Document and Entity Information
Document and Entity Information (USD $) | |||
In Billions, except Share data | 3 Months Ended
Mar. 31, 2010 | Apr. 30, 2010
| Jun. 30, 2009
|
Document and Entity Information [Abstract] | |||
Entity Registrant Name | BAXTER INTERNATIONAL INC | ||
Entity Central Index Key | 0000010456 | ||
Document Type | 10-Q | ||
Document Period End Date | 2010-03-31 | ||
Amendment Flag | false | ||
Document Fiscal Year Focus | 2,010 | ||
Document Fiscal Period Focus | Q1 | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Well-known Seasoned Issuer | Yes | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Large Accelerated Filer | ||
Entity Public Float | $32 | ||
Entity Common Stock, Shares Outstanding | 596,452,857 |
Condensed Consolidated Statemen
Condensed Consolidated Statements of (Loss) Income (unaudited) (USD $) | ||
In Millions, except Per Share data | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Condensed Consolidated Statements of (Loss) Income (unaudited) [Abstract] | ||
Net sales | $2,927 | $2,824 |
Cost of sales | 1,884 | 1,336 |
Gross margin | 1,043 | 1,488 |
Marketing and administrative expenses | 683 | 611 |
Research and development expenses | 227 | 212 |
Net interest expense | 19 | 26 |
Other expense, net | 2 | 2 |
Income before income taxes | 112 | 637 |
Income tax expense | 172 | 119 |
Net (loss) income | (60) | 518 |
Less: Noncontrolling interests | 3 | 2 |
Net (loss) income attributable to Baxter International Inc. (Baxter) | ($63) | $516 |
Net (loss) income attributable to Baxter per common share | ||
Basic | -0.11 | 0.84 |
Diluted | -0.11 | 0.83 |
Weighted-average number of common shares outstanding | ||
Basic | 602 | 613 |
Diluted | 602 | 621 |
Cash dividends declared per common share | 0.29 | 0.26 |
Condensed Consolidated Balance
Condensed Consolidated Balance Sheets (unaudited) (USD $) | ||
In Millions | 3 Months Ended
Mar. 31, 2010 | 12 Months Ended
Dec. 31, 2009 |
Current assets | ||
Cash and equivalents | $2,673 | $2,786 |
Accounts and other current receivables | 2,254 | 2,302 |
Inventories | 2,477 | 2,557 |
Prepaid expenses and other | 611 | 626 |
Total current assets | 8,015 | 8,271 |
Property, plant and equipment, net | 5,064 | 5,159 |
Other assets | ||
Goodwill | 2,002 | 1,825 |
Other intangible assets, net | 556 | 513 |
Other | 1,529 | 1,586 |
Total other assets | 4,087 | 3,924 |
Total assets | 17,166 | 17,354 |
Current liabilities | ||
Short-term debt | 15 | 29 |
Current maturities of long-term debt and lease obligations | 682 | 682 |
Accounts payable and accrued liabilities | 3,587 | 3,753 |
Total current liabilities | 4,284 | 4,464 |
Long-term debt and lease obligations | 4,056 | 3,440 |
Other long-term liabilities | 2,167 | 2,030 |
Commitments and contingencies | ||
Equity | ||
Common stock, $1 par value, authorized 2,000,000,000 shares, issued 683,494,944 shares in 2010 and 2009 | 683 | 683 |
Common stock in treasury, at cost, 85,602,245 shares in 2010 and 82,523,243 shares in 2009 | (4,926) | (4,741) |
Additional contributed capital | 5,675 | 5,683 |
Retained earnings | 7,030 | 7,343 |
Accumulated other comprehensive loss | (2,033) | (1,777) |
Total Baxter shareholders' equity | 6,429 | 7,191 |
Noncontrolling interests | 230 | 229 |
Total equity | 6,659 | 7,420 |
Total liabilities and equity | $17,166 | $17,354 |
1_Condensed Consolidated Balanc
Condensed Consolidated Balance Sheets (unaudited) (Parenthetical) | ||
Mar. 31, 2010
| Dec. 31, 2009
| |
Equity | ||
Common stock, par value | 1 | 1 |
Common stock, shares authorized | 2,000,000,000 | 2,000,000,000 |
Common stock, shares issued | 683,494,944 | 683,494,944 |
Common stock in treasury, at cost | 85,602,245 | 82,523,243 |
2_Condensed Consolidated Statem
Condensed Consolidated Statements of Cash Flows (unaudited) (USD $) | ||
In Millions | 3 Months Ended
Mar. 31, 2010 | 3 Months Ended
Mar. 31, 2009 |
Cash flows from operations | ||
Net (loss) income | ($60) | $518 |
Adjustments | ||
Depreciation and amortization | 166 | 148 |
Deferred income taxes | 91 | 59 |
Stock compensation | 30 | 38 |
Realized excess tax benefits from stock issued under employee benefit plans | (31) | (78) |
Infusion pump charge | 588 | |
Other | 9 | 9 |
Changes in balance sheet items | ||
Accounts and other current receivables | (33) | 45 |
Inventories | (94) | (86) |
Accounts payable and accrued liabilities | (107) | (304) |
Restructuring and cost optimization payments | (17) | (21) |
Other | (263) | (91) |
Cash flows from operations | 279 | 237 |
Cash flows from investing activities | ||
Capital expenditures | (230) | (171) |
Acquisitions of and investments in businesses and technologies | (234) | |
Other | (25) | |
Cash flows from investing activities | (464) | (196) |
Cash flows from financing activities | ||
Issuances of debt | 602 | 358 |
Payments of obligations | (13) | (164) |
Cash dividends on common stock | (174) | (160) |
Proceeds and realized excess tax benefits from stock issued under employee benefit plans | 171 | 139 |
Purchases of treasury stock | (435) | (566) |
Other | (32) | |
Cash flows from financing activities | 119 | (393) |
Effect of currency exchange rate changes on cash and equivalents | (47) | (76) |
Decrease in cash and equivalents | (113) | (428) |
Cash and equivalents at beginning of period | 2,786 | 2,131 |
Cash and equivalents at end of period | $2,673 | $1,703 |
Summary of Significant Accounti
Summary of Significant Accounting Policies | |
3 Months Ended
Mar. 31, 2010 | |
