Notes to Consolidated Financial Statements 2-3

Note 2 — Supplemental Financial Information

(dollars in thousands)

Current Investments		2006			2005			2004
Time deposits and certificates of deposit	$	76,994		$	62,406		$	833,334
Boston Scientific common stock		775,249			—			—
Total	$	852,243		$	62,406		$	833,334
Long-term Investments:		2006			2005			2004
Boston Scientific common stock	$	248,049		$	—		$	—
Other equity securities		129,830			116,447			125,541
Note receivable from Boston Scientific, 4% interest		837,260			—			—
Other		14,734			17,566			20,308
Total	$	1,229,873		$	134,013		$	145,849

The cost basis of the Boston Scientific shares accounted for as available-for-sale securities as of December 31, 2006, is $1,326,000. The fair value of the available-for-sale shares was $1,023,000 at December 31, 2006, resulting in a charge of $182,000 to Accumulated other comprehensive income (loss), net of income tax benefits of $121,000.

The decline in the fair value of the Boston Scientific shares, as noted above, is considered by management to be temporary as these shares have been owned by Abbott for a relatively short period of time and Abbott has both the ability and intent to hold the shares for a period of time to allow for the decline in value to reverse.

Other Accrued Liabilities		2006			2005			2004
Accrued rebates payable to government agencies	$	660,875		$	620,300		$	519,653
Accrued other rebates (a)		390,863			206,514			202,363
All other		2,798,985			1,895,871			1,769,940
Total	$	3,850,723		$	2,722,685		$	2,491,956
(a) Accrued wholesaler chargeback rebates of $122,729, $83,551 and $72,634 at December 31, 2006, 2005 and 2004, respectively, are netted in trade receivables. Accrued wholesaler chargeback rebates 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		2006			2005			2004
Defined benefit pension plans and post-employment medical and dental plans for significant plans	$	1,897,525		$	1,087,159		$	1,246,006
Minimum pension liability adjustments		—			15,003			577,432
All other		1,265,602			1,052,613			782,972
Total	$	3,163,127		$	2,154,775		$	2,606,410
Net Interest Expense		2006			2005			2004
Interest expense	$	416,172		$	241,355		$	200,206
Interest income		(123,825	)		(87,693	)		(51,119	)
Total	$	292,347		$	153,662		$	149,087

The increase in Other (income) expense, net for 2006 is primarily due to fair-value gain adjustments to certain derivative financial instruments related to the investment in Boston Scientific common stock.

Comprehensive Income, net of tax		2006			2005			2004
Foreign currency gain (loss) translation adjustments	$	1,033,968		$	(953,726	)	$	861,139
Minimum pension liability adjustments, net of taxes of $(3,600) in 2006, $(199,100) in 2005 and $45,700 in 2004		5,361			346,172			(75,947	)
Unrealized (losses) on marketable equity securities, net of income taxes of $(118,500), $(6,100) and $(29,100) in 2006, 2005 and 2004, respectively		(175,891	)		(9,219	)		(43,613	)
Net adjustments for derivative instruments designated as cash flow hedges		36,659			38,574			(39,951	)
Reclassification adjustments for realized (gains)		(1,831	)		(35	)		(30,547	)
Other comprehensive (loss) income		(898,266	)		(578,234	)		671,081
Net Earnings		1,716,755			3,372,065			3,235,851
Comprehensive Income	$	2,615,021		$	2,793,831		$	3,906,932
Supplemental Comprehensive Income Information, net of tax		2006			2005			2004
Cumulative foreign currency translation (gain) adjustments	$	(1,795,143	)	$	(761,175	)	$	(1,714,901	)
Cumulative minimum pension liability adjustments		—			8,931			355,103
Net actuarial losses and prior service cost and credits, net		1,257,568			—			—
Cumulative unrealized losses (gains) on marketable equity securities		169,275			(8,447	)		(17,701	)
Cumulative (gains) losses on derivative instruments designated as cash flow hedges		(21,466	)		15,193			53,767

On December 31, 2006, Abbott adopted the provisions of SFAS No. 158 Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans. Adoption of this statement resulted in a decrease in Abbott’s shareholders’ equity of $1,257,568, net of taxes of approximately $733,000.

Supplemental Cash Flow Information		2006			2005			2004
Income taxes paid	$	1,281,711		$	746,504		$	675,728
Interest paid		428,868			213,067			197,554

Note 3 — Financial Instruments and Derivatives

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 $768 million, $222 million and $984 million at December 31, 2006, 2005 and 2004, respectively, are designated as cash flow hedges of the variability of the cash flows due to changes in foreign exchange rates. Abbott records the contracts at fair value, resulting in credits of $15.9 million and $38.6 million to Accumulated other comprehensive income (loss) in 2006 and 2005, respectively, and a charge of $40.0 million in 2004. Ineffectiveness recorded in 2006, 2005 or 2004 was not significant. Accumulated gains and losses as of December 31, 2006 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. These contracts are recorded at fair value, with the resulting gains or losses reflected in income as Net foreign exchange (gain) loss. At December 31, 2006, 2005 and 2004, Abbott held $5.6 billion, $3.9 billion and $3.3 billion, respectively, of such foreign currency forward exchange contracts.

Abbott is a party to interest rate hedge contracts totaling $1.5 billion to manage its exposure to changes in the fair value of $1.5 billion of fixed-rate debt due 2009 through 2014. These contracts are designated as fair value hedges of the variability of the fair value of fixed-rate debt due to changes in the long-term benchmark interest rates. The effect of the hedge is to change a fixed-rate interest obligation to a variable rate for that portion of the debt. Abbott records the contracts at fair value and adjusts the carrying amount of the fixed-rate debt by an offsetting amount. No hedge ineffectiveness was recorded in income in 2006, 2005 and 2004.

In connection with the acquisition of the common shares of Boston Scientific, Boston Scientific is entitled to certain after-tax gains upon Abbott’s sale of the common shares. In addition, Boston Scientific agreed to reimburse Abbott for certain borrowing costs on debt incurred to acquire the Boston Scientific shares.

Gross unrealized holding gains (losses) on available-for-sale equity securities totaled $21,100,000 and $(304,000,000), respectively, at December 31, 2006; $17,700,000 and $(3,500,000), respectively, at December 31, 2005 and $30,800,000 and $(1,100,000), respectively, at December 31, 2004.

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

(dollars in millions)	2006						2005						2004
	Carrying Value			Fair Value			Carrying Value			Fair Value			Carrying Value			Fair Value
Current Investments: Available-for-Sale Equity Securities	$	775.2		$	775.2		$	—		$	—		$	—		$	—
Other		77.0			77.0			62.4			62.4			833.3			833.3
Long-term Investments: Available-for-Sale Equity Securities		377.9			377.9			116.4			116.4			125.5			125.5
Note Receivable		837.3			849.1			—			—			—			—
Other		14.7			14.5			17.6			17.5			20.3			20.6
Total Long-term Debt		(7,104.9	)		(7,113.2	)		(6,421.1	)		(6,375.1	)		(4,944.0	)		(5,012.6	)
Foreign Currency Forward Exchange Contracts: (Payable) position		(85.6	)		(85.6	)		(33.5	)		(33.5	)		(117.1	)		(117.1	)
Receivable position		33.6			33.6			18.8			18.8			37.2			37.2
Interest Rate Hedge Contracts		(84.5	)		(84.5	)		(82.4	)		(82.4	)		(3.7	)		(3.7	)
Boston Scientific derivative financial instruments		(11.4	)		(11.4	)		—			—			—			—

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