☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 36-0781620 | |||||||||||||
(State or other jurisdiction of
| (I.R.S. Employer
| |||||||||||||
One Baxter Parkway, | Deerfield, | Illinois | 60015 | |||||||||||
(Address of | (Zip Code) |
224. | 948.2000 | ||||||||||||||||
(Registrant’s telephone number, including area code) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | |||||||||||||
Common Stock, $1.00 par value | BAX (NYSE) | New York Stock Exchange | |||||||||||||
NYSE Chicago | |||||||||||||||
0.4% Global Notes due 2024 | BAX 24 | New York Stock Exchange | |||||||||||||
1.3% Global Notes due 2025 | BAX 25 | New York Stock Exchange | |||||||||||||
1.3% Global Notes due 2029 | BAX 29 | New York Stock Exchange |
Large accelerated filer |
| Accelerated filer |
| ||||||||||||
Non-accelerated filer |
| Smaller reporting company | ☐ | ||||||||||||
Emerging growth company | ☐ |
March 31, 2024 PART II. Item 1A. Item Three months ended Nine months ended September 30, September 30, 2017 2016 2017 2016 Net sales $ 2,707 $ 2,558 $ 7,787 $ 7,518 Cost of sales 1,579 1,487 4,487 4,510 Gross margin 1,128 1,071 3,300 3,008 Marketing and administrative expenses 685 726 1,890 2,076 Research and development expenses 151 159 435 490 Operating income 292 186 975 442 Net interest expense 14 14 41 53 Other (income) expense, net (12 ) 44 10 (4,286 ) Income from continuing operations before income taxes 290 128 924 4,675 Income tax expense (benefit) 42 1 139 (51 ) Income from continuing operations 248 127 785 4,726 Income (loss) from discontinued operations, net of tax 3 3 3 (4 ) Net income $ 251 $ 130 $ 788 $ 4,722 Income from continuing operations per common share Basic $ 0.46 $ 0.23 $ 1.45 $ 8.64 Diluted $ 0.45 $ 0.23 $ 1.42 $ 8.56 Income (loss) from discontinued operations per common share Basic $ — $ 0.01 $ — $ (0.01 ) Diluted $ — $ 0.01 $ — $ (0.01 ) Net income per common share Basic $ 0.46 $ 0.24 $ 1.45 $ 8.63 Diluted $ 0.45 $ 0.24 $ 1.42 $ 8.55 Weighted-average number of common shares outstanding Basic 545 544 543 547 Diluted 557 551 554 552 Cash dividends declared per common share $ 0.160 $ 0.130 $ 0.450 $ 0.375 The accompanying notes are an integral part of these condensed consolidated financial statements.September 30, 2017Page Number 23456263940Review by Independent Registered Public Accounting Firm41424343436.4445FINANCIALFINANCIAL INFORMATIONItem 1.Statements of IncomeBalance Sheets (unaudited)per share data)information)March 31,
2024December 31,
2023Current assets: Cash and cash equivalents $ 3,026 $ 3,194 Accounts receivable, net of allowances of $121 in 2024 and $129 in 2023 2,521 2,690 Inventories 2,988 2,824 Prepaid expenses and other current assets 865 892 Total current assets 9,400 9,600 Property, plant and equipment, net 4,370 4,433 Goodwill 6,430 6,514 Other intangible assets, net 5,905 6,079 Operating lease right-of-use assets 531 524 Other non-current assets 1,152 1,126 Total assets $ 27,788 $ 28,276 Current liabilities: Current maturities of long-term debt and finance lease obligations $ 2,634 $ 2,668 Accounts payable 1,329 1,241 Accrued expenses and other current liabilities 2,402 2,594 Total current liabilities 6,365 6,503 Long-term debt and finance lease obligations, less current portion 11,092 11,130 Operating lease liabilities 444 438 Other non-current liabilities 1,652 1,737 Total liabilities 19,553 19,808 Commitments and contingencies Equity: Common stock, $1 par value, authorized 2,000,000,000 shares, issued 683,494,944 shares in 2024 and 2023 683 683 Common stock in treasury, at cost, 173,930,493 shares in 2024 and 175,861,893 shares in 2023 (11,130) (11,230) Additional contributed capital 6,339 6,389 Retained earnings 16,003 16,114 Accumulated other comprehensive loss (3,722) (3,554) Total Baxter stockholders’ equity 8,173 8,402 Noncontrolling interests 62 66 Total equity 8,235 8,468 Total liabilities and equity $ 27,788 $ 28,276
Three months ended March 31, | |||||||||||||||||
2024 | 2023 | ||||||||||||||||
Net sales | $ | 3,592 | $ | 3,513 | |||||||||||||
Cost of sales | 2,205 | 2,238 | |||||||||||||||
Gross margin | 1,387 | 1,275 | |||||||||||||||
Selling, general and administrative expenses | 1,027 | 995 | |||||||||||||||
Research and development expenses | 176 | 164 | |||||||||||||||
Other operating income, net | (3) | (13) | |||||||||||||||
Operating income | 187 | 129 | |||||||||||||||
Interest expense, net | 78 | 117 | |||||||||||||||
Other income, net | (7) | (2) | |||||||||||||||
Income from continuing operations before income taxes | 116 | 14 | |||||||||||||||
Income tax expense | 77 | 14 | |||||||||||||||
Income from continuing operations | 39 | — | |||||||||||||||
Income from discontinued operations, net of tax | — | 45 | |||||||||||||||
Net income | 39 | 45 | |||||||||||||||
Net income attributable to noncontrolling interests | 2 | 1 | |||||||||||||||
Net income attributable to Baxter stockholders | $ | 37 | $ | 44 | |||||||||||||
Income from continuing operations per common share | |||||||||||||||||
Basic | $ | 0.07 | $ | 0.00 | |||||||||||||
Diluted | $ | 0.07 | $ | 0.00 | |||||||||||||
Income from discontinued operations per common share | |||||||||||||||||
Basic | $ | 0.00 | $ | 0.09 | |||||||||||||
Diluted | $ | 0.00 | $ | 0.09 | |||||||||||||
Net income per common share | |||||||||||||||||
Basic | $ | 0.07 | $ | 0.09 | |||||||||||||
Diluted | $ | 0.07 | $ | 0.09 | |||||||||||||
Weighted-average number of shares outstanding | |||||||||||||||||
Basic | 508 | 505 | |||||||||||||||
Diluted | 510 | 505 |
|
| Three months ended |
|
| Nine months ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
|
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Net income |
| $ | 251 |
|
| $ | 130 |
|
| $ | 788 |
|
| $ | 4,722 |
|
Other comprehensive income (loss), net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation adjustments, net of tax expense (benefit) of $21 and ($2) for the three months ended September 30, 2017 and 2016, respectively, and $69 and ($12) for the nine months ended September 30, 2017 and 2016, respectively |
|
| 181 |
|
|
| 10 |
|
|
| 530 |
|
|
| (16 | ) |
Pension and other employee benefits, net of tax expense of $6 and $11 for the three months ended September 30, 2017 and 2016, respectively, and $26 and $32 for the nine months ended September 30, 2017 and 2016, respectively |
|
| 6 |
|
|
| 21 |
|
|
| 44 |
|
|
| 61 |
|
Hedging activities, net of tax benefit of ($2) and zero for the three months ended September 30, 2017 and 2016, respectively, and ($7) and ($5) for the nine months ended September 30, 2017 and 2016, respectively |
|
| (6 | ) |
|
| 1 |
|
|
| (16 | ) |
|
| (10 | ) |
Available-for-sale securities, net of tax expense of zero for the three months ended September 30, 2017 and 2016, and $1 and zero for the nine months ended September 30, 2017 and 2016, respectively |
|
| 1 |
|
|
| — |
|
|
| 4 |
|
|
| (4,431 | ) |
Total other comprehensive income (loss), net of tax |
|
| 182 |
|
|
| 32 |
|
|
| 562 |
|
|
| (4,396 | ) |
Comprehensive income |
| $ | 433 |
|
| $ | 162 |
|
| $ | 1,350 |
|
| $ | 326 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
|
|
|
| September 30, |
|
| December 31, |
| ||
|
|
|
| 2017 |
|
| 2016 |
| ||
Current assets |
| Cash and equivalents |
| $ | 3,517 |
|
| $ | 2,801 |
|
|
| Accounts and other current receivables, net |
|
| 1,748 |
|
|
| 1,691 |
|
|
| Inventories |
|
| 1,550 |
|
|
| 1,430 |
|
|
| Prepaid expenses and other |
|
| 633 |
|
|
| 602 |
|
|
| Current assets held for disposition |
|
| — |
|
|
| 50 |
|
|
| Total current assets |
|
| 7,448 |
|
|
| 6,574 |
|
Property, plant and equipment, net |
|
| 4,488 |
|
|
| 4,289 |
| ||
Other assets |
| Goodwill |
|
| 3,117 |
|
|
| 2,595 |
|
|
| Other intangible assets, net |
|
| 1,371 |
|
|
| 1,111 |
|
|
| Other |
|
| 1,117 |
|
|
| 977 |
|
|
| Total other assets |
|
| 5,605 |
|
|
| 4,683 |
|
Total assets |
|
|
| $ | 17,541 |
|
| $ | 15,546 |
|
Current liabilities |
| Current maturities of long-term debt and lease obligations |
| $ | 3 |
|
| $ | 3 |
|
|
| Accounts payable and accrued liabilities |
|
| 2,572 |
|
|
| 2,612 |
|
|
| Current income taxes payable |
|
| 87 |
|
|
| 126 |
|
|
| Current liabilities held for disposition |
|
| — |
|
|
| 3 |
|
|
| Total current liabilities |
|
| 2,662 |
|
|
| 2,744 |
|
Long-term debt and lease obligations |
|
| 3,495 |
|
|
| 2,779 |
| ||
Other long-term liabilities |
|
| 1,925 |
|
|
| 1,743 |
| ||
Equity |
| Common stock, $1 par value, authorized 2,000,000,000 shares, issued 683,494,944 shares in 2017 and 2016 |
|
| 683 |
|
|
| 683 |
|
|
| Common stock in treasury, at cost, 138,870,075 shares in 2017 and 143,890,064 shares in 2016 |
|
| (7,756 | ) |
|
| (7,995 | ) |
|
| Additional contributed capital |
|
| 5,918 |
|
|
| 5,958 |
|
|
| Retained earnings |
|
| 14,615 |
|
|
| 14,200 |
|
|
| Accumulated other comprehensive (loss) income |
|
| (3,994 | ) |
|
| (4,556 | ) |
|
| Total Baxter shareholders’ equity |
|
| 9,466 |
|
|
| 8,290 |
|
|
| Noncontrolling interests |
|
| (7 | ) |
|
| (10 | ) |
|
| Total equity |
|
| 9,459 |
|
|
| 8,280 |
|
Total liabilities and equity |
| $ | 17,541 |
|
| $ | 15,546 |
|
Three months ended March 31, | |||||||||||||||||
2024 | 2023 | ||||||||||||||||
Income from continuing operations | $ | 39 | $ | — | |||||||||||||
Other comprehensive income (loss) from continuing operations, net of tax: | |||||||||||||||||
Currency translation adjustments, net of tax expense (benefit) of $11 and $(13) for the three months ended March 31, 2024 and 2023, respectively. | (184) | 81 | |||||||||||||||
Pension and other postretirement benefits, net of tax expense (benefit) of $3 and ($1) for the three months ended March 31, 2024 and 2023, respectively. | 4 | (6) | |||||||||||||||
Hedging activities, net of tax expense (benefit) of $2 and ($1) for the three months ended March 31, 2024 and 2023, respectively. | 8 | (2) | |||||||||||||||
Total other comprehensive income (loss) from continuing operations, net of tax | (172) | 73 | |||||||||||||||
Comprehensive income (loss) from continuing operations | (133) | 73 | |||||||||||||||
Income from discontinued operations, net of tax | — | 45 | |||||||||||||||
Other comprehensive income from discontinued operations, net of tax - currency translation adjustments | — | 21 | |||||||||||||||
Comprehensive income from discontinued operations | — | 66 | |||||||||||||||
Comprehensive income (loss) | (133) | 139 | |||||||||||||||
Less: Comprehensive income attributable to noncontrolling interests | 2 | 1 | |||||||||||||||
Less: Other comprehensive income (loss) attributable to noncontrolling interests | (4) | — | |||||||||||||||
Comprehensive income (loss) attributable to Baxter stockholders | $ | (131) | $ | 138 |
|
|
|
| Nine months ended |
| |||||
|
|
|
| September 30, |
| |||||
|
|
|
| 2017 |
|
| 2016 |
| ||
Cash flows from operations |
| Net income |
| $ | 788 |
|
| $ | 4,722 |
|
|
| Adjustments to reconcile income from continuing operations to net cash from operating activities: |
|
|
|
|
|
|
|
|
|
| Loss (income) from discontinued operations, net of tax |
|
| (3 | ) |
|
| 4 |
|
|
| Depreciation and amortization |
|
| 562 |
|
|
| 599 |
|
|
| Deferred income taxes |
|
| (30 | ) |
|
| (298 | ) |
|
| Stock compensation |
|
| 77 |
|
|
| 84 |
|
|
| Net periodic pension benefit and OPEB costs |
|
| 93 |
|
|
| 90 |
|
|
| Net realized gains on the Baxalta Retained Share transactions |
|
| — |
|
|
| (4,387 | ) |
|
| Other |
|
| 69 |
|
|
| 437 |
|
|
| Changes in balance sheet items |
|
|
|
|
|
|
|
|
|
| Accounts and other current receivables, net |
|
| 32 |
|
|
| 22 |
|
|
| Inventories |
|
| — |
|
|
| (11 | ) |
|
| Accounts payable and accrued liabilities |
|
| (36 | ) |
|
| (326 | ) |
|
| Business optimization and infusion pump payments |
|
| (116 | ) |
|
| (119 | ) |
|
| Other |
|
| (93 | ) |
|
| 121 |
|
|
| Cash flows from operations – continuing operations |
|
| 1,343 |
|
|
| 938 |
|
|
| Cash flows from operations – discontinued operations |
|
| (20 | ) |
|
| 3 |
|
|
| Cash flows from operations |
|
| 1,323 |
|
|
| 941 |
|
Cash flows from investing activities |
| Capital expenditures |
|
| (410 | ) |
|
| (519 | ) |
|
| Acquisitions and investments, net of cash acquired |
|
| (680 | ) |
|
| (47 | ) |
|
| Divestitures and other investing activities, net |
|
| 2 |
|
|
| 17 |
|
|
| Cash flows from investing activities – continuing operations |
|
| (1,088 | ) |
|
| (549 | ) |
|
| Cash flows from investing activities – discontinued operations |
|
| — |
|
|
| 13 |
|
|
| Cash flows from investing activities |
|
| (1,088 | ) |
|
| (536 | ) |
Cash flows from financing activities |
| Issuances of debt |
|
| 633 |
|
|
| 1,641 |
|
|
| Payments of obligations |
|
| — |
|
|
| (1,383 | ) |
|
| Debt extinguishment costs |
|
| — |
|
|
| (16 | ) |
|
| Increase (decrease) in debt with original maturities of three months or less, net |
|
| — |
|
|
| (300 | ) |
|
| Cash dividends on common stock |
|
| (228 | ) |
|
| (197 | ) |
|
| Proceeds from stock issued under employee benefit plans |
|
| 298 |
|
|
| 251 |
|
|
| Purchases of treasury stock |
|
| (275 | ) |
|
| (45 | ) |
|
| Other |
|
| (37 | ) |
|
| 5 |
|
|
| Cash flows from financing activities |
|
| 391 |
|
|
| (44 | ) |
Effect of foreign exchange rate changes on cash and equivalents |
|
| 90 |
|
|
| 23 |
| ||
Increase in cash and equivalents |
|
| 716 |
|
|
| 384 |
| ||
Cash and equivalents at beginning of period |
|
| 2,801 |
|
|
| 2,213 |
| ||
Cash and equivalents at end of period |
| $ | 3,517 |
|
| $ | 2,597 |
| ||
Supplemental Schedule of Non-Cash Investing and Financing Activities |
|
|
|
|
|
|
|
| ||
Net proceeds on the Baxalta Retained Share transactions |
| $ | — |
|
| $ | 4,387 |
| ||
Payment of obligations in exchange for Baxalta Retained Shares |
| $ | — |
|
| $ | 3,646 |
| ||
Exchange of Baxter shares with Baxalta Retained Shares |
| $ | — |
|
| $ | 611 |
|
For the three months ended March 31, 2024 | ||||||||||||||||||||||||||||||||
Baxter International Inc. stockholders' equity | ||||||||||||||||||||||||||||||||
Common stock shares | Common stock | Common stock shares in treasury | Common stock in treasury | Additional contributed capital | Retained earnings | Accumulated other comprehensive income (loss) | Total Baxter stockholders' equity | Noncontrolling interests | Total equity | |||||||||||||||||||||||
Balance as of January 1, 2024 | 683 | $ | 683 | 176 | $ | (11,230) | $ | 6,389 | $ | 16,114 | $ | (3,554) | $ | 8,402 | $ | 66 | $ | 8,468 | ||||||||||||||
Net income | — | — | — | — | — | 37 | — | 37 | 2 | 39 | ||||||||||||||||||||||
Other comprehensive income (loss) | — | — | — | — | — | — | (168) | (168) | (4) | (172) | ||||||||||||||||||||||
Stock issued under employee benefit plans and other | — | — | (2) | 100 | (50) | — | — | 50 | — | 50 | ||||||||||||||||||||||
Dividends declared on common stock | — | — | — | — | — | (148) | — | (148) | — | (148) | ||||||||||||||||||||||
Change in noncontrolling interests | — | — | — | — | — | — | — | — | (2) | (2) | ||||||||||||||||||||||
Balance as of March 31, 2024 | 683 | $ | 683 | 174 | $ | (11,130) | $ | 6,339 | $ | 16,003 | $ | (3,722) | $ | 8,173 | $ | 62 | $ | 8,235 |
For the three months ended March 31, 2023 | ||||||||||||||||||||||||||||||||
Baxter International Inc. stockholders' equity | ||||||||||||||||||||||||||||||||
Common stock shares | Common stock | Common stock shares in treasury | Common stock in treasury | Additional contributed capital | Retained earnings | Accumulated other comprehensive income (loss) | Total Baxter stockholders' equity | Noncontrolling interests | Total equity | |||||||||||||||||||||||
Balance as of January 1, 2023 | 683 | $ | 683 | 179 | $ | (11,389) | $ | 6,322 | $ | 14,050 | $ | (3,833) | $ | 5,833 | $ | 62 | $ | 5,895 | ||||||||||||||
Net income | — | — | — | — | — | 44 | — | 44 | 1 | 45 | ||||||||||||||||||||||
Other comprehensive income (loss) | — | — | — | — | — | — | 94 | 94 | — | 94 | ||||||||||||||||||||||
Stock issued under employee benefit plans and other | — | — | (1) | 65 | (10) | — | — | 55 | — | 55 | ||||||||||||||||||||||
Dividends declared on common stock | — | — | — | — | — | (147) | — | (147) | — | (147) | ||||||||||||||||||||||
Change in noncontrolling interests | — | — | — | — | — | — | — | — | (1) | (1) | ||||||||||||||||||||||
Balance as of March 31, 2023 | 683 | $ | 683 | 178 | $ | (11,324) | $ | 6,312 | $ | 13,947 | $ | (3,739) | $ | 5,879 | $ | 62 | $ | 5,941 |
Three Months Ended March 31, | ||||||||
2024 | 2023 | |||||||
Cash flows from operations | ||||||||
Net income | $ | 39 | $ | 45 | ||||
Less: Income from discontinued operations, net of tax | — | 45 | ||||||
Income from continuing operations | 39 | — | ||||||
Adjustments to reconcile net income to cash flows from operations: | ||||||||
Depreciation and amortization | 335 | 313 | ||||||
Deferred income taxes | (69) | (61) | ||||||
Stock compensation | 25 | 25 | ||||||
Net periodic pension and other postretirement costs | (5) | (4) | ||||||
Other | 9 | 14 | ||||||
Changes in balance sheet items: | ||||||||
Accounts receivable, net | 137 | 148 | ||||||
Inventories | (204) | (163) | ||||||
Prepaid expenses and other current assets | (10) | (31) | ||||||
Accounts payable | 131 | 144 | ||||||
Accrued expenses and other current liabilities | (190) | 119 | ||||||
Other | (35) | (35) | ||||||
Cash flows from operations - continuing operations | 163 | 469 | ||||||
Cash flows from operations - discontinued operations | — | 10 | ||||||
Cash flows from operations | 163 | 479 | ||||||
Cash flows from investing activities | ||||||||
Capital expenditures | (176) | (165) | ||||||
Acquisitions of developed technology and investments | (6) | (3) | ||||||
Proceeds from sale of marketable equity securities | 16 | — | ||||||
Other investing activities, net | — | 5 | ||||||
Cash flows from investing activities - continuing operations | (166) | (163) | ||||||
Cash flows from investing activities - discontinued operations | — | (7) | ||||||
Cash flows from investing activities | (166) | (170) | ||||||
Cash flows from financing activities | ||||||||
Repayments of debt | (15) | (3) | ||||||
Net (decreases) increases in debt with original maturities of three months or less | — | (249) | ||||||
Cash dividends on common stock | (147) | (146) | ||||||
Proceeds from stock issued under employee benefit plans | 40 | 36 | ||||||
Other financing activities, net | (18) | (10) | ||||||
Cash flows from financing activities | (140) | (372) | ||||||
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash | (25) | 18 | ||||||
Decrease in cash, cash equivalents and restricted cash | (168) | (45) | ||||||
Cash, cash equivalents and restricted cash at beginning of period (1) | 3,198 | 1,722 | ||||||
Cash, cash equivalents and restricted cash at end of period (1) | $ | 3,030 | $ | 1,677 |
March 31, 2024 | December 31, 2023 | March 31, 2023 | |||||||||
Cash and cash equivalents | $ | 3,026 | $ | 3,194 | $ | 1,673 | |||||
Restricted cash included in other non-current assets | 4 | 4 | 4 | ||||||||
Cash, cash equivalents and restricted cash | $ | 3,030 | $ | 3,198 | $ | 1,677 |
Certain reclassifications
Accounting for Venezuelan Operations
Currency restrictions enactedsatisfaction of customary conditions.