Summary of Significant Accounting Policies [Abstract] | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The unaudited interim condensed consolidated financial statements of Baxter International Inc. and its subsidiaries (the company or Baxter) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (GAAP)in the United States have been condensed or omitted. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the companys Annual Report on Form 10-K for the year ended December31, 2009 (2009 Annual Report). In the opinion of management, the interim condensed consolidated financial statements reflect all adjustments necessary for a fair presentation of the interim periods. All such adjustments, unless otherwise noted herein, are of a normal, recurring nature. The results of operations for the interim period are not necessarily indicative of the results of operations to be expected for the full year. Changes in accounting standards Transfers of Financial Assets On January1, 2010, the company adopted a new accounting standard relating to the accounting for transfers of financial assets. The new standard eliminates the concept of a qualifying special-purpose entity and clarifies existing GAAP as it relates to determining whether a transferor has surrendered control over transferred financial assets. The standard limits the circumstances in which a financial asset, or portion of a financial asset, should be derecognized when the transferor has not transferred the entire original financial asset to an entity that is not consolidated with the transferor in the financial statements presented and/or when the transferor has continuing involvement with the transferred financial asset. The standard also requires enhanced disclosures about transfers of financial assets and a transferors continuing involvement with transferred financial assets. The new standard was applied prospectively on January1, 2010, except for the disclosure requirements, which have been applied retrospectively for all periods presented. The new standard did not impact the companys consolidated financial statements. Refer to Note 4 for disclosures provided in connection with this new standard. Variable Interest Entities On January1, 2010, the company adopted a new standard that changes the consolidation model for variable interest entities (VIEs). The new standard requires an enterprise to qualitatively assess the determination of the primary beneficiary of a VIE as the enterprise that has both the power to direct the activities of the VIE that most significantly impact the entitys economic performance and has the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE. The standard requires ongoing reassessments of whether an enterprise is the primary beneficiary of a VIE. The standard expands the disclosure requirements for enterprises |
Supplemental Financial Informat
Supplemental Financial Information | |
3 Months Ended
Mar. 31, 2010 | |
Supplemental Financial Information [Abstract] | |
SUPPLEMENTAL FINANCIAL INFORMATION | 2. SUPPLEMENTAL FINANCIAL INFORMATION Net pension and other postemployment benefits expense The following is a summary of net expense relating to the companys pension and other postemployment benefit (OPEB)plans. Three months ended March 31, (in millions) 2010 2009 Pension benefits Service cost $ 25 $ 21 Interest cost 58 54 Expected return on plan assets (71 ) (62 ) Amortization of net losses and other deferred amounts 31 25 Net pension plan expense $ 43 $ 38 OPEB Service cost $ 1 $ 1 Interest cost 8 8 Amortization of prior service cost and net loss (1 ) (1 ) Net OPEB plan expense $ 8 $ 8 Net interest expense Three months ended March 31, (in millions) 2010 2009 Interest expense, net of capitalized interest $ 28 $ 31 Interest income (9 ) (5 ) Net interest expense $ 19 $ 26 Comprehensive (loss) income Three months ended March 31, (in millions) 2010 2009 Comprehensive (loss) income $ (317 ) $ 422 Less: Comprehensive income (loss) attributable to noncontrolling interests 2 (2 ) Comprehensive (loss) income attributable to Baxter $ (319 ) $ 424 The decrease in comprehensive (loss) income attributable to Baxter was principally due to a $588million charge related to the recall of COLLEAGUE infusion pumps from the U.S.market and unfavorable movements in currency translation adjustments. Refer to Note3 for further information regarding the COLLEAGUE infusion pump charge. Effective tax rate The companys effective income tax rate was 153.6% and 18.7% in the first quarters of 2010 and 2009, respectively. The companys 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 each period by discrete factors and events. The increase in the effective tax rate in the first quarter of 2010 was principally due to a $588million charge related to the recall of COLLEAGUE infusion pumps from the U.S. market for which there was no net tax benefit recognized. The effective tax rate in the first quarter of 2010 was also impacted by a $39million write-off of a deferred tax asset as a result of a change in the tax treatment of reimbursements under the Medicare PartD retiree prescription drug subsidy program under healthcare reform legislation recently enacted in the United States. Baxter expects to reduce the amount of its liability for uncertain tax positions within the next 12months by $302million due principally to the expiration of certain statutes of limitations related to tax benefits recorded in respect of losses from restructuring certain international operations and the settlements of certain multi-jurisdictional transfer pricing issues. While the |
Infusion Pump and Other Charges
Infusion Pump and Other Charges | |
3 Months Ended
Mar. 31, 2010 | |
Infusion Pump and Other Charges [Abstract] | |
INFUSION PUMP AND OTHER CHARGES | 3. INFUSION PUMP AND OTHER CHARGES Infusion pump charges The company stopped shipment of COLLEAGUE infusion pumps in July2005 in the United States, and entered into a Consent Decree with the U.S. Food and Drug Administration (the FDA)in June2006. Refer to Note 5 to the companys consolidated financial statements in the 2009 Annual Report for further information regarding the COLLEAGUE infusion pumps and the SYNDEO PCA Syringe Pump. On April30, 2010, and pursuant to the Consent Decree, the FDA ordered the company to recall from the market its approximately 200,000 COLLEAGUE infusion pumps currently in use in the United States. The company expects to provide its customers with replacement infusion pumps or monetary consideration in exchange for their COLLEAGUE infusion pumps. The company anticipates that, among other alternatives to be provided to customers, the company will offer its SIGMA SPECTRUM infusion pump as a