Bausch Health Companies Inc. [BHC] Filings

10-Q 1 bhc-20230930.htm 10-Q bhc-20230930

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, 2023
OR
☐	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: 001-14956

Bausch Health Companies Inc.

(Exact name of registrant as specified in its charter)

British Columbia

Canada

98-0448205

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

2150 St. Elzéar Blvd. West, Laval, Québec, Canada H7L 4A8

(Address of Principal Executive Offices) (Zip Code)

(514) 744-6792

(Registrant’s telephone number, including area code)

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Shares, No Par Value

BHC

New York Stock Exchange

Toronto 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

☒

Accelerated filer

☐

Non-accelerated filer

☐

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. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Common shares, no par value — 365,195,048 shares outstanding as of October 27, 2023.

BAUSCH HEALTH COMPANIES INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023

INDEX


Part I.	Financial Information
Item 1.	Condensed Consolidated Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022	1
	Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023 and 2022	2
	Condensed Consolidated Statements of Comprehensive (Loss) Income for the three and nine months ended September 30, 2023 and 2022	3
	Condensed Consolidated Statements of Shareholders’ (Deficit) Equity for the three and nine months ended September 30, 2023 and 2022	4
	Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2023 and 2022	5
	Notes to the Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	49
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	90
Item 4.	Controls and Procedures	91
Part II.	Other Information
Item 1.	Legal Proceedings	92
Item 1A.	Risk Factors	92
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	92
Item 3.	Defaults Upon Senior Securities	92
Item 4.	Mine Safety Disclosures	92
Item 5.	Other Information	92
Item 6.	Exhibits	92
Signatures		94

BAUSCH HEALTH COMPANIES INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2023

Introductory Note

Except where the context otherwise requires, all references in this Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2023 (this “Form 10-Q”) to the “Company”, “we”, “us”, “our” or similar words or phrases are to Bausch Health Companies Inc. and its subsidiaries, taken together. In this Form 10-Q, references to “$” are to United States (“U.S.”) dollars, references to “€” are to Euros and references to “CAD” are to Canadian dollars. Unless otherwise indicated, the statistical and financial data contained in this Form 10-Q are presented as of September 30, 2023.

Forward-Looking Statements

This Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and may be forward-looking information within the meaning of applicable Canadian securities laws (collectively, “forward-looking statements”), as described in more detail under the heading “Forward-Looking Statements” in Item 2 of Part I of this Form 10-Q. Additional information about these factors and about the material factors or assumptions underlying such forward-looking statements may be found (i) in our Annual Report on Form 10-K for the year ended December 31, 2022, filed on February 23, 2023, under Item 1A. “Risk Factors”; (ii) under Item 1A. “Risk Factors” of Part II of this Form 10-Q; and (iii) in the Company’s other filings with the U.S. Securities and Exchange Commission (the “SEC”) and the Canadian Securities Administrators (the “CSA”). When relying on our forward-looking statements to make decisions with respect to the Company, investors and others should carefully consider such factors and other uncertainties and potential events. These forward-looking statements speak only as of the date made. We undertake no obligation to update or revise any of these forward-looking statements to reflect events or circumstances after the date of this Form 10-Q or to reflect actual outcomes, except as required by law. We caution that, as it is not possible to predict or identify all relevant factors that may impact forward-looking statements, the list of important factors, as described in more detail under the heading “Forward-Looking Statements” in Item 2 of Part I of this Form 10-Q, that may affect future results is not exhaustive and should not be considered a complete statement of all potential risks and uncertainties.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

BAUSCH HEALTH COMPANIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in millions, except share amounts)

(Unaudited)


	September 30, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	760	$	564
Restricted cash	20		27
Trade receivables, net	1,948		1,790
Inventories, net	1,272		1,090
Prepaid expenses and other current assets	1,048		776
Total current assets	5,048		4,247
Property, plant and equipment, net	1,584		1,600
Intangible assets, net	6,728		5,800
Goodwill	11,187		11,547
Deferred tax assets, net	2,189		2,166
Other non-current assets	328		326
Total assets	$	27,064	$	25,686
Liabilities
Current liabilities:
Accounts payable	$	569	$	521
Accrued and other current liabilities	3,119		2,988
Current portion of long-term debt	536		432
Total current liabilities	4,224		3,941
Acquisition-related contingent consideration	247		208
Non-current portion of long-term debt	21,894		20,334
Deferred tax liabilities, net	213		202
Other non-current liabilities	721		741
Total liabilities	27,299		25,426
Commitments and contingencies (Note 17)
(Deficit) Equity
Common shares, no par value, unlimited shares authorized, 365,043,317 and 361,898,846 issued and outstanding at September 30, 2023 and December 31, 2022, respectively	10,420		10,391
Additional paid-in capital	190		159
Accumulated deficit	(9,739)		(9,186)
Accumulated other comprehensive loss	(2,051)		(2,056)
Total Bausch Health Companies Inc. shareholders’ deficit	(1,180)		(692)
Noncontrolling interest	945		952
Total (deficit) equity	(235)		260
Total liabilities and (deficit) equity	$	27,064	$	25,686

The accompanying notes are an integral part of these condensed consolidated financial statements.

