What changed in this filing

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Item 1. Business

2022-02-23 compared with 2021-02-11 · 63 added, 49 removed, 131 unchanged (46% of the section changed)

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generic injectable pharmaceuticals;

and surgical hemostat and sealant products.

surgical hemostat and sealant products, advanced surgical equipment;

smart bed systems;

patient monitoring and diagnostic technologies;

and respiratory health devices.

These products are used by hospitals, kidney dialysis centers, nursing homes, rehabilitation centers, doctors’ offices and by patients at home under physician supervision.

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As used in this report, “Baxter International” means Baxter International Inc.

and “we", "our” or "us" means Baxter International and its consolidated subsidiaries (after giving effect to the separation and distribution of Baxalta Incorporated (Baxalta) in 2015, as further described below), unless the context otherwise requires.

Our global operations expose us to risks associated with public health crises and epidemics/pandemics, such as the novel strain of coronavirus (COVID-19).

COVID-19 has had, and we expect will continue to have, an adverse impact on our operations, supply chains and distribution systems and has increased and we expect will continue to increase our expenses, including as a result of impacts associated with preventive and precautionary measures that we, other businesses and governments are taking.

These measures have led to unprecedented restrictions on, disruptions in, and other related impacts on businesses and personal activities.

In addition to travel restrictions put in place in early 2020, governments have closed borders, imposed prolonged quarantines and may continue those measures or implement other restrictions and requirements in light of the continuing spread of the pandemic.

We expect that these evolving restrictions and requirements, as well as the corresponding need to adapt to new methods of conducting business remotely, will continue to have an adverse effect on our business.

and “we", "our” or "us" means Baxter International and its consolidated subsidiaries, unless the context otherwise requires.

Our global operations expose us to risks associated with public health crises and epidemics/pandemics, such as the novel strain of coronavirus (COVID-19) and its variants.

COVID-19 and its variants have had, and we expect will continue to have, an adverse impact on our operations, supply chains and distribution systems and have increased and we expect will continue to increase our expenses, including as a result of impacts associated with preventive and precautionary measures that we, other businesses and governments are taking.

Initial measures taken by businesses and governments beginning in 2020 led to unprecedented restrictions on, disruptions in, and other related impacts on business and personal activities, including a shift in healthcare priorities, which resulted in a significant decline in elective medical procedures in 2020.

Some of these disruptions and impacts (including the suspension or postponement of elective medical procedures) in certain of our principal markets have continued into 2021.

The pandemic has created significant volatility in the demand for our products.

For further information about our revenues by product category, refer to Note 10 in Item 8 of this Annual Report on Form 10-K.

Significant uncertainty remains regarding the duration and overall impact of the COVID-19 pandemic.

For example, concerns remain regarding the pace of economic recovery due to virus resurgence across the globe from the Delta and Omicron variants and other virus mutations as well as vaccine distribution and hesitancy.

and other governments may continue existing measures or implement new restrictions and other requirements in light of the continuing spread of the pandemic (including with respect to mandatory vaccinations for certain of our employees and moratoriums on elective procedures).

Due to the uncertainty caused by the pandemic, our operating performance and financial results, particularly in the short term, may be subject to volatility.

We have experienced significant challenges, including lengthy delays, shortages and interruptions, posed by the pandemic and other exogenous factors (including significant weather events and disruptions to certain ports of call around the world) to our global supply chain, including the cost and availability of raw materials and component parts (including resins and electromechanical devices) and higher transportation costs, and may experience these and other challenges in future periods.

Many of our manufacturing plant and distribution center personnel are currently unvaccinated, and we may also experience employee resistance in complying with current and future government vaccine and testing mandates, which may cause labor shortages significantly impacting manufacturing production and distribution center productivity for us and our suppliers.

We expect that these challenges as well as evolving governmental restrictions and requirements, among other factors, may continue to have an adverse effect on our business.

For further discussion, refer to Item 1A of this Annual Report on Form 10-K.

Acquisition of Hillrom

On December 13, 2021, we completed the previously announced acquisition of all outstanding equity interests of Hill-Rom Holdings, Inc.

(Hillrom) for a purchase price of $10.5 billion.

Including the assumption of Hillrom's outstanding debt obligations, the enterprise value of the transaction was approximately $12.8 billion.

terms of the transaction agreement, Hillrom shareholders received $156.00 in cash per each outstanding Hillrom common share.

Prior to our acquisition of Hillrom, Hillrom was a global medical technology leader whose products and services help enable earlier diagnosis and treatment, optimize surgical efficiency, and accelerate patient recovery while simplifying clinical communication and shifting care closer to home.

