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Baxter Reports Strong Third Quarter Sales and Earnings
Date:10/18/2007

Company Raises Full-Year Outlook for Third Consecutive Quarter

DEERFIELD, Ill., Oct. 18 /PRNewswire-FirstCall/ -- Baxter International Inc. (NYSE: BAX) today announced strong financial results for the period ended September 30, 2007 and raised its full-year outlook for the third consecutive quarter.

Third quarter net income of $395 million increased 6 percent compared to $374 million reported in the third quarter of 2006. Net earnings per diluted share of $0.61 increased 7 percent from $0.57 in the prior year period. These results include after-tax charges in the third quarter of 2007 totaling $63 million or $0.09 per diluted share. On an adjusted basis, excluding special items, Baxter reported net income of $458 million and net earnings per diluted share of $0.70, an increase of 22 percent and 23 percent, respectively. These results compare favorably to the earnings guidance previously provided by the company of $0.64 to $0.66 per diluted share.

In accordance with Generally Accepted Accounting Principles (GAAP), the company recorded an after-tax charge of $29 million ($0.04 per diluted share) for in-process R&D (IPR&D) associated with the company's recently announced collaborations with DEKA Research & Development Corp. and HHD, LLC, and Halozyme Therapeutics, Inc. In addition, the company's results include an after-tax charge of $34 million ($0.05 per diluted share) to establish reserves for previously disclosed Average Wholesale Pricing (AWP) litigation.

Baxter's worldwide sales totaled approximately $2.8 billion in the third quarter of 2007, an increase of 8 percent (or 4 percent excluding the impact of foreign exchange). Sales within the United States totaled $1.2 billion, an increase oearch and development expenses were $168 million, or 6.1%

of sales.

BAXTER INTERNATIONAL INC.

Consolidated Statements of Income

Nine Months Ended September 30, 2007 and 2006

(unaudited)

(in millions, except per share and percentage data)

Nine Months Ended

September 30,

-------------------

2007 2006 Change

-------- -------- ------

NET SALES $8,254 $7,615 8%

COST OF GOODS SOLD 4,220 4,193(1) 1%

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GROSS PROFIT 4,034 3,422 18%

-----------------------------------------------------------------------

% of Sales 48.9% 44.9% 4.0 pts

MARKETING AND ADMINISTRATIVE EXPENSES 1,867(2) 1,670 12%

% of Sales 22.6% 21.9% 0.7 pts

RESEARCH AND DEVELOPMENT EXPENSES 539(3) 433 24%

% of Sales 6.5% 5.7% 0.8 pts

RESTRUCTURING CHARGES 70(4) -- N/A

NET INTEREST EXPENSE 10 33 (70%)

OTHER EXPENSE, NET 28(5) 55 (49%)

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PRE-TAX INCOME 1,520 1,231 23%

-----------------------------------------------------------------------

INCOME TAX EXPENSE 291 266 9%

-----------------------------------------------------------------------

NET INCOME $1,229 $965 27%

=======================================================================

BASIC EPS $1.90 $1.49 28%

=======================================================================

DILUTED EPS $1.87 $1.47 27%

=======================================================================

WEIGHTED AVERAGE NUMBER OF COMMON SHARES

OUTSTANDING

Basic 647 650

Diluted 657 656

-----------------------------------------------------------------------

ADJUSTED PRE-TAX INCOME

(excluding certain items) $1,681(6) $1,307(6) 29%

ADJUSTED NET INCOME

(excluding certain items) $1,338(6) $1,029(6) 30%

ADJUSTED DILUTED EPS

(excluding certain items) $2.03(6) $1.57(6) 29%

(1) Cost of goods sold in 2006 included a $76 million pre-tax charge

($64 million, or $0.10 per share, on an after-tax basis) related to

COLLEAGUE infusion pumps.

(2) Marketing and administrative expenses in 2007 included a pre-tax

charge of $56 million ($34 million, or $0.05 per diluted share, on an

after-tax basis) related to the company's AWP litigation.

(3) Research and development expenses in 2007 included IPR&D charges of

$25 million related to the company's collaboration for the

development of a next-generation home hemodialysis machine, and

$10 million related to the company's in-licensing arrangement with

Halozyme Therapeutics, Inc. The after-tax impact of these items was

$29 million, or $0.04 per diluted share. Also included in research

and development expenses in 2007 was an IPR&D charge of $11 million

($7 million, or $0.01 per diluted share, on an after-tax basis)

related to the acquisition of MAAS Medical, LLC.

