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News release

Baxter Reports Second-Quarter 2017 Results and Provides Updated Financial Outlook for 2017 and 2020

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  • Second-Quarter Revenue of $2.6 Billion Increased 1 Percent on a Reported Basis and 3 Percent on an Operational Basis
  • Second-Quarter GAAP Earnings Per Share (EPS) of $0.48; Adjusted EPS of $0.63 Increased 37 Percent
  • Increases Full-Year 2017 Sales Growth to 3 Percent on a Reported Basis and 5 Percent on an Operational Basis
  • Raises Full-Year 2017 GAAP EPS to $1.85 to $1.95; Adjusted EPS to $2.34 to $2.40
  • Financial Outlook for 2020 Increased to Reflect Strong Operational Execution and Ongoing Business Transformation Initiatives

DEERFIELD, Ill.--(BUSINESS WIRE)--Jul. 26, 2017-- Baxter International Inc. (NYSE:BAX) today reported results for the second quarter of 2017 and increased its financial outlook for full-year 2017 and 2020.

“Our solid second quarter performance reflects continued execution of our strategic objectives,” said José (Joe) E. Almeida, chairman and chief executive officer. “Baxter’s focus on innovation and operational excellence is fueling our mission to save and sustain lives, and deliver improved performance for our patients, customers and shareholders. In light of this progress and potential, we are raising our financial outlook for both full-year 2017 and 2020.”

Second-Quarter Financial Results

In the second quarter, worldwide sales totaled $2.6 billion, an increase of 1 percent on a reported basis and 2 percent on a constant currency basis as compared to the prior-year period. Operationally, Baxter’s sales rose 3 percent, adjusting for the impact of foreign exchange, generic competition for U.S. cyclophosphamide and the previously communicated select strategic product exits the company is undertaking.

Sales within the U.S. were $1.1 billion, advancing 4 percent. International sales totaled approximately $1.5 billion, representing a 2 percent decrease on a reported basis and a 1 percent increase on a constant currency basis. Baxter’s operational sales increased 5 percent in the U.S. and 2 percent internationally.

Global sales for Hospital Products totaled $1.6 billion in the second quarter, increasing 1 percent on a reported basis, 2 percent on a constant currency basis and 4 percent operationally as compared to the prior-year period. Performance in the quarter benefited from continued strength in our U.S. fluid systems business, favorable demand for parenteral nutrition therapies and pre-mixed injectable pharmaceuticals, as well as for select anesthesia and critical care products.

Baxter’s Renal sales totaled $968 million, comparable to the prior year on a reported basis and up 3 percent on both a constant currency basis and operational basis. Growth in the quarter was driven by increased sales for in-center hemodialysis (HD) products in the U.S., international acute renal care sales and global sales of peritoneal dialysis (PD) therapies.

Baxter reported income from continuing operations of $264 million, or $0.48 per diluted share, on a GAAP (Generally Accepted Accounting Principles) basis for the second quarter. These results included special items totaling $113 million ($84 million net after-tax), primarily related to business optimization, intangible asset amortization and the deconsolidation of the company’s Venezuela business.

On an adjusted basis, excluding special items, Baxter’s second quarter income from continuing operations totaled $348 million, or $0.63 per diluted share, exceeding the company’s previously issued guidance of $0.55 to $0.57 per diluted share.

Business Highlights

In support of its strategy to accelerate profitable growth and deliver meaningful innovation for patients and healthcare professionals around the world, Baxter has achieved a number of recent operational, pipeline and commercial milestones.

  • Secured clearance from all regulatory authorities to complete the company’s proposed acquisition of Claris Injectables Limited, a global generic injectables pharmaceutical company. The transaction significantly broadens Baxter’s presence in the generic pharmaceuticals space and will help boost the supply of essential medicines to Baxter customers. The company expects to close the transaction by the end of July 2017.
  • Entered into an agreement with Dorizoe Lifesciences Limited, a full-service global contract research and development organization, that will facilitate accelerated development of more than 20 generic injectable products.
  • Received U.S. Food and Drug Administration (FDA) approval of two new premixed injectables - clindamycin injection in both saline and dextrose presentations. Baxter is the first and only company to offer a premixed clindamycin injection in a saline presentation, which makes this commonly prescribed antibiotic suitable for use with a wider patient population.
  • Announced research and clinical development collaborations with leading institutions -- Mayo Clinic and Ramot at Tel Aviv University/Tel Aviv Sourasky Medical Center -- to transform patient care with new technologies and products across an array of therapeutic areas, including renal care and surgical care, respectively.
  • Achieved a regulatory milestone for our new innovative, home PD technology with the receipt of guidance from the FDA clarifying the regulatory pathway. The new system is designed to produce sterile PD solutions using a small water filtration device that would be placed in the patient’s home and integrated with Baxter’s unique AMIA automated peritoneal dialysis (APD) system with SHARESOURCE telehealth platform.
  • Launched a new version of the AK-98 HD system in select markets offering two-way IT connectivity and capabilities to meet the needs of patients with lower weights. The system can also be used to deliver HDx enabled by THERANOVA, which was designed to work with all hemodialysis machines. HDx enabled by the THERANOVA dialyzer extends the range of molecules that can be filtered from the blood during dialysis, resulting in a filtration profile that more closely mimics the natural kidney.1