replacement infusion pump without charge. As provided for in the Consent Decree, the company intends to propose refinements to the FDAs recall order and is in active dialogue with the FDA regarding the terms of the recall. The final terms of the recall and offer to customers remain subject to that ongoing dialogue. In the first quarter of 2010, the company recorded a charge of $588million in connection with this recall and other actions the company intends to undertake outside of the United States. Included in the charge were $142million relating to asset impairments and $446million for cash costs. The asset impairments principally related to inventory, lease receivables and other assets relating to the recalled pumps. The reserve for cash costs included an estimate of cash refunds or replacement infusion pumps that will be offered to current owners in exchange for their COLLEAGUE infusion pumps. Cash costs also included costs associated with the execution of the recall program and customer accommodations. It is possible that substantial cash and non-cash charges, including significant asset impairments related to the COLLEAGUE infusion pumps and related businesses, may be required in future periods based on new information, changes in estimates, the outcome of the current dialogue with the FDA and modifications to the FDA order, and other actions the company may be required to undertake in other global markets. Of the total charge, $213million was recorded as a reduction of net sales and $375million was recorded in cost of sales. The amount recorded against net sales principally related to estimated cash payments to customers. Prior to the charge recorded in the first quarter of 2010, from 2005 through 2009, the company recorded charges and other costs totaling $337million related to its COLLEAGUE and SYNDEO infusion pumps. In aggregate, these charges included $270million of cash costs and $67million principally related to asset impairments. These reserves for cash costs related to customer accommodations, estimated expenditures for the materials, labor and freight costs expected to be incurred to remediate the design issues, additional warranty and other commitments made to customers. While the company w |
Debt, Financial Instruments and
Debt, Financial Instruments and Fair Value Measurements | |
3 Months Ended
Mar. 31, 2010 | |
Debt, Financial Instruments and Fair Value Measurements [Abstract] | |
DEBT, FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS | 4. DEBT, FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS Significant debt issuances In March2010, the company issued $600million of senior unsecured notes, with $300million maturing in March2013 and bearing a 1.8% coupon rate, and $300million maturing in March2020 and bearing a 4.25% coupon rate. The net proceeds are being used for general corporate purposes, including the refinancing of indebtedness. Securitization arrangement Where economical, the company has entered into agreements with various financial institutions in which the entire interest in and ownership of the receivable is sold, consisting of trade receivables originated in Japan. The company continues to service the receivables in its Japanese securitization arrangement. Servicing assets or liabilities are not recognized because the company receives adequate compensation to service the sold receivables. The Japanese securitization arrangement includes limited recourse provisions, which are not material. The companys securitization arrangement resulted in net cash outflows of $25million and $19 million for the three months ended March31, 2010 and 2009, respectively. The following is a summary of the activity relating to the securitization arrangement. Three months ended March 31, (in millions) 2010 2009 Sold receivables at beginning of period $ 147 $ 154 Proceeds from sales of receivables 117 124 Cash collections (remitted to the owners of the receivables) (142 ) (143 ) Effect of currency exchange rate changes (2 ) (8 ) Sold receivables at end of period $ 120 $ 127 Derivatives and hedging activities The company operates on a global basis and is exposed to the risk that its earnings, cash flows and equity could be adversely impacted by fluctuations in foreign exchange and interest rates. The companys hedging policy attempts to manage these risks to an acceptable level based on the companys judgment of the appropriate trade-off between risk, opportunity and costs. The company is primarily exposed to foreign exchange risk with respect to recognized assets and liabilities, forecasted transactions and net assets denominated in the Euro, Japanese Yen, British Pound, Australian Dollar, Canadian Dollar, Brazilian Real and Colombian Peso. The company manages its foreign currency exposures on a consolidated basis, which allows the company to net exposures and take advantage of any natural offsets. In addition, the company uses derivative and nonderivative instruments to further reduce the net exposure to foreign exchange. Gains and losses on the hedging instruments offset losses and gains on the hedged transactions and reduce the earnings and equity volatility resulting from foreign exchange. Market volatility and currency fluctuations may reduce the benefits of the companys natural hedges and limit the companys ability to cost-effectively hedge these exposures. The company is also exposed to the risk that its earnings and cash flows could be adversely impacted by fluctuations in interest rates. The companys policy is to manage interest costs |
Common Stock
Common Stock | |
3 Months Ended
Mar. 31, 2010 | |
Common Stock [Abstract] | |
