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, a non-accelerated filer or a non-accelerated filer.smaller reporting company. See definition of “large accelerated filer,” “accelerated filerfiler” and large accelerated filer”“smaller reporting company” in Rule 12b-2 of the Exchange 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 OctoberApril 30, 20072008 was 634,072,529627,379,237 shares.

PART I. FINANCIAL INFORMATION

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.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 20062007 Annual Report to Shareholders (2006(2007 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.

On January 1, 2007,2008, the company adopted Statement of Financial Accounting Standards Board (FASB) Interpretation (FIN)(SFAS) No. 48, “Accounting159, “The Fair Value Option for Uncertainty in Income Taxes -Financial Assets and Financial Liabilities, Including an Interpretationamendment of FASB Statement 109” (FIN No. 48)115” (SFAS No. 159). FINSFAS No. 48 prescribes a two-step process for the159 permits entities to choose to measure many financial statement measurementinstruments and recognition of a tax position taken or expectedcertain other items at fair value, which are not otherwise currently required to be takenmeasured at fair value. Under SFAS No. 159, the decision to measure items at fair value is made at specified election dates on an instrument-by-instrument basis and is irrevocable. Entities electing the fair value option are required to recognize changes in a tax return. The first step involvesfair value in earnings and to expense upfront costs and fees associated with the determination of whether it is more likely than not (greater than 50 percent likelihood) that a tax position will be sustained upon examination, based on the technical merits of the position. The second step requires that any tax position that meets the more-likely-than-not recognition threshold be measured and recognized in the financial statements at the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. FIN No. 48 also provides guidance on the accounting for related interest and penalties, financial statement classification and disclosure. The cumulative effect of applying FIN No. 48 is to be reported as an adjustment to the opening balance of retained earnings in the period of adoption.

In September 2006, the FASB issued Statement of Financial Accounting Standards (SFAS)SFAS No. 157, “Fair Value Measurements” (SFAS No. 157), which clarifies the definition of fair value whenever another standard requires or permits assets or liabilities to be measured at fair value. Specifically, the standard clarifies that fair value should be based on the assumptions market participants would use when pricing the asset or liability, and establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. SFAS No. 157 does not expand the use of fair value to any new circumstances, and must be applied on a prospective basis except in certain cases. The standard also requires expanded financial statement disclosures about fair value measurements, including disclosure of the methods used and the effect on earnings.

The partial adoption of SFAS No. 157 on January 1, 2008 with respect to financial assets and financial liabilities recognized or disclosed at fair value in the financial statements on a recurring basis did not have a material impact on the company’s consolidated financial statements. See Note 5 for the fair value measurement disclosures for these assets and liabilities. The company is in the process of analyzing this new standard, which will be effective for the company onpotential impact of SFAS No. 157 relating to its planned January 1, 2008.

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

Total comprehensive income was $429$620 million and $410$464 million for the three months ended September 30,March 31, 2008 and 2007, and 2006, respectively, and $1,394 million and $1,003 million for the nine months ended September 30, 2007 and 2006, respectively. The increase in comprehensive income in both periods2008 was principally due to higher net income and favorable movements in currency translation adjustments, partially offset particularly in the third quarter, by unfavorable movements in the fair value of the company’s net investment hedges.

The company’s effective income tax rate was 18.2%19.7% and 21.9%23.8% in the thirdfirst quarters of 2008 and 2007, and 2006, respectively, and 19.1% and 21.6% in the nine-month periods ended September 30, 2007 and 2006, respectively. For a discussion of theThe effective tax rate anticipated for the full-year 2007, see the Income Taxes section of Management’s Discussion and Analysis below.

The numerator for both basic and diluted earnings 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 equityperformance share units, (which were settled in February 2006), restricted stock units, performance share units and restricted stock is reflected in the denominator for diluted EPS principally using the treasury stock method.

EmployeeIn the first quarters of 2008 and 2007, 8 million and 12 million employee stock options, to purchase 11 million and 28 million shares for the third quarters of 2007 and 2006, respectively, and 11 million and 42 million for the nine-month periods ended September 30, 2007 and 2006, respectively, were not included in the computation of diluted EPS because the assumed proceeds were greater than the average market price of the company’s common stock, resulting in an anti-dilutive effect on diluted EPS.

