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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, 2022 | | | | | |
☐ | 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 |
| | | | 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 |
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 20, 2022 was 504,120,759 shares.
BAXTER INTERNATIONAL INC.
FORM 10-Q
For the quarterly period ended September 30, 2022
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Baxter International Inc.
Condensed Consolidated Balance Sheets (unaudited)
(in millions, except share information) | | | | | | | | |
| September 30, 2022 | December 31, 2021 |
Current assets: | | |
Cash and cash equivalents | $ | 1,601 | | $ | 2,951 | |
Accounts receivable, net of allowances of $120 in 2022 and $122 in 2021 | 2,555 | | 2,629 | |
Inventories | 2,675 | | 2,453 | |
Prepaid expenses and other current assets | 979 | | 839 | |
Total current assets | 7,810 | | 8,872 | |
Property, plant and equipment, net | 4,799 | | 5,178 | |
Goodwill | 6,639 | | 9,836 | |
Other intangible assets, net | 6,927 | | 7,792 | |
Operating lease right-of-use assets | 546 | | 630 | |
Other non-current assets | 1,244 | | 1,213 | |
Total assets | $ | 27,965 | | $ | 33,521 | |
Current liabilities: | | |
Short-term debt | $ | 275 | | $ | 301 | |
Current maturities of long-term debt and finance lease obligations | 4 | | 210 | |
Accounts payable | 1,234 | | 1,246 | |
Accrued expenses and other current liabilities | 2,195 | | 2,479 | |
Total current liabilities | 3,708 | | 4,236 | |
Long-term debt and finance lease obligations, less current portion | 16,153 | | 17,149 | |
Operating lease liabilities | 454 | | 522 | |
Other non-current liabilities | 2,071 | | 2,493 | |
Total liabilities | 22,386 | | 24,400 | |
Commitments and contingencies | | |
Equity: | | |
Common stock, $1 par value, authorized 2,000,000,000 shares, issued 683,494,944 shares in 2022 and 2021 | 683 | | 683 | |
Common stock in treasury, at cost,179,451,293 shares in 2022 and 181,879,516 shares in 2021 | (11,406) | | (11,488) | |
Additional contributed capital | 6,297 | | 6,197 | |
Retained earnings | 14,015 | | 17,065 | |
Accumulated other comprehensive income (loss) | (4,054) | | (3,380) | |
Total Baxter stockholders’ equity | 5,535 | | 9,077 | |
Noncontrolling interests | 44 | | 44 | |
Total equity | 5,579 | | 9,121 | |
Total liabilities and equity | $ | 27,965 | | $ | 33,521 | |
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, |
| 2022 | 2021 | | 2022 | 2021 |
Net sales | $ | 3,773 | | $ | 3,226 | | | $ | 11,226 | | $ | 9,270 | |
Cost of sales | 2,640 | | 1,905 | | | 7,292 | | 5,571 | |
Gross margin | 1,133 | | 1,321 | | | 3,934 | | 3,699 | |
Selling, general and administrative expenses | 947 | | 680 | | | 2,975 | | 1,982 | |
Research and development expenses | 152 | | 129 | | | 450 | | 396 | |
Goodwill impairments | 2,785 | | — | | | 2,785 | | — | |
Other operating expense (income), net | 48 | | (1) | | | 20 | | (6) | |
Operating income (loss) | (2,799) | | 513 | | | (2,296) | | 1,327 | |
Interest expense, net | 104 | | 50 | | | 278 | | 118 | |
Other (income) expense, net | 63 | | 12 | | | 3 | | 15 | |
Income (loss) before income taxes | (2,966) | | 451 | | | (2,577) | | 1,194 | |
Income tax expense (benefit) | (32) | | (1) | | | 29 | | 141 | |
Net income (loss) | (2,934) | | 452 | | | (2,606) | | 1,053 | |
Net income attributable to noncontrolling interests | 3 | | 2 | | | 8 | | 7 | |
Net income (loss) attributable to Baxter stockholders | $ | (2,937) | | $ | 450 | | | $ | (2,614) | | $ | 1,046 | |
Earnings (loss) per share |
Basic | $ | (5.83) | | $ | 0.90 | | | $ | (5.20) | | $ | 2.08 | |
Diluted | $ | (5.83) | | $ | 0.89 | | | $ | (5.20) | | $ | 2.06 | |
Weighted-average number of shares outstanding |
Basic | 504 | | 500 | | | 503 | | 503 | |
