Earnings Baxter International Inc. July 25, 2019 Safe Harbor - - PowerPoint PPT Presentation

July 25, 2019 Baxter International Inc.

Second-Quarter 2019 Earnings

Safe Harbor Statement

2

This presentation includes forward-looking statements concerning Baxter’s financial results, business development activities, capital structure, cost savings initiatives, R&D pipeline, including results of clinical trials and planned product launches, and financial outlook for third quarter and full year 2019. 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 of risks for new and existing products; product development risks; product quality or patient safety concerns; continuity, availability and pricing of acceptable raw materials and component supply; inability to create additional production capacity in a timely manner or the occurrence of other manufacturing or supply difficulties (including as a result of a natural disaster or otherwise); breaches or failures of the company’s information technology systems or products, including by cyberattack, unauthorized use or theft; future actions of regulatory bodies and other governmental authorities, including FDA, the Department of Justice, the New York Attorney General and foreign regulatory agencies; proposed regulatory changes of the U.S. Department of Health and Human Services in kidney health policy (AAKHI) and reimbursement, which may substantially change the U.S. ESRD market and demand for our peritoneal dialysis products, necessitating significant multi-year capital expenditures which are difficult to estimate in advance; failures with respect to compliance programs; accurate identification of and execution on business development and R&D

• pportunities and realization of anticipated benefits (including the acquisitions of Claris Injectables and two surgical products from Mallinckrodt

plc); future actions of third parties, including payers; U.S. healthcare reform and other global austerity measures; pricing, reimbursement, taxation and rebate policies of government agencies and private payers; the impact of competitive products and pricing, including generic competition, drug reimportation and disruptive technologies; global, trade and tax policies; the ability to enforce owned or in-licensed patents or the patents of third parties preventing or restricting the manufacture, sale or use of affected products or technology; the impact of global economic conditions (including potential trade wars); fluctuations in foreign exchange and interest rates; any change in law concerning the taxation of income (including current or future tax reform), including income earned outside the United States and potential taxes associated with the Base Erosion and Anti-Abuse Tax; actions taken by tax authorities in connection with ongoing tax audits; loss of key employees or inability to identify and recruit new employees; the outcome of pending or future litigation; the adequacy of the company’s cash flows from

• perations to meet its ongoing cash obligations and fund its investment program; and other risks identified in Baxter’s most recent filing on Form

10-K and other Securities and Exchange Commission filings, all of which are available on Baxter’s website. Baxter does not undertake to update its forward-looking statements.

Use of Non-GAAP Financial Measures

3

To supplement Baxter’s consolidated financial statements presented on a GAAP basis, the Company discloses certain non-GAAP financial

• measures. These non-GAAP financial measures are not in accordance with generally accepted accounting principles in the United States.

A reconciliation of the non-GAAP financial measures included in this document to the corresponding GAAP measures follows in the section titled Non-GAAP Reconciliations. In addition, an explanation of the ways in which Baxter management uses these supplemental non-GAAP measures to evaluate its business and the substantive reasons why Baxter management believes that these non-GAAP measures provide useful information to investors is included within Item 2.02 in the Company’s most recent earnings release filed with the SEC on Form 8-K on July 25, 2019. This information should be considered in addition to, and not as substitutes for, information prepared in accordance with GAAP. Baxter strongly encourages investors to review its consolidated financial statements and publicly filed reports in their entirety and cautions investors that the non-GAAP measures used by the Company may differ from similar measures used by other companies, even when similar terms are used to identify such measures. Non-GAAP financial metrics used in this presentation include constant currency sales growth and operational sales growth, adjusted gross margin, adjusted operating margin, adjusted diluted EPS, free cash flow, adjusted SG&A expense, adjusted R&D expense, and adjusted

• perating expense. A reconciliation to comparable GAAP measures can be found herein and is available at www.baxter.com.

Performance Highlights

4

Second-Quarter 2019 First-Half 2019

$2.8B

Sales

(0%) Reported +4% Constant Currency1 +4% Operational2 Key Metrics GAAP Adjusted3 Key Metrics GAAP Adjusted3 Gross Margin 40.8% 44.5% Gross Margin 40.9% 44.1%

YOY Change (280 bps) (100 bps) YOY Change (170 bps) (50 bps)

Operating Margin 12.5% 18.0% Operating Margin 13.5% 17.6%

YOY Change (100 bps) +90 bps YOY Change (130 bps) +70 bps

Earnings Per Share $0.66 $0.89 Earnings Per Share $1.33 $1.66

YOY Change +5% +16% YOY Change Flat +13%

$5.5B

Sales

(1%) Reported +3% Constant Currency1 +3% Operational2

1Excludes the impact of foreign currency. 2Excludes the impact of foreign currency and generic competition for U.S. cyclophosphamide. 3Non-GAAP financial metrics referenced in this slide include constant currency sales

growth and operational sales growth, adjusted gross margin, adjusted operating margin, and adjusted diluted EPS. A reconciliation to comparable GAAP measures can be found herein and is available at www.baxter.com.