COMMON STOCK | 5. COMMON STOCK Stock-based compensation plans Stock compensation expense totaled $30million and $38million for the three months ended March31, 2010 and 2009, respectively. A majority of stock compensation expense is classified in marketing and administrative expenses with the remainder classified in cost of sales and RD expenses. In March2010, the company awarded its annual stock compensation grants, which consisted of approximately 8.0million stock options and 574,000 performance share units (PSUs). Stock Options The weighted-average assumptions used in estimating the fair value of stock options granted during the period, along with the weighted-average grant-date fair values, were as follows. Three months ended March 31, 2010 2009 Expected volatility 22% 30% Expected life (in years) 4.5 4.5 Risk-free interest rate 2.0% 1.8% Dividend yield 2.0% 2.0% Fair value per stock option $10 $12 The total intrinsic value of stock options exercised during the three months ended March31, 2010 and 2009 was $60million and $29million, respectively. As of March31, 2010, $129million of unrecognized compensation cost related to all unvested stock options is expected to be recognized as expense over a weighted-average period of 2.3years. Performance Share and Restricted Stock Units The assumptions used in estimating the fair value of PSUs granted during the period, along with the fair values, were as follows. Three months ended March 31, 2010 2009 Baxter volatility 26% 25% Peer group volatility 20% - 59% 20% - 59% Correlation of returns 0.29 - 0.63 0.30 - 0.61 Risk-free interest rate 1.3% 1.6% Fair value per PSU $64 $65 As of March31, 2010, unrecognized compensation cost related to all unvested PSUs of $58million is expected to be recognized as expense over a weighted-average period of 2.2years, and unrecognized compensation cost related to all unvested restricted stock units of $8million is expected to be recognized as expense over a weighted-average period of 2.1years. Stock repurchases As authorized by the board of directors, from time to time the company repurchases its stock depending upon the companys cash flows, net debt level and market conditions. During the three-month period ended March31, 2010, the company repurchased 7.5million shares for $435 million under the board of directors July2009 $2.0billion share repurchase authorization. At March31, 2010, $1.5billion remained available under this authorization. |
Legal Proceedings
Legal Proceedings | |
3 Months Ended
Mar. 31, 2010 | |
Legal Proceedings [Abstract] | |
LEGAL PROCEEDINGS | 6. LEGAL PROCEEDINGS Baxter is involved in product liability, patent, commercial, and other legal proceedings that arise in the normal course of the companys 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 accrued. If a loss is not probable or a probable loss cannot be reasonably estimated, no liability is recorded. 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 of the legal contingencies for which there is no reserve or additional loss for matters already reserved. While the liability of the company in connection with the claims cannot be estimated with any certainty and although the resolution in any reporting period of one or more of these matters could have a significant impact on the companys results of operations and cash flows for that period, the outcome of these legal proceedings is not expected to have a material adverse effect on the companys consolidated financial position. While the company believes that it has valid defenses in these matters, litigation is inherently uncertain, excessive verdicts do occur, and the company may in the future incur material judgments or enter into material settlements of claims. In addition to the matters described below, the company remains subject to other potential administrative and legal actions. With respect to regulatory matters, these actions may lead to product recalls, injunctions to halt manufacture and distribution, and other restrictions on the companys operations and monetary sanctions. With respect to intellectual property, the company may be exposed to significant litigation concerning the scope of the companys and others rights. Such litigation could result in a loss of patent protection or the ability to market products, which could lead to a significant loss of sales, or otherwise materially affect future results of operations. Patent litigation Sevoflurane Litigation Since 2000, Baxters generic sevoflurane has been the subject of several patent infringement actions initiated by Abbott Laboratories and Central Glass Company. The initial lawsuit in the United States was resolved in Baxters favor in 2007 by the Court of Appeals for the Federal Circuits decision that the asserted patent was invalid. In 2009, a lawsuit filed in Japan was also resolved in Baxters favor by the appellate courts determination that Baxters generic sevoflurane did not infringe the Japanese patent at issue. Related actions remain pending in the U.S. and Colombia. A patent infringement action is pending in the U.S.D.C. for the Northern District of Illinois on a second patent owned by Abbott and Central Glass. In September2009, the District Court granted summary judgment of non-infringement in favor of Baxter. Abbott has requested reconsideration of this ruling. In 2007, Abbott brought a patent infringement action against Baxter in the Cali Circuit Court of Colo |
Segment Information
Segment Information | |
3 Months Ended
Mar. 31, 2010 | |
Segment Information [Abstract] | |
SEGMENT INFORMATION | 7. SEGMENT INFORMATION Baxter operates in three segments, each of which is a strategic business that is managed separately because each business develops, manufactures and markets distinct products and services. The segments and a description of their products and services are as follows. The BioScience business processes recombinant and plasma-based proteins to treat hemophilia and other bleeding disorders; plasma-based therapies to treat immune deficiencies, alpha 1-antitrypsin deficiency, burns and shock, and other chronic and acute blood-related conditions; products for regenerative medicine, such as biosurgery products; and vaccines. The Medication Delivery business manufactures intravenous (IV)solutions and administration sets, premixed drugs and drug-reconstitution systems, pre-filled vials and syringes for injectable drugs, IV nutrition products, infusion pumps, and inhalation anesthetics, as well as products and services related to pharmacy compounding, drug formulation and packaging technologies. The Renal business provides products to treat end-stage renal disease, or irreversible kidney failure. The business manufactures solutions and other products for peritoneal dialysis, a home-based therapy, and also distributes products for hemodialysis, which is generally conducted in a hospital or clinic. The company uses more than one measurement and multiple views of data to measure segment performance and to allocate resources to the segments. However, the dominant measurements are consistent with the companys consolidated financial statements and, accordingly, are reported on the same basis in this report. The company evaluates the performance of its segments and allocates resources to them primarily based on pre-tax income along with cash flows and overall economic returns. Intersegment sales are generally accounted for at amounts comparable to sales to unaffiliated customers, and are eliminated in consolidation. Certain items are maintained at the corporate level (Corporate) and are not allocated to a segment. They primarily include most of the companys debt and cash and equivalents and related net interest expense, certain 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, certain non-strategic investments and related income and expense, certain employee benefit plan costs, certain nonrecurring gains and losses, deferred income taxes, certain litigation liabilities and related insurance receivables, and the revenues and costs related to the manufacturing, distribution and other transition agreements with Fenwal Inc. (Fenwal) in connection with the divestiture of the TT business. Refer to Note 3 to the companys consolidated financial statements in the 2009 Annual Report for further information regarding the TT divestiture. Included in the Medication Delivery segment's pre-tax loss in the first quarter of 2010 was a $588million charge related to the recall of COLLEAGUE infusion pumps from the U.S. market. Refer |
3_Summary of Significant Accoun
Summary of Significant Accounting Policies (Detail) | |
3 Months Ended
Mar. 31, 2010 | |
Summary of Significant Accounting Policies (Detail) [Abstract] | |
Organization, consolidation and presentation of financial statements | The unaudited interim condensed consolidated financial statements of Baxter International Inc. and its subsidiaries (the company or Baxter) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles (GAAP)in the United States have been condensed or omitted. These interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the companys Annual Report on Form 10-K for the year ended December31, 2009 (2009 Annual Report). In the opinion of management, the interim condensed consolidated financial statements reflect all adjustments necessary for a fair presentation of the interim periods. All such adjustments, unless otherwise noted herein, are of a normal, recurring nature. The results of operations for the interim period are not necessarily indicative of the results of operations to be expected for the full year. |
Changes in accounting standards and issued but not yet effective accounting standards | Changes in accounting standards Transfers of Financial Assets On January1, 2010, the company adopted a new accounting standard relating to the accounting for transfers of financial assets. The new standard eliminates the concept of a qualifying special-purpose entity and clarifies existing GAAP as it relates to determining whether a transferor has surrendered control over transferred financial assets. The standard limits the circumstances in which a financial asset, or portion of a financial asset, should be derecognized when the transferor has not transferred the entire original financial asset to an entity that is not consolidated with the transferor in the financial statements presented and/or when the transferor has continuing involvement with the transferred financial asset. The standard also requires enhanced disclosures about transfers of financial assets and a transferors continuing involvement with transferred financial assets. The new standard was applied prospectively on January1, 2010, except for the disclosure requirements, which have been applied retrospectively for all periods presented. The new standard did not impact the companys consolidated financial statements. Refer to Note 4 for disclosures provided in connection with this new standard. Variable Interest Entities On January1, 2010, the company adopted a new standard that changes the consolidation model for variable interest entities (VIEs). The new standard requires an enterprise to qualitatively assess the determination of the primary beneficiary of a VIE as the enterprise that has both the power to direct the activities of the VIE that most significantly impact the entitys economic performance and has the obligation to absorb losses or the right to receive benefits from the entity that could potentially be significant to the VIE. The standard requires ongoing reassessments of whether an enterprise is the primary beneficiary of a VIE. The standard expands the disclosure requirements for enterprises with a variable interest in a VIE. The new standard did not impact the companys consolidated financial statements. Refer to Note 2 for disclosures provided in connection with this new standard. |
4_Supplemental Financial Inform
Supplemental Financial Information (Detail) | |
3 Months Ended
Mar. 31, 2010 | |
Supplemental Financial Information (Detail) [Abstract] | |
Net pension and other postemployment benefits expense | Net pension and other postemployment benefits expense The following is a summary of net expense relating to the companys pension and other postemployment benefit (OPEB)plans. Three months ended March 31, (in millions) 2010 2009 Pension benefits Service cost $ 25 $ 21 Interest cost 58 54 Expected return on plan assets (71 ) (62 ) Amortization of net losses and other deferred amounts 31 25 Net pension plan expense $ 43 $ 38 OPEB Service cost $ 1 $ 1 Interest cost 8 8 Amortization of prior service cost and net loss (1 ) (1 ) Net OPEB plan expense $ 8 $ 8 |