Diluted | 504 | | 506 | | | 503 | | 509 | |
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, |
| 2022 | 2021 | | 2022 | 2021 |
Net income (loss) | $ | (2,934) | | $ | 452 | | | $ | (2,606) | | $ | 1,053 | |
Other comprehensive income (loss), net of tax: | | | | | |
Currency translation adjustments, net of tax expense (benefit) of ($16) and $3 for the three months ended September 30, 2022 and 2021, respectively, and ($25) and $16 for the nine months ended September 30, 2022 and 2021, respectively. | (319) | | (137) | | | (751) | | (257) | |
Pension and other postretirement benefits, net of tax expense of $5 and $8 for the three months ended September 30, 2022 and 2021, respectively, and $13 and $19 for the nine months ended September 30, 2022 and 2021, respectively. | 16 | | 22 | | | 48 | | 63 | |
Hedging activities, net of tax expense of $5 and $3 for the three months ended September 30, 2022 and 2021, respectively, and $8 and $8 for the nine months ended September 30, 2022 and 2021, respectively. | 16 | | 9 | | | 27 | | 26 | |
Available-for-sale debt securities, net of tax expense of zero for the three months ended September 30, 2022 and 2021, respectively, and $1 and zero for the nine months ended September 30, 2022 and 2021, respectively. | — | | — | | | 2 | | — | |
Total other comprehensive income (loss), net of tax | (287) | | (106) | | | (674) | | (168) | |
Comprehensive income (loss) | (3,221) | | 346 | | | (3,280) | | 885 | |
Less: Comprehensive income attributable to noncontrolling interests | 3 | | 2 | | | 8 | | 7 | |
Comprehensive income (loss) attributable to Baxter stockholders | $ | (3,224) | | $ | 344 | | | $ | (3,288) | | $ | 878 | |
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, 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 July 1, 2022 | 683 | | $ | 683 | | 180 | | $ | (11,409) | | $ | 6,253 | | $ | 17,099 | | $ | (3,767) | | $ | 8,859 | | $ | 44 | | $ | 8,903 | |
| | | | | | | | | | |
Net income (loss) | — | | — | | — | | — | | — | | (2,937) | | — | | (2,937) | | 3 | | (2,934) | |
Other comprehensive income (loss) | — | | — | | — | | — | | — | | — | | (287) | | (287) | | — | | (287) | |
Purchases of treasury stock | — | | — | | — | | (24) | | — | | — | | — | | (24) | | — | | (24) | |
Stock issued under employee benefit plans and other | — | | — | | (1) | | 27 | | 44 | | — | | — | | 71 | | — | | 71 | |
Dividends declared on common stock | — | | — | | — | | — | | — | | (147) | | — | | (147) | | — | | (147) | |
Change in noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | (3) | | (3) | |
Balance as of September 30, 2022 | 683 | | $ | 683 | | 179 | | $ | (11,406) | | $ | 6,297 | | $ | 14,015 | | $ | (4,054) | | $ | 5,535 | | $ | 44 | | $ | 5,579 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the nine months ended September 30, 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 (loss) | — | | — | | — | | — | | — | | (2,614) | | — | | (2,614) | | 8 | | (2,606) | |
Other comprehensive income (loss) | — | | — | | — | | — | | — | | — | | (674) | | (674) | | — | | (674) | |
Purchases of treasury stock | — | | — | | — | | (32) | | — | | — | | — | | (32) | | — | | (32) | |
Stock issued under employee benefit plans and other | — | | — | | (3) | | 114 | | 100 | | — | | — | | 214 | | — | | 214 | |
Dividends declared on common stock | — | | — | | — | | — | | — | | (436) | | — | | (436) | | — | | (436) | |
Change in noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | (8) | | (8) | |
Balance as of September 30, 2022 | 683 | | $ | 683 | | 179 | | $ | (11,406) | | $ | 6,297 | | $ | 14,015 | | $ | (4,054) | | $ | 5,535 | | $ | 44 | | $ | 5,579 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the three months ended September 30, 2021 |
| 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 July 1, 2021 | 683 | | $ | 683 | | 184 | | $ | (11,561) | | $ | 6,090 | | $ | 16,658 | | $ | (3,376) | | $ | 8,494 | | $ | 41 | | $ | 8,535 | |
