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Baxter Achieves Record Sales, Earnings and Cash Flow for Full-year 2008


Company Exceeds Fourth Quarter Earnings Guidance and Provides Double-Digit Earnings Growth Outlook for 2009

DEERFIELD, Ill. – Baxter International Inc. (NYSE:BAX) today announced record sales, earnings and cash flow for 2008, including strong financial results for the fourth quarter that exceeded previously issued guidance. The company also provided its financial outlook for 2009.

Summary of Fourth Quarter Results

Baxter reported fourth quarter net income of $569 million, an increase of
19 percent from the $478 million reported in the fourth quarter of 2007. Earnings per diluted share of $0.91 increased 23 percent from the $0.74 per diluted share reported in the prior-year period. These results include an after-tax special charge of approximately $5 million for in-process research and development related to the acquisition of certain technology applicable to the company’s BioScience business.

On an adjusted basis, excluding special charges in 2008 and 2007, Baxter’s net income in the fourth quarter totaled $574 million, an increase of 18 percent over the $488 million reported for the same period last year. Adjusted earnings per diluted share of $0.91 increased 20 percent from the $0.76 reported last year, and exceeded the company’s earnings guidance for the fourth quarter of $0.88 to $0.90 per diluted share. Baxter’s strong financial performance was the result of continued momentum and strong fundamentals across the portfolio, improved margins, and a lower tax rate.

Baxter’s worldwide sales totaled $3.1 billion in the fourth quarter, and increased
4 percent. Excluding the impact of foreign currency, worldwide sales increased
9 percent and exceeded the company’s guidance of approximately 7 percent growth. Sales within the United States increased 6 percent to $1.4 billion, while international sales grew 3 percent to $1.8 billion. Excluding the impact of foreign exchange, Baxter’s international sales grew 10 percent.

Medication Delivery sales of $1.2 billion increased 2 percent (or 7 percent excluding foreign exchange) driven by strength in IV therapies, anesthesia products and injectables. Renal sales of $557 million declined by 7 percent (or declined 3 percent excluding foreign exchange). With more than 80 percent of sales outside the U.S., this business was significantly impacted by the stronger U.S. dollar, as well as a decline in sales of the company’s lower-margin hemodialysis products and a difficult growth comparison created by the loss of the peritoneal dialysis (PD) tender in Mexico in the first quarter of 2008.

In Baxter’s BioScience business, positive momentum continued in the fourth quarter with revenues totaling $1.4 billion, an increase of 12 percent. Excluding the impact of foreign exchange, BioScience sales grew 17 percent, reflecting strong double-digit sales growth across all product categories. Driving this performance was robust 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 GAMMAGARD LIQUID [Immune Globulin Intravenous (IGIV)], as well as solid growth from other plasma-based therapies, biosurgery products and vaccines.

“Baxter had another very successful year in 2008,” said Robert L. Parkinson, Jr., chairman and chief executive officer . “We exceeded expectations on all key financial metrics throughout the year, which illustrates the solid fundamentals underpinning our portfolio and expanded geographic reach. Despite a challenging, global macro-environment, we’re very well-positioned to continue to meet our commitments, leverage the benefits of our diversified healthcare model, and continue with our strategic priority of accelerating investment in research and development.”

Full-Year Results

For full-year 2008, Baxter’s net income totaled $2.0 billion and increased
18 percent, with earnings per diluted share increasing 21 percent to $3.16. On an adjusted basis, excluding special items for both 2008 and 2007, Baxter’s net income of $2.2 billion increased 18 percent from $1.8 billion in 2007. Adjusted earnings per diluted share increased 21 percent to $3.38, from $2.79 per diluted share in the prior year.

Baxter’s worldwide sales grew 10 percent in 2008 to $12.3 billion, an increase from $11.3 billion reported last year. Excluding the impact of foreign exchange, sales growth for full-year 2008 was 6 percent.

Baxter also generated strong cash flows in 2008, with cash flow from operations improving by more than $200 million to a record level of $2.5 billion, net of a
$240 million contribution to the company’s pension funds in the fourth quarter. In addition, the company repurchased 32 million shares of common stock, for approximately $2.0 billion, and paid dividends totaling approximately $550 million.

“We are very pleased with our financial results for 2008, particularly our ongoing ability to generate strong cash flows,” said Robert M. Davis, chief financial officer. “In 2008, we created significant value for shareholders due to the strength of our financial position, ongoing financial flexibility, and continued focus on capital allocation and financial management discipline, while investing at record levels in research and development.”

The company increased its investments in research and development by
14 percent (or 20 percent on an adjusted basis) in 2008, to $868 million. Over the course of the year, Baxter received approval for or launched an array of new products, initiated eight major Phase III clinical trials, advanced numerous early-stage internal programs, and established several new partnerships. 2008 highlights from across all three of Baxter’s global businesses include the following:

* Receipt of an EMEA Positive Opinion for CELVAPAN, the first cell culture-based pandemic flu vaccine, and continuation of Phase III trials for Baxter’s candidate seasonal influenza vaccine
* Initiation of Phase III clinical trials evaluating GAMMAGARD LIQUID in patients with mild-to-moderate Alzheimer’s disease and Multi-Focal Motor Neuropathy (MMN)
* Commencement of a Phase III trial combining GAMMAGARD LIQUID with Enhanze, Halozyme’s proprietary drug delivery technology, for the subcutaneous delivery of IGIV for patients with Primary Immune Deficiency, which could allow patients to administer their dose of IGIV once monthly at home
* U.S. Food and Drug Administration (FDA) approval of ARTISS [Fibrin Sealant (Human)], the first and only slow-setting fibrin sealant indicated for use in adhering skin grafts in adult and pediatric burn patients
* Launch of GELFOAM PLUS, a hemostatic product for use in surgical procedures
* Completion of a home hemodialysis device prototype with the company’s development partner DEKA
* Launch of the V-Link Luer-activated device (LAD) with VitalShield protective coating, the first needleless intravenous (IV) connector to contain an antimicrobial coating

First Quarter and Full-Year 2009 Outlook

Baxter also announced today its guidance for the first quarter and full-year 2009. For the full year, Baxter expects sales, excluding the impact of foreign exchange, to grow approximately 7 percent. Adjusting for the unfavorable impact of foreign exchange, Baxter expects reported sales growth to be approximately flat compared to 2008, based on current exchange rates. The company also expects earnings per diluted share of $3.70 to $3.78, before any special items, and expects to generate cash flow from operations in excess of $2.6 billion.

For the first quarter of 2009, Baxter expects sales growth, excluding the impact of foreign exchange, of approximately 7 percent. Adjusting for the unfavorable impact of foreign exchange, the company expects reported sales growth to be approximately flat compared to the first quarter of 2008, based on current exchange rates. The company also expects earnings per diluted share of $0.80 to $0.82, before any special items.

“Our 2009 guidance reflects the ongoing operational strength of our businesses and ability to deliver sustainable growth,” concluded Davis. “It is aligned with our long-range strategic and financial objectives. Although we are operating in a volatile and challenging macro-environment, the potential effects of which continue to evolve, we remain focused on delivering growth while making appropriate investments for the future.”


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