Baxter International Inc 10-Q for FY2024 Q3
Baxter International Inc (BAX)
10-Q
2024-11-12
For: 2024-09-30
View Original
Added on
April 11, 2026
About this 10-Q
Baxter International Inc filed this 10-Q on November 12, 2024, covering the quarter ended September 30, 2024 (FY2024 Q3).
Headline figures
Quarter ended September 30, 2024, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $2.7B
- up 3.8% from $2.6B a year earlier
- Net income
- $140M
- down 94.4% from net income of $2.51B a year earlier
- Diluted EPS
- $0.27
- down 94.5% from $4.93 a year earlier
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
_________________________________________________________________________________
(Exact name of registrant as specified in its charter)
_________________________________________________________________________________
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||||||||
| (Address of Principal Executive Offices) | (Zip Code) | |||||||||||||
| (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 | ||||||||||||
| NYSE Chicago | ||||||||||||||
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.
| 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 | ||||||||
| Item 1A. | ||||||||
| Item 5. | ||||||||
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 | $ | |||||||
Accounts receivable, net of allowances of $ | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Current assets of discontinued operations | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Goodwill | ||||||||
| Other intangible assets, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Other non-current assets | ||||||||
| Non-current assets of discontinued operations | ||||||||
| Total assets | $ | $ | ||||||
| Current liabilities: | ||||||||
| Current maturities of long-term debt and finance lease obligations | $ | $ | ||||||
| Accounts payable | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Current liabilities of discontinued operations | ||||||||
| Total current liabilities | ||||||||
| Long-term debt and finance lease obligations, less current portion | ||||||||
| Operating lease liabilities | ||||||||
| Other non-current liabilities | ||||||||
| Non-current liabilities of discontinued operations | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Equity: | ||||||||
Common stock, $ | ||||||||
Common stock in treasury, at cost, | ( | ( | ||||||
| Additional contributed capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ( | ||||||
| Total Baxter stockholders’ equity | ||||||||
| Noncontrolling interests | ||||||||
| Total equity | ||||||||
| Total liabilities and equity | $ | $ | ||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
2
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 | $ | $ | $ | $ | |||||||||||||
| Cost of sales | |||||||||||||||||
| Gross margin | |||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||
| Research and development expenses | |||||||||||||||||
| Other operating income, net | ( | ( | ( | ||||||||||||||
| Operating income | |||||||||||||||||
| Interest expense, net | |||||||||||||||||
| Other (income) expense, net | ( | ( | ( | ||||||||||||||
| Income from continuing operations before income taxes | |||||||||||||||||
| Income tax expense | |||||||||||||||||
| Income (loss) from continuing operations | ( | ||||||||||||||||
| Income (loss) from discontinued operations, net of tax | ( | ||||||||||||||||
| Net income (loss) | ( | ||||||||||||||||
| Net income attributable to noncontrolling interests included in continuing operations | |||||||||||||||||
| Net income attributable to noncontrolling interests included in discontinued operations | |||||||||||||||||
| Net income attributable to noncontrolling interests | |||||||||||||||||
| Net income (loss) attributable to Baxter stockholders | $ | $ | $ | ( | $ | ||||||||||||
| Income (loss) from continuing operations per common share | |||||||||||||||||
| Basic | $ | $ | $ | $ | ( | ||||||||||||
| Diluted | $ | $ | $ | $ | ( | ||||||||||||
| Income (loss) from discontinued operations per common share | |||||||||||||||||
| Basic | $ | $ | $ | ( | $ | ||||||||||||
| Diluted | $ | $ | $ | ( | $ | ||||||||||||
| Income (loss) per common share | |||||||||||||||||
| Basic | $ | $ | $ | ( | $ | ||||||||||||
| Diluted | $ | $ | $ | ( | $ | ||||||||||||
| Weighted-average number of shares outstanding | |||||||||||||||||
| Basic | |||||||||||||||||
| Diluted | |||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
3
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 | $ | $ | $ | $ | ( | ||||||||||||
| Other comprehensive income (loss) from continuing operations, net of tax: | |||||||||||||||||
