Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, (as definedor a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act).Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

The number of shares of the registrant’s Common Stock, par value $1.00 per share, outstanding as of October 31, 2005April 28, 2006 was 623,621,610654,803,810 shares.

The unaudited interim condensed consolidated financial statements of Baxter International Inc. and its subsidiaries (the company or Baxter) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (GAAP) have been condensed or omitted. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the company’s 20042005 Annual Report to Stockholders (2004Shareholders (2005 Annual Report).

In the opinion of management, the interim condensed consolidated financial statements reflect all adjustments necessary for a fair presentation of the interim periods. All such adjustments, unless otherwise noted herein, are of a normal, recurring nature. The results of operations for the interim period are not necessarily indicative of the results of operations to be expected for the full year.

The company has a number of stock-based employee compensation plans, including stock option, stock purchase, restricted stock and restricted stock unit plans. The company measures stock-based compensation expense using the intrinsic value method of accounting. Generally, no expense is recognized for the company’s employee stock option and purchase plans. Expense is recognized relating to restricted stock and restricted stock unit grants and certain modifications to stock options.

The following is a summary of net expense relating to the company’s pension and other postemployment benefit (OPEB) plans.

The numerator for both basic and diluted EPSearnings per share (EPS) is net income. The denominator for basic EPS is the weighted-average number of common shares outstanding during the period. The dilutive effect of outstanding employee stock options, employee stock purchase subscriptions, the purchase contracts in the company’s equity units, restricted stock and other commonrestricted stock equivalentsunits is reflected in the denominator for diluted EPS principally using the treasury stock method. The equity unit

Refer to the 2005 Annual Report and the discussion below regarding the purchase contracts obligateincluded in the holders tocompany’s equity units. The purchase between 35.0contracts were settled in February 2006, and 43.4the company issued approximately 35 million shares (based upon a specified exchange ratio) of Baxter common stock in February 2006exchange for $1.25 billion. Using the treasury stock method, prior to the February 2006 purchasesettlement date, the purchase contracts havehad a dilutive effect when the average market price of Baxter stock exceeds $35.69 (Refer to the 2004 Annual Report for a more complete description of the company’s equity units).exceeded $35.69.

Refer to the normal course2005 Annual Report regarding the purchase contracts included in the company’s equity units. The purchase contracts were settled in February 2006, and the company issued 35 million shares of business, Baxter enters into joint development and commercialization arrangements with third parties, sometimes with investees of the company. The arrangements are varied but generally provide that Baxter will receive certain rights to manufacture, market or distribute a specified technology or product under development by the third party,common stock in exchange for payments$1.25 billion. Management is using these proceeds to pay down maturing debt, for stock repurchases, and for other general corporate purposes.

As authorized by Baxter. At September 30, 2005, the unfunded milestone payments under these arrangements totaled less than $300 million. The majority of the payments are contingent upon the third parties’ achievement of contractually specified milestones, and only a small portion of the total is expected to be paid within the next year.

million represented asset disposal proceedsRestructuring reserve utilization in excess of original estimates and finalization of certain employment termination arrangements. In the thirdfirst quarter of 2005, the company recorded an additional $52006 totaled $19 million, pre-tax benefitwith $18 million relating to the adjustment of restructuring reserves, as the implementation of the2004 program progressed, actions were completed,(as detailed above) and management refined its estimates of remaining spending.$1 million relating to a program initiated in 2003, which is substantially complete.

The restructuring reserve adjustments principally related to severance2005 and other employee-related costs. The company’s targeted headcount reductions are being achieved with a higher level2006 charges discussed below were classified in cost of attrition than originally anticipated. Accordingly,goods sold in the company’s severance payments are projected to be lower than originally estimated. The remaining reserve adjustments principally related to changes in estimates regarding certain contract termination costs. Additional adjustments may be recorded in the future as the restructuring program is completed.