(4) Restructuring charges of $70 million ($46 million, or $0.07 per

share, on an after-tax basis) in 2007 are primarily for costs and

asset impairments associated with the consolidation of certain

commercial and manufacturing operations outside of the United States.

(5) Other expense, net in 2007 included income of $23 million, reflecting

a gain on the sale of the Transfusion Therapies business of $58

million less related charges of $35 million. The after-tax impact of

these items was $6 million of income, or $0.01 per diluted share.

(6) See page 10 for description of adjustments and reconciliation to GAAP

measures.

Non-GAAP Financial Measures: The non-GAAP financial measures contained in

this press release (pre-tax income, net income and per-share earnings,

excluding certain items) adjust for factors that are unusual or

nonrecurring. Unusual or nonrecurring items can be highly variable,

difficult to predict, and of a size that may substantially impact the

company's reported operations for a period. Management believes that non-

GAAP financial measures can facilitate a fuller analysis of the company's

results of operations, particularly in evaluating performance period over

period. Management uses these non-GAAP financial measures internally in

financial planning, to monitor business unit performance, and in

evaluating management performance. Refer to the company's filing on Form

8-K of today's date for additional information.

BAXTER INTERNATIONAL INC.

Consolidated Statements of Income

Nine Months Ended September 30, 2007 and 2006

Description of Adjustments and Reconciliation of GAAP to Non-GAAP

(unaudited)

(in millions, except per share and percentage data)

2007 description of adjustments and reconciliation of GAAP to Non-GAAP

----------------------------------------------------------------------

The company's GAAP results for the nine months ended September 30, 2007

included restructuring charges, primarily for costs and asset impairments

associated with the consolidation of certain commercial and manufacturing

operations outside of the United States, a charge related to the AWP

litigation, and IPR&D charges related to the company's collaboration for

the development of a next-generation home hemodialysis machine and the

company's in-licensing arrangement with Halozyme Therapeutics, Inc. These

charges impacted the GAAP results as follows:

Income

Pre-tax Tax Net Diluted

Income Expense Income EPS

-----------------------------------

GAAP $1,520 $291 $1,229 $1.87

Restructuring charges 70 24 46 0.07

Litigation-related charge (A) 56 22 34 0.05

IPR&D charges (B) 35 6 29 0.04

-----------------------------------

Excluding specified items $1,681 $343 $1,338 $2.03

===================================

(A) Included in the Marketing and Administrative Expenses line in the

accompanying consolidated statement of income. Excluding this

item, adjusted marketing and administrative expenses were $1.81

billion, or 21.9% of sales.

(B) Included in the Research and Development Expenses line in the

accompanying consolidated statement of income. Excluding this item,

adjusted research and development expenses were $504 million, or 6.1%

of sales.

2006 description of adjustment and reconciliation of GAAP to Non-GAAP

---------------------------------------------------------------------

The company's GAAP results for the nine months ended September 30, 2006

included a charge related to COLLEAGUE infusion pumps, which impacted the

GAAP results as follows:

Income

Pre-tax Tax Net Diluted

Income Expense Income EPS

-----------------------------------

GAAP $1,231 $266 $965 $1.47

COLLEAGUE infusion pump

charge (C) 76 12 64 0.10

-----------------------------------

Excluding specified items $1,307 $278 $1,029 $1.57

===================================

(C) Included in the Gross Profit line in the accompanying consolidated

statement of income. Excluding this item, adjusted gross profit was

$3.50 billion and the adjusted gross profit percentage was 45.9%.

BAXTER INTERNATIONAL INC.

Condensed Consolidated Balance Sheets

(unaudited)

($ in millions)

September 30, December 31,

2007 2006

------------- ------------

Assets

Cash and equivalents $1,818 $2,485

Receivables 1,976 1,838

Inventories 2,320 2,066

Other current assets 526 581

------------- ------------

Total current assets 6,640 6,970

------------- ------------

Property, plant and equipment, net 4,216 4,229

Other long-term assets 3,291 3,487

-----------------------------------------------------------------------

Total assets $14,147 $14,686

=======================================================================

Liabilities and Shareholders' Equity

Short-term debt $546 $234

Other current liabilities 3,143 3,376

Long-term debt 2,024 2,567

Other long-term liabilities 2,142 2,237

Shareholders' equity 6,292 6,272

-----------------------------------------------------------------------

Total liabilities and shareholders' equity $14,147 $14,686

=======================================================================

BAXTER INTERNATIONAL INC.

Cash Flows from Operations and Changes in Net Debt

(unaudited)

($ in millions)

------------------------------------------------------------------------

Cash Flows from Operations

------------------------------------------------------------------------

(Brackets denote cash outflows) Three Months Nine Months

Ended Ended

September 30, September 30,

-------------- ---------------

2007 2006 2007 2006

------ ------ ------- ------

Net income $395 $374 $1,229 $965

Adjustments

Depreciation and amortization 141 146 428 431

Deferred income taxes 14 58 32 76

Stock compensation 36 30 99 68

Restructuring and infusion pump charges -- -- 70 76

Litigation-related charge 56 -- 56 --

IPR&D charges 35 -- 46 --

Other 27 7 53 29

Changes in balance sheet items

Receivables 40 18 (114) 33

Inventories (91) (58) (261) (108)

Accounts payable and accrued

liabilities 6 (22) (85) (159)

Restructuring payments (14) (9) (20) (34)

Other (37) 29 21 44

------------------------------------------------------------------------

Cash flows from operations $608 $573 $1,554 $1,421

========================================================================

------------------------------------------------------------------------

Changes in Net Debt

------------------------------------------------------------------------

Increase (decrease) Three Months Nine Months

Ended Ended

September 30, September 30,

-------------- ---------------

2007 2006 2007 2006

------ ------ ------- ------

Net debt, beginning of period $231 $1,298 $316 $2,497

Cash flows from operations (608) (573) (1,554) (1,421)

Capital expenditures 166 138 424 336

Dividends 109 -- 598 363

Proceeds from sale of Transfusion

Therapies business -- -- (421) --

Proceeds from issuances of stock (72) (120) (500) (1,444)

Purchases of treasury stock 827 87 1,641 479

Payments relating to acquisitions of,

and investments in, businesses and

technologies 40 1 83 3

Payments relating to settlement of

cross-currency swaps 49 -- 196 --

Other, including the effect of exchange

rate changes 10 (90) (31) (72)

------------------------------------------------------------------------

Increase (decrease) in net debt 521 (557) 436 (1,756)

------------------------------------------------------------------------

Net debt, September 30 $752 $741 $752 $741

========================================================================

------------------------------------------------------------------------

Key statistics, September 30:

Days sales outstanding 58.7 55.9 58.7 55.9

Inventory turns 2.3 2.4 2.3 2.4

------------------------------------------------------------------------

BAXTER INTERNATIONAL INC.

Net Sales

Periods Ending September 30, 2007 and 2006

(unaudited)

($ in millions)

% Growth % Growth

@ @

Q3 Q3 Actual Constant

2007 2006(1) Rates Rates

------------------------------------------------------------------------

BioScience(2)

United States $556 $468 19% 19%

International 543 499 9% 2%

Total $1,099 $967 14% 10%

------------------------------------------------------------------------

Medication Delivery

United States $528 $489 8% 8%

International 519 461 13% 4%

Total $1,047 $950 10% 6%

------------------------------------------------------------------------

Renal

United States $96 $95 1% 1%

International 464 424 9% 3%

Total $560 $519 8% 3%

------------------------------------------------------------------------

Baxter excluding Transfusion Therapies

United States $1,180 $1,052 12% 12%

International 1,526 1,384 10% 3%

Total $2,706 $2,436 11% 7%

------------------------------------------------------------------------

Transfusion Therapies (2)

United States $31 $60 (48%) (48%)

International 13 61 (79%) (79%)

Total $44 $121 (64%) (64%)

------------------------------------------------------------------------

Baxter International Inc.

United States $1,211 $1,112 9% 9%

International 1,539 1,445 7% 0%

Total $2,750 $2,557 8% 4%

------------------------------------------------------------------------

% Growth % Growth

@ @

YTD YTD Actual Constant

2007 2006(1) Rates Rates

------------------------------------------------------------------------

BioScience (2)

United States $1,572 $1,365 15% 15%

International 1,789 1,473 21% 14%

Total $3,361 $2,838 18% 14%

------------------------------------------------------------------------

Medication Delivery

United States $1,578 $1,532 3% 3%

International f 9 percent over the same period last year, while international sales of $1.5 billion grew 7 percent. As previously announced, the company completed the divestiture of its Transfusion Therapies business during the first quarter of 2007. Excluding Transfusion Therapies revenues from both 2007 and 2006 for comparison purposes, Baxter's global sales increased 11 percent to $2.7 billion from $2.4 billion recorded in the prior year.