2017 Financial Outlook

For full-year 2017: Baxter is raising its financial outlook for the year and now expects sales growth of approximately 3 percent on a reported basis, approximately 4 percent on a constant currency basis, and approximately 5 percent operationally. Earnings from continuing operations, before special items, are expected to be $2.34 to $2.40 per diluted share. This guidance assumes the closure of the company’s proposed acquisition of Claris Injectables, to be complete by the end of July 2017.

For the third quarter: The company expects sales growth of approximately 4 percent on a reported basis, approximately 5 percent on a constant currency basis and approximately 6 percent operationally. The company expects earnings from continuing operations, before special items, of $0.58 to $0.60 per diluted share.

Please see the schedules accompanying this press release for reconciliations between the projected 2017 operational sales and adjusted earnings per diluted share to the projected GAAP sales and earnings per diluted share.

2020 Financial Outlook

As a result of the company’s ongoing business transformation efforts designed to accelerate performance, the company is increasing its 2020 financial outlook. Baxter expects sales to grow approximately 4 percent on a compounded annual basis from 2016 to 20202 and now anticipates an adjusted operating margin in 2020 of approximately 20 percent as compared to previous guidance of 17 to 18 percent. The company anticipates 2020 adjusted diluted earnings of $3.25 to $3.40 per share. Baxter also increased its cash flow expectations for 2020 and now anticipates operating cash flow of approximately $2.65 billion. Capital expenditures are expected to total $650 million in 2020, resulting in free cash flow generation of approximately $2 billion, an increase of $250 million versus prior guidance.

“Baxter’s increased financial outlook and enhanced free cash flow generation provide the flexibility to invest in the business both organically and inorganically while also returning meaningful value to shareholders through dividends and share repurchases,” said Jay Saccaro, executive vice president and chief financial officer. “The company is well-positioned to execute on its aspiration of delivering sustainable industry-leading performance.”

The non-GAAP measures set forth above reflect the impact of several known items. The reconciliation of adjusted operating margin for known intangible asset amortization expense of approximately 1 percent results in operating margin of approximately 19 percent in 2020. Additionally, the reconciliation of adjusted diluted earnings per share for known intangible asset amortization expense ($0.17 in 2020) results in diluted earnings per share between $3.08 and $3.23, respectively.

A webcast of Baxter's second 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 July 26, 2017. Please see www.baxter.com for more information regarding this and future investor events and webcasts.

About Baxter

Baxter provides a broad portfolio of essential renal and hospital products, including home, acute and in-center dialysis; sterile IV solutions; infusion systems and devices; parenteral nutrition; surgery products and anesthetics; and pharmacy automation, software and services. The company’s global footprint and the critical nature of its products and services play a key role in expanding access to healthcare in emerging and developed countries. Baxter’s employees worldwide are building upon the company’s rich heritage of medical breakthroughs to advance the next generation of healthcare innovations that enable patient care.

