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Baxter Delivers Solid Financial Performance In Line With Guidance For Third Quarter 2012

Stocks in this article: BAX

Baxter has also tightened the range of its previously-issued guidance and now expects earnings, before special items, of $4.51 to $4.54 per diluted share for full-year 2012. For full-year 2012, Baxter continues to expect sales growth, excluding the impact of foreign currency, of 4 to 5 percent (or approximately 2 percent including the impact of foreign currency). In addition, the company expects cash flows from operations to exceed $3.0 billion.

A webcast of Baxter's third quarter conference call for investors can be accessed live from a link on the company's website at www.baxter.com beginning at 7:30 a.m. CDT on October 18, 2012. Please visit Baxter's website for more information regarding this and future investor events and webcasts.

Baxter International Inc., through its subsidiaries, develops, manufactures and markets products that save and sustain the lives of people with hemophilia, immune disorders, infectious diseases, kidney disease, trauma, and other chronic and acute medical conditions. As a global, diversified healthcare company, Baxter applies a unique combination of expertise in medical devices, pharmaceuticals and biotechnology to create products that advance patient care worldwide.

This release includes forward-looking statements concerning the company’s financial results, business development activities and other collaborations, R&D pipeline and outlook for 2012. 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; product quality or patient safety concerns leading to product recalls, withdrawals, launch delays, litigation, or declining sales; future actions of governmental authorities and other third parties as U.S. healthcare reform legislation and other austerity measures are implemented globally; additional legislation, regulation and other governmental pressures, which may affect pricing, taxation, reimbursement and rebate policies of government agencies and private payers or other elements of the company’s business; product development risks, including satisfactory clinical performance; the company’s ability to realize the anticipated benefits from its business development activities; 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; the availability of acceptable raw materials and component supply; fluctuations in supply and demand and the pricing of plasma-based therapies; 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; the impact of global economic conditions on Baxter and its customers and suppliers, including foreign governments in certain countries in which the company operates; foreign currency fluctuations; and other risks identified in the company’s most recent filing on Form 10-K and other Securities and Exchange Commission 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, 2012 and 2011
(unaudited)
(in millions, except per share and percentage data)
 
 
Three Months Ended
September 30,
2012 2011 Change
 
NET SALES $3,477 $3,479 0%
 
COST OF SALES 1,667 1,708 (2%)
             
GROSS MARGIN 1,810   1,771   2%
% of Net Sales 52.1% 50.9% 1.2 pts
 
MARKETING AND ADMINISTRATIVE EXPENSES 743 787 (6%)
% of Net Sales 21.4% 22.6% (1.2 pts)
 
RESEARCH AND DEVELOPMENT EXPENSES 290 239 21%
% of Net Sales 8.3% 6.9% 1.4 pts
 
NET INTEREST EXPENSE 25 14 79%
 
OTHER (INCOME) EXPENSE, NET (14) A 6 A N/M
             
PRE-TAX INCOME 766   725   6%
 
INCOME TAX EXPENSE 183   149   23%
% of Pre-Tax Income 23.9% 20.6% 3.3 pts
 
NET INCOME $583   $576   1%
 
BASIC EPS $1.07   $1.02   5%
DILUTED EPS $1.06   $1.01   5%
 
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic 548 566
Diluted 552   571    
 
ADJUSTED PRE-TAX INCOME (excluding special items) $816 B $804 B 1%
ADJUSTED NET INCOME (excluding special items) $628 B $624 B 1%
ADJUSTED DILUTED EPS (excluding special items) $1.14 B $1.09 B 5%
 
A Other (income) expense, net includes the net results attributable to noncontrolling interests, which had been reported separately in the prior year. The prior period consolidated statement of income presented above, the reconciliation of GAAP (generally accepted accounting principles) to non-GAAP measures presented on page 8, and the cash flows from operations schedule presented on page 11 have been conformed to the current period presentation.
 
B Refer to page 8 for a description of the adjustments and a reconciliation to GAAP measures.
 