Performance Summary 7

Table of Contents

12 Financial Results 22 2019 Outlook 27 Non-GAAP Reconciliations

6

Strengthen our portfolio and extend our impact through transformative innovation that spans prevention to recovery

Ou Our St Strat rategy egy Top

• p Qu

Quar artile tile Goals

• als

Industry leading performance Best place to work Product safety and Quality Growth through innovation

1Non-GAAP financial metrics referenced in this slide include operational sales growth and adjusted diluted EPS. A reconciliation to comparable GAAP measures can be found herein

and is available at www.baxter.com. 2Expanded Hemodialysis. 3Oxiris is not approved for use in the U.S. 4As announced by the White House on 7/10/19.

7

Executing On Our Strategy

Second-Quarter 2019 Highlights

Building Momentum With Strong Focus On Operational Performance1

▪ Delivered 4% operational sales growth reflecting impact of innovation and emphasis on operational excellence ▪ Adjusted diluted EPS growth of 16% driven by solid operational performance, a lower tax rate, and a reduced share count

Investing In Growth Opportunities And Executing On A Robust Pipeline Of Launches

▪ Announced FDA approval for Myxredlin and launch of Sharesource 2.0 clinical portal; showcased five independent studies contributing to

growing body of evidence for HDx2 therapy using the Theranova dialyzer; announced new research on Oxiris3 filter

▪ Anticipate scaling of investments in U.S. PD manufacturing capabilities to help drive home dialysis adoption in support of the Advancing

American Kidney Health Initiative4

Delivering Enhanced Value For Shareholders

▪ Announced 16% increase of quarterly dividend payment to $0.22 per share ▪ Maintained financial optionality while thoroughly assessing high-value capital investment opportunities

Creating A Best Place To Work And Demonstrating Leadership In Corporate Social Responsibility

▪ Recognized as a 2019 Best Company For Multicultural Women by Working Mother magazine and named to Forbes magazine’s 2019 list of

America’s Best Employers for Women

▪ Issued annual Corporate Responsibility Report, highlighting Baxter’s global impact and environmental stewardship in 2018 ▪ Committed $2.2 million to Operation Smile to increase the availability of safe surgical care for cleft conditions in India

Second-Quarter Performance Supports Increased Confidence In Full-Year Outlook; Raising Adjusted EPS Guidance Range To $3.34 - $3.40

Q2 2018 Q2 2019

Continuing Momentum Of Key Financial Metrics

Second-Quarter 2019 Snapshot1

1Non-GAAP financial metrics referenced in this slide include operational sales growth, adjusted operating margin, and adjusted diluted EPS. A reconciliation to comparable GAAP measures can

be found herein and is available at www.baxter.com. 2Q2 2019 operational sales growth excludes the impact of foreign currency of approximately 4% and U.S. cyclophosphamide competition

• f approximately 0%; GAAP sales were unchanged compared to Q2 2018.

8

Global Reported Sales

~$2.8B ~$2.8B

+4% +4%

Q2 2018 Q2 2019

Adjusted Operating Margin

+90 bps

17.1% 18.0%

Q2 2018 Q2 2019

Adjusted Diluted EPS

+16%

$0.77 $0.89

Operational Growth2

Strong Performance Driving Growth Across Portfolio

Second-Quarter 2019 Business Drivers1,2

9

Renal Care

$910M, +3% Constant Currency Global growth in PD therapies partially offset by lower sales for select U.S. in-center HD products and impact of Revaclear dialyzer recall and temporary supply constraints

Medication Delivery

$689M, +4% Constant Currency Growth driven by continued uptake of Spectrum IQ and Evo IQ infusion systems as well as demand for Mini-Bag Plus in the U.S. and Large Volume IV Solutions internationally

Pharmaceuticals

$539M, +4% Constant Currency Strength in hospital pharmacy compounding services and injectable premixed drugs partially offset by lower sales of U.S. Brevibloc and cyclo

Clinical Nutrition

$215M, +2% Constant Currency Solid performance in international markets; continued focus on rebuilding momentum supported in part by recent launches

Advanced Surgery

$232M, +17% Constant Currency Increased demand for hemostats and sealants portfolio augmented by ability to address competitive supply constraints

Acute Therapies

$133M, +8% Constant Currency Growth driven by new product launches and global demand for CRRT3

1Sales and related figures represent Q2 2019; Other sales represent ~$0.1B. 2Non-GAAP financial metrics referenced in this slide include constant currency sales growth. A reconciliation to comparable

GAAP measures can be found herein and is available at www.baxter.com. 3Continuous Renal Replacement Therapy.