This release includes forward-looking statements concerning the company’s financial results, business development activities, capital structure, cost savings initiatives, R&D pipeline including results of clinical trials and planned product launches, and outlook for 2017 and 2020. 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 of risks for new and existing products, and the impact of those products on quality or patient safety concerns; product development risks; product quality or patient safety concerns; future actions of regulatory bodies and other governmental authorities, including the FDA, the Department of Justice, the New York Attorney General and foreign regulatory agencies; failures with respect to compliance programs; future actions of third parties, including payers; U.S. healthcare reform and other global austerity measures; pricing, reimbursement, taxation and rebate policies of government agencies and private payers; the impact of competitive products and pricing, including generic competition, drug reimportation and disruptive technologies; global, trade and tax policies; accurate identification of and execution on business development and R&D opportunities and realization of anticipated benefits (including the proposed acquisition of Claris Injectables in July 2017); fluctuations in supply and demand; the availability of acceptable raw materials and component supply; the inability to create timely production capacity or other manufacturing supply difficulties; the ability to achieve the intended results associated with the separation of the biopharmaceutical and medical products businesses; the ability to enforce owned or in-licensed patents or the patents of third parties preventing or restricting manufacture, sale or use of affected products or technology; the impact of global economic conditions; fluctuations in foreign exchange and interest rates; any change in law concerning the taxation of income, including income earned outside the United States; actions taken by tax authorities in connection with ongoing tax audits; breaches or failures of the company’s information technology systems; loss of key employees or inability to identify and recruit new employees; the outcome of pending or future litigation; the adequacy of the company’s cash flows from operations to meet its ongoing cash obligations and fund its investment program; and other risks identified in Baxter’s most recent filing on Form 10-K and other Securities and Exchange Commission filings, all of which are available on Baxter’s website. Baxter does not undertake to update its forward-looking statements.

1 Boschetti-de-Fierro A, et al. MCO Membranes: Enhanced Selectivity in High-Flux Class. Scientific Reports (2015); 5:118448

2 Assumes constant currency foreign exchange rates from 2017 through 2020

BAXTER INTERNATIONAL INC.
Consolidated Statements of Income
Three Months Ended June 30, 2017 and 2016
(unaudited)
(in millions, except per share and percentage data)
 
Three Months Ended
June 30,
2017 2016 Change
 
NET SALES $2,605 $2,585 1%
 
COST OF SALES 1,475 1,613 (9%)
             
GROSS MARGIN   1,130   972   16%
% of Net Sales 43.4% 37.6% 5.8 pts
 
MARKETING AND ADMINISTRATIVE EXPENSES 635 709 (10%)
% of Net Sales 24.4% 27.4% (3 pts)
 
RESEARCH AND DEVELOPMENT EXPENSES 156 195 (20%)
% of Net Sales 6.0% 7.5% (1.5 pts)
             
OPERATING INCOME   339   68   NM
% of Net Sales 13.0% 2.6% 10.4 pts
 
NET INTEREST EXPENSE 13 11 18%
 
OTHER EXPENSE (INCOME), NET 20 (1,161) (102%)
             
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES   306   1,218   (75%)
 
INCOME TAX EXPENSE   42   6   NM
% of Income from Continuing Operations before Income Taxes 13.7% 0.5% 13.2 pts
 
INCOME FROM CONTINUING OPERATIONS 264 1,212 (78%)
 
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX 1 - NM
 
NET INCOME   $265   $1,212   (78%)
 
INCOME FROM CONTINUING OPERATIONS PER COMMON SHARE
Basic   $0.49   $2.21   (78%)
Diluted   $0.48   $2.19   (78%)
 
INCOME FROM DISCONTINUED OPERATIONS PER COMMON SHARE
Basic   $0.00   $0.00   NM
Diluted   $0.00   $0.00   NM
 
NET INCOME PER COMMON SHARE
Basic   $0.49   $2.21   (78%)
Diluted   $0.48   $2.19   (78%)
 
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic 544 548
Diluted   555   553    
 
ADJUSTED OPERATING INCOME (excluding special items) $419 A $318 A 32%
ADJUSTED PRE-TAX INCOME FROM CONTINUING OPERATIONS (excluding special items) $419 A $320 A 31%
ADJUSTED INCOME FROM CONTINUING OPERATIONS (excluding special items) $348 A $256 A 36%
ADJUSTED DILUTED EPS FROM CONTINUING OPERATIONS (excluding special items) $0.63 A $0.46 A 37%
 

A Refer to page 10 for a description of the adjustments and a reconciliation to GAAP measures.

