8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 8-K

CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported) October 16, 2008

Baxter International Inc.

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation)

1-4448	36-0781620
(Commission File Number)	(IRS Employer Identification No.)
One Baxter Parkway, Deerfield, Illinois	60015-4633
(Address of principal executive offices)	(Zip Code)

(847) 948-2000

(Registrant’s telephone number, including area code)

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02. Results of Operations and Financial Condition.

On October 16, 2008, Baxter International Inc. issued an earnings press release for the quarterly period ended September 30, 2008. The press release, including attachments, is furnished as Exhibit 99.1 to this report.

The press release contains non-GAAP financial measures as defined by the Securities and Exchange Commission. These measures, when used in conjunction with the results presented in accordance with generally accepted accounting principles (GAAP) and the accompanying reconciliations to corresponding GAAP financial measures, may provide a more complete understanding of the factors and trends affecting the company’s operations. Management strongly encourages investors to review the company’s consolidated financial statements and publicly filed reports in their entirety.

The non-GAAP financial measures include adjusted net income, adjusted earnings per diluted share, adjusted pre-tax income, adjusted income tax expense and adjusted R&D expenses, each excluding special items. Special items are excluded because they are unusual or nonrecurring and accordingly can be highly variable, difficult to predict, and of a size that may substantially impact the company’s reported operations for a period. Management believes that non-GAAP earnings measures facilitate a more useful analysis of the company’s results of operations, particularly in evaluating performance from one period to another. Accordingly, management uses these non-GAAP measures internally in financial planning, to monitor business unit performance, and in evaluating management performance.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits.

99.1 Press Release dated October 16, 2008.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

BAXTER INTERNATIONAL INC.
By:	/s/ David P. Scharf
	David P. Scharf
	Corporate Vice President, Deputy General Counsel and Corporate Secretary

Date: October 16, 2008

Exhibit Index

Exhibit No.	Description
99.1	Press Release dated October 16, 2008.

EX-99.1

EXHIBIT 99.1

FOR IMMEDIATE RELEASE

Media Contact:
Deborah Spak, (847) 948-2349

Investor Contacts:
Mary Kay Ladone, (847) 948-3371
Clare Trachtman, (847) 948-3085

BAXTER POSTS STRONG SALES AND EARNINGS FOR THIRD QUARTER 2008

Performance Reinforces Company’s Positive Outlook

     DEERFIELD, Ill., October 16, 2008 — Baxter International Inc. (NYSE:BAX) posted strong financial results for the third quarter of 2008, which compared favorably to the guidance previously provided, and raised its full-year 2008 earnings outlook.

     Baxter reported third quarter net income of $472 million, an increase of 19 percent compared to $395 million reported in the third quarter of 2007. Earnings per diluted share of $0.74 increased 21 percent from $0.61 per diluted share in the prior year period. The third quarter results include after-tax special charges totaling $91 million (or $0.14 per diluted share) for fixed asset write-offs associated with the discontinuation of the company’s CLEARSHOT pre-filled syringe program, additional remediation costs associated with the company’s COLLEAGUE infusion pump, and costs for in-process research and development (IPR&D) related to the company’s recently announced collaboration with

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BAXTER’S SALES, EARNINGS AND CASH FLOW GROW — Page 2

Innocoll Pharmaceuticals Ltd. The company recorded after-tax special charges in the third quarter of 2007 totaling $63 million (or $0.09 per diluted share).

     On an adjusted basis, excluding special charges, Baxter reported third quarter net income of $563 million and net earnings per diluted share of $0.88, an increase of 23 percent and 26 percent respectively, which compared favorably to the earnings guidance previously provided of $0.81 to $0.83 per diluted share. Strong financial performance was the result of accelerating sales, continued margin improvement, and a lower tax rate.

     Baxter’s worldwide sales totaled $3.2 billion in the third quarter, an increase of 15 percent (or 9 percent excluding the impact of foreign exchange), driven by particularly strong performance from the company’s international businesses. Renal sales increased 6 percent to approximately $600 million due to the expanded use of peritoneal dialysis in many developed and emerging markets around the world, while Medication Delivery sales of approximately $1.2 billion increased 11 percent as a result of strong international sales.