Second-Quarter 2019 Sales And Adjusted Earnings1

10

1Non-GAAP financial metrics referenced in this slide include constant currency sales growth, operational sales growth, and adjusted diluted EPS. A reconciliation to comparable GAAP measures can be

found herein and is available at www.baxter.com for information regarding non-GAAP financial metrics used in this slide, including constant currency and operational sales and adjusted diluted EPS.

Metric Q2 2019

Guidance

Q2 2019

Actual

Sales Growth

Reported

(~2%) (0%) Sales Growth

Constant Currency

~2% +4% Sales Growth

Operational

2% - 3% +4% Adjusted Diluted EPS

Growth vs. Prior-Year Period

$0.80 - $0.82

4% – 6%

$0.89

+16%

► Announced U.S. FDA approval of Myxredlin, the first and only ready-to-use insulin for IV infusion in the hospital and other acute care settings. Utilizing Baxter’s proprietary Galaxy container technology, Myxredlin offers an extended shelf life and delivers a consistent, stable concentration with every administration, which is a key consideration for patient safety. ► Launched the Sharesource 2.0 clinical portal, giving healthcare providers greater insights to their patients’ home PD treatments while offering improved clinic workflow. ► Announced new research on the Oxiris filter2, which can be used simultaneously in CRRT3 and in the removal of cytokines and endotoxin to aid in the management of acute kidney injury (AKI) patients with sepsis. ► Highlighted five independent studies on HDx4 using the Theranova dialyzer, further advancing a growing body of evidence for the therapy.

Advancing Our New Product Portfolio

Recent R&D And Commercial Milestones1

11

1See www.baxter.com for original press releases with additional product information. 2Oxiris is not approved for use in the U.S. 3Continuous Renal Replacement Therapy. 4Expanded hemodialysis.

Ready-to-use Myxredlin Sharesource 2.0 Clinical Portal Theranova dialyzer Oxiris filter

July 25, 2019

Second-Quarter 2019 Earnings

Financial Results

12

Second-Quarter 2019 Sales By Global Business Unit1

13

Q2 2019 Revenue Total Growth

$ In Millions U.S. International Total Reported Constant Operational Renal Care $196 $714 $910 (2%) +3% +3% Medication Delivery $441 $248 $689 +1% +4% +4% Pharmaceuticals $235 $304 $539 +0% +4% +7% Clinical Nutrition $79 $136 $215 (3%) +2% +2% Advanced Surgery $143 $89 $232 +14% +17% +17% Acute Therapies $44 $89 $133 +3% +8% +8% Other $55 $67 $122 (12%) (9%) (9%) Total Baxter $1,193 $1,647 $2,840 (0%) +4% +4%

1Non-GAAP financial metrics referenced in this slide include constant currency sales growth and operational sales growth.

A reconciliation to comparable GAAP measures can be found herein and is available at www.baxter.com.

First-Half 2019 Sales By Global Business Unit1

14

H1 2019 Revenue Total Growth

$ In Millions U.S. International Total Reported Constant Operational Renal Care $388 $1,373 $1,761 (2%) +3% +3% Medication Delivery $847 $476 $1,323 (3%) (0%) (0%) Pharmaceuticals $467 $581 $1,048 +1% +5% +8% Clinical Nutrition $156 $264 $420 (5%) (1%) (1%) Advanced Surgery $263 $167 $430 +11% +15% +15% Acute Therapies $92 $169 $261 +1% +6% +6% Other $100 $129 $229 (5%) (2%) (2%) Total Baxter $2,313 $3,159 $5,472 (1%) +3% +3%

1Non-GAAP financial metrics referenced in this slide include constant currency sales growth and operational sales growth.

A reconciliation to comparable GAAP measures can be found herein and is available at www.baxter.com.

Second-Quarter 2019 Sales By Operating Segment1

1Non-GAAP financial metrics referenced in this slide include constant currency sales growth and operational sales growth.

A reconciliation to comparable GAAP measures can be found herein and is available at www.baxter.com. 15

Q2 2019 Revenue Total Growth

$ In Millions Reported Reported Constant Operational

Americas

(North and South America)

$1,520 (0%) +1% +2% EMEA

(Europe, Middle East and Africa)

$744 (2%) +6% +6% APAC

(Asia Pacific)

$576 +3% +9% +9% Total Baxter $2,840 (0%) +4% +4%

First-Half 2019 Sales By Operating Segment1

16

H1 2019 Revenue Total Growth

$ In Millions Reported Reported Constant Operational

Americas

(North and South America)

$2,928 (1%) 0% +1% EMEA

(Europe, Middle East and Africa)

$1,449 (2%) +5% +5% APAC

(Asia Pacific)

$1,095 +2% +8% +8% Total Baxter $5,472 (1%) +3% +3%

1Non-GAAP financial metrics referenced in this slide include constant currency sales growth and operational sales growth.

A reconciliation to comparable GAAP measures can be found herein and is available at www.baxter.com.