NM -Not Meaningful
BAXTER INTERNATIONAL INC.
Note to Consolidated Statements of Income
Three Months Ended June 30, 2017 and 2016
Description of Adjustments and Reconciliation of GAAP to Non-GAAP Measures
(unaudited)
(in millions, except per share and percentage data)
 
The company's GAAP results for the three months ended June 30, 2017 and 2016 included special items which impacted the GAAP measures as follows:
 

 

Three Months Ended

June 30,

 
2017   2016 Change
Gross Margin $1,130 $972 16%

Intangible asset amortization expense 1

36 42
Business optimization items 2 14 66
Intangible asset impairment 3 - 51
Baxalta separation-related costs 4 1 -
Product-related items 5 (4)   -
Adjusted Gross Margin $1,177   $1,131 4%
% of Net Sales 45.2% 43.8% 1.4 pts
 
Marketing and Administrative Expenses $635 $709 (10%)
Business optimization items 2 (20) (28)
Baxalta separation-related costs 4 (7) (18)
Claris acquisition and integration expenses 6 (5)   -
Adjusted Marketing and Administrative Expenses $603   $663 (9%)
% of Net Sales 23.1% 25.6% (2.5 pts)
 
Research and Development Expenses $156 $195 (20%)
Business optimization items 2 (1)   (45)
Adjusted Research and Development Expenses $155   $150 3%
% of Net Sales 6.0% 5.8% 0.2 pts
 
Operating Income $339 $68 NM
Impact of special items 80   250
Adjusted Operating Income $419   $318 32%
% of Net Sales 16.1% 12.3% 3.8 pts
 
Other Expense (Income), Net $20 $(1,161) (102%)
Net realized gains on Baxalta Retained Share transactions 7 - 1,148
Venezuela deconsolidation 8 (33)   -
Adjusted Other Income, Net $(13)   $(13) 0%
 
Pre-Tax Income from Continuing Operations $306 $1,218 (75%)
Impact of special items 113   (898)
Adjusted Pre-Tax Income from Continuing Operations $419   $320 31%
 
Income Tax Expense $42 $6 NM
Impact of special items 29   58
Adjusted Income Tax Expense $71   $64 11%
% of Adjusted Pre-Tax Income from Continuing Operations 16.9% 20.0% (3.1 pts)
 
Income from Continuing Operations $264 $1,212 (78%)
Impact of special items 84   (956)
Adjusted Income from Continuing Operations $348   $256 36%
 
Diluted EPS from Continuing Operations $0.48 $2.19 (78%)
Impact of special items 0.15   (1.73)
Adjusted Diluted EPS from Continuing Operations $0.63   $0.46 37%
 
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Diluted   555   553    
1   The company's results in 2017 and 2016 included intangible asset amortization expense of $36 million ($27 million, or $0.05 per diluted share, on an after-tax basis) and $42 million ($32 million, or $0.06 per diluted share, on an after-tax basis), respectively.
2 The company's results in 2017 included a charge of $35 million ($26 million, or $0.05 per diluted share, on an after-tax basis) related to business optimization initiatives. This included a charge of $16 million related to restructuring activities, $16 million of costs to implement business optimization programs which primarily included external consulting and project employee costs, and $3 million of accelerated depreciation associated with facilities to be closed. The $16 million of restructuring charges included $7 million of employee termination costs, $4 million of contract termination costs, and $5 million of asset impairment charges primarily related to facility closures.
The company’s results in 2016 included a net charge of $139 million ($107 million, or $0.19 per diluted share, on an after-tax basis) related to business optimization initiatives. This included a net charge of $103 million related to restructuring activities, $15 million of costs to implement business optimization programs which included external consulting and employee salary and related costs, $14 million of accelerated depreciation associated with facilities to be closed, and $7 million of Gambro integration costs. The $103 million of restructuring activities included $40 million of employee termination costs, $58 million of costs related to the discontinuance of the VIVIA home hemodialysis development program, and $5 million of other exit costs.
3 The company's results in 2016 included a $51 million ($39 million, or $0.07 per diluted share, on an after-tax basis) impairment primarily related to developed technology.
4 The company's results in 2017 and 2016 included costs incurred related to the Baxalta separation totaling $8 million ($6 million, or $0.01 per diluted share, on an after-tax basis) and $18 million ($14 million, or $0.03 per diluted share, on an after-tax basis), respectively.
5 The company's results in 2017 included a benefit of $4 million ($3 million, or $0.01 per diluted share, on an after-tax basis) related to an adjustment to historical product reserves.
6 The company's results in 2017 included acquisition and integration costs of $5 million ($4 million, or $0.01 per diluted share, on an after-tax basis) related to the company's pending acquisition of Claris Injectables Limited.
7 The company’s results in 2016 included net realized gains of $1.1 billion ($1.1 billion, or $2.08 per diluted share, on an after-tax basis), related to the exchange of the company's retained shares of Baxalta for Baxter shares and the contribution of retained shares in Baxalta to Baxter's U.S. pension fund.
8 The company's results in 2017 included a charge of $33 million ($24 million, or $0.04 per diluted share, on an after-tax basis) related to the deconsolidation of its Venezuelan operations.
 