     Sales in Baxter’s BioScience business totaled approximately $1.4 billion, with record growth of 23 percent. Sales accelerated across the portfolio, resulting in double-digit sales increases for all major product categories. This performance can be attributed to robust growth from several products, including ADVATE [Antihemophilic Factor (Recombinant), Plasma/Albumin-Free Method (rAHF-PFM)] and GAMMAGARD LIQUID [Immune Globulin Intravenous (IGIV)], marketed as KIOVIG in the European Union, as well as accelerated

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BAXTER’S SALES, EARNINGS AND CASH FLOW GROW — Page 3

growth from other plasma-based therapies and biosurgery products.

     “In addition to delivering strong sales and earnings for the third quarter, we continue to leverage our diversified healthcare model and capitalize on our broad global presence, while remaining committed to our strategic objective of accelerating the pace of R&D spending,” said Robert L. Parkinson, Jr., chairman and chief executive officer.

     The company continues to increase investments in R&D, which totaled $230 million and increased 13 percent (or 30 percent excluding the impact of special charges taken for IPR&D in both the current and prior year periods). The company continues to make progress on a number of R&D and new product initiatives, including:

• Agreement with Innocoll Pharmaceuticals Ltd., a division of Innocoll, Inc., granting Baxter exclusive rights to market and distribute in the United States the company’s investigational gentamicin surgical implant. If approved by the U.S. Food and Drug Administration (FDA), the gentamicin surgical implant will be the first biodegradable, leave-behind antibiotic surgical sponge used as an adjunct (add-on) therapy for prevention and treatment of surgical site infections in the United States.

• Submission of an Investigational New Drug (IND) Application to the FDA for the evaluation of GAMMAGARD LIQUID combined with ENHANZE, Halozyme’s proprietary drug delivery technology that facilitates the absorption and dispersion of drugs subcutaneously.

• Initiation of a Phase III clinical trial evaluating the use of GAMMAGARD LIQUID for the treatment of multifocal motor neuropathy (MMN). Multifocal motor neuropathy is a rare neurological disorder characterized by progressive limb weakness, primarily affecting the upper extremities.

• Clearance by the FDA for expanded labeling of V-Link with VitalShield based on V-Link’s ability to combat three additional pathogens: vancomycin-resistant Enterococcus faecalis (VRE), Escherichia coli (E. coli) and Staphylococcus epidermidis (coagulase negative). These three pathogens improve upon the previously cleared labeling, which included methicillin-resistant

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BAXTER’S SALES, EARNINGS AND CASH FLOW GROW — Page 4

Staphylococcus aureus (MRSA), Pseudomonas aeruginosa and Enterobacter cloacae.

Nine-Month Results

     For the first nine months of 2008, Baxter’s net income totaled $1.4 billion and increased 18 percent, with earnings per diluted share increasing 21 percent to $2.26. On an adjusted basis, excluding special items for both 2007 and 2008, Baxter’s net income of $1.6 billion increased 18 percent from $1.3 billion in the same period last year. Adjusted earnings per diluted share for the nine-month period increased 22 percent to $2.47 from $2.03 per diluted share in the prior year period.

     Baxter’s worldwide sales grew 12 percent in the first three quarters of the year to $9.2 billion, an increase from $8.3 billion in the same period last year. Excluding the impact of foreign exchange, sales growth for the first nine months of the year was 5 percent.

     Cash flows from operations totaled $1.9 billion for the nine-month period, an improvement of more than $300 million compared to $1.6 billion in the same period in 2007.

     “The medically-necessary nature of our product offering, our diversified portfolio and global presence, and our financial strength and flexibility, provide us with a solid foundation in this uncertain global economy,” continued Parkinson. “We remain committed to providing enhanced value to our shareholders through predictable and sustainable operational growth, commensurate with our competencies and long-range strategies.”

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BAXTER’S SALES, EARNINGS AND CASH FLOW GROW — Page 5

Fourth Quarter and Full-Year 2008 Outlook

     Baxter raised its full-year 2008 earnings outlook and for the first time provided fourth quarter guidance. For the full year, the company continues to expect sales growth, excluding the impact of foreign exchange, of 5 to 6 percent, and now expects earnings per diluted share of $3.35 to $3.37, before any special items. In addition, the company now expects cash flow from operations to exceed $2.6 billion.

     For the fourth quarter of 2008, Baxter expects sales growth of approximately 7 percent, excluding the impact of foreign exchange, and earnings per diluted share, before any special items, of $0.88 to $0.90.

