Baxter International Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing; fourth-quarter figures are included where provided. Baxter sells medical products, therapies, pharmaceuticals, connected-care systems and kidney-care products in more than 100 countries. In 2023, it reorganized into four reportable segments: Medical Products and Therapies, Healthcare Systems and Technologies, Pharmaceuticals and Kidney Care.
Financial performance and liquidity
| Metric | 2023 | 2022 |
|---|---|---|
| Net sales | $14.813 billion | $14.506 billion |
| Gross margin | $4.975 billion; 33.6% of sales | $5.066 billion; 34.9% of sales |
| Operating income (loss) | $390 million | $(2.243) billion |
| Continuing-operations income (loss) | $(69) million | $(2.654) billion |
| Net income (loss) attributable to Baxter stockholders | $2.656 billion; $5.25 diluted EPS | $(2.433) billion; $(4.83) diluted EPS |
| Cash from continuing operations | $1.702 billion | $1.031 billion |
| Capital expenditures | $692 million | $620 million |
| Cash and cash equivalents at year-end | $3.194 billion | $1.718 billion |
| Debt and finance lease obligations | $13.798 billion | $16.636 billion |
Full-year sales rose 2% on a reported basis and 3% at constant currency. U.S. sales were $7.00 billion; international sales were $7.81 billion. Gross margin declined 1.3 percentage points excluding special items, primarily due to raw-material inflation and higher incentive compensation, partly offset by manufacturing initiatives. Net income includes a $2.88 billion pretax gain on the BPS sale ($2.59 billion after tax); continuing operations remained loss-making.
Fourth quarter: Sales were $3.885 billion; continuing-operations income was $73 million; discontinued-operations income was $173 million; net income attributable to Baxter stockholders was $245 million, or $0.48 diluted EPS.
Segment sales and operating income: Medical Products and Therapies: $5.011 billion sales and $972 million operating income; Healthcare Systems and Technologies: $3.013 billion and $483 million; Pharmaceuticals: $2.249 billion and $401 million; Kidney Care: $4.453 billion and $300 million. Segment operating income is a management measure that excludes specified corporate costs, amortization and special items.
Cash from continuing operations increased from 2022. Baxter used $2.634 billion for debt repayments and paid $586 million in dividends during 2023. Year-end debt included $2.668 billion of current maturities; there was no short-term debt or commercial paper outstanding. The company reported compliance with credit-facility covenants and access to its revolving facilities. Fitch lowered its senior debt rating to BBB- in January 2024; S&P rated the debt BBB with a negative outlook and Moody’s rated it Baa2 with a stable outlook at year-end.
Material changes and unusual items
- Baxter completed the sale of its BioPharma Solutions (BPS) business on September 29, 2023, receiving $3.96 billion in cash proceeds. BPS results and sale proceeds are presented as discontinued operations.
- In 2023, Baxter repaid $2.80 billion of debt using BPS-sale proceeds and expects to use substantially all remaining after-tax proceeds for further debt repayment through the first half of 2024.
- Continuing-operations results included $534 million of business-optimization charges, $225 million of Kidney Care separation costs, $267 million of long-lived asset impairments and $652 million of intangible-asset amortization. The 2022 comparison included $2.812 billion of goodwill impairments and $332 million of intangible-asset impairments, primarily related to Hillrom.
- Within Kidney Care, Baxter recorded $510 million of HD-related long-lived asset impairments and decided to cease dialyzer production at its Opelika, Alabama facility. The company also reported lower Kidney Care operating income year over year.
- The new segment structure replaced geographic reporting for the legacy Baxter businesses; prior-period segment data were revised for comparison.
Outlook, commentary and risks
- Baxter’s current target is to complete the proposed Kidney Care separation in July 2024. Completion remains subject to approvals, tax-related steps, financing and other conditions; timing, structure and tax-free treatment are not assured. Kidney Care represented about 30% of 2023 sales.
- The company reported $225 million of pretax Kidney Care separation costs in 2023 and expects significant additional costs in 2024, as well as post-separation dis-synergies. The filing text does not provide a clear 2024 revenue or EPS guidance figure.
- Management targets net leverage of 2.75x in 2025, aims to retain investment-grade ratings and expects net interest expense to decline following debt repayments. During deleveraging, Baxter intends to maintain dividends, avoid share repurchases and be selective about acquisitions.
- Supply constraints, inflation, freight and labor costs, foreign exchange, geopolitical disruption and contractual limits on price increases may pressure supply, sales and margins. The company reported some improvement in component availability and raw-material pricing but said challenges persist.
- FDA issued a Warning Letter in July 2023 regarding the Ahmedabad, India facility. Baxter says it has responded and implemented corrective actions and continues to engage with FDA. Product quality, recalls, regulatory approvals and manufacturing continuity remain material risks.
- Goodwill impairment tests found no 2023 charges, but fair value exceeded carrying value by only about 5% for Front Line Care and 6% for Chronic Therapies. Baxter is monitoring both units for potential impairment.
- Other disclosed exposures include the proposed separation’s execution and tax risks, Hillrom integration and cost-savings execution, reimbursement and pricing pressure, cybersecurity, litigation and regulatory matters. A DOJ information demand concerning Hillrom’s alleged False Claims Act and Anti-Kickback Statute compliance remained under review; Baxter said it was cooperating. The filing also describes an antitrust case brought by Linet that continued into further discovery.
Important facts for investors to verify
- Progress toward the Kidney Care separation, including timing, financing, tax treatment, costs and expected dis-synergies.
- Debt repayment and progress toward the 2.75x net-leverage target, together with near-term maturities and rating developments.
- Underlying operating performance excluding the BPS disposal gain, impairments, amortization and restructuring or separation costs.
- Whether HD operations, supply availability and manufacturing actions stabilize, and whether Front Line Care or Chronic Therapies faces further impairment.
- FDA remediation at Ahmedabad and developments in material litigation, investigations or product-quality matters.