ABBOTT LABORATORIES (ABT)

Item 2.    Management’s Discussion and Analysis of Financial Condition and Results of Operations

Financial Review — Results of Operations

Abbott’s revenues are derived primarily from the sale of a broad portfolio of healthcare products under short-term receivable arrangements. Patent protection and licenses, technological and performance features, and inclusion of Abbott’s products under a contract most significantly impact which products are sold; price controls, competition, and rebates most significantly impact the net selling prices of products; and foreign currency translation impacts the measurement of net sales and costs. Abbott’s primary products are medical devices, diagnostic testing products, nutritional products, and branded generic pharmaceuticals.

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

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The 12.2 percent increase in total net sales during the second quarter of 2026, excluding the impact of foreign exchange, was driven by the acquisition of Exact Sciences Corporation (Exact Sciences) and high single-digit growth in Medical Devices and Established Pharmaceutical Products, partially offset by lower sales in Nutritional Products. The Exact Sciences acquisition was completed on March 23, 2026, and its results are reported within the Diagnostic Products segment as Cancer Diagnostics from the date of acquisition. On a reported basis, net sales were favorably impacted by foreign exchange as the relatively weaker U.S. dollar increased total international sales by 1.3 percent and total sales by 0.8 percent.

The 8.2 percent increase in total net sales during the first six months of 2026, excluding the impact of foreign exchange, reflected higher sales in Diagnostic Products, Medical Devices, and Established Pharmaceutical Products, partially offset by lower sales in Nutritional Products. Diagnostic Products sales increased as a result of the acquisition of Exact Sciences, while sales in Medical Devices and Established Pharmaceutical Products were driven by higher sales of existing products. Abbott’s net sales were favorably impacted by changes in foreign exchange rates in the first six months as the relatively weaker U.S. dollar increased total international sales by 3.8 percent and total sales by 2.3 percent.

The table below provides detail by sales category for the six months ended June 30. Percent changes are versus the prior year and are based on unrounded numbers.

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In the first six months of 2026, total Established Pharmaceutical Products sales, excluding the impact of foreign exchange, increased 8.9 percent. Excluding the favorable effect of foreign exchange, sales in Key Emerging Markets for Established Pharmaceutical Products increased 10.1 percent in the first six months of 2026, led by double-digit growth in several countries across the Latin America and Asia Pacific regions. Other Emerging Markets, excluding the effect of foreign exchange, increased 4.9 percent in the first six months of 2026.

Excluding the impact of foreign exchange, total Nutritional Products sales in the first six months of 2026 decreased 5.6 percent, reflecting lower sales volumes across the adult nutritional and U.S. pediatric product portfolios.

In the first six months of 2026, Diagnostic Products sales increased 22.4 percent, excluding the impact of foreign exchange. The inclusion of Exact Sciences and growth in Core Laboratory were partially offset by a decline in Rapid and Molecular Diagnostics. From the acquisition date of March 23, 2026, Diagnostic Products results included approximately $1.0 billion of sales from Exact Sciences, which are reported as Cancer Diagnostics.

In Core Laboratory, sales increased 3.2 percent in the first six months of 2026, excluding the impact of foreign exchange, reflecting continued growth of diagnostic test sales on the Alinity® platform across the U.S. and Latin America, partially offset by lower sales in China due to continued challenging market conditions. In Rapid and Molecular Diagnostics, sales decreased 8.8 percent in the first six months of 2026, excluding the impact of foreign exchange, primarily reflecting lower demand for respiratory virus tests due to a weaker respiratory virus season compared to the prior year.

Excluding the impact of foreign exchange, total Medical Devices sales increased 8.0 percent in the first six months of 2026, led by double‑digit growth in Electrophysiology, Rhythm Management, and Heart Failure. Diabetes Care sales increased 8.2 percent, excluding the impact of foreign exchange, driven by continued growth in Abbott’s continuous glucose monitoring (CGM) systems in the U.S. and internationally. CGM systems sales totaled $4.1 billion and $3.6 billion in the first six months of 2026 and 2025, respectively, and increased 8.6 percent excluding the impact of foreign exchange.

In Rhythm Management, sales increased 10.9 percent in the first six months of 2026, excluding the impact of foreign exchange, primarily due to growth in Aveir® leadless pacemakers. In Electrophysiology, sales increased 13.0 percent, excluding the impact of foreign exchange, primarily reflecting increased sales of ablation catheters and related portfolio products. In Heart Failure, sales increased 10.4 percent, excluding the impact of foreign exchange, primarily reflecting growth across the portfolio of ventricular assist devices and related accessories. In Vascular, sales increased 5.0 percent, excluding the impact of foreign exchange, primarily reflecting growth in endovascular products.

In May 2026, Abbott announced it secured CE Mark for Libre® Duo, its dual glucose-ketone biowearable sensor.

The gross profit margin percentage was 52.5 percent for the second quarter of 2026 and the first six months of 2026, compared to 52.7 percent for the second quarter and the first six months of 2025. The decrease in the second quarter and the first six months of 2026 primarily reflects higher intangible amortization expense related to the Exact Sciences acquisition and the unfavorable impact of higher costs, partially offset by favorable business mix, including the addition of Exact Sciences, continued margin improvement initiatives, and foreign exchange.

