DEERFIELD, Ill., Jan. 25 /PRNewswire-FirstCall/ -- Baxter International Inc. today reported financial results for the fourth quarter 2006 and provided its financial outlook for the first quarter and full-year 2007.
Summary of Fourth Quarter Results
Baxter reported income from continuing operations of $433 million in the fourth quarter, an increase of 47 percent over the same period last year, and 14 percent on an adjusted basis. Earnings of $0.66 per diluted share exceeded company guidance of $0.60 to $0.62 per diluted share, and represented an increase of 43 percent on a GAAP basis and 10 percent on an adjusted basis. This performance was a result of strong sales growth, gross margin expansion and lower income tax expense.
Worldwide sales totaled $2.8 billion in the fourth quarter, an increase of 11 percent compared to the same period last year. Excluding a 2 percentage point benefit from foreign exchange, sales grew 9 percent and exceeded the company’s organic sales growth guidance of 7 to 8 percent. Domestic sales increased 11 percent to $1.2 billion, and international sales also increased 11 percent to $1.5 billion (an increase of 7 percent excluding a 4 percentage point benefit from foreign exchange).
All of Baxter’s businesses posted strong sales growth in the quarter. Sales within Baxter’s BioScience business totaled $1.2 billion, an increase of 18 percent from the same period last year. This growth was driven by record sales of ADVATE, Antihemophilic Factor (Recombinant), Plasma/Albumin Free Method (rAHF-PFM) for the treatment of hemophilia A, antibody therapy products, including GAMMAGARD LIQUID(TM) [Immune Globulin Intravenous (Human)] (IVIG) 10% Solution for the treatment of primary immunodeficiencies, specialty plasma therapeutics and biosurgery products. Medication Delivery sales increased 7 percent to $1.0 billion, with increased sales of infusion systems, intraveneous solutions and parenteral nutrition products, along with accelerated growth in the company’s drug delivery business. Renal sales increased 6 percent to $537 million reflecting accelerating gains in peritoneal dialysis patients globally.
“We are quite pleased with our strong fourth quarter results and are very well positioned as we move into 2007,” said Robert L. Parkinson, Jr., chairman and chief executive officer. “Of particular importance was our ability to significantly accelerate R&D spending, which is essential to support growth in the coming years.”
Summary of Full-Year 2006 Results
For full-year 2006, Baxter’s worldwide sales increased 5 percent to $10.4 billion. Domestic sales totaled $4.6 billion, an increase of 5 percent from last year, while international sales increased 6 percent (with no impact from foreign exchange), to $5.8 billion.
Baxter’s reported income from continuing operations totaled $1.4 billion, or $2.13 per diluted share, including special charges of $64 million ($0.10 per diluted share). On an adjusted basis, excluding special charges, the company reported 2006 income from continuing operations of $1.5 billion, or $2.23 per diluted share, an increase of 16 percent over last year. Details of special charges recorded in 2005 and 2006 are outlined in the financial schedules that follow the text of this press release.
Cash flow from operations totaled $2.2 billion in 2006, and Baxter generated $1.7 billion in free cash flow (cash flow from operations, less $526 million of capital expenditures). Baxter’s full-year cash flow performance exceeded the company’s guidance for 2006 of approximately $2.0 billion in cash flow from operations, and free cash flow of $1.4 billion.
“We are very pleased with the quality of our earnings results and the progress we have made financially throughout 2006,” said Robert M. Davis, Baxter’s chief financial officer and treasurer. “We are particularly encouraged with the strength of our cash flow, which is the best indication of our continued focus on working capital management and value creation.”
Increasing Investments in Research and Development
In 2006, the company accelerated its investment in research and development by 15 percent to $614 million, the highest level of investment in the company’s 75-year history.
“Rededication to science and technology will be an important driver of Baxter’s future growth and success,” Parkinson continued. “Over the last two years, our R&D organization has made great progress in applying disciplined prioritization and project management processes that are critical to ensuring increased productivity of our pipeline and higher returns for our shareholders.”