BAUSCH HEALTH COMPANIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in millions, except per share amounts)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenues
Product sales	$	2,213	$	2,022	$	6,281	$	5,857
Other revenues	25		24		68		74
	2,238		2,046		6,349		5,931
Expenses
Cost of goods sold (excluding amortization and impairments of intangible assets)	612		573		1,824		1,677
Cost of other revenues	11		11		30		35
Selling, general and administrative	715		661		2,151		1,959
Research and development	153		133		452		387
Amortization of intangible assets	253		290		795		902
Goodwill impairments	402		119		402		202
Asset impairments	4		1		54		15
Restructuring, integration, separation and IPO costs	14		10		40		58
Other expense, net	60		4		—		6

	2,224		1,802		5,748		5,241
Operating income	14		244		601		690
Interest income	6		3		19		8
Interest expense	(339)		(385)		(965)		(1,157)
Gain on extinguishment of debt	—		570		—		683
Foreign exchange and other	(7)		7		(38)		4
(Loss) income before income taxes	(326)		439		(383)		228
Provision for income taxes	(56)		(36)		(181)		(30)
Net (loss) income	(382)		403		(564)		198
Net loss (income) attributable to noncontrolling interest	4		(4)		11		(13)
Net (loss) income attributable to Bausch Health Companies Inc.	$	(378)	$	399	$	(553)	$	185

(Loss) earnings per share attributable to Bausch Health Companies Inc.

Basic	$	(1.03)	$	1.10	$	(1.52)	$	0.51
Diluted	$	(1.03)	$	1.10	$	(1.52)	$	0.51

Weighted-average common shares

Basic	365.4		362.5		364.5		361.8
Diluted	365.4		363.4		364.5		363.7

The accompanying notes are an integral part of these condensed consolidated financial statements.

BAUSCH HEALTH COMPANIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(in millions)

(Unaudited)


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Net (loss) income	$	(382)	$	403	$	(564)	$	198
Other comprehensive (loss) income
Foreign currency translation adjustment	(134)		(243)		—		(465)
Pension and postretirement benefit plan adjustments, net of income taxes	(2)		(1)		(2)		6
Other comprehensive loss	(136)		(244)		(2)		(459)
Comprehensive (loss) income	(518)		159		(566)		(261)
Comprehensive (income) loss attributable to noncontrolling interest	(9)		(23)		18		(32)
Comprehensive (loss) income attributable to Bausch Health Companies Inc.	$	(527)	$	136	$	(548)	$	(293)

The accompanying notes are an integral part of these condensed consolidated financial statements.

BAUSCH HEALTH COMPANIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIT) EQUITY

(in millions)

(Unaudited)


	Bausch Health Companies Inc. Shareholders’ (Deficit) Equity
	Common Shares			Additional Paid-In Capital		Accumulated Deficit		Accumulated Other Comprehensive Loss		Bausch Health Companies Inc. Shareholders’ Deficit		Non- controlling Interest		Total (Deficit) Equity
	Shares	Amount

	Three Months Ended September 30, 2023
Balances, July 1, 2023	364.0	$	10,412	$	188	$	(9,361)	$	(1,902)	$	(663)	$	934	$	271

Common shares issued under share-based compensation plans	1.0	8		(8)		—		—		—		—		—
Share-based compensation	—	—		29		—		—		29		—		29
Employee withholding taxes related to share-based awards	—	—		(8)		—		—		(8)		—		(8)

Vesting of B+L equity compensation	—	—		(11)		—		—		(11)		11		—
Noncontrolling interest distributions	—	—		—		—		—		—		(9)		(9)
Net loss	—	—				(378)		—		(378)		(4)		(382)
Other comprehensive (loss) income	—	—		—				(149)		(149)		13		(136)
Balances, September 30, 2023	365.0	$	10,420	$	190	$	(9,739)	$	(2,051)	$	(1,180)	$	945	$	(235)

	Three Months Ended September 30, 2022
Balances, July 1, 2022	361.6	$	10,380	$	104	$	(9,175)	$	(2,002)	$	(693)	$	946	$	253

Common shares issued under share-based compensation plans	0.2	7		(7)		—		—		—		—		—
Share-based compensation	—	—		33		—		—		33		—		33
Employee withholding taxes related to share-based awards	—	—		(1)		—		—		(1)		—		(1)

