K dated February 16, 2006.** 10.32 *Form of Performance Restricted Stock Agreement for an award of performance restricted stock under Section 10 of the Abbott Laboratories 1996 Incentive Stock Program granted on or after February 16, 2007, filed as Exhibit 10.49 to the 2006 Abbott Laboratories Report on Form 10-K.** 10.33 *Form of Performance Restricted Stock Agreement for an award of performance restricted stock under Section 11 of the Abbott Laboratories 1996 Incentive Stock Program granted on or after February 16, 2007, filed as Exhibit 10.50 to the 2006 Abbott Laboratories Report on Form 10-K.** 10.34 *Form of Performance Restricted Stock Unit Agreement for an award of performance restricted stock units under the Abbott Laboratories 1996 Incentive Stock Program granted on or after February 16, 2007, filed as Exhibit 10.51 to the 2006 Abbott Laboratories Report on Form 10-K.** 10.35 *Form of Restricted Stock Unit Agreement for an award of restricted stock units under the Abbott Laboratories 1996 Incentive Stock Program granted on or after February 16, 2007, filed as Exhibit 10.52 to the 2006 Abbott Laboratories Report on Form 10-K.** 10.36 *Form of Performance Restricted Stock Agreement for an award of performance restricted stock under Section 10 of the Abbott Laboratories 1996 Incentive Stock Program granted on or after February 20, 2009, filed as Exhibit 10.1 to the Abbott Laboratories Current Report on 8-K dated February 20, 2009. ** 10.37 *Form of Performance Restricted Stock Agreement for an award of performance restricted stock under the Abbott Laboratories 1996 Incentive Stock Program granted on or after February 20, 2009, filed as Exhibit 10.2 to the Abbott Laboratories Current Report on 8-K dated February 20, 2009. ** 10.38 *Form of Non-Qualified Stock Option Agreement for an award of non-qualified stock options under the Abbott Laboratories 1996 Incentive Stock Program granted on or after February 20, 2009, filed as Exhibit 10.3 to the Abbott Laboratories Current Report on 8-K dated February 20, 2009.**
210

10.39 *Form of Non-Qualified Replacement Stock Option Agreement for an award of non-qualified replacement stock options under the Abbott Laboratories 1996 Incentive Stock Program granted on or after February 20, 2009, filed as Exhibit 10.4 to the Abbott Laboratories Current Report on 8-K dated February 20, 2009. ** 10.40 *Form of Restricted Stock Agreement for an award of restricted stock under the Abbott Laboratories 1996 Incentive Stock Program granted on or after February 20, 2009 (ratable vesting), filed as Exhibit 10.5 to the Abbott Laboratories Current Report on 8-K dated February 20, 2009. ** 10.41 *Form of Restricted Stock Agreement for an award of restricted stock under the Abbott Laboratories 1996 Incentive Stock Program granted on or after February 20, 2009 (cliff vesting), filed as Exhibit 10.6 to the Abbott Laboratories Current Report on 8-K dated February 20, 2009. ** 10.42 *Form of Restricted Stock Unit Agreement for an award of restricted stock units under the Abbott Laboratories 1996 Incentive Stock Program granted on or after February 20, 2009, filed as Exhibit 10.7 to the Abbott Laboratories Current Report on 8-K dated February 20, 2009. ** *Form of Non-Employee Director Non-Qualified Replacement Stock Option Agreement for an award of nonqualified replacement stock options under the Abbott Laboratories 1996 Incentive Stock Program granted on or after February 20, 2009, filed as Exhibit 10.8 to the Abbott Laboratories Current Report on 8-K dated February 20, 2009. ** *Form of Non-Employee Director Non-Qualified Stock Option Agreement, filed as Exhibit 10.2 to the Abbott Laboratories Current Report on Form 8-K dated April 24, 2009.** 10.45 *Form of Non-Employee Director Restricted Stock Unit Agreement, filed as Exhibit 10.3 to the Abbott Laboratories Current Report on Form 8-K dated April 24, 2009.** 10.46 *Form of Non-Employee Director Non-Qualified Replacement Stock Option Agreement, filed as Exhibit 10.4 to the Abbott Laboratories Current Report on Form 8-K dated April 24, 2009.** 10.47 *Form of Non-Qualified Stock Option Agreement (ratably vested), filed as Exhibit 10.5 to the Abbott Laboratories Current Report on Form 8-K dated April 24, 2009.** 10.48 *Form of Non-Qualified Replacement Stock Option Agreement, filed as Exhibit 10.6 to the Abbott Laboratories Current Report on Form 8-K dated April 24, 2009.** 10.49 *Form of Performance Restricted Stock Agreement, filed as Exhibit 10.7 to the Abbott Laboratories Current Report on Form 8-K dated April 24, 2009.** 10.50 *Form of Restricted Stock Agreement (ratably vested), filed as Exhibit 10.8 to the Abbott Laboratories Current Report on Form 8-K dated April 24, 2009.** 10.51 *Form of Restricted Stock Agreement (cliff vested), filed as Exhibit 10.9 to the Abbott Laboratories Current Report on Form 8-K dated April 24, 2009.** 10.52 *Form of Performance Restricted Stock Agreement (annual performance based), filed as Exhibit 10.10 to the Abbott Laboratories Current Report on Form 8-K dated April 24, 2009.** 10.53 *Form of Performance Restricted Stock Agreement (interim performance based), filed as Exhibit 10.11 to the Abbott Laboratories Current Report on Form 8-K dated April 24, 2009.** 10.54 *Form of Restricted Stock Unit Agreement (cliff vested), filed as Exhibit 10.12 to the Abbott Laboratories Current Report on Form 8-K dated April 24, 2009.**
211