Currency translation adjustments, net of tax expense (benefit) of ($ | ( | ( | ( | ||||||||||||||
Pension and other postretirement benefits, net of tax expense (benefit) of ($ | ( | ( | ( | ( | |||||||||||||
Hedging activities, net of tax expense (benefit) of ($ | ( | ||||||||||||||||
| Total other comprehensive income (loss) from continuing operations, net of tax | ( | ( | ( | ||||||||||||||
| Comprehensive loss from continuing operations | ( | ||||||||||||||||
| Income (loss) from discontinued operations, net of tax | ( | ||||||||||||||||
| Other comprehensive income (loss) from discontinued operations | |||||||||||||||||
Currency translation adjustments, net of tax expense (benefit) of $( | ( | ||||||||||||||||
Pension and other postretirement benefits, net of tax expense (benefit) of | ( | ( | ( | ||||||||||||||
| Total other comprehensive income (loss) from discontinued operations | ( | ||||||||||||||||
| Comprehensive income (loss) from discontinued operations | ( | ||||||||||||||||
| Comprehensive income (loss) | ( | ||||||||||||||||
| Less: Comprehensive income attributable to noncontrolling interests | |||||||||||||||||
| Less: Other comprehensive loss attributable to noncontrolling interests | ( | ||||||||||||||||
| Comprehensive income (loss) attributable to Baxter stockholders | $ | $ | $ | ( | $ | ||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
4
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 | $ | $ | ( | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | — | — | |||||||||||||||||||||||||
| Stock issued under employee benefit plans and other | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Dividends declared on common stock | — | — | — | — | — | ( | — | ( | — | ( | ||||||||||||||||||||||
| Change in noncontrolling interests | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
Balance as of September 30, 2024 | $ | $ | ( | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||
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 | $ | $ | ( | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||
| Net loss | — | — | — | — | — | ( | — | ( | ( | |||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | — | ( | ( | ( | ( | ||||||||||||||||||||||
| Stock issued under employee benefit plans and other | — | — | ( | — | — | — | ||||||||||||||||||||||||||
| Dividends declared on common stock | — | — | — | — | — | ( | — | ( | — | ( | ||||||||||||||||||||||
| Change in noncontrolling interests | — | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||
Balance as of September 30, 2024 | $ | $ | ( | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||
| 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 | $ | $ | ( | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | — | — | |||||||||||||||||||||||||
| Stock issued under employee benefit plans and other | — | — | ( | — | — | — | ||||||||||||||||||||||||||
| Dividends declared on common stock | — | — | — | — | — | ( | — | ( | — | ( | ||||||||||||||||||||||
| Balance as of September 30, 2023 | $ | $ | ( | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||
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 | $ | $ | ( | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||
| Net income | — | — | — | — | — | — | ||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | — | — | — | |||||||||||||||||||||||||
| Stock issued under employee benefit plans and other | — | — | ( | — | — | — | ||||||||||||||||||||||||||
| Dividends declared on common stock | — | — | — | — | — | ( | — | ( | — | ( | ||||||||||||||||||||||
| Change in noncontrolling interests | — | — | — | — | — | — | — | — | ( | ( | ||||||||||||||||||||||
Balance as of September 30, 2023 | $ | $ | ( | $ | $ | $ | ( | $ | $ | $ | ||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
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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) | $ | ( | $ | |||||
| Less: Income (loss) from discontinued operations, net of tax | ( | |||||||
| Income (loss) from continuing operations | ( | |||||||
| Adjustments to reconcile net loss to cash flows from operations: | ||||||||
| Depreciation and amortization | ||||||||
| Deferred income taxes | ( | ( | ||||||
| Stock compensation | ||||||||
| Net periodic pension and other postretirement costs | ( | ( | ||||||
| Other long-lived asset impairments | ||||||||
| Other | ||||||||
| Changes in balance sheet items: | ||||||||
| Accounts receivable, net | ( | |||||||
| Inventories | ( | ( | ||||||
| Prepaid expenses and other current assets | ( | ( | ||||||
| Accounts payable | ||||||||
| Accrued expenses and other current liabilities | ( | |||||||