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.

NM - Not Meaningful

BAXTER INTERNATIONAL INC.
Consolidated Statements of Income
Six Months Ended June 30, 2017 and 2016
(unaudited)
(in millions, except per share and percentage data)
 
Six Months Ended
June 30,
2017 2016 Change
 
NET SALES $5,080 $4,960 2%
 
COST OF SALES 2,908 3,023 (4%)
             
GROSS MARGIN   2,172   1,937   12%
% of Net Sales 42.8% 39.1% 3.7 pts
 
MARKETING AND ADMINISTRATIVE EXPENSES 1,205 1,350 (11%)
% of Net Sales 23.7% 27.2% (3.5 pts)
 
RESEARCH AND DEVELOPMENT EXPENSES 284 331 (14%)
% of Net Sales 5.6% 6.7% (1.1 pts)
             
OPERATING INCOME   683   256   167%
% of Net Sales 13.4% 5.2% 8.2 pts
 
NET INTEREST EXPENSE 27 39 (31%)
 
OTHER EXPENSE (INCOME), NET A 22 (4,330) (101%)
             
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES   634   4,547   (86%)
 
INCOME TAX EXPENSE (BENEFIT)   97   (52)   NM
% of Income from Continuing Operations before Income Taxes 15.3% (1.1%) 16.4 pts
 
INCOME FROM CONTINUING OPERATIONS 537 4,599 (88%)
 
(LOSS) INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX - (7) (100%)
 
NET INCOME   $537   $4,592   (88%)
 
INCOME FROM CONTINUING OPERATIONS PER COMMON SHARE
Basic   $0.99   $8.39   (88%)
Diluted   $0.97   $8.33   (88%)
 
(LOSS) INCOME FROM DISCONTINUED OPERATIONS PER COMMON SHARE
Basic   $0.00   ($0.01)   (100%)
Diluted   $0.00   ($0.01)   (100%)
 
NET INCOME PER COMMON SHARE
Basic   $0.99   $8.38   (88%)
Diluted   $0.97   $8.32   (88%)
 
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic 542 548
Diluted   553   552    
 
ADJUSTED OPERATING INCOME (excluding special items) $825 B $567 B 46%
ADJUSTED PRE-TAX INCOME FROM CONTINUING OPERATIONS (excluding special items) $809 B $568 B 42%
ADJUSTED INCOME FROM CONTINUING OPERATIONS (excluding special items) $666 B $455 B 46%
ADJUSTED DILUTED EPS FROM CONTINUING OPERATIONS (excluding special items) $1.20 B $0.82 B 46%

A

  Other Income, net for the period ended June 30, 2016 includes $4.4 billion net realized gains on the Baxalta retained shares transactions and a $101 million net debt extinguishment loss.

B

Refer to page 12 for a description of the adjustments and a reconciliation to GAAP measures.
NM - Not Meaningful
BAXTER INTERNATIONAL INC.
Note to Consolidated Statements of Income
Six Months Ended June 30, 2017 and 2016
Description of Adjustments and Reconciliation of GAAP to Non-GAAP Measures
(unaudited)
(in millions, except per share and percentage data)
 
The company's GAAP results for the six months ended June 30, 2017 and 2016 included special items which impacted the GAAP measures as follows:
 

 

Six Months Ended

June 30,

 
2017   2016 Change
Gross Margin $2,172 $1,937 12%
Intangible asset amortization expense 1 74 82
Business optimization items 2 30 78
Intangible asset impairment 3 - 51

 

Baxalta separation-related costs 4 1 -
Product-related items 5 (4)   (12)
Adjusted Gross Margin $2,273   $2,136 6%
% of Net Sales 44.7% 43.1% 1.6 pts
 
Marketing and Administrative Expenses $1,205 $1,350 (11%)
Business optimization items 2 (35) (31)
Baxalta separation-related costs 4 (14) (36)
Historical rebate and discount adjustments 6 12 -
Claris acquisition and integration expenses 7 (5)   -
Adjusted Marketing and Administrative Expenses $1,163   $1,283 (9%)
% of Net Sales 22.9% 25.9% (3 pts)
 