Hurricane Maria
In September 2017, Hurricane Maria caused damage to certain of the company's assets in Puerto Rico and disrupted operations. Insurance, less applicable deductibles and subject to any coverage exclusions, covers the repair or replacement of the company's assets that suffered loss or damage, and the company is working closely with its insurance carriers and claims adjusters to ascertain the full amount of insurance proceeds due to the company as a result of the damages and the loss the company suffered. The company's insurance policies also provide coverage for interruption to its business, including lost profits, and reimbursement for other expenses and costs that have been incurred relating to the damages and losses suffered. In the third quarter of 2017, the Company recorded $21 million of pre-tax charges related to damages caused by the hurricane, including $11 million related to the impairment of damaged inventory and fixed assets as well as $10 million of idle facility and other costs. These amounts were recorded as a component of cost ofnegative impact on our sales in the condensed consolidated statementsfuture.
New accounting standards
Recently issued accounting standards not yet adopted
In August 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2017-12, Targeted Improvements to Accounting for Hedging Activities, which amends ASC 815, Derivatives and Hedging. The purpose of this ASU is to better align a company’s risk management activitiesentity's operations and financial reportingresults. We analyzed the quantitative and qualitative factors relevant to the divestiture of our BPS business, including its significance to our overall net income and earnings per share, and determined that those conditions for hedging relationships, simplifydiscontinued operations presentation had been met. As such, the hedge accounting requirements,financial position, results of operations and improve the disclosurescash flows of hedging arrangements. The effective date for this ASU is January 1, 2019, with early adoption permitted. The company is evaluating the potential effects on the consolidated financial statements.
In March 2017, the FASB issued ASU No. 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost, which amends ASC 715, Compensation – Retirement Benefits, to require employers that present a measure of operating income in their statements of earnings to include only the service cost component of net periodic postretirement benefit cost in operating expenses. The service cost component of net periodic postretirement benefit cost should be presented
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which amends the existing accounting standards for revenue recognition. ASU No. 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. ASU No. 2014-09 will be effective for the company beginning on January 1, 2018. The standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. The company has completed an assessment of the new standard and is currently executing its detailed implementation plan and developing processes for gathering information for required disclosures. Based on the work performed to date, the company does not expect the adoption of the new standard to have a material impact on theaccompanying consolidated financial statements. The company expectsPrior period amounts have been adjusted to adoptreflect discontinued operations presentation.
Recently adopted accounting pronouncements
As of January 1, 2017, the company adopted ontransaction, Baxter entered into a prospective basis ASU No. 2016-09, Improvements to Employee Share-Based Payment Accounting, which amends ASC Topic 718, Compensation – Stock Compensation. The updated guidance requires all tax effects related to share-based payments to be recorded in income tax expense in the consolidated statement of income. Previous guidance required that tax effects of deductions in excess of share-based compensation costs (windfall tax benefits) be recorded in additional paid-in capital,Transition Services Agreement (TSA) and tax deficiencies be recorded in additional paid-in capital to the extent of previously recognized windfall tax benefits,a Master Commercial Manufacturing and Supply Agreement (MSA) with the remainder recorded in income tax expense. The new guidance also requires the cash flows resulting from windfall tax benefits to be reported as operating activities in the consolidated statement of cash flows, rather than the previous requirement to present windfall tax benefits as an inflow from financing activities and an outflow from operating activities. As a result of the adoption, net income and operating cash flow for the three and nine months ended September 30, 2017, increased by approximately $18 million and $48 million, respectively. The prior periods have not been restated and therefore, windfall tax benefits of $8 million and $35 million, respectively, for the three and nine months ended September 30, 2016, were not included in net income and were included as an inflow from financing activities and an outflow from operating activities in the condensed consolidated statement of cash flows.
2. SEPARATION OF BAXALTA INCORPORATED
On July 1, 2015, Baxter completed the distribution of approximately 80.5% of the outstanding common stock of Baxalta Incorporated (Baxalta) to Baxter shareholders (the Distribution). After giving effect to the Distribution, the company retained 19.5% of the outstanding common stock, or 131,902,719 shares of Baxalta (Retained Shares). The Distribution was made to Baxter’s shareholders of record as of the close of business on June 17, 2015 (Record Date), who received one share of Baxalta common stock for each Baxter common share held as of the Record Date. As a result of the Distribution, Baxalta became an independent public company trading under the symbol “BXLT” on the New York Stock Exchange.
On June 3, 2016, Baxalta became a wholly-owned subsidiary of Shire plc (Shire) through a merger of a wholly-owned Shire subsidiary with and into Baxalta, with Baxalta as the surviving subsidiary (the Merger). References in this report to Baxalta prior to the Merger closing date refer to Baxalta as a stand-alone public company. References in this report to Baxalta subsequent to the Merger closing date refer to Baxalta as a subsidiary of Shire.
For a portion of Baxalta’s operations, the legal transfer of Baxalta’s assets and liabilities did not occur with the separation of Baxalta on July 1, 2015 due to the time required to transfer marketing authorizations and other regulatory requirements in certain countries. Under the terms of the International Commercial Operations Agreement (ICOA), Baxalta is subject to the risks and entitled to the benefits generated by these operations and assets until legal transfer; therefore, the net economic benefit and any cash collected by these entities by Baxter are transferred to Baxalta. As of September 30, 2017, all countries have been separated.
Following is a summary of the operating results of Baxalta, which have been reflected as discontinued operations for the three and nine months ended September 30, 2017 and 2016. The assets and liabilities have been classified as held for disposition as of December 31, 2016. All assets and liabilities have been transferred as of September 30, 2017.
|
| Three months ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
(in millions) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Major classes of line items constituting income from discontinued operations before income taxes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales |
| $ | 1 |
|
| $ | 24 |
|
| $ | 7 |
|
| $ | 144 |
|
Cost of sales |
|
| — |
|
|
| (20 | ) |
|
| (5 | ) |
|
| (135 | ) |
Marketing and administrative expenses |
|
| — |
|
|
| — |
|
|
| (1 | ) |
|
| (20 | ) |
Income (loss) from discontinued operations before income taxes |
|
| 1 |
|
|
| 4 |
|
|
| 1 |
|
|
| (11 | ) |
Gain on disposal of discontinued operations |
|
| 2 |
|
|
| — |
|
|
| 2 |
|
|
| 17 |
|
Income tax expense |
|
| — |
|
|
| 1 |
|
|
| — |
|
|
| 10 |
|
Income (loss) from discontinued operations, net of tax |
| $ | 3 |
|
| $ | 3 |
|
| $ | 3 |
|
| $ | (4 | ) |
|
| December 31, |
| |
(in millions) |
| 2016 |
| |
Carrying amounts of major classes of assets included as part of discontinued operations |
|
|
|
|
Accounts and other current receivables, net |
| $ | 48 |
|
Property, plant, and equipment, net |
|
| 1 |
|
Other |
|
| 1 |
|
Total assets of the disposal group |
| $ | 50 |
|
|
|
|
|
|
Carrying amounts of major classes of liabilities included as part of discontinued operations |
|
|
|
|
Accounts payable and accrued liabilities |
| $ | 3 |
|
Total liabilities of the disposal group |
| $ | 3 |
|
As of December 31, 2016, Baxter recorded a liability of $47 million for its obligation to transfer these net assets to Baxalta.
Baxter and Baxalta entered into several agreements in connection with the July 1, 2015 separation, including a transition services agreement (TSA), separation and distribution agreement, manufacturing and supply agreements (MSA), tax matters agreement, an employee matters agreement, a long-term services agreement, and a shareholder’s and registration rights agreement.
divested entities. Pursuant to the TSA, Baxter and Baxalta and their respective subsidiaries are providingthe divested entities will provide to each other, on an interim transitional basis, various services.specific transition services for up to 24 months post-closing to help ensure business continuity and minimize disruptions. Services beingto be provided by Baxterunder the TSA include among others, finance, information technology, human resources, qualityintegrated supply chain, and certain other administrative services. The services generally commenced on the Distribution date and are expected to terminate within 36 months of the Distribution date. Billings by Baxter under the TSA are recorded as a reduction of the costs to provide the respective service in the applicable expense category, primarily in marketing and administrative expenses, in the condensed consolidated statements of income. In the three and nine months ended September 30, 2017, the company recognized approximately $11 million and $47 million, respectively, as a reduction to marketing and administrative expenses related to the TSA. In the three and nine months ended September 30, 2016, the company recognized approximately $26 million and $79 million, respectively, as a reduction to marketing and administrative expenses related to the TSA.
Pursuant to the MSA, Baxalta orthe divested entities will provide development, manufacturing, regulatory, and other related services for certain Baxter as the case may be, manufactures, labels, and packagespharmaceutical products for up to 5 years post-closing (with certain extension rights as provided therein).
Three months ended March 31, | ||||||||||||||
(in millions) | 2023 | |||||||||||||
Net sales | $ | 136 | ||||||||||||
Cost of sales | 64 | |||||||||||||
Gross margin | 72 | |||||||||||||
Selling, general and administrative expenses | 15 | |||||||||||||
Other income, net | 1 | |||||||||||||
Income from discontinued operations before income taxes | 56 | |||||||||||||
Income tax expense | 11 | |||||||||||||
Income from discontinued operations, net of tax | 45 | |||||||||||||
Cash outflows of $20 million and inflows of $3 million were reported in cash flows from operations – discontinued operations for the nine-month periods ending September 30, 2017 and 2016, respectively. These relate to non-assignable tenders whereby Baxter
remains the seller of Baxalta products, transactions related to importation services Baxter provides in certain countries, in addition to trade payables settled post local separation on Baxalta’s behalf.
Net interest expense
|
| Three months ended |
|
| Nine months ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
(in millions) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Interest expense, net of capitalized interest |
| $ | 22 |
|
| $ | 20 |
|
| $ | 62 |
|
| $ | 69 |
|
Interest income |
|
| (8 | ) |
|
| (6 | ) |
|
| (21 | ) |
|
| (16 | ) |
Net interest expense |
| $ | 14 |
|
| $ | 14 |
|
| $ | 41 |
|
| $ | 53 |
|
Other (income) expense, net
|
| Three months ended |
|
| Nine months ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
(in millions) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Foreign exchange |
| $ | (12 | ) |
| $ | — |
|
| $ | (27 | ) |
| $ | (12 | ) |
Net loss on debt extinguishment |
|
| — |
|
|
| 52 |
|
|
| — |
|
|
| 153 |
|
Net realized gains on Baxalta Retained Shares transactions |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,387 | ) |
Venezuela deconsolidation |
|
| — |
|
|
| — |
|
|
| 33 |
|
|
| — |
|
All other |
|
| — |
|
|
| (8 | ) |
|
| 4 |
|
|
| (40 | ) |
Other (income) expense, net |
| $ | (12 | ) |
| $ | 44 |
|
| $ | 10 |
|
| $ | (4,286 | ) |
Inventories
|
| September 30, |
|
| December 31, |
| ||
(in millions) |
| 2017 |
|
| 2016 |
| ||
Raw materials |
| $ | 351 |
|
| $ | 319 |
|
Work in process |
|
| 135 |
|
|
| 122 |
|
Finished goods |
|
| 1,064 |
|
|
| 989 |
|
Inventories |
| $ | 1,550 |
|
| $ | 1,430 |
|
Property, plant and equipment, net
|
| September 30, |
|
| December 31, |
| ||
(in millions) |
| 2017 |
|
| 2016 |
| ||
Property, plant and equipment, at cost |
| $ | 9,954 |
|
| $ | 9,162 |
|
Accumulated depreciation |
|
| (5,466 | ) |
|
| (4,873 | ) |
Property, plant and equipment, net |
| $ | 4,488 |
|
| $ | 4,289 |
|
4. EARNINGS PER SHARE
The numeratorAllowance for both basic and diluted earnings per share (EPS) is either net income, income from continuing operations, or income from discontinued operations. The denominator for basic EPS is the weighted-average number of common shares outstanding during the period. The dilutive effect of outstanding stock options, restricted stock units (RSUs) and performance share units (PSUs) is reflected in the denominator for diluted EPS using the treasury stock method.
The following table is a summary of the changes in our allowance for doubtful accounts for the three months ended March 31, 2024 and 2023.
Three months ended March 31, | ||||||||||||||
(in millions) | 2024 | 2023 | ||||||||||||
Balance at beginning of period | $ | 129 | $ | 114 | ||||||||||
Charged to costs and expenses | (1) | 7 | ||||||||||||
Write-offs | (6) | (1) | ||||||||||||
Currency translation adjustments | (1) | 2 | ||||||||||||
Balance at end of period | $ | 121 | $ | 122 |
(in millions) | March 31, 2024 | December 31, 2023 | ||||||
Raw materials | $ | 750 | $ | 731 | ||||
Work in process | 316 | 285 | ||||||
Finished goods | 1,922 | 1,808 | ||||||
Inventories | $ | 2,988 | $ | 2,824 |
(in millions) | March 31, 2024 | December 31, 2023 | ||||||
Property, plant and equipment, at cost | $ | 11,197 | $ | 11,223 | ||||
Accumulated depreciation | (6,827) | (6,790) | ||||||
Property, plant and equipment, net | $ | 4,370 | $ | 4,433 |
Three months ended March 31, | |||||||||||||||||
(in millions) | 2024 | 2023 | |||||||||||||||
Interest expense, net of capitalized interest | $ | 103 | $ | 127 | |||||||||||||
Interest income | (25) | (10) | |||||||||||||||
Interest expense, net | $ | 78 | $ | 117 |
Three months ended March 31, | |||||||||||||||||
(in millions) | 2024 | 2023 | |||||||||||||||
Foreign exchange losses, net | $ | 14 | $ | 14 | |||||||||||||
Pension and other postretirement benefit plans | (12) | (10) | |||||||||||||||
Change in fair value of marketable equity securities | (4) | (5) | |||||||||||||||
Other, net | (5) | (1) | |||||||||||||||
Other income, net | $ | (7) | $ | (2) |
(in millions) | Medical Products and Therapies | Healthcare Systems and Technologies | Pharmaceuticals | Kidney Care | Total | ||||||||||||
Balance as of December 31, 2023 | $ | 1,241 | $ | 3,989 | $ | 563 | $ | 721 | $ | 6,514 | |||||||
Currency translation | (38) | (7) | (17) | (22) | (84) | ||||||||||||
Balance as of March 31, 2024 | $ | 1,203 | $ | 3,982 | $ | 546 | $ | 699 | $ | 6,430 |
|
| Three months ended |
|
| Nine months ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
(in millions) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Basic shares |
|
| 545 |
|
|
| 544 |
|
|
| 543 |
|
|
| 547 |
|
Effect of dilutive securities |
|
| 12 |
|
|
| 7 |
|
|
| 11 |
|
|
| 5 |
|
Diluted shares |
|
| 557 |
|
|
| 551 |
|
|
| 554 |
|
|
| 552 |
|
Indefinite-lived intangible assets | |||||||||||||||||||||||
(in millions) | Customer relationships | Developed technology, including patents | Trade names | Other amortized intangible assets | Trade names | In process Research and Development | Total | ||||||||||||||||
March 31, 2024 | |||||||||||||||||||||||
Gross other intangible assets | $ | 3,444 | $ | 3,807 | $ | 1,097 | $ | 118 | $ | 680 | $ | 157 | $ | 9,303 | |||||||||
Accumulated amortization | (745) | (2,366) | (188) | (99) | — | — | (3,398) | ||||||||||||||||
Other intangible assets, net | $ | 2,699 | $ | 1,441 | $ | 909 | $ | 19 | $ | 680 | $ | 157 | $ | 5,905 | |||||||||
December 31, 2023 | |||||||||||||||||||||||
Gross other intangible assets | $ | 3,446 | $ | 3,823 | $ | 1,106 | $ | 120 | $ | 680 | $ | 157 | $ | 9,332 | |||||||||
Accumulated amortization | (689) | (2,285) | (180) | (99) | — | — | (3,253) | ||||||||||||||||
Other intangible assets, net | $ | 2,757 | $ | 1,538 | $ | 926 | $ | 21 | $ | 680 | $ | 157 | $ | 6,079 |
March 31, 2024 and 2023 were $0.29.
