PART  I.  FINANCIAL INFORMATION

Abbott Laboratories and Subsidiaries

Condensed Consolidated Financial Statements

(Unaudited)

Abbott Laboratories and Subsidiaries

Condensed Consolidated Statement of Earnings

(Unaudited)

(dollars and shares in thousands except per share data)

The accompanying notes to condensed consolidated financial statements are an integral part of this statement.

2

Abbott Laboratories and Subsidiaries

Condensed Consolidated Statement of Cash Flows

(Unaudited)

(dollars in thousands)

The accompanying notes to condensed consolidated financial statements are an integral part of this statement.

3

Abbott Laboratories and Subsidiaries

Condensed Consolidated Balance Sheet

(Unaudited)

(dollars in thousands)

The accompanying notes to condensed consolidated financial statements are an integral part of this statement.

4

Abbott Laboratories and Subsidiaries

Notes to Condensed Consolidated Financial Statements

September 30, 2008

(Unaudited)

Note 1 – Basis of Presentation

The accompanying unaudited, condensed consolidated financial statements have been prepared pursuant to rules and regulations of the Securities and Exchange Commission and, therefore, do not include all information and footnote disclosures normally included in audited financial statements.  However, in the opinion of management, all adjustments (which include only normal adjustments) necessary to present fairly the results of operations, financial position and cash flows have been made.  It is suggested that these statements be read in conjunction with the financial statements included in Abbott’s Annual Report on Form 10-K for the year ended December 31, 2007.

Abbott’s core laboratory diagnostics business, including Point of Care, was accounted for as discontinued operations for the six months ended June 30, 2007.  Subsequently, a decision was made to retain the businesses.  The results for the six months ended June 30, 2007 included depreciation and amortization through January 17, 2007.  Depreciation and amortization that was discontinued in the amount of approximately $99 million was recorded in the third quarter of 2007.

In the third quarter of 2008, Abbott announced that it had reached an agreement to sell Abbott’s spine business for $360 million in cash.  The transaction closed in October 2008 and a pretax gain of approximately $150 million will be recorded in the fourth quarter of 2008.  The operations and financial position of the spine business are not presented as discontinued operations because the effects would not be significant.

Note 2 – Supplemental Financial Information

As described in Note 3, Abbott recorded a gain of approximately $94 million in connection with the dissolution of the TAP Pharmaceutical Products Inc. joint venture in the second quarter of 2008, which is included in Other (income) expense, net.  Other (income) expense, net for the nine months ended September 30, 2008 also includes a gain of approximately $52 million on the sale of an equity investment accounted for as an available-for-sale investment.  Other (income) expense, net for the third quarter of 2008 and the remainder of Other (income) expense, net for the nine months ended September 30, 2008 relates primarily to contractual 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.

Other (income) expense, net for the third quarter of 2007 includes a $35 million fair market value loss adjustment to Abbott’s investment in Boston Scientific common stock.  Other (income) expense, net for the first nine months of 2007 includes a $136 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 stock.

Supplemental Cash Flow Information – In connection with the dissolution of the TAP Pharmaceutical Products Inc. joint venture, Abbott recorded intangible assets of approximately $700 million, goodwill of approximately $350 million, net deferred tax assets of approximately $150 million and a contingent liability of approximately $1.1 billion and derecognized its investment in the TAP Pharmaceutical Products Inc. joint venture of approximately $280 million in the second quarter of 2008.  The increase in Other, net in Net cash from operating activities from 2007 to 2008 reflects primarily increased accruals for cost improvement initiatives and payroll related obligations.  Purchases of other investment securities, net in 2008 reflects the acquisition of short-term investments with original maturities of over three months.

Investments at September 30, 2008 and December 31, 2007 consist of the following:

(dollars in millions)

5

Notes to Condensed Consolidated Financial Statements

September 30, 2008

(Unaudited), continued

Note 3 – Conclusion of TAP Pharmaceutical Products Inc. Joint Venture

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. Lupronnet 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 for the full year 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.  Such payments, which are subject to tax, are expected to approximate $1.4 billion over the five-year period beginning on May 1, 2008.

