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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “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 April 30,July 23, 2009 was 605,024,157602,710,587 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 (SEC).Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (GAAP) in the United States 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 2008 Annual Report to Shareholders (2008 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, 2009, the company adopted SFAS No. 141 (revised 2007), “Business Combinations” (SFAS No. 141-R). The new standard changes the accounting for business combinations in a number of significant respects. The key changes include the expansion of transactions that will qualify as business combinations, the capitalization of in-process research and development (IPR&D) as an indefinite-lived asset, the recognition of certain acquired contingent assets and liabilities at fair value, the expensing of acquisition costs, the expensing of costs associated with restructuring the acquired company, the recognition of contingent consideration at fair value on the acquisition date, and the recognition of post-acquisition date changes in deferred tax asset valuation allowances and acquired income tax uncertainties as income tax expense or benefit. The new standard was applicable for acquisitions made by the company on or after January 1, 2009, including the April 2009 arrangement with SIGMA. Refer to Note 2 for further information.

On January 1, 2009, the company adopted Statement of Financial Accounting Standards (SFAS)SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (SFAS No. 160). The new standard changed the accounting and reporting of noncontrolling interests, which have historically been referred to as minority interests. SFAS No. 160 requires that noncontrolling interests be presented in the consolidated balance sheets within equity, but separate from Baxter shareholders’ equity, and that the amount of consolidated net income attributable to Baxter and to the noncontrolling interests be clearly identified and presented in the consolidated statements of income. Any losses in excess of the noncontrolling interest’s equity interest will continue to be allocated to the noncontrolling interest. Purchases or sales of equity interests that do not result in a change of control will beare accounted for as equity transactions. Upon a loss of control the interest sold, as well as any interest retained, will beis measured at fair value, with any gain or loss recognized in earnings. In partial acquisitions, when control is obtained, Baxter recognizes, at fair value, 100% of the assets and liabilities, including goodwill, are recognized at fair value as if the entire target company had been acquired. The new standard has been applied prospectively as of January 1, 2009, except for the presentation and disclosure requirements, which have been applied retrospectively for prior periods presented. Prior to the adoption of SFAS No. 160, the noncontrolling interests’ share of net income was included in other (income) expense, (income), net in the

consolidated statement of income and the noncontrolling interests’ equity was included in other long-term liabilities in the consolidated balance sheet.

In December 2008, the Financial Accounting Standards Board (FASB)FASB issued FASB Staff Position (FSP)FSP FAS No. 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets” (FSP FAS No. 132(R)-1). This FSP expands the disclosure requirements relating to pension and other postretirement benefits to require enhanced disclosures about how investment allocation decisions are made and the investment policies and strategies that support those decisions, major categories of plan assets, the input and valuation techniques used in measuring plan assets at fair value, and significant concentrations of credit risk within plan assets. The company will include the disclosures required by this standard beginning with its 2009 year-end consolidated financial statements.

Certain reclassifications have been made to conform the prior periodperiods consolidated financial statements and notes to the current period presentation, including reclassifications related to the company’s adoption of SFAS No. 160.

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

Baxter expects to reduce the gross amount of its liability for uncertain tax positions within the next 12 months by approximately $330 million due to the expiration of a lowerloss carryforward, the expiration of certain statutes of limitations related to tax rate associated withbenefits taken in respect of losses from restructuring certain international operations, and the COLLEAGUE infusion pump charge recorded insettlements of certain multi-jurisdictional transfer pricing issues. While there continues to be a reasonable possibility that period. Refer to Note 3 for further information on the COLLEAGUE charge.resolution of these items will be at amounts other than the amounts of the liabilities, the company also believes the reserves are adequate.

The numerator for both basic and diluted earnings per share (EPS) is net income attributable to Baxter. 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, performance share units and restricted stock units is reflected in the denominator for diluted EPS using the treasury stock method.

The following is a reconciliation of basic shares to diluted shares.

The computation of diluted EPS excludes employee stock options to purchase 23 million and 8 million shares for the three months ended June 30, 2009 and 2008, respectively, and 17 million and 8 million shares for the first quarters ofsix months ended June 30, 2009 and 2008, respectively, 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.