Examples of specific advancements include: -- Initiated a Phase II clinical trial utilizing adult stem cells to treat chronic myocardial ischemia, a severe form of coronary artery disease. This trial leverages Baxter’s proprietary technology to select stem cells for the procedure from the patient’s own bloodstream. -- Announced preliminary Phase I/II clinical results of Baxter’s candidate H5N1 pandemic influenza vaccine, suggesting the vaccine is well tolerated in humans and may provide wider cross protection for a larger number of people before and during a pandemic. This represented the first clinical evaluation of a cell-based H5N1 vaccine, and is the first clinical demonstration that a candidate H5N1 vaccine can induce antibodies that neutralize widely divergent strains of H5N1 virus. -- Supported Phase II clinical trials involving the use of intravenous immunoglobulin (IVIG) to treat Alzheimer’s disease, which are being conducted by researchers at New York-Presbyterian/Weill Cornell Medical Center in New York City. -- Advanced the company’s hemophilia portfolio through partnerships with Nektar Therapeutics and Lipoxen Technologies, leveraging each company’s expertise to develop new therapies to reduce the frequency of injections required to treat blood-clotting disorders. -- Initiated a Phase II clinical trial involving the regeneration of bone using a product co-developed by Baxter and Kuros Biosurgery AG. The product is based on a combination of Baxter’s TISSEEL fibrin sealant and Kuros’ proprietary biologics and associated binding technology. -- Initiated the development of a recombinant form of von Willebrand factor (VWF), a protein critical to the normal clotting of blood. Preclinical results, presented at the American Society of Hematology meeting in December, suggest that Baxter’s recombinant VWF therapeutic protein has similar properties to plasma-derived VWF. -- Collaborated with Halozyme Therapeutics in the clinical and commercial development of Hylenex, a liquid injectable formulation of recombinant human hyaluronidase that can simplify the delivery of medications and fluids through the use of subcutaneous infusion. First Quarter and Full-Year 2007 Outlook
For full-year 2007, Baxter expects to achieve organic sales growth of 3 to 4 percent. This guidance reflects the divestiture of the Transfusion Therapies business before the end of the first quarter and excludes sales of the company’s COLLEAGUE infusion pump in the United States, which may resume before the end of 2007. Excluding Transfusion Therapies revenues in both 2006 and 2007, Baxter expects organic sales growth of approximately 7 percent, reflecting a continued acceleration in sales growth compared to 2006.
The company expects earnings for full-year 2007 to be $2.47 to $2.53 per diluted share, and to generate cash flow from operations of approximately $2.3 billion.
For the first quarter 2007, the company expects organic sales to grow 5 to 6 percent, and earnings of $0.54 to $0.56 per diluted share. This guidance reflects the divestiture of the Transfusion Therapies business during the first quarter and ongoing transition service revenue to support this business’ ongoing operations.
A webcast of Baxter’s fourth quarter conference call for investors can be accessed live from a link on the company’s website at http://www.baxter.com beginning at 7:30 a.m. CST on January 25, 2007. Please visit Baxter’s website for more information regarding this and future investor events and webcasts, including investor presentations, a company-sponsored Investor Conference in Chicago on March 14, and the company’s Annual Meeting for shareholders in Chicago on May 1.
Baxter International Inc., through its subsidiaries, assists healthcare professionals and their patients with the treatment of complex medical conditions, including hemophilia, immune disorders, cancer, infectious diseases, kidney disease, trauma and other conditions. 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: 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 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; failure to satisfy closing conditions related to the sale of the Transfusion Therapies business; 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 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.
