Company Generates $1.4 Billion in Cash Flow from Operations in 2004
DEERFIELD, ILL. January 27, 2005 – Baxter International Inc. (NYSE:BAX) today announced financial results for the fourth quarter of 2004.
Income from continuing operations totaled $106 million, including a $245 million non-cash, after-tax asset impairment charge the company announced earlier this month related to its influenza vaccine program and other assets. Income from continuing operations per diluted share totaled $0.17. Excluding the asset impairment charge, earnings from continuing operations were $351 million in the fourth quarter, or $0.57 per diluted share, in line with the company's expectations.
Worldwide sales in the fourth quarter totaled $2.6 billion, an increase of 3 percent over the same period last year (including a 3 percentage point benefit from foreign exchange). Domestic sales declined 1 percent to $1.2 billion, and international sales grew 7 percent (including a 6 percentage point benefit from foreign exchange) to $1.4 billion.
“We are very pleased with the progress made throughout 2004. We established a new executive management team, improved the company's cost structure by successfully executing the restructuring plans, and demonstrated our ability to set realistic objectives and deliver on them,” said Robert L. Parkinson, Jr., chairman and chief executive officer. “The focus on disciplined, operational execution is clearly yielding solid and substantive results."
Full-Year 2004 Results
Baxter's income from continuing operations for full-year 2004 totaled $383 million, or $0.62 per diluted share, including restructuring and other special charges. Excluding the charges, Baxter reported 2004 income from continuing operations of $1.042 billion, or $1.69 per diluted share.
Cash flow from continuing operations totaled approximately $1.4 billion. Free cash flow (cash flow from continuing operations, less capital expenditures) for the full-year increased $181 million to $814 million. Capital spending of $558 million declined 30 percent compared to 2003, and the company reduced net debt by $464 million, resulting in a net-debt-to-capital ratio of 34.2 percent compared to 39.9 percent in the prior year.
“In 2004 we focused on meeting commitments, strengthening the balance sheet and improving the overall quality of earnings and cash flow,” said John Greisch, chief financial officer. “We exceeded the free cash flow objectives set for the year by improving working capital management and capital spending efficiency. We remain committed to delivering sustainable improvements in earnings and free cash flow in 2005 and beyond.”
For the full-year, worldwide sales increased 7 percent to $9.5 billion (including a 4 percentage point benefit from foreign exchange). Domestic sales grew 4 percent in 2004 to $4.5 billion, and international sales grew 9 percent (including a 7 percentage point benefit from foreign exchange) to $5.0 billion.
Full-year sales for Baxter's BioScience business totaled $3.5 billion, an increase of 7 percent (including a 4 percentage point benefit from foreign exchange), driven by strong growth of the company's recombinant Factor VIII products. Recombinant sales totaled $1.3 billion in 2004, an increase of 18 percent over 2003, and included $286 million in sales of ADVATE® Antihemophilic Factor (Recombinant), Plasma/Albumin Free Method (rAHF-PFM), which has now been launched in the U.S. and 12 European countries.
Medication Delivery sales totaled $4.0 billion in 2004, an increase of 6 percent (including a 3 percentage point benefit from foreign exchange), driven by strong growth in the company's drug delivery business unit. Renal sales advanced 8 percent (including a 4 percentage point benefit from foreign exchange) to $2.0 billion, led primarily by strong international sales of peritoneal dialysis products.
Financial Guidance for 2005
Baxter also announced today its financial guidance for full-year 2005, with organic sales growth of 2 to 4 percent. Sales growth for 2005 reflects the company's decision to exit certain low margin businesses, which is expected to negatively impact sales growth by approximately 1 percent, or $125 million. The company expects earnings per diluted share from continuing operations to be $1.82 to $1.90. Baxter also expects to generate cash flow from continuing operations of approximately $1.5 billion, or free cash flow of approximately $900 million in 2005 (after $600 million of anticipated capital expenditures).
For the first quarter of 2005, the company expects organic sales growth of 3 to 4 percent, and earnings per diluted share from continuing operations of $0.33 to $0.35.
The company's guidance does not include the effect of any potential future decision to repatriate foreign earnings relating to the American Jobs Creation Act of 2004, or the effect of new accounting rules requiring the expensing of stock options.
The Financial Accounting Standards Board (FASB) recently reissued FASB Statement No. 123 "Share–Based Payment," which covers stock options, as well as other share–based compensation arrangements. The company expects to begin expensing stock options effective July 1, 2005, in accordance with the requirements of FASB Statement No. 123 and will provide the expected impact of this change on its second quarter earnings conference call in July 2005.
A webcast of Baxter's fourth quarter conference call for investors can be accessed live from a link on Baxter's website at www.baxter.com beginning at 7:30 a.m. CST on January 27, 2005.
Please visit Baxter's website for more information regarding future investor events and webcasts, including investor presentations, the company's Annual Meeting for shareholders in Chicago on May 3, and a company-sponsored Investor Conference in Chicago on May 25.
Baxter International Inc., through its subsidiaries, assists health-care 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 news release contains forward-looking statements that involve risks and uncertainties, including: the company's ability to realize in a timely manner the anticipated benefits of restructuring initiatives; the effect of economic conditions; the impact of geographic and/or product mix on the company's sales; actions of regulatory bodies and other governmental authorities, including the FDA and foreign counterparts that could delay, limit or suspend product sales and distribution; product quality and/or patient safety concerns leading to product recalls, withdrawals, launch delays or declining sales; product development risks; interest rates; technological advances in the medical field; 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; regulatory, legal or other developments relating to the company's A, AF and AX series dialyzers; the ability to obtain adequate insurance coverage at reasonable cost; 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; internal and external factors that could impact commercialization; results of product testing; and other risks detailed in the company's filings with the Securities and Exchange Commission. These forward-looking statements are based on estimates and assumptions within the bounds of management's knowledge of the company's business and operations, but there can be no assurance that the actual results or performance of the company will conform to any future results or performance expressed or implied by such forward-looking statements. The company does not undertake any obligation to update any forward-looking statements as a result of new information, future events, changed assumptions or otherwise; and all forward-looking statements speak only as of the time when made. Actual results or experience could differ materially from the forward-looking statements. This news release contains certain non-GAAP financial measures as defined by SEC rules. A reconciliation of these measures to the most directly comparable GAAP measure is included in the schedules entitled “Pro Forma Consolidated Statements of Income” and “GAAP to Pro Forma Reconciliation for Selected Income Statement Lines.”
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