Noncontrolling interest distributions	—	—		—		—		—		—		(11)		(11)
Net income	—	—		—		399		—		399		4		403
Other comprehensive (loss) income	—	—		—		—		(263)		(263)		19		(244)
Balances, September 30, 2022	361.8	$	10,387	$	129	$	(8,776)	$	(2,265)	$	(525)	$	958	$	433

	Nine Months Ended September 30, 2023
Balances, January 1, 2023	361.9	$	10,391	$	159	$	(9,186)	$	(2,056)	$	(692)	$	952	$	260

Common shares issued under share-based compensation plans	3.1	29		(29)		—		—		—		—		—
Share-based compensation	—	—		103		—		—		103		—		103
Employee withholding taxes related to share-based awards	—	—		(23)		—		—		(23)		—		(23)
Vesting of B+L equity compensation	—	—		(20)		—		—		(20)		20		—
Noncontrolling interest distributions	—	—		—		—		—		—		(9)		(9)
Net loss	—	—		—		(553)		—		(553)		(11)		(564)
Other comprehensive income (loss)	—	—		—		—		5		5		(7)		(2)
Balances, September 30, 2023	365.0	$	10,420	$	190	$	(9,739)	$	(2,051)	$	(1,180)	$	945	$	(235)

	Nine Months Ended September 30, 2022
Balances, January 1, 2022	359.4	$	10,317	$	462	$	(8,961)	$	(1,924)	$	(106)	$	72	$	(34)
Proceeds from B+L initial public offering, net of costs (Note 2)	—	—		(327)		—		137		(190)		865		675
Common shares issued under share-based compensation plans	2.4	70		(67)		—		—		3		—		3
Share-based compensation	—	—		91		—		—		91		—		91
Employee withholding taxes related to share-based awards	—	—		(30)		—		—		(30)		—		(30)
Noncontrolling interest distributions	—	—		—		—		—		—		(11)		(11)
Net income	—	—		—		185		—		185		13		198
Other comprehensive (loss) income	—	—		—		—		(478)		(478)		19		(459)
Balances, September 30, 2022	361.8	$	10,387	$	129	$	(8,776)	$	(2,265)	$	(525)	$	958	$	433

The accompanying notes are an integral part of these condensed consolidated financial statements.

BAUSCH HEALTH COMPANIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in millions)

(Unaudited)


	Nine Months Ended September 30,
	2023		2022
Cash Flows From Operating Activities
Net (loss) income	$	(564)	$	198
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
Depreciation and amortization of intangible assets	935		1,034
Amortization and write-off of debt premiums, discounts and issuance costs	51		86
Asset impairments	54		15
Goodwill impairments	402		202
Acquisition-related contingent consideration	40		2
Allowances for losses on trade receivable and inventories	43		36
Deferred income taxes	(33)		(195)
Net gain on sale of assets	(4)		(3)
Adjustments to accrued legal settlements	24		7
Payments of accrued legal settlements	(3)		(1,572)
Share-based compensation	103		91
Foreign exchange loss (gain)	23		(1)
Gain excluded from hedge effectiveness	(10)		(3)
Gain on extinguishment of debt	—		(683)
Third party fees paid in connection with the Exchange Offer	(2)		(31)

Payments of contingent consideration adjustments, including accretion	(4)		(1)
Other	(1)		(11)
Changes in operating assets and liabilities:
Trade receivables	(176)		(26)
Inventories	(222)		(194)
Prepaid expenses and other current assets	(75)		(32)
Accounts payable, accrued and other liabilities	61		(122)
Net cash provided by (used in) operating activities	642		(1,203)
Cash Flows From Investing Activities
Acquisitions and other investments	(1,887)		—
Purchases of property, plant and equipment	(117)		(152)
Payments for intangible and other assets	(11)		(20)
Purchases of marketable securities	(13)		(15)
Proceeds from sale of marketable securities	13		20
Proceeds from sale of assets and businesses, net of costs to sell	5		—
Interest settlements from cross-currency swaps	13		—
Net cash used in investing activities	(1,997)		(167)
Cash Flows From Financing Activities
Issuance of long-term debt, net of discounts	3,145		6,481
Repayments of long-term debt	(1,507)		(7,224)


Proceeds from B+L initial public offering, net of costs	—		675
Payments of employee withholding taxes related to share-based awards	(23)		(30)
Payments of acquisition-related contingent consideration	(17)		(19)
Payments of financing costs	(36)		(71)
Other	(8)		(10)
Net cash provided by (used in) financing activities	1,554		(198)
Effect of exchange rate changes on cash, cash equivalents and other	(10)		(54)
Net increase (decrease) in cash, cash equivalents, restricted cash and other settlement deposits	189		(1,622)
Cash, cash equivalents, restricted cash and other settlement deposits, beginning of period	591		2,119
Cash, cash equivalents, restricted cash and other settlement deposits, end of period	$	780	$	497
Cash and cash equivalents	$	760	$	486
Restricted cash	20		11

Cash, cash equivalents, restricted cash and other settlement deposits, end of period	$	780	$	497

The accompanying notes are an integral part of these condensed consolidated financial statements.