| | | | | | | | | | |
Net income (loss) | — | | — | | — | | — | | — | 450 | | — | | 450 | | 2 | | 452 | |
Other comprehensive income (loss) | — | | — | | — | | — | | — | | — | | (106) | | (106) | | — | | (106) | |
| | | | | | | | | | |
Stock issued under employee benefit plans and other | — | | — | | (1) | | 32 | | 41 | | — | | — | | 73 | | — | | 73 | |
Dividends declared on common stock | — | | — | | — | | — | | — | | (141) | | — | (141) | | — | | (141) | |
Change in noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | 2 | | 2 | |
Balance as of September 30, 2021 | 683 | | $ | 683 | | 183 | | $ | (11,529) | | $ | 6,131 | | $ | 16,967 | | $ | (3,482) | | $ | 8,770 | | $ | 45 | | $ | 8,815 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the nine months ended September 30, 2021 |
| 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, 2021 | 683 | | $ | 683 | | 179 | | $ | (11,051) | | $ | 6,043 | | $ | 16,328 | | $ | (3,314) | | $ | 8,689 | | $ | 37 | | $ | 8,726 | |
| | | | | | | | | | |
Net income (loss) | — | | — | | — | | — | | — | | 1,046 | | — | | 1,046 | | 7 | | 1,053 | |
Other comprehensive income (loss) | — | | — | | — | | — | | — | | — | | (168) | | (168) | | — | | (168) | |
Purchases of treasury stock | — | | — | | 7 | | (600) | | — | | — | | — | | (600) | | — | | (600) | |
Stock issued under employee benefit plans and other | — | | — | | (3) | | 122 | | 88 | | — | | — | | 210 | | — | | 210 | |
Dividends declared on common stock | — | | — | | — | | — | | — | | (407) | | — | | (407) | | — | | (407) | |
Change in noncontrolling interests | — | | — | | — | | — | | — | | — | | — | | — | | 1 | | 1 | |
Balance as of September 30, 2021 | 683 | | $ | 683 | | 183 | | $ | (11,529) | | $ | 6,131 | | $ | 16,967 | | $ | (3,482) | | $ | 8,770 | | $ | 45 | | $ | 8,815 | |
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, |
| 2022 | 2021 |
Cash flows from operations | | |
Net income (loss) | $ | (2,606) | | $ | 1,053 | |
Adjustments to reconcile net income (loss) to cash flows from operations: | | |
Depreciation and amortization | 1,069 | | 645 | |
Deferred income taxes | (174) | | (98) | |
Stock compensation | 122 | | 93 | |
Net periodic pension and other postretirement costs | 42 | | 77 | |
Intangible asset impairments | 332 | | — | |
Goodwill impairments | 2,785 | | — | |
Loss on product divestiture arrangement | 54 | | — | |
Reclassification of cumulative translation loss to earnings | 65 | | — | |
Other | (35) | | 46 | |
Changes in balance sheet items: | | |
Accounts receivable, net | (116) | | (128) | |
Inventories | (410) | | (149) | |
Prepaid expenses and other current assets | (98) | | (51) | |
Accounts payable | 84 | | 14 | |
Accrued expenses and other current liabilities | (250) | | 91 | |
Other | (92) | | (64) | |
| | |
| | |
Cash flows from operations | 772 | | 1,529 | |
Cash flows from investing activities | | |
Capital expenditures | (479) | | (508) | |
Acquisitions, net of cash acquired, and investments | (206) | | (463) | |
Other investing activities, net | 10 | | 38 | |
Cash flows from investing activities | (675) | | (933) | |
Cash flows from financing activities | | |
Repayments of debt | (953) | | (407) | |
Issuances of debt | — | | 50 | |
Net increases (decreases) in debt with original maturities of three months or less | 30 | | 251 | |
Cash dividends on common stock | (427) | | (390) | |
Proceeds from stock issued under employee benefit plans | 114 | | 135 | |
Purchases of treasury stock | (32) | | (600) | |
Debt issuance costs | — | | (37) | |
Other financing activities, net | (51) | | (33) | |
Cash flows from financing activities | (1,319) | | (1,031) | |
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash | (130) | | (40) | |
Decrease in cash, cash equivalents and restricted cash | (1,352) | | (475) | |