Goodwill acquired during the period related to the consolidation of SIGMA within the Medication Delivery segment. See “Acquisitions of and investments in businesses and technologies” below for further information regarding SIGMA. As of March 31,June 30, 2009, the company has recorded no goodwill impairment losses since its adoption of SFAS No. 142, “Goodwill and Other Intangible Assets.”

The following is a summary of the company’s intangible assets subject to amortization at March 31,June 30, 2009 and December 31, 2008.

receives regulatory approval. Milestone payments made to the partner subsequent to regulatory approval are capitalized as intangible assets and amortized to cost of sales over the useful life of the related asset. Royalty payments are expensed as cost of sales when they become due and payable. Any purchases of raw materials from the partner during the development stage are expensed as R&D, while such purchases during the commercialization phase are capitalized as inventory and recognized as cost of sales when the related finished products are sold. Baxter generally records the amount invoiced to the third-party customer for the finished product as sales, as Baxter is the principal and primary obligor in the arrangement.

Payments to collaborative partners classified in cost of sales were not significant in the quarterssix months ended March 31,June 30, 2009 and March 31, 2008. Payments to collaborative partners classified in R&D expense principally related to the BioScience segment and totaled approximately 7% and 8%6% of total R&D expense in both the first quarters ofsix months ended June 30, 2009 and 2008, respectively.2008. The payments principally related to the development of tissue repair products, longer-acting forms of blood clotting proteins to treat hemophilia and a next-generation home hemodialysis device.

The company’s commercial product collaborative arrangements generally provide for a sharing of manufacturing, marketing or distribution activities between Baxter and the partner, along with a sharing of the related profits. The nature and split of the shared activities varies, sometimes split by type of activity and sometimes split by geographic area.

The entity that invoices the third-party customer is generally the principal and primary obligor in the arrangement and therefore records the invoiced amount as a sale. Cost-sharing payments are generally recorded in cost of sales. Baxter’s payments to partners under these types of arrangements totaled less than 1% of total cost of sales in both the firstsix months ended June 30, 2009 and 2008.

In June 2009, the company signed a definitive agreement with Edwards Lifesciences Corporation (Edwards) for the acquisition of certain assets related to Edwards’ hemofiltration product line, also known as Continuous Renal Replacement Therapy (CRRT). CRRT mimics the function of the kidneys 24 hours a day for patients with life-threatening kidney injuries or edema (fluid overload). The transaction is expected to close in the third quarter of 2009, pending regulatory approvals. Under the terms of the agreement, Baxter will provide Edwards an initial cash payment of approximately $56 million upon the close of the transaction. Additionally, Baxter will receive transition services from Edwards and is expected to pay Edwards up to an additional $9 million based on revenue objectives expected to be achieved over the first quarter of 2008.next two years. This Renal segment transaction is not expected to have a material impact on Baxter’s 2009 consolidated financial statements.

reduce the earnings and equity volatility resulting from foreign exchange. The recent financial market and currency volatility may reduce the benefits of the company’s natural hedges and limit the company’s ability to cost-effectively hedge these exposures.

The company is also exposed to the risk that its earnings and cash flows could be adversely impacted by fluctuations in interest rates. The company’s policy is to manage interest costs using a mix of fixed- and floating-rate debt that the company believes is appropriate. To manage this mix in a cost-efficient manner, the company periodically enters into interest rate swaps in which the company agrees to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional amount.

The company does not hold any instruments for trading purposes and none of the company’s outstanding derivative instruments contain credit-risk-related contingent features.

All derivative instruments subject to SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (SFAS No. 133) and its amendments are recognized as either assets or liabilities at fair value in the consolidated balance sheets and are classified as short-term or long-term based on the scheduled maturity of the instrument. Based upon the exposure being hedged, the company designates its hedging instruments as cash flow or fair value hedges.

The company uses options, including collars and purchased options, forwards and cross-currency swaps to hedge the foreign exchange risk to earnings relating to forecasted transactions denominated in foreign currencies and recognized assets and liabilities. The company periodically uses forward-starting interest rate swaps and treasury rate locks to hedge the risk to earnings associated with movements in interest rates relating to anticipated issuances of debt. Certain other firm commitments and forecasted transactions are also periodically hedged. Cash flow hedges primarily relate to forecasted intercompany sales denominated in foreign currencies, anticipated issuances of debt and a hedge of U.S. Dollar-denominated debt issued by a foreign subsidiary and anticipated issuances of debt.subsidiary.

For each derivative instrument that is designated and effective as a cash flow hedge, the gain or loss on the derivative is accumulated in accumulated other comprehensive income (AOCI), a component of equity, and then recognized in earnings consistent with the underlying hedged item. Option premiums or net premiums paid are initially recorded as assets and reclassified to other comprehensive income (OCI) over the life of the option, and then recognized in earnings consistent with the underlying hedged item.

The notional amounts of foreign exchange contracts, interest rate contracts and cross-currency swaps (used to hedge U.S. Dollar-denominated debt issued by a foreign subsidiary) were $1.9$1.7 billion, $700$450 million and $500 million, respectively, as of March 31,June 30, 2009.

As of March 31,June 30, 2009, $43$10 million of deferred, net after-tax gains on derivative instruments included in AOCI are expected to be recognized in earnings during the next 12 months, coinciding with when the hedged items are expected to impact earnings.

The maximum term over which the company has cash flow hedge contracts in place related to forecasted transactions at March 31,June 30, 2009 is 1518 months.

The company uses interest rate swaps to convert a portion of its fixed-rate debt into variable-rate debt. These instruments hedge the company’s earnings from changes in the fair value of debt due to fluctuations in the

the cumulative fair value adjustment to the hedged items at the date of termination is amortized to earnings over the remaining term of the hedged item. In the second quarter of 2009, the company terminated $250 million of its interest rate contracts, resulting in a net gain of $5 million that was deferred in AOCI.

The company uses forward contracts to hedge earnings from the effects of foreign exchange relating to certain of the company’s intercompany and third-party receivables and payables denominated in a foreign currency. These derivative instruments are generally not formally designated as hedges, and the change in fair value of the instruments, which substantially offsets the change in book value of the hedged items, is recorded directly to other (income) expense, (income), net. Generally, the terms of these instruments do not exceed one month.

The total notional amount of undesignated derivative instruments was $329$399 million as of March 31,June 30, 2009.

The following table summarizestables summarize the locations and gains and losses on the company’s derivative instruments for the three and six months ended March 31,June 30, 2009.

The following table summarizes the location and fair value amounts of derivative instruments reported in the consolidated balance sheet as of March 31,June 30, 2009.

Stock compensation expense totaled $38$36 million and $35 million for both the three months ended March 31,June 30, 2009 and 2008.2008, respectively, and $74 million and $73 million for the six months ended June 30, 2009 and 2008, respectively. Approximately three-quarters of stock compensation expense is classified in marketing and administrative expenses, with the remainder classified in cost of sales and R&D expenses.

In March 2009, the company awarded its annual stock compensation grants, which consisted of approximately 6.7 million stock options and 580,000 performance share units (PSUs). Stock compensation grants made in the second quarter of 2009 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 grant date fair values, were as follows.

As of March 31,June 30, 2009, unrecognized compensation cost related to all unvested PSUs of $64$53 million is expected to be recognized as expense over a weighted-average period of 2.11.9 years, and unrecognized compensation cost related to all unvested restricted stock units of $12$11 million is expected to be recognized as expense over a weighted-average period of 1.81.7 years.

As authorized by the board of directors, from time to time the company repurchases its stock depending upon the company’s cash flows, net debt level and current market conditions. During the three-month periodthree- and six-month periods ended March 31,June 30, 2009, the company repurchased 10.16.1 million shares and 16.2 million shares for $566$300 million and $866 million, respectively, under the board of directors’ March 2008 $2.0 billion share repurchase authorization. At March 31,June 30, 2009, $600$300 million remained available under this authorization.