BAUSCH HEALTH COMPANIES INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1.DESCRIPTION OF BUSINESS

Bausch Health Companies Inc. (the “Company” or “Bausch Health”) is a global, diversified specialty pharmaceutical and medical device company that develops, manufactures and markets, primarily in the therapeutic areas of gastroenterology (“GI”), hepatology, neurology and dermatology, a broad range of branded, generic and branded generic pharmaceuticals, over-the-counter (“OTC”) products and aesthetic medical devices, and, through its approximately 89% ownership of Bausch + Lomb Corporation (“Bausch + Lomb” or “B+L”), branded, and branded generic pharmaceuticals, OTC products and medical devices (contact lenses, intraocular lenses, ophthalmic surgical equipment) in the therapeutic areas of eye health. The Company’s products are marketed directly or indirectly in approximately 100 countries.

2.SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Use of Estimates

The accompanying unaudited Condensed Consolidated Financial Statements have been prepared by the Company in U.S. dollars and in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial reporting, which do not conform in all respects to the requirements of U.S. GAAP for annual financial statements. Accordingly, these notes to the unaudited Condensed Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements prepared in accordance with U.S. GAAP that are contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the U.S. Securities and Exchange Commission (the “SEC”) and the Canadian Securities Administrators (the “CSA”) on February 23, 2023. The unaudited Condensed Consolidated Financial Statements have been prepared using accounting policies that are consistent with the policies used in preparing the Company’s audited Consolidated Financial Statements for the year ended December 31, 2022. The unaudited Condensed Consolidated Financial Statements reflect all normal and recurring adjustments necessary for a fair statement of the Company’s financial position and results of operations for the interim periods. The operating results for the interim periods presented are not necessarily indicative of the results expected for the full year.

Separation of the Bausch + Lomb Eye Health Business

On August 6, 2020, the Company announced its plan to separate its eye health business, consisting of its Bausch + Lomb global Vision Care, Surgical and Pharmaceuticals (formerly known as Ophthalmic Pharmaceuticals) businesses into an independent publicly traded entity, Bausch + Lomb, from the remainder of Bausch Health Companies Inc. (the “B+L Separation”). On May 5, 2022, the registration statement related to the initial public offering of Bausch +Lomb (the “B+L IPO”) was declared effective, and B+L’s common stock began trading on the New York Stock Exchange and the Toronto Stock Exchange, in each case under the ticker symbol “BLCO” on May 6, 2022. Prior to the effectiveness of the registration statement, B+L was an indirect wholly-owned subsidiary of Bausch Health. On May 10, 2022, a wholly owned subsidiary of Bausch Health sold 35,000,000 common shares of B+L pursuant to the B+L IPO. Upon the closing of the B+L IPO and after giving effect to the subsequent partial exercise of the over-allotment option by the underwriters, Bausch Health indirectly holds 310,449,643 common shares of Bausch + Lomb, which represents approximately 89% of B+L’s outstanding common shares as of September 30, 2023.

The completion of the full B+L Separation, which includes the transfer of all or a portion of BHC’s remaining direct or indirect equity interest in Bausch + Lomb to its shareholders (the “Distribution”), is subject to the achievement of targeted debt leverage ratios and the receipt of applicable shareholder and other necessary approvals. The Company continues to evaluate all relevant factors and considerations related to completing the B+L Separation, including the effect of the Norwich Legal Decision (see “Xifaxan® Paragraph IV Proceedings” of Note 17, “LEGAL PROCEEDINGS”) on the B+L Separation.

The B+L IPO established two separate companies that include: (i) a diversified pharmaceutical company comprised of the Salix, International, Diversified (dentistry, neurology, medical dermatology and generics pharmaceutical), and Solta Medical aesthetic medical device businesses and (ii) a fully integrated eye health company which consists of the Bausch + Lomb Vision Care, Surgical and Pharmaceuticals businesses. Other than the effects of the B+L IPO described above, these unaudited Condensed Consolidated Financial Statements do not include any adjustments to give effect to the B+L Separation.

Use of Estimates

In preparing the unaudited Condensed Consolidated Financial Statements, management is required to make estimates and assumptions. The estimates and assumptions used by the Company affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the unaudited Condensed Consolidated Financial Statements, and

the reported amounts of revenue and expenses during the reporting periods. Actual results could differ from these estimates and the differences could be material.

On an ongoing basis, management reviews its estimates to ensure that these estimates appropriately reflect changes in the Company’s business and new information as it becomes available. If historical experience and other factors used by management to make these estimates do not reasonably reflect future activity, the Company’s results of operations and financial position could be materially impacted.