Cash, cash equivalents and restricted cash at beginning of period (1) | 2,956 | | 3,736 | |
Cash, cash equivalents and restricted cash at end of period (1) | $ | 1,604 | | $ | 3,261 | |
(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, 2022, December 31, 2021, and September 30, 2021 (in millions): | | | | | | | | | | | |
| September 30, 2022 | December 31, 2021 | September 30, 2021 |
Cash and cash equivalents | $ | 1,601 | | $ | 2,951 | | $ | 3,258 | |
Restricted cash included in prepaid expenses and other current assets | 3 | | 5 | | 3 | |
Cash, cash equivalents and restricted cash | $ | 1,604 | | $ | 2,956 | | $ | 3,261 | |
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 or our) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial reporting. Accordingly, certain information and footnote 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, 2021 (2021 Annual Report).
In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments necessary for a fair presentation 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 results of operations for the current interim period are not necessarily indicative of the results of operations to be expected for the full year.
Risks and Uncertainties Related to COVID-19 and Global Economic and Other Conditions
Our global operations expose us to risks associated with public health crises and epidemics/pandemics, such as the novel strain of coronavirus (COVID-19). COVID-19 has had, and we expect will continue to have, an adverse impact on our operations, supply chains and distribution systems and has increased and we expect will continue to increase our expenses. Over the course of the pandemic, our business has been impacted by shifting healthcare priorities and significant volatility in the demand for our products. For further information about our revenues by product category, refer to Note 9. Significant uncertainty remains regarding the duration and overall impact of the COVID-19 pandemic. Concerns remain regarding the pace of economic recovery due to virus resurgence across the globe from the Omicron variants, subvariants and other virus mutations as well as vaccine distribution and hesitancy. The U.S. and other governments may continue existing measures or implement new restrictions and other requirements in light of the continuing spread of the pandemic (including with respect to moratoriums on elective procedures and mandatory quarantines and travel restrictions), resulting in higher levels of absenteeism, including at our manufacturing and distribution facilities. Due to the uncertainty caused by the pandemic, our operating performance and financial results, particularly in the short term, may be subject to volatility.
We have experienced significant challenges to our global supply chain in recent 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 pandemic 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.
We expect that the challenges caused by the pandemic as well as global economic conditions, among other factors, may continue to have an adverse effect on our business.
New Accounting Standards
Recently adopted accounting pronouncements
As of January 1, 2022, we adopted Accounting Standards Update (ASU) 2021-05, Leases (Topic 842), which requires a lessor to classify a lease with variable lease payments (that do not depend on an index or rate) as an operating lease if (1) the lease would have been classified as a sales-type or direct financing lease, and (2) the lessor would have recognized a selling loss at lease commencement. These changes are intended to avoid recognizing a day-one loss for a lease with variable payments even though the lessor expects the arrangement will be profitable overall. The adoption of this ASU did not have a material impact on our condensed consolidated financial statements.
