| |||||
☒ | 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 |
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| |||||||||||||
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 |
| Name of each exchange on which registered | ||||||||||||
Common Stock, $1.00 par value | BAX (NYSE) | New York Stock Exchange | ||||||||||||
Chicago Stock Exchange | ||||||||||||||
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, 2023 PART II. Item 1A. 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 NumberPage Number 2345626394041424343434445FINANCIALFINANCIAL INFORMATIONItem 1.Statements of IncomeBalance Sheets (unaudited)per share data)information)March 31,
2023December 31,
2022Current assets: Cash and cash equivalents $ 1,673 $ 1,718 Accounts receivable, net of allowances of $122 in 2023 and $114 in 2022 2,547 2,659 Inventories 2,922 2,718 Prepaid expenses and other current assets 957 916 Total current assets 8,099 8,011 Property, plant and equipment, net 5,000 4,979 Goodwill 6,868 6,843 Other intangible assets, net 6,640 6,793 Operating lease right-of-use assets 554 550 Other non-current assets 1,130 1,111 Total assets $ 28,291 $ 28,287 Current liabilities: Short-term debt $ 50 $ 299 Current maturities of long-term debt and finance lease obligations 1,103 1,105 Accounts payable 1,290 1,139 Accrued expenses and other current liabilities 2,317 2,202 Total current liabilities 4,760 4,745 Long-term debt and finance lease obligations, less current portion 15,278 15,232 Operating lease liabilities 458 456 Other non-current liabilities 1,854 1,959 Total liabilities 22,350 22,392 Commitments and contingencies Equity: Common stock, $1 par value, authorized 2,000,000,000 shares, issued 683,494,944 shares in 2023 and 2022 683 683 Common stock in treasury, at cost,177,658,649 shares in 2023 and 179,062,594 shares in 2022 (11,324) (11,389) Additional contributed capital 6,312 6,322 Retained earnings 13,947 14,050 Accumulated other comprehensive income (loss) (3,739) (3,833) Total Baxter stockholders’ equity 5,879 5,833 Noncontrolling interests 62 62 Total equity 5,941 5,895 Total liabilities and equity $ 28,291 $ 28,287
Three months ended March 31, | |||||||||||||||||
2023 | 2022 | ||||||||||||||||
Net sales | $ | 3,649 | $ | 3,707 | |||||||||||||
Cost of sales | 2,302 | 2,359 | |||||||||||||||
Gross margin | 1,347 | 1,348 | |||||||||||||||
Selling, general and administrative expenses | 1,010 | 1,052 | |||||||||||||||
Research and development expenses | 164 | 150 | |||||||||||||||
Other operating income, net | (13) | (17) | |||||||||||||||
Operating income | 186 | 163 | |||||||||||||||
Interest expense, net | 117 | 85 | |||||||||||||||
Other income, net | (1) | (16) | |||||||||||||||
Income before income taxes | 70 | 94 | |||||||||||||||
Income tax expense | 25 | 21 | |||||||||||||||
Net income | 45 | 73 | |||||||||||||||
Net income attributable to noncontrolling interests | 1 | 2 | |||||||||||||||
Net income attributable to Baxter stockholders | $ | 44 | $ | 71 | |||||||||||||
Earnings per share | |||||||||||||||||
Basic | $ | 0.09 | $ | 0.14 | |||||||||||||
Diluted | $ | 0.09 | $ | 0.14 | |||||||||||||
Weighted-average number of shares outstanding | |||||||||||||||||
Basic | 505 | 503 | |||||||||||||||
Diluted | 507 | 509 |
|
| 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, | |||||||||||||||||
2023 | 2022 | ||||||||||||||||
Net income | $ | 45 | $ | 73 | |||||||||||||
Other comprehensive income (loss), net of tax: | |||||||||||||||||
Currency translation adjustments, net of tax expense (benefit) of ($13) and $(11) for the three months ended March 31, 2023 and 2022, respectively. | 102 | (15) | |||||||||||||||
Pension and other postretirement benefits, net of tax expense (benefit) of ($1) and $3 for the three months ended March 31, 2023 and 2022, respectively. | (6) | 9 | |||||||||||||||
Hedging activities, net of tax expense (benefit) of ($1) for the three months ended March 31, 2023 and 2022. | (2) | (2) | |||||||||||||||
Available-for-sale debt securities, net of tax expense of zero and $1 for the three months ended March 31, 2023 and 2022, respectively. | — | 1 | |||||||||||||||
Total other comprehensive income (loss), net of tax | 94 | (7) | |||||||||||||||
Comprehensive income | 139 | 66 | |||||||||||||||
Less: Comprehensive income attributable to noncontrolling interests | 1 | 2 | |||||||||||||||
Comprehensive income attributable to Baxter stockholders | $ | 138 | $ | 64 |
|
|
|
| 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, 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 | — | — | — | — | — | — | 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 |
For the three months ended March 31, 2022 | ||||||||||||||||||||||||||||||||
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, 2022 | 683 | $ | 683 | 182 | $ | (11,488) | $ | 6,197 | $ | 17,065 | $ | (3,380) | $ | 9,077 | $ | 44 | $ | 9,121 | ||||||||||||||
Net income | — | — | — | — | — | 71 | — | 71 | 2 | 73 | ||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | (7) | (7) | — | (7) | ||||||||||||||||||||||
Stock issued under employee benefit plans and other | — | — | (2) | 66 | 10 | — | — | 76 | — | 76 | ||||||||||||||||||||||
Dividends declared on common stock | — | — | — | — | — | (142) | — | (142) | — | (142) | ||||||||||||||||||||||
Change in noncontrolling interests | — | — | — | — | — | — | — | — | (2) | (2) | ||||||||||||||||||||||
Balance as of March 31, 2022 | 683 | $ | 683 | 180 | $ | (11,422) | $ | 6,207 | $ | 16,994 | $ | (3,387) | $ | 9,075 | $ | 44 | $ | 9,119 |
Three months ended March 31, | ||||||||
2023 | 2022 | |||||||
Cash flows from operations | ||||||||
Net income | $ | 45 | $ | 73 | ||||
Adjustments to reconcile net income to cash flows from operations: | ||||||||
Depreciation and amortization | 319 | 380 | ||||||
Deferred income taxes | (50) | (55) | ||||||
Stock compensation | 25 | 32 | ||||||
Net periodic pension and other postretirement costs | (4) | 14 | ||||||
Other | 14 | (12) | ||||||
Changes in balance sheet items: | ||||||||
Accounts receivable, net | 136 | 153 | ||||||
Inventories | (181) | (105) | ||||||
Prepaid expenses and other current assets | (39) | (13) | ||||||
Accounts payable | 157 | 5 | ||||||
Accrued expenses and other current liabilities | 93 | (221) | ||||||
Other | (36) | (43) | ||||||
Cash flows from operations | 479 | 208 | ||||||
Cash flows from investing activities | ||||||||
Capital expenditures | (172) | (140) | ||||||
Acquisitions, net of cash acquired, and investments | (3) | (174) | ||||||
Other investing activities, net | 5 | 10 | ||||||
Cash flows from investing activities | (170) | (304) | ||||||
Cash flows from financing activities | ||||||||
Repayments of debt | (3) | (404) | ||||||
Net decreases in debt with original maturities of three months or less | (249) | (45) | ||||||
Cash dividends on common stock | (146) | (140) | ||||||
Proceeds from stock issued under employee benefit plans | 36 | 66 | ||||||
Other financing activities, net | (10) | (25) | ||||||
Cash flows from financing activities | (372) | (548) | ||||||
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash | 18 | (13) | ||||||
Decrease in cash, cash equivalents and restricted cash | (45) | (657) | ||||||
Cash, cash equivalents and restricted cash at beginning of period (1) | 1,722 | 2,956 | ||||||
Cash, cash equivalents and restricted cash at end of period (1) | $ | 1,677 | $ | 2,299 |
March 31, 2023 | December 31, 2022 | March 31, 2022 | |||||||||
Cash and cash equivalents | $ | 1,673 | $ | 1,718 | $ | 2,294 | |||||
Restricted cash included in prepaid expenses and other current assets | 4 | 4 | 5 | ||||||||
Cash, cash equivalents and restricted cash | $ | 1,677 | $ | 1,722 | $ | 2,299 |
Certain reclassifications
Accounting for Venezuelan Operations
Currency restrictions enactedour global supply chain in Venezuela require Baxter to obtain approvalrecent periods, including production delays and interruptions, increased costs and shortages of raw materials and component parts (including resins and electromechanical devices) and higher transportation costs, resulting from the Venezuelan governmentpandemic and other exogenous factors including significant weather events, elevated inflation levels, disruptions to certain ports of call around the world, the war in Ukraine and other geopolitical events. We expect to experience some of these and other challenges related to our supply chain in future periods. These challenges, including the unavailability of certain raw materials and component parts, have also had a negative impact on our sales for certain product categories due to our inability to fully satisfy demand and may continue to have a negative impact on our sales in the future.