| Other | ( | ( | ||||||
| Cash flows from operations - continuing operations | ||||||||
| Cash flows from operations - discontinued operations | ||||||||
| Cash flows from operations | ||||||||
| Cash flows from investing activities | ||||||||
| Capital expenditures | ( | ( | ||||||
| Acquisitions of developed technology and investments | ( | ( | ||||||
| Proceeds from sale of marketable equity securities | ||||||||
| Other investing activities, net | ||||||||
| Cash flows from investing activities - continuing operations | ( | ( | ||||||
| Cash flows from investing activities - discontinued operations | ( | |||||||
| Cash flows from investing activities | ( | |||||||
| Cash flows from financing activities | ||||||||
| Repayments of debt | ( | ( | ||||||
| Net increases in debt with original maturities of three months or less | ||||||||
| Cash dividends on common stock | ( | ( | ||||||
| Proceeds from stock issued under employee benefit plans | ||||||||
| Other financing activities, net | ( | ( | ||||||
| Cash flows from financing activities | ( | ( | ||||||
| Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash - continuing operations | ( | ( | ||||||
| Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash - discontinued operations | ||||||||
| Increase (decrease) in cash, cash equivalents and restricted cash | ( | |||||||
Cash, cash equivalents and restricted cash at beginning of period (1) | ||||||||
Cash, cash equivalents and restricted cash at end of period (1) | ||||||||
| Less cash and cash equivalents of discontinued operations | ||||||||
| Cash, cash equivalents and restricted cash of continuing operations | $ | $ | ||||||
(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 | $ | $ | $ | ||||||||
| Restricted cash included in other non-current assets | |||||||||||
| Cash, cash equivalents and restricted cash | $ | $ | $ | ||||||||
The accompanying notes are an integral part of these condensed consolidated financial statements.
6
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).
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
7
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
8
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 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Cost of sales | ||||||||||||||||||||||||||
| Gross margin | ||||||||||||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||||||||||||
| Research and development expenses | ||||||||||||||||||||||||||
| Other operating income, net | ( | ( | ||||||||||||||||||||||||
| Operating income (loss) | ( | ( | ||||||||||||||||||||||||
| Interest expense, net | ||||||||||||||||||||||||||
| Other (income) expense, net | ( | ( | ||||||||||||||||||||||||
| Income (loss) from discontinued operations before gain on disposition and income taxes | ( | ( | ||||||||||||||||||||||||
| Gain on disposition | ||||||||||||||||||||||||||
| Income tax expense (benefit) | ( | |||||||||||||||||||||||||
| Income from discontinued operations, net of tax | ||||||||||||||||||||||||||
| Less: Net income attributable to noncontrolling interest included in discontinued operations | ||||||||||||||||||||||||||
| Net income attributable to Baxter stockholders included in discontinued operations | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
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| 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 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||
| Cost of sales | ||||||||||||||||||||||||||
| Gross margin | ||||||||||||||||||||||||||
| Selling, general and administrative expenses | ||||||||||||||||||||||||||
| Research and development expenses | ||||||||||||||||||||||||||
| Goodwill impairment | ||||||||||||||||||||||||||
| Other operating income, net | ( | ( | ||||||||||||||||||||||||
| Operating income (loss) | ( | ( | ( | ( | ||||||||||||||||||||||
| Interest expense, net | ||||||||||||||||||||||||||
| Other (income) expense, net | ( | ( | ||||||||||||||||||||||||
| Income (loss) from discontinued operations before income taxes | ( | ( | ( | ( | ||||||||||||||||||||||
| Gain on disposition | ||||||||||||||||||||||||||
| Income tax expense (benefit) | ( | |||||||||||||||||||||||||
| Income (loss) from discontinued operations, net of tax | ( | ( | ( | |||||||||||||||||||||||
| Less: Net income attributable to noncontrolling interests included in discontinued operations | ||||||||||||||||||||||||||
| Net income (loss) attributable to Baxter stockholders included in discontinued operations | $ | ( | $ | ( | $ | $ | $ | ( | $ | |||||||||||||||||
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.