2. ACQUISITIONS AND OTHER ARRANGEMENTS
Hillrom
On December 13, 2021, we completed our acquisition of all outstanding equity interests of Hill-Rom Holdings, Inc. (Hillrom) for a purchase price of $10.5 billion. Including the assumption of Hillrom's outstanding debt, the enterprise value of the transaction was approximately $12.8 billion. Under the terms of the transaction agreement, Hillrom shareholders received $156.00 in cash per outstanding Hillrom common share.
The following table summarizes the fair value of the total consideration paid:
| | | | | |
(in millions) | |
Cash consideration paid to Hillrom shareholders(a) | $ | 10,474 | |
Fair value of equity awards issued to Hillrom equity award holders(b) | 2 | |
Total Consideration | $ | 10,476 | |
(a) Represents cash consideration transferred of $156.00 per outstanding Hillrom common share to existing shareholders and holders of equity awards that vested at closing pursuant to their original terms.
(b) Represents the pre-acquisition service portion of the fair value of 668 thousand replacement restricted stock units issued to Hillrom equity award holders at closing.
The valuation of assets acquired and liabilities assumed has not yet been finalized as of September 30, 2022. Finalization of the valuation during the measurement period could result in a change in the amounts recorded for acquired intangible assets, goodwill and income taxes among other items. The completion of the valuation will occur no later than one year from the acquisition date. The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed as of the acquisition date:
| | | | | |
(in millions) | |
Assets acquired and liabilities assumed | |
Cash and cash equivalents | $ | 399 | |
Accounts receivable | 562 | |
Inventories | 557 | |
Prepaid expenses and other current assets | 49 | |
Property, plant and equipment | 514 | |
Goodwill | 6,810 | |
Other intangible assets | 6,029 | |
Operating lease right-of-use assets | 74 | |
Other non-current assets | 132 | |
Short-term debt | (250) | |
Accounts payable | (140) | |
Accrued expenses and other current liabilities | (558) | |
Long-term debt and finance lease obligations | (2,118) | |
Operating lease liabilities | (57) | |
Other non-current liabilities | (1,527) | |
Total assets acquired and liabilities assumed | $ | 10,476 | |
In the first nine months of 2022 we recorded measurement period adjustments, primarily impacting accounts receivable, property, plant and equipment, other intangible assets, and deferred income tax liabilities. Individually the
measurement period adjustments were not material and in total increased goodwill by $25 million. The measurement period adjustments did not have a significant impact to our results of operations.
The goodwill from the Hillrom acquisition, which is not deductible for tax purposes, includes the value of an assembled workforce as well as the overall strategic benefits provided to our product portfolio and is included in the Hillrom segment. See Note 4 for additional information about impairments recognized in the third quarter of 2022 related to goodwill and certain intangible assets acquired in the Hillrom acquisition.
For the nine months ended September 30, 2022, we recognized $159 million of incremental costs of sales from the fair value step-ups on acquired Hillrom inventory that was sold in the first quarter.
Other Business Development Activities
Celerity Pharmaceuticals, LLC
In September 2013, we entered into an agreement with Celerity Pharmaceuticals, LLC (Celerity) to develop certain acute care generic injectable premix and oncolytic products through regulatory approval. We transferred our rights in these products to Celerity and Celerity assumed ownership and responsibility for development of the products. We are obligated to purchase the individual product rights from Celerity if the products obtain regulatory approval. In December 2020, we entered into an agreement with a third party to divest our rights to one of the products that was being developed by Celerity, a generic version of liposomal doxorubicin, for less than $1 million if that product were to receive regulatory approval in the U.S. and European Union in 2022. Liposomal doxorubicin is a chemotherapy medicine used to treat various types of cancer and we entered into this transaction to divest our rights to this generic version of that product after we had separately entered into a transaction to acquire the branded version.