Repurchase Programs
5. ACQUISITIONS ANDMarch 31, 2024.
Claris Injectables Limited
On July 27, 2017, Baxter acquired 100 percentCOMPREHENSIVE INCOME (LOSS)
(in millions) |
|
|
|
|
Assets acquired and liabilities assumed |
|
|
|
|
Cash |
| $ | 11 |
|
Accounts and other current receivables |
|
| 16 |
|
Inventories |
|
| 30 |
|
Prepaid expenses and other |
|
| 16 |
|
Property, plant and equipment |
|
| 132 |
|
Goodwill |
|
| 310 |
|
Other intangible assets |
|
| 235 |
|
Other |
|
| 20 |
|
Accounts payable and accrued liabilities |
|
| (22 | ) |
Other long-term liabilities |
|
| (108 | ) |
Total assets acquired and liabilities assumed |
| $ | 640 |
|
The valuation of total assets acquired and liabilities assumed are preliminary and measurement period adjustments may be recorded in the future as the company finalizes its fair value estimates. The results of operations of Claris have been included in the company’s condensed consolidated statement of income since the date the business was acquired and were not material. Acquisition and integration costs associated with the Claris acquisition were $15 million and $20 million in the three and nine months ended September 30, 2017, respectively,March 31, 2024 and were primarily included within marketing and administrative expenses on the condensed consolidated statements of income.
Baxter allocated $235 million of the total consideration to acquired intangible assets with the residual consideration of $310 million recorded as goodwill. The acquired intangible assets include $115 million of developed technology with a weighted-average useful life of 8 years and $120 million of in-process research and development with an indefinite useful life. For the in-process research and development, additional R&D will be required prior to technological feasibility. The goodwill, which is not deductible2023.
Gains (losses) | |||||||||||||||||
(in millions) | CTA | Pension and OPEB plans | Hedging activities | Available-for-sale debt securities | Total | ||||||||||||
Balance as of December 31, 2023 | $ | (2,985) | $ | (452) | $ | (120) | $ | 3 | $ | (3,554) | |||||||
Other comprehensive income (loss) before reclassifications | (180) | 5 | 6 | — | (169) | ||||||||||||
Amounts reclassified from AOCI (a) | — | (1) | 2 | — | 1 | ||||||||||||
Net other comprehensive income (loss) | (180) | 4 | 8 | — | (168) | ||||||||||||
Balance as of March 31, 2024 | $ | (3,165) | $ | (448) | $ | (112) | $ | 3 | $ | (3,722) |
Gains (losses) | |||||||||||||||||
(in millions) | CTA | Pension and OPEB plans | Hedging activities | Available-for-sale debt securities | Total | ||||||||||||
Balance as of December 31, 2022 | $ | (3,386) | $ | (331) | $ | (119) | $ | 3 | $ | (3,833) | |||||||
Other comprehensive income (loss) before reclassifications | 102 | (3) | — | — | 99 | ||||||||||||
Amounts reclassified from AOCI (a) | — | (3) | (2) | — | (5) | ||||||||||||
Net other comprehensive income (loss) | 102 | (6) | (2) | — | 94 | ||||||||||||
Balance as of March 31, 2023 | $ | (3,284) | $ | (337) | $ | (121) | $ | 3 | $ | (3,739) |
The fair value of intangible assets was determined using the income approach. The income approach is a valuation technique that provides an estimate of the fair value of an asset based on market participant expectations of the cash flows an asset would generate over its remaining useful life, discounted to present value. The discount rates used to measure the developed technology and in-process research and development intangible assets were 12% and 13%, respectively. The company considers the fair value of each of the acquired intangible assets to be Level 3 assets due to the significant estimates and assumptions used by management in establishing the estimated fair values. Refer to Note 10 within the 2016 Annual Report for additional information regarding fair value measurements.
Celerity Pharmaceuticals, LLC
In the third quarter of 2017, Baxter paid approximately $10 million to acquire the rights to Clindamycin Dextrose from Celerity Pharmaceuticals, LLC (Celerity). Baxter capitalized the purchase price as an intangible asset and is amortizing the asset over the estimated economic life of 12 years.
In the second quarter of 2017, Baxter paid approximately $10 million to acquire the rights to Clindamycin Saline from Celerity. Baxter capitalized the purchase price as an intangible asset and is amortizing the asset over the estimated economic life of 12 years.
In the first quarter of 2016, Baxter paid approximately $23 million to acquire the rights to Vancomycin injection in 0.9% Sodium Chloride (Normal Saline) in 500mg, 750mg, and 1 gram presentations from Celerity. Baxter capitalized the purchase price as an intangible asset and is amortizing the asset over the estimated economic life of 12 years. Refer to Note 5 within the 2016 Annual Report for additional information regarding the company’s agreement with Celerity.
Wound Care Technologies, Inc.
In April 2017, Baxter paid approximately $8 million to acquire Wound Care Technologies, Inc., a medical technology company that develops and markets external tissue expansion devices for the wound care market. The purchase price allocation resulted in an amortizable intangible asset of $8 million that will be amortized over its estimated economic life of 8 years.
6. GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Goodwill
The following is a reconciliation of goodwill by business segment.
(in millions) |
| Renal |
|
| Hospital Products |
|
| Total |
| |||
Balance as of December 31, 2016 |
| $ | 397 |
|
| $ | 2,198 |
|
| $ | 2,595 |
|
Additions |
|
| 5 |
|
|
| 312 |
|
|
| 317 |
|
Currency translation adjustments |
|
| 31 |
|
|
| 174 |
|
|
| 205 |
|
Balance as of September 30, 2017 |
| $ | 433 |
|
| $ | 2,684 |
|
| $ | 3,117 |
|
As of September 30, 2017, there were no accumulated goodwill impairment losses.
Other intangible assets, net
The following is a summary of the company’s other intangible assets.
(in millions) |
| Developed technology, including patents |
|
| Other amortized intangible assets |
|
| Indefinite-lived intangible assets |
|
| Total |
| ||||
September 30, 2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross other intangible assets |
| $ | 1,979 |
|
| $ | 432 |
|
| $ | 152 |
|
| $ | 2,563 |
|
Accumulated amortization |
|
| (977 | ) |
|
| (215 | ) |
|
| — |
|
|
| (1,192 | ) |
Other intangible assets, net |
| $ | 1,002 |
|
| $ | 217 |
|
| $ | 152 |
|
| $ | 1,371 |
|
December 31, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross other intangible assets |
| $ | 1,690 |
|
| $ | 384 |
|
| $ | 57 |
|
| $ | 2,131 |
|
Accumulated amortization |
|
| (855 | ) |
|
| (165 | ) |
|
| — |
|
|
| (1,020 | ) |
Other intangible assets, net |
| $ | 835 |
|
| $ | 219 |
|
| $ | 57 |
|
| $ | 1,111 |
|
Intangible asset amortization expense was $38 million and $42 million inamounts reclassified from AOCI to net income during the three months ended September 30, 2017March 31, 2024 and 2016, respectively,2023.Amounts reclassified from AOCI (a) (in millions) Three months ended March 31, 2024 Three months ended March 31, 2023 Location of impact in income statement Pension and OPEB items Amortization of net losses and prior service costs or credits $ 2 $ 5 Other income, net Less: Tax effect (1) (2) Income tax expense $ 1 $ 3 Net of tax Gains (losses) on hedging activities Foreign exchange contracts $ 2 $ 4 Cost of sales Interest rate contracts (1) (1) Interest expense, net Fair value hedges (3) — Other income, net (2) 3 Total before tax Less: Tax effect — (1) Income tax expense $ (2) $ 2 Net of tax Total reclassifications for the period $ (1) $ 5 Total net of tax
(in millions) | March 31, 2024 | December 31, 2023 | ||||||
Contract manufacturing services | $ | 7 | $ | 5 | ||||
Software sales | 41 | 44 | ||||||
Bundled equipment and consumable medical products contracts | 108 | 117 | ||||||
Contract assets | $ | 156 | $ | 166 |
Three Months Ended March 31, | ||||||||
(in millions) | 2024 | 2023 | ||||||
Balance at beginning of period | $ | 194 | $ | 194 | ||||
New revenue deferrals | 116 | 115 | ||||||
Revenue recognized upon satisfaction of performance obligations | (114) | (120) | ||||||
Currency translation | 1 | 1 | ||||||
Balance at end of period | $ | 197 | $ | 190 |
(in millions) | March 31, 2024 | December 31, 2023 | ||||||
Prepaid expenses and other current assets | $ | 53 | $ | 53 | ||||
Other non-current assets | 103 | 113 | ||||||
Contract assets | $ | 156 | $ | 166 | ||||
Accrued expenses and other current liabilities | $ | 155 | $ | 148 | ||||
Other non-current liabilities | 42 | 46 | ||||||
Contract liabilities | $ | 197 | $ | 194 |
Three Months Ended March 31, | ||||||||
(in millions) | 2024 | 2023 | ||||||
Sales-type lease revenue | $ | 3 | $ | 4 | ||||
Operating lease revenue | 144 | 124 | ||||||
Variable lease revenue | 16 | 15 | ||||||
Total lease revenue | $ | 163 | $ | 143 |
In the third quarter of 2016, the company recorded an impairment charge of $27$2 million related to an indefinite-lived intangible asset (acquired IPR&D) in the company’s Renal segment and its in-center hemodialysis program. The assets of the business were written down to estimated fair value and recorded in research and development expenses.
In the second quarter of 2016, the company recorded an impairment charge of $51 million, of which $41 million related to a developed technology asset, relating to the company’s Hospital Products segment synthetic bone repair products business which was acquired from ApaTech Limited in 2010. The assets of the business were written down to estimated fair value and recorded in cost of sales.
7. INFUSION PUMP AND2024.
Infusion Pump Charges
The company has
Business Optimization Charges
Beginning in the second half of 2015, the company initiated actions to transform itsour cost structure and enhance operational efficiency. These efforts include restructuring the organization, optimizing the manufacturing footprint, R&D operations and supply chain network, employing disciplined cost management, and centralizing and streamlining certain support functions. Through September 30, 2017, the company has incurred cumulative pretaxThe related costs of $526 million related to these actions. The coststhose actions consisted primarily of employee termination costs, implementation costs, contract termination costs, and accelerated depreciation. The company expectsasset impairments. We currently expect to incur additional pretaxpre-tax costs, primarily related to implementation of business optimization programs, of approximately $285 million and capital expenditures of $90$15 million through the completion of these initiatives. The company expectsinitiatives that are currently underway. We continue to complete these activities bypursue cost savings initiatives, including those related to our newly implemented operating model, intended to simplify and streamline our operations, and to the end of 2018. Theextent further cost savings opportunities are identified, we would incur additional restructuring charges and costs will primarily include employee termination costs, implementation costs, and accelerated depreciation. Of the total estimated cost, the company expects that approximately 5 percent of the charges will be non-cash.
to implement business optimization programs in future periods.
Three Months Ended March 31, | |||||||||||||||||
(in millions) | 2024 | 2023 | |||||||||||||||
Restructuring charges | $ | 47 | $ | 110 | |||||||||||||
Costs to implement business optimization programs | 10 | 24 | |||||||||||||||
Total business optimization charges | $ | 57 | $ | 134 |
|
| Three months ended |
|
| Nine months ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
(in millions) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Restructuring charges, net |
| $ | 31 |
|
| $ | 130 |
|
| $ | 50 |
|
| $ | 237 |
|
Costs to implement business optimization programs |
|
| 21 |
|
|
| 25 |
|
|
| 58 |
|
|
| 44 |
|
Gambro integration costs |
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| 19 |
|
Accelerated depreciation |
|
| — |
|
|
| 11 |
|
|
| 8 |
|
|
| 25 |
|
Total business optimization charges |
| $ | 52 |
|
| $ | 171 |
|
| $ | 116 |
|
| $ | 325 |
|
For segment reporting purposes, business optimization charges are unallocated expenses.
During the three and nine months ended September 30, 2017 and 2016, the company recorded the following restructuring charges.
|
| Three months ended |
| |||||||||||||
|
| September 30, 2017 |
| |||||||||||||
(in millions) |
| COGS |
|
| SGA |
|
| R&D |
|
| Total |
| ||||
Employee termination costs |
| $ | 7 |
|
| $ | 24 |
|
| $ | — |
|
| $ | 31 |
|
Total restructuring charges |
| $ | 7 |
|
| $ | 24 |
|
| $ | — |
|
| $ | 31 |
|
|
| Three months ended |
| |||||||||||||
|
| September 30, 2016 |
| |||||||||||||
(in millions) |
| COGS |
|
| SGA |
|
| R&D |
|
| Total |
| ||||
Employee termination costs |
| $ | 21 |
|
| $ | 84 |
|
| $ | 1 |
|
| $ | 106 |
|
Asset impairments |
|
| 6 |
|
| — |
|
|
| 27 |
|
|
| 33 |
| |
Reserve adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee termination costs |
| — |
|
|
| (3 | ) |
|
| (2 | ) |
|
| (5 | ) | |
Contract termination costs |
|
| (3 | ) |
| — |
|
|
| (1 | ) |
|
| (4 | ) | |
Total restructuring charges |
| $ | 24 |
|
| $ | 81 |
|
| $ | 25 |
|
| $ | 130 |
|
|
| Nine months ended |
| |||||||||||||
|
| September 30, 2017 |
| |||||||||||||
(in millions) |
| COGS |
|
| SGA |
|
| R&D |
|
| Total |
| ||||
Employee termination costs |
| $ | 21 |
|
| $ | 33 |
|
| $ | — |
|
| $ | 54 |
|
Contract termination costs |
|
| — |
|
|
| 5 |
|
|
| — |
|
|
| 5 |
|
Asset impairments |
|
| 5 |
|
|
| — |
|
|
| — |
|
|
| 5 |
|
Reserve adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee termination costs |
|
| (7 | ) |
|
| (5 | ) |
|
| (2 | ) |
|
| (14 | ) |
Total restructuring charges |
| $ | 19 |
|
| $ | 33 |
|
| $ | (2 | ) |
| $ | 50 |
|
|
| Nine months ended |
| |||||||||||||
|
| September 30, 2016 |
| |||||||||||||
(in millions) |
| COGS |
|
| SGA |
|
| R&D |
|
| Total |
| ||||
Employee termination costs |
| $ | 52 |
|
| $ | 94 |
|
| $ | 13 |
|
| $ | 159 |
|
Contract termination costs |
|
| 9 |
|
|
| 2 |
|
|
| 13 |
|
|
| 24 |
|
Asset impairments |
|
| 28 |
|
|
| — |
|
|
| 40 |
|
|
| 68 |
|
Reserve adjustments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee termination costs |
|
| (1 | ) |
|
| (11 | ) |
|
| (2 | ) |
|
| (14 | ) |
Total restructuring charges |
| $ | 88 |
|
| $ | 85 |
|
| $ | 64 |
|
| $ | 237 |
|
Costs to implement business optimization programs for the three and nine months ended September 30, 2017, were $21 millionMarch 31, 2024 and $58 million2023, respectively, and consisted primarily of external consulting and transition costs, as well asincluding employee salarycompensation and related costs. These costs were primarily included within cost of sales and marketing and administrativeSG&A expense.
Costs to implement business optimization programs for
Three months ended March 31, 2024 | ||||||||||||||
(in millions) | COGS | SG&A | R&D | Total | ||||||||||
Employee termination costs | $ | 5 | $ | 15 | $ | 16 | $ | 36 | ||||||
Contract termination and other costs | 1 | 5 | — | 6 | ||||||||||
Asset impairments | 5 | — | — | 5 | ||||||||||
Total restructuring charges | $ | 11 | $ | 20 | $ | 16 | $ | 47 |
Three months ended March 31, 2023 | ||||||||||||||
(in millions) | COGS | SG&A | R&D | Total | ||||||||||
Employee termination costs | $ | 17 | $ | 63 | $ | 7 | $ | 87 | ||||||
Contract termination and other costs | 3 | — | — | 3 | ||||||||||
Asset impairments | 12 | 8 | — | 20 | ||||||||||
Total restructuring charges | $ | 32 | $ | 71 | $ | 7 | $ | 110 |
Costsactivities into a new location and to our recent implementation of a new operating model intended to simplify and streamline our operations.
For the three and nine months ended September 30, 2017, the company recognized accelerated depreciation, primarily associated with facilities to be closed, of zero and $8 million, respectively. The costs were recorded within cost of sales, marketing and administrative and R&D expense.
For the three and nine months ended September 30, 2016, the company recognized $11 million and $25 million, respectively, of accelerated depreciation, primarily associated with facilities to be closed. The costs were recorded in cost of sales for all referenced periods.
our new operating model.
(in millions) |
|
|
|
|
Reserves as of December 31, 2016 |
| $ | 164 |
|
Charges |
|
| 59 |
|
Reserve adjustments |
|
| (14 | ) |
Utilization |
|
| (114 | ) |
CTA |
|
| 24 |
|
Reserves as of September 30, 2017 |
| $ | 119 |
|
(in millions) | |||||
Liability balance as of December 31, 2023 | $ | 128 | |||
Charges | 42 | ||||
Payments | (35) | ||||
Currency translation | 1 | ||||
Liability balance as of March 31, 2024 | $ | 136 |
Reserve adjustments primarily relate to employee termination cost reserves established in prior periods.
Approximately 80%Substantially all of the company’sour restructuring reservesliabilities as of September 30, 2017March 31, 2024 relate to employee termination costs, with the remaining reservesliabilities attributable to contract termination costs. The reservesSubstantially all of the cash payments for those liabilities are expected to be substantially utilizeddisbursed by the end of 2018.
8. DEBT, FINANCIAL INSTRUMENTS2024.
Debt Issuance
In May 2017, Baxter issued €600 million of senior notes at a fixed coupon rate of 1.30% due in May 2025. The company has designated this debt as a non-derivative net investment hedge of its European operations for accounting purposes.
Debt Redemptions
In September 2016, Baxter redeemed an aggregate of approximately $1 billion in principal amount of its 1.850% Senior Notes due 2017, 1.850% Senior Notes due 2018, 5.375% Senior Notes due 2018, 4.500% Senior Notes due 2019, 4.250% Senior Notes due 2020, and 3.200% Senior Notes due 2023. Baxter paid approximately $1 billion, including accrued and unpaid interest and tender premium, to redeem such notes. As a result of the debt redemptions, the company recognized a loss on extinguishment of debt in the third quarter of 2016 of approximately $52 million, which is included in other (income) expense, net.
Debt-for-equity exchanges
On January 27, 2016, Baxter exchanged Baxalta Retained Shares for the extinguishment of $1.45 billion aggregate principal amount outstanding under its $1.8 billion U.S. dollar-denominated revolving credit facility. This exchange extinguished the indebtedness under the facility, which was terminated in connection with such debt-for-equity exchange. There were no material prepayment penalties or breakage costs associated with the termination of the facility. Baxter recognized a net realized gain of $1.25 billion related to the Baxalta Retained Shares exchanged, which was included in other (income) expense, net for the period ended September 30, 2016.