The exchange transaction was accounted for as a sale of Abbott’s equity interest in TAP and as an acquisition of TAP’s Lupronbusiness under SFAS No. 141 “Business Combinations.”  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 Lupronproduct 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, resulting in an after-tax liability of approximately $700 million.  Of the $1.1 billion, Abbott will make tax-deductible payments of $200 million in the fourth quarter of 2008 and approximately $120 million in 2009.  If the remaining payments are not required, the liability would be reduced and a gain would be recorded.

The 50 percent-owned joint venture was accounted for under the equity method of accounting.  Summarized financial information for TAP follows below (in millions).  The results for 2008 include results through April 30.

Note 4 – Acquired In-process Research and Development

During 2008, technology investments and acquired product rights resulted in charges to acquired in-process research and development of approximately $97 million.

6

Notes to Condensed Consolidated Financial Statements

September 30, 2008

(Unaudited), continued

Note 5 – Taxes on Earnings

Taxes on earnings reflect the estimated annual effective rates and include charges for interest and penalties.  The effective tax rates are less than the statutory U.S. federal income tax rate principally due to the domestic dividend exclusion in 2007 and the benefit of lower statutory tax rates and tax exemptions in several taxing jurisdictions.  In the second quarter of 2008, Abbott’s federal income tax returns for 2004 and 2005 were settled, resulting in a net reduction of income taxes of approximately $30 million.

Note 6 – 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 one of those disputes, filed in April 2007, Abbott is unable to estimate a range of possible loss, if any, and no reserve has been recorded.  Abbott’s acquisition of Kos Pharmaceuticals Inc. resulted in the assumption of various cases and investigations and Abbott has recorded reserves related to several of those cases and investigations.

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 recorded reserves for its estimated losses in a few of the cases, however, Abbott is unable to estimate the range or amount of possible loss for the majority of the 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.

There are several civil actions pending brought by state attorneys general and private entities alleging antitrust and unfair competition claims in connection with the sales of TriCor. Abbott licenses TriCor from a third party and the licensor has also been named as a defendant.  Abbott is unable to estimate a range of loss, if any, and no loss reserves have been recorded. There are several civil actions pending brought by private payers and others alleging antitrust claims in connection with the pricing of Norvir.

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 $145 million to $355 million.  The recorded reserve balance at September 30, 2008 for these proceedings and exposures was approximately $205 million.  These reserves represent management’s best estimate of probable loss, as defined by Statement of Financial Accounting Standards No. 5, “Accounting for 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 for a quarter.

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Notes to Condensed Consolidated Financial Statements

September 30, 2008

(Unaudited), continued

Note 7 – Post-Employment Benefits

(dollars in millions)

Retirement plans consist of defined benefit, defined contribution, and medical and dental plans.  Net cost for the three and nine months ended September 30 for Abbott’s major defined benefit plans and post-employment medical and dental benefit plans is as follows:

Abbott funds its domestic defined benefit plans according to IRS funding limitations.  In the first quarters of 2008 and 2007, $200 was contributed to the main domestic defined benefit plan and $65 and $75, respectively, was contributed to the post-employment medical and dental benefit plans.

Note 8 – Comprehensive Income, net of tax

(dollars in millions)

8

Notes to Condensed Consolidated Financial Statements

September 30, 2008

(Unaudited), continued

Note 10 – Incentive Stock Programs

In the first nine months of 2008, Abbott granted 20,420,452 stock options, 4,211,294 replacement stock options, 809,650 restricted stock awards and 570,974 restricted stock units under this program.  At September 30, 2008, approximately 32 million shares were reserved for future grants.  Information regarding the number of options outstanding and exercisable at September 30, 2008 is as follows:

The total unrecognized share-based compensation cost at September 30, 2008 amounted to approximately $282 million which is expected to be recognized over the next three years.