Second-Quarter 2019 Adjusted Financial Results1

17

Q2 2018 Q2 2019 Change

Adjusted Gross Margin

45.5% 44.5% (100 bps)

Adjusted SG&A Expense

(% of Sales)

22.6% 21.5% (110 bps)

Adjusted R&D Expense

(% of Sales)

5.8% 5.0% (80 bps)

Adjusted Operating Margin

17.1% 18.0% +90 bps

Adjusted Diluted EPS

$0.77 $0.89 +16%

1Non-GAAP financial metrics referenced in this slide include adjusted gross margin, adjusted SG&A expense, adjusted R&D expense, adjusted operating margin,

and adjusted diluted EPS. A reconciliation to comparable GAAP measures can be found herein and is available at www.baxter.com.

First-Half 2019 Adjusted Financial Results1

18

H1 2018 H1 2019 Change

Adjusted Gross Margin

44.6% 44.1% (50 bps)

Adjusted SG&A Expense

(% of Sales)

22.3% 21.9% (40 bps)

Adjusted R&D Expense

(% of Sales)

5.5% 4.7% (80 bps)

Adjusted Operating Margin

16.9% 17.6% +70 bps

Adjusted Diluted EPS

$1.47 $1.66 +13%

1Non-GAAP financial metrics referenced in this slide include adjusted gross margin, adjusted SG&A expense, adjusted R&D expense, adjusted operating margin,

and adjusted diluted EPS. A reconciliation to comparable GAAP measures can be found herein and is available at www.baxter.com.

Driving Operational Excellence Across the Company

Second-Quarter Adjusted Operating Margin Expansion1

1Non-GAAP financial metrics referenced in this slide include adjusted gross margin, adjusted SG&A expense, adjusted R&D expense, adjusted operating expense, and adjusted operating margin. A

reconciliation to comparable GAAP measures can be found herein and is available at www.baxter.com. 2Adjusted operating expense equals adjusted SG&A expense plus adjusted R&D expense.

19

17.1% (100 bps) 18.0% 190 bps Key Drivers:

▪ Benefits from manufacturing improvements and portfolio optimization initiatives offset by lower sales of U.S. cyclo and Brevibloc and less favorable product mix ▪ Continued discipline in driving expense leverage and operational efficiency through business transformation initiatives ▪ Strategically investing in innovation pipeline and successful commercial execution Adjusted Gross Margin Adjusted OpEx2 Q2 2018 Q2 2019

Expect Full-Year 2019 Adjusted Operating Margin Expansion of Approximately 80 - 100 bps Over Full-Year 2018

H1 2018 H1 2019

Maintaining Focus On Cash Flow Generation1

1Non-GAAP financial metrics referenced in this slide include free cash flow. A reconciliation to comparable GAAP measures can be found herein and is available at www.baxter.com. 2Operating cash flow less capital expenditures. 20

H1 2018 H1 2019

Operating Cash Flow $852M $617M

H1 2018 H1 2019

Capital Expenditures $311M $352M Free Cash Flow2 $541M $265M

Strategically Deploying Capital To Fuel Growth And Create Value

21

Reinvestment in Business

Investing in higher-margin, faster-growing businesses to drive meaningful innovation and enable accelerating launch cadence

Dividend Issuance

Announced 16% increase in quarterly dividend; currently targeting ~35% dividend payout ratio over time

Share Repurchases

Returned value directly to shareholders with ~$720 million of share repurchases in first half of 2019

Strategic M&A

Continuing rigorous assessment of business development and licensing

• pportunities

22

July 25, 2019

Second-Quarter 2019 Earnings

Full-Year 2019 Outlook

Full-Year 2019 Sales Guidance1

1Non-GAAP financial metrics referenced in this slide include constant currency sales growth and operational sales growth.

A reconciliation to comparable GAAP measures can be found herein and is available at www.baxter.com. 23

Full-Year 2019

Prior Guidance

Full-Year 2019

Current Guidance

Sales Growth

Reported

0% - 1% 1% - 2%

Foreign Exchange 200+ bps 200+ bps

Sales Growth

Constant Currency

2% - 3% ~4%

U.S. Cyclo Competition <100 bps <50 bps

Sales Growth

Operational

3% - 4% ~4%

Full-Year 2019 Financial Guidance1

1Non-GAAP financial metrics referenced in this slide include adjusted operating margin, adjusted diluted EPS, and free cash flow.