Hillrom made those outcomes possible through digital and connected care solutions and collaboration tools, including smart bed systems, patient monitoring and diagnostic technologies, respiratory health devices, advanced equipment for the surgical space and more, delivering actionable, real-time insights at the point of care.

See Note 2 and Note 5 in Item 8 of this Annual Report on Form 10-K for additional information about the Hillrom acquisition and related financing arrangements.

Business Segments and Products

We manage our business based on three geographic segments:

Americas (North and South America), EMEA (Europe, Middle East and Africa) and APAC (Asia-Pacific).

Each of our segments provides a broad portfolio of essential healthcare products, including acute and chronic dialysis therapies;

We manage our global operations based on four segments, consisting of the following geographic segments related to our legacy Baxter business:

Americas (North and South America), EMEA (Europe, Middle East and Africa) and APAC (Asia-Pacific), and a new global segment for our recently acquired Hillrom business.

The Americas, EMEA and APAC segments provide a broad portfolio of essential healthcare products, including acute and chronic dialysis therapies;

sterile IV solutions;

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and surgical hemostat and sealant products.

The Hillrom segment provides digital and connected care solutions and collaboration tools, including smart bed systems, patient monitoring and diagnostic technologies, respiratory health devices and advanced equipment for the surgical space.

For financial information about our segments, see Note 17 in Item 8 of this Annual Report on Form 10-K.

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For more information on these risks, see the information under the captions “Risks Related to Baxter’s Business —We are subject to risks associated with doing business globally” and “—Changes in foreign currency exchange rates and interest rates could have a material adverse effect on our operating results and liquidity” in Item 1A of this Annual Report on Form 10-K.

For financial information about our foreign and domestic revenues and geographic segment information, see Note 16 in Item 8 of this Annual Report on Form 10-K.

For financial information about our foreign and domestic revenues and segment information, see Note 17 in Item 8 of this Annual Report on Form 10-K.

For more information regarding foreign currency exchange risk, refer to the discussion under the caption entitled “Financial Instrument Market Risk” in Item 7 of this Annual Report on Form 10-K.

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Some of these contracts have terms of more than one year and place limits on our ability to increase prices.

In the case of hospitals, governments and other facilities, these contracts may specify minimum quantities of a particular product or categories of products to be purchased by the customer.

In the case of

hospitals, governments and other facilities, these contracts may specify minimum quantities of a particular product or categories of products to be purchased by the customer.

In keeping with the increased emphasis on cost-effectiveness in healthcare delivery, many hospitals and other customers of medical products in the United States have joined group purchasing organizations (GPOs), or formed integrated delivery networks (IDNs), to enhance purchasing power.

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Purchasing power is similarly consolidated in many other countries.

For example, public contracting authorities act as the purchasing entities for the hospitals and other customers of medical products in their region and many hospitals and other customers have joined joint procurement entities and buying consortia.

For example, public contracting authorities often act as the purchasing entities for the hospitals and other customers of medical products in their region and many hospitals and other customers have joined joint procurement entities and buying consortia.

The result is that demand for healthcare products is increasingly concentrated across our markets globally.

Raw Materials

Raw materials essential to our business are purchased from numerous suppliers worldwide in the ordinary course of business.

Although most of these materials are generally available, we at times may experience shortages of supply.

In an effort to manage risk associated with raw materials supply, we work closely with our suppliers to help ensure availability and continuity of supply while maintaining high quality and reliability.

Additionally, our contractual pricing arrangements with GPOs, IDNs and public contracting authorities limit our ability to increase prices in order to offset raw materials or component price increases or otherwise.

Raw Materials and Component Parts

Raw materials and component parts essential to our business are purchased from numerous suppliers worldwide in the ordinary course of business.

While many of these materials are generally available, we have experienced and may in the future experience shortages of supply.

Additionally, certain of these materials are secured from single source suppliers or on a spot basis and not pursuant to a contractual arrangement.

In an effort to manage risk associated with raw materials and component supply, we work closely with our suppliers to help ensure availability and continuity of supply while maintaining high quality and reliability.

We also seek to develop new and alternative sources of supply where beneficial to our overall raw materials procurement strategy.

We are not always able to recover cost increases for raw materials through customer pricing due to contractual limits and market forces.

Accordingly, we utilize long-term supply contracts with some suppliers to help maintain continuity of supply and manage the risk of price increases.

In connection with the separation and distribution of Baxalta in 2015, as further described below, we entered into a long-term manufacturing and supply agreement with Baxalta.

Baxalta manufactures and supplies us with ARTISS, TISSEEL, FLOSEAL and stand-alone thrombin, on a cost-plus basis, under that manufacturing and supply agreement.