Note 11 – Goodwill and Intangible Assets

(dollars in millions)

In the third quarter of 2008, Abbott paid $250 to Boston Scientific as a result of the FDA’s approval to market the Xience Vdrug-eluting stent in the U.S., resulting in an increase in goodwill.  In connection with the dissolution of the TAP Pharmaceutical Products Inc. joint venture, Abbott recorded approximately $350 of goodwill in the second quarter of 2008.  Foreign currency translation adjustments and other adjustments increased goodwill in the first nine months of 2008 and 2007 by approximately $2 and $222, respectively.  There were no reductions of goodwill relating to impairments or disposal of all or a portion of a business.  The amount of goodwill related to reportable segments at September 30, 2008 was $6,576 for the Pharmaceutical Products segment, $206 for the Nutritional Products segment, $264 for the Diagnostic Products segment and $2,329 for the Vascular Products segment.

The gross amount of amortizable intangible assets, primarily product rights and technology was $9,617 as of September 30, 2008 and $9,043 as of December 31, 2007, and accumulated amortization was $3,934 as of September 30, 2008 and $3,323 as of December 31, 2007.  The estimated annual amortization expense for intangible assets is approximately $775 in 2008, $785 in 2009 and approximately $770 in 2010, 2011 and 2012.  Intangible assets are amortized over 4 to 25 years (average 11 years).

Note 12 – Restructuring Plans

(dollars in millions)

In the third quarter of 2008, Abbott management approved a plan to streamline global manufacturing operations, reduce overall costs, and improve efficiencies in Abbott’s core diagnostic business.  This plan will result in pre-tax charges of approximately $370 over the next several years.  These charges include employee-related costs of approximately $110, accelerated depreciation of approximately $75, and other related exit costs of approximately $185, mainly related to product transfers. In the third quarter 2008, Abbott recorded charges to Cost of products sold of approximately $129 under the plan.  Additional charges of approximately $7 were subsequently recorded in the third quarter of 2008 relating to this restructuring, primarily for accelerated depreciation.  The remainder of the charges will occur 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:

10

Notes to Condensed Consolidated Financial Statements

September 30, 2008

(Unaudited), continued

In 2008, 2007 and 2006, Abbott management approved plans to realign its worldwide pharmaceutical manufacturing operations and selected domestic and international commercial and research and development operations in order to reduce costs.  Additional charges of $61 and $77 were subsequently recorded in the first nine months of 2008 and 2007, respectively, relating to these restructurings, primarily for accelerated depreciation.  In addition, Abbott implemented facilities restructuring plans in the second quarter of 2007 related to the acquired operations of Kos Pharmaceuticals Inc., which resulted in an increase to goodwill of approximately $52.  The following summarizes the activity for restructurings:

Note 13 – Fair Value Measures

(dollars in millions)

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

In connection with the conclusion of the TAP Pharmaceutical Products Inc. joint venture, Abbott recorded derivative financial assets and liabilities related to stock options previously granted to TAP’s employees.  The amounts of these assets and liabilities were calculated using both the Black-Scholes option–pricing model and the intrinsic value of the options.  From April 30, 2008 to September 30, 2008 both the assets and liabilities decreased by approximately $18.  The effect of the changes in these assets and liabilities substantially offset each other.  In addition, Abbott received investments that are valued using significant unobservable inputs.  The recorded value of these investments did not change significantly.

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FINANCIAL REVIEW

Results of Operations

The following table details sales by reportable segment for the three months and nine months ended September 30.  Percent changes are versus the prior year and are based on unrounded numbers.