10.55 *Form of Restricted Stock Unit Agreement (ratably vested), filed as Exhibit 10.13 to the Abbott Laboratories Current Report on Form 8-K dated April 24, 2009.** 10.56 *Form of Agreement Regarding Change in Control by and between Abbott Laboratories and its named executive officers (other than Messrs. White and Freyman), filed as Exhibit 10.34 to the 2008 Abbott Laboratories Annual Report on Form 10-K.** 10.57 Base Salary of Named Executive Officers.** 10.58 *Transaction Agreement between Boston Scientific Corporation and Abbott Laboratories, dated as of January 8, 2006, filed as Exhibit 10.28 to the 2005 Abbott Laboratories Annual Report on Form 10-K. 10.59 *Amendment No. 1 to Transaction Agreement, dated as of January 16, 2006, between Boston Scientific Corporation and Abbott Laboratories, filed as Exhibit 10.29 to the 2005 Abbott Laboratories Annual Report on Form 10-K. 10.61 *Amendment No. 3 to Transaction Agreement, dated as of February 22, 2006, between Boston Scientific Corporation and Abbott Laboratories, filed as Exhibit 10.1 to the Abbott Laboratories Quarterly Report on Form 10-Q for the quarter ended March 31, 2006. 10.62 *Amendment No. 4 to Transaction Agreement, dated as of April 5, 2006, between Boston Scientific Corporation and Abbott Laboratories, filed as Exhibit 10.2 to the Abbott Laboratories Quarterly Report on Form 10-Q for the quarter ended March 31, 2006. 10.63 *Purchase Agreement, dated as of April 21, 2006, between Guidant Corporation and Abbott Laboratories, filed as Exhibit 10.1 to the Abbott Laboratories Quarterly Report on Form 10-Q for the quarter ended June 30, 2006. 10.64 *Amendment to Purchase Agreement, dated as of April 21, 2006, between Guidant Corporation and Abbott Laboratories, filed as Exhibit 10.2 to the Abbott Laboratories Quarterly Report on Form 10-Q for the quarter ended June 30, 2006. 10.65 *Promissory Note, dated April 21, 2006, from BSC International Holding Ltd., filed as Exhibit 10.3 to the Abbott Laboratories Quarterly Report on Form 10-Q for the quarter ended June 30, 2006. 10.66 *Subscription and Stockholder Agreement, dated as of April 21, 2006, between Boston Scientific Corporation and Abbott Laboratories, filed as Exhibit 10.4 to the Abbott Laboratories Quarterly Report on Form 10-Q for the quarter ended June 30, 2006. 10.67 *Amendment to Subscription and Stockholder Agreement, dated as of April 21, 2006, between Boston Scientific Corporation and Abbott Laboratories, filed as Exhibit 10.5 to the Abbott Laboratories Quarterly Report on Form 10-Q for the quarter ended June 30, 2006. 10.68 *Form of Time Sharing Agreement between Abbott Laboratories, Inc. and M.D. White and T.C. Freyman, filed as Exhibit 10.6 to the Abbott Laboratories Quarterly Report on Form 10-Q for the quarter ended June 30, 2006.** 10.69 *Support Agreement, dated as of January 11, 2009, by and among ValueAct, Abbott and the Purchaser, filed as Exhibit 99.1 to the Abbott Laboratories Current Report on Form 8-K dated January 11, 2009. 10.70 *Support Agreement, dated as of January 11, 2009, by and among James V. Mazzo, Abbott and the Purchaser, filed as Exhibit 99.2 to the Abbott Laboratories Current Report on Form 8-K dated January 11, 2009. 10.71 *Amended and Restated Advanced Medical Optics, Inc. 2002 Incentive Compensation Plan, as amended, filed as Exhibit 4.3 to the Abbott Laboratories Registration Statement on Form S-8 dated March 20, 2009.**
212