Revenues from Baxter's BioScience business totaled $1.1 billion and increased 14 percent over the prior-year period, driven by double-digit growth across multiple product categories. Sales of ADVATE [Antihemophilic Factor (Recombinant), Plasma/Albumin-Free Method], a therapy used in the treatment of hemophilia A, exceeded $300 million in the quarter as the company continued to drive global conversion to the therapy. Robust sales of plasma therapeutics, antibody therapy products for the treatment of immunodeficiencies, and biosurgery products used for hemostasis, tissue sealing and tissue repair also contributed to the business' performance.

Revenues from Baxter's Medication Delivery business grew 10 percent to $1.0 billion in the third quarter, primarily as a result of strong global sales of anesthesia, intravenous solutions and parenteral nutrition products. Renal revenues of $0.6 billion increased 8 percent, as the company continued to realize solid gains in the number of peritoneal dialysis patients it serves, particularly in developing countries.

"The company remains focused on executing our strategies and continuing to build shareholder value," said Robert L. Parkinson, Jr., chairman and chief executive officer. "Our consistent, strong operational performance, driven by our focus on gross margin expansion affords us the opportunity to accelerate investments to grow our business for the longer-term, while at the same time, allowing us to meet or exceed our shorter-term objectives."

Baxter's investment in research a 1,498 1,346 11% 4%

Total $3,076 $2,878 7% 4%

------------------------------------------------------------------------

Renal

United States $288 $286 1% 1%

International 1,350 1,242 9% 4%

Total $1,638 $1,528 7% 3%

------------------------------------------------------------------------

Baxter excluding Transfusion Therapies

United States $3,438 $3,183 8% 8%

International 4,637 4,061 14% 8%

Total $8,075 $7,244 11% 8%

------------------------------------------------------------------------

Transfusion Therapies (2)

United States $108 $175 (38%) (38%)

International 71 196 (64%) (65%)

Total $179 $371 (52%) (53%)

------------------------------------------------------------------------

Baxter International Inc.

United States $3,546 $3,358 6% 6%

International 4,708 4,257 11% 4%

Total $8,254 $7,615 8% 5%

------------------------------------------------------------------------

(1) Prior year sales data has been reclassified to reflect the change

that is described in Note 2 below.

(2) Sales of Transfusion Therapies (TT) products were previously reported

in BioScience. Due to Baxter's actual and expected significant

continuing cash flows associated with this business, Baxter continued

to include the results of operations of TT in the company's results

of operations through the February 28, 2007 sale date. The amounts

reported in TT reflect sales of TT products until the completion of

the sale of the TT business, as well as revenues associated with the

manufacturing, distribution and other services provided by the

company to the buyer post-divestiture.

BAXTER INTERNATIONAL INC.

Key Product Line Sales at Actual and Constant Foreign Exchange Rates

Periods Ending September 30, 2007 and 2006

(unaudited)

($ in millions)

% Growth % Growth

@ @

Q3 Q3 Actual Constant

2007 2006(1) Rates Rates

------------------------------------------------------------------------

BioScience

Recombinants (2) $432 $389 11% 8%

Plasma Proteins (3) 246 214 15% 10%

Antibody Therapy 245 196 25% 23%

Regenerative Medicine (4) 82 72 14% 11%

Other (5) 94 96 (2%) (5%)

------------------------------------------------------------------------

Total BioScience (6) $1,099 $967 14% 10%

------------------------------------------------------------------------

Medication Delivery

IV Therapies (7) $346 $317 9% 3%

Global Injectables (8) 372 350 6% 3%

Infusion Systems 207 197 5% 3%

Anesthesia (9) 111 76 46% 41%

Other (10) 11 10 10% 0%

------------------------------------------------------------------------

Total Medication Delivery $1,047 $950 10% 6%

------------------------------------------------------------------------

Renal

PD Therapy $448 $409 10% 5%

HD Therapy 112 110 2% (6%)

------------------------------------------------------------------------

Total Renal $560 $519 8% 3%

------------------------------------------------------------------------

Baxter excluding Transfusion

Therapies $2,706 $2,436 11% 7%

------------------------------------------------------------------------

Transfusion Therapies (11) $44 $121 (64%) (64%)