Three months ended March 31, | ||||||||||||||
(in millions) | 2023 | 2022 | ||||||||||||
Balance at beginning of period | $ | 114 | $ | 122 | ||||||||||
Charged to costs and expenses | 7 | 6 | ||||||||||||
Write-offs | (1) | (1) | ||||||||||||
Currency translation adjustments | 2 | 2 | ||||||||||||
Balance at end of period | $ | 122 | $ | 129 |
(in millions) | March 31, 2023 | December 31, 2022 | ||||||
Raw materials | $ | 812 | $ | 738 | ||||
Work in process | 316 | 293 | ||||||
Finished goods | 1,794 | 1,687 | ||||||
Inventories | $ | 2,922 | $ | 2,718 |
(in millions) | March 31, 2023 | December 31, 2022 | ||||||
Property, plant and equipment, at cost | $ | 11,622 | $ | 11,421 | ||||
Accumulated depreciation | (6,622) | (6,442) | ||||||
Property, plant and equipment, net | $ | 5,000 | $ | 4,979 |
Three months ended March 31, | |||||||||||||||||
(in millions) | 2023 | 2022 | |||||||||||||||
Interest expense, net of capitalized interest | $ | 127 | $ | 88 | |||||||||||||
Interest income | (10) | (3) | |||||||||||||||
Interest expense, net | $ | 117 | $ | 85 |
Three months ended March 31, | |||||||||||||||||
(in millions) | 2023 | 2022 | |||||||||||||||
Foreign exchange (gains) losses, net | $ | 14 | $ | (11) | |||||||||||||
Pension and other postretirement benefit plans | (10) | (5) | |||||||||||||||
Change in fair value of marketable equity securities | (5) | 1 | |||||||||||||||
Other, net | — | (1) | |||||||||||||||
Other income, net | $ | (1) | $ | (16) |
(in millions) | Americas | EMEA | APAC | Hillrom | Total | ||||||||||||
Balance as of December 31, 2022 | $ | 2,356 | $ | 289 | $ | 210 | $ | 3,988 | $ | 6,843 | |||||||
Currency translation | 18 | 2 | 2 | 3 | 25 | ||||||||||||
Balance as of March 31, 2023 | $ | 2,374 | $ | 291 | $ | 212 | $ | 3,991 | $ | 6,868 |
Indefinite-lived intangible assets | ||||||||||||||||||||
(in millions) | Customer relationships | Developed technology, including patents | Other amortized intangible assets | Trade names | In process Research and Development | Total | ||||||||||||||
March 31, 2023 | ||||||||||||||||||||
Gross other intangible assets | $ | 3,454 | $ | 3,862 | $ | 326 | $ | 1,571 | $ | 202 | $ | 9,415 | ||||||||
Accumulated amortization | (529) | (2,000) | (246) | — | — | (2,775) | ||||||||||||||
Other intangible assets, net | $ | 2,925 | $ | 1,862 | $ | 80 | $ | 1,571 | $ | 202 | $ | 6,640 | ||||||||
December 31, 2022 | ||||||||||||||||||||
Gross other intangible assets | $ | 3,452 | $ | 3,836 | $ | 325 | $ | 1,571 | $ | 202 | $ | 9,386 | ||||||||
Accumulated amortization | (470) | (1,888) | (235) | — | — | (2,593) | ||||||||||||||
Other intangible assets, net | $ | 2,982 | $ | 1,948 | $ | 90 | $ | 1,571 | $ | 202 | $ | 6,793 |
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 companyArkansas alleging injury as a result of the damagesexposure to ethylene oxide at Mountain Home. On December 16, 2022, we filed a motion to dismiss 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.a more definite statement. 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 asresponse, Plaintiffs filed a component of cost of sales in the condensed consolidated statements of income for the three and nine month periods ended September 30, 2017. At this time, the full amount of combined property damage and business interruption costs and recoveries cannot be estimated, and accordingly, no additional amounts, including amounts for anticipated insurance recoveries, have been recorded as of September 30, 2017.
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 activities and financial reporting for hedging relationships, simplify the hedge accounting requirements, and improve the disclosures 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 the same operating expense line items as other employee compensation costs arising from services rendered during the period. The other components of net benefit cost, including interest costs, expected return on assets, amortization of prior service cost/credit, and settlement and curtailment effects, are to be included separately and outside of any subtotal of operating income. The company intends to adopt the standard effective January 1, 2018. This guidance will impact the presentation of the company’s consolidated statements of income with no impact on net income. Upon adoption of the standardFirst Amended Complaint on January 1, 2018, operating income for6, 2023. We answered the three and nine months ended September 30, 2017, will be recast to increase $8 million and $25 million, respectively, with a corresponding increase in other (income) expense, net.
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 beginningFirst Amended Complaint 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. Based27, 2023.
Recently adopted accounting pronouncements
As of January 1, 2017, the company adopted on 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, and tax deficiencies be recorded in additional paid-in capital to the extent of previously recognized windfall tax benefits, 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
OnDecember 13, 2021. In 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)2021, Hill-Rom, Inc., 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) throughHillrom, received a mergersubpoena from the United States Office of a wholly-owned Shire subsidiaryInspector General for the Department of Health and Human Services (the DHHS) requesting documents and information related to compliance with the False Claims Act and into Baxalta,the Anti-Kickback Statute. Hillrom has been working with Baxalta as the surviving subsidiary (the Merger). References in this reportDHHS and the Department of Justice (DOJ) to Baxalta priorprovide information responsive to the Merger closing date refersubpoena. Hillrom also voluntarily began a related internal review and Hillrom and now Baxter have been cooperating fully with the DHHS and the DOJ with respect to Baxalta asthese matters. In October 2022, the DOJ issued a stand-alone public company. Referencesseparate Civil Investigative Demand (CID) addressed to Hillrom, requesting documents and information related to compliance with the False Claims Act and the Anti-Kickback Statute. Baxter is cooperating fully with the DOJ in this report to Baxalta subsequentresponding to the Merger closing date refer to Baxalta asCID. The DHHS and DOJ often issue these types of requests when investigating alleged violations of the False Claims Act.