Stock compensation expense is recorded at the corporate headquarters level and is not allocated to the segments. Approximately three-quarters of stock compensation expense is classified in marketing and administrative expenses, with the remainder classified in cost of goods sold and research and development expenses. Costs capitalized in the accompanying consolidated statementbalance sheet in the first quarter of 2006 were not significant.

The following table shows net income and EPS had the company applied the fair value method of accounting for stock compensation in accordance with SFAS No. 123 during the first quarter of 2005 (in millions, except per share data).

The weighted-average assumptions used in estimating the fair value of stock options granted during the period, along with the remaining $1weighted-average grant date fair values, were as follows.

Shares issued as a result of stock option exercises, restricted stock and RSU grants, and employee stock purchase plan purchases are generally issued out of treasury stock. As of March 31, 2006, approximately 22 million classifiedauthorized shares are available for future awards under the company’s stock-based compensation plans.

Stock options are granted to employees and non-employee directors with exercise prices at least equal to 100% of the market value on the date of grant. Generally, employee stock options vest 100% in marketingthree years from the grant date and administrative expenses.have a contractual term of 10 years. Stock options granted to non-employee directors generally vest 100% one year from the grant date and have a contractual term of 10 years. Expense is recognized on a straight-line basis over the vesting period.

The company expectsgrants restricted stock and RSUs to record additional chargeskey employees, and grants restricted stock to non-employee directors. Grants of RSUs were first made in 2005, and principally vest in one-third increments over a three-year period. The total grant-date fair value, adjusted for estimated forfeitures, is recognized as expense on a straight-line basis over the vesting period.

Under SFAS No. 123-R, no compensation expense is recognized for subscriptions that began on or after April 1, 2005. The first quarter 2006 and expected future quarters,expense relating to subscriptions that began prior to April 1, 2005 is immaterial. During the first quarter of 2006 and management currently estimates that2005, the pre-tax costcompany issued approximately 175,000 and 500,000 shares, respectively, under these plans. The number of shares under subscription at March 31, 2006 totaled approximately 560,000.

SFAS No. 123-R changes the presentation of realized excess tax benefits associated with exercised stock options in the entire exit planstatement of cash flows. Prior to the adoption of SFAS No. 123-R, such realized tax

The company’s stock options and RSUs provide that if the grantee retires and meets certain age and years of service thresholds, the options or RSUs continue to vest for a period of time after retirement as if the grantee continued to be an employee. In these cases, for awards granted prior to the adoption of SFAS No. 123-R, expense will total approximately $50 million.be recognized for such awards over the service period, and any unrecognized costs will be accelerated into expense when the employee retires. For awards granted on or after January 1, 2006, expense will be recognized over the period from the grant date to the date the employee would no longer be required to perform services to vest in the award. The difference between the two accounting methods was not material for the quarters ended March 31, 2006 or 2005.

The companyBaxter is involved in product liability, patent, shareholder, patent, commercial, and other legal proceedings that arise in the normal course of the company’s business. The company records a liability when a loss is considered probable and the amount can be reasonably estimated. If the reasonable estimate of a probable loss is a range, and no amount within the range is a better estimate, the lower end ofminimum amount in the range is accrued. If a loss is not probable or a probable loss cannot be reasonably estimated, no liability is recorded.

Baxter has established reserves for certain of the matters discussed below. Management is not able to estimate the amount or range of any loss for certain of the company’s legal contingencies for which there is no reserve or additional loss for matters already reserved. While the liability of the company in connection with the claims cannot be estimated with any certainty the outcome of these legal proceedings is not expected to have a material adverse effect on the company’s consolidated financial position,and although the resolution in any reporting period of one or more of these matters could have a significant impact on the company’s results of operations for that period.period, the outcome of these legal proceedings is not expected to have a material adverse effect on the company’s consolidated financial position. While the company believes that it has valid defenses in these matters, litigation is inherently uncertain, excessive verdicts do occur, and the company may in the future incur material judgments or enter into material settlements of claims.