     A webcast of Baxter’s third quarter conference call for investors can be accessed live from a link on the company’s website at www.baxter.com beginning at 7:30 a.m. CDT on October 16, 2008. Please visit Baxter’s website for more information regarding this and future investor events and webcasts, including investor presentations.

     Baxter International Inc. develops, manufactures and markets products that save and sustain the lives of people with hemophilia, immune disorders, cancer, infectious diseases, kidney disease, trauma, and other chronic and acute medical conditions. As a global, diversified healthcare company, Baxter applies a unique combination of expertise in medical devices, pharmaceuticals and biotechnology to create products that advance patient care worldwide.

     This release includes forward-looking statements concerning the company’s financial results. The statements are based on assumptions about many important factors, including the following, which could cause actual results to differ materially from those in the forward-looking statements: demand for and market acceptance risks for new and existing products, such as ADVATE, and other technologies; future

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BAXTER’S SALES, EARNINGS AND CASH FLOW GROW — Page 6

actions of regulatory bodies and other governmental authorities, including the FDA and foreign counterparts, that could delay, limit or suspend product development, manufacturing or sales or result in sanctions; product quality or patient safety concerns leading to product recalls, withdrawals, launch delays, litigation, or declining sales; product development risks; inventory reductions or fluctuations in buying patterns by wholesalers or distributors; the impact of geographic and product mix on the company’s sales; the impact of competitive products and pricing, including generic competition, drug reimportation and disruptive technologies; reimbursement policies of government agencies and private payers; the availability of acceptable raw materials and component supply; the ability to enforce company patents; patents of third parties preventing or restricting the company’s manufacture, sale or use of affected products or technology; any impact of the commercial and credit environment on Baxter and its customers; foreign currency fluctuations and other risks identified in the company’s most recent filing on Form 10-K and other Securities and Exchange Commission filings, all of which are available on the company’s website. The company does not undertake to update its forward-looking statements. Financial schedules are attached to this release and available on the company’s website.

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BAXTER — PAGE 7

BAXTER INTERNATIONAL INC.
Consolidated Statements of Income
Three Months Ended September 30, 2008 and 2007
(unaudited)
(in millions, except per share and percentage data)

	Three Months Ended
	September 30,
	2008			2007			Change
NET SALES	$	3,151		$	2,750			15%
COST OF GOODS SOLD		1,630	1		1,374			19%
GROSS PROFIT		1,521			1,376			11%
% of Net Sales		48.3%			50.0%		(1.7 pts)
MARKETING AND ADMINISTRATIVE EXPENSES		681			663	2		3%
% of Net Sales		21.6%			24.1%		(2.5 pts)
RESEARCH AND DEVELOPMENT EXPENSES		230	3		203	3		13%
% of Net Sales		7.3%			7.4%		(0.1 pt)
NET INTEREST EXPENSE		20			6			N/M
OTHER EXPENSE, NET		32	4		21			52%
PRE-TAX INCOME		558			483			16%
INCOME TAX EXPENSE		86	5		88	5		(2%	)
% of Pre-Tax Income		15.4%			18.2%		(2.8 pts)
NET INCOME	$	472		$	395			19%
BASIC EPS	$	0.76		$	0.62			23%
DILUTED EPS	$	0.74		$	0.61			21%
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic		625			641
Diluted		638			651
ADJUSTED PRE-TAX INCOME (excluding specified items)	$	673	6	$	574	6		17%
ADJUSTED NET INCOME (excluding specified items)	$	563	6	$	458	6		23%
ADJUSTED DILUTED EPS (excluding specified items)	$	0.88	6	$	0.70	6		26%