A reconciliation to comparable GAAP measures can be found herein and is available at www.baxter.com. 24

Full-Year 2019

Prior Guidance

Full-Year 2019

Current Guidance

Adjusted Operating Margin 18.2% - 18.4% 18.2% - 18.4% Adjusted Diluted EPS

Growth vs. Prior-Year Period

$3.27 - $3.35

7% - 10%

$3.34 - $3.40

10% - 11%

Operating Cash Flow ~$2.3B ~$2.3B Free Cash Flow ~$1.6B ~$1.6B

Full-Year 2019 Sales Guidance By Business1,2

1Non-GAAP financial metrics referenced in this slide include constant currency sales growth and operational sales growth. A reconciliation to comparable GAAP measures

can be found herein and is available at www.baxter.com. 2LSD represents low-single-digit; MSD represents mid-single-digit; HSD represents high-single-digit. 25

Full-Year 2019

Constant Currency

Full-Year 2019

Operational

Renal Care ~2% ~2% Medication Delivery ~6% ~6% Pharmaceuticals LSD Increase MSD Increase Clinical Nutrition ~3% ~3% Advanced Surgery HSD Increase HSD Increase Acute Therapies 7% – 8% 7% – 8% Other LSD to MSD Decline LSD to MSD Decline Total Baxter ~4% ~4%

Third-Quarter 2019 Financial Guidance1

26

Third-Quarter 2019

Guidance

Sales Growth

Reported

3% - 4%

Foreign Exchange 100+ bps

Sales Growth

Constant Currency

~5%

U.S. Cyclo Competition <50 bps

Sales Growth

Operational

~5% Adjusted Diluted EPS

Growth vs. Prior-Year Period

$0.82 - $0.84

3% – 5%

1Non-GAAP financial metrics referenced in this slide include constant currency sales growth, operational sales growth, and adjusted diluted EPS.

A reconciliation to comparable GAAP measures can be found herein and is available at www.baxter.com.

July 25, 2019

Second-Quarter 2019 Earnings

Non-GAAP Reconciliations

27

Non-GAAP Reconciliation as of July 25, 2019

28

Non-GAAP Reconciliations:

As part of its Q2 2019 earnings announcement on July 25, 2019, Baxter presented its financial results for Q2 2019, Q2 2018, and the related year to date periods. Baxter also presented guidance for Q3 2019 and FY 2019. In these presentations, Baxter used non-GAAP financial measures of sales growth (on a constant currency and operational basis), adjusted gross margin, adjusted operating margin, adjusted diluted earnings per share, free cash flow, adjusted selling, general and administrative expense (on a reported and constant currency basis), adjusted research and development expense (on a reported and constant currency basis), and adjusted tax rate. The reconciliations set forth below reconcile the non-GAAP measures set forth in this presentation for historical periods to the most directly comparable GAAP measures.

Description of Adjustments and Reconciliation of GAAP to Non-GAAP Measures

Three Months Ended June 30, 2019 and 2018

(unaudited) (in millions, except per share and percentage data) 29 The company's GAAP results for the three months ended June 30, 2019 and 2018 included special items which impacted the GAAP measures as follows:

2019 2019 2018 Change Gross Margin $1,159 $1,239 (6%) Intangible asset amortization expense 1

1

45 45 44 Intangible asset impairment 2 31 31 — Business optimization items 3 10 10 3 Acquisition and integration expenses 4 12 12 6 European medical devices regulation 5 6 — Adjusted Gross Margin $1,263 $1,292 (2%) % of Net Sales 44.5% 45.5% (1.0 pts) Selling, General and Administrative Expenses $642 $642 $681 (6%) Business optimization items 3 (32) (34) Acquisition and integration expenses 4 — (6) Adjusted Selling, General and Administrative Expenses $610 $610 $641 (5%) % of Net Sales 21.5% 22.6% (1.1 pts) Research and Development Expenses $166 $166 $174 (5%) Business optimization items 3 (23) (10) Acquisition and integration expenses 4 (2) — Adjusted Research and Development Expenses $141 $141 $164 (14%) % of Net Sales 5.0% 5.8% (0.8 pts) Other Operating Income, Net $(4) $— NM Acquisition and integration expenses 4 $4 $4 — Adjusted Other Operating Income $— $— 0% % of Net Sales 0.0% 0.0% 0.0 pts Three Months Ended June 30, 2019 2019 2018 Change Operating Income $355 $355 $384 (8%) Impact of special items 157 103 Adjusted Operating Income $512 $512 $487 5% % of Net Sales 18.0% 17.1% 0.9 pts Income Before Income Taxes $363 $363 $404 (10%) Impact of special items 157 157 103 Adjusted Income Before Income Taxes $520 $520 $507 3% Income Tax Expense $20 $20 $61 (67%) Impact of special items 6 36 36 25 Adjusted Income Tax Expense $56 $56 $86 (35%) % of Adjusted Income Before Income Taxes 10.8% 17.0% (6.2 pts) Net Income $343 $343 $343 0% Impact of special items 121 121 78 Adjusted Net Income $464 $464 $421 10% Diluted EPS from Net Income $0.66 $0.63 5% Impact of special items 0.23 0.14 Adjusted Diluted EPS from Net Income $0.89 $0.77 16% WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Diluted 519 519 547 Three Months Ended June 30,

30

Description of Adjustments and Reconciliation of GAAP to Non-GAAP Measures

Three Months Ended June 30, 2019 and 2018

(unaudited)