10.72 *First Amendment to Amended and Restated Advanced Medical Optics, Inc. 2002 Incentive Compensation Plan, filed as Exhibit 4.4 to the Abbott Laboratories Registration Statement on Form S-8 dated March 20, 2009.** 10.73 *2004 Stock Incentive Plan, as amended and restated, filed as Exhibit 4.5 to the Abbott Laboratories Registration Statement on Form S-8 dated March 20, 2009.** 10.74 *Advanced Medical Optics, Inc. 2005 Incentive Compensation Plan, filed as Exhibit 4.6 to the Abbott Laboratories Registration Statement on Form S-8 dated March 20, 2009.** 10.75 *VISX, Incorporated 2001 Nonstatutory Stock Option Plan, filed as Exhibit 4.7 to the Abbott Laboratories Registration Statement on Form S-8 dated March 20, 2009.** 10.76 10.77 10.78 12 21 23.1 31.1 31.2 32.1 32.2 101 *VISX, Incorporated 2000 Stock Plan, filed as Exhibit 4.8 to the Abbott Laboratories Registration Statement on Form S-8 dated March 20, 2009.** *VISX, Incorporated 1995 Director Option and Stock Deferral Plan, as amended and restated, filed as Exhibit 4.9 to the Abbott Laboratories Registration Statement on Form S-8 dated March 20, 2009.** *VISX, Incorporated 1995 Stock Plan, as amended, filed as Exhibit 4.10 to the Abbott Laboratories Registration Statement on Form S-8 dated March 20, 2009.** Computation of Ratio of Earnings to Fixed Charges. Subsidiaries of Abbott Laboratories. Consent of Independent Registered Public Accounting Firm. Certification of Chief Executive Officer Required by Rule 13a-14(a) (17 CFR 240.13a-14(a)). Certification of Chief Financial Officer Required by Rule 13a-14(a) (17 CFR 240.13a-14(a)). Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. The following financial statements and footnotes from the Abbott Laboratories Annual Report on Form 10-K for the year ended December 31, 2009 filed on February 19, 2010, formatted in XBRL: (i) Consolidated Statement of Earnings; (ii) Consolidated Statement of Cash Flows; (iii) Consolidated Balance Sheet; and (iv) Consolidated Statement of Shareholders' Investment.
The 2010 Abbott Laboratories Proxy Statement will be filed with the Securities and Exchange Commission under separate cover on or about March 15, 2010. * Incorporated herein by reference. Commission file number 1-2189. ** Denotes management contract or compensatory plan or arrangement required to be filed as an exhibit hereto. Abbott will furnish copies of any of the above exhibits to a shareholder upon written request to the Secretary, Abbott Laboratories, 100 Abbott Park Road, Abbott Park, Illinois 60064-6400.
213
Works Cited
Abbott Laboratories. UNITED STATES SECURITIES AND EXCHANGE COMMISSION. Retrieved 09 22, 2010, from 2009 Annual Report: http://www.sec.gov/Archives/edgar/data/1800/000104746910001018/a2196380z10k.htm Associated Press. (2010, 09 24). tmcnet.com Retrieved 09 24, 2010, from Abbott plans 3,000 job cuts tied to Solvay deal: http://technews.tmcnet.com/topics/associated-press/articles/104099-abbott-plans3000-job-cuts-tied-solvay-deal.htm Bloomberg News (July, 2009). Profit at Abbott misses analysts forecasts. New York Times. Retrieved September 26, 2010, from http://www/nytimes.com/2009/07/16/business/16abbott.html Boudway, I. (2010). Target's Off-Target Campaign Contribution. Bloomberg BusinessWeek, (4191), 32. Retrieved from Business Source Premier database. D'INNOCENZIO, A. (2010, 09 24). Bloomberg BusinessWeek. Retrieved 09 24, 2010, from Ahead of the Bell: Target to talk strategy: http://www.businessweek.com/ap/financialnews/D9IEA8BG0.htm Forbes. Forbes.com. Retrieved 09 24, 2010, from Abbott Labs: http://finapps.forbes.com/finapps/BuyHoldSellAnalysis.do?tkr=ABT Forbes. Forbes.com. Retrieved 09 24, 2010, from Target Corporation: http://finapps.forbes.com/finapps/BuyHoldSellAnalysis.do?tkr=tgt Funding Universe. FundingUniverse.com. Retrieved 09 24, 2010, from Abbott Laboratories: http://www.fundinguniverse.com/company-histories/Abbott-Laboratories-Company-History.html FundingUniverse. FundingUniverse.com. Retrieved 09 24, 2010, from Target Corporation : http://www.fundinguniverse.com/company-histories/Target-Corporation-Company-History.html Hoovers. Competitive Landscape. Retrieved 09 24, 2010, from Hoovers: http://www.hoovers.com/company/Abbott_Laboratories/rffyif-1-1njea3.html InvestorGuide Staff. (2009, 03 19). InvestorGuide.com. Retrieved 09 24, 2010, from Target Has Another Nemesis (Besides Wal-Mart): http://www.investorguide.com/article/1130/target-has-anothernemesis-besides-wal-mart-tgt/ InvestorGuide Staff. (2010, 01 14). InvestorGuide.com. Retrieved 09 24, 2010, from Investors are Gradually Resuming Their Faith in Target : http://www.investorguide.com/article/5619/investors-aregradually-resuming-their-faith-in-target-tgt/ Joshua Caucutt. (2010, 04 08). InvestorGuide.com. Retrieved 09 24, 2010, from Target Sales Surge in March: http://www.investorguide.com/article/6315/target-sales-surge-in-march-tgt/
214