Refer to Item 1A.

Risk Factors of this Annual Report on Form 10-K for further information regarding risks related to the supply chain, raw materials and component parts.

We are not always able to recover cost increases for raw materials and component parts through customer pricing due to contractual limits, where applicable, and market forces.

We seek to utilize long-term supply contracts with some suppliers to help maintain continuity of supply and manage the risk of price increases.

Competition and Healthcare Cost Containment

Our businesses benefit from a number of competitive advantages, including the breadth and depth of our product offerings and our strong relationships with customers, including hospitals and clinics, GPOs, physicians, and patients, many of whom self-administer home-based therapies that we supply.

Our businesses benefit from a number of competitive advantages, including the breadth and depth of our product offerings and our strong relationships with customers, including hospitals and clinics, GPOs, IDNs, physicians, and patients, many of whom self-administer home-based therapies that we supply.

We also benefit from efficiencies and cost advantages resulting from shared manufacturing facilities and the technological advantages of our products.

Although no single company competes with us in all of our businesses, we face substantial competition in each of our segments from international and domestic healthcare and pharmaceutical companies and providers of all sizes, and these competitors often differ across our businesses.

Although no single company competes with us in all of our businesses, we face substantial competition in each of our segments from international and domestic healthcare, medical products and pharmaceutical companies and providers of all sizes, and these competitors often differ across our businesses.

In addition, global and regional competitors continue to expand their manufacturing capacity and sales and marketing channels.

Competition is primarily focused on cost-effectiveness, price, service, product performance, and technological innovation.

We believe customer purchasing decisions are primarily focused on cost-effectiveness, price, service, product performance, and technological innovation.

There has been increasing consolidation in our customer base and by our competitors, which continues to result in pricing and market pressures.

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In addition to government regulation, managed care organizations in the United States, which include medical insurance companies, medical plan administrators, health-maintenance organizations, hospital and physician alliances and pharmacy benefit managers, continue to put pressure on the price and usage of healthcare products.

Managed care organizations seek to contain healthcare expenditures, and their purchasing strength has been increasing due to their consolidation into fewer, larger organizations and a growing number of enrolled patients.

Managed care organizations seek to contain healthcare expenditures, and their purchasing strength has been increasing due to their consolidation into fewer, larger

organizations and a growing number of enrolled patients.

We face similar issues outside of the United States.

In Europe and Latin America, for example, the government provides healthcare at low cost to patients, and controls its expenditures by purchasing products through public tenders, collective purchasing, regulating prices, setting reference prices in public tenders or limiting reimbursement or patient access to certain products.

For further discussion, refer to Item 1A of this Annual Report on Form 10-K.

Intellectual Property

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Expenditures for our R&D activities were $534 million in 2021, $521 million in 2020, and $595 million in 2019.

These expenditures include costs associated with R&D activities performed at our R&D centers located

around the world, which include facilities in Belgium, Sweden, India, Italy, Germany, China, Japan and the United States, as well as in-licensing, milestone and reimbursement payments made to partners for R&D work performed at non-Baxter locations.

These expenditures include costs associated with R&D activities performed at our R&D centers located around the world, which include facilities in Belgium, Sweden, India, Italy, Germany, China, Japan and the United States, as well as in-licensing, milestone and reimbursement payments made to partners for R&D work performed at non-Baxter locations.

For more information on our R&D activities, refer to the discussion under the caption entitled “Strategic Objectives” in Item 7 of this Annual Report on Form 10-K.

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Our continued success depends upon the quality of our products.

Quality management plays an essential role in determining and meeting customer requirements, helping to prevent defects, facilitating continuous improvement of our processes, products and services, and assuring the safety and efficacy of our products.

Quality management plays an essential role in determining and meeting customer requirements, helping to prevent defects, facilitating continuing improvement of our processes, products and services, and helping to assure the safety and efficacy of our products.

Our quality system enables the design, development, manufacturing, packaging, sterilization, handling, distribution and labeling of our products to ensure that they conform to customer requirements.

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Each product that we market is required to meet specific quality standards, both in packaging and in product integrity and quality.

If any of those is determined to be compromised at any time, we endeavor to take corrective and preventive actions designed to ensure compliance with regulatory requirements and to meet customer expectations.

If any of those is determined to be compromised at any time, we endeavor to take corrective and preventive actions designed to ensure compliance with regulatory requirements and to meet customer

expectations.

For more information on corrective actions taken by us, refer to the discussion under the caption entitled “Certain Regulatory Matters” in Item 7 of this Annual Report on Form 10-K.