1	Cost of goods sold in 2008 included a charge of $72 million ($65 million on an after-tax basis, or $0.10 per diluted share) related to COLLEAGUE infusion pumps.
2	Marketing and administrative expenses in 2007 included a charge of $56 million ($34 million on an after-tax basis, or $0.05 per diluted share) related to the company’s Average Wholesale Pricing (AWP) litigation.
3	Research and development (R&D) expenses in 2008 included an in-process R&D (IPR&D) charge of $12 million ($7 million on an after-tax basis, or $0.01 per diluted share) related to the company’s licensing agreement with Innocoll Pharmaceuticals Ltd. (Innocoll) to market and distribute Innocoll’s gentamicin surgical implant in the United States. R&D expenses in 2007 included IPR&D charges of $25 million related to the company’s collaboration with HHD, LLC and $10 million related to the company’s in-licensing arrangement with Halozyme Therapeutics, Inc. The after-tax impact of these items was $29 million, or $0.04 per diluted share, in 2007.
4	Other expense, net in 2008 included an impairment charge of $31 million ($19 million on an after-tax basis, or $0.03 per diluted share) associated with the discontinuation of the CLEARSHOT pre-filled syringe program.
5	Income tax expense included a benefit of $15 million, or $0.02 per diluted share, in 2008 and expense of $15 million, or $0.02 per diluted share, in 2007, related primarily to the reversal of valuation allowances and tax expense associated with foreign earnings that the company planned to repatriate to the United States.
6	Refer to page 8 for a description of the adjustments and a reconciliation to GAAP (generally accepted accounting principles) measures.

Non-GAAP Financial Measures: The non-GAAP financial measures contained in this press release (pre-tax income, income tax expense, net income, and diluted EPS, excluding specified items) adjust for factors that are unusual or nonrecurring. Unusual or nonrecurring items can be highly variable, difficult to predict, and of a size that may substantially impact the company’s reported operations for a period. Management believes that non-GAAP financial measures can facilitate a fuller analysis of the company’s results of operations, particularly in evaluating performance period over period. Management uses these non-GAAP financial measures internally in financial planning, to monitor business unit performance, and in evaluating management performance. Refer to the company’s filing on Form 8-K of today’s date for additional information.

BAXTER — PAGE 8

BAXTER INTERNATIONAL INC.
Notes to Consolidated Statements of Income
Three Months Ended September 30, 2008 and 2007
Description of Adjustments and Reconciliation of GAAP to Non-GAAP Measures
(unaudited)
(in millions, except per share and percentage data)

2008 description of adjustments and reconciliation of GAAP to Non-GAAP
The company’s GAAP results for the three months ended September 30, 2008 included a charge related to COLLEAGUE infusion pumps, an impairment charge associated with the discontinuation of the CLEARSHOT pre-filled syringe program, and an IPR&D charge related to the company’s licensing agreement with Innocoll, which impacted the GAAP results as follows:

			Income
	Pre-tax		Tax		Net		Diluted
	Income		Expense		Income		EPS
GAAP		$558		$ 86		$472		$0.74
COLLEAGUE infusion pump charge (A)		72		7		65		0.10
Impairment charge		31		12		19		0.03
IPR&D charge (B)		12		5		7		0.01
Excluding specified items		$673		$110		$563		$0.88
Effective tax rate				16.3%

(A)	Included in the Cost of Goods Sold line within the accompanying consolidated statement of income. Excluding this item, adjusted gross profit was $1.59 billion and the adjusted gross profit percentage was 50.6%.
(B)	Included in the R&D Expenses line within the accompanying consolidated statement of income. Excluding this item, adjusted R&D expenses were $218 million, or 6.9% of net sales, which represented a 29.8% increase over 2007 adjusted R&D expenses of $168 million.

2007 description of adjustments and reconciliation of GAAP to Non-GAAP
The company’s GAAP results for the three months ended September 30, 2007 included a charge related to the AWP litigation and IPR&D charges related to the company’s collaboration with HHD, LLC and the company’s in-licensing arrangement with Halozyme Therapeutics, Inc. These charges impacted the GAAP results as follows:

			Income
	Pre-tax		Tax		Net		Diluted
	Income		Expense		Income		EPS
GAAP		$483		$ 88		$395		$0.61
Litigation-related charge (A)		56		22		34		0.05
IPR&D charges (B)		35		6		29		0.04
Excluding specified items		$574		$116		$458		$0.70
Effective tax rate				20.2%

(A)	Included in the Marketing and Administrative Expenses line within the accompanying consolidated statement of income. Excluding this item, adjusted marketing and administrative expenses were $607 million, or 22.1% of net sales.
(B)	Included in the R&D Expenses line within the accompanying consolidated statement of income. Excluding this item, adjusted R&D expenses were $168 million, or 6.1% of net sales.

BAXTER — PAGE 9

BAXTER INTERNATIONAL INC.
Consolidated Statements of Income
Nine Months Ended September 30, 2008 and 2007
(unaudited)
(in millions, except per share and percentage data)

	Nine Months Ended
	September 30,
	2008			2007			Change
NET SALES	$	9,217		$	8,254			12%
COST OF GOODS SOLD		4,689	1		4,220			11%
GROSS PROFIT		4,528			4,034			12%
% of Net Sales		49.1%			48.9%		0.2 pts
MARKETING AND ADMINISTRATIVE EXPENSES		2,024			1,867	2		8%
% of Net Sales		22.0%			22.6%		(0.6 pts)
RESEARCH AND DEVELOPMENT EXPENSES		642	3		539	3		19%
% of Net Sales		7.0%			6.5%		0.5 pts
RESTRUCTURING CHARGE		—			70	4		(100%	)
NET INTEREST EXPENSE		62			10			N/M
OTHER EXPENSE, NET		36	5		28	5		29%
PRE-TAX INCOME		1,764			1,520			16%
INCOME TAX EXPENSE		319	6		291			10%
% of Pre-Tax Income		18.1%			19.1%		(1.0 pt)
NET INCOME	$	1,445		$	1,229			18%
BASIC EPS	$	2.30		$	1.90			21%
DILUTED EPS	$	2.26		$	1.87			21%
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic		628			647
Diluted		640			657
ADJUSTED PRE-TAX INCOME (excluding specified items)	$	1,932	7	$	1,681	7		15%
ADJUSTED NET INCOME (excluding specified items)	$	1,581	7	$	1,338	7		18%
ADJUSTED DILUTED EPS (excluding specified items)	$	2.47	7	$	2.03	7		22%

1	Cost of goods sold in 2008 included charges totaling $125 million ($110 million on an after-tax basis, or $0.17 per diluted share) related to COLLEAGUE infusion pumps.
2	Marketing and administrative expenses in 2007 included a charge of $56 million ($34 million on an after-tax basis, or $0.05 per diluted share) related to the company’s AWP litigation.
3	R&D expenses in 2008 included an IPR&D charge of $12 million ($7 million on an after-tax basis, or $0.01 per diluted share) related to the company’s licensing agreement with Innocoll to market and distribute Innocoll’s gentamicin surgical implant in the United States. R&D expenses in 2007 included IPR&D charges of $25 million related to the company’s collaboration with HHD, LLC and $10 million related to the company’s in-licensing arrangement with Halozyme Therapeutics, Inc. The after-tax impact of these items was $29 million, or $0.04 per diluted share, in 2007. Also included in R&D expenses in 2007 was an IPR&D charge of $11 million ($7 million on an after-tax basis, or $0.01 per diluted share) related to the acquisition of MAAS Medical, LLC.
4	A restructuring charge in 2007 of $70 million ($46 million on an after-tax basis, or $0.07 per diluted share) was primarily for costs and asset impairments associated with the consolidation of certain commercial and manufacturing operations outside of the United States.
5	Other expense, net in 2008 included an impairment charge of $31 million ($19 million on an after-tax basis, or $0.03 per diluted share) associated with the discontinuation of the CLEARSHOT pre-filled syringe program. Additionally, other expense, net in 2007 included income of $23 million, reflecting a gain on the sale of the Transfusion Therapies business of $58 million less related charges of $35 million. The after-tax impact of these items was $6 million of income, or $0.01 per diluted share, in 2007.
6	Income tax expense in 2008 included a benefit of $15 million, or $0.02 per diluted share, related primarily to the reversal of a valuation allowance and tax expense associated with foreign earnings that the company planned to repatriate to the United States.
7	Refer to page 10 for a description of the adjustments and a reconciliation to GAAP measures.

Non-GAAP Financial Measures: The non-GAAP financial measures contained in this press release (pre-tax income, income tax expense, net income, and diluted EPS, excluding specified items) adjust for factors that are unusual or nonrecurring. Unusual or nonrecurring items can be highly variable, difficult to predict, and of a size that may substantially impact the company’s reported operations for a period. Management believes that non-GAAP financial measures can facilitate a fuller analysis of the company’s results of operations, particularly in evaluating performance period over period. Management uses these non-GAAP financial measures internally in financial planning, to monitor business unit performance, and in evaluating management performance. Refer to the company’s filing on Form 8-K of today’s date for additional information.