On March 16, 2016, the company exchanged Baxalta Retained Shares for the extinguishment of approximately $2.2 billion in aggregate principal amount of its 0.950% Notes due May 2016, 5.900% Notes due August 2016, 1.850% Notes due January 2017, 5.375% Notes due May 2018, 1.850% Notes due June 2018, 4.500% Notes due August 2019, and 4.250% Notes due February 2020 purchased by certain third party purchasers in the previously announced debt tender offers. As a result, the company recognized a net loss on extinguishment of debt totaling $101 million and a net realized gain of $2.0 billion on the Baxalta Retained Shares exchanged, which are included in other (income) expense, net for the period ended September 30, 2016.
Securitization arrangement
OTHER POSTRETIREMENT BENEFIT PROGRAMS
Three months ended March 31, | |||||||||||||||||
(in millions) | 2024 | 2023 | |||||||||||||||
Pension benefits | |||||||||||||||||
Service cost | $ | 7 | $ | 6 | |||||||||||||
Interest cost | 38 | 37 | |||||||||||||||
Expected return on plan assets | (50) | (44) | |||||||||||||||
Amortization of net losses and prior service costs | 3 | 1 | |||||||||||||||
Net periodic pension cost | $ | (2) | $ | — | |||||||||||||
OPEB | |||||||||||||||||
Interest cost | $ | 2 | $ | 2 | |||||||||||||
Amortization of net loss and prior service credit | (5) | (6) | |||||||||||||||
Net periodic OPEB cost (income) | $ | (3) | $ | (4) |
|
| Three months ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
(in millions) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Sold receivables at beginning of period |
| $ | 63 |
|
| $ | 62 |
|
| $ | 68 |
|
| $ | 81 |
|
Proceeds from sales of receivables |
|
| 69 |
|
|
| 75 |
|
|
| 198 |
|
|
| 272 |
|
Cash collections (remitted to the owners of the receivables) |
|
| (66 | ) |
|
| (71 | ) |
|
| (203 | ) |
|
| (299 | ) |
Effect of currency exchange rate changes |
|
| — |
|
|
| 2 |
|
|
| 3 |
|
|
| 14 |
|
Sold receivables at end of period |
| $ | 66 |
|
| $ | 68 |
|
| $ | 66 |
|
| $ | 68 |
|
The impactsvaluation allowances, increases or decreases in liabilities for uncertain tax positions, and excess tax benefits or shortfalls on stock compensation awards.
ConcentrationsThe dilutive effect of credit risk
The company invests excess cash in certificates of deposit or money market fundsoutstanding stock options, RSUs and diversifies the concentration of cash among different financial institutions. With respect to financial instruments, where appropriate, the company has diversified its selection of counterparties, and has arranged collateralization and master-netting agreements to minimize the risk of loss.
The company continues to do business with foreign governments in certain countries including Greece, Spain, Portugal and Italy that have experienced a deterioration in credit and economic conditions. As of September 30, 2017, the company’s net accounts receivable from the public sector in Greece, Spain, Portugal and Italy totaled $151 million.
Global economic conditions and liquidity issues in certain countries have resulted, and may continue to result, in delaysPSUs is reflected in the collectiondenominator for diluted EPS using the treasury stock method.
Three months ended March 31, | ||||||||
(in millions) | 2024 | 2023 | ||||||
Income from continuing operations | $ | 39 | $ | — | ||||
Less: Net income attributable to noncontrolling interests | 2 | 1 | ||||||
Income (loss) from continuing operations attributable to Baxter stockholders | 37 | (1) | ||||||
Income from discontinued operations | — | 45 | ||||||
Net income attributable to Baxter stockholders | $ | 37 | $ | 44 |
Three months ended March 31, | |||||||||||||||||
(in millions) | 2024 | 2023 | |||||||||||||||
Basic shares | 508 | 505 | |||||||||||||||
Effect of dilutive securities | 2 | — | |||||||||||||||
Diluted shares | 510 | 505 |
Derivatives and hedging activities
The company operates2023, respectively, because their inclusion would have had an anti-dilutive effect on diluted EPS.
The company is
The company is
appropriate at that time. To manage this mix in a cost-efficient manner, the companywe periodically entersenter into interest rate swaps in which the company agreeswe agree to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional amount.
The company does
All derivative
The companyHed
We periodically use treasury rate locks to hedge the risk to earnings associated with movements in interest rates relating to anticipated issuances of debt.
Fair Value Hedges
The company usesHedges
The total notional amount of
2023.
Hed
gesHowever, if it is probable that the hedged forecasted transactions will not occur, any gains or losses would be immediately reclassified from AOCI to earnings.
The losses relating to these terminations continue to be deferred and are being recognized consistent with the underlying hedged item, interest expense on the issuance of debt.
2024 or 2023.
The company uses
Gains and Losses on Hedging Activities
Instruments and Undesignated Derivative Instruments
|
| Gain (loss) recognized in OCI |
|
| Location of gain (loss) |
| Gain (loss) reclassified from AOCI into income |
| ||||||||||
(in millions) |
| 2017 |
|
| 2016 |
|
| in income statement |
| 2017 |
|
| 2016 |
| ||||
Cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| $ | — |
|
| $ | — |
|
| Other (income) expense, net |
| $ | — |
|
| $ | 5 |
|
Foreign exchange contracts |
|
| (11 | ) |
|
| 3 |
|
| Cost of sales |
|
| (3 | ) |
|
| (2 | ) |
Net investment hedge |
|
| (39 | ) |
|
| — |
|
| Other (income) expense, net |
|
| — |
|
|
| — |
|
Total |
| $ | (50 | ) |
| $ | 3 |
|
|
|
| $ | (3 | ) |
| $ | 3 |
|
|
|
|
| Gain (loss) recognized in income |
| |||||
(in millions) |
| Location of gain (loss) in income statement |
| 2017 |
|
| 2016 |
| ||
Fair value hedges |
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| Net interest expense |
| $ | (1 | ) |
| $ | (7 | ) |
Undesignated derivative instruments |
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
| Other (income) expense, net |
| $ | (3 | ) |
| $ | 9 |
|
The following tables summarize the income statement locations and gains and losses on the company’s derivative instruments for the nine months ended September 30, 2017 and 2016.
|
| Gain (loss) recognized in OCI |
|
| Location of gain (loss) |
| Gain (loss) reclassified from AOCI into income |
| ||||||||||
(in millions) |
| 2017 |
|
| 2016 |
|
| in income statement |
| 2017 |
|
| 2016 |
| ||||
Cash flow hedges |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| $ | (3 | ) |
| $ | — |
|
| Other (income) expense, net |
| $ | — |
|
| $ | 9 |
|
Foreign exchange contracts |
|
| (24 | ) |
|
| (8 | ) |
| Cost of sales |
|
| (4 | ) |
|
| (3 | ) |
Net investment hedge |
|
| (70 | ) |
|
| — |
|
| Other (income) expense, net |
|
| — |
|
|
| — |
|
Total |
| $ | (97 | ) |
| $ | (8 | ) |
|
|
| $ | (4 | ) |
| $ | 6 |
|
Gain (loss) recognized in OCI | Location of gain (loss) in income statement | Gain (loss) reclassified from AOCI into income | ||||||||||||||||||||||||
(in millions) | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
Cash flow hedges | ||||||||||||||||||||||||||
Interest rate contracts | $ | — | $ | — | Interest expense, net | $ | (1) | $ | (1) | |||||||||||||||||
Foreign exchange contracts | 10 | — | Cost of sales | 2 | 4 | |||||||||||||||||||||
Fair value hedges | ||||||||||||||||||||||||||
Foreign exchange contracts | (2) | — | Other income, net | (3) | — | |||||||||||||||||||||
Net investment hedges | 38 | (48) | Other income, net | — | — | |||||||||||||||||||||
Total | $ | 46 | $ | (48) | $ | (2) | $ | 3 |
|
|
|
| Gain (loss) recognized in income |
| ||||||||||||||||||||||||
Location of gain (loss) in income statement | Location of gain (loss) in income statement | Gain (loss) recognized in income | |||||||||||||||||||||||||||
(in millions) |
| Location of gain (loss) in income statement |
| 2017 |
|
| 2016 |
| (in millions) | 2024 | 2023 | ||||||||||||||||||
Fair value hedges |
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Interest rate contracts |
| Net interest expense |
| $ | (1 | ) |
| $ | 19 |
| |||||||||||||||||||
Foreign exchange contracts | |||||||||||||||||||||||||||||
Foreign exchange contracts | |||||||||||||||||||||||||||||
Foreign exchange contracts | |||||||||||||||||||||||||||||
Undesignated derivative instruments |
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||
Foreign exchange contracts |
| Other (income) expense, net |
| $ | (7 | ) |
| $ | 4 |
| |||||||||||||||||||
Foreign exchange contracts | |||||||||||||||||||||||||||||
Foreign exchange contracts | |||||||||||||||||||||||||||||
Total |
For the company’s fair value hedges, an equal and offsetting gain of $1 million was recognized in net interest expense in the third quarter and first nine months of 2017, respectively, and an equal and offsetting gain of $7 million and loss of $19 million was recognized in net interest expense in the third quarter and first nine months of 2016, respectively, as adjustments to the underlying hedged item, fixed-rate debt. Ineffectiveness related to the company’s cash flow and fair value hedges for all periods presented were not material.
Fair Values of Derivative Instruments
Assets and Liabilities
Derivatives in asset positions | Derivatives in liability positions | ||||||||||||||||
(in millions) | Balance sheet location | Fair value | Balance sheet location | Fair value | |||||||||||||
Undesignated derivative instruments | |||||||||||||||||
Foreign exchange contracts | Prepaid expenses and other current assets | $ | 13 | Accrued expenses and other current liabilities | $ | 7 | |||||||||||
Derivative instruments designated as hedges | |||||||||||||||||
Foreign exchange contracts | Prepaid expenses and other current assets | 6 | Accrued expenses and other current liabilities | 1 | |||||||||||||
Total derivative instruments | $ | 19 | $ | 8 |
|
| Derivatives in asset positions |
|
| Derivatives in liability positions |
| ||||||
(in millions) |
| Balance sheet location |
| Fair value |
|
| Balance sheet location |
| Fair value |
| ||
Derivative instruments designated as hedges |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| Other long-term assets |
| $ | 6 |
|
| Other long- term liabilities |
| $ | — |
|
Foreign exchange contracts |
| Prepaid expenses and other |
|
| 11 |
|
| Accounts payable and accrued liabilities |
|
| 4 |
|
Foreign exchange contracts |
| Other long-term assets |
|
| 2 |
|
| Other long- term liabilities |
|
| — |
|
Total derivative instruments designated as hedges |
|
|
| $ | 19 |
|
|
|
| $ | 4 |
|
Undesignated derivative instruments |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
| Prepaid expenses and other |
| $ | — |
|
| Accounts payable and accrued liabilities |
| $ | 1 |
|
Total derivative instruments |
|
|
| $ | 19 |
|
|
|
| $ | 5 |
|
The following table summarizes the classification and fair values of derivative instruments reported in the condensed consolidated balance sheet as of December 31, 2016.
Derivatives in asset positions | Derivatives in liability positions | ||||||||||||||||
(in millions) | Balance sheet location | Fair value | Balance sheet location | Fair value | |||||||||||||
Undesignated derivative instruments | |||||||||||||||||
Foreign exchange contracts | Prepaid expenses and other current assets | $ | 47 | Accrued expenses and other current liabilities | $ | — | |||||||||||
Derivative instruments designated as hedges | |||||||||||||||||
Foreign exchange contracts | Prepaid expenses and other current assets | 4 | Accrued expenses and other current liabilities | 5 | |||||||||||||
Total derivative instruments | $ | 51 | $ | 5 |
|
| Derivatives in asset positions |
|
| Derivatives in liability positions |
| ||||||
(in millions) |
| Balance sheet location |
| Fair value |
|
| Balance sheet location |
| Fair value |
| ||
Derivative instruments designated as hedges |
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| Other long-term assets |
| $ | 7 |
|
| Other long- term liabilities |
| $ | — |
|
Foreign exchange contracts |
| Prepaid expenses and other |
|
| 22 |
|
| Accounts payable and accrued liabilities |
|
| 1 |
|
Total derivative instruments designated as hedges |
|
|
| $ | 29 |
|
|
|
| $ | 1 |
|
Undesignated derivative instruments |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
| Prepaid expenses and other |
| $ | 1 |
|
| Accounts payable and accrued liabilities |
| $ | 2 |
|
Total derivative instruments |
|
|
| $ | 30 |
|
|
|
| $ | 3 |
|
March 31, 2024 | December 31, 2023 | ||||||||||||||||
(in millions) | Asset | Liability | Asset | Liability | |||||||||||||
Gross amounts recognized in the condensed consolidated balance sheets | $ | 19 | $ | 8 | $ | 51 | $ | 5 | |||||||||
Gross amount subject to offset in master netting arrangements not offset in the condensed consolidated balance sheet | (2) | (2) | (5) | (5) | |||||||||||||
Total | $ | 17 | $ | 6 | $ | 46 | $ | — |
|
| September 30, 2017 |
|
| December 31, 2016 |
| ||||||||||
(in millions) |
| Asset |
|
| Liability |
|
| Asset |
|
| Liability |
| ||||
Gross amounts recognized in the consolidated balance sheet |
| $ | 19 |
|
| $ | 5 |
|
| $ | 30 |
|
| $ | 3 |
|
Gross amount subject to offset in master netting arrangements not offset in the consolidated balance sheet |
|
| (5 | ) |
|
| (5 | ) |
|
| (3 | ) |
|
| (3 | ) |
Total |
| $ | 14 |
|
| $ | — |
|
| $ | 27 |
|
| $ | — |
|
FairThe following table presents the amounts recorded on the condensed consolidated balance sheet related to fair value measurements
hedges:Carrying amount of hedged item Cumulative amount of fair value hedging adjustment included
in the carrying amount of the hedged item (a)(in millions) Balance as of March 31, 2024 Balance as of December 31, 2023 Balance as of March 31, 2024 Balance as of December 31, 2023 Long-term debt $ 100 $ 100 $ 3 $ 3
Basis of fair value measurement | ||||||||||||||
(in millions) | Balance as of March 31, 2024 | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | ||||||||||
Assets | ||||||||||||||
Foreign exchange contracts | $ | 19 | $ | — | $ | 19 | $ | — | ||||||
Available-for-sale debt securities | 22 | — | — | 22 | ||||||||||
Marketable equity securities | 31 | 31 | — | — | ||||||||||
Total | $ | 72 | $ | 31 | $ | 19 | $ | 22 | ||||||
Liabilities | ||||||||||||||
Foreign exchange contracts | $ | 8 | $ | — | $ | 8 | $ | — | ||||||
Contingent payments related to acquisitions | 14 | — | — | 14 | ||||||||||
Total | $ | 22 | $ | — | $ | 8 | $ | 14 |
|
|
|
|
|
| Basis of fair value measurement |
| |||||||||
(in millions) |
| Balance as of September 30, 2017 |
|
| Quoted prices in active markets for identical assets (Level 1) |
|
| Significant other observable inputs (Level 2) |
|
| Significant unobservable inputs (Level 3) |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency hedges |
| $ | 13 |
|
| $ | — |
|
| $ | 13 |
|
| $ | — |
|
Interest rate hedges |
|
| 6 |
|
|
| — |
|
|
| 6 |
|
|
| — |
|
Available-for-sale securities |
|
| 11 |
|
|
| 11 |
|
|
| — |
|
|
| — |
|
Total assets |
| $ | 30 |
|
| $ | 11 |
|
| $ | 19 |
|
| $ | — |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency hedges |
| $ | 5 |
|
| $ | — |
|
| $ | 5 |
|
| $ | — |
|
Contingent payments related to acquisitions |
|
| 10 |
|
|
| — |
|
|
| — |
|
|
| 10 |
|
Total liabilities |
| $ | 15 |
|
| $ | — |
|
| $ | 5 |
|
| $ | 10 |
|
|
|
|
|
|
| Basis of fair value measurement |
| |||||||||
(in millions) |
| Balance as of December 31, 2016 |
|
| Quoted prices in active markets for identical assets (Level 1) |
|
| Significant other observable inputs (Level 2) |
|
| Significant unobservable inputs (Level 3) |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency hedges |
| $ | 23 |
|
| $ | — |
|
| $ | 23 |
|
| $ | — |
|
Interest rate hedges |
|
| 7 |
|
|
| — |
|
|
| 7 |
|
|
| — |
|
Available-for-sale securities |
|
| 9 |
|
|
| 9 |
|
|
| — |
|
|
| — |
|
Total assets |
| $ | 39 |
|
| $ | 9 |
|
| $ | 30 |
|
| $ | — |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency hedges |
| $ | 3 |
|
| $ | — |
|
| $ | 3 |
|
| $ | — |
|
Contingent payments related to acquisitions |
|
| 19 |
|
|
| — |
|
|
| — |
|
|
| 19 |
|
Total liabilities |
| $ | 22 |
|
| $ | — |
|
| $ | 3 |
|
| $ | 19 |
|
Basis of fair value measurement | ||||||||||||||
(in millions) | Balance as of December 31, 2023 | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | ||||||||||
Assets | ||||||||||||||
Foreign exchange contracts | $ | 51 | $ | — | $ | 51 | $ | — | ||||||
Available-for-sale debt securities | 22 | — | — | 22 | ||||||||||
Marketable equity securities | 44 | 44 | — | — | ||||||||||
Total | $ | 117 | $ | 44 | $ | 51 | $ | 22 | ||||||
Liabilities | ||||||||||||||
Foreign exchange contracts | $ | 5 | $ | — | $ | 5 | $ | — | ||||||
Contingent payments related to acquisitions | 14 | — | — | 14 | ||||||||||
Total | $ | 19 | $ | — | $ | 5 | $ | 14 |
Three months ended March 31, | |||||||||||||||||
2024 | 2023 | ||||||||||||||||
(in millions) | Contingent payments related to acquisitions | Available-for-sale debt securities | Contingent payments related to acquisitions | Available-for-sale debt securities | |||||||||||||
Fair value at beginning of period | $ | 14 | $ | 22 | $ | 84 | $ | 47 | |||||||||
Change in fair value recognized in earnings | — | — | (13) | — | |||||||||||||
Transfers out of Level 3 | — | — | — | (5) | |||||||||||||
Payments | — | — | (1) | — | |||||||||||||
Fair value at end of period | $ | 14 | $ | 22 | $ | 70 | $ | 42 |
The following table provides information relating to the company’s investments in available-for-sale equity securities.
(in millions) |
| Amortized cost |
|
| Unrealized gains |
|
| Unrealized losses |
|
| Fair value |
| ||||
September 30, 2017 |
| $ | 9 |
|
| $ | 3 |
|
| $ | 1 |
|
| $ | 11 |
|
December 31, 2016 |
| $ | 13 |
|
| $ | — |
|
| $ | 4 |
|
| $ | 9 |
|
In the first quarter of 2017, the company recorded a $4 million other-than-temporary impairment charge within other (income) expense, net based on the duration of losses related to onehierarchy, upon initial public offerings of the company’s investments. In the first nine months of 2016, the company recorded $4.4 billion of net realized gains within other (income) expense, net related to exchanges of available-for-sale equity securities, which represented gains from the Retained Share transactions.
