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Baxter Announces Strong First Quarter Financial Results

Company Reports First Quarter Earnings of $0.83 Per Diluted Share and Provides Updated Full-Year Outlook

DEERFIELD, Ill.--(BUSINESS WIRE)--Apr 16, 2009 - Baxter International Inc. (NYSE:BAX) today reported first quarter net income of $516 million, an increase of 20 percent from $429 million reported in the first quarter of 2008. Earnings per diluted share of $0.83 increased 24 percent from $0.67 per diluted share reported in the prior-year period, and favorably compares to the guidance the company previously provided of $0.80 to $0.82 per diluted share. This performance was the continued result of strong underlying fundamentals across the portfolio and improved margins, driven by operational leverage and favorable business and product mix.

On an adjusted basis, excluding 2008 special items, Baxter's first quarter net income increased 9 percent to $516 million from $474 million reported in the prior-year period, and earnings per diluted share increased 12 percent to $0.83 from $0.74 per diluted share reported in the first quarter of 2008.

Baxter's worldwide sales totaled $2.8 billion in the first quarter and declined 2 percent. Excluding the impact of foreign currency, worldwide sales increased 6 percent. Sales within the United States increased 5 percent to $1.2 billion, while international sales declined 7 percent to $1.6 billion. Excluding the impact of foreign currency, Baxter's international sales grew 7 percent.

In the first quarter, Medication Delivery sales of $1.0 billion declined 3 percent (and excluding foreign currency increased 6 percent). Renal sales of $515 million declined 8 percent (and excluding foreign currency increased 1 percent). These results were driven by growth across core components of these portfolios, including the peritoneal dialysis (PD) franchise, anesthesia products, intravenous therapies and global injectables.

Fundamentals continue to be strong in Baxter's BioScience business. In the first quarter, BioScience revenues totaled $1.3 billion and increased 3 percent. Excluding foreign currency, BioScience sales advanced 11 percent, reflecting strong double-digit gains across multiple product categories. Key drivers of this performance include notable growth from antibody therapy and plasma-protein products across the globe, continued conversion to ADVATE [Antihemophilic Factor (Recombinant), Plasma/Albumin-Free Method], for the treatment of hemophilia, and strong sales of biosurgery products.

“Despite the challenging, global macro-economic environment, our first quarter financial results underscore the value of our diversified healthcare model, the solid fundamentals underpinning our portfolio, and our disciplined focus on driving margin improvement,” said Robert L. Parkinson, Jr., chairman and chief executive officer. “We continue to believe that we are very well-positioned given our broad geographic reach and the medically-necessary nature of our portfolio to expand access to care, improve treatments and enhance the quality of life for patients around the world.”

Second Quarter and Full-Year 2009 Outlook

Baxter also announced today its guidance for the second quarter 2009 and provided updated guidance for the full year.

For the second quarter of 2009, Baxter expects sales growth, excluding the impact of foreign currency, of approximately 7 percent. Based on current foreign exchange rates, the company expects reported sales (including the impact of foreign exchange) to decline in low single digits when compared to sales in the second quarter of 2008. The company also expects earnings per diluted share for the second quarter of $0.93 to $0.95, before any special items.

For the full year, Baxter expects sales growth, excluding the impact of foreign currency, of approximately 7 percent. Based on current foreign exchange rates, Baxter expects reported sales growth to be approximately flat. In addition, the company now expects earnings per diluted share of $3.72 to $3.78, before any special items, and continues to expect cash flow from operations to total more than $2.6 billion.

“Our 2009 guidance reflects the ongoing operational strength of our businesses and our ability to deliver sustainable growth,” concluded Robert M. Davis, chief financial officer. “Although we continue to operate in a volatile and challenging macro-environment which continues to evolve, we remain focused on delivering to our objectives while making appropriate investments for the future.”

A webcast of Baxter's first quarter conference call for investors can be accessed live from a link on the company's website at beginning at 7:30 a.m. CDT on April 16, 2009. Please visit Baxter's website for more information regarding this and future investor events and webcasts, including the company's Annual Meeting of Shareholders in Chicago on May 5, 2009 and Baxter's Investor Conference to be held in Chicago on September 16, 2009.

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 and outlook for 2009. 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 delay, 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; any impact of the commercial and credit environment on Baxter and its customers; 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.

Consolidated Statements of Income
Three Months Ended March 31, 2009 and 2008
(in millions, except per share and percentage data)
        Three Months Ended    
        March 31,    
        2009   2008   Change
NET SALES   $2,824     $2,877     (2 %)
COST OF SALES   1,336     1,497     (11 %)
GROSS MARGIN   1,488     1,380     8 %
% of Net Sales   52.7 %   48.0 %   4.7 pts
% of Net Sales   21.6 %   22.2 %   (0.6 pts)


% of Net Sales   7.5 %   6.6 %   0.9 pts
NET INTEREST EXPENSE   26     17     53 %
OTHER EXPENSE (INCOME), NET   2     (4 )   (150 %)
PRE-TAX INCOME   637     537     19 %
INCOME TAX EXPENSE   119     105     13 %
% of Pre-Tax Income   18.7 %   19.6 %   (0.9 pts)
NET INCOME   518     432     20 %
NET INCOME ATTRIBUTABLE TO BAXTER   $516     $429     20 %
BASIC EPS   $0.84     $0.68     24 %
DILUTED EPS   $0.83     $0.67     24 %
Basic   613     632      
Diluted   621     644      
ADJUSTED PRE-TAX INCOME (excluding specified item)   $637     $590   A 8 %
ADJUSTED NET INCOME ATTRIBUTABLE TO BAXTER (excluding specified item)   $516     $474   A 9 %
ADJUSTED DILUTED EPS (excluding specified item)   $0.83     $0.74   A 12 %
A Refer to page 7 for a description of the adjustment and a reconciliation to GAAP (generally accepted accounting principles) measures.


Note: The consolidated statements of income reflect the adoption of Statement of Financial Accounting Standards (SFAS) No. 160, “Noncontrolling Interests in Consolidated Financial Statements, an amendment of ARB No. 51” (SFAS No. 160). The new standard requires that a company present a consolidated net income measure that includes the amount attributable to noncontrolling interests (historically referred to as minority interests) for all periods presented. Prior to the adoption of SFAS No. 160, the noncontrolling interests' share of net income was included in other expense (income), net.
Note to Consolidated Statement of Income
Three Months Ended March 31, 2008
Description of Adjustment and Reconciliation of GAAP to Non-GAAP Measures
(in millions, except per share and percentage data)
The company's GAAP results for the three months ended March 31, 2008 included a charge related to COLLEAGUE infusion pumps, which impacted the GAAP results as follows:
            Income   Net Income    
        Pre-tax   Tax   Attributable    
        Income   Expense   to Baxter   Diluted EPS
  GAAP   $537   $105   $429   $0.67
  COLLEAGUE infusion pump charge 1


  53   8   45   0.07
  Excluding specified item   $590   $113   $474   $0.74
  Effective tax rate       19.2%        
1 Included in the cost of sales line within the accompanying consolidated statement of income. Excluding this item, adjusted gross margin was $1.43 billion and the adjusted gross margin percentage was 49.8%.


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.
Cash Flows from Operations and Changes in Net Debt  
($ in millions)  
Cash Flows from Operations          
(Brackets denote cash outflows) Three Months Ended  
    March 31,  
    2009     2008  
Net income $518     $432  
  Depreciation and amortization 148     156  
  Deferred income taxes 59     61  
  Stock compensation 38     38  
  Realized excess tax benefits from stock issued under employee benefit plans 1 (78 )   -  
  Infusion pump charge -     53  
  Other 9     6  
Changes in balance sheet items          
  Accounts and other current receivables 45     18  
  Inventories (86 )   (105 )
  Accounts payable and accrued liabilities (304 )   (341 )
  Restructuring payments (21      

Posted: April 2009