(dollars in millions)

Worldwide sales for the third quarter and nine months 2008 compared to 2007 reflects unit growth and the positive effect of the relatively weaker U.S. dollar.  The relatively weaker U.S. dollar increased third quarter 2008 consolidated net sales by 4.7 percent, Total International sales by 9.2 percent, Pharmaceutical Products segment sales by 4.8 percent, Diagnostic Products segment sales by 7.5 percent and Vascular Products segment sales by 5.4 percent over the third quarter of 2007.  The relatively weaker U.S. dollar also increased the first nine months 2008 consolidated net sales by 5.4 percent, Total International sales by 10.7 percent, Pharmaceutical Products segment sales by 5.6 percent, Diagnostic Products segment sales by 8.2 percent and Vascular Products segment sales by 5.6 percent over the first nine months of 2007.  The relatively weaker U.S. dollar increased third quarter 2007 consolidated net sales by 2.8 percent, Total International sales by 5.7 percent, Pharmaceutical Products segment sales by 3.0 percent, Diagnostic Products segment sales by 3.9 percent and Vascular Products segment sales by 2.4 percent over the third quarter of 2006.  The relatively weaker U.S. dollar also increased the first nine months 2007 consolidated net sales by 2.7 percent, Total International sales by 5.5 percent, Pharmaceutical Products segment sales by 2.8 percent, Diagnostic Products segment sales by 3.9 percent and Vascular Products segment sales by 2.4 percent over the first nine months of 2006.  Sales growth in 2008 for the Vascular Products segment was favorably impacted by the U.S. launch of the Xience V drug-eluting stent in the third quarter of 2008.  Sales growth in 2007 for the Nutritional Products segment was unfavorably impacted by the completion of the co-promotion of Synagis in 2006.

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FINANCIAL REVIEW

(continued)

A comparison of significant product group sales for the nine months ended September 30 is as follows.  Percent changes are versus the prior year and are based on unrounded numbers.

(dollars in millions)

Increased sales of HUMIRA and the addition of Lupron sales in 2008 accounted for the majority of the sales increase for U.S. Specialty products in 2008.  Increased sales of HUMIRA and Depakoteaccounted for the majority of the sales increase for U.S. Specialty products in 2007. U.S. sales of HUMIRA were $1.5 billion, $1.1 billion and $806 million for the nine months ended September 30, 2008, 2007 and 2006, respectively.  U.S. Primary Care sales in 2008 were impacted by a significant decrease in sales of Omnicef due to generic competition, partially offset by increased sales of Niaspanand TriCor.  U.S. Primary Care sales in 2007 were favorably impacted by sales of Niaspan, a new product from the acquisition of Kos Pharmaceuticals Inc. in the fourth quarter of 2006, and TriCor and were unfavorably impacted by decreased sales of Biaxin.  Increased sales of HUMIRA favorably impacted International Pharmaceutical sales in both 2008 and 2007.  International sales of HUMIRA were $1.666 billion, $986 million and $617 million for the nine months ended September 30, 2008, 2007 and 2006, respectively.  International Pediatric Nutritionals sales increases in 2008 and 2007 were due primarily to volume growth in developing countries.  The favorable effect of the relatively weaker U.S. dollar favorably impacted international product sales growth in both years.

The gross profit margin was 55.3 percent for the third quarter 2008, compared to 55.1 percent for the third quarter 2007.  First nine months 2008 gross profit margin was 56.3 percent, compared to 55.8 percent for the first nine months 2007.  The increases in the gross profit margins in 2008 were due primarily to favorable product and business mix.

Research and development expenses increased 6.2 percent in the third quarter 2008 and the first nine months 2008 over comparable 2007 periods.  These increases reflect increased spending to support pipeline programs, including oncology, immunology, hepatitis C, neuroscience and drug eluting stents.  The majority of research and development expenditures is concentrated on pharmaceutical products.

Selling, general and administrative expenses for the third quarter and first nine months 2008 increased 6.3 percent and 11.0 percent, respectively, over the comparable 2007 periods.  These increases reflect increased selling and marketing support for new and existing products, including continued spending for HUMIRA and the U.S. launch of Xience V, as well as spending on other marketed pharmaceutical products.

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FINANCIAL REVIEW

(continued)

Conclusion of TAP Pharmaceutical Products Inc. Joint Venture

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. Lupronnet 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 for the full year 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.  Such payments, which are subject to tax, are expected to approximate $1.4 billion over the five-year period beginning on May 1, 2008.

The exchange transaction was accounted for as a sale of Abbott’s equity interest in TAP and as an acquisition of TAP’s Lupronbusiness under SFAS No. 141 “Business Combinations.”  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 Lupronproduct 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, resulting in an after-tax liability of approximately $700 million.  Of the $1.1 billion, Abbott will make tax-deductible payments of $200 million in the fourth quarter of 2008 and approximately $120 million in 2009.  If the remaining payments are not required, the liability would be reduced and a gain would be recorded.

The 50 percent-owned joint venture was accounted for under the equity method of accounting.  Summarized financial information for TAP follows below (in millions).  The results for 2008 include results through April 30.

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FINANCIAL REVIEW

(continued)

Restructurings

(dollars in millions)

In the third quarter of 2008, Abbott management approved a plan to streamline global manufacturing operations, reduce overall costs, and improve efficiencies in Abbott’s core diagnostic business.  This plan will result in pre-tax charges of approximately $370 over the next several years.  These charges include employee-related costs of approximately $110, accelerated depreciation of approximately $75, and other related exit costs of approximately $185, mainly related to product transfers. In the third quarter 2008, Abbott recorded charges to Cost of products sold of approximately $129 under the plan.  Additional charges of approximately $7 were subsequently recorded in the third quarter of 2008 relating to this restructuring, primarily for accelerated depreciation.  The remainder of the charges will occur 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:

In 2008, 2007 and 2006, Abbott management approved plans to realign its worldwide pharmaceutical manufacturing operations and selected domestic and international commercial and research and development operations in order to reduce costs.  Additional charges of $61 and $77 were subsequently recorded in the first nine months of 2008 and 2007, respectively, relating to these restructurings, primarily for accelerated depreciation.  In addition, Abbott implemented facilities restructuring plans in the second quarter of 2007 related to the acquired operations of Kos Pharmaceuticals Inc., which resulted in an increase to goodwill of approximately $52.  The following summarizes the activity for restructurings:

Basis of Presentation

Abbott’s core laboratory diagnostics business, including Point of Care, was accounted for as discontinued operations for the six months ended June 30, 2007.  Subsequently, a decision was made to retain the businesses.  The results for the six months ended June 30, 2007 included depreciation and amortization through January 17, 2007.  Depreciation and amortization that was discontinued in the amount of approximately $99 million was recorded in the third quarter of 2007.

In the third quarter of 2008, Abbott announced that it had reached an agreement to sell Abbott’s spine business for $360 million in cash.  The transaction closed in October 2008 and a pretax gain of approximately $150 million will be recorded in the fourth quarter of 2008.  The operations and financial position of the spine business are not presented as discontinued operations because the effects would not be significant.

Acquired In-process Research and Development

In the first half of 2008, technology investments and acquired product rights resulted in charges to acquired in-process research and development of approximately $97 million.

Interest (Income)

Interest income increased in the third quarter and first nine months of 2008 over 2007 primarily as the result of higher investment balances.

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FINANCIAL REVIEW

(continued)

Other (income) expense, net

As described above, Abbott recorded a gain of approximately $94 million in connection with the dissolution of the TAP Pharmaceutical Products Inc. joint venture in the second quarter of 2008, which is included in Other (income) expense, net.  Other (income) expense, net for the nine months ended September 30, 2008 also includes a gain of approximately $52 million on the sale of an equity investment accounted for as an available-for-sale investment.  Other (income) expense, net for the third quarter of 2008 and the remainder of Other (income) expense, net for the nine months ended September 30, 2008 relates primarily to contractual 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.

Other (income) expense, net for the third quarter of 2007 includes a $35 million fair market value loss adjustment to Abbott’s investment in Boston Scientific common stock.  Other (income) expense, net for the first nine months of 2007 includes a $136 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 stock.