Book Values andinvestees.
Value
|
| Book values |
|
| Approximate fair values |
| ||||||||||
(in millions) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
| $ | 42 |
|
| $ | 31 |
|
| $ | 42 |
|
| $ | 31 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt and lease obligations |
| $ | 3 |
|
| $ | 3 |
|
| $ | 3 |
|
| $ | 3 |
|
Long-term debt and lease obligations |
|
| 3,495 |
|
|
| 2,779 |
|
|
| 3,568 |
|
|
| 2,756 |
|
Book values | Fair values(a) | ||||||||||||||||
(in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||
Liabilities | |||||||||||||||||
Current maturities of long-term debt and finance lease obligations | $ | 2,634 | $ | 2,668 | $ | 2,606 | $ | 2,621 | |||||||||
Long-term debt and finance lease obligations | 11,092 | 11,130 | 9,872 | 10,067 |
The following tables summarize the bases used to measure the approximate
|
|
|
|
|
| Basis of fair value measurement |
| |||||||||
(in millions) |
| Balance as of September 30, 2017 |
|
| Quoted prices in active markets for identical assets (Level 1) |
|
| Significant other observable inputs (Level 2) |
|
| Significant unobservable inputs (Level 3) |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
| $ | 42 |
|
| $ | — |
|
| $ | — |
|
| $ | 42 |
|
Total assets |
| $ | 42 |
|
| $ | — |
|
| $ | — |
|
| $ | 42 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt and lease obligations |
| $ | 3 |
|
|
|
|
|
| $ | 3 |
|
|
|
|
|
Long-term debt and lease obligations |
|
| 3,568 |
|
|
|
|
|
|
| 3,568 |
|
|
|
|
|
Total liabilities |
| $ | 3,571 |
|
| $ | — |
|
| $ | 3,571 |
|
| $ | — |
|
|
|
|
|
|
| Basis of fair value measurement |
| |||||||||
(in millions) |
| Balance as of December 31, 2016 |
|
| Quoted prices in active markets for identical assets (Level 1) |
|
| Significant other observable inputs (Level 2) |
|
| Significant unobservable inputs (Level 3) |
| ||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments |
| $ | 31 |
|
| $ | — |
|
| $ | — |
|
| $ | 31 |
|
Total assets |
| $ | 31 |
|
| $ | — |
|
| $ | — |
|
| $ | 31 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current maturities of long-term debt and lease obligations |
| $ | 3 |
|
| $ | — |
|
| $ | 3 |
|
| $ | — |
|
Long-term debt and lease obligations |
|
| 2,756 |
|
|
| — |
|
|
| 2,756 |
|
|
| — |
|
Total liabilities |
| $ | 2,759 |
|
| $ | — |
|
| $ | 2,759 |
|
| $ | — |
|
Investments in 2017 and 2016 included certain cost method investments.
In determiningLevel 2 within the fair value of cost method investments, the company takes into consideration recent transactions,hierarchy as well as the financial information of the investee, which represents a Level 3 basis of fair value measurement.
they are estimated based on observable inputs.
company’sour credit risk. The carrying values of the other financial instruments not presented in the above table, such as accounts receivable, and accounts payable, approximate their fair values due to the short-term maturities of most of thesethose assets and liabilities.
9. STOCK COMPENSATION
Stock compensation expense totaled $31
Three months ended March 31, | |||||||||||||||||||||||
2024 | 2023 | ||||||||||||||||||||||
(in millions) | U.S. | International | Total | U.S. | International | Total | |||||||||||||||||
Infusion Therapies and Technologies | $ | 526 | $ | 440 | $ | 966 | $ | 514 | $ | 397 | $ | 911 | |||||||||||
Advanced Surgery | 147 | 116 | 263 | 144 | 102 | 246 | |||||||||||||||||
Medical Products and Therapies | 673 | 556 | 1,229 | 658 | 499 | 1,157 | |||||||||||||||||
Care and Connectivity Solutions | 278 | 124 | 402 | 298 | 131 | 429 | |||||||||||||||||
Front Line Care | 195 | 70 | 265 | 221 | 81 | 302 | |||||||||||||||||
Healthcare Systems and Technologies | 473 | 194 | 667 | 519 | 212 | 731 | |||||||||||||||||
Injectables and Anesthesia | 191 | 137 | 328 | 173 | 132 | 305 | |||||||||||||||||
Drug Compounding | — | 250 | 250 | — | 218 | 218 | |||||||||||||||||
Pharmaceuticals | 191 | 387 | 578 | 173 | 350 | 523 | |||||||||||||||||
Chronic Therapies1 | 226 | 662 | 888 | 229 | 655 | 884 | |||||||||||||||||
Acute Therapies1 | 85 | 129 | 214 | 64 | 124 | 188 | |||||||||||||||||
Kidney Care | 311 | 791 | 1,102 | 293 | 779 | 1,072 | |||||||||||||||||
Other1 | 11 | 5 | 16 | 24 | 6 | 30 | |||||||||||||||||
Total Baxter | $ | 1,659 | $ | 1,933 | $ | 3,592 | $ | 1,667 | $ | 1,846 | $ | 3,513 |
In March 2017,from the company awarded its annual stock compensation grants which consistedfirst quarter of 5.4 million stock options, 0.7 million RSUs and 0.6 million PSUs.
10. RETIREMENT AND OTHER BENEFIT PROGRAMS
The following is a summary of net periodic benefit cost relating2023 from Chronic Therapies to Acute Therapies to conform to the company’s pension and other postemployment benefit (OPEB) plans.
|
| Three months ended |
|
| Nine months ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
(in millions) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Pension benefits |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
| $ | 23 |
|
| $ | 23 |
|
| $ | 68 |
|
| $ | 70 |
|
Interest cost |
|
| 46 |
|
|
| 46 |
|
|
| 136 |
|
|
| 138 |
|
Expected return on plan assets |
|
| (75 | ) |
|
| (76 | ) |
|
| (220 | ) |
|
| (227 | ) |
Amortization of net losses and other deferred amounts |
|
| 42 |
|
|
| 38 |
|
|
| 123 |
|
|
| 113 |
|
Net periodic pension benefit cost |
| $ | 36 |
|
| $ | 31 |
|
| $ | 107 |
|
| $ | 94 |
|
OPEB |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost |
| $ | — |
|
| $ | 1 |
|
| $ | — |
|
| $ | 3 |
|
Interest cost |
|
| 2 |
|
|
| 4 |
|
|
| 6 |
|
|
| 8 |
|
Amortization of net loss and prior service credit |
|
| (7 | ) |
|
| (7 | ) |
|
| (20 | ) |
|
| (15 | ) |
Net periodic OPEB cost |
| $ | (5 | ) |
| $ | (2 | ) |
| $ | (14 | ) |
| $ | (4 | ) |
11. ACCUMULATED OTHER COMPREHENSIVE INCOME
Comprehensive income includes all changes in shareholders’ equity that do not arise from transactions with shareholders, and consists of net income, CTA, pension and other employee benefits, unrealized gains and losses on cash flow hedges and unrealized gains and losses on available-for-sale equity securities. The following table is a net-of-tax summary of the changes in AOCI by component for the nine months ended September 30, 2017 and 2016.
(in millions) |
| CTA |
|
| Pension and other employee benefits |
|
| Hedging activities |
|
| Available- for-sale securities |
|
| Total |
| |||||
Gains (losses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2016 |
| $ | (3,438 | ) |
| $ | (1,161 | ) |
| $ | 3 |
|
| $ | 40 |
|
| $ | (4,556 | ) |
Other comprehensive income before reclassifications |
|
| 501 |
|
|
| (25 | ) |
|
| (19 | ) |
|
| 1 |
|
|
| 458 |
|
Amounts reclassified from AOCI (a) |
|
| 29 |
|
|
| 69 |
|
|
| 3 |
|
|
| 3 |
|
|
| 104 |
|
Net other comprehensive income (loss) |
|
| 530 |
|
|
| 44 |
|
|
| (16 | ) |
|
| 4 |
|
|
| 562 |
|
Balance as of September 30, 2017 |
| $ | (2,908 | ) |
| $ | (1,117 | ) |
| $ | (13 | ) |
| $ | 44 |
|
| $ | (3,994 | ) |
(in millions) |
| CTA |
|
| Pension and other employee benefits |
|
| Hedging activities |
|
| Available- for-sale- securities |
|
| Total |
| |||||
Gains (losses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2015 |
| $ | (3,191 | ) |
| $ | (1,064 | ) |
| $ | 7 |
|
| $ | 4,472 |
|
| $ | 224 |
|
Other comprehensive income before reclassifications |
|
| (16 | ) |
|
| (6 | ) |
|
| (6 | ) |
|
| 105 |
|
|
| 77 |
|
Amounts reclassified from AOCI (a) |
|
| — |
|
|
| 67 |
|
|
| (4 | ) |
|
| (4,536 | ) |
|
| (4,473 | ) |
Net other comprehensive income (loss) |
|
| (16 | ) |
|
| 61 |
|
|
| (10 | ) |
|
| (4,431 | ) |
|
| (4,396 | ) |
Balance as of September 30, 2016 |
| $ | (3,207 | ) |
| $ | (1,003 | ) |
| $ | (3 | ) |
| $ | 41 |
|
| $ | (4,172 | ) |
|
|
The following is a summary of the amounts reclassified from AOCI to net income during the three and nine months ended September 30, 2017 and 2016.
|
| Amounts reclassified from AOCI (a) |
|
|
| |||||
(in millions) |
| Three months ended September 30, 2017 |
|
| Nine months ended September 30, 2017 |
|
| Location of impact in income statement | ||
Translation adjustments |
|
|
|
|
|
|
|
|
|
|
Loss on Venezuela deconsolidation |
| $ | — |
|
| $ | (29 | ) |
| Other (income) expense, net |
|
|
| — |
|
|
| (29 | ) |
| Total before tax |
|
|
| — |
|
|
| — |
|
| Income tax expense (benefit) |
|
| $ | — |
|
| $ | (29 | ) |
| Net of tax |
Amortization of pension and other employee benefits items |
|
|
|
|
|
|
|
|
|
|
Actuarial losses and other (b) |
| $ | (35 | ) |
| $ | (103 | ) |
|
|
|
|
| (35 | ) |
|
| (103 | ) |
| Total before tax |
|
|
| 12 |
|
|
| 34 |
|
| Income tax expense (benefit) |
|
| $ | (23 | ) |
| $ | (69 | ) |
| Net of tax |
Losses on hedging activities |
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
| $ | (3 | ) |
| $ | (4 | ) |
| Cost of sales |
|
|
| (3 | ) |
|
| (4 | ) |
| Total before tax |
|
|
| 1 |
|
|
| 1 |
|
| Income tax expense (benefit) |
|
| $ | (2 | ) |
| $ | (3 | ) |
| Net of tax |
Available-for-sale-securities |
|
|
|
|
|
|
|
|
|
|
Other-than-temporary impairment of equity securities |
| $ | — |
|
| $ | (4 | ) |
| Other (income) expense, net |
|
|
| — |
|
|
| (4 | ) |
| Total before tax |
|
|
| — |
|
|
| 1 |
|
| Income tax expense (benefit) |
|
|
| — |
|
|
| (3 | ) |
| Net of tax |
Total reclassification for the period |
| $ | (25 | ) |
| $ | (104 | ) |
| Total net of tax |
|
| Amounts reclassified from AOCI (a) |
|
|
| |||||
(in millions) |
| Three months ended September 30, 2016 |
|
| Nine months ended September 30, 2016 |
|
| Location of impact in income statement | ||
Amortization of pension and other employee benefits items |
|
|
|
|
|
|
|
|
|
|
Actuarial losses and other (b) |
| $ | (31 | ) |
| $ | (98 | ) |
|
|
|
|
| (31 | ) |
|
| (98 | ) |
| Total before tax |
|
|
| 11 |
|
|
| 31 |
|
| Income tax expense (benefit) |
|
| $ | (20 | ) |
| $ | (67 | ) |
| Net of tax |
Gains (losses) on hedging activities |
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| $ | 5 |
|
| $ | 9 |
|
| Other (income) expense, net |
Foreign exchange contracts |
|
| (2 | ) |
|
| (3 | ) |
| Cost of sales |
|
|
| 3 |
|
|
| 6 |
|
| Total before tax |
|
|
| (1 | ) |
|
| (2 | ) |
| Income tax expense (benefit) |
|
| $ | 2 |
|
| $ | 4 |
|
| Net of tax |
Available-for-sale-securities |
|
|
|
|
|
|
|
|
|
|
Gains on sale of equity securities |
| $ | — |
|
| $ | 4,536 |
|
| Other (income) expense, net |
|
|
| — |
|
|
| 4,536 |
|
| Total before tax |
|
|
| — |
|
|
| — |
|
| Income tax expense (benefit) |
|
|
| — |
|
|
| 4,536 |
|
| Net of tax |
Total reclassification for the period |
| $ | (18 | ) |
| $ | 4,473 |
|
| Total net of tax |
|
|
|
|
Refer to Note 8 for additional information regarding hedging activity and Note 10 for additional information regarding the amortization of pension and other employee benefits items.
12. INCOME TAXES
Effective tax rate
The company’s effective income tax rate for continuing operations was 14.5% and 0.8% in the third quarters of 2017 and 2016, respectively, and 15.0% and (1.1%) in the nine months ended September 30, 2017 and 2016, respectively. The company’s effective income tax rate differs from the U.S. federal statutory rate each year due to certain operations that are subject to tax incentives, state and local taxes, and foreign taxes that are different than the U.S. federal statutory rate. In addition, the effective tax rate can be impacted eachcurrent period by discrete factors and events.
The effective income tax rate for continuing operations during the three months ended September 30, 2017 increased from the three months ended September 30, 2016, due to the inclusion in 2016 of restructuring and other charges incurred in higher tax rate jurisdictions as well as the favorable impact of discrete items including the partial settlement of an on-going income tax matter related to the company’s Turkish operations and the settlement of a transfer pricing audit related to the company’s Italian operations. Windfall benefits realized from stock option exercises and vesting of RSUs and PSUs associated with the company’s stock compensation programs partially offset the increase from the prior period as such benefits are now reflected as a tax benefit as a result of the company’s adoption of ASU 2016-09 in 2017.
The effective income tax rate for continuing operations increased during the nine months ended September 30, 2017 due to the items noted above as well as the absence in the current year of the tax-free net realized gains associated with the Baxalta Retained Share transactions, which included debt-for-equity exchanges, the contribution of Baxalta Retained Shares to the company’s U.S. pension plan and the exchange of Baxalta Retained Shares for shares of the company, as well as benefits attributable to closing an IRS and German income tax audit that were all reflected during the nine months ended September 30, 2016. The effective income tax rate for continuing operations during the nine months ended September 30, 2017 was favorably impacted by approximately 5.2 percentage points due to tax windfall benefits realized from stock option exercises and vesting of RSUs and PSUs associated with the company’s stock compensation programs.
13. LEGAL PROCEEDINGS
Baxter is involved in product liability, patent, commercial, and other legal matters that arise in the normal course of the company’s business. The company records a liability when a loss is considered probable and the amount can be reasonably estimated. If the reasonable estimate of a probable loss is a range, and no amount within the range is a better estimate, the minimum amount in the range is recorded. If a loss is not probable or a probable loss cannot be reasonably estimated, no liability is recorded. As of September 30, 2017, the company’s total recorded reserves with respect to legal matters were $15 million and there were no related receivables.
Baxter has established reserves for certain of the matters discussed below. The company is not able to estimate the amount or range of any loss for certain contingencies for which there is no reserve or additional loss for matters already reserved. While the liability of the companypresentation.
In addition to the matters described below, the company remains subject to the risk of future administrative and legal actions. With respect to governmental and regulatory matters, these actions may lead to product recalls, injunctions, and other restrictions on the company’s operations and monetary sanctions, including significant civil or criminal penalties. With respect to intellectual property, the company may be exposed to significant litigation concerning the scopelocation of the company’scustomer.
Three months ended March 31, | |||||||||||||||||||||||
2024 | 2023 | ||||||||||||||||||||||
United States | $ | 1,659 | $ | 1,667 | |||||||||||||||||||
Emerging markets1 | 778 | 757 | |||||||||||||||||||||
Rest of world2 | 1,155 | 1,089 | |||||||||||||||||||||
Total Baxter | $ | 3,592 | $ | 3,513 |
General litigation
On July 31, 2015, Davita Healthcare Partners, Inc. filed suit against Baxter Healthcare Corporation in the District Court of the State of Colorado regarding an ongoing commercial dispute relating to the provision of peritoneal dialysis products. A bench trial concluded in third quarter 2016 and the parties were awaiting the court’s decision. In October, 2017, the parties jointly requested a stay in the matter while they work to resolve the matter. The court has granted the stay.
In November 2016, a purported antitrust class action complaint seeking monetary and injunctive relief was filed in the United States District Court for the Northern District of Illinois. The complaint alleges a conspiracy among manufacturers of IV solutions to restrict output and affect pricing in connection with a shortage of such solutions. Similar parallel actions subsequently were filed. In January 2017, a single consolidated complaint covering these matters was filed in the Northern District of Illinois. The company filed a motion to dismiss the consolidated complaint in February 2017.
In April 2017, the company became aware of a criminal investigation by the U.S. Department of Justice, Antitrust Division and a federal grand jury in the United States District Court for the Eastern District of Pennsylvania. The company and an employee received subpoenas seeking production of documents and testimony regarding the manufacturing, selling, pricing and shortages of IV solutions and containers (including saline solutions and certain other injectable medicines sold by the company) and communications with competitors regarding the same. The company is cooperating with the investigation. As previously disclosed, the New York Attorney General has requested that Baxter provide information regarding business practices in the IV saline industry. The company is cooperating with the New York Attorney General.
Other
In December 2016, the company received a civil investigative demand from the Commercial Litigation Branch of the United States Department of Justice primarily relating to contingent discount arrangements for, and other promotion of, the company’s TISSEEL and ARTIS products. The company is cooperating in this matter.
14 SEGMENT INFORMATION
Baxter’s two segments are strategic businesses that are managed separately because each business develops, manufactures and markets distinct products and services. Theour segments and a description of their products and services are as follows:
The Renal business provides products and services to treat end-stage renal disease, or irreversible kidney failure, along with other renal therapies. The Renal business offers a comprehensive portfolio to meet the needs of patients across the treatment continuum, including technologies and therapies for peritoneal dialysis (PD), hemodialysis (HD), continuous renal replacement therapy (CRRT) and additional dialysis services.
The Hospital Products business manufactures intravenous (IV) solutions and administration sets, premixed drugs and drug-reconstitution systems, oncology injectable drugs, IV nutrition products, infusion pumps, inhalation anesthetics, and biosurgery products. The business also provides products and services related to pharmacy compounding, drug formulation and packaging technologies.
The company uses income from continuing operations before net interest expense, income tax expense, depreciation and amortization expense (Segment EBITDA), on a segment basis to make resource allocation decisions and assess the ongoing performance of the company’s business segments. Intersegment sales are eliminated in consolidation.