1 The company's results in 2019 and 2018 included intangible asset amortization expense of $45 million ($35 million, or $0.07 per diluted share, on an after-tax basis) and $44 million ($34 million, or $0.06 per diluted share, on an after-tax basis), respectively. 2 The company's results in 2019 included a $31 million ($24 million, or $0.05 per diluted share, on an after-tax basis) asset impairment related to a developed-technology intangible asset. 3 The company's results in 2019 and 2018 included charges of $65 million ($51 million, or $0.10 per diluted share, on an after-tax basis) and $47 million ($34 million, or $0.06 per diluted share, on an after-tax basis), respectively, associated with its execution of programs to optimize its organization and cost structure on a global basis. 4 The company's results in 2019 included $10 million ($7 million, or $0.01 per diluted share, on an after-tax basis) of acquisition and integration expenses. This included integration expenses related to its acquisitions of Claris Injectables Limited (Claris) and the RECOTHROM and PREVELEAK products in prior periods, as well as the 2019 acquisition of an in- process research and development asset, partially offset by a benefit related to the change in fair value of contingent consideration liabilities from acquisitions that occurred in prior

• periods. The company's results in 2018 included $12 million ($10 million, or $0.02 per diluted share, on an after-tax basis) of acquisition and integration expenses related to the

company's acquisitions of Claris and the RECOTHROM and PREVELEAK products. 5 The company's results in 2019 included costs of $6 million ($4 million, or $0.01 per diluted share, on an after-tax basis) related to updating its quality systems and product labeling to comply with the new medical device reporting regulation and other requirements of the European Union's regulations for medical devices that will become effective in 2020. 6 Reflected in this item is the income tax impact of the special items identified in this table. The tax effect of each adjustment is based on the jurisdiction in which the adjustment is incurred and the tax laws in effect for each such jurisdiction. For more information on the company’s use of non-GAAP financial measures in this presentation, please see the company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on the date of this presentation. NM – Not Meaningful

31

Description of Adjustments and Reconciliation of GAAP to Non-GAAP Measures

Six Months Ended June 30, 2019 and 2018

(unaudited) (in millions, except per share and percentage data) The company's GAAP results for the six months ended June 30, 2019 and 2018 included special items which impacted the GAAP measures as follows:

2019 2019 2018 Change Gross Margin $2,239 $2,353 (5%) Intangible asset amortization expense 1

1

88 88 85 Intangible asset impairment 2 31 31 — Business optimization items 3 29 29 9 Acquisition and integration expenses 4 17 17 9 Litigation 5 — 8 European medical devices regulation 6 10 10 — Adjusted Gross Margin $2,414 $2,464 (2%) % of Net Sales 44.1% 44.6% (0.5 pts) Selling, General and Administrative Expenses $1,242 $1,303 (5%) Business optimization items 3 (40) (63) Acquisition and integration expenses 4 (5) (10) Litigation 5 — (2) Adjusted Selling, General and Administrative Expenses $1,197 $1,228 (3%) % of Net Sales 21.9% 22.3% (0.4 pts) Research and Development Expenses $295 $295 $314 (6%) Business optimization items 3 (34) (13) Acquisition and integration expenses 4 (6) — Adjusted Research and Development Expenses $255 $255 $301 (15%) % of Net Sales 4.7% 5.5% (0.8 pts) Other Operating Income, Net $(37) (80) $ (54%) Acquisition and integration expenses 4 4 — Insurance recovery from legacy product-related matter 7 33 33 — Claris settlement 8 — 80 Adjusted Other Operating Income, Net $— $— 0% % of Net Sales 0.0% 0.0% 0.0 pts Six Months Ended June 30, 2019 2019 2018 Change Operating Income $739 $739 $816 (9%) Impact of special items 223 223 119 Adjusted Operating Income $962 $962 $935 3% % of Net Sales 17.6% 16.9% 0.7 pts Income Before Income Taxes $754 $754 $842 (10%) Impact of special items 223 223 119 Adjusted Income Before Income Taxes $977 $977 $961 2% Income Tax Expense $64 $64 $110 (42%) Impact of special items and U.S. tax reform 9 50 50 42 Adjusted Income Tax Expense $114 $114 $152 (25%) % of Adjusted Income Before Income Taxes 11.7% 15.8% (4.1 pts) Net Income $690 $690 $732 (6%) Impact of special items 173 173 77 Adjusted Net Income $863 $863 $809 7% Diluted EPS from Net Income $1.33 $1.33 0% Impact of special items 0.33 0.14 Adjusted Diluted EPS from Net Income $1.66 $1.47 13% WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Diluted 520 520 549 Six Months Ended June 30,

32

Description of Adjustments and Reconciliation of GAAP to Non-GAAP Measures

Six Months Ended June 30, 2019 and 2018

(unaudited)