Research and development (R&D) expenses increased $167 million to $892 million, or 22.9 percent, in the second quarter of 2026 compared to the prior year, and increased $218 million to $1.7 billion, or 15.1 percent, in the first six months of 2026 compared to the prior year. The increase in R&D expenses in the second quarter and the first six months of 2026 primarily reflects the addition of the Exact Sciences business, as well as continued investment in development programs across multiple businesses.

Selling, general, and administrative (SG&A)

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

Financial Review

Abbott’s revenues are derived primarily from the sale of a broad line of healthcare products, which include medical devices, diagnostic testing products, nutritional products and branded generic pharmaceuticals. These products are sold under short-term receivable arrangements. Patent protection and licenses, technological and performance features, and inclusion of Abbott’s products under a contract most impact which products are sold; price controls, competition, and rebates most impact the net selling prices of products; and the measurement of net sales and costs is impacted by foreign currency translation. Sales in international markets comprise 61 percent of consolidated net sales.

On November 19, 2025, Abbott entered into a definitive agreement to acquire Exact Sciences Corporation (Exact Sciences), which is expected to enable Abbott to enter the cancer diagnostics market. The acquisition is subject to customary closing conditions, including the approval of Exact Sciences shareholders, and obtaining the required regulatory clearances. Under the terms of the agreement, Abbott will pay $105 per common share in cash at the completion of the transaction, representing a total equity value of approximately $21 billion and an estimated enterprise value of $23 billion. Abbott's financing contemplates absorption of Exact Sciences' estimated $1.8 billion of net debt.

On November 19, 2025, Abbott obtained a commitment for a 364-day senior unsecured bridge term loan facility for an amount not to exceed $20.0 billion in conjunction with its pending acquisition of Exact Sciences. While Abbott plans to fund this transaction with cash on hand and borrowings, the bridge facility will provide back-up financing.

Abbott’s sales growth in 2025 was primarily attributable to the performance of the Medical Devices and Established Pharmaceutical Products segments. Results reflect continued progress across related research and development programs, including the contribution of new and recently introduced products and indication expansions. Results in the Nutritional Products segment were flat, reflecting price increases and lower volumes, particularly in the United States (U.S.). Sales also continued to be affected by the decline in COVID‑19 testing‑related sales in the Diagnostics segment. In 2025, 2024, and 2023, Abbott’s COVID-19 testing-related sales totaled $297 million, $747 million, and $1.6 billion, respectively. Sales in emerging markets, which represent 37 percent of total company sales, increased 5.1 percent in 2025 and 8.2 percent in 2024, excluding the impact of foreign exchange. (Emerging markets include all countries, except the U.S., Japan, Canada, Australia, New Zealand, the United Kingdom, and Western European countries.)

Abbott’s operating margin profile increased in 2025 to 18.2 percent from 16.3 percent in 2024 and 16.2 percent in 2023. The increase in 2025 reflects the favorable impact of margin improvement initiatives, partially offset by foreign exchange and inflation.

With respect to the performance of each reportable segment over the last three years, sales in the Medical Devices segment, excluding the impact of foreign exchange, increased 11.9 percent in 2025 and 13.7 percent in 2024. In Medical Devices, sales in 2025 and 2024 increased across all businesses, with double-digit growth in Diabetes Care, Heart Failure, Electrophysiology, and Structural Heart, and in 2025, Rhythm Management. Growth was led by Diabetes Care where sales of Abbott's continuous glucose monitoring (CGM) systems continued to increase and totaled $7.6 billion in 2025 and $6.4 billion in 2024.

In 2025, key product approvals in the Medical Devices segment included:

•U.S. Food and Drug Administration (FDA) approval and CE Mark for the Volt™ Pulsed Field Ablation (PFA) System to treat patients with atrial fibrillation,

•FDA approval of the Tendyne™ transcatheter mitral valve replacement (TMVR) system to treat people with mitral valve disease,

•Regulatory approval in Japan for TriClip®, a minimally invasive treatment option for patients with tricuspid regurgitation, or a leaky tricuspid heart valve,

•CE Mark for TactiFlex™ Duo Ablation Catheter, Sensor Enabled™, designed to deliver radiofrequency (RF) and PFA energy to treat patients battling atrial fibrillation, and

•CE Mark for an expanded indication for the Navitor® transcatheter aortic valve implantation (TAVI) system to treat people with symptomatic, severe aortic stenosis who are at low or intermediate risk for open-heart surgery.

Operating earnings for the Medical Devices segment increased 17.2 percent in 2025 and 16.0 percent in 2024. Operating margin profile increased from 31.4 percent in 2023 to 32.4 percent in 2024 and to 33.7 percent in 2025. The increase in 2025 reflects the impact of higher sales volumes across the Medical Devices businesses.