Certain items are maintained at Corporate and are not allocated to a segment. They primarily include most of the company’s debt and cash and equivalents and related netdecisions. Segment operating income represents income before income taxes, interest expense, foreign exchange fluctuations (principally relating to intercompany receivables, payables and loans denominated in a foreign currency) and the majority of the foreign currency hedging activities, corporate headquarters costs, stock compensation expense, nonstrategic investments and related income and expense, certain employee benefit plan costs as well as certain nonrecurring gains, losses, and other charges (such as business optimization, integrationnon-operating income or expense, unallocated corporate costs, intangible asset amortization, and separation-related costs, and asset impairments). Financial information for the company’s segments is as follows.
|
| Three months ended |
|
| Nine months ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
(in millions) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Net sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Renal |
| $ | 1,010 |
|
| $ | 977 |
|
| $ | 2,874 |
|
| $ | 2,840 |
|
Hospital Products |
|
| 1,697 |
|
|
| 1,581 |
|
|
| 4,913 |
|
|
| 4,678 |
|
Total net sales |
| $ | 2,707 |
|
| $ | 2,558 |
|
| $ | 7,787 |
|
| $ | 7,518 |
|
EBITDA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Renal |
| $ | 226 |
|
| $ | 214 |
|
| $ | 649 |
|
| $ | 494 |
|
Hospital Products |
|
| 653 |
|
|
| 588 |
|
|
| 1,821 |
|
|
| 1,673 |
|
Total segment EBITDA |
| $ | 879 |
|
| $ | 802 |
|
| $ | 2,470 |
|
| $ | 2,167 |
|
The following is a reconciliationother special items. Special items, which are presented below in our reconciliations of segment EBITDAoperating income to income from continuing operations before income taxes, per the condensed consolidated statements of income.
|
| Three months ended |
|
| Nine months ended |
| ||||||||||
|
| September 30, |
|
| September 30, |
| ||||||||||
(in millions) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Total segment EBITDA |
| $ | 879 |
|
| $ | 802 |
|
| $ | 2,470 |
|
| $ | 2,167 |
|
Reconciling items |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
| (184 | ) |
|
| (204 | ) |
|
| (562 | ) |
|
| (599 | ) |
Stock compensation |
|
| (31 | ) |
|
| (30 | ) |
|
| (77 | ) |
|
| (84 | ) |
Net interest expense |
|
| (14 | ) |
|
| (14 | ) |
|
| (41 | ) |
|
| (53 | ) |
Restructuring charges, net |
|
| (31 | ) |
|
| (130 | ) |
|
| (50 | ) |
|
| (237 | ) |
Venezuela deconsolidation |
|
| — |
|
|
| — |
|
|
| (33 | ) |
|
| — |
|
Net realized gains on Baxalta Retained Shares transactions |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,387 |
|
Net loss on debt extinguishment |
|
| — |
|
|
| (52 | ) |
|
| — |
|
|
| (153 | ) |
Other Corporate items |
|
| (329 | ) |
|
| (244 | ) |
|
| (783 | ) |
|
| (753 | ) |
Income from continuing operations before income taxes |
| $ | 290 |
|
| $ | 128 |
|
| $ | 924 |
|
| $ | 4,675 |
|
Refer to the company’s Annual Report on Form 10-K for the year ended December 31, 2016 (2016 Annual Report) for management’s discussion and analysis of the financial condition and results of operations of the company. The following is management’s discussion and analysis of the financial condition and results of operations of the company for the three and nine months ended September 30, 2017.
RESULTS OF OPERATIONS
Baxter’sare excluded from segment operating income from continuing operations for the three and nine months ended September 30, 2017 totaled $248 million, or $0.45 per diluted share, and $785 million, or $1.42 per diluted share, compared to $127 million, or $0.23 per diluted share, and $4.7 billion, or $8.56 per diluted share for the three and nine months ended September 30, 2016. Income from continuing operations for the three and nine months ended September 30, 2017 included special items which decreased income from continuing operations by $108 million and $237 million, respectively, or $0.19 and $0.42 per diluted share, respectively, as further discussed below. Income from continuing operations for the three months ended September 30, 2016 included special items which reduced income from continuing operations by $184 million, or $0.33 per diluted share. Special items increased income from continuing operations by $4 billion, or $7.17 per diluted share, for the nine months ended September 30, 2016.
Special Items
The following table provides a summary of the company’s special items and the related impact by line item on the company’s results of continuing operations for the three and nine months ended September 30, 2017 and 2016.
|
| Three months ended September 30, |
|
| Nine months ended September 30, |
| ||||||||||
(in millions) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Gross Margin |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangible asset amortization expense |
| $ | (38 | ) |
| $ | (42 | ) |
| $ | (112 | ) |
| $ | (124 | ) |
Business optimization items 1 |
|
| (12 | ) |
|
| (35 | ) |
|
| (42 | ) |
|
| (113 | ) |
Product-related items 2 |
|
| (21 | ) |
|
| — |
|
|
| (17 | ) |
|
| 12 |
|
Separation-related costs 4 |
|
| — |
|
|
| (1 | ) |
|
| (1 | ) |
|
| (1 | ) |
Claris acquisition and integration expenses 8 |
|
| (4 | ) |
|
|
|
|
|
| (4 | ) |
|
|
|
|
Hurricane Maria costs 10 |
|
| (21 | ) |
|
|
|
|
|
| (21 | ) |
|
|
|
|
Intangible asset impairment 3 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (51 | ) |
Total Special Items |
| $ | (96 | ) |
| $ | (78 | ) |
| $ | (197 | ) |
| $ | (277 | ) |
Impact on Gross Margin Ratio |
| (3.5 pts) |
|
| (3.0 pts) |
|
| (2.5 pts) |
|
| (3.7 pts) |
| ||||
Marketing and Administrative Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business optimization items 1 |
| $ | 39 |
|
| $ | 106 |
|
| $ | 74 |
|
| $ | 137 |
|
Separation-related costs 4 |
|
| 2 |
|
|
| 9 |
|
|
| 16 |
|
|
| 45 |
|
Claris acquisition and integration expenses 8 |
|
| 11 |
|
|
| — |
|
|
| 16 |
|
|
| — |
|
Historical reserve adjustments 5 |
|
| — |
|
|
| — |
|
|
| (12 | ) |
|
| — |
|
Total Special Items |
| $ | 52 |
|
| $ | 115 |
|
| $ | 94 |
|
| $ | 182 |
|
Impact on Marketing and Administrative Expense Ratio |
| 1.9 pts |
|
| 4.5 pts |
|
| 1.2 pts |
|
| 2.4 pts |
| ||||
Research and Development Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business optimization items 1 |
| $ | 1 |
|
| $ | 30 |
|
| $ | — |
|
| $ | 75 |
|
Total Special Items |
| $ | 1 |
|
| $ | 30 |
|
| $ | — |
|
| $ | 75 |
|
Other Expense (Income), Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on debt extinguishment 6 |
| $ | — |
|
| $ | 48 |
|
| $ | — |
|
| $ | 149 |
|
Net realized gains on Baxalta Retained Share transactions 7 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (4,391 | ) |
Venezuela deconsolidation 9 |
|
| — |
|
|
| — |
|
|
| 33 |
|
|
| — |
|
Total Special Items |
| $ | — |
|
| $ | 48 |
|
| $ | 33 |
|
| $ | (4,242 | ) |
Income Tax Expense (Benefit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impact of special items |
| $ | (41 | ) |
| $ | (87 | ) |
| $ | (87 | ) |
| $ | (252 | ) |
Total Special Items |
| $ | (41 | ) |
| $ | (87 | ) |
| $ | (87 | ) |
| $ | (252 | ) |
Impact on Effective Tax Rate |
| 4.4 pts |
|
| 21.3 pts |
|
| 3.1 pts |
|
| 21.9 pts |
|
Intangible asset amortization expense is identified as a special item to facilitate an evaluation of current and past operating performance and is similar to how management internally assesses performance. Additional special items are identified above because they are highly variable, difficult to predict and of a size that may substantially impact the company’sour reported results of operations for the period.
Three months ended March 31, | |||||||||||||||||
(in millions) | 2024 | 2023 | |||||||||||||||
Medical Products and Therapies | $ | 227 | $ | 197 | |||||||||||||
Healthcare Systems and Technologies | 67 | 112 | |||||||||||||||
Pharmaceuticals | 78 | 87 | |||||||||||||||
Kidney Care | 159 | 57 | |||||||||||||||
Other | 4 | 7 | |||||||||||||||
Total | 535 | 460 | |||||||||||||||
Unallocated corporate costs | (20) | (21) | |||||||||||||||
Intangible asset amortization expense | (166) | (162) | |||||||||||||||
Business optimization items | (57) | (134) | |||||||||||||||
Acquisition and integration items | (5) | 7 | |||||||||||||||
Separation-related costs | (92) | (9) | |||||||||||||||
European Medical Devices Regulation | (8) | (12) | |||||||||||||||
Total operating income | 187 | 129 | |||||||||||||||
Interest expense, net | 78 | 117 | |||||||||||||||
Other income, net | (7) | (2) | |||||||||||||||
Income from continuing operations before income taxes | $ | 116 | $ | 14 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET SALES
|
| Three months ended September 30, |
|
| Percent change |
| ||||||||||||||||||||||
(in millions) |
| 2017 |
|
| 2016 |
|
| At actual currency rates |
|
| At constant currency rates |
|
| U.S. Cyclophosphamide |
|
| Claris |
|
| Strategic Product Exits |
| |||||||
Renal |
| $ | 1,010 |
|
| $ | 977 |
|
|
| 3 | % |
|
| 3 | % |
|
| 0 | % |
|
| 0 | % |
|
| (3 | )% |
Hospital Products |
|
| 1,697 |
|
|
| 1,581 |
|
|
| 7 | % |
|
| 7 | % |
|
| 0 | % |
|
| 2 | % |
|
| (1 | )% |
Total net sales |
| $ | 2,707 |
|
| $ | 2,558 |
|
|
| 6 | % |
|
| 6 | % |
|
| 0 | % |
|
| 1 | % |
|
| (1 | )% |
|
| Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| September 30, |
|
| Percent change |
| ||||||||||||||||||||||
(in millions) |
| 2017 |
|
| 2016 |
|
| At actual currency rates |
|
| At constant currency rates |
|
| U.S. Cyclophosphamide |
|
| Claris |
|
| Strategic Product Exits |
| |||||||
International |
| $ | 1,559 |
|
| $ | 1,491 |
|
|
| 5 | % |
|
| 4 | % |
|
| 0 | % |
|
| 1 | % |
|
| (3 | )% |
United States |
|
| 1,148 |
|
|
| 1,067 |
|
|
| 8 | % |
|
| 8 | % |
|
| 0 | % |
|
| 1 | % |
|
| 0 | % |
Total net sales |
| $ | 2,707 |
|
| $ | 2,558 |
|
|
| 6 | % |
|
| 6 | % |
|
| 0 | % |
|
| 1 | % |
|
| (1 | )% |
|
| Nine months ended September 30, |
|
| Percent change |
| ||||||||||||||||||||||
(in millions) |
| 2017 |
|
| 2016 |
|
| At actual currency rates |
|
| At constant currency rates |
|
| U.S. Cyclophosphamide |
|
| Claris |
|
| Strategic Product Exits |
| |||||||
Renal |
| $ | 2,874 |
|
| $ | 2,840 |
|
|
| 1 | % |
|
| 2 | % |
|
| 0 | % |
|
| 0 | % |
|
| (2 | )% |
Hospital Products |
|
| 4,913 |
|
|
| 4,678 |
|
|
| 5 | % |
|
| 5 | % |
|
| 0 | % |
|
| 0 | % |
|
| (1 | )% |
Total net sales |
| $ | 7,787 |
|
| $ | 7,518 |
|
|
| 4 | % |
|
| 4 | % |
|
| 0 | % |
|
| 0 | % |
|
| (1 | )% |
|
| Nine months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| September 30, |
|
| Percent change |
| ||||||||||||||||||||||
(in millions) |
| 2017 |
|
| 2016 |
|
| At actual currency rates |
|
| At constant currency rates |
|
| U.S. Cyclophosphamide |
|
| Claris |
|
| Strategic Product Exits |
| |||||||
International |
| $ | 4,405 |
|
| $ | 4,376 |
|
|
| 1 | % |
|
| 2 | % |
|
| 0 | % |
|
| 0 | % |
|
| (2 | )% |
United States |
|
| 3,382 |
|
|
| 3,142 |
|
|
| 8 | % |
|
| 8 | % |
|
| (1 | )% |
|
| 1 | % |
|
| 0 | % |
Total net sales |
| $ | 7,787 |
|
| $ | 7,518 |
|
|
| 4 | % |
|
| 4 | % |
|
| 0 | % |
|
| 0 | % |
|
| (1 | )% |
Foreign currency did not have an impact on consolidated net sales during the third quarter or the first nine months of 2017 compared to the prior periods.
The comparisons presented at constant currency rates, reflect comparativewhich is computed using current period local currency sales at the prior period’s foreign exchange rates.rates, is a non-GAAP financial measure. This measure provides information on the changeabout growth (or declines) in our net sales assuming thatas if foreign currency exchange rates havehad not changed between the prior period and the current period. The company believesWe believe that the non-GAAP measure of percent change in net sales at constant currency rates, when used in conjunction with the U.S. GAAP measure of percent change in net sales at actual currency rates, may provide a more complete understanding of the company’s operations and can facilitate a fuller analysis of the company’sour results of operations, particularly in evaluating performance from one period to another.
During 2016,
Three Months Ended March 31, | Percent change | ||||||||||||||||
(in millions) | 2024 | 2023 | At actual currency rates | At constant currency rates 1 | |||||||||||||
United States | $ | 1,659 | $ | 1,667 | (0) | % | 0 | % | |||||||||
Emerging markets2 | 778 | 757 | 3 | % | 4 | % | |||||||||||
Rest of world3 | 1,155 | 1,089 | 6 | % | 6 | % | |||||||||||
Total net sales | $ | 3,592 | $ | 3,513 | 2 | % | 3 | % |
On July 27, 2017, Baxter completed the acquisition of Claris, a wholly owned subsidiary of Claris Lifesciences Limited, for total cash consideration of $629 million, net of cash acquired. In the three and nine months ended September 30, 2017, consolidated Baxter results include $27 million of net sales related2024, compared to the Claris acquisition.
In September 2017, the company’s three Puerto Rico manufacturing sites sustained minimal structural damage from the impact of Hurricane Maria and limited production activities resumed soon thereafter. Given the temporary disruptionsprior year period, primarily due to the company’s manufacturing facilities as a resultstrengthening of the storm,U.S. Dollar relative to the company expects net sales inTurkish Lira, Chinese Renminbi, Australian Dollar, and Japanese Yen, partially offset by the fourth quarterweakening of 2017the U.S. Dollar relative to be negatively impacted by approximately $70 million. The company does not expect any material impact to net sales in 2018 or thereafter.
Franchise Net Sales Reporting
The Renalthe Colombian Peso, British Pound, Mexican Peso, and Euro.
Three Months Ended March 31, | Percent change | |||||||||||||||||||
(in millions) | 2024 | 2023 | At actual currency rates | At constant currency rates 1 | ||||||||||||||||
Infusion Therapies and Technologies | $ | 966 | $ | 911 | 6 | % | 6 | % | ||||||||||||
Advanced Surgery | 263 | 246 | 7 | % | 8 | % | ||||||||||||||
Total Medical Product and Therapies net sales | $ | 1,229 | $ | 1,157 | 6 | % | 6 | % |
Three Months Ended March 31, | Percent change | ||||||||||||||||
(in millions) | 2024 | 2023 | At actual currency rates | At constant currency rates 1 | |||||||||||||
Care and Connectivity Solutions | $ | 402 | $ | 429 | (6) | % | (7) | % | |||||||||
Front Line Care | 265 | 302 | (12) | % | (12) | % | |||||||||||
Total Healthcare Systems and Technologies net sales | $ | 667 | $ | 731 | (9) | % | (9) | % |
Three Months Ended March 31, | Percent change | ||||||||||||||||
(in millions) | 2024 | 2023 | At actual currency rates | At constant currency rates 1 | |||||||||||||
Injectables and Anesthesia | $ | 328 | $ | 305 | 8 | % | 8 | % | |||||||||
Drug Compounding | 250 | 218 | 15 | % | 15 | % | |||||||||||
Total Pharmaceuticals net sales | $ | 578 | $ | 523 | 11 | % | 11 | % |
The Hospital Products segment includes four commercial franchises: Fluid Systems, Integrated Pharmacy Solutions, Surgical Care and Other.
Three Months Ended March 31, | Percent change | ||||||||||||||||
(in millions) | 2024 | 2023 | At actual currency rates | At constant currency rates 1 | |||||||||||||
Chronic Therapies | $ | 888 | $ | 884 | 0 | % | 2 | % | |||||||||
Acute Therapies | 214 | 188 | 14 | % | 15 | % | |||||||||||
Total Kidney Care net sales | $ | 1,102 | $ | 1,072 | 3 | % | 4 | % |
Fluid Systems includes1 Percent change in net sales of the company’s intravenous (IV) therapies, infusion pumps and IV administration sets.
Integrated Pharmacy Solutions includes sales of the company’s premixed and oncology drug platforms, nutrition products, pharmaceutical reconstitution devices and pharmacy compounding services.
Surgical Care includes sales of the company’s inhaled anesthesia products and critical care products as well as biological products and medical devices used in surgical procedures for hemostasis, tissue sealing and adhesion prevention.
Other includes sales primarily from the company’s pharmaceutical partnering business.
The followingat constant currency rates is a summarynon-GAAP financial measure. See the section entitled “Non-GAAP Financial Measures” for additional information about our use of net sales by commercial franchise on a reported and constant currency basis along with the impact of significant non-operational items.