BAXTER — PAGE 10

BAXTER INTERNATIONAL INC.
Notes to Consolidated Statements of Income
Nine Months Ended September 30, 2008 and 2007
Description of Adjustments and Reconciliation of GAAP to Non-GAAP Measures
(unaudited)
(in millions, except per share and percentage data)

2008 description of adjustments and reconciliation of GAAP to Non-GAAP
The company’s GAAP results for the nine months ended September 30, 2008 included charges related to COLLEAGUE infusion pumps, an impairment charge associated with the discontinuation of the CLEARSHOT pre-filled syringe program, and an IPR&D charge related to the company’s licensing agreement with Innocoll, which impacted the GAAP results as follows:

			Income
	Pre-tax		Tax		Net		Diluted
	Income		Expense		Income		EPS
GAAP	$	1,764	$319		$	1,445	$	2.26
COLLEAGUE infusion pump charges (A)		125		15		110		0.17
Impairment charge		31		12		19		0.03
IPR&D charge (B)		12		5		7		0.01
Excluding specified items	$	1,932	$351		$	1,581	$	2.47
Effective tax rate			18.2%

(A)	Included in the Cost of Goods Sold line within the accompanying consolidated statement of income. Excluding this item, adjusted gross profit was $4.65 billion and the adjusted gross profit percentage was 50.5%.
(B)	Included in the R&D Expenses line within the accompanying consolidated statement of income. Excluding this item, adjusted R&D expenses were $630 million, or 6.8% of net sales, which represented a 25.0% increase over 2007 adjusted R&D expenses of $504 million.

2007 description of adjustments and reconciliation of GAAP to Non-GAAP
The company’s GAAP results for the nine months ended September 30, 2007 included a restructuring charge, primarily for costs and asset impairments associated with the consolidation of certain commercial and manufacturing operations outside of the United States, a charge related to the AWP litigation, and IPR&D charges related to the company’s collaboration with HHD, LLC and the company’s in-licensing arrangement with Halozyme Therapeutics, Inc. These charges impacted the GAAP results as follows:

			Income
	Pre-tax		Tax		Net		Diluted
	Income		Expense		Income		EPS
GAAP	$	1,520	$291		$	1,229	$	1.87
Restructuring charge		70		24		46		0.07
Litigation-related charge (A)		56		22		34		0.05
IPR&D charges (B)		35		6		29		0.04
Excluding specified items	$	1,681	$343		$	1,338	$	2.03
Effective tax rate			20.4%

(A)	Included in the Marketing and Administrative Expenses line within the accompanying consolidated statement of income. Excluding this item, adjusted marketing and administrative expenses were $1.81 billion, or 21.9% of net sales.
(B)	Included in the R&D Expenses line within the accompanying consolidated statement of income. Excluding this item, adjusted R&D expenses were $504 million, or 6.1% of net sales.

BAXTER — PAGE 11

BAXTER INTERNATIONAL INC.
Condensed Consolidated Balance Sheets
(unaudited)
($ in millions)

	September 30, 2008		December 31, 2007
Assets
Cash and equivalents	$	2,191	$	2,539
Receivables		2,101		2,026
Inventories		2,520		2,334
Other current assets		625		656
Total current assets		7,437		7,555
Property, plant and equipment, net		4,598		4,487
Other long-term assets		3,174		3,252
Total assets	$	15,209	$	15,294
Liabilities and Shareholders’ Equity
Short-term debt	$	235	$	425
Other current liabilities		3,089		3,387
Long-term debt		3,185		2,664
Other long-term liabilities		1,641		1,902
Shareholders’ equity		7,059		6,916
Total liabilities and shareholders’ equity	$	15,209	$	15,294

BAXTER — PAGE 12

BAXTER INTERNATIONAL INC.
Cash Flows from Operations and Changes in Net Debt
(unaudited)
($ in millions)

Cash Flows from Operations

(Brackets denote cash outflows)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2008			2007			2008			2007
Net income	$	472		$	395		$	1,445		$	1,229
Adjustments
Depreciation and amortization		165			141			481			428
Deferred income taxes		54			14			164			32
Stock compensation		38			36			111			99
Restructuring and infusion pump charges		72			—			125			70
Impairment charge		31			—			31			—
Litigation-related charge		—			56			—			56
IPR&D charges		12			35			12			46
Other		4			27			27			53
Changes in balance sheet items
Receivables		7			40			(86	)		(114	)
Inventories		(52	)		(91	)		(207	)		(261	)
Accounts payable and accrued liabilities		18			6			(236	)		(85	)
Restructuring payments		(9	)		(14	)		(35	)		(20	)
Other		1			(37	)		63			21
Cash flows from operations	$	813		$	608		$	1,895		$	1,554