Principles of Consolidation

The unaudited Condensed Consolidated Financial Statements include the accounts of the Company and those of its subsidiaries and any variable interest entities for which the Company is the primary beneficiary. All intercompany transactions and balances have been eliminated.

Reclassifications

Certain reclassifications have been made to prior year amounts to conform to the current year presentation.

3.REVENUE RECOGNITION

The Company’s revenues are primarily generated from product sales, primarily in the therapeutic areas of GI, hepatology, neurology, dermatology and eye health, that consist of: (i) branded pharmaceuticals, (ii) generic and branded generic pharmaceuticals, (iii) OTC products and (iv) medical devices (contact lenses, intraocular lenses, ophthalmic surgical equipment and aesthetic medical devices). Other revenues include alliance and service revenue from the licensing and co-promotion of products and contract service revenue which is derived primarily from contract manufacturing for third parties and which is not material. See Note 18, “SEGMENT INFORMATION” for the disaggregation of revenue which depicts how the nature, amount, timing and uncertainty of revenue and cash flows are affected by the economic factors of each category of customer contracts.

Product Sales Provisions

As is customary in the pharmaceutical industry, gross product sales are subject to a variety of deductions in arriving at reported net product sales. The transaction price for product sales is typically adjusted for variable consideration, which may be in the form of cash discounts, allowances, returns, rebates, chargebacks and distribution fees paid to customers. Provisions for variable consideration are established to reflect the Company’s best estimates of the amount of consideration to which it is entitled based on the terms of the contract. The amount of variable consideration included in the transaction price may be constrained, and is included in the net sales price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period.

Provisions for these deductions are recorded concurrently with the recognition of gross product sales revenue and include cash discounts and allowances, chargebacks, and distribution fees, which are paid to direct customers, as well as rebates and returns, which can be paid to direct and indirect customers. Returns provision balances and volume discounts to direct customers are included in Accrued and other current liabilities. All other provisions related to direct customers are included in Trade receivables, net, while provision balances related to indirect customers are included in Accrued and other current liabilities.

The Company continually monitors its variable consideration provisions and evaluates the estimates used as additional information becomes available. Adjustments will be made to these provisions periodically to reflect new facts and circumstances that may indicate that historical experience may not be indicative of current and/or future results. The Company is required to make subjective judgments based primarily on its evaluation of current market conditions and trade inventory levels related to the Company’s products. This evaluation may result in an increase or decrease in the experience rate that is applied to current and future sales, or require an adjustment related to past sales, or both. If the trend in actual amounts of variable consideration varies from the Company’s prior estimates, the Company adjusts these estimates when such trend is believed to be sustainable. At that time, the Company would record the necessary adjustments which would affect net product revenue and earnings reported in the current period. The Company applies this method consistently for contracts with similar characteristics.

The following tables present the activity and ending balances of the Company’s variable consideration provisions for the nine months ended September 30, 2023 and 2022.


	Nine Months Ended September 30, 2023
(in millions)	Discounts and Allowances		Returns		Rebates		Chargebacks		Distribution Fees		Total
Reserve balances, January 1, 2023	$	188	$	427	$	1,023	$	196	$	76	$	1,910
Current period provisions	457		103		2,071		1,514		190		4,335
Payments and credits	(462)		(147)		(2,017)		(1,501)		(171)		(4,298)
Reserve balances, September 30, 2023	$	183	$	383	$	1,077	$	209	$	95	$	1,947

Included in Rebates in the table above are cooperative advertising credits due to customers of approximately $47 million and $40 million as of September 30, 2023 and January 1, 2023, respectively, which are reflected as a reduction of Trade receivables, net in the Condensed Consolidated Balance Sheets. There were no price appreciation credits during the nine months ended September 30, 2023.


	Nine Months Ended September 30, 2022
(in millions)	Discounts and Allowances		Returns		Rebates		Chargebacks		Distribution Fees		Total
Reserve balances, January 1, 2022	$	222	$	482	$	944	$	170	$	45	$	1,863
Current period provisions	427		84		1,911		1,558		165		4,145
Payments and credits	(452)		(145)		(1,847)		(1,532)		(88)		(4,064)
Reserve balances, September 30, 2022	$	197	$	421	$	1,008	$	196	$	122	$	1,944

Included in Rebates in the table above are cooperative advertising credits due to customers of approximately $43 million and $36 million as of September 30, 2022 and January 1, 2022, respectively, which are reflected as a reduction of Trade receivables, net in the Condensed Consolidated Balance Sheets. There were no price appreciation credits during the nine months ended September 30, 2022.

Contract Assets and Contract Liabilities

There are no contract assets for any period presented. Contract liabilities consist of deferred revenue, the balance of which is not material to any period presented.