Under transition agreements, the company is providing manufacturing and a variety of support services to Fenwal for a period of time after divestiture, which varyvaries based on the productsproduct or servicesservice provided and other factors, but generally approximateapproximates two years. Due to the company’s actual and expected significant continuing cash flows associated with this business, the company continued to include the results of operations of TT in the company’s results of continuing operations through the February 28, 2007 sale date. No facts or circumstances have arisen inarose subsequent to the second or third quarter of 2007divestiture date that changechanged the initial expectation of significant continuing cash flows. TT’s sales, which were reported in the BioScience segment, were $79 million in 2007 through the February 28 sale date and $121 million and $371 million in the third quarter and first nine months of 2006, respectively. Revenues associated with the manufacturing, distribution and other transition services provided by the company, to Fenwal post-divestiture, which were $44 million in the third quarter of 2007 and $100$9 million in the year-to-date period,first quarters of 2008 and 2007, respectively, are reported at the corporate headquarters level and not allocated to a segment.

In the first quarter of December 31, 2006 were as follows.

The following table summarizes cash activity in the company’s 2007 and 2004 restructuring reserve.

During 2005,the first quarter of 2008, the company recorded a $50charge of $19 million pre-tax charge associated with management’s decisionrelated to discontinue the manufacture of HD instruments, including the company’s Meridian instrument. recall of its heparin sodium injection products in the United States. During the first quarter of 2008, the company identified an increasing level of severe allergic-type and hypotensive adverse reactions occurring in patients using its heparin sodium injection products in the United States, and initiated a field corrective action with respect to these products.

Included in the $50charge were $14 million charge was $23 million relating toof asset impairments, principally to write downprimarily heparin inventory equipmentthat will not be sold, and other assets used to manufacture HD machines. The remaining $27$5 million of the chargecash costs related to the estimated cash payments associated with providing customers with replacement instruments.recall. The company has utilized $18 million of the reserve for cash costs through the third quarter of 2007. Substantially all of the remaining reserve is expected to be utilized by the end of 2008.

The company’s sales of these heparin products totaled approximately $30 million in 2007 and 2008.2007.

On January 1, 2006, the company adopted SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS No. 123-R) using the modified prospective transition method. Stock compensation expense measured in accordance with SFAS No. 123-R totaled $36$38 million ($2426 million on a net-of-tax basis, or $0.04 per diluted share) and $30$27 million ($1918 million on a net-of-tax basis, or $0.03 per diluted share) for the three months ended September 30,March 31, 2008 and 2007, and 2006, respectively, and $99 million ($66 million on a net-of-tax basis, or $0.10 per diluted share) and $68 million ($45 million on a net-of-tax basis, or $0.07 per diluted share) for the nine months ended September 30, 2007 and 2006, respectively. 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.

In March 2007,2008, the company made its annual stock compensation grants, which consisted of approximately 7.27 million stock options and 1.10.7 million performance share units (PSUs) and restricted stock units (RSUs). Stock compensation grants made in the second and third quarters of 2007 were not material.

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

The total intrinsic value of stock options exercised was $37 million and $52 million during the three months ended September 30,March 31, 2008 and 2007 and 2006, respectively, and $225was $61 million and $78$85 million, during the nine months ended September 30, 2007 and 2006, respectively.

As of September 30, 2007, $120March 31, 2008, $145 million of pre-tax unrecognized compensation cost related to all unvested stock options is expected to be recognized as expense over a weighted-average period of 1.92.3 years.

As part of an overall periodic reevaluation ofThe assumptions used in estimating the company’s stock compensation programs, the company made changes to its long-term incentive plan for senior management effective in the first quarter of 2007. The RSU component of the plan has been replaced by PSUs

any certainty 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, 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.

In addition to the matters described below, the company remains subject to other additional potential administrative and legal actions. With respect to regulatory matters, in particular, these actions includemay lead to product recalls, injunctions to halt manufacture and distribution, other restrictions on the company’s operations civil sanctions, includingand monetary sanctions, and criminal sanctions. Any of these actions could have an adverse effect on the company’s business and subject the company to additional regulatory actions and costly litigation. With respect to patents,intellectual property, the company may be exposed to significant litigation concerning patents and products, challenges to the coverage and

new, different proposed class representatives, but in JanuaryIn 2007, the trial court found both new proposed class representatives to be inadequate. In October 2007,entered judgment in Baxter’s favor holding the Court of Appealspatents valid and infringed, and a jury assessed damages at $14 million for past sales only. On April 4, 2008, the U.S.D.C. for the Seventh Circuit dismissed plaintiffs’ appealNorthern District of this decision, effectively endingCalifornia granted Baxter’s motion for permanent injunction, and granted Baxter’s request for royalties on Fresenius’s sales of the suit as2008K hemodialysis machines during a class action.nine-month transition period before the permanent injunction takes effect. The order also granted a royalty on disposables. Fresenius has filed a notice of appeal.