The company is currently a defendant in various courts in a number of lawsuits seeking damages for injuries of various types allegedly caused by silicone mammary implants previously manufactured by the Heyer-Schulte division of American Hospital Supply Corporation (AHSC). AHSC, which was acquired by Baxter in 1985, divested its Heyer-Schulte division in 1984. It is not known how many of these claims and lawsuits involve products manufactured and sold by Heyer-Schulte, as opposed to other

withdrawal of the dialyzers from the market. In December 2002, Baxter received a subpoena to provide documents to the U.S. Department of Justice and is cooperating fully with the investigation.

In August 2002, six purported class action lawsuits were filed in the U.S.D.C. for the Northern District of Illinois naming Baxter and its then Chief Executive Officer and then Chief Financial Officer as defendants. These lawsuits, which were consolidated, alleged that the defendants violated the federal securities laws by making misleading statements regarding the company’s financial guidance that allegedly caused Baxter common stock to trade at inflated levels. The Court of Appeals for the Seventh Circuit reversed a trial court order granting Baxter’s motion to dismiss the complaint and the U.S. Supreme Court declined to grant certiorari in March 2005. In February 2006, the trial court denied Baxter’s motion for judgment on the pleadings. In October 2004, a purported class action was filed in the same court against Baxter and its current Chief Executive Officer and Chief Financial Officer and their predecessors for alleged violations of the Employee Retirement Income Security Act of 1974, as amended. Plaintiff alleges that these defendants, along with the Administrative and Investment Committees of the company’s 401(k) plans, breached their fiduciary duties to the plan participants by offering Baxter common stock as an investment option in each of the plans during the period of January 2001 to October 2004. Plaintiff alleges that Baxter common stock traded at artificially inflated prices during this period and seeks unspecified damages and declaratory and equitable relief. In March 2006, the trial court certified a class of plan participants who elected to acquire Baxter common stock through the plans between January 2001 and the present, and denied defendants’ motion to dismiss.

In July 2004, a series of four purported class action lawsuits, now consolidated, were filed in the U.S.D.C. for the Northern District of Illinois, in connection with the company’s restatement of its consolidated financial statements, previously disclosed restatement,announced in July 2004, naming Baxter and its current Chief Executive Officer and Chief Financial Officer and their predecessors as defendants. The lawsuits allege that the defendants violated the federal securities laws by making false and misleading statements regarding the company’s financial results, which allegedly caused Baxter common stock to trade at inflated levels during the period between April 2001 and July 2004. In MayAs of December 2005, the District Court granted Baxter’s motion to dismiss this action in its entirety. Onehad dismissed the last of the consolidated plaintiff’s motion for leave to file an amended complaint has been granted.remaining actions. The matter is on appeal. In August and September 2004, three plaintiffs raised similar allegations based on breach of fiduciary duty in separate derivative actions filed against members of the company’s leadershipmanagement and Directorsdirectors and now consolidated in the Circuit Court of Cook County Illinois. The Defendants have moved to dismiss the consolidated actionCircuit Court dismissed those claims in December 2005 on defendants’ motion, and the motion is currently pending beforetime for the state court. Similarly,plaintiffs to appeal has expired. One of the plaintiffs thereafter sent to the company’s board of directors a plaintiffletter demanding that the company take action to recover sums paid to certain directors and employees, which demand the board of directors has taken under advisement.

On October 12, 2005 the United States filed a purported class actioncomplaint in October 2004, before the U.S.D.C. for the Northern District of Illinois against Baxter and its current Chief Executive Officer and Chief Financial Officer and their predecessors for alleged violationsto effect the seizure of COLLEAGUE pumps that were on hold in Northern Illinois (customer-owned pumps were not affected), which the Employee Retirement Income Security Act of 1974, as amended. Plaintiff alleges that these defendants, alongcompany has answered. Additional third party claims may be filed in connection with the Administrative and Investment Committees of the company’s 401(k) plans, breached their fiduciary duties to the Plan participants by offering Baxter common stock as an investment option in each of the Plans during the period of January 2001 to October 2004. Plaintiff alleges that Baxter common stock traded at artificially inflated prices during this period and seeks unspecified damages and declaratory and equitable relief. The plaintiff seeks to represent a class of Plan participants who elected to acquire Baxter common stock through the Plans between January 2001 and the present. The defendants have moved to dismiss this action and the motion currently is pending before the District Court.COLLEAGUE matter.