Net interest expense | Net interest expense Three months ended March 31, (in millions) 2010 2009 Interest expense, net of capitalized interest $ 28 $ 31 Interest income (9 ) (5 ) Net interest expense $ 19 $ 26 |
Comprehensive (loss) income | Comprehensive (loss) income Three months ended March 31, (in millions) 2010 2009 Comprehensive (loss) income $ (317 ) $ 422 Less: Comprehensive income (loss) attributable to noncontrolling interests 2 (2 ) Comprehensive (loss) income attributable to Baxter $ (319 ) $ 424 The decrease in comprehensive (loss) income attributable to Baxter was principally due to a $588million charge related to the recall of COLLEAGUE infusion pumps from the U.S.market and unfavorable movements in currency translation adjustments. Refer to Note3 for further information regarding the COLLEAGUE infusion pump charge. |
Effective tax rate | Effective tax rate The companys effective income tax rate was 153.6% and 18.7% in the first quarters of 2010 and 2009, respectively. The companys 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 each period by discrete factors and events. The increase in the effective tax rate in the first quarter of 2010 was principally due to a $588million charge related to the recall of COLLEAGUE infusion pumps from the U.S. market for which there was no net tax benefit recognized. The effective tax rate in the first quarter of 2010 was also impacted by a $39million write-off of a deferred tax asset as a result of a change in the tax treatment of reimbursements under the Medicare PartD retiree prescription drug subsidy program under healthcare reform legislation recently enacted in the United States. Baxter expects to reduce the amount of its liability for uncertain tax positions within the next 12months by $302million due principally to the expiration of certain statutes of limitations related to tax benefits recorded in respect of losses from restructuring certain international operations and the settlements of certain multi-jurisdictional transfer pricing issues. While the final outcome of these matters is inherently uncertain, the company believes it has made adequate tax provisions for all years subject to examination. |
Earnings (loss) per share | Earnings (loss) per share The numerator for both basic and diluted earnings (loss) per share (EPS)is net (loss) income attributable to Baxter. The denominator for basic EPS is the weighted-average number of common shares outstanding during the period. The dilutive effect of outstanding employee stock options, performance share units and restricted stock units is reflected in the denominator for diluted EPS using the treasury stock method. The following is a reconciliation of basic shares to diluted shares. Three months ended March 31, (in millions) 2010 2009 Basic shares 602 613 Effect of dilutive securities 8 Diluted shares 602 621 The computation of diluted EPS excluded common stock equivalents of 7million for the first quarter of 2010 because their inclusion would have an anti-dilutive effect on diluted EPS. The computation of diluted EPS also excluded employee stock options to purchase 8.6million and 16.8 million shares for the first quarters of 2010 and 2009, respectively, because the assumed proceeds were greater than the average market price of the companys common stock, resulting in an anti-dilutive effect on diluted EPS. |
Inventories | Inventories March 31, December 31, (in millions) 2010 2009 Raw materials $ 514 $ 598 Work in process 850 842 Finished goods 1,113 1,117 Inventories $ 2,477 $ 2,557 |
Property, plant and equipment, net | Property, plant and equipment, net March 31, December 31, (in millions) 2010 2009 Property, plant and equipment, at cost $ 9,950 $ 10,060 Accumulated depreciation and amortization (4,886 ) (4,901 ) Property, plant and equipment, net $ 5,064 $ 5,159 |
Goodwill | Goodwill The following is a summary of the activity in goodwill by business segment. Medication (in millions) BioScience Delivery Renal Total Balance as of December31, 2009 $ 595 $ 1,043 $ 187 $ 1,825 Additions and other adjustments 223 6 1 230 Cumulative translation adjustment (11 ) (33 ) (9 ) (53 ) Balance as of March31, 2010 $ 807 $ 1,016 $ 179 $ 2,002 Additional goodwill recognized in 2010 principally related to the acquisition of ApaTech Limited (ApaTech) within the BioScience segment. In the Medication Delivery segment, a $6million adjustment was made to the goodwill recognized in connection with the consolidation of Sigma International General Medical Apparatus, LLC (SIGMA). Refer to the discussion below for further information regarding ApaTech and Note 4 to the companys consolidated financial statements in the 2009 Annual Report for further information related to SIGMA. As of March31, 2010, there were no accumulated goodwill impairment losses. |
Other intangible assets, net | Other intangible assets, net The following is a summary of the companys intangible assets subject to amortization at March31, 2010 and December31, 2009. Developed technology, (in millions) including patents Other Total March31, 2010 Gross other intangible assets $ 935 $ 120 $ 1,055 Accumulated amortization (471 ) (59 ) (530 ) Other intangible assets, net $ 464 $ 61 $ 525 December31, 2009 Gross other intangible assets $ 904 $ 125 $ 1,029 Accumulated amortization (489 ) (58 ) (547 ) Other intangible assets, net $ 415 $ 67 $ 482 The amortization expense for these intangible assets was $17million and $12million for the three months ended March31, 2010 and 2009, respectively. The anticipated annual amortization expense for intangible assets recorded as of March31, 2010 is $73million in 2010, $70million in 2011, $66million in 2012, $63million in 2013, $60million in 2014 and $58million in 2015. The increase in other intangible assets, net primarily related to the acquisition of ApaTech in the first quarter of 2010. Refer to the discussion below for further information regarding ApaTech. |