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Our environmental policies require compliance with all applicable environmental regulations and contemplate, among other things, appropriate capital expenditures for environmental protection.

For example, we made $10 million of capital expenditures in 2020 related to a new ethylene oxide emissions control system at our Mountain Home, Arkansas facility.

The new system is expected to be completed in 2022 and we currently expect to incur an additional $40 million of capital expenditures related to this project.

Separation of Baxalta

On July 1, 2015, we completed the distribution of approximately 80.5% of the outstanding common stock of Baxalta to our stockholders (the Distribution).

The Distribution was made to our stockholders of record as of the close of business on June 17, 2015 (the Record Date), who received one share of Baxalta common stock for each of our shares held as of the Record Date.

As a result of the distribution, Baxalta became an independent public company.

In 2016, we disposed of our remaining 19.5% interest in Baxalta (Retained Shares) through a series of transactions, including debt-for-equity exchanges, an equity-for-equity exchange and a contribution to our U.S.

pension plan (Retained Shares Transactions).

As a result of these transactions, we extinguished approximately $3.65 billion of our indebtedness, repurchased 11,526,638 of our shares and contributed 17,145,570 Baxalta shares to our U.S.

pension plan.

On June 3, 2016, Baxalta became a wholly-owned subsidiary of Shire plc (Shire).

In January 2019, Takeda Pharmaceutical Company Limited (Takeda) acquired Shire.

As a result of the separation, the consolidated statements of income, consolidated balance sheets, consolidated statements of cash flow, and related financial information reflect Baxalta’s operations, assets and liabilities, and cash flows as discontinued operations for all periods presented.

For example, we made $33 million and $10 million of capital expenditures in 2021 and 2020, respectively, related to a new ethylene oxide emissions control system at our Mountain Home, Arkansas facility.

All material elements of the new system are expected to be completed in 2022 and we currently expect to incur an additional $10 million of capital expenditures related to this project.

Human Capital Management

As of December 31, 2020, we employed approximately 50,000 people globally, with approximately 13,000 employees in the United States and approximately 37,000 employees outside of the Unites States.

As of December 31, 2021, we employed approximately 60,000 people globally, with approximately 19,000 employees in the United States and approximately 41,000 employees outside of the United States.

Approximately, 10,000 of those employees joined our organization in December 2021 in connection with our acquisition of Hillrom.

Our employees are our most important assets and set the foundation for our ability to achieve our strategic objectives.

All of our employees contribute to our success and, in particular, the employees in our manufacturing, sales, R&D and quality assurance departments are instrumental in driving operational execution and strong financial performance, advancing innovation and maintaining a strong quality and compliance program.

The success and growth of our business depends in large part on our ability to attract, retain and develop a diverse population of talented and high-performing employees at all levels of our organization, including the individuals who comprise our global workforce as well as executive officers and other key personnel.

They contribute to our success and, in particular, the employees in our manufacturing, sales, R&D and quality assurance departments are instrumental in driving operational execution and strong financial performance, advancing innovation and maintaining a strong quality and compliance program.

comprise our global workforce as well as executive officers and other key personnel.

To succeed in a competitive labor market, we have developed recruitment and retention strategies, objectives and measures that we focus on as part of the overall management of our business.

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For example, we installed physical barriers between employees in production facilities, implemented extensive cleaning and sanitation processes for both production and office administration spaces and implemented broad work-from-home initiatives for employees in our administrative functions.

While our essential workers (production and field service employees) have continued to work at our facilities and provide vital service to our customers, most employees in our administrative functions have effectively

worked remotely since mid-March.

During 2020, we paid incremental non-recurring special compensation bonuses to our essential workers.

While our essential workers (production and field service employees) have continued to work at our facilities and provide vital services to our customers, most employees in our administrative functions have effectively worked remotely since March 2020.

• Recruitment, Training and Development.

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Our formal offerings include a tuition reimbursement program, an e-learning platform known as BaxU and virtual workshops that support our culture, strategy and the development of crucial skills.

To measure the impact of the investments we make in our people, and to help us consistently improve our human resources programs, we regularly conduct anonymous surveys of our global workforce to seek feedback on a variety of topics including confidence in our leadership, competitiveness of our compensation and benefits packages, career growth opportunities and improvements on how we can make our company an employer of choice.

To assess the impact of the investments we make in our people, and to help us consistently improve our human resources programs, we regularly conduct anonymous surveys of our global workforce to seek feedback on a variety of topics including confidence in our leadership, competitiveness of our compensation and benefits packages, career growth opportunities and improvements on how we can make our company an employer of choice.

Administered and analyzed by an independent third-party, the survey results are reviewed by our senior leaders, which include our executive officers.

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business