In October 2004, a purported class action was filed in the U.S.D.C. for the Northern District of Illinois against Baxter and its current Chief Executive Officer and then current 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. The court denied defendants’ motion to dismiss but has allowed Baxter to seek an interlocutory appeal ofIn April 2008, the decision, which Baxter has done. Discovery is underway in this matter.

On October 12, 2005 the United States filed a complaint in the U.S.D.C. for the Northern District of Illinois to effect the seizure of COLLEAGUE and SYNDEO pumps that were on hold in Northern Illinois. Customer-owned pumps were not affected. On June 29, 2006, Baxter Healthcare Corporation, a direct wholly-owned subsidiary of Baxter, entered into a Consent Decree for Condemnation and Permanent Injunction with the United States to resolve this seizure litigation. The Consent Decree also outlines the steps the company must take to resume sales of new pumps in the United States. Additional third party claims may be filed in connection with the COLLEAGUE matter.

The company is a defendant, along with others, in over 50 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. TheIn April 2008, the court preliminarily approved a class settlement resolving Medicare Part B claims and independent health plan claims against Baxter and others, which had previously been reserved for by the company. Final approval of this settlement is expected later this year. Remaining lawsuits against Baxter include a number of cases brought by state attorneys general and New York entities, which seek unspecified damages, injunctive relief, civil penalties, disgorgement, forfeiture and restitution. In June 2006, Baxter settled the claims brought by the Texas Attorney General related to the unique requirements of the Texas reimbursement system. 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. Due

Baxter currently is a defendant in a number of lawsuits and subject to anticipated progress with respect to resolution of portions of the matter, during the third quarter of 2007,additional claims brought by individuals who have hemophilia and their families, all seeking damages for injuries allegedly caused by anti-hemophilic factor concentrates VIII or IX derived from human blood plasma (factor concentrates) processed by the company establishedand other acquired entities from the late 1970s to the mid-1980s. The typical case or claim alleges that the individual was infected with the HIV or HCV virus by factor concentrates that contained one or the other or both viruses. None of these cases involves factor concentrates currently processed by the company.

As of March 31, 2008, the company has been named as a $56 million reservedefendant, along with others, in approximately 125 lawsuits filed in various state and U.S. federal courts, seeking damages, injunctive relief and medical monitoring for this matter.claimants alleged to have contracted autism or attention deficit disorders as a result of exposure to vaccines for childhood diseases containing the preservative, thimerosal. These vaccines were formerly manufactured and sold by North American Vaccine, Inc., which was acquired by Baxter in June 2000, as well as by other companies.

Baxter 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:

TheBioSciencebusiness is a manufacturer ofmanufactures recombinant and plasma-based and recombinant proteins used to treat hemophilia. Other products includehemophilia and other bleeding disorders, plasma-based therapies to treat immune disorders, alpha 1-antitrypsin deficiencydeficiencies, biosurgery and other chronic blood-related conditions; albumin, used to treat burns and shock; products for regenerative medicine, such as proteins used in hemostasis, and wound-sealing and tissue regeneration; and vaccines. In addition,Prior to the divestiture of the TT business on February 28, 2007, the business also manufactured manual and automated blood and blood-component separation and collection systems (the TT

The following is a reconciliation of segment pre-tax income to income before income taxes per the consolidated income statements.

Refer to the company’s 20062007 Annual Report to Shareholders (2006 Annual Report) for management’s discussion and analysis of the financial condition and results of operations of the company for the year ended December 31, 2006.2007. The following is management’s discussion and analysis of the financial condition and results of operations of the company for the three and nine months ended September 30, 2007.March 31, 2008.