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In Abbott’s Diagnostics segment, sales decreased 4.5 percent in 2025 and 3.9 percent in 2024, excluding the impact of foreign exchange. The 2025 and 2024 sales decreases were driven by continued lower demand for the company's portfolio of COVID-19 tests and challenging market conditions in China, including the impact of volume-based procurement programs. The sales decrease was partially offset by higher volume of routine diagnostic tests and the continued deployment of Abbott's Alinity® testing platform and digital health solutions, as Abbott continues to expand its diagnostic test menus.

In 2025, operating earnings for the Diagnostics segment decreased 16.1 percent. The operating margin profile decreased from 24.4 percent in 2023 to 19.5 percent in 2025 primarily due to lower demand for Abbott's COVID-19 tests.

In Abbott’s Nutritional Products segment, total pediatric nutrition sales, excluding the impact of foreign exchange, decreased 0.7 percent in 2025, reflecting lower sales volumes in the U.S., partially offset by higher international sales and price increases. In 2024, excluding the impact of foreign exchange, total pediatric nutrition sales increased 3.7 percent, which included market share recovery in the U.S. infant formula business following the voluntary recall of certain products in 2022, and the favorable impact of price increases. Excluding the impact of foreign exchange, total adult nutrition sales increased 2.7 percent in 2025 and 8.0 percent in 2024, reflecting growth in international markets and favorable impact of price increases. These increases were partially offset by lower U.S. sales, including the impact from the discontinuation of the ZonePerfect® product line in 2024.

In 2025, operating earnings for the Nutritional Products segment increased 3.5 percent compared to 2024. Operating margin profile for this segment increased from 16.4 percent in 2023 to 17.9 percent in 2024 and to 18.4 percent in 2025. The increase in 2025 primarily reflects the favorable effect of margin improvement initiatives and price increases, partially offset by continued inflation in manufacturing and input costs and the impact of foreign exchange. The increase in 2024 primarily reflected higher sales, the favorable impact of price increases, and a continued execution of margin improvement initiatives.

In Abbott's Established Pharmaceutical Products segment, excluding the impact of foreign exchange, sales increased 7.4 percent in 2025 and 9.2 percent in 2024. Sales growth in both periods was broad-based across countries and was led by higher revenue across multiple therapeutic areas, including cardiometabolic, gastroenterology, and central nervous system/pain management. In 2024, growth in this segment also reflected higher respiratory product sales. In 2025, operating earnings increased 4.7 percent. Operating margin profile decreased from 23.8 percent in 2023 to 23.3 percent in 2025, reflecting increased business costs and unfavorable foreign exchange, partially offset by higher volumes and favorable price adjustment initiatives.

With respect to Abbott’s financial position, as of December 31, 2025, and December 31, 2024, Abbott’s cash and cash equivalents and short-term investments totaled $8.9 billion and $8.0 billion, respectively. Abbott’s long-term debt totaled $12.9 billion and $14.1 billion at December 31, 2025, and 2024, respectively.

Abbott declared dividends of $2.40 per share in 2025 and $2.24 per share in 2024, an increase of 7.1 percent. Dividends paid totaled $4.1 billion in 2025 compared to $3.8 billion in 2024. The year-over-year change in the amount of dividends paid reflects the increase in the dividend rate. In December 2025, Abbott increased the company’s quarterly dividend by 6.8 percent to $0.63 per share from $0.59 per share, effective with the dividend paid in February 2026. In December 2024, Abbott increased the company’s quarterly dividend by 7.3 percent to $0.59 per share from $0.55 per share, effective with the dividend paid in February 2025.

In 2026, Abbott will continue to invest in product development areas that provide the opportunity for strong sustainable growth over the next several years. In the diagnostics businesses, Abbott will focus on driving sales growth from its Alinity suite of diagnostic instruments, including expanded menu offerings and GLP track integration, as well as its portfolio of rapid diagnostic testing systems, and growing digital health solutions. In the medical devices businesses, Abbott will focus on growing recently launched products and expanding its market position across its various businesses. In the nutrition businesses, Abbott will focus on introducing new products to adapt to evolving consumer preferences and driving growth globally. In the established pharmaceuticals businesses, Abbott will continue to focus on growing the depth and breadth of its portfolio in emerging markets, including expanding its biosimilars portfolio.

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Critical Accounting Policies

Sales Rebates — In 2025, 44 percent of Abbott’s consolidated gross revenues were subject to various forms of rebates and allowances that Abbott recorded as reductions of revenues at the time of sale. Most of these rebates and allowances in 2025 are in the Nutritional Products and Diabetes Care businesses. Abbott provides rebates to state agencies, 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 one to six 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 2025, 2024, and 2023 amounted to $4.8 billion in 2025, $4.4 billion in 2024, and $3.9 billion in 2023, or 21.1 percent, 18.6 percent, and 17.4 percent of gross sales, respectively, based on gross sales of approximately $22.5 billion, $23.5 billion, and $22.7 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 $225 million in 2025. Abbott considers a one-percentage point increase to be a reasonably likely increase in the percentage of rebates related to gross sales. Other allowances charged against gross sales were $316 mill

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