K. Anupam. (2009, 12 14). Wall Street Post Game. Retrieved 09 24, 2010, from Abbott Continues Aggressive Acquisition Strategy: http://wallstreetpostgame.com/2009/12/abbott-continues-aggressiveacquisition-strategy/ Laboratories, A. About Abbott. Retrieved 09 24, 2010, from Abbott: http://abbott.com/global/url/content/en_US/10:10/general_content/General_Content_00004.htm Meehan, P. B. (2004, 08 16). Harvard Business School. Retrieved 09 24, 2010, from Bullseye: Target's Cheap Chic Strategy: http://hbswk.hbs.edu/archive/4319.html PERRONE, M. (2010, 09 22). Yahoo News. Retrieved 09 24, 2010, from Abbott recalls infant formula on bug contamination: http://news.yahoo.com/s/ap/20100923/ap_on_he_me/us_abbott_infant_recall Procter & gamble partners with target to raise money and awareness for breast cancer early detection planning. (September, 2010). New York Times. Retrieved September 26, 2010 from http://markets.on.nytimes.com/research/stocks/news/procter&gamble/press-release.html. Reuters. (February, 2010). Major retailers post profits, but forecasts are cautious. New York Times. Retrieved September, 24, 2010 from http://www.nytimes.com/2010/02/24/business/24retail.html. Reuters (September, 2010). Abbott laboratories plans to cut 3,000 jobs. New York Times. Retrieved September 24, 2010 from http://www.nytimes.com/2010/09/22/business/global/22abbott.html. Singer, N. and Pollack, A. (January, 2010). Heart patients warned against using Meridia, an anti-obesity drug. New York Times. Retrieved September 26, 2010, from http://query.nytimes.com/2010/01/23/business/23singer.html Sorkin, A. R. (September, 2009). Big merger deals signal restored confidence. New York Times. Retrieved September 24, 2010, from http://www.nytimes.com/2009/09/29/business/29sorkin.html Target launches new electronics services that offer exceptional tech and mobile experience. (August , 2010). New York Times. Retrieved September 26, 2010 from http://markets.on.nytimes.comresearch/electronics/stocksnewspress_release.html. Target offers ipad at stores nationwide on October 3. (September 2010). New York Times. Retrieved September 26, 2010 from http://markets.on.nytimes.com/research/stocks/news/ipad/press_release.html. Target stores to be first retailer of facebook credits gift cards. (September, 2010). New York Times. Retrieved September 26, 2010 from http://markets.onnytimes.com/research/stocks/news/facebook/cards/press_release.html. Target unveils customized ad technology that makes shopping easier. (September, 2010). New York Times. Retrieved September 26, 2010 from http://markets.on.nytiems.com/research/stocks/news/press_release.htm. Target Corporation. UNITED STATES SECURITIES AND EXCHANGE COMMISSION. Retrieved 09 22, 2010, from 2009 Annual Report: http://www.sec.gov/Archives/edgar/data/27419/000104746910002121/a2196751z10-k.htm The New York Times. The New York Times. Retrieved 09 24, 2010, from Target Corporation: http://topics.nytimes.com/top/news/business/companies/target_corporation/index.html?scp=1spot&sq=target&st=Search 215

The New York Times. The New York Times. Retrieved 09 24, 2010, from Abbott Laboratories: http://topics.nytimes.com/top/news/business/companies/abbott_laboratories/index.html Timmons, H. (May, 2010). Abbott buys drug maker in India for $3.7 billion. New York Times. Retrieved September 24, 2010, from http://www.nytimes.com/2010/05/22/business/global/22drug/html. Voter (and customer) Beware. (August, 2010). New York Times. Retrieved September 26, 2010 from http://www.nytimes.com/2010/08/19/opinion/19thr4.html. Yahoo Finance. Yahoo Finance. Retrieved 09 24, 2010, from Target Corp.: http://finance.yahoo.com/q/co?s=TGT Yahoo Finance. Yahoo Finance. Retrieved 09 24, 2010, from Abbott Laboratories: http://finance.yahoo.com/q/co?s=abt (2010). DATAMONITOR: Abbott Laboratories. Abbott Laboratories SWOT Analysis, 1-9. Retrieved from Business Source Premier database. (2010). DATAMONITOR: Abbott Laboratories. Abbott Laboratories SWOT Analysis, 1-9. Retrieved from Business Source Premier database. (2010). Home Shows Signs of Life at Target. Home Textiles Today, 31(13), 1-23. Retrieved from Business Source Premier database.
216

Financial Statement Analysis

Uploaded by

Copyright:

Available Formats

Financial Statement Analysis

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Financial Statement Analysis

Uploaded by

Copyright:

Available Formats

Financial Statement Analysis

Financial Statement Analysis 2010 Table of Contents

Financial Statement Analysis 2010

Financial Statement Analysis 2010

Financial Statement Analysis 2010

Financial Statement Analysis 2010

Financial Statement Analysis 2010

III. Financial position

Financial Statement Analysis 2010

Financial Statement Analysis 2010

Financial Statement Analysis 2010

Financial Statement Analysis 2010

Financial Statement Analysis 2010

Financial Statement Analysis 2010

VI. Conclusions and recommendations

Financial Statement Analysis 2010

Financial Statement Analysis 2010

Financial Statement Analysis 2010

Financial Statement Analysis 2010

Financial Statement Analysis 2010

II. Performance analysis

Financial Statement Analysis 2010

Financial Statement Analysis 2010

Financial Statement Analysis 2010

Financial Statement Analysis 2010

Financial Statement Analysis 2010

Financial Statement Analysis 2010

V. External perception of the company:

Financial Statement Analysis 2010

Financial Statement Analysis 2010

Financial Statement Analysis 2010

Financial Statement Analysis 2010

Financial Statement Analysis 2010

Financial Statement Analysis 2010

Truly Rev Growth (yoy):

Gross Margin (ttm):

Operating Margin (ttm):

Net Income (ttm):

Financial Statement Analysis 2010

Financial Statement Analysis 2010

3.06 0.1 3.16

Financial Statement Analysis 2010

Outstanding Common Stock Options Having No Dilutive Effect

Financial Statement Analysis 2010

6.23% 4.51% 2.31%

6.54% 5.81% 2.97%

7.43% 5.31% 3.06%

1.04% 7.65% 21.61% 1.15% 31.45%

1.20% 8.72% 24.44% 1.45% 35.81% 18.79% 17.02%

1.24% 9.04% 26.17% 2.82% 39.28% 20.34% 18.93%

Less: accumulated depreciation and amortization Net Property and Equipment

Financial Statement Analysis 2010

2.13% 8.32% 1.18% 0.84%

2.38% 9.94% 1.32% 1.90%

2.16% 9.35% 1.27% 0.20%

Current portion of long-term debt

Total Current Liabilities Long-term Debt

Post-employment Obligations and Other Long-term Liabilities

Financial Statement Analysis 2010

Commitments and Contingencies Shareholders' Investment: