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Article Excerpt
ROB DAVIS, VP AND CFO, BAXTER INTERNATIONAL, INC.: I think we are ready and we will go ahead and get started. Good afternoon, everyone. I am Rob Davis. I'm the CFO for Baxter International, happy to be here today to talk to you about our story and why we continue to feel so good about our business.
But before we get into the formal comments, let me remind you that today I will be making forward-looking statements that will include references to non-GAAP financial measures and I would also like to remind you of our Safe Harbor statement. To the extent you like information on either our Safe Harbor statement or our other financials, I would urge you to look at our Form 10-K or 10-Q which you can access on our investor relations website.
With that, we will go ahead and get started. As you know, Baxter is a diversified healthcare company with a broad portfolio of market leading products that encompass biopharmaceuticals, specialty therapeutics, and medication devices. We operate in three main business units on a global basis, bioscience, medication delivery, and renal. And importantly in addition to what we see as a broad product portfolio, equally important is the fact that we have a very deep and broad international reach and global presence, as you can see from the fact that we have approximately 60% of our sales coming from markets outside of the United States.
As we look at our diversified model, we believe it not only allows us to mitigate risk as well as to look at opportunities internationally, but importantly, it allows us a competitive advantage because we can leverage synergies operationally, financially, scientifically, and globally across each of the businesses to truly add value to the total portfolio as a whole.
I would like to take a moment before we look forward and just briefly look backwards at 2008 and really take you through what we saw as an extremely successful year for Baxter. As you know, we had record sales, earnings, and cash flow in the year and importantly, we continued the trend of both driving operating and gross margin expansion. And I think it is important to note that while we were able to deliver a record 21% growth in earnings per share, we did so while we also reached record levels of investment in our research and development.
We were able as a company to generate $2.5 billion of cash flow and that takes into account the fact that we did contribute $240 million to pensions during 2008 as well as we were able to return to shareholders through both dividends and share repurchases a total of $2.5 billion during the year. So we feel we had a great track record meeting or exceeding all of our metrics and giving back substantial value to the shareholders.
As we look back and you look at the trends we have had over time, I think this speaks to an important message and that is the ability of this management team to consistently drive improvement and performance, whether it be our top line all the way down to our cash flow operations.
And more importantly, the behaviors, philosophies and strategies that have allowed us to do this over the last four years are the same behaviors, strategies and philosophies we are employing today and will look to in the future to drive disciplined execution and further growth both in the short term but also to continue to make those investments in our pipeline to also be able to give sustainable long-term growth. It's been a commitment of this management team. It is something we continue to focus and take very seriously.
As I mentioned in the start of my comments, one of the areas where we are really most proud and actually has been a key strategic pillar for the company has been our focus on international expansion.
As you can see here from the chart, while you look at some of those markets that have the lowest spend of healthcare and the lowest GDP per capita, markets like Asia, if you look at Russia or some of the other Latin American markets, those also are the markets that are growing the fastest as they are taking the money they are getting from revenues in expanding areas to drive better access to healthcare for their population. And we think given the medically necessary nature of our products, which are all aimed at life-sustaining or life-threatening disorders, we are perfectly positioned to be there as this wave of expansion continues.
And you've seen it has happened as noted from the fact from 2003 to 2008 through our focus we have actually been able to drive organic growth internationally 2% in 2003 to 8% in 2008. I would tell you as we look forward over our long-range horizon, we expect that same type of growth going forward. So clearly the ability to really tap these unmet markets will continue to be an important growth driver for the company.
Another key driver for the company has been and will continue to be our ability to drive gross margin. As you know, the hallmark of this management really began with Bob Parkinson, our Chairman, who put out that in his mind the real test of a general manager is his ability to drive gross margin for the company. It allows you to get to all aspects of growth, whether it be volume growth, getting price where you can, identifying those products that are the most sensitive to detailing, and going after that with selected marketing spend, and continuing to focus on cost and yield improvements in your manufacturing side of the business to drive overall margin up.
This is something we've been very focused on. It is something we will continue to be focused on. All of those elements of growth that have allowed us to...
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