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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 | $ | $ | ||||||
| Accounts receivable, net of allowances | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Current assets of discontinued operations | ||||||||
| Property, plant and equipment, net | ||||||||
| Goodwill | ||||||||
| Other intangible assets, net | ||||||||
| Operating lease right-of-use assets | ||||||||
| Other non-current assets | ||||||||
| Non-current assets of discontinued operations | ||||||||
| Assets of discontinued operations | $ | $ | ||||||
| Current maturities of finance lease obligations | $ | $ | ||||||
| Accounts payable | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Current liabilities of discontinued operations | ||||||||
| Long-term finance lease obligations, less current portion | ||||||||
| Operating lease liabilities | ||||||||
| Other non-current liabilities | ||||||||
| Non-current liabilities of discontinued operations | ||||||||
| Liabilities of discontinued operations | $ | $ | ||||||
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 | $ | $ | $ | $ | ||||||||||
| Charged to costs and expenses | ||||||||||||||
| Write-offs | ( | ( | ( | |||||||||||
| Currency translation adjustments | ( | |||||||||||||
| Balance at end of period | $ | $ | $ | $ | ||||||||||
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Inventories
| (in millions) | September 30, 2024 | December 31, 2023 | ||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| Inventories | $ | $ | ||||||
Property, Plant and Equipment, Net
| (in millions) | September 30, 2024 | December 31, 2023 | ||||||
| Property, plant and equipment, at cost | $ | $ | ||||||
| Accumulated depreciation | ( | ( | ||||||
| Property, plant and equipment, net | $ | $ | ||||||
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 | $ | $ | $ | $ | |||||||||||||
| Interest income | ( | ( | ( | ( | |||||||||||||
| Interest expense, net | $ | $ | $ | $ | |||||||||||||
Other (Income) Expense, Net
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| (in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Foreign exchange losses, net | $ | $ | $ | ||||||||||||||
| Pension and other postretirement benefit plans | ( | ( | ( | ( | |||||||||||||
| Change in fair value of marketable equity securities | ( | ( | |||||||||||||||
| Non-marketable investment impairments | |||||||||||||||||
| Other, net | ( | ( | ( | ||||||||||||||
| Other (income) expense, net | $ | ( | $ | ( | $ | ( | $ | ||||||||||
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.
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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 | $ | $ | $ | $ | |||||||||||||
| Currency translation | ( | ( | ( | ||||||||||||||
| Balance as of September 30, 2024 | $ | $ | $ | $ | |||||||||||||
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 | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||
| Accumulated amortization | ( | ( | ( | ( | — | — | ( | ||||||||||||||||
| Other intangible assets, net | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||
| December 31, 2023 | |||||||||||||||||||||||
| Gross other intangible assets | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||
| Accumulated amortization | ( | ( | ( | ( | — | — | ( | ||||||||||||||||
| Other intangible assets, net | $ | ||||||||||||||||||||||
5. FINANCING ARRANGEMENTS
Credit Facilities
On July 17, 2024, we entered into a credit agreement in which a group of banks have committed to provide us senior unsecured term loans in an aggregate principal amount of up to $2.05 billion ("the bridge facility"). Borrowings under the bridge facility will be available in up to three drawings to fund (a) the refinancing of our 1.322 % Senior Notes due November 29, 2024, our Floating Rate Notes due November 29, 2024, and certain borrowings under our existing term loan facility and (b) payment of certain U.S. tax liabilities arising from internal reorganization transactions related to the pending sale of our Kidney Care business. Borrowings under the bridge facility will bear interest at a rate based on our long-term debt ratings in effect from time to time and the interest rate on any borrowings outstanding beyond December 31, 2024 would increase by 0.25 %. We will also incur a ticking fee on undrawn commitments at a rate based on our long-term debt ratings in effect from time to time. The banks’ funding commitments under the bridge facility will terminate upon the earliest to occur of: (i) our consummation of the debt repayments and tax payments described above without us having borrowed under the bridge facility, (ii) our election to terminate the commitments under the bridge facility, (iii) our receipt of net cash proceeds from certain transactions (including from the pending sale of our Kidney Care business), (iv) the occurrence of three drawings under the bridge facility, and (v) December 31, 2024. Outstanding borrowings under the bridge facility will mature on the earlier of 364 days from the first funding date and November 24, 2025. Additionally, we are required to use the net cash proceeds from certain transactions (including from the pending sale of our Kidney Care business) to repay any outstanding borrowings under the bridge facility. The bridge facility contains financial and other covenants, including a net leverage covenant, and provides for customary events of default. There were no borrowings outstanding under this bridge facility as of September 30, 2024.
