Company Delivers Solid Operating Results and Continued Cash Flow Improvement
DEERFIELD, Ill., October 20, 2005 – Baxter International Inc. (NYSE:BAX) today reported its financial results for the third quarter of 2005.
On an adjusted basis, excluding special charges described below, earnings from continuing operations totaled $296 million, and earnings per diluted share of $0.47 increased 12 percent compared to the third quarter of 2004. Including these previously announced charges of $0.29 per diluted share in the quarter, Baxter's earnings from continuing operations on a GAAP basis totaled $116 million, or $0.18 per diluted share.
The previously announced charges recorded in the third quarter include a charge of $163 million (or $0.26 per diluted share) for the estimated tax expense related to the company's planned repatriation of approximately $2.0 billion in foreign earnings under the American Jobs Creation Act, and an after-tax charge of $20 million (or $0.03 per diluted share) for costs associated with Baxter's decision to discontinue hemodialysis instrument manufacturing.
Worldwide sales totaled $2.4 billion in the third quarter, an increase of 3 percent over the same period last year (including a 1 percentage point benefit from foreign exchange). Domestic sales declined 2 percent to $1.1 billion, while international sales grew 9 percent (including a 3 percentage point benefit from foreign exchange) to $1.3 billion. Contributing to sales growth was the continued strength of the BioScience business, with sales of $950 million, representing an increase of 12 percent compared to the third quarter of 2004. Sales growth in this business was driven by a 15 percent increase in the recombinant business, including $162 million of sales of ADVATE, Antihemophilic Factor (Recombinant), Plasma/Albumin Free Method (rAHF-PFM) for the treatment of hemophilia A. Offsetting the strong sales in the BioScience business were lower sales of the company's COLLEAGUE Infusion Pump, which was on hold during the third quarter. COLLEAGUE Infusion Pump sales totaled approximately $65 million in the third quarter of 2004.
Cash flow from continuing operations totaled $536 million for the quarter, compared to $277 million in the same period last year. Free cash flow (cash flow from continuing operations, less capital expenditures of $116 million in 2005 and $134 million in 2004) was $420 million for the quarter, an improvement of $277 million from the third quarter last year.
“We continue to focus on driving improved operating results and cash flow, which has enhanced our overall financial flexibility,” said John Greisch, chief financial officer. “We have again achieved our financial commitments through improved operational execution across all of our businesses.”
New Product Launches and Partnerships
“In addition to our strong operating results in the third quarter, we made further progress on achieving R&D milestones and finalizing new partnerships,” said Robert L. Parkinson, Jr., chairman and chief executive officer, “We remain committed to providing value to our shareholders through predictable and sustainable growth over the long term, improving cash flow generation and capital allocation, and accelerating internal R&D and business development initiatives.”
During the third quarter, Baxter launched several new products and announced new collaborations, including research agreements with Nektar Therapeutics and Lipoxen Technologies. These collaborations focus on further advancing ADVATE, with the objective of reducing the frequency of infusions and enhancing quality of life for hemophilia patients. In addition to these agreements, the company launched GAMMAGARD LIQUID [Immune Globulin Intravenous (Human)] (IVIG) 10% Solution in the United States for the treatment of primary immunodeficiencies, and recently received FDA approval of FLEXBUMIN, the first preparation of human albumin to be packaged in a flexible container.
Nine-Month Results
For the first nine months of 2005, Baxter's worldwide sales grew 7 percent to $7.4 billion, up from $6.9 billion in the same period last year. Foreign exchange favorably impacted sales growth by 3 percentage points year-to-date. Domestic sales totaled $3.3 billion, an increase of 2 percent over the same period last year, while international sales increased 11 percent (including a 5 percentage point benefit from foreign exchange), to $4.1 billion.
On an adjusted basis, excluding charges, the company reported year-to-date earnings from continuing operations of $829 million, or $1.32 per diluted share, an increase of 18 percent over the same period last year. Including the charges and restructuring benefits recorded in the second and third quarters, Baxter's income from continuing operations totaled $664 million, or $1.06 per diluted share, in the first nine months of the year.
Cash flow from continuing operations totaled $1.3 billion for the first nine months of the year, compared to $529 million in the same period in 2004. Free cash flow (cash flow from continuing operations, less capital expenditures of $279 million in 2005 and $363 million in 2004) was $1.0 billion for the first nine months of 2005, an improvement of $870 million from the same period last year.
Fourth Quarter and Full-Year 2005 Outlook
For the fourth quarter of 2005, the company expects organic sales to decline in low single digits, and adjusted earnings per diluted share from continuing operations to total $0.56 to $0.58. Accordingly, for full-year 2005, Baxter expects to achieve organic sales growth of 3 to 4 percent and adjusted earnings per diluted share from continuing operations of $1.88 to $1.90. Baxter also now expects cash flow from continuing operations for full-year 2005 to be approximately $1.7 billion, and to generate free cash flow of approximately $1.2 billion in 2005 (after approximately $500 million of anticipated capital expenditures).
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The company's guidance excludes the $0.26 per diluted share from the second and third quarter charges and restructuring adjustments, and also excludes further special charges in the balance of the year, including additional tax effects of the company's planned repatriation of approximately $2 billion under the American Jobs Creation Act, future costs associated with the company's decision to discontinue hemodialysis instrument manufacturing, any additional COLLEAGUE Infusion Pump-related charges, and costs associated with early debt retirement.
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 20, 2005. The company's fourth quarter conference call for investors is scheduled for January 26, 2006. At that time, Baxter will provide its financial guidance for 2006. 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 cancer, hemophilia, immune disorders, kidney disease and trauma. 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: timely realization of the benefits of the company's restructuring initiatives; the impact of geographic and product mix on the company's sales; actions of regulatory bodies and other governmental authorities, including the Food and Drug Administration and foreign counterparts that could delay, limit or suspend product sales or result in seizures, injunctions and monetary sanctions, including with respect to the COLLEAGUE Infusion Pump; product quality or patient safety concerns leading to product recalls, withdrawals, launch delays, litigation, or declining sales; product development risks; interest rates; demand for and market acceptance risks for new and existing products, such as ADVATE, and other technologies; the impact of competitive products and pricing, including generic competition, drug reimportation and disruptive technologies; inventory reductions or fluctuations in buying patterns by wholesalers or distributors; foreign currency exchange rates; the availability of acceptable raw materials and component supply; global regulatory, trade and tax policies; the ability to enforce patents; patents of third parties preventing or restricting the company's manufacture, sale or use of affected products or technology; reimbursement policies of government agencies and private payers; results of product testing; 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 web site. The company does not undertake to update its forward-looking statements. Financial schedules, including additional reconciliations of non-GAAP measures, are attached to this release and available on the company's web site.
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