For a portionIllinois, captioned Linet Americas, Inc. v. Hill-Rom Holdings, Inc.; Hill-Rom Company, Inc.; Hill-Rom Services, Inc. Linet alleges that Hillrom violated Sections 1, 2 and 3 of Baxalta’s operations,The Sherman Antitrust Act of 1890 and the legal transfer of Baxalta’s assetsIllinois Antitrust Act by allegedly engaging in anti-competitive conduct in alleged markets for standard, ICU and liabilities did not occur with the separation of Baxalta on July 1, 2015 duebirthing beds. Hillrom filed an
Following is a summary of the operating results of Baxalta, which have been reflected as discontinued operations
|
| 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.
Pursuant to the TSA, Baxter and Baxalta and their respective subsidiaries are providing to each other, on an interim, transitional basis, various services. Services being provided by Baxter include, among others, finance, information technology, human resources, quality 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 or Baxter, as the case may be, manufactures, labels, and packages products for the other party. The terms of the agreements range in initial duration from five to 10 years. In the three and nine months ended September 30, 2017, Baxter recognized approximately $6 million and $18 million, respectively, in sales to Baxalta. In the three and nine months ended September 30, 2016, Baxter recognized approximately $6 million and $31 million, respectively, in sales to Baxalta. In addition, in the three and nine months ended September 30, 2017, Baxter recognized $35 million and $133 million, respectively, in cost of sales related to purchases from Baxalta pursuant to the MSA. In the three and nine months ended September 30, 2016, Baxter recognized $47 million and $139 million, respectively, in cost of sales related to purchases from Baxalta pursuant to the MSA. The cash flows associated with these agreements are included in cash flows from operations — continuing operations.
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.
3. SUPPLEMENTAL FINANCIAL INFORMATION
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 numerator 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 reconciliation of basic shares to diluted shares.
|
| 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 |
|
The effect of dilutive securities included unexercised stock options, unvested RSUs and contingently issuable shares related to granted PSUs. The computation of diluted EPS excluded 0.1 million and 2.8 million of equity awards for the third quarter and nine months ended September 30, 2017, respectively, and 0.3 million and 10 million of equity awards for the third quarter and nine months ended September 30, 2016, respectively, because their inclusion would have had an anti-dilutive effect on diluted EPS. Refer to Note 9 for additional information regarding items impacting basic shares.
Stock repurchases
Repurchase Programs
5. ACQUISITIONS ANDMarch 31, 2023.
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, 2023 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 deductible2022.
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) |
Gains (losses) | |||||||||||||||||
(in millions) | CTA | Pension and OPEB plans | Hedging activities | Available-for-sale debt securities | Total | ||||||||||||
Balance as of December 31, 2021 | $ | (2,907) | $ | (347) | $ | (126) | $ | — | $ | (3,380) | |||||||
Other comprehensive income (loss) before reclassifications | (15) | 2 | (1) | 1 | (13) | ||||||||||||
Amounts reclassified from AOCI (a) | — | 7 | (1) | — | 6 | ||||||||||||
Net other comprehensive income (loss) | (15) | 9 | (2) | 1 | (7) | ||||||||||||
Balance as of March 31, 2022 | $ | (2,922) | $ | (338) | $ | (128) | $ | 1 | $ | (3,387) |
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
(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, 2023 and 2016, respectively,2022.
Amounts reclassified from AOCI (a) | |||||||||||
(in millions) | Three months ended March 31, 2023 | Three months ended March 31, 2022 | Location of impact in income statement | ||||||||
Pension and OPEB items | |||||||||||
Amortization of net losses and prior service costs or credits | $ | 5 | $ | (9) | Other income, net | ||||||
Less: Tax effect | (2) | 2 | Income tax expense | ||||||||
$ | 3 | $ | (7) | Net of tax | |||||||
Gains (losses) on hedging activities | |||||||||||
Foreign exchange contracts | $ | 4 | $ | 2 | Cost of sales | ||||||
Interest rate contracts | (1) | (1) | Interest expense, net | ||||||||
3 | 1 | Total before tax | |||||||||
Less: Tax effect | (1) | — | Income tax expense | ||||||||
$ | 2 | $ | 1 | Net of tax | |||||||
Total reclassifications for the period | $ | 5 | $ | (6) | Total net of tax |
(in millions) | March 31, 2023 | December 31, 2022 | ||||||
Contract manufacturing services | $ | 49 | $ | 51 | ||||
Software sales | 42 | 43 | ||||||
Bundled equipment and consumable medical products contracts | 120 | 121 | ||||||
Contract assets | $ | 211 | $ | 215 |
Three Months Ended March 31, | ||||||||
(in millions) | 2023 | 2022 | ||||||
Balance at beginning of period | $ | 244 | $ | 246 | ||||
New revenue deferrals | 113 | 116 | ||||||
Revenue recognized upon satisfaction of performance obligations | (121) | (122) | ||||||
Currency translation | 1 | — | ||||||
Balance at end of period | $ | 237 | $ | 240 |
(in millions) | March 31, 2023 | December 31, 2022 | ||||||
Prepaid expenses and other current assets | $ | 92 | $ | 93 | ||||
Other non-current assets | 119 | 122 | ||||||
Contract assets | $ | 211 | $ | 215 | ||||
Accrued expenses and other current liabilities | $ | 160 | $ | 164 | ||||
Other non-current liabilities | 77 | 80 | ||||||
Contract liabilities | $ | 237 | $ | 244 |
Three Months Ended March 31, | ||||||||||||||||||||
2023 | 2022 | |||||||||||||||||||
(in millions) | U.S. | International | Total | U.S. | International | Total | ||||||||||||||
Renal Care 1 | $ | 232 | $ | 660 | $ | 892 | $ | 225 | $ | 669 | $ | 894 | ||||||||
Medication Delivery 2 | 436 | 251 | 687 | 472 | 234 | 706 | ||||||||||||||
Pharmaceuticals 3 | 173 | 350 | 523 | 157 | 364 | 521 | ||||||||||||||
Clinical Nutrition 4 | 78 | 146 | 224 | 84 | 143 | 227 | ||||||||||||||
Advanced Surgery 5 | 144 | 102 | 246 | 136 | 92 | 228 | ||||||||||||||
Acute Therapies 6 | 61 | 119 | 180 | 68 | 120 | 188 | ||||||||||||||
BioPharma Solutions 7 | 69 | 70 | 139 | 52 | 104 | 156 | ||||||||||||||
Patient Support Systems 8 | 260 | 88 | 348 | 295 | 88 | 383 | ||||||||||||||
Front Line Care 9 | 221 | 81 | 302 | 207 | 87 | 294 | ||||||||||||||
Global Surgical Solutions 10 | 38 | 43 | 81 | 37 | 41 | 78 | ||||||||||||||
Other 11 | 22 | 5 | 27 | 24 | 8 | 32 | ||||||||||||||
Total Baxter | $ | 1,734 | $ | 1,915 | $ | 3,649 | $ | 1,757 | $ | 1,950 | $ | 3,707 |
(in millions) | Three months ended March 31, 2023 | Three months ended March 31, 2022 | ||||||
Sales-type lease revenue | $ | 4 | $ | 3 | ||||
Operating lease revenue | 124 | 122 | ||||||
Variable lease revenue | 15 | 20 | ||||||
Total lease revenue | $ | 143 | $ | 145 |
In the third quarter of 2016, the company recorded an impairment charge of $27$3 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 AND2023.
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,From the company hascommencement of our business optimization activities in the second half of 2015 through March 31, 2023, we have incurred cumulative pretaxpre-tax costs of $526 million$1.6 billion related to these actions. The costs consisted primarily of employee termination costs, implementation costs, contract termination costs, asset impairments and accelerated depreciation. The company expectsWe 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$24 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 the endongoing implementation of 2018. Theour previously announced new operating model intended to simplify and streamline our operations, and, to the extent 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) | 2023 | 2022 | |||||||||||||||
Restructuring charges | $ | 110 | $ | 67 | |||||||||||||
Costs to implement business optimization programs | 24 | 14 | |||||||||||||||
Total business optimization charges | $ | 134 | $ | 81 |
|
| 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, 2023 and $58 million2022, 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, 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 |
Three months ended March 31, 2022 | ||||||||||||||
(in millions) | COGS | SG&A | R&D | Total | ||||||||||
Employee termination costs | $ | 2 | $ | 47 | $ | — | $ | 49 | ||||||
Contract termination and other costs | — | 12 | — | 12 | ||||||||||
Asset impairments | — | 6 | — | 6 | ||||||||||
Total restructuring charges | $ | 2 | $ | 65 | $ | — | $ | 67 |
Costs related to the integrationongoing implementation of Gambro AB (Gambro) were included within marketingour previously announced new operating model intended to simplify and administrative expense for all referenced periods.
streamline our operations.
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.
asset impairments.
(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, 2022 | $ | 107 | |||
Charges | 93 | ||||
Payments | (23) | ||||
Reserve adjustments | (3) | ||||
Currency translation | 1 | ||||
Liability balance as of March 31, 2023 | $ | 175 |
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, 2023 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) | 2023 | 2022 | |||||||||||||||
Pension benefits | |||||||||||||||||
Service cost | $ | 6 | $ | 19 | |||||||||||||
Interest cost | 37 | 24 | |||||||||||||||
Expected return on plan assets | (44) | (39) | |||||||||||||||
Amortization of net losses and prior service costs | 1 | 12 | |||||||||||||||
Net periodic pension cost | $ | — | $ | 16 | |||||||||||||
OPEB | |||||||||||||||||
Interest cost | $ | 2 | $ | 1 | |||||||||||||
Amortization of net loss and prior service credit | (6) | (3) | |||||||||||||||
Net periodic OPEB cost (income) | $ | (4) | $ | (2) |
|
| 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 impacts on the condensed consolidated statements ofthree months ended March 31, 2023 and 2022, respectively. Our effective income relating to the sale of receivables were immaterial for each period. Refer to the 2016 Annual Report for further information regarding the company’s securitization agreements.
Concentrations of credit risk
The company invests excess cash in certificates of deposit or money market funds 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 receivabletax rate can differ from the public sector21% U.S. federal statutory rate due to a number of factors, including foreign rate differences, tax incentives, non-deductible expenses, non-taxable income, increases or decreases in Greece, Spain, Portugalvaluation allowances, increases or decreases in liabilities for uncertain tax positions and Italy totaled $151 million.
Global economic conditionsexcess tax benefits or shortfalls on stock compensation awards.
Three months ended March 31, | |||||||||||||||||
(in millions) | 2023 | 2022 | |||||||||||||||
Basic shares | 505 | 503 | |||||||||||||||
Effect of dilutive securities | 2 | 6 | |||||||||||||||
Diluted shares | 507 | 509 |
Derivatives and hedging activities
The company operates2022, 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
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
2022.
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.
2023 or 2022.
The company uses
Gains and Losses on Hedging Activities
Instruments and Undesignated Derivative Instruments
Gain (loss) recognized in OCI | Location of gain (loss) in income statement | Gain (loss) reclassified from AOCI into income | ||||||||||||||||||||||||
(in millions) | 2023 | 2022 | 2023 | 2022 | ||||||||||||||||||||||
Cash flow hedges | ||||||||||||||||||||||||||
Interest rate contracts | $ | — | $ | — | Interest expense, net | $ | (1) | $ | (1) | |||||||||||||||||
Foreign exchange contracts | — | (3) | Cost of sales | 4 | 2 | |||||||||||||||||||||
Net investment hedges | (48) | 42 | Other income, net | — | — | |||||||||||||||||||||
Total | $ | (48) | $ | 39 | $ | 3 | $ | 1 |
|
| 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 |
|
Location of gain (loss) in income statement | Gain (loss) recognized in income | |||||||||||||
(in millions) | 2023 | 2022 | ||||||||||||
Undesignated derivative instruments | ||||||||||||||
Foreign exchange contracts | Other income, net | $ | (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 income |
| |||||
(in millions) |
| Location of gain (loss) in income statement |
| 2017 |
|
| 2016 |
| ||
Fair value hedges |
|
|
|
|
|
|
|
|
|
|
Interest rate contracts |
| Net interest expense |
| $ | (1 | ) |
| $ | 19 |
|
Undesignated derivative instruments |
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts |
| Other (income) expense, net |
| $ | (7 | ) |
| $ | 4 |
|
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 | |||||||||||||
Derivative instruments designated as hedges | |||||||||||||||||
Foreign exchange contracts | Prepaid expenses and other current assets | $ | 5 | Accrued expenses and other current liabilities | $ | 5 | |||||||||||
Total derivative instruments designated as hedges | 5 | 5 | |||||||||||||||
Undesignated derivative instruments | |||||||||||||||||
Foreign exchange contracts | Prepaid expenses and other current assets | 3 | Accrued expenses and other current liabilities | 3 | |||||||||||||
Total derivative instruments | $ | 8 | $ | 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 | |||||||||||||
Derivative instruments designated as hedges | |||||||||||||||||
Foreign exchange contracts | Prepaid expenses and other current assets | $ | 8 | Accrued expenses and other current liabilities | $ | 5 | |||||||||||
Total derivative instruments designated as hedges | 8 | 5 | |||||||||||||||
Undesignated derivative instruments | |||||||||||||||||
Foreign exchange contracts | Prepaid expenses and other current assets | 6 | Accrued expenses and other current liabilities | 7 | |||||||||||||
Total derivative instruments | $ | 14 | $ | 12 |
|
| 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 |
|
While the company’ssome of our derivatives are all subject to master netting arrangements, the company presents itswe present our assets and liabilities related to derivative instruments on a gross basis within the condensed consolidated balance sheets. Additionally, the company iswe are not required to post collateral for any of itsour outstanding derivatives.
March 31, 2023 | December 31, 2022 | ||||||||||||||||
(in millions) | Asset | Liability | Asset | Liability | |||||||||||||
Gross amounts recognized in the condensed consolidated balance sheets | $ | 8 | $ | 8 | $ | 14 | $ | 12 | |||||||||
Gross amount subject to offset in master netting arrangements not offset in the condensed consolidated balance sheet | (3) | (3) | (4) | (4) | |||||||||||||
Total | $ | 5 | $ | 5 | $ | 10 | $ | 8 |
|
| 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 |
|
| $ | — |
|
Fair
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, 2023 | Balance as of December 31, 2022 | Balance as of March 31, 2023 | Balance as of December 31, 2022 | |||||||||||||
Long-term debt | $ | 101 | $ | 101 | $ | 4 | $ | 4 |
Basis of fair value measurement | ||||||||||||||
(in millions) | Balance as of March 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 | $ | 8 | $ | — | $ | 8 | $ | — | ||||||
Available-for-sale debt securities | 42 | — | — | 42 | ||||||||||
Marketable equity securities | 38 | 38 | — | — | ||||||||||
Total | $ | 88 | $ | 38 | $ | 8 | $ | 42 | ||||||
Liabilities | ||||||||||||||
Foreign exchange contracts | $ | 8 | $ | — | $ | 8 | $ | — | ||||||
Contingent payments related to acquisitions | 70 | — | — | 70 | ||||||||||
Total | $ | 78 | $ | — | $ | 8 | $ | 70 |
|
|
|
|
|
| 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, 2022 | 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 | $ | 14 | $ | — | $ | 14 | $ | — | ||||||
Available-for-sale debt securities | 47 | — | — | 47 | ||||||||||
Marketable equity securities | 32 | 32 | — | — | ||||||||||
Total | $ | 93 | $ | 32 | $ | 14 | $ | 47 | ||||||
Liabilities | ||||||||||||||
Foreign exchange contracts | $ | 12 | $ | — | $ | 12 | $ | — | ||||||
Contingent payments related to acquisitions | 84 | — | — | 84 | ||||||||||
Total | $ | 96 | $ | — | $ | 12 | $ | 84 |
|
|
|
|
|
| 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 |
|
As of September 30, 2017,March 31, 2023 and December 31, 2022, cash and cash equivalents of $3.5$1.7 billion, respectively, included money market and other short-term funds of approximately $1 billion,$369 million and as of December 31, 2016, cash and equivalents of $2.8 billion included money market funds of approximately $1 billion. Money market funds would be$341 million, respectively, which are considered Level 2 in the fair value hierarchy.
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 one 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 ofacquisitions and available-for-sale equity securities, which represented gains from the Retained Share transactions.
Book Values anddebt securities.
Three months ended March 31, | |||||||||||||||||
2023 | 2022 | ||||||||||||||||
(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 | $ | 84 | $ | 47 | $ | 143 | $ | 30 | |||||||||
Additions | — | — | — | 21 | |||||||||||||
Change in fair value recognized in earnings | (13) | — | (17) | — | |||||||||||||
Change in fair value recognized in AOCI | — | — | — | 2 | |||||||||||||
Transfers out of Level 3 | — | (5) | — | — | |||||||||||||
Payments | (1) | — | (2) | — | |||||||||||||
Fair value at end of period | $ | 70 | $ | 42 | $ | 124 | $ | 53 |
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) | 2023 | 2022 | 2023 | 2022 | |||||||||||||
Liabilities | |||||||||||||||||
Short-term debt | $ | 50 | $ | 299 | $ | 50 | $ | 299 | |||||||||
Current maturities of long-term debt and finance lease obligations | 1,103 | 1,105 | 1,084 | 1,079 | |||||||||||||
Long-term debt and finance lease obligations | 15,278 | 15,232 | 14,011 | 13,657 |
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 hierarchy as they are estimated based on observable inputs.
obligations. The estimated fair values of current and long-term debt were computed by multiplying price by the notional amount of the respective debt instrument.instruments. Price is calculated using the stated terms of the respective debt instrument and yield curves commensurate with the
company’sour credit risk. The carrying values of the other financial instruments, 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
In March 2017, the company awarded its annual stock compensation grants which consisted 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 relating 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 netWe use operating 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 each 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 company in connection with the claims cannot be estimated and the resolution thereof in any reporting period could have a significant impact on the company’s 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 company’s 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 incur material judgments or enter into material settlements of claims.
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 scope of the company’s 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.
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. The 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’sour business segments. Intersegment sales are eliminated in consolidation.
Three months ended March 31, | |||||||||||||||||
(in millions) | 2023 | 2022 | |||||||||||||||
Net sales: | |||||||||||||||||
Americas | $ | 1,602 | $ | 1,626 | |||||||||||||
EMEA | 714 | 699 | |||||||||||||||
APAC | 602 | 627 | |||||||||||||||
Hillrom | 731 | 755 | |||||||||||||||
Total net sales | $ | 3,649 | $ | 3,707 | |||||||||||||
Operating income: | |||||||||||||||||
Americas | $ | 481 | $ | 610 | |||||||||||||
EMEA | 106 | 119 | |||||||||||||||
APAC | 107 | 151 | |||||||||||||||
Hillrom | 158 | 200 | |||||||||||||||
Total segment operating income | $ | 852 | $ | 1,080 |
|
| 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 |
|
|
| 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 |
|
Three months ended March 31, | |||||||||||||||||
(in millions) | 2023 | 2022 | |||||||||||||||
Total segment operating income | $ | 852 | $ | 1,080 | |||||||||||||
Corporate and other | (666) | (917) | |||||||||||||||
Total operating income | 186 | 163 | |||||||||||||||
Interest expense, net | 117 | 85 | |||||||||||||||
Other income, net | (1) | (16) | |||||||||||||||
Income before income taxes | $ | 70 | $ | 94 |
|
|
March 31, 2023 and 2022.
Baxter’s
as further discussed below.
|
| 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 |
|
Three months ended March 31, | |||||||||||||||||
(in millions) | 2023 | 2022 | |||||||||||||||
Gross Margin | |||||||||||||||||
Intangible asset amortization expense | $ | (110) | $ | (122) | |||||||||||||
Business optimization items1 | (35) | (2) | |||||||||||||||
Acquisition and integration items2 | — | (164) | |||||||||||||||
European medical devices regulation3 | (12) | (11) | |||||||||||||||
Divestiture-related costs4 | (1) | — | |||||||||||||||
Product-related items5 | — | (23) | |||||||||||||||
Total Special Items | $ | (158) | $ | (322) | |||||||||||||
Impact on Gross Margin Ratio | (4.3 pts) | (8.6 pts) | |||||||||||||||
Selling, General and Administrative (SG&A) Expenses | |||||||||||||||||
Intangible asset amortization expense | $ | 52 | $ | 95 | |||||||||||||
Business optimization items1 | 92 | 78 | |||||||||||||||
Acquisition and integration items2 | 6 | 24 | |||||||||||||||
Divestiture-related costs4 | 15 | $ | — | ||||||||||||||
Total Special Items | $ | 165 | $ | 197 | |||||||||||||
Impact on SG&A Ratio | 4.5 pts | 5.3 pts | |||||||||||||||
Research and Development (R&D) Expenses | |||||||||||||||||
Business optimization items1 | $ | 7 | $ | 1 | |||||||||||||
Total Special Items | $ | 7 | $ | 1 | |||||||||||||
Impact on R&D Ratio | 0.2 pts | 0.0 pts | |||||||||||||||
Other Operating Expense (Income), net | |||||||||||||||||
Acquisition and integration items2 | $ | (13) | $ | (17) | |||||||||||||
Total Special Items | $ | (13) | $ | (17) | |||||||||||||
Income Tax Expense | |||||||||||||||||
Tax effects of special items6 | $ | (64) | $ | (103) | |||||||||||||
Total Special Items | $ | (64) | $ | (103) | |||||||||||||
Impact on Effective Tax Rate | 12.7 pts | 1.5 pts |
Intangible asset amortization expense is identified as a special item to facilitate an evaluation of current and past operating performance and is similar toconsistent with how management internally assessesand our Board of Directors assess 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 athe period. Management believes that providing the separate impact of the abovethose items on the company’sour results in accordance with U.S. GAAP in the United States may provide a more complete understanding of the company’sour operations and can facilitate a fuller analysis of the company’sour results of operations, particularly in evaluating performance from one period to another. This
Three Months Ended March 31, | Percent change | ||||||||||||||||
(in millions) | 2023 | 2022 | At actual currency rates | At constant currency rates | |||||||||||||
United States | $ | 1,734 | $ | 1,757 | (1) | % | (1) | % | |||||||||
International | $ | 1,915 | 1,950 | (2) | % | 4 | % | ||||||||||
Total net sales | $ | 3,649 | $ | 3,707 | (2) | % | 2 | % |
|
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 consolidatedunfavorably impacted net sales by 4 percentage points during the thirdfirst quarter or the first nine months of 20172023 compared to the prior periods.
prior-year period, principally due to the strengthening of the U.S. Dollar relative to the Euro, British Pound, Chinese Renminbi, Turkish Lira, Australian Dollar and Japanese Yen.
During 2016, the company made a strategic decision to exit select products in certain markets including Venezuela, India and Turkey. Overall, these items had a negative impact to the company’s net sales growth rate of 1 percentage point during the third quarter and first nine months of 2017, respectively. The company is also presenting the impact of generic competition for U.S. cyclophosphamide to enhance comparability between periods and better identify operating trends.
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 related 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 disruptions to the company’s manufacturing facilities as a result of the storm, the company expects net sales in the fourth quarter of 2017 to be negatively impacted by approximately $70 million. The company does not expect any material impact to net sales in 2018 or thereafter.
FranchiseProduct Category Net Sales Reporting
The
The Hospital Products segment includes four commercial franchises: Fluid Systems, Integrated Pharmacy Solutions, Surgical Caretherapies and Other.
Fluid Systems• Medication Delivery includes sales of the company’sour intravenous (IV) therapies, infusion pumps, administration sets and IV administration sets.
Integrated Pharmacy Solutions• Pharmaceuticals includes sales of the company’sour premixed and oncology drug platforms, nutritioninhaled anesthesia and critical care products pharmaceutical reconstitution devices and pharmacy compounding services.
Surgical Care• Clinical Nutrition includes sales of the company’s inhaled anesthesia productsour parenteral nutrition therapies and critical care products as well asrelated products.
Other• Acute Therapies includes sales primarily fromof our continuous renal replacement therapies (CRRT) and other organ support therapies focused in the company’sintensive care unit (ICU).
Three Months Ended March 31, | Percent change | ||||||||||||||||
(in millions) | 2023 | 2022 | At actual currency rates | At constant currency rates | |||||||||||||
Renal Care | $ | 892 | $ | 894 | (0) | % | 4 | % | |||||||||
Medication Delivery | 687 | 706 | (3) | % | (0) | % | |||||||||||
Pharmaceuticals | 523 | 521 | 0 | % | 5 | % | |||||||||||
Clinical Nutrition | 224 | 227 | (1) | % | 3 | % | |||||||||||
Advanced Surgery | 246 | 228 | 8 | % | 11 | % | |||||||||||
Acute Therapies | 180 | 188 | (4) | % | (1) | % | |||||||||||
BioPharma Solutions | 139 | 156 | (11) | % | (9) | % | |||||||||||
Patient Support Systems | 348 | 383 | (9) | % | (8) | % | |||||||||||
Front Line Care | 302 | 294 | 3 | % | 4 | % | |||||||||||
Global Surgical Solutions | 81 | 78 | 4 | % | 8 | % | |||||||||||
Other | 27 | 32 | (16) | % | (16) | % | |||||||||||
Total Baxter | $ | 3,649 | $ | 3,707 | (2) | % | 2 | % |
|
| Three months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| September 30, |
|
| Percent change |
| ||||||||||||||||||||||
(in millions) |
| 2017 |
|
| 2016 |
|
| At actual currency rates |
|
| At constant currency rates |
|
| U.S. Cyclo- phosphamide |
|
| Claris |
|
| Strategic Product Exits |
| |||||||
Total Renal net sales |
| $ | 1,010 |
|
| $ | 977 |
|
|
| 3 | % |
|
| 3 | % |
|
| 0 | % |
|
| 0 | % |
|
| (3 | )% |
Fluid Systems |
| $ | 610 |
|
| $ | 576 |
|
|
| 6 | % |
|
| 6 | % |
|
| 0 | % |
|
| 0 | % |
|
| (1 | )% |
Integrated Pharmacy Solutions |
|
| 627 |
|
|
| 563 |
|
|
| 11 | % |
|
| 11 | % |
|
| (2 | )% |
|
| 5 | % |
|
| 0 | % |
Surgical Care |
|
| 338 |
|
|
| 320 |
|
|
| 6 | % |
|
| 5 | % |
|
| 0 | % |
|
| 0 | % |
|
| (1 | )% |
Other |
|
| 122 |
|
|
| 122 |
|
|
| — |
|
|
| (2 | )% |
|
| 0 | % |
|
| 0 | % |
|
| 0 | % |
Total Hospital Products net sales |
| $ | 1,697 |
|
| $ | 1,581 |
|
|
| 7 | % |
|
| 7 | % |
|
| 0 | % |
|
| 2 | % |
|
| (1 | )% |
|
| Nine months ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| September 30, |
|
| Percent change |
| ||||||||||||||||||||||
(in millions) |
| 2017 |
|
| 2016 |
|
| At actual currency rates |
|
| At constant currency rates |
|
| U.S. Cyclo- phosphamide |
|
| Claris |
|
| Strategic Product Exits |
| |||||||
Total Renal net sales |
| $ | 2,874 |
|
| $ | 2,840 |
|
|
| 1 | % |
|
| 2 | % |
|
| 0 | % |
|
| 0 | % |
|
| (2 | )% |
Fluid Systems |
| $ | 1,802 |
|
| $ | 1,686 |
|
|
| 7 | % |
|
| 7 | % |
|
| 0 | % |
|
| 0 | % |
|
| (2 | )% |
Integrated Pharmacy Solutions |
|
| 1,747 |
|
|
| 1,682 |
|
|
| 4 | % |
|
| 5 | % |
|
| (1 | )% |
|
| 1 | % |
|
| 0 | % |
Surgical Care |
|
| 1,024 |
|
|
| 972 |
|
|
| 5 | % |
|
| 6 | % |
|
| 0 | % |
|
| 0 | % |
|
| 0 | % |
Other |
|
| 340 |
|
|
| 338 |
|
|
| 1 | % |
|
| 1 | % |
|
| 0 | % |
|
| 0 | % |
|
| 0 | % |
Total Hospital Products net sales |
| $ | 4,913 |
|
| $ | 4,678 |
|
|
| 5 | % |
|
| 5 | % |
|
| 0 | % |
|
| 0 | % |
|
| (1 | )% |
NetRenal Care net sales in the Renal segment during the third quarter and first nine months of 2017 increased 3% and 1%, respectively. Excluding the impact of foreign currency, 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 growthwere flat in the first nine monthsquarter of 20172023, as compared to the prior-year period. Sales performance for the period reflects a 4% negative impact from foreign exchange rates, as compared to the prior-year period, and lower sales in China primarily due to government-based procurement initiatives and the recent termination of a distribution agreement in the U.S., partially offset by patient growth in PD and recent government tender awards in EMEA.
Net sales in the Hospital Products segmentprior-year period, reflecting increased 7%demand for our international pharmacy compounding services and U.S. injectable products, partially offset by a 5%, respectively, during the third quarter and first nine months of 2017 negative impact from foreign exchange rates, as compared to the priorprior-year period, on both a reported basis and constant currency basis. Certain international strategic market exits negatively impacted the Hospital Products segmentlower demand internationally for injectable products.
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, due to the entry of competitors into the market. U.S. 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 driven 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 monthsquarter 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 20172023, as compared to the prior year.
Three months ended March 31, | ||||||||||||||||||||
2023 | % of net sales | 2022 | % of net sales | $ change | % change | |||||||||||||||
Gross margin | $ | 1,347 | 36.9 | % | $ | 1,348 | 36.4 | % | $ | (1) | (0.1) | % | ||||||||
SG&A | $ | 1,010 | 27.7 | % | $ | 1,052 | 28.4 | % | $ | (42) | (4.0) | % | ||||||||
R&D | $ | 164 | 4.5 | % | $ | 150 | 4.0 | % | $ | 14 | 9.3 | % |
|
| Three months ended |
|
|
|
| Nine months ended |
|
|
| ||||||||||
|
| September 30, |
|
|
|
| September 30, |
|
|
| ||||||||||
(as a percentage of net sales) |
| 2017 |
|
| 2016 |
|
| Change |
| 2017 |
|
| 2016 |
|
| 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 increaseddecreased in the first quarter of 2023 compared to the prior-year period primarily due to select price increases, favorable manufacturing performancethe adverse cost impacts of raw materials inflation.
Marketing and Administrative Expenses
2022, respectively. The special items identified above had an unfavorable impact of approximately 1.94.5 and 1.25.3 percentage points on the marketing and administrative expenseSG&A expenses ratio in the thirdfirst quarter of 2023 and first nine months of 2017,2022, 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 2023 and Development
|
| Three months ended September 30, |
|
| Percent |
|
| Nine months ended September 30, |
|
| Percent |
| ||||||||||||
(in millions) |
| 2017 |
|
| 2016 |
|
| change |
|
| 2017 |
|
| 2016 |
|
| change |
| ||||||
Research and development expenses |
| $ | 151 |
|
| $ | 159 |
|
|
| (5 | )% |
| $ | 435 |
|
| $ | 490 |
|
|
| (11 | )% |
As a percentage of net sales |
|
| 5.6 | % |
|
| 6.2 | % |
|
|
|
|
|
| 5.6 | % |
|
| 6.5 | % |
|
|
|
|
2022, respectively. The special items identified above had an unfavorable impact of approximately 1.2 and 1.00.2 percentage points on the R&D expenses ratio in the thirdfirst quarter of 2023 and no impact on the R&D expenses ratio in the first nine monthsquarter of 2016.2022. Refer to the Special Items caption above for additional detail.
project-related expenditures, particularly related to our connected care portfolio.
Beginning in the second half of 2015, the company initiated
streamline our operations (including our manufacturing footprint), as discussed above under "Recently Announced Strategic Actions." Refer to Note 79 in Item 1 of this Quarterly Report on Form 10-Q for additional information regarding the company’sour business optimization initiatives.
Net Interest Expense
Net interest expense was $14 million and $41 million in the third quarter and first nine months of 2017, respectively, and $14 million and $53 million in the third quarter and first nine months of 2016, respectively. The decrease in the first nine months of 2017 was primarily driven by lower outstanding debt as a result of the first quarter 2016 debt-for-equity exchanges which extinguished $3.65 billion of debt as well as reduced coupon rates related to the third quarter 2016 debt issuance, partially offset by lower interest capitalized on assets under construction. See Note 8 within Item 1 for additional details about the debt extinguishments.
programs.
the first nine months of 2016, the $101 million debt extinguishment loss in the first quarter of 2016, the $482023 and $17 million debt extinguishment loss in the third quarter 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) expense, net had higher income in the third quarter of 2017 and lower income in the first nine monthsquarter of 2017 as compared to 2016. Higher income2022. In both periods these amounts were comprised of changes in the thirdestimated fair value of contingent consideration liabilities.
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 businessour 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
information for our reportable segments:
Net sales | Operating income (loss) | ||||||||||||||||||||||||||||||||||
Three months ended March 31, | Three months ended March 31, | ||||||||||||||||||||||||||||||||||
(in millions) | 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||||
Americas | $ | 1,602 | $ | 1,626 | $ | 481 | $ | 610 | |||||||||||||||||||||||||||
EMEA | 714 | 699 | 106 | 119 | |||||||||||||||||||||||||||||||
APAC | 602 | 627 | 107 | 151 | |||||||||||||||||||||||||||||||
Hillrom | 731 | 755 | 158 | 200 | |||||||||||||||||||||||||||||||
Total segments | 3,649 | 3,707 | 852 | 1,080 | |||||||||||||||||||||||||||||||
Corporate and other | — | — | (666) | (917) | |||||||||||||||||||||||||||||||
Total | $ | 3,649 | $ | 3,707 | $ | 186 | $ | 163 |
Hospital Products
Segment EBITDA was $653 million and $1.821 billion in the third 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 operating income were $1.6 billion and $481 million, respectively, in the first quarter of 2023 and $1.6 billion and $610 million, respectively, in the first quarter of 2022. The decrease in operating income was due to raw materials inflation, higher supply chain costs and lower marketingsales in our BioPharma Solutions and administrative expenses as cost savings were realized from the company’s business optimization programs and continued focus on reducing discretionary spending. This growth wasAcute Therapies product categories, partially offset by higher researchsales in our Pharmaceuticals, Advanced Surgery and developmentRenal Care product categories.
Global Surgical Solutions product categories.
Other
Income Taxes
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 programsintegration-related expenses, 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 operationsby higher business optimization charges and 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 plancentrally managed manufacturing 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.
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. Refer to Note 2 within Item 1 for additional information regarding the separation of Baxalta.
supply chain costs.
Three months ended March 31, | |||||||||||
(in millions) | 2023 | 2022 | |||||||||
Cash flows from operations | $ | 479 | $ | 208 | |||||||
Cash flows from investing activities | (170) | (304) | |||||||||
Cash flows from financing activities | (372) | (548) |
| Nine months ended |
| |||||
| 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
Operating
Net Income
Net income, as adjusted for certain non-cash items, such as depreciationlower annual payouts under our employee incentive compensation plans, which were determined based on our 2022 performance, 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 gains 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 is 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 |
|
The increase in inventories was driven primarily by timing of purchases 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 supplieraccounts payable 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 made 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.
Capital Expenditures
Capital expenditures were $410 million and $519 million in
Acquisitions and Investments
Cash outflows relating to2023, cash used for investing activities included payments for acquisitions and investments of $680$3 million inand capital expenditures of $172 million. In 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 to2022, cash used for investing activities included payments for acquisitions and investments of $47$174 million in the first nine monthsand capital expenditures 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.
$140 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 wasborrowings of $249 million, dividend payments of $146 million and debt repayments of $3 million, 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 $36 million. In the first ninethree months of 2016 to $2982022, cash used for financing activities included debt repayments of $404 million, in the first nine monthsdividend payments of 2017, primarily due to increased option exercises in the first nine months$140 million, and a $45 million net repayment of 2017.
short-term borrowings, partially offset by proceeds from stock issued under employee benefit plans of $66 million.