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| Three months ended |
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(in millions) |
| 2017 |
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| 2016 |
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| At actual currency rates |
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| At constant currency rates |
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| U.S. Cyclo- phosphamide |
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| Claris |
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| Strategic Product Exits |
| |||||||
Total Renal net sales |
| $ | 1,010 |
|
| $ | 977 |
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|
| 3 | % |
|
| 3 | % |
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| 0 | % |
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| 0 | % |
|
| (3 | )% |
Fluid Systems |
| $ | 610 |
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| $ | 576 |
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|
| 6 | % |
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| 6 | % |
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| 0 | % |
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| 0 | % |
|
| (1 | )% |
Integrated Pharmacy Solutions |
|
| 627 |
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| 563 |
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|
| 11 | % |
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| 11 | % |
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| (2 | )% |
|
| 5 | % |
|
| 0 | % |
Surgical Care |
|
| 338 |
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|
| 320 |
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| 6 | % |
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| 5 | % |
|
| 0 | % |
|
| 0 | % |
|
| (1 | )% |
Other |
|
| 122 |
|
|
| 122 |
|
|
| — |
|
|
| (2 | )% |
|
| 0 | % |
|
| 0 | % |
|
| 0 | % |
Total Hospital Products net sales |
| $ | 1,697 |
|
| $ | 1,581 |
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|
| 7 | % |
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| 7 | % |
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| 0 | % |
|
| 2 | % |
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| (1 | )% |
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| Nine months ended |
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| Percent change |
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(in millions) |
| 2017 |
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| 2016 |
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| At actual currency rates |
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| At constant currency rates |
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| U.S. Cyclo- phosphamide |
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| Claris |
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| Strategic Product Exits |
| |||||||
Total Renal net sales |
| $ | 2,874 |
|
| $ | 2,840 |
|
|
| 1 | % |
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| 2 | % |
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| 0 | % |
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| 0 | % |
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| (2 | )% |
Fluid Systems |
| $ | 1,802 |
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| $ | 1,686 |
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| 7 | % |
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| 7 | % |
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| 0 | % |
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| 0 | % |
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| (2 | )% |
Integrated Pharmacy Solutions |
|
| 1,747 |
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| 1,682 |
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|
| 4 | % |
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| 5 | % |
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| (1 | )% |
|
| 1 | % |
|
| 0 | % |
Surgical Care |
|
| 1,024 |
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| 972 |
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| 5 | % |
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| 6 | % |
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| 0 | % |
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| 0 | % |
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| 0 | % |
Other |
|
| 340 |
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| 338 |
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| 1 | % |
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| 1 | % |
|
| 0 | % |
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| 0 | % |
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| 0 | % |
Total Hospital Products net sales |
| $ | 4,913 |
|
| $ | 4,678 |
|
|
| 5 | % |
|
| 5 | % |
|
| 0 | % |
|
| 0 | % |
|
| (1 | )% |
Net sales in the RenalKidney Care segment during the third quarter and first nine months of 2017 increased 3% and 1%, respectively. Excluding the impact of foreign currency,net sales increased 3% and 2% in the third quarter and first nine months of 2017, respectively, driven by continued growth of PD patients and adoption of the company’s new Automated Peritoneal Dialysis Cyclers (APD) AMIA in the U.S. and HomeChoice CLARIA in international markets. Increased sales globally of the company’s CRRT products also contributed to growth in the third quarter and first nine months of 2017. Sales growth in the first nine monthsquarter of 20172024, as compared to the prior year period.
Net sales in the Hospital Products segment increased 7% and 5%, respectively, during the third quarter and first nine months of 2017 compared to the prior period on both a reported basis and constant currency basis. Certain international strategic market exits negatively impacted the Hospital Products segment net sales by 1% during the third quarter and first nine months of 2017 and are expected to negatively impact full year 2017 net sales by approximately $50 million as compared to 2016. The company’s acquisition of Claris contributed $27 million of net sales during the third quarter and first nine months of 2017. The principal drivers impacting net sales were the following:
In the Fluid Systems franchise, sales increased 6% in the third quarter and 7% in the first nine months of 2017 on a constant currency basis driven by select pricing and improved volumes for U.S. IV solutions. This increase was also positively impacted by increased sales of the company’s IV access administrative sets, reflecting the on-going pull through from the company’s growing SPECTRUM infusion pump base.
In the Integrated Pharmacy Solutions franchise, sales increased 11% in the third quarter and 5% in the first nine months of 2017 on a constant currency basis driven by improved volumes for the company’s nutritional therapies, increased sales of pre-mixed injectable drugs (as a result of recent product launches), the acquisition of Claris and a one-time benefit from an early contract settlement. These increases were offset by decreased U.S. sales of cyclophosphamide, a generic oncology drug,China, primarily due to government-based procurement initiatives and the entryimpact of competitors into the market. U.S.COVID-19 on that country’s renal patient population, and select product and market exits. Foreign currency exchange rates adversely impacted sales of cyclophosphamide declined from $163 million in the first nine months of 2016 to $143 million in the first nine months of 2017. The company expects U.S. sales of cyclophosphamide to continue to decline due to the entrance of additional competitors.
In the Surgical Care franchise, sales increased 5% in the third quarter and 6% in the first nine months of 2017 on a constant currency basis drivengrowth by improved volumes and pricing in the U.S. for the company’s portfolio of anesthetic and critical care products and positive demand for inhaled anesthetics internationally. The increase was principally due to pricing for BREVIBLOC, a fast-acting IV beta blocker, during the third quarter and first nine months of 2017 as well as volume for Transderm Scop during the first nine months. The increased Transderm Scop volume was the result of a temporary supply disruption during the first half of the year related to an alternative product.
In the Other franchise, sales decreased 2% in the third quarter and increased 1% in the first nine months of 2017 on a constant currency basis driven by unfavorable volumes in the third quarter and favorable volumes in the first nine months of 2017 for products manufactured by Baxter on behalf of its pharmaceutical partners. In addition, revenues related to the company’s manufacturing and supply agreement with Baxalta were lower in the third quarter and first nine months of 2017, as compared to the prior year.
Three Months Ended March 31, | |||||||||||||||||
(in millions) | 2024 | 2023 | |||||||||||||||
Gross Margin | |||||||||||||||||
Intangible asset amortization expense | $ | (114) | $ | (110) | |||||||||||||
Business optimization items1 | (14) | (35) | |||||||||||||||
Acquisition and integration items2 | (1) | — | |||||||||||||||
European medical devices regulation3 | (8) | (12) | |||||||||||||||
Separation-related costs4 | (4) | (1) | |||||||||||||||
Total Special Items | $ | (141) | $ | (158) | |||||||||||||
Impact on Gross Margin Ratio | (3.9) pts | (4.5) pts | |||||||||||||||
Selling, General and Administrative (SG&A) Expenses | |||||||||||||||||
Intangible asset amortization expense | $ | 52 | $ | 52 | |||||||||||||
Business optimization items1 | 27 | 92 | |||||||||||||||
Acquisition and integration items2 | 4 | 6 | |||||||||||||||
Separation-related costs4 | 88 | $ | 8 | ||||||||||||||
Total Special Items | $ | 171 | $ | 158 | |||||||||||||
Impact on SG&A Ratio | 4.8 pts | 4.5 pts | |||||||||||||||
Research and Development (R&D) Expenses | |||||||||||||||||
Business optimization items1 | $ | 16 | $ | 7 | |||||||||||||
Total Special Items | $ | 16 | $ | 7 | |||||||||||||
Impact on R&D Ratio | 0.4 pts | 0.2 pts | |||||||||||||||
Other Operating Income, net | |||||||||||||||||
Acquisition and integration items2 | $ | — | $ | (13) | |||||||||||||
Total Special Items | $ | — | $ | (13) | |||||||||||||
Income Tax Expense | |||||||||||||||||
Tax matters5 | $ | 37 | $ | 3 | |||||||||||||
Tax effects of special items6 | (71) | $ | (64) | ||||||||||||||
Total Special Items | $ | (34) | $ | (61) | |||||||||||||
Impact on Effective Tax Rate | 41.4 pts | 76.9 pts |
Three months ended March 31, | ||||||||||||||||||||
2024 | % of net sales | 2023 | % of net sales | $ change | % change | |||||||||||||||
Gross margin | $ | 1,387 | 38.6 | % | $ | 1,275 | 36.3 | % | $ | 112 | 8.8 | % | ||||||||
SG&A | $ | 1,027 | 28.6 | % | $ | 995 | 28.3 | % | $ | 32 | 3.2 | % | ||||||||
R&D | $ | 176 | 4.9 | % | $ | 164 | 4.7 | % | $ | 12 | 7.3 | % |
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(as a percentage of net sales) |
| 2017 |
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| 2016 |
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| Change |
| 2017 |
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| 2016 |
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| Change | ||||
Gross margin |
|
| 41.7 | % |
|
| 41.9 | % |
| (0.2 pts) |
|
| 42.4 | % |
|
| 40.0 | % |
| 2.4 pts |
Marketing and administrative expenses |
|
| 25.3 | % |
|
| 28.4 | % |
| (3.1 pts) |
|
| 24.3 | % |
|
| 27.6 | % |
| (3.3 pts) |
Excluding the impact of the special items, the gross margin ratio increased 1.7 percentage points in the first quarter of 2024 compared to the prior year period, primarily due to select price increases, favorablepricing and initiatives to reduce our manufacturing performance and a benefit fromsupply chain costs.
Marketing and Administrative Expenses
2023, respectively. The special items identified aboveearlier in this section had an unfavorable impact of approximately 1.94.8 and 1.24.5 percentage points on the marketing and administrative expenseSG&A expenses ratio in the thirdfirst quarter of 2024 and first nine months of 2017,2023, respectively. The unfavorable impact was 4.5 and 2.4 percentage points in the third quarter and first nine months of 2016. Refer to the Special Items caption above for additional detail.
Researchfirst quarter of 2024 and Development
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| Three months ended September 30, |
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| Percent |
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| Nine months ended September 30, |
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| Percent |
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(in millions) |
| 2017 |
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| 2016 |
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| change |
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| 2017 |
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| 2016 |
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| change |
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Research and development expenses |
| $ | 151 |
|
| $ | 159 |
|
|
| (5 | )% |
| $ | 435 |
|
| $ | 490 |
|
|
| (11 | )% |
As a percentage of net sales |
|
| 5.6 | % |
|
| 6.2 | % |
|
|
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|
| 5.6 | % |
|
| 6.5 | % |
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|
|
|
2023, respectively. The special items identified aboveearlier in this section had an unfavorable impact of approximately 1.20.4 and 1.00.2 percentage points on the R&D expenses ratio in the thirdfirst quarter of 2024 and first nine months of 2016. Refer to the Special Items caption above for additional detail.
2023, respectively.
prior year period.
Beginning in the second half of 2015, the company initiated
periods. Refer to Note 710 in Item 1 of this Quarterly Report on Form 10-Q for additional information regarding the company’sour business optimization initiatives.
programs.
Net interest expense
Other (Income) Expense, Net
Other (income) expense, net was income of $12 million and expense of $10 million in the third quarter and first nine months of 2017, respectively, and expense of $44 million and income of $4.3 billion in the third quarter and first nine months of 2016, respectively. Special items during the periods presented included the $4.4 billion net realized gain on the Baxalta Retained Shares transactions in
the first nine months of 2016, the $101 million debt extinguishment loss in the first quarter of 2016,2024 and 2023, respectively. In the $48 million debt extinguishment lossfirst quarter of 2024, this amount was comprised of income from transition services arrangements related to the divestiture of our BPS business. In the first quarter of 2023, this amount was comprised of gains from changes in the third quarterestimated fair value of 2016, and the $33 million loss on the deconsolidation of the company’s Venezuelan subsidiary in the second quarter of 2017. Excluding the impact of special items, other (income)contingent consideration arrangements.
Segment EBITDA
The company uses income from continuing operations before net interest expense, income tax expense, depreciation and amortization expense (Segment EBITDA), on a segment basis to make resource allocation decisions and assess the ongoing performance of the company’s business segments. Refer to Note 14 within Item 1 for a summary of financial results by segment. The following is a summary of significant factors impacting the segments’ financial results.
Renal
Segment EBITDA was $226 million and $649 million in the third quarter and first nine months of 2017, respectively, and $214 million and $494 million in the third quarter and first nine months of 2016,2023, respectively. The increasedecrease in 20172024 was driven by lower research and development costs as the company realigned allocations of research and development costs based on project spend attributable to segments, higher gross margins due to product mix and lower marketing and administrative expenses as the Renal segment benefited from the company’s business optimization programs and continued focus on reducing discretionary spending. This growth was partially offset by unfavorable foreign currency.
Hospital Products
Segment EBITDA was $653 million and $1.821 billiondebt repayments in the thirdfourth quarter and first nine months of 2017, respectively, and $588 million and $1.673 billion in the third quarter and first nine months of 2016, respectively. This increase was driven by higher net sales, and lower marketing and administrative expenses as cost savings were realized from the company’s business optimization programs and continued focus on reducing discretionary spending. This growth was2023, partially offset by higher research and development costs as the company realigned allocations of research and development costs based on project spend attributable to segments and unfavorable foreign currency.
Corporate and other
Certaininterest income and expense amounts are not allocateddue to a segment. These amounts are detailedhigher average cash balance and higher interest rates during the current year period.
losses.
The company’s
various countries both within and outside the EU have enacted new laws implementing Pillar Two or have draft legislation proposed for adoption. The effectiveOECD continues to release additional guidance on the two-pillar framework, with widespread implementation occurring in 2024. We currently expect that the impact of the Pillar Two legislation on our income tax rateexpense for the year ending December 31, 2024 will be approximately $10 million to $15 million. We are continuing operations duringto evaluate the three months ended September 30, 2017 increased frompotential impacts of the three months ended September 30, 2016, due to the inclusionInclusive Framework for 2025 and future years, pending legislative adoption by individual countries, which could result in 2016 of restructuring and other charges incurred in higher tax rate jurisdictions as well as the favorable impact of discrete items including the partial settlement of an on-goingfurther adverse impacts on our income tax matter related toexpense and cash flows.
The effective income tax rate for continuingdiscontinued operations increased during the nine months ended September 30, 2017 due to the items noted above as well as the absence in the current yearcondensed consolidated financial statements included in Item 1 of the tax-free net realized gains associated with the Baxalta Retained Share
transactions, which included debt-for-equity exchanges, the contribution of Baxalta Retained Sharesthis Quarterly Report on Form 10-Q. Prior period amounts have been adjusted to the company’s U.S. pension plan and the exchange of Baxalta Retained Shares for shares of the company, as well as benefits attributable to closing an IRS and German income tax audit that were all reflected during the nine months ended September 30, 2016. The effective income tax rate for continuingreflect discontinued operations during the nine months ended September 30, 2017 was favorably impacted by approximately 5.2 percentage points due to tax windfall benefits realized from stock option exercises and vesting of RSUs and PSUs associated with the company’s stock compensation programs.
Income from Continuing Operations and Earnings per Diluted Share
Income from continuing operations was $248 million and $127 million for the three months ended September 30, 2017 and 2016, respectively, and $785 million and $4.7 billion for the nine months ended September 30, 2017 and 2016, respectively. Income from continuing operations per diluted share was $0.45 and $0.23 for the three months ended September 30, 2017 and 2016, respectively, and $1.42 and $8.56 for the nine months ended September 30, 2017 and 2016, respectively. The significant factors and events contributing to the changes are discussed above.
Income (loss) from Discontinued Operations
Discontinued operations were insignificant for both periods presented.presentation. Refer to Note 2 within Item 1 for additional information regardinginformation.
Three months ended March 31, | |||||||||||||||||
(in millions) | 2024 | 2023 | |||||||||||||||
Medical Products and Therapies | $ | 227 | $ | 197 | |||||||||||||
% of Segment Net Sales | 18.5 | % | 17.0 | % | |||||||||||||
Healthcare Systems and Technologies | 67 | 112 | |||||||||||||||
% of Segment Net Sales | 10.0 | % | 15.3 | % | |||||||||||||
Pharmaceuticals | 78 | 87 | |||||||||||||||
% of Segment Net Sales | 13.5 | % | 16.6 | % | |||||||||||||
Kidney Care | 159 | 57 | |||||||||||||||
% of Segment Net Sales | 14.4 | % | 5.3 | % | |||||||||||||
Other | 4 | 7 | |||||||||||||||
Total | 535 | 460 | |||||||||||||||
Unallocated corporate costs | (20) | (21) | |||||||||||||||
Intangible asset amortization expense | (166) | (162) | |||||||||||||||
Business optimization items | (57) | (134) | |||||||||||||||
Acquisition and integration items | (5) | 7 | |||||||||||||||
Separation-related costs | (92) | (9) | |||||||||||||||
European Medical Devices Regulation | (8) | (12) | |||||||||||||||
Total operating income | 187 | 129 | |||||||||||||||
Interest expense, net | 78 | 117 | |||||||||||||||
Other income, net | (7) | (2) | |||||||||||||||
Income from continuing operations before income taxes | $ | 116 | $ | 14 |
2024 and 2023, respectively. Segment operating income increased in the first quarter compared to the prior year period due to the increased gross profit from higher sales in the current year period.
Three months ended March 31, | |||||||||||
(in millions) | 2024 | 2023 | |||||||||
Cash flows from operations - continuing operations | $ | 163 | $ | 469 | |||||||
Cash flows from investing activities - continuing operations | (166) | $ | (163) | ||||||||
Cash flows from financing activities | (140) | $ | (372) |
| Nine months ended |
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| September 30, |
| |||||
(in millions) | 2017 |
|
| 2016 |
| ||
Cash flows from operations - continuing operations | $ | 1,343 |
|
| $ | 938 |
|
Cash flows from investing activities - continuing operations |
| (1,088 | ) |
|
| (549 | ) |
Cash flows from financing activities |
| 391 |
|
|
| (44 | ) |
Cash Flows from Operations —- Continuing Operations
Net Income
Net income, as adjusted for certain non-cash items, such as depreciation and amortization, net periodic pension benefit and OPEB costs, stock compensation, deferred income taxes and other items increased in the nine months ended September 30, 2017 compared to 2016. Additionally, non-cash items in the nine months ended September 30, 2016 included net realized gainsseparation of $4.4 billion related to the debt-for-equity exchanges of Baxalta Retained Shares for certain company indebtedness and for the equity-for-equity exchange.
Accounts Receivable
Cash inflows from accounts receivable were $32 million in the first nine months of 2017 compared to an inflow of $22 million in the prior year. Days sales outstanding in the current year were comparable to the prior year.
Inventories
Cash outflows relating to inventories decreased in 2017 as compared to the prior-year period. The following isour Kidney Care business, a summary of inventories as of September 30, 2017 and December 31, 2016, as well as annualized inventory turns for the first nine months of 2017 and 2016, by segment.
|
| Inventories |
|
| Annualized inventory turns for the Nine |
| ||||||||||
|
| September 30, |
|
| December 31, |
|
| months ended September 30, |
| |||||||
(in millions, except inventory turn data) |
| 2017 |
|
| 2016 |
|
| 2017 |
|
| 2016 |
| ||||
Renal |
| $ | 635 |
|
| $ | 544 |
|
|
| 3.77 |
|
|
| 3.58 |
|
Hospital Products |
|
| 915 |
|
|
| 885 |
|
|
| 3.97 |
|
|
| 3.61 |
|
Other |
|
| — |
|
|
| 1 |
|
| n/a |
|
| n/a |
| ||
Total company |
| $ | 1,550 |
|
| $ | 1,430 |
|
|
| 3.89 |
|
|
| 3.60 |
|
Thelarger increase in inventories was driven primarily by timing of purchasesinventory, and longer sourcing lead times for certain products within the Renal segment portfolio, coupled with the acquisition of Claris in the Hospital Products segment.
Other
The changes in accounts payable and accrued liabilities were a $36 million outflow in the first nine months of 2017 compared to a $326 million outflow in the first nine months of 2016. The changes were primarily driven by a first quarter 2016 non-recurring $303 million tax settlement payment to partially settle a U.S. Federal income tax audit as well as the timing of supplier payments.
Payments related to the execution of the company’s business optimization initiatives increased from $98 million in the first nine months of 2016 to $114 million in the first nine months of 2017. The company madehigher payments of $21 million in the first nine months of 2016 related to the execution of the COLLEAGUE infusion pump and SIGMA SPECTRUM infusion pump recalls. Refer to Note 7 within Item 1 for further information regarding the company’s business optimization initiatives.
Changes in other balance sheet items include an outflow of $93 million and an inflow of $121 million in the first nine months of 2017 and 2016, respectively, primarily driven by the collection of a tax receivable in the second quarter of 2016.
restructuring costs.