BAXTER INTERNATIONAL INC. Consolidated Statements of Income Three Months Ended December 31, 2006 and 2005 (unaudited) (in millions, except per share and percentage data) Three Months Ended December 31, -------------------- 2006 2005 Change CONTINUING OPERATIONS: -------- ------ ------ NET SALES $2,763 $2,491 11% GROSS PROFIT 1,315 1,079 22% % of Sales 47.6% 43.3% 4.3 pts MARKETING AND ADMINISTRATIVE EXPENSES 612 520 18% % of Sales 22.1% 20.9% 1.2 pts RESEARCH AND DEVELOPMENT EXPENSES 181 134 35% -------------------------------------------------------------------------- OPERATING INCOME 522 425 23% -------------------------------------------------------------------------- % of Sales 18.9% 17.1% 1.8 pts INTEREST, NET 1 23 (96%) OTHER EXPENSE, NET 6 18 (67%) -------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 515 384 34% INCOME TAX EXPENSE 82 90 (9%) -------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS $433 $294 47% ========================================================================== BASIC EPS FROM CONTINUING OPERATIONS $0.66 $0.47 40% ========================================================================== DILUTED EPS FROM CONTINUING OPERATIONS $0.66 $0.46 43% ========================================================================== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Basic 653 624 Diluted 659 634 -------------------------------------------------------------------------- ADJUSTED INCOME FROM CONTINUING OPERATIONS (excluding certain items) $433 $379(1) ADJUSTED DILUTED EPS FROM CONTINUING OPERATIONS (excluding certain items) $0.66 $0.60(1) (1) See page 8 for description of adjustments and reconciliation to GAAP (generally accepted accounting principles) measures. Note: Effective January 1, 2006, the company adopted SFAS No. 123-R using the modified prospective method. After-tax stock-option expense for the fourth quarter of 2006 was $15 million, or $0.02 per diluted share. In accordance with the modified prospective adoption method, the company did not adjust its historical consolidated financial statements to reflect the impact of stock-option expense. Based on the pro forma application of SFAS No. 123 for the calculation of stock-option expense prior to January 1, 2006 (as previously disclosed in the company’s consolidated financial statements), pro forma after-tax stock-option expense in the fourth quarter of 2005 was $15 million, or $0.02 per diluted share. Non-GAAP Financial Measures: The non-GAAP financial measures contained in this press release (earnings and per-share earnings, excluding certain items) adjust for factors that are unusual or nonrecurring. Unusual or nonrecurring items can be highly variable, difficult to predict, and of a size that may substantially impact the company’s reported operations for a period. Management believes that non-GAAP financial measures can facilitate a fuller analysis of the company’s results of operations, particularly in evaluating performance period over period. Management uses these non-GAAP financial measures internally in financial planning, to monitor business unit performance, and in evaluating management performance. Refer to the company’s filing on Form 8-K of today’s date for additional information. BAXTER INTERNATIONAL INC. Note to Consolidated Statements of Income Three Months Ended December 31, 2005 Description of Adjustments and Reconciliation of GAAP to Non-GAAP (unaudited) (in millions, except per share and percentage data) The company’s GAAP results for the three months ended December 31, 2005 included certain charges related to infusion pumps, the exit of hemodialysis instrument manufacturing, early debt retirement costs, and taxes on the repatriation of foreign earnings, which impacted the GAAP results as follows: Income Income from Operating Tax Continuing Diluted Income Expense Operations EPS ---------------------------------------- GAAP $425 $90 $294 $0.46 6060 infusion pump charge (A) 49 15 34 0.06 Hemodialysis instruments charge (A) 22 9 13 0.02 Early debt retirement costs (B) 17 7 10 0.02 Tax on repatriation of foreign earnings - (28) 28 0.04 ---------------------------------------- Excluding specified items $513 $93 $379 $0.60 ======================================== Adjusted operating income percentage 20.6% (A) Included in computing the Gross Profit line in the accompanying consolidated statement of income. Excluding these items, which totaled $71 million, adjusted gross profit is $1.15 billion and the adjusted gross profit percentage is 46.2%. (B) Included in