Notes to Consolidated Financial Statements 2-3

Note 2 — Supplemental Financial Information

(dollars in thousands)

Current Investments:	2007	2006	2005
Time deposits and certificates of deposit	$56,943	$76,994	$62,406
Boston Scientific common stock	307,500	775,249	—
Total	$364,443	$852,243	$62,406
Long-term Investments:	2007	2006	2005
Boston Scientific common stock	$—	$248,049	$—
Other equity securities	229,518	129,830	116,447
Note receivable from Boston Scientific, 4% interest, due in 2011	850,594	837,260	—
Other	45,150	14,734	17,566
Total	$1,125,262	$1,229,873	$134,013

In 2007, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities." SFAS No. 159 allows companies to measure specific financial assets and liabilities at fair value, such as debt or equity investments. The fair value option for the investment in Boston Scientific common stock was applied effective January 1, 2007. Abbott applied the fair value option to its investment in Boston Scientific stock under SFAS No. 159 because, unlike its other equity investments, the Boston Scientific stock is not a strategic investment and Abbott is required to dispose of the stock no later than October 2008. Abbott was subject to a limitation on the amount of shares it may sell in any one month through October 2007 and Abbott will not reacquire the Boston Scientific shares it sells. Accordingly, since at adoption, realized gains or losses were expected in the near future, the fair value option better represented the near-term expected earnings impact from sales of the stock. 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 adoption of the standard. The pretax and after tax adjustment to earnings employed in the business upon adoption was $297,000 and $189,000, respectively, and the fair value and carrying amount of the investment before and after adoption was approximately $1,000,000. The pretax and after tax adjustment to Accumulated other comprehensive income (loss) was $303,000 and $182,000, respectively. The effect of the adoption on deferred income taxes was not significant.

Other (income) expense, net for 2007 includes a $190,000 fair market value loss adjustment to Abbott's investment in Boston Scientific common stock and a realized gain of $37,000 on the sales of Boston Scientific common stock. Other (income) expense, net for 2007 and 2006 includes fair value gain adjustments of $28,000 and $91,000, respectively, to certain derivative financial instruments included with the investment in Boston Scientific common stock.

Other Accrued Liabilities:	2007	2006	2005
Accrued rebates payable to government agencies	$661,822	$660,875	$620,300
Accrued other rebates (a)	444,633	390,863	206,514
All other	2,606,649	2,798,985	1,956,659
Total	$3,713,104	$3,850,723	$2,783,473

(a) Accrued wholesaler chargeback rebates of $156,996, $122,729 and $83,551 at December 31, 2007, 2006 and 2005, 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:	2007	2006	2005
Defined benefit pension plans and post-employment medical and dental plans for significant plans	$1,872,518	$1,897,525	$1,087,159
All other	1,471,799	1,265,602	1,068,678
Total	$3,344,317	$3,163,127	$2,155,837

Comprehensive Income, net of tax:	2007	2006	2005
Foreign currency gain (loss) translation adjustments	$1,153,209	$1,033,968	$(953,726)
Minimum pension liability adjustments, net of taxes of $(199,100) in 2005	—	5,361	346,172
Net actuarial gains and prior service cost and credits and amortization of net actuarial losses and prior service cost and credits, net of taxes of $(225,500)	342,724	—	—
Unrealized gains (losses) on marketable equity securities, net of income taxes of $(31,100) in 2007 and $118,500 in 2006	53,844	(177,722)	(9,254)
Net adjustments for derivative instruments designated as cash flow hedges	(39,614)	36,659	38,574
Other comprehensive income (loss)	1,510,163	898,266	(578,234)
Net Earnings	3,606,314	1,716,755	3,372,065
Comprehensive Income	$5,116,477	$2,615,021	$2,793,831

Supplemental Comprehensive Income Information, net of tax:	2007	2006	2005
Cumulative foreign currency translation (gain) adjustments	$(2,948,352)	$(1,795,143)	$(761,175)
Cumulative minimum pension liability adjustments	—	—	8,931
Net actuarial losses and prior service cost and credits	914,844	1,257,568	—
Cumulative unrealized (gains) loss on marketable equity securities	(66,403)	169,275	(8,447)
Cumulative losses (gain) on derivative instruments designated as cash flow hedges	18,148	(21,466)	15,193

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:	2007	2006	2005
Income taxes paid	$951,648	$1,281,711	$746,504
Interest paid	563,891	428,868	213,067

Note 3 — 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 $281 million, $768 million and $222 million at December 31, 2007, 2006 and 2005, 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 a charge of $12 million in 2007 and credits of $16 million and $39 million to Accumulated other comprehensive income (loss) in 2006 and 2005, respectively. Ineffectiveness recorded in 2007, 2006 or 2005 was not significant. Accumulated gains and losses as of December 31, 2007 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, 2007, 2006 and 2005, Abbott held $5.5 billion, $5.6 billion and $3.9 billion, respectively, of such foreign currency forward exchange contracts.

Abbott has designated approximately $1.7 billion of foreign denominated short-term debt 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, resulting in a charge of $72 million to Accumulated other comprehensive income (loss) in 2007.

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 2007, 2006 and 2005.

Gross unrealized holding gains (losses) on available-for-sale equity securities totaled $108 million and $(3) million, respectively, at December 31, 2007; $21 million and $(304) million, respectively, at December 31, 2006 and $18 million and $(4) million, respectively, at December 31, 2005.

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 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)	2007		2006		2005
	Carrying Value	Fair Value	Carrying Value	Fair Value	Carrying Value	Fair Value
Current Investments: Available-for-Sale Equity Securities	$—	$—	$775	$775	$—	$—
Trading Securities	308	308	—	—	—	—
Other	57	57	77	77	62	62
Long-term Investments:
Available-for-Sale Equity Securities	230	230	378	378	116	116
Note Receivable	851	809	837	849	—	—
Other	45	40	15	15	18	18
Total Long-term Debt	(10,386)	(10,593)	(7,105)	(7,113)	(6,421)	(6,375)
Foreign Currency Forward Exchange Contracts:
Receivable position	24	24	34	34	19	19
(Payable) position	(45)	(45)	(86)	(86)	(34)	(34)
Interest Rate Hedge Contracts	(25)	(25)	(85)	(85)	(82)	(82)

The following table summarizes the bases used to measure certain assets and liabilities at fair value on a recurring basis in the balance sheet:

Expand table

In 2007, adjustments to record a derivative financial instrument liability whose value was derived using significant unobservable inputs resulted in a credit to Other (income) expense, net, in the amount of $25 million. The value of this derivative financial instrument liability was zero at December 31, 2007.