DEERFIELD, Ill., Oct. 19 /PRNewswire-FirstCall/ -- Baxter International Inc. today reported strong growth in earnings for the third quarter driven by accelerated revenue growth, continued improvement in operational performance, expansion of gross and operating margins, and lower interest expense.
Baxter’s third quarter net income of $374 million increased from $116 million in 2005. Earnings per diluted share of $0.57 increased from $0.18 per diluted share in the prior year period, and were at the high end of the guidance range previously provided by the company of $0.55 to $0.57 per diluted share.
On an adjusted basis, excluding special items recorded in the prior year period, third quarter net income increased 26 percent from $296 million in 2005 and earnings per diluted share increased 21 percent from $0.47 per diluted share. In the third quarter last year, the company recorded $180 million (or $0.29 per diluted share) for charges associated with the exit of hemodialysis instrument manufacturing and for the tax expense related to the repatriation of foreign earnings.
Baxter’s worldwide sales totaled $2.6 billion in the third quarter, an increase of 7 percent, or 6 percent excluding the benefit from foreign exchange. Sales within the United States totaled $1.1 billion, an increase of 3 percent over the same period last year, and sales outside of the United States increased 9 percent (or 7 percent excluding the impact of foreign exchange) to $1.5 billion in the quarter.
Contributing to sales growth was Baxter’s BioScience business, with sales of $1.1 billion, an increase of 15 percent. Driving this performance was growth from several products used for the treatment of hemophilia and immune disorders, including ADVATE [Antihemophilic Factor (Recombinant), Plasma/Albumin-Free Method (rAHF-PFM)] and Baxter’s portfolio of intravenous immunoglobulins (IVIG), as well as solid growth from other plasma-based therapies and biosurgery products.
Renal sales increased 6 percent to $519 million in the third quarter due to continued gains in peritoneal dialysis patients. Medication Delivery sales declined 1 percent to $950 million as a result of generic drug competition.
“I’m particularly pleased with the continued and balanced improvement in margins across all of our businesses. This is a strength of our diversified model, and provides leverage for us to continue to accelerate investments to grow our company,” said Robert L. Parkinson, Jr., chairman and chief executive officer of Baxter. “Over the company’s 75-year history, Baxter has pioneered many technological and therapeutic breakthroughs for the benefit of patients worldwide, and with our renewed investments in the company, we expect to continue to drive future benefits and value for both patients and shareholders.”
Recent Highlights
Baxter has recently announced several initiatives and milestones that leverage the company’s unique technology platforms, further expand its global presence and focus its resources and investments on areas that provide long-term strategic value. These include:
-- Preliminary results from the company’s Phase I/II clinical trial of whole-virus H5N1 influenza candidate vaccine, which suggest that the vaccine is well-tolerated in humans and it can induce antibodies that neutralize widely divergent strains of H5N1. -- Approval from regulatory authorities in Canada and Australia to begin marketing ADVATE. ADVATE is now approved for use in 31 countries around the world. -- Re-launching the COLLEAGUE Infusion Pump in all key markets outside the United States. Baxter has now completed the remediation of the majority of infusion pumps currently in use outside the United States, and is awaiting FDA approval of its corrective action plan in the United States. -- Signing a definitive agreement for the sale of the Transfusion Therapies business for $540 million. Subject to regulatory approvals and other customary closing conditions, the company expects to close the transaction by the first quarter of 2007. Nine-Month Results
For the first nine months of 2006, Baxter’s net income totaled $965 million and increased 45 percent, with earnings per diluted share of $1.47, which increased 39 percent. On an adjusted basis, Baxter’s net income of $1.0 billion increased 24 percent from $829 million last year. Adjusted earnings per diluted share for the nine-month period of $1.57 increased 19 percent from $1.32 per diluted share in the prior year period. Details related to charges recorded in both nine-month periods can be found on the supplemental schedule on page 10 of this release.
In the nine-month period, Baxter’s worldwide sales grew 3 percent to $7.6 billion, up from $7.4 billion last year. Excluding the impact of foreign exchange, organic sales growth for the first nine months of the year was 4 percent. Domestic sales totaled $3.4 billion, an increase of 3 percent over the same period last year, and international sales grew 4 percent (or 6 percent excluding the impact of foreign exchange) to $4.3 billion.
Cash flow from operations totaled $1.4 billion for the nine-month period, compared to $1.3 billion in the same period in 2005. Free cash flow (cash flow from operations, less capital expenditures of $336 million through the third quarter of 2006) was $1.1 billion, reflecting an improvement of $50 million from the same period last year.
Fourth Quarter and Full-Year 2006 Guidance
For full-year 2006, the company expects to achieve organic sales growth of approximately 6 percent, and earnings per diluted share of $2.17 to $2.19, before special items (or $2.07 to $2.09 on a GAAP basis). In addition, the company expects cash flow from operations for full-year 2006 to approach $2.0 billion, with free cash flow in excess of $1.4 billion (after approximately $550 million of anticipated capital expenditures).
For the fourth quarter of 2006, the company expects organic sales (excluding the impact of foreign exchange) to grow 7 to 8 percent, and earnings per diluted share of $0.60 to $0.62, before any special items.
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 19, 2006. On Friday, October 20, 2006, Baxter executives will be ringing The Closing Bell at the New York Stock Exchange as part of the company’s 75th anniversary celebration. To access a live webcast of The Closing Bell, go to http://www.nyse.com .
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; failure to obtain necessary consents or to satisfy other closing conditions related to the sale of the Transfusion Therapies business; 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, 2006 and 2005 (unaudited) (in millions, except per share and percentage data) Three Months Ended September 30, -------------------- 2006 2005 Change ------- ------- -------- NET SALES $2,557 $2,398 7% GROSS PROFIT 1,215 1,010 20% % of Sales 47.5% 42.1% 5.4 pts MARKETING AND ADMINISTRATIVE EXPENSES 562 491 14% % of Sales 22.0% 20.5% 1.5 pts RESEARCH AND DEVELOPMENT EXPENSES 149 133 12% RESTRUCTURING ADJUSTMENTS - (5) (100%) -------------------------------------------------------------------------- OPERATING INCOME 504 391 29% -------------------------------------------------------------------------- % of Sales 19.7% 16.3% 3.4 pts INTEREST, NET 5 31 (84%) OTHER EXPENSE, NET 20 10 100% -------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 479 350 37% INCOME TAX EXPENSE 105 234 (55%) -------------------------------------------------------------------------- NET INCOME $374 $116 222% ========================================================================== BASIC EPS $0.58 $0.19 205% ========================================================================== DILUTED EPS $0.57 $0.18 217% ========================================================================== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Basic 653 622 Diluted 661 632 -------------------------------------------------------------------------- ADJUSTED NET INCOME (excluding certain items) $374 $296 (1) ADJUSTED DILUTED EPS (excluding certain items) $0.57 $0.47 (1) (1) See page 8 for description of adjustments and reconciliation to GAAP (generally accepted accounting principles) measures. Note: Effective January 1, 2006, the company adopted SFAS No. 123-R using the modified prospective method. After-tax stock-option expense for the third quarter of 2006 was $18 million, or $0.03 per diluted share. In accordance with the modified prospective adoption method, the company did not adjust its historical consolidated financial statements to reflect the impact of stock-option expense. Based on the pro forma application of SFAS No. 123 for the calculation of stock-option expense prior to January 1, 2006 (as previously disclosed in the company’s consolidated financial statements), pro forma after-tax stock-option expense in the third quarter of 2005 was $13 million, or $0.02 per diluted share. Non-GAAP Financial Measures: The non-GAAP financial measures contained in this press release (earnings 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 Three Months Ended September 30, 2005 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, 2005 included charges relating to the exit of hemodialysis instrument manufacturing, taxes on the repatriation of foreign earnings, and a credit related to restructuring adjustments, which impacted the GAAP results as follows: Income Operating Tax Net Diluted Income Expense Income EPS ---------------------------------------- GAAP $391 $234 $116 $0.18 Hemodialysis instruments charge (A) 28 8 20 0.03 Restructuring adjustments (B) (5) (2) (3) - Tax expense on repatriation of foreign earnings - (163) 163 0.26 ---------------------------------------- Excluding specified items $414 $77 $296 $0.47 ======================================== Adjusted operating income % 17.3% (A) Included in the Gross Profit line in the accompanying consolidated statement of income. Excluding this item, adjusted gross profit is $1.04 billion and the adjusted gross profit percentage is 43.2%. (B) Included in the Restructuring Adjustments line in the accompanying consolidated statement of income. BAXTER INTERNATIONAL INC. Consolidated Statements of Income Nine Months Ended September 30, 2006 and 2005 (unaudited) (in millions, except per share and percentage data) Nine Months Ended September 30, ----------------------- 2006 2005 Change ------- ------- -------- NET SALES $7,615 $7,358 3% GROSS PROFIT 3,422 3,015 13% % of Sales 44.9% 41.0% 3.9 pts MARKETING AND ADMINISTRATIVE EXPENSES 1,670 1,511 11% % of Sales 21.9% 20.5% 1.4 pts RESEARCH AND DEVELOPMENT EXPENSES 433 399 9% RESTRUCTURING ADJUSTMENTS - (109) (100%) -------------------------------------------------------------------------- OPERATING INCOME 1,319 1,214 9% -------------------------------------------------------------------------- % of Sales 17.3% 16.5% 0.8 pts INTEREST, NET 33 95 (65%) OTHER EXPENSE, NET 55 59 (7%) -------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 1,231 1,060 16% INCOME TAX EXPENSE 266 396 (33%) -------------------------------------------------------------------------- NET INCOME $965 $664 45% ========================================================================== BASIC EPS $1.49 $1.07 39% ========================================================================== DILUTED EPS $1.47 $1.06 39% ========================================================================== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Basic 650 621 Diluted 656 627 -------------------------------------------------------------------------- ADJUSTED NET INCOME (excluding certain items) $1,029 (1) $829 (1) ADJUSTED DILUTED EPS (excluding certain items) $1.57 (1) $1.32 (1) (1) See page 10 for description of adjustments and reconciliation to GAAP measures. Note: Effective January 1, 2006, the company adopted SFAS No. 123-R using the modified prospective method. After-tax stock-option expense for the nine months ended September 30, 2006 was $38 million, or $0.06 per diluted share. In accordance with the modified prospective adoption method, the company did not adjust its historical consolidated financial statements to reflect the impact of stock-option expense. Based on the pro forma application of SFAS No. 123 for the calculation of stock-option expense prior to January 1, 2006 (as previously disclosed in the company’s consolidated financial statements), pro forma after-tax stock-option expense for the nine months ended September 30, 2005 was $41 million, or $0.07 per diluted share. Non-GAAP Financial Measures: The non-GAAP financial measures contained in this press release (earnings 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, 2006 and 2005 Description of Adjustments and Reconciliation of GAAP to Non-GAAP (unaudited) (in millions, except per share and percentage data) 2006 description of adjustments 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 Operating Tax Net Income Expense Income Diluted EPS ------------------------------------------ GAAP $1,319 $266 $965 $1.47 COLLEAGUE infusion pump charge (A) 76 12 64 0.10 ------------------------------------------ Excluding specified items $1,395 $278 $1,029 $1.57 ========================================== Adjusted operating income % 18.3% (A) Included in the Gross Profit line in the accompanying consolidated statement of income. Excluding this item, adjusted gross profit is $3.50 billion and the adjusted gross profit percentage is 45.9%. 2005 description of adjustments and reconciliation of GAAP to Non-GAAP ====================================================================== The Company’s GAAP results for the nine months ended September 30, 2005 included charges relating to COLLEAGUE infusion pumps, the exit of hemodialysis instrument manufacturing, taxes on the repatriation of foreign earnings, and a credit related to restructuring adjustments, which impacted the GAAP results as follows: Income Operating Tax Net Income Expense Income Diluted EPS ------------------------------------------ GAAP $1,214 $396 $664 $1.06 COLLEAGUE infusion pump charge (B) 77 12 65 0.10 Hemodialysis instruments charge (B) 28 8 20 0.03 Restructuring adjustments (C) (109) (26) (83) (0.13) Tax expense on repatriation of foreign earnings - (163) 163 0.26 ------------------------------------------ Excluding specified items $1,210 $227 $829 $1.32 ========================================== Adjusted operating income % 16.4% (B) Included in the Gross Profit line in the accompanying consolidated statement of income. Excluding these items, adjusted gross profit is $3.12 billion and the adjusted gross profit percentage is 42.4%. (C) Included in the Restructuring Adjustments line in the accompanying consolidated statement of income. BAXTER INTERNATIONAL INC. Condensed Consolidated Balance Sheets (unaudited) (in millions) September 30, December 31, 2006 2005 ------------- ------------ ASSETS Cash and equivalents $2,067 $841 Receivables 1,751 1,766 Inventories 2,089 1,925 Other current assets 512 584 ------------------------------ Total current assets 6,419 5,116 ------------------------------ Property, plant and equipment, net 4,095 4,144 Other long-term assets 3,417 3,467 -------------------------------------------------------------------------- Total assets $13,931 $12,727 ========================================================================== LIABILITIES AND SHAREHOLDERS’ EQUITY Short-term debt $128 $924 Other current liabilities 2,841 3,241 Long-term debt 2,680 2,414 Other long-term liabilities 1,944 1,849 Shareholders’ equity 6,338 4,299 -------------------------------------------------------------------------- Total liabilities and shareholders’ equity $13,931 $12,727 ========================================================================== BAXTER INTERNATIONAL INC. Cash Flows from Operations and Changes in Net Debt (unaudited) ($ in millions) -------------------------------------------------------------------------- Cash Flows from Operations -------------------------------------------------------------------------- (Brackets denote cash outflows) Three Months Nine Months Ended Ended September 30, September 30, --------------- --------------- 2006 2005 2006 2005 ------ ------ ------ ------ Net income $374 $116 $965 $664 Adjustments Depreciation and amortization 146 145 431 437 Deferred income taxes 58 80 76 198 Stock compensation 30 3 68 7 Infusion pump and hemodialysis instrument charges - 28 76 105 Restructuring adjustments - (5) - (109) Other 7 20 29 46 Changes in balance sheet items Receivables 18 98 33 133 Inventories (58) (22) (108) 68 Accounts payable and accrued liabilities (22) 54 (159) (287) Restructuring payments (9) (22) (34) (95) Other 29 41 44 147 -------------------------------------------------------------------------- Cash flows from operations $573 $536 $1,421 $1,314 ========================================================================== -------------------------------------------------------------------------- Changes in Net Debt -------------------------------------------------------------------------- Increase (decrease) Three Months Nine Months Ended Ended September 30, September 30, ---------------- ---------------- 2006 2005 2006 2005 ------- ------- ------- ------- Net debt, beginning of period $1,298 $3,061 $2,497 $3,185 Cash flows from operations (573) (536) (1,421) (1,314) Capital expenditures 138 116 336 279 Dividends - - 363 359 Acquisitions, net 1 14 3 14 Issuances of common stock - - (1,249) - Purchases of treasury stock 87 - 479 - Other, including the effect of exchange rate changes (210) (5) (267) 127 -------------------------------------------------------------------------- Decrease in net debt (557) (411) (1,756) (535) -------------------------------------------------------------------------- Net debt, September 30 $741 $2,650 $741 $2,650 ========================================================================== -------------------------------------------------------------------------- Key statistics, September 30: Days sales outstanding 55.9 61.0 55.9 61.0 Inventory turns 2.4 2.7 2.4 2.7 Net-debt-to-capital ratio (A) 10.5% 25.3% 10.5% 25.3% -------------------------------------------------------------------------- (A) The decrease in the debt-to-capital ratio from September 30, 2005 to September 30, 2006 primarily related to the settlement of the company’s equity units. In February 2006, the purchase contracts included in the company’s equity units matured, and the company issued approximately 35 million common shares in exchange for $1.25 billion. Management used a portion of the cash proceeds to pay down maturing debt. The net-debt-to-capital ratio at September 30, 2005 was calculated in accordance with the company’s primary credit agreements, which gave 70% equity credit to the company’s $1.25 billion equity units debt outstanding on that date (the majority of which was repurchased and retired in the fourth quarter of 2005). Refer to the company’s Form 10-K for the year ended December 31, 2005 for additional information regarding the equity units. Baxter International Inc. Net Sales from Continuing Operations Period Ended September 30, 2006 (unaudited) ($ in millions) % Growth % Growth @ @ Q3 Q3 Actual Constant 2006 2005 Rates Rates -------------------------------------------------------------------------
