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Baxter Reports Record Sales, Earnings And Cash Flow For Full-Year 2012

For the first quarter of 2013, the company expects sales growth of approximately 2 to 3 percent, excluding the impact of foreign currency. Baxter expects earnings of $1.03 to $1.05 per diluted share in the first quarter, before any special items.

A webcast of Baxter’s fourth 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. CST on January 24, 2013. Please visit www.baxter.com for more information regarding this and future investor events and webcasts.

Baxter International Inc., through its subsidiaries, develops, manufactures and markets products that save and sustain the lives of people with hemophilia, immune disorders, infectious diseases, kidney disease, trauma, and other chronic and acute medical conditions. As a global, diversified healthcare company, Baxter applies a unique combination of expertise in medical devices, pharmaceuticals and biotechnology to create products that advance patient care worldwide.

This release includes forward-looking statements concerning the company’s financial results, business development activities, R&D pipeline and outlook for 2013. 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 that could delay, 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; the ability of the company to obtain required regulatory approvals, satisfy closing conditions and close the Gambro AB transaction in a timely manner; future actions of governmental authorities and other third parties as U.S. healthcare reform legislation and other austerity measures are implemented globally; additional legislation, regulation and other governmental pressures, which may affect pricing, taxation, reimbursement and rebate policies of government agencies and private payers or other elements of the company’s business; product development risks, including satisfactory clinical performance; the company's ability to realize the anticipated benefits from its business development and R&D activities; 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; the availability of acceptable raw materials and component supply; fluctuations in supply and demand and the pricing of plasma-based therapies; 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; the impact of global economic conditions on Baxter and its customers, including foreign governments in certain countries in which the company operates; foreign currency fluctuations and other risks identified in the company’s most recent filing on Form 10-K and other Securities and Exchange Commission 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, 2012 and 2011
(unaudited)
(in millions, except per share and percentage data)
 
Three Months Ended
December 31,
2012 2011 Change
 
NET SALES $3,753 $3,594 4%
 
COST OF SALES 1,848 1,829 1%
               
GROSS MARGIN   1,905   1,765   8%
% of Net Sales 50.8% 49.1% 1.7 pts
 
MARKETING AND ADMINISTRATIVE EXPENSES 1,040 886 17%
% of Net Sales 27.7% 24.7% 3.0 pts
 
RESEARCH AND DEVELOPMENT EXPENSES 291 254 15%
% of Net Sales 7.8% 7.1% 0.7 pts
 
NET INTEREST EXPENSE 22 15 47%
 
OTHER (INCOME) EXPENSE, NET (22) A 71 A N/M
               
PRE-TAX INCOME   574   539   6%
 
INCOME TAX EXPENSE   80   76   5%
% of Pre-Tax Income 13.9% 14.1% (0.2 pts)
 
NET INCOME   $494   $463   7%
 
BASIC EPS   $0.90   $0.82   10%
DILUTED EPS   $0.89   $0.82   9%
 
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic 548 562
Diluted   555   566    
 
ADJUSTED PRE-TAX INCOME (excluding special items) $894

B

$834 B 7%
ADJUSTED NET INCOME (excluding special items) $700 B $662 B 6%
ADJUSTED DILUTED EPS (excluding special items) $1.26 B $1.17 B 8%
 
A Other (income) expense, net includes the net results attributable to noncontrolling interests, which had been reported separately in the prior year. The prior period consolidated statement of income presented above, the reconciliation of GAAP (generally accepted accounting principles) to non-GAAP measures presented on page 9, and the cash flows from operations schedule presented on page 12 have been conformed to the current period presentation.
 
B Refer to page 9 for a description of the adjustments and a reconciliation to GAAP measures.
     