------------------------------------------------------------------------

TOTAL BAXTER $2,750 $2,557 8% 4%

------------------------------------------------------------------------

% Growth % Growth

@ @

YTD YTD Actual Constant

2007 2006(1) Rates Rates

------------------------------------------------------------------------

BioScience

Recombinants (2) $1,251 $1,118 12% 8%

Plasma Proteins (3) 714 619 15% 11%

Antibody Therapy 705 578 22% 20%

Regenerative Medicine (4) 251 220 14% 10%

Other (5) 440 303 45% 37%

------------------------------------------------------------------------

Total BioScience (6) $3,361 $2,838 18% 14%

------------------------------------------------------------------------

Medication Delivery

IV Therapies (7) $1,012 $944 7% 2%

Global Injectables (8) 1,114 1,079 3% 0%

Infusion Systems 624 596 5% 3%

Anesthesia (9) 296 225 32% 28%

Other (10) 30 34 (12%) (15%)

------------------------------------------------------------------------

Total Medication Delivery $3,076 $2,878 7% 4%

------------------------------------------------------------------------

Renal

PD Therapy $1,310 $1,205 9% 5%

HD Therapy 328 323 2% (4%)

------------------------------------------------------------------------

Total Renal $1,638 $1,528 7% 3%

------------------------------------------------------------------------

Baxter excluding Transfusion

Therapies $8,075 $7,244 11% 8%

------------------------------------------------------------------------

Transfusion Therapies (11) $179 $371 (52%) (53%)

------------------------------------------------------------------------

TOTAL BAXTER $8,254 $7,615 8% 5%

------------------------------------------------------------------------

(1) Prior year sales data has been reclassified to reflect the changes

that are described in Notes 2, 5, 6, 8, 9 and 11 below.

(2) Includes sales of recombinant FVII products (ADVATE and RECOMBINATE).

Sales of recombinant FIX (BeneFIX) were previously reported in

Recombinants and are now reported in Other, as detailed below.

(3) Includes plasma-derived hemophilia (FVII, FVIII, FIX and FEIBA),

albumin, and certain other plasma-based products.

(4) Previously referred to as BioSurgery.

(5) Principally includes vaccines, sales of plasma to third parties, and

recombinant FIX (BeneFIX). Sales of recombinant FIX were previously

reported in Recombinants.

(6) BioScience sales have been reclassified to reflect the change

described in Note 11.

(7) Principally includes intravenous solutions and nutritional products.

(8) Principally includes sales related to the pharma partnering business,

enhanced packaging, premix drugs and generic injectables. Generic

injectables were previously reported in Anesthesia.

(9) Principally includes proprietary inhaled anesthetics and other

anesthesia products. Sales of generic injectables were previously

reported in Anesthesia and are now reported in Global Injectables.

(10) Principally includes other hospital-distributed products.

(11) Sales of TT products were previously reported in BioScience. Due to

Baxter's actual and expected significant continuing cash flows

associated with the business, Baxter continued to include the results

of operations of TT in the company's results of operations through

the February 28, 2007 sale date. The amounts reported above reflect

sales of TT products until the completion of the sale of the TT

business, as well as revenues associated with manufacturing,

distribution and other services provided by the company to the buyer

post-divestiture.

BAXTER INTERNATIONAL INC.

Key Product Line Sales by US and International

Periods Ending September 30, 2007 and 2006

(unaudited)

($ in millions)

Q3 2007 Q3 2006(1)