Changes in Net Debt

Increase (decrease)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2008			2007			2008			2007
Net debt, beginning of period	$	1,087		$	231		$	550		$	316
Cash flows from operations		(813	)		(608	)		(1,895	)		(1,554	)
Capital expenditures		251			166			615			424
Dividends		136			109			411			598
Proceeds from sale of Transfusion Therapies business		—			—			—			(421	)
Proceeds and excess tax benefits from stock issued under employee benefit plans		(302	)		(72	)		(547	)		(500	)
Purchases of treasury stock		589			827			1,522			1,641
Acquisitions of and investments in businesses and technologies		12			40			73			83
Payments relating to settlements of cross-currency swaps		241			49			542			196
Other, including the effect of exchange rate changes		28			10			(42	)		(31	)
Increase in net debt		142			521			679			436
Net debt, September 30	$	1,229		$	752		$	1,229		$	752
Key statistics, September 30:
Days sales outstanding		55.6			58.7			55.6			58.7
Inventory turns		2.4			2.3			2.4			2.3

BAXTER — PAGE 13

BAXTER INTERNATIONAL INC.
Net Sales
Periods Ending September 30, 2008 and 2007
(unaudited)
($ in millions)

	Q3		Q3		% Growth @			% Growth @			YTD		YTD		% Growth @			% Growth @
	2008		2007		Actual Rates			Constant Rates			2008		2007		Actual Rates			Constant Rates
BioScience1
United States	$	617	$	556		11%			11%		$	1,754	$	1,572		12%			12%
International		737		543		36%			23%			2,195		1,789		23%			10%
Total	$	1,354	$	1,099		23%			17%		$	3,949	$	3,361		17%			11%
Medication Delivery
United States	$	527	$	528		0%			0%		$	1,555	$	1,578		(1%	)		(1%	)
International		630		519		21%			12%			1,831		1,498		22%			11%
Total	$	1,157	$	1,047		11%			6%		$	3,386	$	3,076		10%			5%
Renal
United States	$	95	$	96		(1%	)		(1%	)	$	290	$	288		1%			1%
International		498		464		7%			(1%	)		1,459		1,350		8%			(2%	)
Total	$	593	$	560		6%			(1%	)	$	1,749	$	1,638		7%			(1%	)
Baxter excluding Transfusion Therapies
United States	$	1,239	$	1,180		5%			5%		$	3,599	$	3,438		5%			5%
International		1,865		1,526		22%			12%			5,485		4,637		18%			7%
Total	$	3,104	$	2,706		15%			9%		$	9,084	$	8,075		12%			6%
Transfusion Therapies1
United States	$	33	$	31		6%			6%		$	93	$	108		(14%	)		(14%	)
International		14		13		8%			8%			40		71		(44%	)		(48%	)
Total	$	47	$	44		7%			7%		$	133	$	179		(26%	)		(27%	)
Baxter International Inc.
United States	$	1,272	$	1,211		5%			5%		$	3,692	$	3,546		4%			4%
International		1,879		1,539		22%			12%			5,525		4,708		17%			6%
Total	$	3,151	$	2,750		15%			9%		$	9,217	$	8,254		12%			5%

¹ The results of operations of the Transfusion Therapies (TT) business were previously reported in the BioScience business. The TT business was sold on February 28, 2007. The TT totals above include sales of TT products through the date of divestiture, as well as revenues associated with manufacturing, distribution and other services provided by the company to the buyer of the TT business post-divestiture.

BAXTER — PAGE 14

BAXTER INTERNATIONAL INC.
Key Product Line Sales
Periods Ending September 30, 2008 and 2007
(unaudited)
($ in millions)