BAXTER INTERNATIONAL INC.
Note to Consolidated Statements of Income
Three Months Ended December 31, 2012 and 2011
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 December 31, 2012 and 2011 included special items which impacted the GAAP measures as follows:
 
Three Months Ended
December 31,
2012 2011 Change
Gross Margin $1,905 $1,765 8%
Business optimization items 1 62   95    
Adjusted Gross Margin $1,967   $1,860   6%
% of Net Sales 52.4% 51.8% 0.6 pts
 
Marketing and Administrative Expenses $1,040 $886 17%
Business optimization items 1 (60) (97)
Pension settlement items 2 (170) -
Asset impairment and other items 3 -   (41)    
Adjusted Marketing and Administrative Expenses $810   $748   8%
% of Net Sales 21.6% 20.8% 0.8 pts
 
Research and Development Expenses $291 $254 15%
Business optimization items 1 (28)   -    
Adjusted Research and Development Expenses $263   $254   4%
% of Net Sales 7.0% 7.1% (0.1 pts)
 
Other (Income) Expense, Net $(22) $71 N/M
Asset impairment and other items 3 -   (62)    
Adjusted Other (Income) Expense, Net $(22)   $9   N/M
 
Pre-Tax Income $574 $539 6%
Impact of special items 320   295    
Adjusted Pre-Tax Income $894   $834   7%
 
Income Tax Expense $80 $76 5%
Impact of special items 114   96    
Adjusted Income Tax Expense $194   $172   13%
% of Adjusted Pre-Tax Income 21.7% 20.6% 1.1 pts
 
Net Income $494 $463 7%
Impact of special items 206   199    
Adjusted Net Income $700   $662   6%
 
Diluted EPS $0.89 $0.82 9%
Impact of special items 0.37   0.35    
Adjusted Diluted EPS $1.26   $1.17   8%
 
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Diluted   555   566    
 
1 The company undertook business optimization initiatives resulting in charges totaling $150 million ($101 million, or $0.18 per diluted share, on an after-tax basis) and $192 million ($128 million, or $0.22 per diluted share, on an after-tax basis) in 2012 and 2011, respectively.
 
2 Marketing and administrative expenses in 2012 included a charge totaling $170 million ($105 million, or $0.19 per diluted share, on an after-tax basis) primarily related to the settlement of certain pension obligations in the United States.
 
3 Marketing and administrative expenses and other (income) expense, net in 2011 included charges totaling $103 million ($71 million, or $0.13 per diluted share, on an after-tax basis) primarily related to a contribution to the Baxter International Foundation and the write-down of Greek government bonds.
 
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.
 
BAXTER INTERNATIONAL INC.
Consolidated Statements of Income
Twelve Months Ended December 31, 2012 and 2011
(unaudited)
(in millions, except per share and percentage data)
 
 
Twelve Months Ended
December 31,
2012 2011 Change
 
NET SALES $14,190 $13,893 2%
 
COST OF SALES 6,889 6,847 1%
               
GROSS MARGIN   7,301   7,046   4%
% of Net Sales 51.5% 50.7% 0.8 pts
 
MARKETING AND ADMINISTRATIVE EXPENSES 3,324 3,154 5%
% of Net Sales 23.4% 22.7% 0.7 pts
 
RESEARCH AND DEVELOPMENT EXPENSES 1,156 946 22%
% of Net Sales 8.1% 6.8% 1.3 pts
 
NET INTEREST EXPENSE 87 54 61%
 
OTHER (INCOME) EXPENSE, NET (155) A 115 A N/M
               
PRE-TAX INCOME   2,889   2,777   4%
 
INCOME TAX EXPENSE   563   553   2%
% of Pre-Tax Income 19.5% 19.9% (0.4 pts)
 
NET INCOME   $2,326   $2,224   5%
 
BASIC EPS   $4.22   $3.91   8%
DILUTED EPS   $4.18   $3.88   8%
 
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Basic 551 569
Diluted   556   573    
 
ADJUSTED PRE-TAX INCOME (excluding special items) $3,223 B $3,151 B 2%
ADJUSTED NET INCOME (excluding special items) $2,516 B $2,471 B 2%
ADJUSTED DILUTED EPS (excluding special items) $4.53 B $4.31 B 5%
 
A Other (income) expense, net includes the net results attributable to noncontrolling interests, which had been reported separately in the prior year. The prior period consolidated statement of income presented above, the reconciliation of GAAP to non-GAAP measures presented on page 11, and the cash flows from operations schedule presented on page 12 have been conformed to the current period presentation.
 