Taxes on Earnings

Taxes on earnings reflect the estimated annual effective rates.  The effective tax rates are less than the statutory U.S. federal income tax rate principally due to the domestic dividend exclusion in 2007 and the benefit of lower statutory tax rates and tax exemptions in several taxing jurisdictions. In the second quarter of 2008, Abbott’s federal income tax returns for 2004 and 2005 were settled, resulting in a net reduction of income taxes of approximately $30 million.  On October 3, 2008, President Bush signed into law H.R.1424, the Emergency Economic Stabilization Act of 2008, which among other things extended the research and development tax credit.  As a result of the extension of the research and development tax credit, the annual effective tax rate will be slightly lower than the effective tax rate for the nine months ended September 30, 2008.

Liquidity and Capital Resources at September 30, 2008 Compared with December 31, 2007

Net cash from operating activities for the first nine months 2008 totaled approximately $5.8 billion. The increase in Other, net in Net cash from operating activities from 2007 to 2008 reflects primarily increased accruals for cost improvement initiatives and payroll related obligations.  Abbott expects annual cash flow from operating activities to continue to exceed Abbott’s capital expenditures and cash dividends.

Working capital was $5.7 billion at September 30, 2008 and $4.9 billion at December 31, 2007.

For the acquired Lupron business, Abbott recorded intangible assets, primarily Lupronproduct 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, resulting in an after-tax liability of approximately $700 million.  Of the $1.1 billion, Abbott will make tax-deductible payments of $200 million in the fourth quarter of 2008 and approximately $120 million in 2009.  If the remaining payments are not required, the liability would be reduced and a gain would be recorded.

At September 30, 2008, 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 $4.0 billion that support commercial paper borrowing arrangements.  Abbott’s access to short-term financing has not been affected by the current credit market conditions.

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FINANCIAL REVIEW

(continued)

In 2006, the board of directors authorized the purchase of $2.5 billion of Abbott’s common shares from time to time.  During the first nine months of 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 this authorization.  Effective in the fourth quarter no more purchases of common shares will be made from this authorization.  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 a registration statement filed with the Securities and Exchange Commission in February 2006, Abbott may offer and sell from time to time debt securities in one or more offerings through February 2009.

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 have the effect of reducing access to health care products and services, or reducing prices or the rate of price increases for health care products and services.  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 1A, Risk Factors, Item 1, Business, and Item 1A, Risk Factors on Form 10-K for the year ended December 31, 2007 and in Item 1A, Risk Factors on Form 10-Q for the quarter ended June 30, 2008.

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, Item 1A, Risk Factors to the Annual Report on Form 10-K for the year ended December 31, 2007 and in Item 1A, Risk Factors on Form 10-Q for the quarter ended June 30, 2008.

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PART I.  FINANCIAL INFORMATION

Item 4.     Controls and Procedures

(a)          Evaluation of disclosure controls and procedures.  The Chief Executive Officer, Miles D. White, and 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 the Securities and Exchange Commission under the Securities Exchange Act of 1934 (the “Exchange Act”) 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.

(b)         Changes in internal control over financial reporting.  During the quarter ended September 30, 2008, 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.

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In its 2007 Form 10-K, Abbott reported that its subsidiary Advanced Cardiovascular Systems, Inc. filed a motion seeking to enjoin Medtronic Vascular, Inc. (Medtronic), from infringing activities related to Medtronic’s stent designs and that Medtronic filed a motion to stay proceedings related to the injunction.  Abbott also reported that Medtronic’s motion to stay was denied with respect to the named bare metal stents, and was granted with respect to the Endeavor stent.  In September 2008, the court lifted the stay with respect to the Endeavor stent, but denied Abbott’s motion for an injunction.  Medtronic has filed a notice of appeal with respect to the underlying liability findings.

While it is not feasible to predict with certainty the outcome of the pending claims, proceedings and investigations in which Abbott is involved, including those previously disclosed, management is of the opinion that their ultimate dispositions should not have a material adverse effect on Abbott’s financial position, cash flows, or results of operations, except for the case filed in April 2007 referred to in the second paragraph of Note 6 to Abbott’s financial statements above and the cases described in the third paragraph of such note.

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EXHIBIT INDEX

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