Abbott Laboratories (ABT)

Note 4. Financial Instruments and Derivatives

        TAP enters into foreign currency forward contracts to hedge purchases of inventories at fixed Yen-denominated prices. The forward contracts require TAP to purchase Yen in exchange for U.S. dollars at pre-determined exchange rates and are designated as cash flow hedges of the variability of cash flows due to changes in exchange rates. TAP does not trade financial instruments with the objective of earning financial gains on the exchange rate fluctuations alone, nor does it trade in currencies or commodities for which there are no underlying exposures.

        The effective portion of the changes in value of the forward contracts is recorded in Accumulated other comprehensive income (loss), and is subsequently recognized in earnings in the same period the hedged forecasted transactions affect earnings. Any cash flow hedge ineffectiveness is reported in earnings in the current period.

        TAP had outstanding foreign exchange forward contracts with notional values of $16,349 and $176,509 and fair values of $131 and $(2,049) at December 31, 2007 and 2006, respectively. The fair value adjustments of these contracts are recorded as prepaid expenses and accrued liabilities at December 31, 2007 and 2006, respectively. During 2007, 2006 and 2005 cash flow hedge ineffectiveness was not material.

Note 4. Financial Instruments and Derivatives

        TAP enters into foreign currency forward contracts to hedge purchases of inventories at fixed Yen-denominated prices. The forward contracts require
TAP to purchase Yen in exchange for U.S. dollars at pre-determined exchange rates and are designated as cash flow hedges of the variability of cash flows due to changes in exchange rates.
TAP does not trade financial instruments with the objective of earning financial gains on the exchange rate fluctuations alone, nor does it trade in currencies or commodities for which there are no
underlying exposures.

        The
effective portion of the changes in value of the forward contracts is recorded in Accumulated other comprehensive income (loss), and is subsequently recognized in earnings in the
same period the hedged
forecasted transactions affect earnings. Any cash flow hedge ineffectiveness is reported in earnings in the current period.

        TAP
had outstanding foreign exchange forward contracts with notional values of $16,349 and $176,509 and fair values of $131 and $(2,049) at December 31, 2007 and 2006,
respectively. The fair value adjustments of these contracts are recorded as prepaid expenses and accrued liabilities at December 31, 2007 and 2006, respectively. During 2007, 2006 and 2005 cash
flow hedge ineffectiveness was not material.

Note 4. Financial Instruments and Derivatives

TAP enters into foreign currency forward contracts to hedge purchases of inventories at fixed Yen-denominated prices. The forward contracts require TAP to purchase Yen in exchange for U.S. dollars at

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Note 4. Financial Instruments and Derivatives (Continued)

pre-determined exchange rates and are designated as cash flow hedges of the variability of cash flows due to changes in exchange rates. TAP does not trade financial instruments with the objective of earning financial gains on the exchange rate fluctuations alone, nor does it trade in currencies or commodities for which there are no underlying exposures.

Effectiveness of the forward contracts is based on changes in the forward rates. The effective portion of the changes in value of the forward contracts is recorded in Accumulated other comprehensive (loss), and is subsequently recognized in earnings in the same period the hedged forecasted transactions affect earnings. Any cash flow hedge ineffectiveness is reported in earnings in the current period.

TAP had outstanding foreign exchange forward contracts with notional values of $176,509 and $392,086 and fair values of $(2,049) and $(18,638) at December 31, 2006 and 2005, respectively. The fair value of these contracts is recorded as accrued liabilities at December 31, 2006 and 2005. During 2006, 2005, and 2004 cash flow hedge ineffectiveness was not material.

The carrying value of cash and cash equivalents and short-term investments approximates fair value due to the short-term maturity of the investments.

Note 4. Financial Instruments and Derivatives

        TAP enters into foreign currency forward contracts and purchases Yen call options to hedge purchases of inventories at fixed Yen-denominated prices. The forward contracts require TAP to purchase Yen in exchange for U.S. dollars at pre-determined exchange rates. The Yen call options give TAP the right to purchase Yen in exchange for U.S. dollars at pre-determined strike prices. Both forward and option contracts are designated as cash flow hedges of the variability of cash flows due to changes in exchange rates. TAP does not trade financial instruments with the objective of earning financial gains on the exchange rate fluctuations alone, nor does it trade in currencies or commodities for which there are no underlying exposures.

        Effectiveness of the forward contracts is based on changes in the forward rates. Effectiveness of call options is based solely on the changes in fair value. The effective portion of the changes in value of both forward and option contracts is recorded in Accumulated other comprehensive (loss), and is subsequently recognized in earnings in the same period the hedged forecasted transactions affect earnings. Any cash flow hedge ineffectiveness is reported in earnings in the current period.

        At December 31, 2005, TAP had outstanding foreign exchange forward contracts with notional values of $392,096 and fair values of $(18,638). There were no foreign currency contracts outstanding at December 31, 2004. The fair value of these contracts is recorded as accounts payable and other liabilities at December 31, 2005. During 2005, 2004, and 2003 cash flow hedge ineffectiveness was not material.

        The carrying value of cash and cash equivalents and short-term investments approximates fair value due to the short-term maturity of the investments. The fair value of long-term investments in debt obligations was $74,111 as of December 31, 2004.