The primary driver of sales growth in the Recombinants product line during the thirdfirst quarter and first nine months of 20072008 was increased sales volume of the company’s advanced recombinant therapy, ADVATE (Antihemophilicfactor VIII therapies. Factor (Recombinant), Plasma/Albumin-Free Method) rAHF-PFM, which isVIII products are used in the treatment of hemophilia A, which is a bleeding disorder caused by a deficiency in blood clotting factor VIII. Sales growth of ADVATE was fueled by the continuing adoption of this therapy by customers of the advanced recombinant therapy, ADVATE (Antihemophilic Factor (Recombinant), Plasma/Albumin-Free Method) rAHF-PFM, with strong patient conversion in both the United States and international markets, and increased demand for new dosage forms that reduce both the volume of drug and infusion time required for hemophilia patients needing high doses of factor VIII. Sales of ADVATE totaled approximately $325 million in the first quarter of 2008, compared to $260 million in the first quarter of 2007.

Plasma Proteins include specialty therapeutics, such as FEIBA, an anti-inhibitor coagulant complex, and ARALAST (alpha 1-proteinase inhibitor (human)) for the treatment of hereditary emphysema, plasma-derived hemophilia treatments and albumin. Sales growth in the thirdfirst quarter and first nine months of 20072008 was driven by strong volume growthsales of FEIBA, particularly in Europe, improved pricing of albumin, in the United States, and the continuing launch of FLEXBUMIN [Albumin (Human)], an (an albumin therapy packaged in flexible containers, incontainers), FEIBA and ARALAST, with both volume and pricing improvements contributing to the United States. Also impacting sales growth particularly in the third quarter, were strong sales of plasma-derived factor VIII due to increased volume and improved pricing. Sales growth in both periods was also favorably impacted by foreign currency fluctuations.these products.

Higher sales of the liquid formulation of IVIG (intravenous immunoglobulin)IGIV (immune globulin intravenous), which is used in the treatment of immune deficiencies, spurredfueled sales growth during the thirdfirst quarter and first nine months of 2007,2008, with increased volume, driven by strong patient conversion from lyophilized IVIG to the liquid formulation, and continuing improvements in pricing in the United States and Europe.Europe, and continuing customer conversions to the liquid formulation for the product. Because it does not need to be reconstituted prior to infusion, the higher-yielding liquid formulation offers added convenience for clinicians and patients.

This product line principally includes plasma-based and non-plasma-based biosurgery products for hemostasis (the stoppage of bleeding), wound-sealing and tissue regeneration. Growth in both the thirdfirst quarter and first nine months of 20072008 was principally driven by increased sales volume of the company’s sealants, FloSealFLOSEAL and CoSeal.COSEAL sealants.

The transfusion therapies product line included products and systems for use in the collection and preparation of blood and blood components. See Note 3 for information regarding the company’s February 28, 2007 sale of substantially all of the assets and liabilities of this business.

Other BioScience products primarily consist of vaccines and sales of plasma to third parties. The decrease in sales in this product line in the thirdfirst quarter of 2008 was primarily due to the transfer of marketing and distribution rights for recombinant FIX (BeneFIX) back to Wyeth effective June 30, 2007. Sales of BeneFIX were approximately $110 million in 2007 through the June 30, 2007 transition date, and approximately $45 million and $130$50 million in the thirdfirst quarter andof 2007. Also contributing to the decrease in sales were large shipments of candidate H5N1 influenza vaccine to various governments worldwide in the first nine monthsquarter of 2006, respectively.2007. Partially offsetting this impactthese declines in the quarter was approximately $15 million of milestone revenue associated with the development of a candidate pandemic vaccine and a seasonal influenza vaccine for the U.S. government, andwere strong international sales of FSME Immun (for the prevention of tick-borne encephalitis) and NeisVac-C (for the prevention of meningitis C). Sales growth in the first nine months of 2007 was driven by increased sales of FSME Immun and NeisVac-C, sales related, principally due to shipments of influenza vaccines for government stockpiles around the world, and the favorable impact of foreign currency fluctuations.pricing improvements. Sales of vaccines may fluctuate from period to period based on the timing of government tenders and new supply agreements, and are generally higher in the first half of the year as a result of increased seasonal usage of certain vaccines, such as FSME Immun.agreements.

Net sales for the Medication Delivery segment increased 10%8% during the thirdfirst quarter and 7% for the nine months ended September 30, 2007of 2008 (including a 4 and 36 percentage point favorable impact from foreign currency fluctuations in the three and nine months ended September 30, 2007, respectively)fluctuations).

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