1 The company's results in 2019 and 2018 included intangible asset amortization expense of $88 million ($68 million, or $0.13 per diluted share, on an after-tax basis) and $85 million ($70 million, or $0.13 per diluted share, on an after-tax basis), respectively. 2 The company's results in 2019 included a $31 million ($24 million, or $0.05 per diluted share, on an after-tax basis) asset impairment related to a developed-technology intangible asset. 3 The company's results in 2019 and 2018 included charges of $103 million ($81 million, or $0.16 per diluted share, on an after-tax basis) and $85 million ($68 million, or $0.12 per diluted share, on an after-tax basis), respectively, associated with its execution of programs to optimize its organization and cost structure on a global basis. 4 The company's results in 2019 included $24 million ($18 million, or $0.03 per diluted share, on an after-tax basis) of acquisition and integration expenses. This included integration expenses related to the company's acquisitions of Claris and the RECOTHROM and PREVELEAK products in prior periods as well as the 2019 acquisitions of in-process research and development assets, partially offset by a benefit related to the change in fair value of contingent consideration liabilities from acquisitions that occurred in prior periods. The company's results in 2018 included $19 million ($16 million, or $0.02 per diluted share, on an after-tax basis) of acquisition and integration expenses related to the company's acquisitions of Claris and the RECOTHROM and PREVELEAK products. 5 The company's results in 2018 included a charge of $10 million ($9 million, or $0.02 per diluted share, on an after-tax basis) related to certain product litigation. 6 The company's results in 2019 included costs of $10 million ($8 million, or $0.02 per diluted share, on an after-tax basis) related to updating its quality systems and product labeling to comply with the new medical device reporting regulation and other requirements of the European Union's regulations for medical devices that will become effective in 2020. 7 The company's results in 2019 included a benefit of $33 million ($26 million, or $0.05 per diluted share, on an after-tax basis) related to its allocation of insurance proceeds received pursuant to a settlement and cost-sharing agreement for a legacy product-related matter. 8 The company's results in 2018 included a benefit of $80 million ($78 million, or $0.14 per diluted share, on an after-tax basis) for the settlement of certain claims related to the acquired operations of Claris. 9 Reflected in this item is the income tax impact of the special items identified in this table. Additionally, the company's results in the first half of 2018 included a tax benefit of $8 million, or $0.01 per diluted share, related to updates to the estimated impact of U.S. federal tax reform previously made in 2017. The tax effect of each adjustment is based on the jurisdiction in which the adjustment is incurred and the tax laws in effect for each such jurisdiction. For more information on the company’s use of non-GAAP financial measures in this presentation, please see the company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on the date of this presentation.

33 Sales By Global Business Unit1: Sales By Operating Segment: Change in operational sales is a non-GAAP measure. For more information on the company’s use of non-GAAP financial measures in this presentation, please see the company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on the date of this presentation.

1Totals may not foot due to rounding.

Reconciliation of Non-GAAP Financial Measure Change in Net Sales As Reported to Operational Sales

From The Three Months Ended June 30, 2018 to The Three Months Ended June 30, 2019

(unaudited)

Net Sales U.S. Operational As Reported Cyclophosphamide FX FX Sales Renal Care (2%) 0% 5% 3% Medication Delivery 1% 0% 3% 4% Pharmaceuticals 0% 2% 4% 7% Clinical Nutrition (3%) 0% 5% 2% Advanced Surgery 14% 0% 3% 17% Acute Therapies 3% 0% 5% 8% Other (12%) 0% 3% (9%) (0%) 0% 4% 4% U.S. (1%) 1% 0% (1%) International 1% 0% 7% 8% Total Baxter Q2 2019 Net Sales U.S. Operational As Reported Cyclophosphamide FX FX Sales Americas (0%) 1% 1% 2% EMEA (2%) 0% 8% 6% APAC 3% 0% 6% 9% (0%) 0% 4% 4% Q2 2019 Total Baxter

34

Reconciliation of Non-GAAP Financial Measure Change in Net Sales As Reported to Operational Sales

From The Six Months Ended June 30, 2018 to The Six Months Ended June 30, 2019

(unaudited) Sales By Global Business Unit1: Sales By Operating Segment: Change in operational sales is a non-GAAP measure. For more information on the company’s use of non-GAAP financial measures in this presentation, please see the company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on the date of this presentation.

1Totals may not foot due to rounding.