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In the first quarter of 2024, we amended the credit agreements governing our U.S. dollar-denominated term loan credit facility and revolving credit facility and the guaranty agreement with respect to our Euro-denominated revolving credit facility to increase the maximum net leverage ratio covenant for the six fiscal quarters ending June 30, 2024, September 30, 2024, December 31, 2024, March 31, 2025, June 30, 2025, and September 30, 2025. The amendment further provided for the reduction of the capacity under our U.S dollar-denominated revolving credit facility from $2.50 billion to $2.00 billion on the earlier of September 30, 2024 or the date of the sale of our Kidney Care business. Costs incurred in connection with the amendment were not material.
In addition to our U.S. dollar-denominated revolving credit facility with a current capacity of $2.00 billion, our Euro-denominated revolving credit facility has a capacity of €200 million. Each of the facilities matures in 2026. There were no
In the first nine months of 2024, we repaid $822 million of senior notes at maturity.
6. COMMITMENTS AND CONTINGENCIES
We are involved in product liability, patent, commercial, employment and other legal matters that arise in the normal course of our business. We record a liability when a loss is considered probable and the amount can be reasonably estimated. If the reasonable estimate of a probable loss is a range, and no amount within the range is a better estimate than any other amount, the minimum amount in the range is accrued. If a loss is not probable or a probable loss cannot be reasonably estimated, no liability is recorded. As of September 30, 2024 and December 31, 2023, our total recorded reserves with respect to legal and environmental matters were $41 million and $25 million, respectively.
We have established reserves for certain of the matters discussed below. We are not able to estimate the amount or range of any loss for certain contingencies for which there is no reserve or additional loss for matters already reserved. While our liability in connection with these claims cannot be estimated and the resolution thereof in any reporting period could have a significant impact on our results of operations and cash flows for that period, the outcome of these legal proceedings is not expected to have a material adverse effect on our consolidated financial position. While we believe that we have valid defenses in the matters set forth below, litigation is inherently uncertain, excessive verdicts do occur, and we may incur material judgments or enter into material settlements of claims.
In addition to the matters described below, we remain subject to the risk of future administrative and legal actions. With respect to governmental and regulatory matters, these actions may lead to product recalls, injunctions, and other restrictions on our operations (including our ability to launch new products) and monetary sanctions, including significant civil or criminal penalties. With respect to intellectual property, we may be exposed to significant litigation concerning the scope of our and others’ rights. Such litigation could result in a loss of patent protection or the ability to market products, which could lead to a significant loss of sales, or otherwise materially affect future results of operations.
Environmental
We are involved as a potentially responsible party (PRP) for environmental clean-up costs at six Superfund sites. Additionally, we are a defendant in a separate matter regarding a seventh Superfund site. Under the U.S. Superfund statute and many state laws, generators of hazardous waste sent to a disposal or recycling site are liable for site cleanup if contaminants from that property later leak into the environment. The laws generally provide that a PRP may be held jointly and severally liable for the costs of investigating and remediating the site. Separate from these Superfund cases noted above, we are involved in ongoing environmental remediations associated with historic operations at certain of our facilities. As of September 30, 2024 and December 31, 2023, our environmental reserves, which are measured on an undiscounted basis, were $30 million and $15 million, respectively. After considering these reserves, the outcome of these matters is not expected to have a material adverse effect on our financial position or results of operations.
General Litigation
In March 2020, two lawsuits were filed against us in the Northern District of Illinois by plaintiffs alleging injuries as a result of exposure to ethylene oxide used in our manufacturing facility in Mountain Home, Arkansas to sterilize certain of our products. The plaintiffs sought damages, including compensatory and punitive damages in an unspecified
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amount, and unspecified injunctive and declaratory relief. The parties reached an agreement to settle these lawsuits in the third quarter of 2021 for amounts that were not material to our financial results, which were paid in the fourth quarter of 2021. We have since resolved, without litigation, additional claims of injuries from exposure to ethylene oxide at Mountain Home for amounts within accruals previously established as of December 31, 2021. On October 20, 2022, a lawsuit was filed against us in the Western District of Arkansas alleging injury as a result of exposure to ethylene oxide at Mountain Home. On December 16, 2022, we filed a motion to dismiss and for a more definite statement. In response, Plaintiffs filed a First Amended Complaint on January 6, 2023. We answered the First Amended Complaint on January 27, 2023. The parties reached an agreement to settle this lawsuit in the third quarter of 2023 for an amount that was not material to our financial results, which was paid in the fourth quarter of 2023. The case was dismissed on October 17, 2023. Since December 2023, 25 lawsuits (after giving effect to the amendment referenced below) have been filed against us in the Circuit Court of Cook County, Illinois by plaintiffs alleging injuries as a result of exposure to ethylene oxide used by several companies, including historic use by us for sterilization at our facility in Round Lake, Illinois. The plaintiffs seek damages in an unspecified amount. On July 16, 2024, Plaintiffs' counsel filed an omnibus motion seeking leave to add certain defendants to hundreds of previously-filed lawsuits, including Baxter with respect to 40 cases. The motion was denied on July 25, 2024, without prejudice to refiling multiple motions each addressing smaller groupings of cases and defendants. On September 11, 2024, the court granted leave to amend one previously-filed complaint to add Baxter as a defendant.
We acquired Hill-Rom Holdings, Inc. (Hillrom) on December 13, 2021. In July 2021, Hill-Rom, Inc., a wholly-owned subsidiary of Hillrom, received a subpoena from the United States Office of Inspector General for the Department of Health and Human Services (the DHHS) requesting documents and information related to compliance with the False Claims Act and the Anti-Kickback Statute. The subpoena was related to a lawsuit brought under the qui tam provisions of the False Claims Act. The allegations included in the unsealed complaint relate to conduct prior to our acquisition of Hillrom, and the division involved is no longer operational. Hillrom voluntarily began a related internal review, and Hillrom and Baxter cooperated fully with the DHHS and the Department of Justice (DOJ) with respect to this matter. In January 2024, the parties reached an agreement to settle the allegations. We paid the settlement amounts, which were not material to our financial results, in January 2024 and the matter was dismissed in February 2024. In October 2022, the DOJ issued a separate Civil Investigative Demand (CID) addressed to Hillrom, requesting documents and information related to compliance with the False Claims Act and the Anti-Kickback Statute. In October 2024, the DOJ issued a subpoena (2024 Subpoena), pursuant to 18 U.S.C. 3846, to Hillrom. The 2024 Subpoena substantially overlaps with the CID and requests additional documents relating to Hillrom's respiratory health business. Baxter is cooperating fully with the DOJ in responding to the CID and the 2024 Subpoena. The DHHS and DOJ often issue these types of requests when investigating alleged violations of the federal health care laws.
On December 28, 2021, Linet Americas, Inc. (Linet) filed a complaint against Hill-Rom Holdings, Inc., Hill-Rom Company, Inc., and Hill-Rom Services, Inc. in the United States District Court for the Northern District of Illinois, captioned Linet Americas, Inc. v. Hill-Rom Holdings, Inc.; Hill-Rom Company, Inc.; Hill-Rom Services, Inc. Linet alleges that Hillrom violated Sections 1 and 2 of The Sherman Antitrust Act of 1890, Section 3 of the Clayton Act, and the Illinois Antitrust Act by allegedly engaging in anti-competitive conduct in alleged markets for standard, ICU and birthing beds. Hillrom filed an answer to the complaint on January 28, 2022 and filed a motion challenging certain aspects of plaintiff's case on May 27, 2022, which was denied on January 17, 2024, subject to further discovery.
On June 20, 2024, Reading Hospital filed a putative class action complaint against Hill-Rom Holdings, Inc., Hill-Rom Company, Inc., and Hill-Rom Services, Inc. in the United States District Court for the Eastern District of Pennsylvania. The complaint alleges that Hillrom violated Sections 1 and 2 of The Sherman Antitrust Act and Section 3 of the Clayton Act by allegedly engaging in anti-competitive conduct in alleged markets for standard, ICU and birthing beds. The plaintiff filed the action on behalf of itself and all "direct purchasers of Standard Hospital Beds, ICU Beds, and/or Birthing Beds from Hill-Rom during a period beginning at least as early as June 20, 2020” and continuing past the date of filing. On September 30, 2024, the plaintiff filed a First Amended Complaint.