----------------------------------------------------------

US International Total US International Total

----------------------------------------------------------

BioScience

Recombinants(2) $205 $227 $432 $182 $207 $389

Plasma Proteins

(3) 101 145 246 87 127 214

Antibody Therapy 178 67 245 146 50 196

Regenerative

Medicine(4) 44 38 82 40 32 72

Other(5) 28 66 94 13 83 96

----------------------------------------------------------

Total BioScience

(6) $556 $543 $1,099 $468 $499 $967

----------------------------------------------------------

Medication Delivery

IV Therapies(7) $109 $237 $346 $103 $214 $317

Global

Injectables(8) 217 155 372 210 140 350

Infusion Systems 123 84 207 118 79 197

Anesthesia(9) 75 36 111 53 23 76

Other(10) 4 7 11 5 5 10

----------------------------------------------------------

Total Medication

Delivery $528 $519 $1,047 $489 $461 $950

----------------------------------------------------------

Renal

PD Therapy $69 $379 $448 $67 $342 $409

HD Therapy 27 85 112 28 82 110

----------------------------------------------------------

Total Renal $96 $464 $560 $95 $424 $519

----------------------------------------------------------

Baxter excluding

Transfusion

Therapies $1,180 $1,526 $2,706 $1,052 $1,384 $2,436

----------------------------------------------------------

Transfusion

Therapies(11) $31 $13 $44 $60 $61 $121

----------------------------------------------------------

TOTAL BAXTER $1,211 $1,539 $2,750 $1,112 $1,445 $2,557

==========================================================

% Growth

----------------------------------

US International Total

----------------------------------

BioScience

Recombinants(2) 13% 10% 11%

Plasma Proteins(3) 16% 14% 15%

Antibody Therapy 22% 34% 25%

Regenerative Medicine(4) 10% 19% 14%

Other(5) 115% (20%) (2%)

----------------------------------

Total BioScience (6) 19% 9% 14%

----------------------------------

Medication Delivery

IV Therapies(7) 6% 11% 9%

Global Injectables(8) 3% 11% 6%

Infusion Systems 4% 6% 5%

Anesthesia(9) 42% 57% 46%

Other(10) (20%) 40% 10%

----------------------------------

Total Medication Delivery 8% 13% 10%

----------------------------------

Renal

PD Therapy 3% 11% 10%

HD Therapy (4%) 4% 2%

----------------------------------

Total Renal 1% 9% 8%

Baxter excluding Transfusion

Therapies 12% 10% 11%

----------------------------------

Transfusion Therapies(11) (48%) (79%) (64%)

----------------------------------

TOTAL BAXTER 9% 7% 8%

==================================

(1) Prior year data has been reclassified to reflect the changes that

are described in Notes 2, 5, 6, 8, 9 and 11 below.

(2) Includes sales of recombinant FVIII products (ADVATE and

RECOMBINATE). Sales of recombinant FIX (BeneFIX) were previously

reported in Recombinants and are now reported in Other, as detailed

below.

(3) Includes plasma-derived hemophilia (FVII, FVIII, FIX and FEIBA),

albumin, and certain other plasma-based products.

(4) Previously referred to as BioSurgery.

(5) Principally includes vaccines, sales of plasma to third parties, and

recombinant FIX (BeneFIX). Sales of recombinant FIX were previously

reported in Recombinants.

(6) BioScience sales have been reclassified to reflect the change

described in Note 11.

(7) Principally includes intravenous solutions and nutritional products.

(8) Principally includes sales related to the pharma partnering business,

enhanced packaging, premix drugs and generic injectables. Generic

injectables were previously reported in Anesthesia.

(9) Principally includes proprietary inhaled anesthetics and other

anesthesia products. Sales of generic injectables were previously

reported in Anesthesia and are now reported in Global Injectables.

(10) Principally includes other hospital-distributed products.

(11) Sales of TT products were previously reported in BioScience. Due to

Baxter's actual and expected significant continuing cash flows

associated with the business, Baxter continued to include the results

of operations of TT in the company's results of operations through

the February 28, 2007 sale date. The amounts reported above reflect

sales of TT products until the completion of the sale of the TT

business, as well as revenues associated with manufacturing,

distribution and other services provided by the company to the buyer

post-divestiture.

nd development increased 36 percent (or 13 percent on an adjusted basis) in the quarter; and the company announced several collaborations and agreements during the period, including:

-- An agreement with Halozyme Therapeutics, Inc. to apply Halozyme's

proprietary Enhanze(TM) Technology to the development of a subcutaneous

route of administration for Baxter's GAMMAGARD LIQUID(TM) 10% [Immune

Globulin Intravenous (Human)] (IGIV) (known as KIOVIG(TM) in Europe).

For patients using GAMMAGARD LIQUID 10% - currently administered

intravenously - subcutaneous administration with Enhanze Technology may

increase convenience and improve the dispersion of the therapy.

-- A collaboration with DEKA Research & Development Corp. and HHD, LLC for

the development of a next-generation home hemodialysis machine, to

further expand the company's leadership in home dialysis therapy.

-- A joint venture to produce and sell parenteral nutrition products in

China as Guangzhou Baxter Qiaoguang Healthcare Co. Ltd., based in

Guangzhou, China.

"We are very pleased with the quality of our financial performance overall, and in particular the ongoing strength of our cash flow," said Robert M. Davis, chief financial officer. "Our strong financial position allowed us the flexibility to invest in long-term growth through research and development and business development initiatives, as well as to increase our share repurchases in the quarter."