Allowance for Credit Losses

An allowance is maintained for potential credit losses. The Company estimates the current expected credit loss on its receivables based on various factors, including historical credit loss experience, customer credit worthiness, value of collateral (if any), and any relevant current and reasonably supportable future economic factors. Additionally, the Company generally estimates the expected credit loss on a pool basis when customers are deemed to have similar risk characteristics. Trade receivable balances are written off against the allowance when it is deemed probable that the trade receivable will not be collected. Trade receivables, net are stated net of certain sales provisions and the allowance for credit losses. The activity in the allowance for credit losses for trade receivables for the nine months ended September 30, 2023 and 2022 is as follows.


(in millions)	2023		2022
Balance, beginning of period	$	33	$	35
Provision for expected credit losses	3		(2)
Write-offs charged against the allowance	(3)		—
Recoveries of amounts previously written off	3		4
Foreign exchange and other	(3)		(3)
Balance, end of period	$	33	$	34

4.LICENSING AGREEMENTS AND ACQUISITIONS

Licensing Agreements

In the normal course of business, the Company may enter into select licensing and collaborative agreements for the commercialization and/or development of unique products. These products are sometimes investigational treatments in early stage development that target unique conditions. The ultimate outcome, including whether the product will be: (i) fully developed, (ii) approved by regulatory agencies, (iii) covered by third-party payors or (iv) profitable for distribution, is highly uncertain. The commitment periods under these agreements vary and include customary termination provisions. Expenses arising from commitments, if any, to fund the development and testing of these products and their promotion are recognized as incurred. Royalties due are recognized when earned and milestone payments are accrued when each milestone has been achieved and payment is probable and can be reasonably estimated.

Bausch + Lomb Acquisition of XIIDRA®

On June 30, 2023, a wholly owned subsidiary of Bausch + Lomb, Bausch + Lomb Ireland Limited, entered into a Stock and Asset Purchase Agreement (the “Acquisition Agreement”) with Novartis Pharma AG and Novartis Finance Corporation (together with Novartis Pharma AG, “Novartis”) and, solely for purposes of guaranteeing certain obligations of the acquiring entity under the Acquisition Agreement, Bausch + Lomb, to acquire XIIDRA® (lifitegrast ophthalmic solution) and certain other ophthalmology assets (the “XIIDRA Acquisition”).

On September 29, 2023, under the terms of the Acquisition Agreement, Bausch + Lomb, through its affiliate, consummated the XIIDRA Acquisition for: (i) an upfront cash payment of $1,750 million, (ii) the assumption of certain pre-existing milestone payments and (iii) potential future milestone obligations of up to $750 million, as discussed below. The strategic XIIDRA Acquisition is expected to complement Bausch + Lomb’s existing dry eye franchise that includes eye and contact lens drops from Bausch + Lomb’s consumer brand franchises and novel treatments within its pharmaceutical business such as MIEBO™ (perfluorohexyloctane ophthalmic solution). The assets acquired and liabilities assumed are included within Bausch + Lomb’s Pharmaceuticals business.

The XIIDRA Acquisition has been accounted for as a business combination under the acquisition method of accounting. The estimated aggregate acquisition consideration of approximately $1,753 million is calculated as follows:


(in millions)
Cash consideration paid to Novartis at closing, per the Acquisition Agreement	$	1,750
Estimated fair value of contingent consideration	3
Preliminary aggregate purchase consideration	$	1,753

The upfront cash payment of $1,750 million was paid on September 29, 2023, using the proceeds received from the issuance of the B+L October 2028 Secured Notes and the establishment of the B+L September 2028 Term Facility, each as defined and further discussed in Note 10, “FINANCING ARRANGEMENTS”.

Contingent consideration included as part of the consideration relates to potential future milestone obligations of up to $750 million, including: (i) up to $475 million in cash payable upon the achievement of specified commercialization and sales milestones for certain pipeline products and (ii) up to $275 million in cash payable upon the achievement of specified sales milestones for XIIDRA®. The fair value of the contingent consideration recognized on the acquisition date of $3 million was estimated by using the inputs disclosed in Note 6, “FAIR VALUE MEASUREMENTS”. Bausch + Lomb reassesses its acquisition-related contingent consideration liabilities each quarter for changes in fair value.