Acquisitions of and investments in businesses and technologies | Acquisitions of and investments in businesses and technologies In March2010, Baxter acquired all of the outstanding equity of ApaTech, an orthobiologic products company based in the United Kingdom. As a result of the acquisition, Baxter acquired ACTIFUSE, a silicate substituted calcium phosphate synthetic bone graft material which is currently marketed in the United States, Europe and other select markets around the world, and manufacturing and research and development (RD) facilities located in the United Kingdom, the United States and Germany. This acquisition complements the companys existing commercial and technical capabilities in regenerative medicine. The total purchase price of up to $335million is comprised of a $245 million up-front payment, as adjusted for closing date cash and net working capital-related adjustments, and contingent payments of up to $90million, which are associated with the achievement of specified commercial milestones. The following table summarizes the preliminary allocation of the fair value of assets acquired and liabilities assumed at the acquisition date. The final allocation of the purchase price may result in adjustments to the recognized amounts of assets and liabilities. (in millions) Assets Current assets, including cash of $11 $ 31 Property, plant and equipment, net 13 Goodwill 223 Other intangible assets 77 Other assets 7 Liabilities Accounts payable and accrued liabilities 14 Contingent payments 70 Other long-term liabilities 22 Goodwill includes expected synergies and other benefits the company believes will result from the acquisition. The other intangible assets primarily relate to developed technology and are being amortized on a straight-line basis over an estimated average useful life of nine years. The contingent payments of up to $90million were recorded at their estimated fair value of $70 million. Future changes in the estimated fair value of the contingent payments will be recognized immediately in earnings. The results of operations and assets and liabilities of ApaTech are included in the BioScience segment, and the goodwill is included in this reporting unit. A majority of the goodwill is not deductible for tax purposes. The pro forma impact of the ApaTech acquisition was not significant to the results of operations of the company. |
5_Debt, Financial Instruments a
Debt, Financial Instruments and Fair Value Measurements (Detail) | |
3 Months Ended
Mar. 31, 2010 | |
Debt, Financial Instruments and Fair Value Measurements (Detail) [Abstract] | |
Significant debt issuances | Significant debt issuances In March2010, the company issued $600million of senior unsecured notes, with $300million maturing in March2013 and bearing a 1.8% coupon rate, and $300million maturing in March2020 and bearing a 4.25% coupon rate. The net proceeds are being used for general corporate purposes, including the refinancing of indebtedness. |
Securitization arrangement | Securitization arrangement Where economical, the company has entered into agreements with various financial institutions in which the entire interest in and ownership of the receivable is sold, consisting of trade receivables originated in Japan. The company continues to service the receivables in its Japanese securitization arrangement. Servicing assets or liabilities are not recognized because the company receives adequate compensation to service the sold receivables. The Japanese securitization arrangement includes limited recourse provisions, which are not material. The companys securitization arrangement resulted in net cash outflows of $25million and $19 million for the three months ended March31, 2010 and 2009, respectively. The following is a summary of the activity relating to the securitization arrangement. Three months ended March 31, (in millions) 2010 2009 Sold receivables at beginning of period $ 147 $ 154 Proceeds from sales of receivables 117 124 Cash collections (remitted to the owners of the receivables) (142 ) (143 ) Effect of currency exchange rate changes (2 ) (8 ) Sold receivables at end of period $ 120 $ 127 |
Derivatives and hedging activities | Derivatives and hedging activities The company operates on a global basis and is exposed to the risk that its earnings, cash flows and equity could be adversely impacted by fluctuations in foreign exchange and interest rates. The companys hedging policy attempts to manage these risks to an acceptable level based on the companys judgment of the appropriate trade-off between risk, opportunity and costs. The company is primarily exposed to foreign exchange risk with respect to recognized assets and liabilities, forecasted transactions and net assets denominated in the Euro, Japanese Yen, British Pound, Australian Dollar, Canadian Dollar, Brazilian Real and Colombian Peso. The company manages its foreign currency exposures on a consolidated basis, which allows the company to net exposures and take advantage of any natural offsets. In addition, the company uses derivative and nonderivative instruments to further reduce the net exposure to foreign exchange. Gains and losses on the hedging instruments offset losses and gains on the hedged transactions and reduce the earnings and equity volatility resulting from foreign exchange. Market volatility and currency fluctuations may reduce the benefits of the companys natural hedges and limit the companys ability to cost-effectively hedge these exposures. The company is also exposed to the risk that its earnings and cash flows could be adversely impacted by fluctuations in interest rates. The companys policy is to manage interest costs using a mix of fixed- and floating-rate debt that the company believes is appropriate. To manage this mix in a cost-efficient manner, the company periodically enters into interest rate swaps in which the company agrees 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 not hold any instruments for trading purposes and none of the companys outstanding derivative instruments contain credit-risk-related contingent features. All derivative instruments are recognized as either assets or liabilities