The company is a defendant, along with others, in approximately 4050 lawsuits brought in various state and U.S. federal courts, which allege that Baxter and other defendants reported artificially inflated average wholesale prices for Medicare and Medicaid eligible drugs. These cases have been brought by private parties on behalf of various purported classes of purchasers of Medicare and Medicaid eligible drugs, as well as by state attorneys general. A number of these cases were consolidated in the U.S.D.C. for the District of Massachusetts for pretrial case management under Multi District Litigation rules. Others are pending in state courts in Alabama, Arizona, Montana, Nevada, Texas, and Wisconsin. The lawsuits against Baxter include eighteleven lawsuits brought by state attorneys general, which seek unspecified damages, injunctive relief, civil penalties, disgorgement, forfeiture and restitution. Various state and federal agencies are conducting civil investigations into the marketing and pricing practices of Baxter and others with respect to Medicare and Medicaid reimbursement. These investigations may result in additional cases being filed by various state attorneys general.

Baxter has been named a potentially responsible party (PRP) for environmental clean-up at a number of sites. Under the U.S. Superfund statute and many state laws, generators of hazardous waste sent to a disposal or recycling site are liable for clean-up of the site if contaminants from that property later leak into the environment. The laws generally provide that a PRP may be held jointly and severally liable for the costs of investigating and remediating the site.

The companyBaxter operates in three segments, each of which is a strategic business that is managed separately because each business develops, manufactures and sells distinct products and services. The segments and a description of their products and services are as follows:

TheRenalbusiness manufactures products for peritoneal dialysis (PD), which providesa home therapy for people with end-stage renal disease, or irreversible kidney failure. These products include a range of intravenousPD solutions and specialtyrelated supplies to help patients safely perform fluid exchanges, as well as automated PD cyclers that perform solution exchanges for patients overnight while they sleep. The business also distributes products that(hemodialysis instruments and disposables, including dialyzers) for hemodialysis, a form of dialysis generally conducted several times a week in a hospital or clinic.

Management uses more than one measurement and multiple views of data to measure segment performance and to allocate resources to the segments. However, the dominant measurements are usedconsistent with the company’s consolidated financial statements and, accordingly, are reported on the same basis herein. Management evaluates the performance of its segments and allocates resources to them primarily based on pre-tax income along with cash flows and overall economic returns.

Intersegment sales are generally accounted for at amounts comparable to sales to unaffiliated customers, and are eliminated in combination for fluid replenishment, general anesthesia, nutrition therapy, pain management, antibiotic therapy and chemotherapy;BioScience, which develops biopharmaceuticals, biosurgery products, vaccines and blood collection, processing and storage products and technologies for transfusion therapies; andRenal, which develops products and provides services to treat end-stage kidney disease.consolidation.

Certain items are maintained at the corporate level (Corporate) and are not allocated to the segments. They primarily include most of the company’s debt and cash and equivalents and related net interest expense, corporate

which were previously reported in Other, are now reported in PD Therapy. There were no sales reclassifications between segments.

SalesNet sales for the Medication Delivery segment declined 3% for6% during the thirdfirst quarter of 2005 and increased 3% for the nine months ended September 30, 2005 (with the percentage change in sales favorably impacted by foreign currency fluctuations by 1 percentage point in the quarter and2006 (including a reduction of 2 percentage points inrelating to the year-to-date period)unfavorable impact of foreign currency fluctuations).

The following is a summary of sales by significant product line.