Capital Expenditures
Capital expenditures were $410 million and $519 million in
Acquisitions and Investments
Cash outflows relating to acquisitions and investmentsproceeds from sales of $680 million inmarketable securities. For the first ninethree months of 2017 were primarily driven by the $629 million acquisition of Claris, the acquisition of the rights to Clindamycin Saline and Clindamycin Dextrose from Celerity and the acquisition of Wound Care Technologies, Inc. Cash outflows relating to acquisitions and investments of $47 millionended March 31, 2023, cash used in the first nine months of 2016 were driven primarily by the acquisition of the rights to Vancomycin from Celerity.
Divestitures and Other Investing Activities
Cash inflows from divestitures and other investing activities in 2017 and 2016 were not significant.
from continuing operations primarily included capital expenditures of $165 million.
Debt Issuances, Net of Payments of Obligations
Net cash inflows related to debt and other financing obligations totaled $633 million for
Net cash outflows related to debt and other financing obligations totaled $58 million for the first nine months of 2016 primarily related to a $190 million repayment of the company’s 0.95% senior unsecured notes that matured in June 2016, a $130 million repayment of the company’s 5.9% senior unsecured notes that matured in September 2016, and the redemption of approximately $1 billion in
aggregate principal amount of senior notes in September 2016, as well as other short-term obligations. The company also had $300 million of net repayments related to its commercial paper program. This was partially offset by issuances of debt totaling $1.6 billion of senior notes in August 2016. See Note 8 within Item 1 for additional details regarding the debt transactions in the first nine months of 2016.
Other Financing Activities
Cash dividend payments totaled $228 million and $197 million in the first nine months of 2017 and 2016, respectively. The increase in cash dividend payments was primarily due to an increase in the quarterly dividend rate from $0.115 to $0.13 per share for quarterly dividends declared between May 2016 and May 2017. In addition, the company increased the quarterly dividend rate from $0.13 to $0.16 per share for quarterly dividends declared beginning in May 2017. Proceedsproceeds from stock issued under employee benefit plans increased from $251 million inof $40 million. In the first ninethree months of 2016 to $2982023, cash used for financing activities included a net decrease of commercial paper borrowings of $249 million in the first nine monthsand dividend payments of 2017, primarily due to increased option exercises in the first nine months$146 million, partially offset by proceeds from stock issued under employee benefit plans of 2017.
$36 million.
March 31, 2024.
and Commercial Paper Program
Additionally, a deterioration in our financial performance may further reduce our ability to draw on our credit facilities.
The company intends and Credit Ratings
The company’s As of March 31, 2024, we had approximately $13.73 billion of long-term debt and finance lease obligations, including current maturities, and no short-term debt. We currently expect to use substantially all of the remaining net after-tax cash proceeds from the BPS divestiture to continue to repay indebtedness through the first half of 2024. Subject to market conditions, we regularly evaluate opportunities with respect to our capital structure.
The company continuesobjectives and reduce our post-Hillrom acquisition debt levels as we take actions consistent with our capital allocation priorities. In January 2024, Fitch revised our senior debt credit rating from BBB to do business with foreign governments in certain countries, including Greece, Spain, PortugalBBB-, our senior debt credit rating outlook rating from rating watch negative to stable and Italy, whichour short-term debt credit rating from F2 to F3. There have experienced a deterioration in credit and economic conditions. As of September 30, 2017, the company’s net accounts receivable from the public sector in Greece, Spain, Portugal and Italy totaled $151 million.
While these economic conditions have not significantly impacted the company’s abilitybeen no changes to collect receivables, global economic conditions and liquidity issues in certain countries have resulted, and may continue to result, in delays in the collection of receivables and credit losses.
Credit Ratings
The company’sour investment grade credit ratings at September 30, 2017 were as follows.
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2024.
The
In January 2014, the company received a2023 Warning Letter, fromhave implemented additional corrective and preventive actions, and continue to engage with FDA primarily directed to quality systems forregarding the company’s Round Lake, Illinois, facility, particularly in that facility’s capacity as a specification developer for certainagency's observations. In addition, since the issuance of the company’s medical devices. This2017 Warning Letter, was liftedwe have secured other sites in February 2017.
The company received a Warning Letter in December 2013 that included observations related to the company’s ambulatory infuser business in Irvine, California, which previously had been subject to agency action. This Warning Letter was lifted in May 2017.
In June 2013, the company received a Warning Letterour manufacturing network and have launched and distribute select products from FDA regarding operations and processes at its North Cove, North Carolina and Jayuya, Puerto Rico facilities. The company attended Regulatory Meetings with the FDA in November 2015 (concerning the Jayuya facility). The company also requested and participated in a Regulatory Meeting regarding both facilities in July 2017. The Warning Letter addresses observations related to Current Good Manufacturing Practice violations at the two facilities.
In June 2010, the company received a Warning Letter from FDA in connection with an inspection of its McGaw Park, Illinois facility, which previously supported the Renal franchise. The company’s Round Lake facility now provides the related capacity for the Renal franchise. The Warning Letter pertains to the processes by which the company analyzes and addresses product complaints through corrective and preventative action, and reports relevant information to FDA. This Warning Letter was lifted in February 2017.
On October 9, 2014, the company had a Regulatory Meeting with FDA to discuss the Warning Letters described above. At the meeting, the company agreed to work closely with FDA to provide regular updates on its progress to meet all requirements and resolve all matters identifiedthose sites in the Warning Letters described above.
Please see Item 1A of the 2016 Annual Report and Item U.S.
FORWARD-LOOKING INFORMATION
This quarterly report includes forward-looking statements.that are uncertain to different degrees. Use of the words “may,” “will,” “would,” “could,” “should,” “believes,” “estimates,” “projects,” “potential,” “expects,” “plans,” “seeks,” “intends,” “evaluates,” “pursues,” “anticipates,” “continues,” “designs,” “impacts,” “affects,” “forecasts,” “target,” “outlook,” “initiative,” “objective,” “designed,” “priorities,” “goal,” or the negative of those words or other similar expressions is intended tomay identify forward-looking statements, that represent our current judgment about possible future events.although not all forward-looking statements contain such words. These forward-looking statements may include statements with respect to the proposed separation of our Kidney Care business and other portfolio management activities we may undertake in the future, the costs, structure, and timing associated with strategic initiatives including the proposed separation, the viability and accuracy of anticipated benefits of our strategic actions, accounting estimates and assumptions (including with respect to goodwill and other intangible asset impairments), global economic conditions, litigation-related matters, including outcomes, future regulatory filings (or the withdrawal or resubmission of any pending submissions) and the company’sour R&D pipeline strategic objectives,(including anticipated product approvals or clearances), sales from new product offerings, credit exposure to foreign governments, the adequacy of cash flows and credit facilities, potential developments with respect to credit ratings, investment of foreign earnings, estimates of liabilities including those related to uncertain tax positions, contingent payments, future pension plan contributions, costs, discount rates and rates of return, the company’sour exposure to financial market volatility and foreign currency, and interest rate and credit risks, potential tax liability associatedour net interest expense, the separationimpact of the company’s biopharmaceuticals and medical products businesses (including the 2016 disposition of the company’s Retained Shares in Baxalta),inflation on our business, the impact of competition, future sales growth, business development activities, (including the recent acquisition of Claris Injectables in July 2017), business optimization initiatives, cost saving initiatives, future capital and R&D expenditures, future debt issuances manufacturing expansion, the sufficiency of the company’s facilities and financial flexibility,refinancings, the adequacy of credit facilities, tax provisions and reserves, the effective income tax rate, and all other statements that do not relate to historical facts.
• | our ability to execute and complete strategic initiatives, asset dispositions, and other transactions, including the proposed separation of our Kidney Care business, our plans to simplify our manufacturing footprint and the timing for such transactions, the ability to satisfy any applicable conditions, and the expected proceeds, consideration, and benefits; |
failure to achieve our long-term financial improvement goals;
demand for and market acceptance risks for and competitive pressures related to new and existing products,
• | failure to accurately forecast or achieve our short-and long-term financial performance and goals (including with respect to our strategic initiatives and other actions) and related impacts on our liquidity; | |||||||
• | our ability to execute on our capital allocation plans, including our debt repayment plans, the timing and amount of any dividends, share repurchases and divestiture proceeds, and, if we proceed with the separation of the Kidney Care business in the form of a spinoff, the capital structure of the public company that would be formed (and the resulting capital structure for the remaining company); | |||||||
• | our ability to successfully integrate acquisitions; | |||||||
• | the impact of global economic conditions (including, among other things, inflation levels, interest rates, financial market volatility, banking crises, the potential for a recession, the war in Ukraine, the conflict in the Middle East (including recent attacks on merchant ships in the Red Sea), tensions amongst China, Taiwan, and the U.S. and the potential for escalation of these conflicts, the related economic sanctions being imposed globally in response to the conflicts and potential trade wars and global public health crises, pandemics and epidemics, such as the COVID-19 pandemic, or the anticipation of any of the foregoing, on our operations and our employees, customers, suppliers, and foreign governments in countries in which we operate; | |||||||
• | downgrades to our credit ratings or ratings outlooks, and the related impact on our funding costs and liquidity; | |||||||
• | product development risks, including satisfactory clinical performance and obtaining and maintaining required regulatory approvals (including as a result of evolving regulatory requirements or the withdrawal or resubmission of any pending applications), the ability to manufacture at appropriate scale, and the general unpredictability associated with the product development cycle; | |||||||
• | product quality or patient safety issues leading to product recalls, withdrawals, launch delays, warning letters, import bans, sanctions, seizures, litigation, or declining sales, including the focus on evaluating product portfolios for the potential presence or formation of nitrosamines; | |||||||
• | future actions of, or failures to act or delays in acting by FDA, the European Medicines Agency, or any other regulatory body or government authority (including the SEC, DOJ, or the Attorney General of any state) that could delay, limit, or suspend product development, manufacturing, or sale, or result in seizures, recalls, injunctions, monetary sanctions, or criminal or civil liabilities; | |||||||
• | demand and market acceptance risks for, and competitive pressures related to, new and existing products, challenges with accurately predicting changing customer preferences and future expenditures and inventory levels and with being able to monetize new and existing products and services, the impact of those products on quality and patient safety concerns, and the need for ongoing training and support for our products; | |||||||
• | breaches, including by cyber-attack, data leakage, unauthorized access or theft, or failures of or vulnerabilities in, our information technology systems, or products; | |||||||
• | the continuity, availability, and pricing of acceptable raw materials and component parts, our ability to pass some or all of these costs to our customers through price increases or otherwise, and the related continuity of our manufacturing and distribution and those of our suppliers; | |||||||
• | inability to create additional production capacity in a timely manner or the occurrence of other manufacturing, sterilization, or supply difficulties, including as a result of natural disaster, war, terrorism, global public health crises and epidemics/pandemics, regulatory actions, or otherwise; | |||||||
• | our ability to finance and develop new products or enhancements on commercially acceptable terms or at all; | |||||||
• | loss of key employees, the occurrence of labor disruptions (including as a result of labor disagreements under bargaining agreements or national trade union agreements or disputes with works councils) or the inability to attract, develop, retain, and engage employees; | |||||||
• | failures with respect to our quality, compliance, or ethics programs; | |||||||
• | future actions of third parties, including third-party payors and our customers and distributors (including GPOs and IDNs); |
• | changes to legislation and regulation and other governmental pressures in the United States and globally, including the cost of compliance and potential penalties for purported noncompliance thereof, including new or amended laws, rules, and regulations, as well as the impact of healthcare reform and its implementation, suspension, repeal, replacement, amendment, modification, and other similar actions undertaken by the United States or foreign governments, including with respect to pricing, reimbursement, taxation, and rebate policies; | |||||||
• | the outcome of pending or future litigation; | |||||||
• | the impact of competitive products and pricing, including generic competition, drug reimportation, and disruptive technologies; | |||||||
• | global regulatory, trade, and tax policies, including with respect to climate change and other sustainability matters; | |||||||
• | the ability to protect or enforce our patents or other proprietary rights (including trademarks, copyrights, trade secrets, and know-how) or where the patents of third parties prevent or restrict our manufacture, sale, or use of affected products or technology; | |||||||
• | the impact of any goodwill, intangible asset, or other long-lived asset impairments on our operating results; | |||||||
• | fluctuations in foreign exchange and interest rates; | |||||||
• | any changes in law concerning the taxation of income (whether with respect to current or future tax reform); | |||||||
• | actions by tax authorities in connection with ongoing tax audits; | |||||||
• | other factors identified elsewhere in this report and other filings with the SEC, including those factors described in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023, all of which are available on our website. |
product development risks, including satisfactory clinical performance, the ability to manufacture at appropriate scale, and the general unpredictability associated with the product development cycle;
product quality or patient safety issues, leading to product recalls, withdrawals, launch delays, warning letters, import bans, sanctions, seizures, litigation, or declining sales;
future actions of (or failures to act or delays in acting by) FDA, the European Medicines Agency or any other regulatory body or government authority (including the U.S. Department of Justice or the New York Attorney General) that could delay, limit or suspend product development, manufacturing or sale or result in seizures, recalls, injunctions, monetary sanctions or criminal or civil liabilities;
failures with respect to the company’s quality, compliance and ethics programs;
future actions of third parties, including third-party payers, as healthcare reform and other similar measures are implemented, modified or repealedprojected in the United States and globally;
the impact of ongoing U.S. healthcare reform and other similar actions undertaken by foreign governments with respect to pricing, reimbursement, taxation and rebate policies;
additional legislation, regulation and other governmental pressuresforward-looking statements, which are more fully discussed in the United States or globally, which may affect pricing, reimbursement, taxation and rebate policies of government agencies and private payers or other elements of the company’s business;
the impact of competitive products and pricing, including generic competition, drug reimportation and disruptive technologies;
global regulatory, trade and tax policies;
the company’s ability to identify business development and growth opportunities and to successfully execute on business development strategies;
the company’s ability to finance and develop new products or enhancements, on commercially acceptable terms or at all;
the availability and pricing of acceptable raw materials and component supply;
inability to create additional production capacity in a timely manner or the occurrence of other manufacturing or supply difficulties (including as a result of natural disaster or otherwise);
the impact of any future tax liability with respect to the separation and distribution, including with respect to disposition of the Retained Shares;
any failure by Baxalta or Shire to satisfy its obligation under the separation agreements, including the tax matters agreement, or the company’s letter agreement with Shire and Baxalta;
the ability to protect or enforce the company’s owned or in-licensed patent or other proprietary rights (including trademarks, copyrights, trade secrets and know-how) or 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 the company and its customers and suppliers, including foreign governments in certain countries in which the company operates;
fluctuations in foreign exchange and interest rates;
any changes in law concerning the taxation of income, including income earned outside the United States, which may be a part of comprehensive tax reform;
actions by tax authorities in connection with ongoing tax audits;
breaches or failures of the company’s information technology systems;
loss of key employees or inability to identify and recruit new employees;
the outcome of pending or future litigation;
the adequacy of the company’s cash flows from operations to meet its ongoing cash obligations and fund its investment program; and
other factors identified elsewhere in this report and other filings with the Securities and Exchange Commission, including those factors described in Item 1A of the company’sour Annual Report on Form 10-K for the year ended December 31, 2016, all2023. These forward-looking statements are not exclusive and are in addition to other factors discussed elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2023. Further, other unknown or unpredictable factors could also have material adverse effects on future results. Any forward-looking statement in this Quarterly Report on Form 10-Q speaks only as of the date on which are available on the company’s website.
Actual results may differ materially from those projected in the forward-looking statements. The company does not undertakeit is made. Except as required by law, we assume no obligation, and expressly disclaim any obligation, to update itsor revise any forward-looking statements.
The company is
The company may
$127 million.
Baxter carried out an evaluation, under the supervision and
ChangesMarch 31, 2024.
In the third quarter of 2017, related to its overall business optimization initiatives, the company began implementation of a business transformation project within the finance, human resources, purchasing and information technology functions which will further centralize and standardize business processes and systems across the company. The company is transitioning some processes to its shared services centers while others are moving to outsourced providers. This multi-year initiative will be conducted in phases and include modifications to the design and operation of controls over financial reporting.
With the exception of the above, there
Review by Independent Registered Public Accounting Firm
A review of the interim condensed consolidated financial information included in this Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2017 and 2016 has been performed by PricewaterhouseCoopers LLP, the company’s independent registered public accounting firm. Its report on the interim condensed consolidated financial information follows. This report is not considered a report within the meaning of Sections 7 and 11 of the Securities Act of 1933 and therefore, the independent accountants’ liability under Section 11 does not extend to it.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Baxter International Inc.
We have reviewed the accompanying condensed consolidated balance sheet of Baxter International Inc. and its subsidiaries as of September 30, 2017, and the related condensed consolidated statements of income and of comprehensive income for the three-month and nine-month periods ended September 30, 2017 and 2016 and the condensed consolidated statements of cash flows for the nine-month periods ended September 30, 2017 and 2016. These interim financial statements are the responsibility of the Company’s management.
We conducted our review in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should be made to the accompanying condensed consolidated interim financial statements for them to be in conformity with accounting principles generally accepted in the United States of America.
We previously audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet as of December 31, 2016, and the related consolidated statements of income, of comprehensive income, of cash flows and of changes in equity for the year then ended (not presented herein), and in our report dated February 23, 2017, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet information as of December 31, 2016 is fairly stated, in all material respects, in relation to the consolidated balance sheet from which it has been derived.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
November 2, 2017
| Item 1. Legal Proceedings |
The following table includes information about the company’s common stock repurchases during the three-month period ended September 30, 2017.
Issuer Purchases of Equity Securities |
| |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Period |
| Total number of shares purchased (1) |
|
| Average price paid per share |
|
| Total number of shares purchased as part of publicly announced program(1) |
|
| Approximate dollar value of shares that may yet be purchased under the program(1) |
| ||||
July 1, 2017 through July 31, 2017 |
| — |
|
| $ | — |
|
| — |
|
|
|
|
| ||
August 1, 2017 through August 31, 2017 |
|
| 2,082,000 |
|
| $ | 61.05 |
|
|
| 2,082,000 |
|
|
|
|
|
September 1, 2017 through September 30, 2017 |
|
| 834,700 |
|
| $ | 62.78 |
|
|
| 834,700 |
|
|
|
|
|
Total |
|
| 2,916,700 |
|
| $ | 61.54 |
|
|
| 2,916,700 |
|
| $ | 1,408,670,768 |
|
(1)In July 2012, the company announced that its boardBoard of directorsDirectors authorized a share repurchase program and the company to repurchase up to $2.0 billionrelated authorization was subsequently increased a number of its common stock on the open market or in private transactions. The board of directors increased this authority by an additional $1.5 billion in November 2016.times. During the thirdfirst quarter of 2017, the company repurchased 2.9 million2024, we did not repurchase any shares for $180 million under this program. $1.4authority. We had $1.30 billion remained availableremaining under this program as of September 30, 2017.March 31, 2024. This program does not have an expiration date.
Exhibit Index:
| * Filed herewith. |
BAXTER INTERNATIONAL INC. | ||||||||||||
(Registrant) | ||||||||||||
Date: May 2, 2024 | ||||||||||||
By: | /s/ Joel T. Grade | |||||||||||
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Joel T. Grade | ||||||||||||
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45