The related regulatory approvals were subsequently obtained for the generic version of liposomal doxorubicin and we recognized a loss of approximately $54 million in the third quarter of 2022, representing the difference between the amount we owe Celerity following those regulatory approvals and the proceeds that we will receive from our divestiture of those product rights. That loss is reported within other operating expense (income), net in our condensed consolidated statements of operations for the three and nine months ended September 30, 2022.
Zosyn
In March 2022, we entered into an agreement with a subsidiary of Pfizer Inc. to acquire the rights to Zosyn, a premixed frozen piperacillin-tazobactam product, in the U.S. and Canada. Zosyn is used for the treatment of intra-abdominal infections, nosocomial pneumonia, skin and skin structure infections, female pelvic infections and community-acquired pneumonia. Under the terms of the acquisition, we paid the acquisition price of $122 million currently, received specified intellectual property, including patent rights, in the first quarter and will receive additional intellectual property, including the product rights to Zosyn, in the first quarter of 2023. Under the arrangement, we are entitled to receive profit sharing payments from sales of Zosyn until the product rights transfer to us in March 2023.
The transaction has been accounted for as an asset acquisition, as substantially all of the fair value of the assets being acquired under the arrangement was concentrated in the product rights that we will receive, which we classify as a developed technology intangible asset. Accordingly, the $122 million purchase price was primarily allocated to the developed technology intangible asset class and will be amortized over an estimated useful life of 9 years.
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, 2022 and 2021. | | | | | | | | | | | | | | |
| Three months ended September 30, | Nine months ended September 30, |
(in millions) | 2022 | 2021 | 2022 | 2021 |
Balance at beginning of period | $ | 125 | | $ | 117 | | $ | 122 | | $ | 125 | |
| | | | |
Charged to costs and expenses | 2 | | 2 | | 11 | | (1) | |
Write-offs | (2) | | (2) | | (4) | | (3) | |
Currency translation adjustments | (5) | | (2) | | (9) | | (6) | |
Balance at end of period | $ | 120 | | $ | 115 | | $ | 120 | | $ | 115 | |
Inventories | | | | | | | | |
(in millions) | September 30, 2022 | December 31, 2021 |
Raw materials | $ | 690 | | $ | 591 | |
Work in process | 305 | | 300 | |
Finished goods | 1,680 | | 1,562 | |
Inventories | $ | 2,675 | | $ | 2,453 | |
Property, Plant and Equipment, Net | | | | | | | | |
(in millions) | September 30, 2022 | December 31, 2021 |
Property, plant and equipment, at cost | $ | 11,084 | | $ | 11,728 | |
Accumulated depreciation | (6,285) | | (6,550) | |
Property, plant and equipment, net | $ | 4,799 | | $ | 5,178 | |
In September 2022, we signed a purchase agreement with a buyer to sell our corporate headquarters in Deerfield, Illinois for $52 million. The related assets are classified as held-for-sale and are presented within prepaid expenses and other current assets in the accompanying consolidated balance sheet as of September 30, 2022. While the closing remains subject to the satisfaction of various closing conditions (including satisfactory completion of municipal diligence by the buyer), we expect the transaction to close in 2023 and the net book value of the assets approximates the transaction price net of estimated selling costs.
Interest Expense, Net | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
(in millions) | 2022 | 2021 | | 2022 | 2021 |
Interest expense, net of capitalized interest | $ | 109 | | $ | 54 | | | $ | 290 | | $ | 128 | |
Interest income | (5) | | (4) | | | (12) | | (10) | |
Interest expense, net | $ | 104 | | $ | 50 | | | $ | 278 | | $ | 118 | |
Other (Income) Expense, Net | | | | | | | | | | | | | | | | | |
| Three months ended September 30, | | Nine months ended September 30, |
(in millions) | 2022 | 2021 | | 2022 | 2021 |
Foreign exchange (gains) losses, net | $ | — | | $ | — | | | $ | (26) | | $ | 5 | |
Pension and other postretirement benefit plans | (5) | | 4 | | | (17) | | 11 | |
Pension curtailment | — | | — | | | (11) | | |