Baxter International Inc. — FY2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. This filing reports annual results; it does not provide a clear standalone fourth-quarter income statement or cash-flow summary. Baxter supplies medical products and therapies globally. Its four reporting segments were Americas, EMEA, APAC and Hillrom.
Financial performance
| Metric | 2021 | 2020 |
|---|---|---|
| Net sales | $12.784 billion | $11.673 billion |
| Gross margin | $5.105 billion; 39.9% of sales | $4.587 billion; 39.3% |
| Operating income | $1.710 billion | $1.616 billion |
| Net income attributable to Baxter stockholders | $1.284 billion | $1.102 billion |
| Diluted EPS | $2.53 | $2.13 |
| Operating cash flow from continuing operations | $2.222 billion | $1.870 billion |
| Capital expenditures | $743 million | $709 million |
| Cash and cash equivalents, year-end | $2.951 billion | $3.730 billion |
| Debt and finance lease obligations, including current maturities | $17.754 billion | $6.192 billion |
- Sales rose 10% on a reported basis and 7% at constant currency; international sales increased 12% reported and 8% constant currency, while U.S. sales grew 6%.
- Gross margin increased 0.6 percentage points as reported. Excluding special items, management said it increased 0.9 points, with favorable product mix partly offset by higher manufacturing and supply-chain costs.
- Special items reduced 2021 net income by $552 million, or $1.08 per diluted share. Reported SG&A was $2.867 billion (22.4% of sales); R&D was $534 million (4.2%).
- Year-end current assets were $8.872 billion and current liabilities $4.236 billion. The company reported $3.0 billion cash and approximately $17.7 billion of debt and finance lease obligations.
Material changes and transactions
- Baxter completed its acquisition of Hillrom on December 13, 2021 for approximately $10.5 billion in equity consideration; enterprise value including assumed debt was approximately $12.8 billion. Hillrom contributed $212 million in sales and a $96 million pretax loss during the period included in Baxter’s results. Its acquisition-date purchase accounting remained preliminary.
- Acquisition financing materially increased leverage: Baxter incurred approximately $11.8 billion of acquisition-related debt financing, and senior-debt ratings were downgraded. The company reported $300 million of commercial paper and approximately $4.9 billion of floating-rate debt at year-end.
- Investing cash outflow was $11.2 billion, including $10.5 billion for acquisitions and investments. Financing cash inflow was $8.2 billion, including debt issuance; Baxter also paid $530 million in dividends and repurchased $600 million of shares.
- Sales growth varied by category: BioPharma Solutions +38% reported, Advanced Surgery +10%, Pharmaceuticals +9%, Medication Delivery +7%, and Renal Care +4%. Hillrom’s newly added categories contributed only December results.
Outlook, risks and unusual items
- Management expected pandemic-related absenteeism and supply constraints to weigh on sales growth in Q1 2022, with production expected to normalize over the course of 2022. It anticipated a 2022 effective tax rate of approximately 17% and higher 2022 capital expenditures, including investment in peritoneal-dialysis capacity. No full-year revenue or EPS guidance is stated in the provided filing text.
- Key risks include COVID-19-related procedure volatility, supply shortages and freight/raw-material inflation, labor availability, pricing and reimbursement pressure, regulatory and product-quality actions, cybersecurity, foreign exchange and interest rates, and execution and debt reduction following the Hillrom acquisition.
- Baxter disclosed an outstanding FDA Warning Letter relating to its Ahmedabad, India facility; COVID-19 had delayed FDA reinspection. It also described a Hillrom subpoena and internal review relating to potential False Claims Act and Anti-Kickback Statute matters, plus antitrust litigation brought by Linet.
- On February 18, 2022, Baxter reached an SEC settlement concerning its prior foreign-exchange transactions investigation, agreeing to an $18 million civil penalty without admitting or denying the findings. The amount was accrued at year-end and was expected to be paid in Q1 2022. Baxter also expected a non-cash charge when Argentina operations are substantially liquidated; related currency translation adjustments exceeded $60 million at year-end.
- The independent auditor issued an unqualified opinion on the financial statements and internal control. Hillrom was excluded from the 2021 internal-control assessment because of the timing of its acquisition.
Investor verification priorities
- Assess the final Hillrom purchase-price allocation, integration progress, realized synergies and debt-reduction pace against management’s targets.
- Confirm whether production and supply constraints improved as expected in 2022, and evaluate their effects on sales, costs and margins.
- Review the Ahmedabad Warning Letter remediation and the status and potential exposure of Hillrom’s government subpoena, Linet litigation and other contingencies.
- Check the assumptions behind the $18 million SEC accrual, Argentina-related translation adjustment and acquisition-related intangible-asset valuations.
- Reconcile reported sales growth with constant-currency growth and acquisition contributions; the filing does not isolate a clear standalone Q4 result in the provided text.