	Q3		Q3		% Growth @			% Growth @			YTD		YTD		% Growth @			% Growth @
	2008		2007		Actual Rates			Constant Rates			2008		2007		Actual Rates			Constant Rates
BioScience
Recombinants	$	516	$	432		19%			14%		$	1,460	$	1,251		17%			11%
Plasma Proteins		338		246		37%			26%			889		714		25%			16%
Antibody Therapy		307		245		25%			22%			908		705		29%			25%
Regenerative Medicine1		104		82		27%			21%			307		251		22%			16%
Other2		89		94		(5%	)		(13%	)		385		440		(13%	)		(22%	)
Total BioScience3	$	1,354	$	1,099		23%			17%		$	3,949	$	3,361		17%			11%
Medication Delivery
IV Therapies	$	403	$	346		16%			10%		$	1,182	$	1,012		17%			9%
Global Injectables		403		372		8%			5%			1,164		1,114		4%			0%
Infusion Systems		235		207		14%			11%			684		624		10%			6%
Anesthesia		112		111		1%			(1%	)		333		296		13%			9%
Other		4		11		(64%	)		(82%	)		23		30		(23%	)		(33%	)
Total Medication Delivery	$	1,157	$	1,047		11%			6%		$	3,386	$	3,076		10%			5%
Renal
PD Therapy	$	480	$	448		7%			0%		$	1,404	$	1,310		7%			(1%	)
HD Therapy		113		112		1%			(5%	)		345		328		5%			(3%	)
Total Renal	$	593	$	560		6%			(1%	)	$	1,749	$	1,638		7%			(1%	)
Baxter excluding Transfusion Therapies	$	3,104	$	2,706		15%			9%		$	9,084	$	8,075		12%			6%
Transfusion Therapies3	$	47	$	44		7%			7%		$	133	$	179		(26%	)		(27%	)
TOTAL BAXTER	$	3,151	$	2,750		15%			9%		$	9,217	$	8,254		12%			5%

1	Previously referred to as BioSurgery.
2	Principally includes vaccines, sales of plasma to third parties, and recombinant FIX (BeneFIX). Sales of BeneFIX ceased as of June 30, 2007.
3	The results of operations of the TT business were previously reported in the BioScience business. The TT business was sold on February 28, 2007. The TT totals above include sales of TT products through the date of divestiture, as well as revenues associated with manufacturing, distribution and other services provided by the company to the buyer of the TT business post-divestiture.

BAXTER — PAGE 15

BAXTER INTERNATIONAL INC.
Key Product Line Sales by US and International
Three-Month Periods Ending September 30, 2008 and 2007
(unaudited)
($ in millions)

	Q3 2008						Q3 2007						% Growth @ Actual Rates
	US		International		Total		US		International		Total		US			International			Total
BioScience
Recombinants	$	220	$	296	$	516	$	205	$	227	$	432		7%			30%			19%
Plasma Proteins		108		230		338		101		145		246		7%			59%			37%
Antibody Therapy		217		90		307		178		67		245		22%			34%			25%
Regenerative Medicine1		55		49		104		44		38		82		25%			29%			27%
Other2		17		72		89		28		66		94		(39%	)		9%			(5%	)
Total BioScience3	$	617	$	737	$	1,354	$	556	$	543	$	1,099		11%			36%			23%
Medication Delivery
IV Therapies	$	115	$	288	$	403	$	109	$	237	$	346		6%			22%			16%
Global Injectables		209		194		403		217		155		372		(4%	)		25%			8%
Infusion Systems		133		102		235		123		84		207		8%			21%			14%
Anesthesia		70		42		112		75		36		111		(7%	)		17%			1%
Other		0		4		4		4		7		11		(100%	)		(43%	)		(64%	)
Total Medication Delivery	$	527	$	630	$	1,157	$	528	$	519	$	1,047		0%			21%			11%
Renal
PD Therapy	$	73	$	407	$	480	$	69	$	379	$	448		6%			7%			7%
HD Therapy		22		91		113		27		85		112		(19%	)		7%			1%
Total Renal	$	95	$	498	$	593	$	96	$	464	$	560		(1%	)		7%			6%
Baxter excluding Transfusion Therapies	$	1,239	$	1,865	$	3,104	$	1,180	$	1,526	$	2,706		5%			22%			15%
Transfusion Therapies3	$	33	$	14	$	47	$	31	$	13	$	44		6%			8%			7%
TOTAL BAXTER	$	1,272	$	1,879	$	3,151	$	1,211	$	1,539	$	2,750		5%			22%			15%

1	Previously referred to as BioSurgery.
2	Principally includes vaccines and sales of plasma to third parties.
3	The results of operations of the TT business were previously reported in the BioScience business. The TT business was sold on February 28, 2007. The TT totals above include sales of TT products through the date of divestiture, as well as revenues associated with manufacturing, distribution and other services provided by the company to the buyer of the TT business post-divestiture.