the Other Expense, Net line in the accompanying consolidated statement of income. BAXTER INTERNATIONAL INC. Consolidated Statements of Income Twelve Months Ended December 31, 2006 and 2005 (unaudited) (in millions, except per share and percentage data) Twelve Months Ended December 31, --------------------- 2006 2005 Change CONTINUING OPERATIONS: ------- ------ ------- NET SALES $10,378 $9,849 5% GROSS PROFIT 4,737 4,093 16% % of Sales 45.6% 41.6% 4.0 pts MARKETING AND ADMINISTRATIVE EXPENSES 2,282 2,030 12% % of Sales 22.0% 20.6% 1.4 pts RESEARCH AND DEVELOPMENT EXPENSES 614 533 15% RESTRUCTURING ADJUSTMENTS - (109) (100%) -------------------------------------------------------------------------- OPERATING INCOME 1,841 1,639 12% -------------------------------------------------------------------------- % of Sales 17.7% 16.6% 1.1 pts INTEREST, NET 34 118 (71%) OTHER EXPENSE, NET 61 77 (21%) -------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 1,746 1,444 21% INCOME TAX EXPENSE 348 486 (28%) -------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS $1,398 $958 46% ========================================================================== BASIC EPS FROM CONTINUING OPERATIONS $2.15 $1.54 40% ========================================================================== DILUTED EPS FROM CONTINUING OPERATIONS $2.13 $1.52 40% ========================================================================== WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING Basic 651 622 Diluted 656 629 -------------------------------------------------------------------------- ADJUSTED INCOME FROM CONTINUING OPERATIONS (excluding certain items) $1,462(1) $1,208(1) ADJUSTED DILUTED EPS FROM CONTINUING OPERATIONS (excluding certain items) $2.23(1) $1.92(1) (1) See page 10 for description of adjustments and reconciliation to GAAP measures. Note: Effective January 1, 2006, the company adopted SFAS No. 123-R using the modified prospective method. After-tax stock-option expense for the year ended December 31, 2006 was $53 million, or $0.08 per diluted share. In accordance with the modified prospective adoption method, the company did not adjust its historical consolidated financial statements to reflect the impact of stock-option expense. Based on the pro forma application of SFAS No. 123 for the calculation of stock-option expense prior to January 1, 2006 (as previously disclosed in the company’s consolidated financial statements), pro forma after-tax stock-option expense for the year ended December 31, 2005 was $56 million, or $0.09 per diluted share. Non-GAAP Financial Measures: The non-GAAP financial measures contained in this press release (earnings and per-share earnings, excluding certain items) adjust for factors that are unusual or nonrecurring. Unusual or nonrecurring items can be highly variable, difficult to predict, and of a size that may substantially impact the company’s reported operations for a period. Management believes that non-GAAP financial measures can facilitate a fuller analysis of the company’s results of operations, particularly in evaluating performance period over period. Management uses these non-GAAP financial measures internally in financial planning, to monitor business unit performance, and in evaluating management performance. Refer to the company’s filing on Form 8-K of today’s date for additional information. BAXTER INTERNATIONAL INC. Note to Consolidated Statements of Income Twelve Months Ended December 31, 2006 and 2005 Description of Adjustments and Reconciliation of GAAP to Non-GAAP (unaudited) (in millions, except per share and percentage data) 2006 description of adjustment and reconciliation of GAAP to Non-GAAP ---------------------------------------------------------------------- The company’s GAAP results for the twelve months ended December 31, 2006 included a charge related to COLLEAGUE infusion pumps, which impacted the GAAP results as follows: Income Income from Operating Tax Continuing Diluted Income Expense Operations EPS ----------------------------------------- GAAP $1,841 $348 $1,398 $2.13 COLLEAGUE infusion pump charge (A) 76 12 64 0.10 ----------------------------------------- Excluding specified items $1,917 $360 $1,462 $2.23 ========================================= Adjusted operating income percentage 18.5% (A) Included in the Gross Profit line in the accompanying consolidated statement of income. Excluding this item, adjusted gross profit is $4.81 billion and the adjusted gross profit percentage is 46.4%. 