Net Sales U.S. Operational As Reported Cyclophosphamide FX FX Sales Renal Care (2%) 0% 5% 3% Medication Delivery (3%) 0% 3% (0%) Pharmaceuticals 1% 2% 4% 8% Clinical Nutrition (5%) 0% 4% (1%) Advanced Surgery 11% 0% 4% 15% Acute Therapies 1% 0% 5% 6% Other (5%) 0% 3% (2%) (1%) 0% 4% 3% U.S. (2%) 1% 0% (1%) International (0%) 0% 7% 7% YTD 2019 Total Baxter Net Sales U.S. Operational As Reported Cyclophosphamide FX FX Sales Americas (1%) 1% 1% 1% EMEA (2%) 0% 7% 5% APAC 2% 0% 6% 8% (1%) 0% 4% 3% YTD 2019 Total Baxter

35

Adjusted Selling, General and Administrative Expense and Adjusted Research and Development Expense

From The Three Months Ended June 30, 2018 to The Three Months Ended June 30, 2019

(unaudited) On Page 29, the GAAP Selling, General and Administrative Expense (SG&A) has been reconciled to the adjusted SG&A. Adjusted SG&A decreased 5% in Q2 2019. Excluding the 4% impact of changes in foreign exchange rates, adjusted SG&A decreased by 1% on a constant currency basis. On Page 29, the GAAP Research and Development Expense (R&D) has been reconciled to the adjusted R&D. Adjusted R&D decreased 14% in Q2 2019. Excluding the 4% impact of changes in foreign exchange rates, adjusted R&D decreased by 10% on a constant currency basis.

36

Non-GAAP Reconciliation as of July 25, 2019

Reconciliations for Q3 2019 and FY 2019 Forecasts

The reconciliations between the projected 2019 GAAP sales growth and projected adjusted sales growth follows: Projected FY 2019 sales growth numbers for Total Baxter and for each Baxter GBU (as set forth on Page 25) on a reported basis are as follows: 1% - 2% for Total Baxter; (1%) for Renal Care; ~5% for Medication Delivery; (1%) – 1% for Pharmaceuticals; ~1% for Clinical Nutrition; 5% - 7% for Advanced Surgery; 4% - 5% for Acute Therapies and a mid-single- digit decline for Other.

2019 Sales Growth Guidance Q3 2019 FY 2019 Sales Growth – GAAP 3% - 4% 1% - 2% U.S. cyclophosphamide 0% - 1% 0% - 1% Foreign exchange 1% - 2% 2% - 3% Sales Growth - Operational 5% 5% 4% 4%

37

Non-GAAP Reconciliation as of July 25, 2019

Reconciliations for Q3 2019 and FY 2019 Forecasts

The reconciliations between the projected 2019 GAAP operating margin and projected adjusted operating margin follows: Projected FY 2019 GAAP other income, net of approximately $90 million approximates projected adjusted other income, net. Projected FY 2019 GAAP tax rate of approximately 14% to 16% has been adjusted to reflect the tax impact of projected special items, consisting of intangible asset amortization, intangible asset impairment, business optimization items, Hurricane Maria insurance recoveries, acquisition and integration expenses, an insurance recovery from a legacy product-related matter and the European medical devices regulation expenses, to arrive at a projected adjusted tax rate of approximately 16%.

2019 Operating Margin Guidance FY 2019 Operating Margin - GAAP 14.9% - 15.4% Estimated intangible asset amortization 1.6% Intangible asset impairment 0.3% Estimated business optimization charges 1.1% - 1.3% Estimated Hurricane Maria insurance recoveries (0.4%) Estimated acquisition and integration expenses 0.4% Insurance recovery from legacy product-related matter (0.3%) Estimated European medical devices regulation 0.3% Operating Margin - Adjusted 18.1% - 18.4%

38

Non-GAAP Reconciliation as of July 25, 2019

Reconciliations for Q3 2019 and FY 2019 Forecasts

The company’s outlook for GAAP earnings per share only includes the impact of special items that are known or expected as of the date of this release. Accordingly, actual GAAP earnings per share for the third quarter and full year 2019 may differ significantly from those amounts. For example, the company’s outlook does not reflect the potential impact

• f future business or asset acquisitions or dispositions, intangible asset impairments, restructuring actions, developments related to gain or loss contingencies, or unusual or

infrequently occurring items that may occur during the remainder of 2019. The reconciliations between the projected 2019 GAAP diluted earnings per share and projected adjusted diluted earnings per share follows: The reconciliation between the projected 2019 operating cash flow and projected free cash flow follows:

2019 Earnings Per Share Guidance Q3 2019 FY 2019 Earnings per Diluted Share – GAAP $0.75 - $0.78 $2.81 - $2.89 Estimated intangible asset amortization $0.07 $0.26 Intangible asset impairment

• $0.05

Estimated business optimization charges $0.02 - $0.03 $0.20 - $0.22 Estimated Hurricane Maria insurance recoveries ($0.06) ($0.06) Estimated acquisition and integration expenses $0.01 $0.06 Insurance recovery from legacy product-related matter

• ($0.05)

Estimated European medical devices regulation $0.02 $0.05 Earnings per Diluted Share - Adjusted $0.82 - $0.84 $3.34 - $3.40

2019 Free Cash Flow Guidance (in billions) FY 2019 Operating Cash Flow $2.3 Capital Expenditures (0.7) Free Cash Flow $1.6

July 25, 2019 Baxter International Inc.

Second-Quarter 2019 Earnings