at fair value in the consolidated balance sheets and are classified as short-term or long-term based on the scheduled maturity of the instrument. Based upon the exposure being hedged, the company designates its hedging instruments as cash flow or fair value hedges. Cash Flow Hedges The company may use options, including collars and purchased options, forwards and cross-currency swaps to hedge the foreign exchange risk to earnings relating to forecasted transactions denominated in foreign currencies and recognized assets and liabilities. The company periodically uses forward-starting interest rate swaps and treasury rate locks to hedge the risk to earnings associated with movements in interest rates relating to anticipated issuances of debt. Certain other firm commitments and forecasted transactions are also periodically hedged. Cash flow hedges primarily relate to forecasted intercompany sales denominated in foreign currencies, a hedge of U.S. Dollar-denominated debt issued by a foreign subsidiary and anticipated issuances of debt. Fo |
Fair value measurements | Fair value measurements The following table summarizes the bases used to measure financial assets and liabilities that are carried at fair value on a recurring basis in the consolidated balance sheets. Basis of fair value measurement Quoted prices in Significant active markets for Significant other unobservable Balance at identical assets observable inputs inputs (in millions) March 31, 2010 (Level 1) (Level 2) (Level 3) Assets Foreign currency hedges $ 26 $ $ 26 $ Interest rate hedges 82 82 Equity securities 17 17 Total assets $ 125 $ 17 $ 108 $ Liabilities Foreign currency hedges $ 62 $ $ 62 $ Interest rate hedges 2 2 Contingent payments related to business acquisitions 131 131 Total liabilities $ 195 $ $ 64 $ 131 Basis of fair value measurement Quoted prices in Significant active markets for Significant other unobservable Balance at identical assets observable inputs inputs (in millions) December 31, 2009 (Level 1) (Level 2) (Level 3) Assets Foreign currency hedges $ 20 $ $ 20 $ Interest rate hedges 85 85 Equity securities 13 13 Total assets $ 118 $ 13 $ 105 $ Liabilities Foreign currency hedges $ 112 $ $ 112 $ Interest rate hedges 1 1 Contingent payments related to business acquisitions 59 59 Total liabilities $ 172 $ $ 113 $ 59 For assets that are measured using quoted prices in active markets, the fair value is the published market price per unit multiplied by the number of units held, without consideration of transaction costs. The majority of the derivatives entered into by the company are valued using internal valuation techniques as no quoted market prices exist for such instruments. The principal techniques used to value these instruments are discounted cash flow and Black-Scholes models. The key inputs are considered observable and vary depending on the type of derivative, and include contractual terms, interest rate yield curves, foreign exchange rates and volatility. The contingent payments are valued using a discounted cash flow technique that reflects managements expectations about probability of payment. The following table is a reconciliation of the fair value measurements that use significant unobservable inputs (Level 3), which consist of contingent payments related to business acquisitions. (in millions) Fair value as of January1, 2010 $ 59 Unrealized loss recognized in earnings 2 Addition relating to the ApaTech acquisition 70 Fair value as of March31, 2010 $ 131 Th |
6_Common Stock
Common Stock (Detail) | |
3 Months Ended
Mar. 31, 2010 | |
Common Stock (Detail) [Abstract] | |
Stock-based compensation plans | Stock-based compensation plans Stock compensation expense totaled $30million and $38million for the three months ended March31, 2010 and 2009, respectively. A majority of stock compensation expense is classified in marketing and administrative expenses with the remainder classified in cost of sales and RD expenses. In March2010, the company awarded its annual stock compensation grants, which consisted of approximately 8.0million stock options and 574,000 performance share units (PSUs). Stock Options The weighted-average assumptions used in estimating the fair value of stock options granted during the period, along with the weighted-average grant-date fair values, were as follows. Three months ended March 31, 2010 2009 Expected volatility 22% 30% Expected life (in years) 4.5 4.5 Risk-free interest rate 2.0% 1.8% Dividend yield 2.0% 2.0% Fair value per stock option $10 $12 The total intrinsic value of stock options exercised during the three months ended March31, 2010 and 2009 was $60million and $29million, respectively. As of March31, 2010, $129million of unrecognized compensation cost related to all unvested stock options is expected to be recognized as expense over a weighted-average period of 2.3years. Performance Share and Restricted Stock Units The assumptions used in estimating the fair value of PSUs granted during the period, along with the fair values, were as follows. Three months ended March 31, 2010 2009 Baxter volatility 26% 25% Peer group volatility 20% - 59% 20% - 59% Correlation of returns 0.29 - 0.63 0.30 - 0.61 Risk-free interest rate 1.3% 1.6% Fair value per PSU $64 $65 As of March31, 2010, unrecognized compensation cost related to all unvested PSUs of $58million is expected to be recognized as expense over a weighted-average period of 2.2years, and unrecognized compensation cost related to all unvested restricted stock units of $8million is expected to be recognized as expense over a weighted-average period of 2.1years. |
Stock repurchases | Stock repurchases As authorized by the board of directors, from time to time the company repurchases its stock depending upon the companys cash flows, net debt level and market conditions. During the three-month period ended March31, 2010, the company repurchased 7.5million shares for $435 million under the board of directors July2009 $2.0billion share repurchase authorization. At March31, 2010, $1.5billion remained available under this authorization. |