Assets Acquired and Liabilities Assumed

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed related to the XIIDRA Acquisition as of the acquisition date:


(in millions)
Intangible assets, net	$	1,595
Prepaid expenses and other current assets	167
Accrued and other current liabilities	(1)
Other non-current liabilities	(31)
Total identifiable net assets	1,730
Goodwill	23
Total fair value of consideration transferred	$	1,753

The fair value of the identifiable intangible assets is determined primarily using the “income approach,” which requires a forecast of the expected future cash flows. The intangible assets acquired, as well as their fair values and estimated useful life consist of the following:


(in millions)	Fair Value		Estimated Useful Life (In Years)
Product brands	$	1,590	8.75
Acquired in-process research and development intangible asset	5		N/A
Total Intangible assets, net	$	1,595

Prepaid expenses and other current assets associated with the XIIDRA Acquisition represent the terms of an interim contract to purchase inventory, as embedded within the agreements associated with the XIIDRA Acquisition. The favorable contract will be released to Cost of goods sold (excluding amortization and impairments of intangible assets) as Bausch + Lomb acquires inventory from Novartis. The balance of this favorable contract will be fully released to the Condensed Consolidated Statements of Operations over an assumed inventory turnover cycle of approximately two years.

Other non-current liabilities associated with the XIIDRA Acquisition represent the fair value of the historical contingent consideration liability assumed from Novartis by Bausch + Lomb as a part of the acquisition. The fair value of the assumed contingent consideration recognized on the acquisition date was $31 million and was estimated by using a discount rate of 11%.

Goodwill associated with the XIIDRA Acquisition represents the workforce acquired as well as future operating efficiencies and cost savings. Substantially all of the goodwill associated with the XIIDRA Acquisition is deductible for income tax purposes.

The valuation of assets acquired and liabilities assumed, as part of the XIIDRA Acquisition, has not been finalized as of September 30, 2023. The fair value estimates for the assets acquired and liabilities assumed were based upon preliminary valuations. The primary areas that could be subject to change relate to the finalization of the valuation of intangible assets, prepaid expenses and other current assets, other non-current liabilities and Goodwill. Bausch + Lomb will finalize these amounts no later than one year from the acquisition date.

Revenue and Operating Results

Revenues and operating results associated with the XIIDRA Acquisition from the date of acquisition through September 30, 2023 were not material.

Pro Forma Financial Information

The following table presents the unaudited pro forma condensed combined results of the Company and the acquired assets for the three and nine months ended September 30, 2023 and 2022 as if the XIIDRA Acquisition, and the related financing had occurred on January 1, 2022:


	Three Months Ended September 30,				Nine Months Ended September 30,
(in millions)	2023		2022		2023		2022
Revenues	$	2,302	$	2,155	$	6,598	$	6,273
Net (loss) income	$	(466)	$	355	$	(783)	$	(42)
Net (loss) income attributable to Bausch Health Companies Inc.	$	(448)	$	332	$	(732)	$	(49)

The unaudited pro forma condensed combined financial information was prepared using the acquisition method of accounting and was based on the historical financial information of the Company and the acquired assets. In order to reflect the occurrence of the acquisition on January 1, 2022 as required, the unaudited pro forma financial information includes adjustments to reflect incremental amortization expense to be incurred based on (i) the current preliminary fair values of the identifiable intangible assets acquired, (ii) the incremental cost of products sold related to the fair value adjustments associated with the terms of an interim contract to purchase inventory, as embedded within the agreements associated with the XIIDRA Acquisition, (iii) the elimination of historical impairments and accretion expenses related to historical contingent considerations recorded by Novartis, (iv) the recording of new/assumed contingent consideration accretion expense, (v) the additional interest expense associated with the issuance of debt to finance the acquisition and (vi) the tax impact of each of the aforementioned adjustments.

Included in the Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2023 are: (i) acquisition-related transaction costs, included within Other expense, net, of $14 million, which are directly related to the XIIDRA Acquisition, and include expenditures for representation and warranty insurance premiums, legal, valuation, accounting and other similar professional services and (ii) acquisition-related financing costs, included within Interest expense, of $16 million, which are directly related to the XIIDRA Acquisition, and include expenditures for certain upfront financing commitment costs related to debt financing commitments in place prior to the XIIDRA Acquisition, the issuance of the B+L October 2028 Secured Notes and the establishment of the B+L September 2028 Term Facility, each as defined and further discussed in Note 10, “FINANCING ARRANGEMENTS”. These acquisition-related transaction and financing costs are reflected in pro forma Net (loss) income attributable to Bausch Health Companies Inc., in the table above, for the nine months ended September 30, 2022.

The unaudited pro forma financial information is not necessarily indicative of what the consolidated results of operations would have been, had the XIIDRA Acquisition been completed on January 1, 2022. In addition, the unaudited pro forma financial information is not a projection of future results of operations of the combined company nor does it reflect the expected realization of any synergies or cost savings associated with the acquisition.

Acquisition of Blink® Product Line

On July 6, 2023, Bausch + Lomb announced that it had consummated a transaction with Johnson & Johnson Vision, pursuant to which Bausch + Lomb, through an affiliate, acquired the Blink® product line of eye and contact lens drops, which consists of Blink® Tears Lubricating Eye Drops, Blink® Tears Preservative Free Lubricating Eye Drops, Blink GelTears® Lubricating Eye Drops, Blink® Triple Care Lubricating Eye Drops, Blink Contacts® Lubricating Eye Drops and Blink-N-Clean® Lens Drops. This acquisition was made by Bausch + Lomb to continue to grow its global over-the-counter business. Under the terms of the purchase agreement, Bausch + Lomb, through an affiliate, acquired the Blink® product line of eye and contact lens drops for an upfront cash payment of $107 million, which was paid on the closing of the transaction in early July 2023. The acquired assets are included within Bausch + Lomb's Vision Care business.

Bausch + Lomb accounted for the transaction as an asset acquisition. The acquired assets consist of inventory and intangible assets. The intangible assets acquired, their fair values and estimated useful lives consist of the following:


(in millions)	Fair Value		Estimated Useful Life (In Years)
Corporate brands	$	72	12
Product brands	12		10
Technology and other	6		9
Total Intangible assets, net	$	90

Acquisition of AcuFocus

On January 17, 2023, Bausch + Lomb acquired AcuFocus, Inc., an ophthalmic medical device company, for an upfront payment of $35 million, $31 million of which was paid in January 2023, with the remaining purchase price to be paid within 18 months following the date of the transaction, less any amounts that are the subject of any indemnification claims. The acquisition was made to acquire certain small aperture intraocular technology for the treatment of certain cataract conditions. Additional contingent payments may be payable upon achievement of future sales milestones. Bausch + Lomb recorded an initial acquisition-related contingent consideration liability of approximately $5 million.

As a result of this transaction, recorded within the Condensed Consolidated Balance Sheets are Intangibles, net of $28 million, Goodwill of $8 million, other assets of $9 million and liabilities of $6 million.

5.RESTRUCTURING, INTEGRATION, SEPARATION AND IPO COSTS

Restructuring and Integration Costs

The Company evaluates opportunities to improve its operating results and implement cost savings programs to streamline its operations and eliminate redundant processes and expenses. Restructuring and integration costs are expenses associated with the implementation of these cost savings programs and include expenses associated with: (i) reducing headcount, (ii) eliminating real estate costs associated with unused or under-utilized facilities and (iii) implementing contribution margin improvement and other cost reduction initiatives.

The Company incurred $37 million and $28 million of restructuring and integration costs during the nine months ended September 30, 2023 and 2022, respectively.

Separation Costs, Separation-related Costs, IPO Costs and IPO-related Costs

The Company has incurred, and will incur, costs associated with activities relating to the B+L Separation. In 2022, the Company also incurred costs associated with activities relating to the then planned initial public offering of its aesthetic medical device business, Solta Medical (the “Solta IPO”), which was suspended in June 2022. These B+L Separation and Solta IPO activities include: (i) separating the Bausch + Lomb and, in 2022, Solta Medical businesses from the remainder of the Company, (ii) completing the B+L IPO and, in 2022, preparing for the suspended Solta IPO and (iii) the actions necessary for Bausch + Lomb to become an independent publicly traded entity. Separation and IPO costs are incremental costs directly related to the B+L Separation and, in 2022, the suspended Solta IPO and include, but are not limited to: (i) legal, audit and advisory fees, (ii) talent acquisition costs and (iii) costs associated with establishing a new board of directors and related board committees for Bausch + Lomb. Included in Restructuring, integration, separation and IPO costs for the nine months ended September 30, 2023 and 2022 are separation and IPO costs of $3 million and $30 million, respectively.

The Company has incurred, and expects to continue to incur, incremental costs with respect to the B+L Separation. During 2022, the Company also incurred incremental costs indirectly related to the suspended Solta IPO. These separation-related and IPO-related costs include, but are not limited to: (i) IT infrastructure and software licensing costs, (ii) rebranding costs, (iii) costs associated with facility relocation and/or modification and (iv) research and development costs. Included in Selling, general and administrative expenses for the nine months ended September 30, 2023 and 2022 are separation-related and IPO-related costs of $18 million and $84 million, respectively.

The extent and timing of future charges of these costs to complete the B+L Separation cannot be reasonably estimated at this time and could be material.

6.FAIR VALUE MEASUREMENTS AND FINANCIAL INSTRUMENTS

Fair value measurements are estimated based on valuation techniques and inputs categorized as follows:

•Level 1 — Quoted prices in active markets for identical assets or liabilities;

•Level 2 — Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

•Level 3 — Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using discounted cash flow methodologies, pricing models, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation.

If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.

Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following fair value hierarchy table presents the components and classification of the Company’s financial assets and liabilities measured at fair value on a recurring basis:

September 30, 2023

December 31, 2022

(in millions)

Carrying
Value

Level 1

Level 2

Level 3

Carrying
Value

Level 1

Level 2