 
BAXTER INTERNATIONAL INC.
Note to Consolidated Statements of Income
Three Months Ended September 30, 2012 and 2011
Description of Adjustments and Reconciliation of GAAP to Non-GAAP Measures
(unaudited)
(in millions, except per share and percentage data)
   
The company's GAAP results for the three months ended September 30, 2012 and 2011 included special items which impacted the GAAP measures as follows:

 

Three Months Ended September 30,

2012 2011 Change
Marketing and Administrative Expenses $743 $787 (6%)
AWP litigation and historical rebate and discount items 1 -   (79)    
Adjusted Marketing and Administrative Expenses $743   $708   5%
% of Net Sales 21.4% 20.4% 1.0 pt
 
Research and Development Expenses $290 $239 21%
Business development item 2 (50)   -    
Adjusted Research and Development Expenses $240   $239   0%
% of Net Sales 6.9% 6.9% 0 pts
 
Pre-Tax Income $766 $725 6%
Impact of special items 1, 2 50   79    
Adjusted Pre-Tax Income $816   $804   1%
 
Income Tax Expense $183 $149 23%
Impact of special items 1, 2 5   31    
Adjusted Income Tax Expense $188   $180   4%
% of Adjusted Pre-Tax Income 23.0% 22.4% 0.6 pts
 
Net Income $583 $576 1%
Impact of special items 1, 2 45   48    
Adjusted Net Income $628   $624   1%
 
Diluted EPS $1.06 $1.01 5%
Impact of special items 1, 2 0.08   0.08    
Adjusted Diluted EPS $1.14   $1.09   5%
 
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Diluted 552   571    
 
1   Marketing and administrative expenses in 2011 included a charge totaling $79 million ($48 million, or $0.08 per diluted share, on an after-tax basis) related to the resolution of litigation pertaining to average wholesale prices (AWP) and certain historical rebate and discount adjustments.
 
2 Research and development (R&D) expenses in 2012 included an R&D charge of $50 million ($45 million, or $0.08 per diluted share, on an after-tax basis) related to the company's licensing agreement with Onconova Therapeutics, Inc. (Onconova).
 
For more information on the company's use of non-GAAP financial measures in this press release, please see the company's Current Report on Form 8-K filed with the Securities and Exchange Commission on the date of this press release.
 
 
BAXTER INTERNATIONAL INC.
Consolidated Statements of Income
Nine Months Ended September 30, 2012 and 2011
(unaudited)
(in millions, except per share and percentage data)
 
 
Nine Months Ended
September 30,
2012 2011 Change
 
NET SALES $10,437 $10,299 1%
 
COST OF SALES 5,041 5,018 0%
               
GROSS MARGIN   5,396   5,281   2%
% of Net Sales 51.7% 51.3% 0.4 pts
 
MARKETING AND ADMINISTRATIVE EXPENSES 2,284 2,268 1%
% of Net Sales 21.9% 22.0% (0.1 pts)
 
RESEARCH AND DEVELOPMENT EXPENSES 865 692 25%
% of Net Sales 8.3% 6.7% 1.6 pts
 
NET INTEREST EXPENSE 65 39 67%
 
OTHER (INCOME) EXPENSE, NET (133) A 44 A N/M
               
PRE-TAX INCOME   2,315   2,238   3%
 
INCOME TAX EXPENSE   483   477   1%
% of Pre-Tax Income 20.9% 21.3% (0.4 pts)
 
NET INCOME   $1,832   $1,761   4%
 
BASIC EPS   $3.32   $3.08   8%
DILUTED EPS   $3.29   $3.06   8%
 
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic 552 571
Diluted   556   575    
 
ADJUSTED PRE-TAX INCOME (excluding special items) $2,329 B $2,317 B 1%

ADJUSTED NET INCOME (excluding special items)

$1,816 B $1,809 B 0%
ADJUSTED DILUTED EPS (excluding special items) $3.27 B $3.14 B 4%
 
A   Other (income) expense, net includes the net results attributable to noncontrolling interests, which had been reported separately in the prior year. The prior period consolidated statement of income presented above, the reconciliation of GAAP to non-GAAP measures presented on page 10, and the cash flows from operations schedule presented on page 11 have been conformed to the current period presentation.
 
B Refer to page 10 for a description of the adjustments and a reconciliation to GAAP measures.
 
 
BAXTER INTERNATIONAL INC.
Note to Consolidated Statements of Income
Nine Months Ended September 30, 2012 and 2011
Description of Adjustments and Reconciliation of GAAP to Non-GAAP Measures
(unaudited)
(in millions, except per share and percentage data)
   
The company's GAAP results for the nine months ended September 30, 2012 and 2011 included special items which impacted the GAAP measures as follows:

 

Nine Months Ended September 30,

2012 2011 Change
Gross Margin $5,396 $5,281 2%
Reserve adjustments 1 (23) -
Business development items 2 6   -    
Adjusted Gross Margin $5,379   $5,281   2%
% of Net Sales 51.5% 51.3% 0.2 pts
 
Marketing and Administrative Expenses $2,284 $2,268 1%
Business development items 2 (9) -
AWP litigation and historical rebate and discount items 3 -   (79)    
Adjusted Marketing and Administrative Expenses $2,275   $2,189   4%
% of Net Sales 21.8% 21.3% 0.5 pts
 
Research and Development Expenses $865 $692 25%
Business development items 2 (113)   -    
Adjusted Research and Development Expenses $752   $692   9%
% of Net Sales 7.2% 6.7% 0.5 pts
 
Other (Income) Expense, Net $(133) $44 N/M
Reserve adjustments 4 91   -    
Adjusted Other (Income) Expense, Net $(42)   $44   N/M
 
Pre-Tax Income $2,315 $2,238 3%
Impact of special items 1, 2, 3, 4 14   79    
Adjusted Pre-Tax Income $2,329   $2,317   1%
 
Income Tax Expense $483 $477 1%
Impact of special items 1, 2, 3, 4 30   31    
Adjusted Income Tax Expense $513   $508   1%
% of Adjusted Pre-Tax Income 22.0% 21.9% 0.1 pts
 
Net Income $1,832 $1,761 4%
Impact of special items 1, 2, 3, 4 (16)   48    
Adjusted Net Income $1,816   $1,809   0%
 
Diluted EPS $3.29 $3.06 8%
Impact of special items 1, 2, 3, 4 (0.02)   0.08    
Adjusted Diluted EPS $3.27   $3.14   4%
 
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Diluted 556   575    
 
1   Cost of sales in 2012 included a net benefit of $23 million ($27 million, or $0.05 per diluted share, on an after-tax basis) primarily related to an adjustment to the COLLEAGUE infusion pump reserves as the company substantially completed its recall activities in the United States.
 
2 Cost of sales, marketing and administrative expenses and R&D expenses in 2012 included business development charges totaling $128 million ($102 million, or $0.19 per diluted share, on an after-tax basis) which principally related to R&D charges of $33 million associated with the company’s global collaboration with Momenta Pharmaceuticals, Inc. (Momenta), $30 million associated with the company's global collaboration with Chatham Therapeutics, LLC (Chatham), and $50 million associated with the company's licensing agreement with Onconova.
 
3 Marketing and administrative expenses in 2011 included a charge totaling $79 million ($48 million, or $0.08 per diluted share, on an after-tax basis) related to the resolution of litigation pertaining to AWP and certain historical rebate and discount adjustments.
 
4 Other (income) expense, net in 2012 included a benefit of $91 million, or $0.16 per diluted share, consisting of gains of $53 million and $38 million for the reduction of certain contingent payment liabilities related to the prior acquisitions of Prism Pharmaceuticals, Inc. (Prism) and ApaTech Limited, respectively, for which there was no tax expense recognized.
 
For more information on the company's use of non-GAAP financial measures in this press release, please see the company's Current Report on Form 8-K filed with the Securities and Exchange Commission on the date of this press release.
 
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 Ended Nine Months Ended
September 30, September 30,
2012 2011 2012 2011
 
Net income $583 $576 $1,832 $1,761
Adjustments
Depreciation and amortization 179 176 534 503
Deferred income taxes 78 58 197 218
Stock compensation 34 33 97 94
Realized excess tax benefits from stock issued
under employee benefit plans (6) (4) (14) (17)
Other 37 87 (47) 126
Changes in balance sheet items
Accounts and other current receivables, net (42) 55 72 (102)
Inventories (36) (58) (136) (272)
Accounts payable and accrued liabilities (53) 34 (282) (90)
Infusion pump and business optimization payments (63) (111) (226) (258)
  Other 36   76   134   (38) A
Cash flows from operations $747   $922   $2,161   $1,925  
                   
Changes in Net Debt                
Increase (decrease) Three Months Ended Nine Months Ended
September 30, September 30,
2012 2011 2012 2011
 
Net debt, beginning of period $2,961 $2,382 $2,290 $1,702
 
Cash flows from operations (747) (922) (2,161) (1,925)
Capital expenditures 259 235 762 643
Dividends 184 176 558 534
Proceeds from stock issued under employee benefit plans (121) (97) (293) (388)
Purchases of treasury stock 105 298 1,065 1,413
Acquisitions and investments 116 B 27 585 B 229 B
Divestiture and other investing activities (12) - (86) (106)
Other, including the effect of exchange rate changes 11   105   36   102  
(Decrease) increase in net debt (205)   (178)   466   502  
 
Net debt, September 30 $2,756   $2,204   $2,756   $2,204  
                   
Key statistics, September 30:
Days sales outstanding 57.0 54.5 57.0 54.5
Inventory turns 2.3   2.5   2.3   2.5  
 
A   Other cash flows from operations in the first quarter of 2011 included a planned contribution of $150 million to the company's pension plan in the United States.
 
B Acquisitions and investments in 2012 and 2011 included $100 million for the third quarter 2012 investment in Onconova preferred stock and execution of a licensing agreement, $90 million for the second quarter 2012 exercise of the company's option to acquire the remaining equity interest in Sigma International General Medical Apparatus, LLC, $30 million related to the second quarter 2012 collaboration with Chatham, $304 million for the first quarter 2012 acquisition of Synovis Life Technologies, Inc., $33 million for the first quarter 2012 payment to execute the Momenta collaboration, and $170 million for the second quarter 2011 acquisition of Prism.
 
 
BAXTER INTERNATIONAL INC.
Net Sales
Periods Ending September 30, 2012 and 2011
(unaudited)
($ in millions)
                                 
                                                   
Q3 Q3 % Growth @ % Growth @ YTD YTD % Growth @ % Growth @
              2012   2011   Actual Rates   Constant Rates           2012   2011   Actual Rates   Constant Rates
                                                   
BioScience
United States $790 $699 13% 13% $2,262 $2,070 9% 9%
International           732   818   (11%)   (2%)           2,288   2,408   (5%)   1%
Total BioScience           $1,522   $1,517   0%   5%           $4,550   $4,478   2%   5%
                                                   
Medical Products
United States 1 $723 $704 3% 3% $2,222 $2,173 2% 2%
International 1           1,232   1,258   (2%)   5%           3,665   3,648   0%   5%
Total Medical Products 1           $1,955   $1,962   0%   4%           $5,887   $5,821   1%   4%
                                                   
Baxter International Inc.
United States $1,513 $1,403 8% 8% $4,484 $4,243 6% 6%
International           1,964   2,076   (5%)   2%           5,953   6,056   (2%)   3%
Total Baxter           $3,477   $3,479   0%   5%           $10,437   $10,299   1%   4%
 
1   Includes revenues associated with manufacturing, distribution and other services provided by the company to the buyer of the Transfusion Therapies (TT) business after the February 2007 divestiture, which had previously been reported separately. The prior periods have been recast to conform to the current period presentation.
 