2005 description of adjustments and reconciliation of GAAP to Non-GAAP ---------------------------------------------------------------------- The company’s GAAP results for the twelve months ended December 31, 2005 included certain charges related to infusion pumps, the exit of hemodialysis instrument manufacturing, early debt retirement costs, taxes on the repatriation of foreign earnings, as well as restructuring adjustments, which impacted the GAAP results as follows: Income Income from Operating Tax Continuing Diluted Income Expense Operations EPS ---------------------------------------- GAAP $1,639 $486 $958 $1.52 6060 infusion pump charge (A) 49 15 34 0.06 COLLEAGUE infusion pump charge (A) 77 12 65 0.10 Hemodialysis instruments charge (A) 50 17 33 0.05 Early debt retirement costs (B) 17 7 10 0.02 Tax on repatriation of foreign earnings - (191) 191 0.30 Restructuring adjustments (C) (109) (26) (83) (0.13) ---------------------------------------- Excluding specified items $1,723 $320 $1,208 $1.92 ======================================== Adjusted operating income percentage 17.5% (A) Included in computing the Gross Profit line in the accompanying consolidated statement of income. Excluding these items, which totaled $176 million, adjusted gross profit is $4.27 billion and the adjusted gross profit percentage is 43.3%. (B) Included in the Other Expense, Net line in the accompanying consolidated statement of income. (C) Included in the Restructuring Adjustments line in the accompanying consolidated statement of income. Baxter International Inc. Condensed Consolidated Balance Sheets (unaudited) ($ in millions) December 31, December 31, 2006 2005 ------------ ------------ ASSETS Cash and equivalents $2,485 $841 Receivables 1,838 1,766 Inventories 2,066 1,925 Other current assets 581 584 -------------------------- Total current assets 6,970 5,116 -------------------------- Property, plant and equipment, net 4,229 4,144 Other long-term assets 3,487 3,467 ------------------------------------------------------------------------ Total assets $14,686 $12,727 ======================================================================== LIABILITIES AND SHAREHOLDERS’ EQUITY Short-term debt $234 $924 Other current liabilities 3,376 3,241 Long-term debt 2,567 2,414 Other long-term liabilities 2,237 1,849 Shareholders’ equity 6,272 4,299 ------------------------------------------------------------------------ Total liabilities and shareholders’ equity $14,686 $12,727 ======================================================================== BAXTER INTERNATIONAL INC. Cash Flows from Operations and Changes in Net Debt (unaudited) ($ in millions) -------------------------------------------------------------------------- Cash Flows from Operations -------------------------------------------------------------------------- (Brackets denote cash outflows) Three Months Twelve Months Ended Ended December 31, December 31, -------------- --------------- 2006 2005 2006 2005 ------ ------ ------- ------ Net income $431 $292 $1,397 $956 Adjustments Depreciation and amortization 144 144 575 580 Deferred income taxes (68) 3 8 201 Stock compensation 26 2 94 9 Infusion pump and hemodialysis instrument charges - 71 76 176 Restructuring adjustments - - - (109) Other 6 2 34 48 Changes in balance sheet items Receivables (49) 45 (16) 178 Inventories 73 20 (35) 88 Accounts payable and accrued liabilities 160 (38) 1 (325) Restructuring payments (8) (22) (42) (117) Other 47 (283) 91 (135) ------------------------------------------------------------------------ Cash flows from operations $762 $236 $2,183 $1,550 ======================================================================== -------------------------------------------------------------------------- Changes in Net Debt -------------------------------------------------------------------------- Increase (decrease) Three Months Twelve Months Ended Ended December 31, December 31, -------------- --------------- 2006 2005 2006 2005 ------ ------ ------ ------ Net debt, beginning of period $741 $2,650 $2,497 $3,185 Cash flows from operations (762) (236) (2,183) (1,550) Capital expenditures 190 165 526 444 Dividends - - 363 359 Acquisitions, net 2 33 5 47 Issuances of common stock - - (1,249) - Purchases of treasury stock 258 - 737 - Other, including the effect of exchange rate changes (113) (115) (380) 12 ------------------------------------------------------------------------ Decrease in net debt (425) (153) (2,181) (688) ------------------------------------------------------------------------ Net