During the third quarter, Baxter repurchased 15.3 million shares of common stock, for approximately $827 million. For the first nine months of 2007, the company repurchased a total of $1.6 billion in common stock, or 30.4 million shares. In addition, following the payment of the 2006 annual dividend in January, Baxter reinstituted a quarterly schedule for payment of dividends in April of this year and increased the annual dividend rate for 2007 by 15 percent. As a result of these activities, Baxter has returned more than $2.0 billion to shareholders year-to-date.

Nine-Month Results

For the first nine months of 2007, Baxter's net income totaled $1.2 billion and increased 27 percent, with earnings per diluted share increasing 27 percent to $1.87. On an adjusted basis, excluding special items from both 2007 and 2006, Baxter's year-to-date net income of $1.3 billion grew 30 percent from the $1.0 billion reported last year. Adjusted earnings per diluted share increased 29 percent to $2.03, from $1.57 per diluted share in the prior year period.

Baxter's worldwide sales increased 8 percent in the first three quarters of the year to approximately $8.3 billion, up from $7.6 billion reported for the same period last year. Excluding the impact of foreign exchange, sales growth for the first nine months of 2007 was 5 percent. Sales within the United States totaled $3.5 billion, an increase of 6 percent over the same period last year, and international sales grew 11 percent to $4.7 billion. Excluding revenues related to the Transfusion Therapies business, Baxter's worldwide sales of $8.1 billion increased 11 percent from $7.2 billion recorded in the prior year.

Cash flows from operations totaled $1.55 billion for the nine-month period, an improvement of approximately $130 million compared to $1.42 billion in the same period in 2006. Free cash flow (cash flows from operations, less capital expenditures of $424 million for the first nine months of 2007) was $1.1 billion for the first nine months of 2007.

Fourth Quarter and Full-Year 2007 Outlook

Given its strong financial results year-to-date, Baxter is raising its earnings outlook for full-year 2007. The company now expects to achieve earnings per diluted share of $2.75 to $2.77, compared to its previous range of $2.65 to $2.70, both excluding special items. Baxter continues to expect sales growth, excluding the impact of foreign exchange, of 4 to 5 percent for the year. Excluding the Transfusion Therapies business from both 2006 and 2007, sales growth (excluding foreign exchange) is expected to approximate 8 percent. In addition, Baxter continues to expect cash flows from operations for full-year 2007 to total approximately $2.3 billion.

For the fourth quarter of 2007, Baxter expects sales growth, excluding the impact of foreign exchange, of 2 to 3 percent, and earnings per diluted share, before any special items, of $0.72 to $0.74. Excluding the Transfusion Therapies business from both the 2006 and 2007 fourth quarters, sales growth (excluding foreign exchange) is expected to approximate 7 percent.

A webcast of Baxter's third quarter conference call for investors can be accessed live from a link on the company's website at http://www.baxter.com beginning at 7:30 a.m. CDT on October 18, 2007. Please visit Baxter's website for more information regarding this and future investor events and webcasts, including investor presentations.

Baxter International Inc., through its subsidiaries, assists healthcare professionals and their patients with the treatment of complex medical conditions, including hemophilia, immune disorders, cancer, infectious diseases, kidney disease, trauma and other conditions. The company applies its expertise in medical devices, pharmaceuticals and biotechnology to make a meaningful difference in patients' lives.

This release includes forward-looking statements concerning the company's financial results. The statements are based on assumptions about many important factors, including the following, which could cause actual results to differ materially from those in the forward-looking statements: demand for and market acceptance risks for new and existing products, such as ADVATE, and other technologies; future actions of regulatory bodies and other governmental authorities, including the FDA and foreign counterparts, that could limit or suspend product development, manufacturing or sales or result in sanctions; product quality or patient safety concerns leading to product recalls, withdrawals, launch delays, litigation, or declining sales; product development risks; inventory reductions or fluctuations in buying patterns by wholesalers or distributors; the impact of geographic and product mix on the company's sales; the impact of competitive products and pricing, including generic competition, drug reimportation and disruptive technologies; reimbursement policies of government agencies and private payers; the availability of acceptable raw materials and component supply; the ability to enforce company patents; patents of third parties preventing or restricting the company's manufacture, sale or use of affected products or technology; and other risks identified in the company's most recent filing on Form 10-Q and other SEC filings, all of which are available on the company's website. The company does not undertake to update its forward-looking statements. Financial schedules are attached to this release and available on the company's website.

