BAXTER INTERNATIONAL INC - 10-Q Quarterly Report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2004

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-4448

BAXTER INTERNATIONAL INC.

(Exact name of registrant as specified in its charter)


Delaware		36-0781620
(State of other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Baxter Parkway, Deerfield, Illinois		60015-4633
(Address of principal executive offices)		(Zip Code)

847-948-2000

(Registrant’s telephone number,

including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes x No ¨

The number of shares of the registrant’s Common Stock, par value $1.00 per share,

outstanding as of October 31, 2004 was 616,448,448 shares.

BAXTER INTERNATIONAL INC.

FORM 10-Q

For the quarterly period ended September 30, 2004

TABLE OF CONTENTS


		Page Number
PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements (unaudited)

	Condensed Consolidated Statements of Income	2

	Condensed Consolidated Balance Sheets	3

	Condensed Consolidated Statements of Cash Flows	4

	Notes to Condensed Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	32

Item 4.	Controls and Procedures	33

Review by Independent Registered Public Accounting Firm		35

Report of Independent Registered Public Accounting Firm		36

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	37

Item 6.	Exhibits	42

Signature		43

Exhibits		44

PART I. FINANCIAL INFORMATION

Item 1.

Financial Statements

Baxter International Inc. and Subsidiaries

Condensed Consolidated Statements of Income (unaudited)

(in millions, except per share data)


	Three months ended September 30,			Nine months ended September 30,
	2004	2003		2004		2003
Net sales	$2,320	$2,216		$6,908		$6,373
Cost and expenses
Cost of goods sold	1,357	1,247		4,113		3,555
Marketing and administrative expenses	462	440		1,460		1,320
Research and development expenses	124	137		389		412
Restructuring charges	—	—		543		337
Net interest expense	20	25		66		71
Other expense, net	11	6		74		46

Total costs and expenses	1,974	1,855		6,645		5,741

Income from continuing operations before income taxes and cumulative effect of accounting changes	346	361		263		632
Income tax expense (benefit)	87	86		(14	)	96

Income before cumulative effect of accounting changes	259	275		277		536
Discontinued operations	17	(5	)	5		(17	)

Income from continuing operations before cumulative effect of accounting changes	276	270		282		519
Cumulative effect of accounting changes, net of income tax benefit of $5	—	(17	)	—		(17	)

Net income	$ 276	$ 253		$ 282		$ 502

Earnings per basic common share
Continuing operations	$ 0.42	$ 0.47		$ 0.45		$ 0.90
Discontinued operations	0.03	(0.01	)	0.01		(0.02	)
Cumulative effect of accounting changes	—	(0.03	)	—		(0.03	)

Net income	$ 0.45	$ 0.43		$ 0.46		$ 0.85

Earnings per diluted common share
Continuing operations	$ 0.42	$ 0.46		$ 0.45		$ 0.89
Discontinued operations	0.03	(0.01	)	0.01		(0.03	)
Cumulative effect of accounting changes	—	(0.03	)	—		(0.03	)

Net income	$ 0.45	$ 0.42		$ 0.46		$ 0.83

Weighted average number of common shares outstanding
Basic	615	589		613		595

Diluted	619	592		617		604

The accompanying notes are an integral part of these condensed consolidated financial statements.

Baxter International Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (unaudited)

(in millions, except shares)


		September 30, 2004		December 31, 2003
Current assets	Cash and equivalents	$ 822		$ 925
	Accounts and other current receivables	2,108		1,914
	Inventories	2,106		2,104
	Short-term deferred income taxes	405		140
	Prepaid expenses and other	282		277

	Total current assets	5,723		5,360

Property, plant	At cost	7,840		7,791
and equipment	Accumulated depreciation and amortization	(3,494	)	(3,199	)

	Net property, plant and equipment	4,346		4,592

Other assets	Goodwill	1,640		1,648
	Other intangible assets	572		611
	Other	1,488		1,498

	Total other assets	3,700		3,757

Total assets		$13,769		$13,709

Current liabilities	Short-term debt	$ 178		$ 153
	Accounts payable and accrued liabilities	2,800		3,107
	Income taxes payable	648		538

	Total current liabilities	3,626		3,798

Long-term debt and lease obligations		4,411		4,421

Other long-term liabilities		2,046		2,216

Commitments and contingencies
Stockholders’ equity	Common stock, $1 par value, authorized 2,000,000,000 shares, 648,417,007 issued in 2004 and 648,574,109 in 2003	648		649
	Common stock in treasury, at cost, 32,539,304 shares in 2004 and 37,273,424 shares in 2003	(1,613	)	(1,863	)
	Additional contributed capital	3,630		3,773
	Retained earnings	2,427		2,145
	Accumulated other comprehensive loss	(1,406	)	(1,430	)

	Total stockholders’ equity	3,686		3,274

	Total liabilities and stockholders’ equity	$13,769		$13,709

The accompanying notes are an integral part of these condensed consolidated financial statements.

Baxter International Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)

(in millions)

(brackets denote cash outflows)


		Nine months ended September 30,
		2004			2003
Cash flows from	Income from continuing operations	$	277		$	536
operations	Adjustments
	Depreciation and amortization		445			400
	Deferred income taxes		(238	)		(135	)
	Restructuring charges		543			337
	Other		151			34
	Changes in balance sheet items
	Accounts receivable		(155	)		16
	Inventories		(44	)		(233	)
	Accounts payable and accrued liabilities		(175	)		(160	)
	Restructuring payments		(136	)		(38	)
	Contributions to pension trusts		(95	)		(11	)
	Other		(44	)		(76	)

	Cash flows from continuing operations		529			670
	Cash flows from discontinued operations		17			5

	Cash flows from operations		546			675

Cash flows from	Capital expenditures		(363	)		(564	)
investing activities	Acquisitions (net of cash received) and investments in and advances to affiliates		(20	)		(106	)
	Divestitures and other		31			—

	Cash flows from investing activities		(352	)		(670	)

Cash flows from	Issuances of debt		519			654
financing activities	Redemptions of financing obligations		(596	)		(1,001	)
	Increase in debt with maturities of three months or less, net		64			335
	Common stock cash dividends		(361	)		(346	)
	Proceeds from stock issued under employee benefit plans		108			60
	Issuance of stock		—			644
	Purchases of treasury stock		(18	)		(714	)

	Cash flows from financing activities		(284	)		(368	)

Effect of currency exchange rate changes on cash and equivalents			(13	)		24

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents