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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________________________________________________________________
FORM 10-Q
_________________________________________________________________________________ | | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2024 | | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-4448
_________________________________________________________________________________
BAXTER INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
_________________________________________________________________________________ | | | | | | | | | | | | | | |
Delaware | | 36-0781620 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | | | |
One Baxter Parkway, | Deerfield, | Illinois | | 60015 |
(Address of Principal Executive Offices) | | (Zip Code) |
| | | | | | | | | | | | | | | | | |
| | 224. | 948.2000 | | |
| | (Registrant’s telephone number, including area code) | | |
_________________________________________________________________________________
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, $1.00 par value | | BAX (NYSE) | | New York Stock Exchange |
| | | | NYSE Chicago |
1.3% Global Notes due 2025 | | BAX 25 | | New York Stock Exchange |
1.3% Global Notes due 2029 | | BAX 29 | | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. | | | | | | | | | | | | | | |
Large accelerated filer | x | | Accelerated filer | o |
Non-accelerated filer | o | | Smaller reporting company | ☐ |
Emerging growth company | ☐ | | | |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x
The number of shares of the registrant’s Common Stock, par value $1.00 per share, outstanding as of October 31, 2024 was 510,587,581 shares.
BAXTER INTERNATIONAL INC.
FORM 10-Q
For the quarterly period ended September 30, 2024
TABLE OF CONTENTS | | | | | | | | |
| | Page Number |
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Item 1A. | | |
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Item 5. | | |
| | |
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Baxter International Inc.
Condensed Consolidated Balance Sheets (unaudited)
(in millions, except share information) | | | | | | | | |
| September 30, 2024 | December 31, 2023 |
Current assets: | | |
Cash and cash equivalents | $ | 1,420 | | 3,078 | |
Accounts receivable, net of allowances of $65 in 2024 and $62 in 2023 | 1,729 | | 1,719 | |
Inventories | 2,103 | | 1,918 | |
Prepaid expenses and other current assets | 720 | | 706 | |
Current assets of discontinued operations | 2,892 | | 2,179 | |
Total current assets | 8,864 | | 9,600 | |
Property, plant and equipment, net | 2,833 | | 2,871 | |
Goodwill | 5,783 | | 5,793 | |
Other intangible assets, net | 5,449 | | 5,918 | |
Operating lease right-of-use assets | 327 | | 336 | |
Other non-current assets | 886 | | 809 | |
Non-current assets of discontinued operations | 2,534 | | 2,949 | |
Total assets | $ | 26,676 | | $ | 28,276 | |
Current liabilities: | | |
| | |
Current maturities of long-term debt and finance lease obligations | $ | 2,498 | | $ | 2,667 | |
Accounts payable | 841 | | 881 | |
Accrued expenses and other current liabilities | 1,772 | | 1,915 | |
Current liabilities of discontinued operations | 1,089 | | 1,040 | |
Total current liabilities | 6,200 | | 6,503 | |
Long-term debt and finance lease obligations, less current portion | 10,437 | | 11,089 | |
Operating lease liabilities | 259 | | 265 | |
Other non-current liabilities | 1,263 | | 1,400 | |
Non-current liabilities of discontinued operations | 575 | | 551 | |
Total liabilities | 18,734 | | 19,808 | |
Commitments and contingencies | | |
Equity: | | |
Common stock, $1 par value, authorized 2,000,000,000 shares, issued 683,494,944 shares in 2024 and 2023 | 683 | | 683 | |
Common stock in treasury, at cost, 173,032,822 shares in 2024 and 175,861,893 shares in 2023 | (11,084) | | (11,230) | |
Additional contributed capital | 6,391 | | 6,389 | |
Retained earnings | 15,529 | | 16,114 | |
Accumulated other comprehensive loss | (3,647) | | (3,554) | |
Total Baxter stockholders’ equity | 7,872 | | 8,402 | |
Noncontrolling interests | 70 | | 66 | |
Total equity | 7,942 | | 8,468 | |
Total liabilities and equity | $ | 26,676 | | $ | 28,276 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Baxter International Inc.
Condensed Consolidated Statements of Income (Loss) (unaudited)
(in millions, except per share data) | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2024 | 2023 | | 2024 | 2023 |
Net sales | $ | 2,699 | | $ | 2,599 | | | $ | 7,883 | | $ | 7,634 | |
Cost of sales | 1,666 | | 1,543 | | | 4,858 | | 4,584 | |
Gross margin | 1,033 | | 1,056 | | | 3,025 | | 3,050 | |
Selling, general and administrative expenses | 754 | | 744 | | | 2,206 | | 2,270 | |
Research and development expenses | 129 | | 133 | | | 379 | | 391 | |
| | | | | |
Other operating income, net | (5) | | — | | | (9) | | (14) | |
Operating income | 155 | | 179 | | | 449 | | 403 | |
Interest expense, net | 87 | | 127 | | | 251 | | 367 | |
Other (income) expense, net | (1) | | (12) | | | (34) | | 15 | |
Income from continuing operations before income taxes | 69 | | 64 | | | 232 | | 21 | |
Income tax expense | 8 | | 27 | | | 70 | | 59 | |
Income (loss) from continuing operations | 61 | | 37 | | | 162 | | (38) | |
Income (loss) from discontinued operations, net of tax | 83 | | 2,474 | | | (290) | | 2,455 | |
Net income (loss) | 144 | | 2,511 | | | (128) | | 2,417 | |
Net income attributable to noncontrolling interests included in continuing operations | — | | — | | | — | | — | |
Net income attributable to noncontrolling interests included in discontinued operations | 4 | | 3 | | | 9 | | 6 | |
Net income attributable to noncontrolling interests | 4 | | 3 | | | 9 | | 6 | |
Net income (loss) attributable to Baxter stockholders | $ | 140 | | $ | 2,508 | | | $ | (137) | | $ | 2,411 | |
Income (loss) from continuing operations per common share |
Basic | $ | 0.12 | | $ | 0.07 | | | $ | 0.32 | | $ | (0.08) | |
Diluted | $ | 0.12 | | $ | 0.07 | | | $ | 0.32 | | $ | (0.08) | |
Income (loss) from discontinued operations per common share |
Basic | $ | 0.15 | | $ | 4.88 | | | $ | (0.59) | | $ | 4.84 | |
Diluted | $ | 0.15 | | $ | 4.86 | | | $ | (0.59) | | $ | 4.84 | |
Income (loss) per common share |
Basic | $ | 0.27 | | $ | 4.95 | | | $ | (0.27) | | $ | 4.76 | |
Diluted | $ | 0.27 | | $ | 4.93 | | | $ | (0.27) | | $ | 4.76 | |
Weighted-average number of shares outstanding |
Basic | 510 | | 507 | | | 509 | | 506 | |
Diluted | 512 | | 509 | | | 511 | | 506 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Baxter International Inc.
Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)
(in millions)
| | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
| 2024 | 2023 | | 2024 | 2023 |
Income (loss) from continuing operations | $ | 61 | | $ | 37 | | | $ | 162 | | $ | (38) | |
Other comprehensive income (loss) from continuing operations, net of tax: | | | | | |
Currency translation adjustments, net of tax expense (benefit) of ($19) and $12 for the three months ended September 30, 2024 and 2023, respectively, and ($3) and $2 for the nine months ended September 30, 2024 and 2023, respectively. | 106 | | (36) | | | (61) | | (39) | |
Pension and other postretirement benefits, net of tax expense (benefit) of ($2) and zero for the three months ended September 30, 2024 and 2023, respectively, and zero and ($3) for the nine months ended September 30, 2024 and 2023, respectively. | (6) | | (1) | | | (2) | | (11) | |
Hedging activities, net of tax expense (benefit) of ($3) and $2 for the three months ended September 30, 2024 and 2023, respectively and zero and $3 for the nine months ended September 30, 2024 and 2023, respectively. | (9) | | 5 | | | 2 | | 10 | |
| | | | | |
Total other comprehensive income (loss) from continuing operations, net of tax | 91 | | (32) | | | (61) | | (40) | |
Comprehensive loss from continuing operations | 152 | | 5 | | | 101 | | (78) | |
Income (loss) from discontinued operations, net of tax | 83 | | 2,474 | | | (290) | | 2,455 | |
Other comprehensive income (loss) from discontinued operations | | | | | |
Currency translation adjustments, net of tax expense (benefit) of $(11) and $(1) for the three months ended September 30, 2024 and 2023, respectively, and $(15) and $(1) for the nine months ended September 30, 2024 and 2023, respectively. | 90 | | 134 | | | (35) | | 162 | |
Pension and other postretirement benefits, net of tax expense (benefit) of zero for the three and nine months ended September 30, 2024 and 2023 | — | | (4) | | | (1) | | (5) | |
Total other comprehensive income (loss) from discontinued operations | 90 | | 130 | | | (36) | | 157 | |
Comprehensive income (loss) from discontinued operations | 173 | | 2,604 | | | (326) | | 2,612 | |
Comprehensive income (loss) | 325 | | 2,609 | | | (225) | | 2,534 | |
Less: Comprehensive income attributable to noncontrolling interests | 4 | | 3 | | | 9 | | 6 | |
Less: Other comprehensive loss attributable to noncontrolling interests | — | | — | | | (4) | | — | |
Comprehensive income (loss) attributable to Baxter stockholders | $ | 321 | | $ | 2,606 | | | $ | (230) | | $ | 2,528 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Baxter International Inc.
Condensed Consolidated Statements of Changes in Equity (unaudited)
(in millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended September 30, 2024 |
| Baxter International Inc. stockholders' equity | | |
| Common stock shares | Common stock | Common stock shares in treasury | Common stock in treasury | Additional contributed capital | Retained earnings | Accumulated other comprehensive loss | Total Baxter stockholders' equity | Noncontrolling interests | Total equity |
Balance as of July 1, 2024 | 683 | | $ | 683 | | 173 | | $ | (11,104) | | $ | 6,353 | | $ | 15,539 | | $ | (3,828) | | $ | 7,643 | | $ | 65 | | $ | 7,708 | |
| | | | | | | | | | |
Net income | — | | — | | — | | — | | — | | 140 | | — | | 140 | | 4 | | 144 | |
Other comprehensive income (loss) | — | | — | | — | | — | | — | | — | | 181 | | 181 | | — | | 181 | |
| | | | | | | | | | |
Stock issued under employee benefit plans and other | — | | — | | — | | 20 | | 38 | | — | | — | | 58 | | — | | 58 | |
Dividends declared on common stock | — | | — | | — | | — | | — | | (150) | | — | | (150) | | — | | (150) | |
Change in noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | 1 | | 1 | |
Balance as of September 30, 2024 | 683 | | $ | 683 | | 173 | | $ | (11,084) | | $ | 6,391 | | $ | 15,529 | | $ | (3,647) | | $ | 7,872 | | $ | 70 | | $ | 7,942 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| For the nine months ended September 30, 2024 |
| Baxter International Inc. stockholders' equity | | |
| Common stock shares | Common stock | Common stock shares in treasury | Common stock in treasury | Additional contributed capital | Retained earnings | Accumulated other comprehensive loss | Total Baxter stockholders' equity | Noncontrolling interests | Total equity |
Balance as of January 1, 2024 | 683 | | $ | 683 | | 176 | | $ | (11,230) | | $ | 6,389 | | $ | 16,114 | | $ | (3,554) | | $ | 8,402 | | $ | 66 | | $ | 8,468 | |
| | | | | | | | | | |
Net loss | — | | — | | — | | — | | — | | (137) | | — | | (137) | | 9 | | (128) | |
Other comprehensive income (loss) | — | | — | | — | | — | | — | | — | | (93) | | (93) | | (4) | | (97) | |
| | | | | | | | | | |
Stock issued under employee benefit plans and other | — | | — | | (3) | | 146 | | 2 | | — | | — | | 148 | | — | | 148 | |
Dividends declared on common stock | — | | — | | — | | — | | — | | (448) | | — | | (448) | | — | | (448) | |
Change in noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | (1) | | (1) | |
Balance as of September 30, 2024 | 683 | | $ | 683 | | 173 | | $ | (11,084) | | $ | 6,391 | | $ | 15,529 | | $ | (3,647) | | $ | 7,872 | | $ | 70 | | $ | 7,942 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended September 30, 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 loss | Total Baxter stockholders' equity | Noncontrolling interests | Total equity |
Balance as of July 1, 2023 | 683 | | $ | 683 | | 177 | | $ | (11,296) | | $ | 6,341 | | $ | 13,655 | | $ | (3,814) | | $ | 5,569 | | $ | 62 | | $ | 5,631 | |
| | | | | | | | | | |
Net income | — | | — | | — | | — | | — | 2,508 | | — | | 2,508 | | 3 | | 2,511 | |
Other comprehensive income (loss) | — | | — | | — | | — | | — | | — | | 98 | | 98 | | — | | 98 | |
| | | | | | | | | | |
Stock issued under employee benefit plans and other | — | | — | | (1) | | 47 | | 27 | | — | | — | | 74 | | — | | 74 | |
Dividends declared on common stock | — | | — | | — | | — | | — | | (148) | | — | (148) | | — | | (148) | |
| | | | | | | | | | |
Balance as of September 30, 2023 | 683 | | $ | 683 | | 176 | | $ | (11,249) | | $ | 6,368 | | $ | 16,015 | | $ | (3,716) | | $ | 8,101 | | $ | 65 | | $ | 8,166 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | |
| For the nine months ended September 30, 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 | — | | — | | — | | — | | — | | 2,411 | | — | | 2,411 | | 6 | | 2,417 | |
Other comprehensive income (loss) | — | | — | | — | | — | | — | | — | | 117 | | 117 | | — | | 117 | |
| | | | | | | | | | |
Stock issued under employee benefit plans and other | — | | — | | (3) | | 140 | | 46 | | — | | — | | 186 | | — | | 186 | |
Dividends declared on common stock | — | | — | | — | | — | | — | | (446) | | — | | (446) | | — | | (446) | |
Change in noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | (3) | | (3) | |
Balance as of September 30, 2023 | 683 | | $ | 683 | | 176 | | $ | (11,249) | | $ | 6,368 | | $ | 16,015 | | $ | (3,716) | | $ | 8,101 | | $ | 65 | | $ | 8,166 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Baxter International Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
(in millions)
| | | | | | | | |
| Nine Months Ended September 30, |
| 2024 | 2023 |
Cash flows from operations | | |
Net income (loss) | $ | (128) | | $ | 2,417 | |
Less: Income (loss) from discontinued operations, net of tax | (290) | | 2,455 | |
Income (loss) from continuing operations | 162 | | (38) | |
Adjustments to reconcile net loss to cash flows from operations: | | |
Depreciation and amortization | 752 | | 720 | |
Deferred income taxes | (136) | | (239) | |
Stock compensation | 75 | | 90 | |
Net periodic pension and other postretirement costs | (21) | | (19) | |
| | |
| | |
Other long-lived asset impairments | 42 | | 3 | |
| | |
| | |
Other | 20 | | 25 | |
Changes in balance sheet items: | | |
Accounts receivable, net | (17) | | 52 | |
Inventories | (180) | | (120) | |
Prepaid expenses and other current assets | (61) | | (41) | |
Accounts payable | 3 | | 161 | |
Accrued expenses and other current liabilities | (192) | | 261 | |
Other | (71) | | (63) | |
| | |
| | |
Cash flows from operations - continuing operations | 376 | | 792 | |
Cash flows from operations - discontinued operations | 155 | | 403 | |
Cash flows from operations | 531 | | 1,195 | |
Cash flows from investing activities | | |
Capital expenditures | (314) | | (340) | |
Acquisitions of developed technology and investments | (9) | | (4) | |
Proceeds from sale of marketable equity securities | 34 | | — | |
Other investing activities, net | 8 | | 19 | |
Cash flows from investing activities - continuing operations | (281) | | (325) | |
Cash flows from investing activities - discontinued operations | (140) | | 3,768 | |
Cash flows from investing activities | (421) | | 3,443 | |
Cash flows from financing activities | | |
Repayments of debt | (827) | | (353) | |
| | |
Net increases in debt with original maturities of three months or less | — | | 214 | |
Cash dividends on common stock | (443) | | (439) | |
Proceeds from stock issued under employee benefit plans | 63 | | 86 | |
| | |
| | |
Other financing activities, net | (15) | | (62) | |
Cash flows from financing activities | (1,222) | | (554) | |
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash - continuing operations | (45) | | (37) | |
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash - discontinued operations | 39 | | 23 | |
Increase (decrease) in cash, cash equivalents and restricted cash | (1,118) | | 4,070 | |
Cash, cash equivalents and restricted cash at beginning of period (1) | 3,198 | | 1,722 | |
Cash, cash equivalents and restricted cash at end of period (1) | 2,080 | | 5,792 | |
Less cash and cash equivalents of discontinued operations | 658 | | 72 | |
Cash, cash equivalents and restricted cash of continuing operations | $ | 1,422 | | $ | 5,720 | |
(1) The following table provides a reconciliation of cash, cash equivalents and restricted cash shown above to the amounts reported within the condensed consolidated balance sheet as of September 30, 2024, December 31, 2023, and September 30, 2023 (in millions): | | | | | | | | | | | |
| September 30, 2024 | December 31, 2023 | September 30, 2023 |
Cash and cash equivalents | $ | 1,420 | | $ | 3,078 | | $ | 5,716 | |
Restricted cash included in other non-current assets | 2 | | 4 | | 4 | |
Cash, cash equivalents and restricted cash | $ | 1,422 | | $ | 3,082 | | $ | 5,720 | |
The accompanying notes are an integral part of these condensed consolidated financial statements.
Baxter International Inc.
Notes to Condensed Consolidated Financial Statements (unaudited)
1. BASIS OF PRESENTATION
The unaudited interim condensed consolidated financial statements of Baxter International Inc. and its subsidiaries (we, our or Baxter) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial reporting. Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) in the United States have been condensed or omitted. These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2023 (2023 Annual Report).
In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments necessary for a fair statement of the financial position, results of operations and cash flows for the periods presented. All such adjustments, unless otherwise noted herein, are of a normal, recurring nature. The disclosures presented in our notes to the consolidated financial statements are presented on a continuing operations basis. The results of operations for the current interim period are not necessarily indicative of the results of operations to be expected for the full year.
On August 12, 2024, we entered into an Equity Purchase Agreement (EPA) with certain affiliates of Carlyle Group Inc. (Carlyle) to sell our Kidney Care business, which will be known as Vantive, for an aggregate purchase price of $3.80 billion. After giving effect to certain closing adjustments, we currently expect to receive approximately $3.50 billion in cash with net after-tax proceeds currently estimated to be in the range of $3.15 billion to $3.25 billion. The transaction is currently expected to close in late 2024 or early 2025, subject to the receipt of customary regulatory approvals and satisfaction of other closing conditions. We determined that our Kidney Care business met the criteria to be classified as held-for-sale in August 2024, and we also concluded that it met the conditions to be reported as a discontinued operation at that time. Accordingly, our Kidney Care business is reported in discontinued operations in the accompanying condensed consolidated financial statements, and our prior period results have been adjusted to reflect discontinued operations presentation. See Note 2 for additional information.
Hurricane Helene
In September 2024, Hurricane Helene, which brought significant rain and extensive flooding to Western North Carolina, caused damage to certain of our assets at our North Cove facility in Marion, N.C. and disrupted operations at that facility. We are actively working with customers, regulators and other stakeholders to manage inventory and minimize disruption to patient care as we work to fully restore our North Cove manufacturing operations. Our insurance policies generally cover the repair or replacement of our assets that suffer loss or damage, less applicable deductibles and subject to any coverage limits and exclusions, and we are working closely with our insurance carriers and claims adjusters to ascertain the full amount of insurance proceeds due to us as a result of the damages and the loss we suffered as a result of Hurricane Helene (which proceeds are likely to be less than the applicable losses). Our insurance policies also provide coverage for interruption to our business, including lost profits, and reimbursement for other expenses and costs that have been incurred relating to the damages and losses suffered. In the third quarter of 2024, we recorded $25 million of pre-tax net charges related to damages caused by Hurricane Helene. This consisted of $44 million related to the write-off of damaged inventory and fixed assets offset by a receivable of $19 million, which is the amount of the loss, net of our insurance deductible, related to insurance recoveries expected as a result of those asset write-offs. These amounts were recorded as a component of cost of sales in the condensed consolidated statements of income for the three and nine month periods ended September 30, 2024. At this time, the full amount of combined property damage and business interruption costs cannot be estimated and any additional insurance recoveries are not realizable, and accordingly, no additional amounts have been recorded as of September 30, 2024. On November 1, 2024, we received $101 million of cash related to insurance proceeds which included recoveries for expenses incurred after the balance sheet date. We expect to receive additional related insurance proceeds in the future.
Risks and Uncertainties
Supply Constraints and Global Economic Conditions
In recent years, we have experienced significant challenges to our global supply chain, including production delays and interruptions, increased costs and shortages of raw materials and component parts (including resins and
electromechanical devices), higher transportation costs, adverse impacts from significant weather events (including Hurricane Helene and the flooding of our North Cove facility), elevated inflation levels and interest rates, disruptions to certain ports of call and access to shipping lanes around the world, the war in Ukraine, the conflict in the Middle East, tensions amongst China, Taiwan, and the U.S., and other geopolitical events. While we have seen improvements in the availability of component parts and improved pricing of raw materials and on transportation costs, some of these challenges (such as additional transportation costs resulting from Hurricane Helene as we transfer product across our global network in the interest of increasing the availability of intravenous and peritoneal dialysis solutions for our customers while we work to fully remediate our North Cove facility) are expected to have a negative impact on our results of operations in the future.
2. DISCONTINUED OPERATIONS
A component of an entity is reported in discontinued operations after meeting the criteria for held-for-sale classification if the disposition represents a strategic shift that has (or will have) a major effect on the entity's operations and financial results. The condensed consolidated financial statements reflect discontinued operations presentation for two strategic actions, as described below.
Discontinued Operations - Kidney Care
On August 12, 2024, we entered into an EPA to sell our Kidney Care business, subject to receipt of customary regulatory approvals and satisfaction of other closing conditions. That business, which is comprised of our Kidney Care segment, provides chronic and acute dialysis therapies and services, including peritoneal dialysis, hemodialysis, continuous renal replacement therapies, and other organ support therapies. Pursuant to the EPA, we expect to sell the Kidney Care business to Carlyle for an aggregate purchase price of $3.80 billion. After giving effect to certain adjustments, we currently expect to receive approximately $3.50 billion of net pre-tax cash proceeds (approximately $3.15 billion to $3.25 billion after tax). The transaction is currently expected to close in late 2024 or early 2025, subject to receipt of customary regulatory approvals and satisfaction of other closing conditions. We intend to use the net after-tax proceeds from this transaction to repay certain of our debt obligations, consistent with our stated capital allocation priorities.
We concluded that our Kidney Care business met the criteria to be classified as held-for-sale in August 2024. We analyzed the quantitative and qualitative factors relevant to the pending sale of our Kidney Care business, including its significance to our overall net income (loss), earnings (loss) per share, and net assets, and determined that those conditions for discontinued operations presentation had been met. As such, the financial position, results of operations and cash flows of that business are reported as discontinued operations in the accompanying condensed consolidated financial statements. Prior period amounts have been adjusted to reflect discontinued operations presentation.
Upon closing of the pending sale of the Kidney Care business, Baxter and Vantive will enter into several agreements, including a Manufacturing and Supply Agreement (Kidney Care MSA), a long-term Master Services Agreement, a Distribution Agreement, a Transition Services Agreement (Kidney Care TSA), and an Intellectual Property Agreement. Pursuant to the Kidney Care MSA, Baxter and the Kidney Care divested entities will provide each other with certain dialysis-related products, other products, product components and fulfillment services for a period up to 10 years post-closing (with certain extension rights as provided therein). Pursuant to the Kidney Care TSA, Baxter and the entities that will be divested in connection with the pending Kidney Care sale (the Kidney Care divested entities) will provide each other, on an interim basis, certain transitional services for up to 30 months post-closing (with certain extension rights as provided therein) to help ensure business continuity and help minimize disruptions to the entities' operations post-closing. Services to be provided under the TSA include IT, supply chain and certain other corporate and administrative services. Pursuant to the EPA, Baxter will retain (i) the manufacture and sale of saline solutions and (ii) the plastics operations of Baxter and its subsidiaries at its Mountain Home, Arkansas facility, which is not part of the Kidney Care segment.
Discontinued Operations - BioPharma Solutions
On September 29, 2023, we sold our BioPharma Solutions (BPS) business to Advent International and Warburg Pincus (collectively, the BPS buyers).
The BPS business, which was historically reported within our former Americas segment, provided contract manufacturing and development services, which include sterile fill-finish manufacturing and support services across clinical and commercial applications, primarily serving customers in the pharmaceutical industry. BPS was historically
operated through our former, wholly-owned subsidiaries Baxter Pharmaceutical Solutions LLC, a Delaware limited liability company, and Baxter Oncology GmbH, a German limited liability company (collectively, the BPS divested entities).
We concluded that our BPS business met the criteria to be classified as held-for-sale in May 2023. We analyzed the quantitative and qualitative factors relevant to the divestiture of our BPS business, including its significance to our overall net income and earnings per share, and determined that those conditions for discontinued operations presentation had been met. As such, the financial position, results of operations and cash flows of that business are reported as discontinued operations in the accompanying condensed consolidated financial statements. Prior period amounts have been adjusted to reflect discontinued operations presentation.
At closing of the transaction, Baxter entered into a Transition Services Agreement (BPS TSA) and a Master Commercial Manufacturing and Supply Agreement (BPS MSA) with the divested entities. Pursuant to the BPS TSA, Baxter and the BPS divested entities provide to each other, on an interim basis, specific transition services for up to 24 months post-closing to help ensure business continuity and minimize disruptions. Services provided under the BPS TSA include finance, information technology, human resources, integrated supply chain, and certain other administrative services. Pursuant to the BPS MSA, the BPS divested entities provide development, manufacturing, regulatory, and other related services for certain Baxter pharmaceutical products for up to 5 years post-closing (with certain extension rights as provided therein).
Results of Discontinued Operations and Assets and Liabilities of Discontinued Operations
The following tables summarize the major classes of line items included in income (loss) from discontinued operations, net of tax, for the three and nine months ended September 30, 2024 and 2023:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Kidney Care | | BioPharma Solutions | | Total |
| Three Months Ended September 30, | | Three Months Ended September 30, | | Three Months Ended September 30, |
(in millions) | 2024 | 2023 | | 2024 | 2023 | | 2024 | 2023 |
Net sales | $ | 1,155 | | $ | 1,109 | | | $ | — | | $ | 191 | | | $ | 1,155 | | $ | 1,300 | |
Cost of sales | 731 | | 1,048 | | | — | | 81 | | | 731 | | 1,129 | |
Gross margin | 424 | | 61 | | | — | | 110 | | | 424 | | 171 | |
Selling, general and administrative expenses | 278 | | 258 | | | — | | 15 | | | 278 | | 273 | |
Research and development expenses | 41 | | 33 | | | — | | 1 | | | 41 | | 34 | |
Other operating income, net | (1) | | — | | | — | | — | | | (1) | | — | |
Operating income (loss) | 106 | | (230) | | | — | | 94 | | | 106 | | (136) | |
Interest expense, net | 1 | | 1 | | | — | | — | | | 1 | | 1 | |
Other (income) expense, net | (8) | | 5 | | | — | | 2 | | | (8) | | 7 | |
Income (loss) from discontinued operations before gain on disposition and income taxes | 113 | | (236) | | | — | | 92 | | | 113 | | (144) | |
Gain on disposition | — | | — | | | — | | 2,890 | | | — | | 2,890 | |
Income tax expense (benefit) | 30 | | (250) | | | — | | 522 | | | 30 | | 272 | |
Income from discontinued operations, net of tax | 83 | | 14 | | | — | | 2,460 | | | 83 | | 2,474 | |
Less: Net income attributable to noncontrolling interest included in discontinued operations | 4 | | 3 | | | — | | — | | | 4 | | 3 | |
Net income attributable to Baxter stockholders included in discontinued operations | $ | 79 | | $ | 11 | | | $ | — | | $ | 2,460 | | | $ | 79 | | $ | 2,471 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Kidney Care | | BioPharma Solutions | | Total |
| Nine Months Ended September 30, | | Nine Months Ended September 30, | | Nine Months Ended September 30, |
| 2024 | 2023 | | 2024 | 2023 | | 2024 | 2023 |
Net sales | $ | 3,375 | | $ | 3,294 | | | $ | — | | $ | 469 | | | $ | 3,375 | | $ | 3,763 | |
Cost of sales | 2,125 | | 2,841 | | | — | | 216 | | | 2,125 | | 3,057 | |
Gross margin | 1,250 | | 453 | | | — | | 253 | | | 1,250 | | 706 | |
Selling, general and administrative expenses | 874 | | 691 | | | — | | 44 | | | 874 | | 735 | |
Research and development expenses | 140 | | 104 | | | — | | 2 | | | 140 | | 106 | |
Goodwill impairment | 430 | | — | | | — | | — | | | 430 | | — | |
Other operating income, net | (1) | | — | | | — | | — | | | (1) | | — | |
Operating income (loss) | (193) | | (342) | | | — | | 207 | | | (193) | | (135) | |
Interest expense, net | — | | 2 | | | — | | — | | | — | | 2 | |
Other (income) expense, net | (2) | | 18 | | | — | | 2 | | | (2) | | 20 | |
Income (loss) from discontinued operations before income taxes | (191) | | (362) | | | — | | 205 | | | (191) | | (157) | |
Gain on disposition | — | | — | | | — | | 2,890 | | | — | | 2,890 | |
Income tax expense (benefit) | 99 | | (258) | | | — | | 536 | | | 99 | | 278 | |
Income (loss) from discontinued operations, net of tax | (290) | | (104) | | | — | | 2,559 | | | (290) | | 2,455 | |
Less: Net income attributable to noncontrolling interests included in discontinued operations | 9 | | 6 | | | — | | — | | | 9 | | 6 | |
Net income (loss) attributable to Baxter stockholders included in discontinued operations | $ | (299) | | $ | (110) | | | $ | — | | $ | 2,559 | | | $ | (299) | | $ | 2,449 | |
For the three and nine months ended September 30, 2024, selling, general and administrative expenses (SG&A) includes $69 million and $236 million, respectively, of separation-related costs incurred in connection with the pending sale of our Kidney Care business. For the three months ended September 30, 2023, SG&A includes separation-related costs of $67 million and $8 million, incurred in connection with the pending sale of our Kidney Care business and the sale of BPS, respectively. For the nine months ended September 30, 2023, SG&A includes separation-related costs of $108 million and $15 million, incurred in connection with the pending sale of our Kidney Care business and the sale of BPS, respectively.
The following table summarizes the carrying amounts of the major classes of assets and liabilities classified as discontinued operations, related to our Kidney Care business, in the condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023:
| | | | | | | | |
(in millions) | September 30, 2024 | December 31, 2023 |
Cash and cash equivalents | $ | 658 | | $ | 116 | |
Accounts receivable, net of allowances | 1,045 | | 971 | |
Inventories | 960 | | 906 | |
Prepaid expenses and other current assets | 229 | | 186 | |
Current assets of discontinued operations | 2,892 | | 2,179 | |
Property, plant and equipment, net | 1,542 | | 1,562 | |
Goodwill | 276 | | 721 | |
Other intangible assets, net | 147 | | 161 | |
Operating lease right-of-use assets | 209 | | 188 | |
Other non-current assets | 360 | | 317 | |
Non-current assets of discontinued operations | 2,534 | | 2,949 | |
Assets of discontinued operations | $ | 5,426 | | $ | 5,128 | |
Current maturities of finance lease obligations | $ | — | | $ | 1 | |
Accounts payable | 396 | | 360 | |
Accrued expenses and other current liabilities | 693 | | 679 | |
Current liabilities of discontinued operations | 1,089 | | 1,040 | |
Long-term finance lease obligations, less current portion | 40 | | 41 | |
Operating lease liabilities | 186 | | 173 | |
Other non-current liabilities | 349 | | 337 | |
Non-current liabilities of discontinued operations | 575 | | 551 | |
Liabilities of discontinued operations | $ | 1,664 | | $ | 1,591 | |
3. SUPPLEMENTAL FINANCIAL INFORMATION
Allowance for Doubtful Accounts
The following table is a summary of the changes in our allowance for doubtful accounts for the three and nine months ended September 30, 2024 and 2023.
| | | | | | | | | | | | | | |
| Three Months Ended September 30, | Nine Months Ended September 30, |
(in millions) | 2024 | 2023 | 2024 | 2023 |
Balance at beginning of period | $ | 67 | | $ | 61 | | $ | 62 | | $ | 50 | |
| | | | |
Charged to costs and expenses | 4 | | 2 | | 4 | | 17 | |
Write-offs | (3) | | 1 | | (6) | | (2) | |
Currency translation adjustments | (3) | | 2 | | 5 | | 1 | |
Balance at end of period | $ | 65 | | $ | 66 | | $ | 65 | | $ | 66 | |
Inventories | | | | | | | | |
(in millions) | September 30, 2024 | December 31, 2023 |
Raw materials | $ | 532 | | $ | 530 | |
Work in process | 256 | | 234 | |
Finished goods | 1,315 | | 1,154 | |
Inventories | $ | 2,103 | | $ | 1,918 | |
Property, Plant and Equipment, Net | | | | | | | | |
(in millions) | September 30, 2024 | December 31, 2023 |
Property, plant and equipment, at cost | $ | 7,605 | | $ | 7,650 | |
Accumulated depreciation | (4,772) | | (4,779) | |
Property, plant and equipment, net | $ | 2,833 | | $ | 2,871 | |
Interest Expense, Net
| | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in millions) | 2024 | 2023 | | 2024 | 2023 |
Interest expense, net of capitalized interest | $ | 101 | | $ | 136 | | | $ | 308 | | $ | 394 | |
Interest income | (14) | | (9) | | | (57) | | (27) | |
Interest expense, net | $ | 87 | | $ | 127 | | | $ | 251 | | $ | 367 | |
Other (Income) Expense, Net | | | | | | | | | | | | | | | | | |
| Three Months Ended September 30, | | Nine Months Ended September 30, |
(in millions) | 2024 | 2023 | | 2024 | 2023 |
Foreign exchange losses, net | $ | 7 | | $ | 10 | | | $ | 21 | | 49 | |
Pension and other postretirement benefit plans | (9) | | (15) | | | (34) | | (37) | |
| | | | | |
Change in fair value of marketable equity securities | — | | (3) | | | (3) | | 3 | |
| | | | | |
Non-marketable investment impairments | — | | — | | | — | | 13 | |
Other, net | 1 | | (4) | | | (18) | | (13) | |
Other (income) expense, net | $ | (1) | | $ | (12) | | | $ | (34) | | $ | 15 | |
Non-Cash Operating and Investing Activities
Right-of-use operating lease assets obtained in exchange for lease obligations for the nine months ended September 30, 2024 and 2023 were $54 million and $55 million, respectively.
Purchases of property, plant and equipment included in accounts payable as of September 30, 2024 and 2023 were $34 million and $30 million, respectively.
4. GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Goodwill
The following is a reconciliation of goodwill by segment. | | | | | | | | | | | | | | | |
(in millions) | Medical Products and Therapies | Healthcare Systems and Technologies | Pharmaceuticals | | Total |
Balance as of December 31, 2023 | $ | 1,241 | | $ | 3,989 | | $ | 563 | | | $ | 5,793 | |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Currency translation | (7) | | — | | (3) | | | (10) | |
Balance as of September 30, 2024 | $ | 1,234 | | $ | 3,989 | | $ | 560 | | | $ | 5,783 | |
Other intangible assets, net
The following is a summary of our other intangible assets. | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | Indefinite-lived intangible assets | |
(in millions) | Customer relationships | Developed technology, including patents | Trade names | Other amortized intangible assets | Trade names | In process Research and Development | Total |
September 30, 2024 | | | | | | | |
Gross other intangible assets | $ | 3,390 | | $ | 3,182 | | $ | 963 | | $ | 87 | | $ | 680 | | $ | 157 | | $ | 8,459 | |
Accumulated amortization | (824) | | (2,027) | | (92) | | (67) | | — | | — | | (3,010) | |
Other intangible assets, net | $ | 2,566 | | $ | 1,155 | | $ | 871 | | $ | 20 | | $ | 680 | | $ | 157 | | $ | 5,449 | |
December 31, 2023 | | | | | | | |
Gross other intangible assets | $ | 3,390 | | $ | 3,181 | | $ | 964 | | $ | 86 | | $ | 680 | | $ | 157 | | $ | |