B Refer to page 11 for a description of the adjustments and a reconciliation to GAAP measures.
     
BAXTER INTERNATIONAL INC.
Note to Consolidated Statements of Income
Twelve Months Ended December 31, 2012 and 2011
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 twelve months ended December 31, 2012 and 2011 included special items which impacted the GAAP measures as follows:
 
Twelve Months Ended
December 31,
2012 2011 Change
Gross Margin $7,301 $7,046 4%
Business optimization items 1 62 95
Reserve adjustments 2 (23) -
Business development items 3 6   -    
Adjusted Gross Margin $7,346   $7,141   3%
% of Net Sales 51.8% 51.4% 0.4 pts
 
Marketing and Administrative Expenses $3,324 $3,154 5%
Business optimization items 1 (60) (97)
Business development items 3 (9) -
Pension settlement items 4 (170) -
AWP litigation and historical rebate and discount items 5 - (79)
Asset impairment and other items 6 -   (41)    
Adjusted Marketing and Administrative Expenses $3,085   $2,937   5%
% of Net Sales 21.7% 21.1% 0.6 pts
 
Research and Development Expenses $1,156 $946 22%
Business optimization items 1 (28) -
Business development items 3 (113)   -    
Adjusted Research and Development Expenses $1,015   $946   7%
% of Net Sales 7.2% 6.8% 0.4 pts
 
Other (Income) Expense, Net $(155) $115 N/M
Reserve adjustments 2 91 -
Asset impairment and other items 6 -   (62)    
Adjusted Other (Income) Expense, Net $(64)   $53   N/M
 
Pre-Tax Income $2,889 $2,777 4%
Impact of special items 334   374    
Adjusted Pre-Tax Income $3,223   $3,151   2%
 
Income Tax Expense $563 $553 2%
Impact of special items 144   127    
Adjusted Income Tax Expense $707   $680   4%
% of Adjusted Pre-Tax Income 21.9% 21.6% 0.3 pts
 
Net Income $2,326 $2,224 5%
Impact of special items 190   247    
Adjusted Net Income $2,516   $2,471   2%
 
Diluted EPS $4.18 $3.88 8%
Impact of special items 0.35   0.43    
Adjusted Diluted EPS $4.53   $4.31   5%
 
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING
Diluted   556   573    
 
1 The company undertook business optimization initiatives resulting in charges totaling $150 million ($101 million, or $0.18 per diluted share, on an after-tax basis) and $192 million ($128 million, or $0.22 per diluted share, on an after-tax basis) in 2012 and 2011, respectively.
 
2 Cost of sales included a net benefit of $23 million ($27 million, or $0.05 per diluted share, on an after-tax basis) primarily related to an adjustment to the COLLEAGUE infusion pump reserves when the company substantially completed its recall activities in the United States in 2012. Other (income) expense, net in 2012 included a benefit of $91 million, or $0.16 per diluted share, consisting of gains of $53 million and $38 million for the reduction of certain contingent payment liabilities related to the prior acquisitions of Prism Pharmaceuticals, Inc. (Prism) and ApaTech Limited, respectively, for which there was no tax expense recognized.
 
3 The company incurred business development charges in 2012 totaling $128 million ($102 million, or $0.19 per diluted share, on an after-tax basis) which principally related to R&D charges of $33 million associated with the company’s global collaboration with Momenta Pharmaceuticals, Inc. (Momenta), $30 million associated with the company's global collaboration with Chatham Therapeutics, LLC (Chatham), and $50 million associated with the company's licensing agreement with Onconova Therapeutics, Inc. (Onconova).
 
4 Marketing and administrative expenses in 2012 included a charge totaling $170 million ($105 million, or $0.19 per diluted share, on an after-tax basis) primarily related to the settlement of certain pension obligations in the United States.
 
5 Marketing and administrative expenses in 2011 included a charge totaling $79 million ($48 million, or $0.09 per diluted share, on an after-tax basis) related to the resolution of litigation pertaining to average wholesale prices (AWP) and certain historical rebate and discount adjustments.
 
6 Marketing and administrative expenses and other (income) expense, net in 2011 included charges totaling $103 million ($71 million, or $0.12 per diluted share, on an after-tax basis) primarily related to a contribution to the Baxter International Foundation and the write-down of Greek government bonds.
 
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.
 
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 Ended Twelve Months Ended
  December 31, December 31,
2012 2011 2012 2011
 
Net income $494 $463 $2,326 $2,224
Adjustments
Depreciation and amortization 178 167 712 670
Deferred income taxes (214) (46) (17) 172
Stock compensation 33 25 130 119
Realized excess tax benefits from stock issued
under employee benefit plans (10) (4) (24) (21)
Business optimization items 150 192 150 192
Asset impairment and other items - 103 - 182
Other 5 17 (42) 64
Changes in balance sheet items
Accounts and other current receivables, net (113) (127) (41) (229)
Inventories 7 (43) (129) (315)
Accounts payable and accrued liabilities 300 188 18 98
Infusion pump and business optimization payments (57) (89) (283) (347)
  Other   172 A 46   306 A 8 A
Cash flows from operations   $945   $892   $3,106   $2,817  
                     
Changes in Net Debt                  
Increase (decrease) Three Months Ended Twelve Months Ended
December 31, December 31,
2012 2011 2012 2011
 
Net debt, beginning of period $2,756 $2,204 $2,290 $1,702
 
Cash flows from operations (945) (892) (3,106) (2,817)
Capital expenditures 399 317 1,161 960
Dividends 246 175 804 709
Proceeds from stock issued under employee benefit plans (195) (39) (488) (427)
Purchases of treasury stock 415 170 1,480 1,583
Acquisitions and investments 20 361 B 605 B 590 B
Divestiture and other investing activities (21) (17) (107) (123)
Other, including the effect of exchange rate changes   (15)   11   21   113  
(Decrease) increase in net debt   (96)   86   370   588  
 
Net debt, December 31   $2,660   $2,290   $2,660   $2,290  
                     
Key statistics, December 31:
Days sales outstanding 53.3 53.5 53.3 53.5
Inventory turns   2.5   2.7   2.5   2.7  
 
A Other changes in balance sheet items included the pension settlement charge of $170 million primarily related to the settlement of certain pension obligations in the United States in 2012 and the discretionary contribution of $150 million to the company's pension plan in the United States in 2011.
 
B Acquisitions and investments in 2012 and 2011 included $100 million for the third quarter 2012 investment in Onconova preferred stock and execution of a licensing agreement, $90 million for the second quarter 2012 exercise of the company's option to acquire the remaining equity interest in Sigma International General Medical Apparatus, LLC, $30 million related to the second quarter 2012 collaboration with Chatham, $304 million for the first quarter 2012 acquisition of Synovis Life Technologies, Inc., $33 million for the first quarter 2012 payment to execute the Momenta collaboration, $360 million for the fourth quarter 2011 acquisition of Baxa Corporation, and $170 million for the second quarter 2011 acquisition of Prism.
                           
BAXTER INTERNATIONAL INC.
Net Sales
Periods Ending December 31, 2012 and 2011
(unaudited)
($ in millions)
                                               
  Q4 Q4 % Growth @ % Growth @ YTD YTD % Growth @ % Growth @
          2012   2011   Actual Rates   Constant Rates           2012   2011   Actual Rates   Constant Rates
                                               
BioScience
United States $825 $735 12% 12% $3,087 $2,805 10% 10%
International       862   840   3%   6%           3,150   3,248   (3%)   2%
Total BioScience       $1,687   $1,575   7%   9%           $6,237   $6,053   3%   6%
                                               
Medical Products
United States 1 $747 $731 2% 2% $2,969 $2,904 2% 2%
International 1       1,319   1,288   2%   3%           4,984   4,936   1%   4%
Total Medical Products 1       $2,066   $2,019   2%   3%           $7,953   $7,840   1%   4%
                                               
Baxter International Inc.
United States $1,572 $1,466 7% 7% $6,056 $5,709 6% 6%
International       2,181   2,128   2%   4%           8,134   8,184   (1%)   4%
Total Baxter       $3,753   $3,594   4%   5%           $14,190   $13,893   2%   5%
 
1 Includes revenues associated with manufacturing, distribution and other services provided by the company to the buyer of the Transfusion Therapies (TT) business after the February 2007 divestiture, which had previously been reported separately. The prior periods have been recast to conform to the current period presentation.
                           
BAXTER INTERNATIONAL INC.
Key Product Line Sales
Periods Ending December 31, 2012 and 2011
(unaudited)
($ in millions)
                                               
  Q4 Q4 % Growth @ % Growth @ YTD YTD % Growth @ % Growth @
          2012   2011   Actual Rates   Constant Rates           2012   2011   Actual Rates   Constant Rates
                                               
BioScience
Recombinants $581 $578 1% 3% $2,234 $2,212 1% 4%
Antibody Therapy 425 406 5% 5% 1,593 1,541 3% 5%
Plasma Proteins 447 397 13% 13% 1,464 1,440 2% 4%
Regenerative Medicine 180 150 20% 21% 673 580 16% 19%
Other 1       54   44   23%   30%           273   280   (3%)   5%
Total BioScience       $1,687   $1,575   7%   9%           $6,237   $6,053   3%   6%
                                               
Medical Products
Renal $675 $664 2% 2% $2,527 $2,530 0% 2%
Global Injectables 522 487 7% 8% 2,075 2,004 4% 5%
IV Therapies 500 469 7% 8% 1,930 1,802 7% 10%
Infusion Systems 210 235 (11%) (11%) 813 901 (10%) (9%)
Anesthesia 140 147 (5%) (5%) 545 537 1% 3%
Other 2       19   17   12%   0%           63   66   (5%)   (9%)
Total Medical Products 2       $2,066   $2,019   2%   3%           $7,953   $7,840   1%   4%
                                               
Total Baxter       $3,753   $3,594   4%   5%           $14,190   $13,893   2%   5%
 
1 Principally includes vaccines and sales of plasma to third parties.
 
2 Includes revenues associated with manufacturing, distribution and other services provided by the company to the buyer of the TT business after the February 2007 divestiture, which had previously been reported separately. The prior periods have been recast to conform to the current period presentation.
                                     
BAXTER INTERNATIONAL INC.
Key Product Line Sales by U.S. and International
Three-Month Periods Ending December 31, 2012 and 2011
(unaudited)
($ in millions)
                                                           
  Q4 2012           Q4 2011           % Growth
          U.S.   International   Total           U.S.   International   Total           U.S.   International   Total
BioScience
Recombinants $268 $313 $581 $246 $332 $578 9% (6%) 1%
Antibody Therapy 317 108 425 290 116 406 9% (7%) 5%
Plasma Proteins 121 326 447 106 291 397 14% 12% 13%
Regenerative Medicine 102 78 180 81 69 150 26% 13% 20%
Other 1       17   37   54           12   32   44           42%   16%   23%
Total BioScience       $825   $862   $1,687           $735   $840   $1,575           12%   3%   7%
                                                           
Medical Products
Renal $109 $566 $675 $96 $568 $664 14% 0% 2%
Global Injectables 252 270 522 232 255 487 9% 6% 7%
IV Therapies 182 318 500 166 303 469 10% 5% 7%
Infusion Systems 114 96 210 137 98 235 (17%) (2%) (11%)
Anesthesia 78 62 140 92 55 147 (15%) 13% (5%)
Other 2       12   7   19           8   9   17           50%   (22%)   12%
Total Medical Products 2       $747   $1,319   $2,066           $731   $1,288   $2,019           2%   2%   2%
                                                           
Total Baxter       $1,572   $2,181   $3,753           $1,466   $2,128   $3,594           7%   2%   4%
 
1 Principally includes vaccines and sales of plasma to third parties.
 
2 Includes revenues associated with manufacturing, distribution and other services provided by the company to the buyer of the TT business after the February 2007 divestiture, which had previously been reported separately. The prior period has been recast to conform to the current period presentation.




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