Research and Development Expenses $284 $331 (14%)
Business optimization items 2 1   (45)
Adjusted Research and Development Expenses $285   $286 0%
% of Net Sales 5.6% 5.8% (0.2 pts)
 
Operating Income $683 $256 167%
Impact of special items 142   311
Adjusted Operating Income $825   $567 46%
% of Net Sales 16.2% 11.4% 4.8 pts
 
Other Expense (Income), Net $22 $(4,330) (101%)
Net realized gains on Baxalta Retained Shares transactions 8 - 4,391
Loss on debt extinguishment 9 - (101)
Venezuelan deconsolidation 10 (33)   -
Adjusted Other Income, Net $(11)   $(40) (73%)
 
Pre-Tax Income from Continuing Operations $634 $4,547 (86%)
Impact of special items 175   (3,979)
Adjusted Pre-Tax Income from Continuing Operations $809   $568 42%
 
Income Tax Expense (Benefit) $97 $(52) NM
Impact of special items 46   165
Adjusted Income Tax Expense $143   $113 27%
% of Adjusted Pre-Tax Income from Continuing Operations 17.7% 19.9% (2.2 pts)
 
Income from Continuing Operations $537 $4,599 (88%)
Impact of special items 129   (4,144)
Adjusted Income from Continuing Operations $666   $455 46%
 
Diluted EPS from Continuing Operations $0.97 $8.33 (88%)
Impact of special items 0.23   (7.51)
Adjusted Diluted EPS from Continuing Operations $1.20   $0.82 46%
 
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Diluted   553   552    
1 The company's results in 2017 and 2016 included intangible asset amortization expense of $74 million ($55 million, or $0.10 per diluted share, on an after-tax basis) and $82 million ($62 million, or $0.11 per diluted share, on an after-tax basis), respectively.
2 The company's results in 2017 included a net charge of $64 million ($47 million, or $0.08 per diluted share, on an after-tax basis) related to business optimization initiatives. This included a net charge of $19 million related to restructuring activities, $37 million of costs to implement business optimization programs which primarily included external consulting and project employee costs, and $8 million of accelerated depreciation associated with facilities to be closed. The $19 million of net restructuring charges included $9 million of employee termination costs, $5 million of contract termination costs, and $5 million of asset impairment charges primarily related to facility closures.
The company’s results in 2016 included a net charge of $154 million ($117 million, or $0.21 per diluted share, on an after-tax basis) related to business optimization initiatives. This included a net charge of $107 million related to restructuring activities, $19 million of costs to implement business optimization programs which included external consulting and employee salary and related costs, $14 million of accelerated depreciation associated with facilities to be closed, and $14 million of Gambro integration costs. The $107 million of restructuring activities included $44 million of employee termination costs, $58 million of costs related to the discontinuance of the VIVIA home hemodialysis development program, and $5 million of other exit costs.
3 The company's results in 2016 included a $51 million ($39 million, or $0.07 per diluted share, on an after-tax basis) impairment primarily related to developed technology.
4 The company's results in 2017 and 2016 included costs incurred related to the Baxalta separation totaling $15 million ($11 million, or $0.02 per diluted share, on an after-tax basis) and $36 million ($27 million, or $0.05 per diluted share, on an after-tax basis), respectively.
5 The company's results in 2017 include a benefit of $4 million ($3 million, or $0.01 per diluted share, on an after-tax basis) related to an adjustment to historical product reserves. The company's results in 2016 included benefits related to adjustments to the SIGMA SPECTRUM infusion pump reserves of $12 million ($9 million, or $0.02 per diluted share, on an after-tax basis).
6 The company's results in 2017 included a benefit of $12 million ($9 million, or $0.02 per diluted share, on an after-tax basis) related to an adjustment to the company's historical rebates and discount reserves.
7 The company's results in 2017 included acquisition and integration costs of $5 million ($4 million, or $0.01 per diluted share, on an after-tax basis) related to the company's pending acquisition of Claris Injectables Limited.
8 The company’s results in 2016 included net realized gains of $4.4 billion ($4.4 billion, or $8.05 per diluted share, on an after-tax basis), related to the debt-for-equity exchanges of the company's retained shares in Baxalta for certain indebtedness, the exchange of the company's retained shares of Baxalta for Baxter shares and the contribution of retained shares in Baxalta to Baxter's U.S. pension fund. A tax benefit of $54 million was recognized as a result of the Retained Shares transactions.
9 The company's results in 2016 included a net debt extinguishment loss totaling $101 million ($65 million, or $0.12 per diluted share, on an after-tax basis) related to the March 2016 debt-for-equity exchange for certain company indebtedness in a Retained Shares transaction.
10 The company's results in 2017 included a charge of $33 million ($24 million, or $0.05 per diluted share, on an after-tax basis) related to the deconsolidation of its Venezuelan operations.
 