BAXTER INTERNATIONAL INC.

Consolidated Statements of Income

Three Months Ended September 30, 2007 and 2006

(unaudited)

(in millions, except per share and percentage data)

Three Months Ended

September 30,

--------------------

2007 2006 Change

-------- -------- ------

NET SALES $2,750 $2,557 8%

COST OF GOODS SOLD 1,374 1,342 2%

-----------------------------------------------------------------------

GROSS PROFIT 1,376 1,215 13%

-----------------------------------------------------------------------

% of Sales 50.0% 47.5% 2.5 pts

MARKETING AND ADMINISTRATIVE EXPENSES 663(1) 562 18%

% of Sales 24.1% 22.0% 2.1 pts

RESEARCH AND DEVELOPMENT EXPENSES 203(2) 149 36%

% of Sales 7.4% 5.8% 1.6 pts

NET INTEREST EXPENSE 6 5 20%

OTHER EXPENSE, NET 21 20 5%

-----------------------------------------------------------------------

PRE-TAX INCOME 483 479 1%

-----------------------------------------------------------------------

INCOME TAX EXPENSE 88 105 (16%)

-----------------------------------------------------------------------

NET INCOME $395 $374 6%

=======================================================================

BASIC EPS $0.62 $0.58 7%

=======================================================================

DILUTED EPS $0.61 $0.57 7%

=======================================================================

WEIGHTED AVERAGE NUMBER OF COMMON SHARES

OUTSTANDING

Basic 641 653

Diluted 651 661

-----------------------------------------------------------------------

ADJUSTED PRE-TAX INCOME

(excluding certain items) $574(3) $479 20%

ADJUSTED NET INCOME

(excluding certain items) $458(3) $374 22%

ADJUSTED DILUTED EPS

(excluding certain items) $0.70(3) $0.57 23%

(1) Marketing and administrative expenses in 2007 included a pre-tax

charge of $56 million ($34 million, or $0.05 per diluted share, on an

after-tax basis) related to the company's Average Wholesale Pricing

(AWP) litigation.

(2) Research and development expenses in 2007 included in-process

research and development (IPR&D) charges of $25 million related to

the company's collaboration for the development of a next-generation

home hemodialysis machine, and $10 million related to the company's

in-licensing arrangement with Halozyme Therapeutics, Inc. The after-

tax impact of these items was $29 million, or $0.04 per diluted

share.

(3) See page 8 for description of adjustments and reconciliation to GAAP

(generally accepted accounting principles) measures.

Non-GAAP Financial Measures: The non-GAAP financial measures contained in

this press release (pre-tax income, net income and per-share earnings,

excluding certain items) adjust for factors that are unusual or

nonrecurring. Unusual or nonrecurring items can be highly variable,

difficult to predict, and of a size that may substantially impact the

company's reported operations for a period. Management believes that non-

GAAP financial measures can facilitate a fuller analysis of the company's

results of operations, particularly in evaluating performance period over

period. Management uses these non-GAAP financial measures internally in

financial planning, to monitor business unit performance, and in

evaluating management performance. Refer to the company's filing on Form

8-K of today's date for additional information.

BAXTER INTERNATIONAL INC.

Consolidated Statement of Income

Three Months Ended September 30, 2007

Description of Adjustments and Reconciliation of GAAP to Non-GAAP

(unaudited)

(in millions, except per share and percentage data)

The company's GAAP results for the three months ended September 30, 2007

included a charge related to the AWP litigation, and IPR&D charges related

to the company's collaboration for the development of a next-generation

home hemodialysis machine and the company's in-licensing arrangement with

Halozyme Therapeutics, Inc. These charges impacted the GAAP results as

follows:

Income

Pre-tax Tax Net Diluted

Income Expense Income EPS

-----------------------------------

GAAP $483 $88 $395 $0.61

Litigation-related charge (A) 56 22 34 0.05

IPR&D charges (B) 35 6 29 0.04

-----------------------------------

Excluding specified items $574 $116 $458 $0.70

===================================

(A) Included in the Marketing and Administrative Expenses line in the

accompanying consolidated statement of income. Excluding this item,

adjusted marketing and administrative expenses were $607 million, or

22.1% of sales.

(B) Included in the Research and Development Expenses line in the

accompanying consolidated statement of income. Excluding this item,

adjusted res
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SOURCE Baxter International Inc.
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