March 31, 2023.
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, 2023, we had approximately $16.4 billion of long-term debt and finance lease obligations, including current maturities, and short-term debt. Subject to market conditions, we regularly evaluate opportunities with respect to our capital structure.
The company continuesUnited Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer compel banks to do business with foreign governments in certain countries, including Greece, Spain, Portugalsubmit the rates required to calculate the London Interbank Offered Rate (LIBOR) and Italy,other interbank offered rates, which have experienced a deterioration in creditbeen widely used as reference rates for various securities and economic conditions. Asfinancial contracts, including loans, debt and derivatives. This announcement indicated that the continuation of September 30, 2017,LIBOR on the company’s net accounts receivable from the public sector in Greece, Spain, Portugal and Italy totaled $151 million.
While these economic conditions havecurrent basis was not significantly impacted the company’s ability to collect receivables, global economic conditions and liquidity issues in certain countries have resulted, and may continue to result, in delaysguaranteed after 2021. Regulators in the collectionU.S. and other jurisdictions have been working to replace these rates with alternative reference interest rates that are supported by transactions in liquid and observable markets, such as the Secured Overnight Financing Rate (SOFR). In 2020, it was announced that certain U.S. dollar LIBOR tenors would not cease until 2023. In September 2022, our $2.5 billion U.S. dollar-denominated revolving credit facility and our $4.0 billion Term Loan Credit Agreement were amended to reference SOFR-based rates. Currently, our €200 million Euro-denominated revolving credit facility references EURIBOR-based rates. A discontinuation would require this arrangement to be modified in order to replace EURIBOR with an alternative reference interest rate, which could impact our cost of receivables andfunds. That credit losses.
Credit Ratings
The company’s credit ratings at September 30, 2017 were as follows.
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CRITICAL ACCOUNTING POLICIES
2023.
The
In January 2014, the company received a Warning Letter from FDA primarily directed to quality systemsproduction of new products for the company’s Round Lake, Illinois, facility, particularly in that facility’s capacity as a specification developer for certain of the company’s medical devices. This Warning Letter was lifted 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 Letter 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 identifieddistribution in the Warning Letters described above.
Please see Item 1A of the 2016 Annual Report and Item U.S.
FORWARD-LOOKING INFORMATION
This quarterly reporton Form 10-Q includes forward-looking statements. 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 to identify forward-looking statements that represent our current judgment about possible future events. These forward-looking statements may include statements with respect to plan to implement a simplified operating model, the proposed spinoff of our Renal Care and Acute Therapies product categories, review of strategic alternatives (including a potential sale) for our BPS product category and other potential portfolio management activities we may undertake in the future, accounting estimates and assumptions, global economic conditions and the impacts of the COVID-19 pandemic, litigation-related matters including outcomes, impacts of the internal investigation related to foreign exchange gains and losses, future regulatory filings and the company’sour R&D pipeline, strategic objectives,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 associated(including as a result of recent banking crises), 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, the adequacy of credit facilities, tax provisions and reserves, the effective 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 spinoff of our Renal Care and Acute Therapies product categories, our plans to simplify our operating model and manufacturing footprint and our evaluation of strategic alternatives for our BPS product category, the timing for such transactions, the ability to satisfy any applicable conditions and the expected proceeds, consideration and benefits; | |||||||
• | failure to accurately forecast or achieve our short-and long-term financial improvement performance and goals (including with respect to our strategic 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 the capital structure of the public company that we expect to form as a result of the proposed spinoff (and the resulting capital structure for the remaining company); | |||||||
• | 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 ongoing war in Ukraine, the related economic sanctions being imposed globally in response to the conflict and potential trade wars) and continuing public health crises, pandemics and epidemics, such as the ongoing COVID-19 pandemic, or the anticipation of any of the foregoing, on our operations and our employees, customers and suppliers, including 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; | |||||||
• | demand for and market acceptance risks for and competitive pressures related to new and existing products (including challenges with our ability to accurately predict changing customer preferences and future expenditures, which has led to and may continue to lead to increased inventory levels, and needs and advances in technology and the resulting impact on customer inventory levels and the impact of reduced hospital admission rates and elective surgery volumes), and the impact of those products on quality and patient safety concerns; | |||||||
• | the continuity, availability and pricing of acceptable raw materials and component parts (and our ability to pass some or all of these costs to our customers through recent price increases), 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, public health crises and epidemics/pandemics, regulatory actions or otherwise); | |||||||
• | product development risks, including satisfactory clinical performance and obtaining and maintaining required regulatory approvals (including as a result of evolving regulatory requirements), the ability to manufacture at appropriate scale, and the general unpredictability associated with the product development cycle; | |||||||
• | 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 or the inability to identify and recruit new employees; | |||||||
• | 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; | |||||||
• | breaches or failures of our information technology systems or products, including by cyber-attack, data leakage, unauthorized access or theft (as a result of remote working arrangements or otherwise); |
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, and the impact of those products on quality and patient safety concerns;
• | 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, including the continued delay in lifting the warning letter at our Ahmedabad facility; | |||||||
• | failures with respect to our quality, compliance or ethics programs; | |||||||
• | future actions of third parties, including third-party payers and our customers and distributors (including GPOs and IDNs), 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; legislation, regulation and other governmental pressures in the United States or globally, including the cost of compliance and potential penalties for purported noncompliance thereof, all of which may affect pricing, reimbursement, taxation and rebate policies of government agencies and private payers or other elements of our business, including new or amended laws, rules and regulations (such as the California Consumer Privacy Act of 2018, the European Union’s General Data Protection Regulation and annual proposed regulatory changes of the U.S. Department of Health and Human Services in kidney health policy and reimbursement, which may substantially change the U.S. end stage renal disease market and demand for our peritoneal dialysis products, necessitating significant multi-year capital expenditures, which are difficult to estimate in advance); | |||||||
• | the outcome of pending or future litigation, including the opioid litigation and ethylene oxide litigation or other claims; | |||||||
• | 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 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 our manufacture, sale or use of affected products or technology; | |||||||
• | the impact of any goodwill or other intangible 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, 2022, 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 repealed 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 pressures 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’s Annual Report on Form 10-K for the year ended December 31, 2016, all of which are available on the company’s website.
Actual results may differ materially from those projected in the forward-looking statements. The company doesWe do not undertake to update itsour forward-looking statements.
The company is
The company may
$61 million.
Baxter carried out an evaluation, under the supervision and
ChangesMarch 31, 2023.
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 companywe announced that its boardour Board of directorsDirectors authorized the companyus to repurchase up to $2.0 billion of itsour common stock on the open market or in private transactions. The boardBoard of directorsDirectors increased this authority by an additional $1.5 billion in each of November 2016.2016 and February 2018, by an additional $2.0 billion in November 2018 and by an additional $1.5 billion in October 2020. During the thirdfirst quarter of 2017, the company repurchased 2.9 million2023, we did not repurchase any shares for $180 million under this program. $1.4authority. We had $1.3 billion remained availableremaining under this program as of September 30, 2017.March 31, 2023. This program does not have an expiration date.
Exhibit Index:
| * Filed herewith. |
BAXTER INTERNATIONAL INC. | ||||||||||||
(Registrant) | ||||||||||||
Date: April 27, 2023 | ||||||||||||
| By: |
| /s/ James K. Saccaro | |||||||||
James K. Saccaro | ||||||||||||
| ||||||||||||
|
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