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.

NM - Not Meaningful

BAXTER INTERNATIONAL INC.
Net Sales
Periods Ending June 30, 2017 and 2016
(unaudited)
($ in millions)
                                                 
          Q2   Q2   % Growth @   % Growth @           YTD   YTD   % Growth @   % Growth @
            2017   2016   Actual Rates   Constant Rates           2017   2016   Actual Rates   Constant Rates
                                                 
Renal
United States $225 $210 7% 7% $441 $411 7% 7%
International           743   755   (2%)   1%           1,423   1,452   (2%)   0%
Total Renal           $968   $965   0%   3%           $1,864   $1,863   0%   2%
                                                 
Hospital Products
United States $906 $873 4% 4% $1,793 $1,664 8% 8%
International           731   747   (2%)   1%           1,423   1,433   (1%)   1%
Total Hospital Products           $1,637   $1,620   1%   2%           $3,216   $3,097   4%   5%
                                                 
Baxter International Inc.
United States $1,131 $1,083 4% 4% $2,234 $2,075 8% 8%
International           1,474   1,502   (2%)   1%           2,846   2,885   (1%)   1%
Total Baxter           $2,605   $2,585   1%   2%           $5,080   $4,960   2%   4%
BAXTER INTERNATIONAL INC.
Sales by Franchise
Periods Ending June 30, 2017 and 2016
(unaudited)
($ in millions)
                                         
          Q2   Q2   % Growth @   % Growth @   YTD   YTD   % Growth @   % Growth @
            2017   2016   Actual Rates   Constant Rates   2017   2016   Actual Rates   Constant Rates
                                         
Total Renal 1           $968   $965   0%   3%   $1,864   $1,863   0%   2%
                                         
Hospital Products
Fluid Systems 2 $607 $586 4% 5% $1,192 $1,110 7% 8%
Integrated Pharmacy Solutions 3 568 563 1% 3% 1,120 1,119 0% 1%
Surgical Care 4 352 347 1% 2% 686 652 5% 6%
Other 5           110   124   (11%)   (10%)   218   216   1%   2%
Total Hospital Products           $1,637   $1,620   1%   2%   $3,216   $3,097   4%   5%
                                         
Total Baxter           $2,605   $2,585   1%   2%   $5,080   $4,960   2%   4%
1   Includes sales of the company's peritoneal dialysis, hemodialysis and continuous renal replacement therapies.
2 Includes sales of the company's IV therapies, infusion pumps and administration sets.
3 Includes sales of the company's premixed and oncology drug platforms, nutrition products and pharmacy compounding services.
4 Includes sales of the company's inhaled anesthesia products as well as biological products and medical devices used in surgical procedures for hemostasis, tissue sealing and adhesion prevention.
5 Includes sales primarily from the company's pharmaceutical partnering business.
BAXTER INTERNATIONAL INC.
Franchise Sales by U.S. and International
Three-Month Periods Ending June 30, 2017 and 2016
(unaudited)
($ in millions)
                                                             
          Q2 2017           Q2 2016           % Growth
            U.S.   International   Total           U.S.   International   Total           U.S.   International   Total
                                                             
Total Renal           $225   $743   $968           $210   $755   $965           7%   (2%)   0%
                                                             
Hospital Products                                
Fluid Systems $365 $242 $607 $329 $257 $586 11% (6%) 4%
Integrated Pharmacy Solutions 275 293 568 261 302 563 5% (3%) 1%
Surgical Care 204 148 352 200 147 347 2% 1% 1%
Other           62   48   110           83   41   124           (25%)   17%   (11%)
Total Hospital Products           $906   $731   $1,637           $873   $747   $1,620           4%   (2%)   1%
                                                             
Total Baxter           $1,131   $1,474   $2,605           $1,083   $1,502   $2,585           4%   (2%)   1%
BAXTER INTERNATIONAL INC.
Franchise Sales by U.S. and International
Periods Ending June 30, 2017 and 2016
(unaudited)
($ in millions)
                                                             