 
BAXTER INTERNATIONAL INC.
Key Product Line Sales
Periods Ending September 30, 2012 and 2011
(unaudited)
($ in millions)
                                 
                                                   
Q3 Q3 % Growth @ % Growth @ YTD YTD % Growth @ % Growth @
              2012   2011   Actual Rates   Constant Rates           2012   2011   Actual Rates   Constant Rates
                                                   
BioScience
Recombinants $555 $552 1% 5% $1,653 $1,634 1% 4%
Antibody Therapy 404 380 6% 9% 1,168 1,135 3% 5%
Plasma Proteins 337 372 (9%) (4%) 1,017 1,043 (2%) 1%
Regenerative Medicine 165 143 15% 20% 493 430 15% 18%
Other 1           61   70   (13%)   0%           219   236   (7%)   0%
Total BioScience           $1,522   $1,517   0%   5%           $4,550   $4,478   2%   5%
                                                   
Medical Products
Renal $629 $646 (3%) 2% $1,852 $1,866 (1%) 2%
Global Injectables 509 494 3% 7% 1,553 1,517 2% 4%
IV Therapies 479 453 6% 12% 1,430 1,333 7% 11%
Infusion Systems 186 222 (16%) (14%) 603 666 (9%) (8%)
Anesthesia 135 129 5% 9% 405 390 4% 6%
Other 2           17   18   (6%)   (11%)           44   49   (10%)   (12%)
Total Medical Products 2           $1,955   $1,962   0%   4%           $5,887   $5,821   1%   4%
                                                   
Total Baxter           $3,477   $3,479   0%   5%           $10,437   $10,299   1%   4%
 
1   Principally includes vaccines and sales of plasma to third parties.
 
2 Includes revenues associated with manufacturing, distribution and other services provided by the company to the buyer of the TT business after the February 2007 divestiture, which had previously been reported separately. The prior periods have been recast to conform to the current period presentation.
 
 
BAXTER INTERNATIONAL INC.
Key Product Line Sales by U.S. and International
Three-Month Periods Ending September 30, 2012 and 2011
(unaudited)
($ in millions)
                                           
                                                               
Q3 2012           Q3 2011           % Growth
              U.S.   International   Total           U.S.   International   Total           U.S.   International   Total
BioScience
Recombinants $272 $283 $555 $246 $306 $552 11% (8%) 1%
Antibody Therapy 298 106 404 267 113 380 12% (6%) 6%
Plasma Proteins 120 217 337 104 268 372 15% (19%) (9%)
Regenerative Medicine 97 68 165 78 65 143 24% 5% 15%
Other 1           3   58   61           4   66   70           (25%)   (12%)   (13%)
Total BioScience           $790   $732   $1,522           $699   $818   $1,517           13%   (11%)   0%
                                                               
Medical Products
Renal $100 $529 $629 $96 $550 $646 4% (4%) (3%)
Global Injectables 249 260 509 237 257 494 5% 1% 3%
IV Therapies 178 301 479 148 305 453 20% (1%) 6%
Infusion Systems 104 82 186 133 89 222 (22%) (8%) (16%)
Anesthesia 80 55 135 77 52 129 4% 6% 5%
Other 2           12   5   17           13   5   18           (8%)   0%   (6%)
Total Medical Products 2           $723   $1,232   $1,955           $704   $1,258   $1,962           3%   (2%)   0%
                                                               
Total Baxter           $1,513   $1,964   $3,477           $1,403   $2,076   $3,479           8%   (5%)   0%
 
1   Principally includes vaccines and sales of plasma to third parties.
 
2 Includes revenues associated with manufacturing, distribution and other services provided by the company to the buyer of the TT business after the February 2007 divestiture, which had previously been reported separately. The prior period has been recast to conform to the current period presentation.




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