          YTD 2017           YTD 2016           % Growth
            U.S.   International   Total           U.S.   International   Total           U.S.   International   Total
                                                             
Total Renal           $441   $1,423   $1,864           $411   $1,452   $1,863           7%   (2%)   0%
                                                             
Hospital Products                                
Fluid Systems $724 $468 $1,192 $627 $483 $1,110 15% (3%) 7%
Integrated Pharmacy Solutions 541 579 1,120 525 594 1,119 3% (3%) 0%
Surgical Care 406 280 686 381 271 652 7% 3% 5%
Other           122   96   218           131   85   216           (7%)   13%   1%
Total Hospital Products           $1,793   $1,423   $3,216           $1,664   $1,433   $3,097           8%   (1%)   4%
                                                             
Total Baxter           $2,234   $2,846   $5,080           $2,075   $2,885   $4,960           8%   (1%)   2%
BAXTER INTERNATIONAL INC.
Free Cash Flow Reconciliation
(unaudited)
($ in millions)
                 
          Six Months Ended
June 30,
            2017   2016
Cash flows from operations - continuing operations           $767   $401
Capital expenditures           (279)   (352)
Free cash flow - continuing operations           $488   $49
BAXTER INTERNATIONAL INC.
Reconciliation of Non-GAAP Financial Measure
Change in Net Sales As Reported to Operational Sales
From The Three and Six Months Ended June 30, 2016 to The Three and Six Months Ended June 30, 2017
(unaudited)
                       
                       
            Q2 2017
Net sales US Product Operational
            As Reported   Cyclophosphamide   Exits         FX   Sales
                                   
Total Renal           0%   0%   0%         3%   3%
                                   
Hospital Products
Fluid Systems 4% 0% 1% 1% 6%
Integrated Pharmacy Solutions 1% 1% 0% 2% 4%
Surgical Care 1% 0% 1% 1% 3%
Other           (11%)   0%   0%         1%   (10%)
Total Hospital Products           1%   1%   1%         1%   4%
                                   
Baxter International Inc.
United States 4% 1% 0% 0% 5%
International (2%) 0% 1% 3% 2%
Total Baxter           1%   0%   1%         1%   3%
 
                       
            YTD 2017
Net sales US Product Operational
            As Reported   Cyclophosphamide   Exits         FX   Sales
                                   
Total Renal           0%   0%   1%         2%   3%
                                   
Hospital Products
Fluid Systems 7% 0% 1% 1% 9%
Integrated Pharmacy Solutions 0% 2% 1% 1% 4%
Surgical Care 5% 0% 1% 1% 7%
Other           1%   0%   0%         1%   2%
Total Hospital Products           4%   0%   1%         1%   6%
                                   
Baxter International Inc.
United States 8% 1% 0% 0% 9%
International (1%) 0% 1% 2% 2%
Total Baxter           2%   0%   1%         2%   5%
BAXTER INTERNATIONAL INC.
Reconciliation of Non-GAAP Financial Measures
Projected 2017 Adjusted Earnings Per Share and Projected GAAP Earnings Per Share, and
Projected 2017 Adjusted Sales Growth and Projected GAAP Sales Growth
(unaudited)
                         
2017 Earnings Per Share Guidance           Q3 2017           FY 2017
Earnings per Diluted Share – Adjusted           $0.58 - $0.60           $2.34 - $2.40
Estimated intangible asset amortization           $0.05           $0.19
Estimated business optimization charges           $0.06 - $0.07           $0.19 - $0.23
Estimated Baxalta separation-related expenses           -           $0.02
Historical rebate and discount adjustments           -           ($0.01)
Product-related items           -           ($0.01)
Venezuela deconsolidation           -           $0.04
Claris acquisition and integration expenses           $0.02           $0.03
Earnings per Diluted Share - GAAP           $0.44 - $0.47           $1.85 - $1.95
                   
                         
2017 Sales Growth Guidance           Q3 2017           FY 2017
Sales Growth – Adjusted           6%           5%
U.S. cyclophosphamide           (1%)           (1%)
Strategic product exits           (1%)           (1%)
Claris acquisition           1%           1%
Foreign exchange           (1%)           (1%)
Sales Growth - GAAP           4%           3%

Source: Baxter International Inc.

Baxter International Inc.
Media Contact:
Bill Rader, (224) 948-5353
media@baxter.com
or
Investor Contact:
Clare Trachtman, (224) 948-3085