7. STOCKHOLDERS’ EQUITY
Cash Dividends
Cash dividends declared per share for the three months ended September 30, 2024 and 2023 were $0.29 0.87
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Stock Repurchase Programs
8. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Comprehensive income includes all changes in stockholders’ equity that do not arise from transactions with stockholders, and consists of net income (loss), cumulative translation adjustments (CTA), certain gains and losses from pension and other postretirement employee benefit (OPEB) plans, gains and losses on cash flow hedges, and unrealized gains and losses on available-for-sale debt securities.
The following table is a net-of-tax summary of the changes in accumulated other comprehensive income (loss) (AOCI) by component for the nine months ended September 30, 2024 and 2023.
| Gains (losses) | |||||||||||||||||
| (in millions) | CTA | Pension and OPEB plans | Hedging activities | Available-for-sale debt securities | Total | ||||||||||||
Balance as of December 31, 2023 | $ | ( | $ | ( | $ | ( | $ | $ | ( | ||||||||
| Other comprehensive income (loss) before reclassifications | ( | ( | |||||||||||||||
| Amounts reclassified from AOCI (a) | ( | ( | |||||||||||||||
| Net other comprehensive income (loss) | ( | ( | ( | ||||||||||||||
| Balance as of September 30, 2024 | $ | ( | $ | ( | $ | ( | $ | $ | ( | ||||||||
| Gains (losses) | |||||||||||||||||
| (in millions) | CTA | Pension and OPEB plans | Hedging activities | Available-for-sale debt securities | Total | ||||||||||||
| Balance as of December 31, 2022 | $ | ( | $ | ( | $ | ( | $ | $ | ( | ||||||||
| Other comprehensive income (loss) before reclassifications | ( | ( | |||||||||||||||
Amounts reclassified from AOCI (a) | ( | ( | |||||||||||||||
| Net other comprehensive income (loss) | ( | ||||||||||||||||
| Balance as of September 30, 2023 | $ | ( | $ | ( | $ | ( | $ | $ | ( | ||||||||
(a) See table below for details about these reclassifications.
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The following is a summary of the amounts reclassified from AOCI to net income (loss) during the three and nine months ended September 30, 2024 and 2023.
| Amounts reclassified from AOCI (a) | |||||||||||
| (in millions) | Three Months Ended September 30, 2024 | Nine Months Ended September 30, 2024 | Location of impact in income statement | ||||||||
| Pension and OPEB items | |||||||||||
| Amortization of net losses and prior service costs or credits | $ | $ | Other (income) expense, net | ||||||||
| Less: Tax effect | ( | Income tax expense | |||||||||
| $ | $ | Net of tax | |||||||||
| Gains (losses) on hedging activities | |||||||||||
| Foreign exchange contracts | $ | $ | Cost of sales | ||||||||
| Interest rate contracts | ( | ( | Interest expense, net | ||||||||
| Fair value hedges | ( | Other (income) expense, net | |||||||||
| Total before tax | |||||||||||
| Less: Tax effect | ( | Income tax expense | |||||||||
| $ | $ | Net of tax | |||||||||
| Total reclassifications for the period | $ | $ | Total net of tax | ||||||||
| Amounts reclassified from AOCI (a) | |||||||||||
| (in millions) | Three Months Ended September 30, 2023 | Nine Months Ended September 30, 2023 | Location of impact in income statement | ||||||||
| CTA | |||||||||||
| Reclassification of cumulative translation loss to earnings from BPS divestiture | $ | ( | $ | ( | Income from discontinued operations, net of tax | ||||||
| Less: Tax effect | Income from discontinued operations, net of tax | ||||||||||
| $ | ( | $ | ( | Net of tax | |||||||
| Pension and OPEB items | |||||||||||
| Amortization of net losses and prior service costs or credits | $ | $ | Other (income) expense, net | ||||||||
| Pension settlement from BPS divestiture | Income from discontinued operations, net of tax | ||||||||||
| Total before tax | |||||||||||
| Less: Tax effect | ( | Income tax expense | |||||||||
| $ | $ | Net of tax | |||||||||
| Gains (losses) on hedging activities | |||||||||||
| Foreign exchange contracts | $ | $ | Cost of sales | ||||||||
| Interest rate contracts | ( | ( | Interest expense, net | ||||||||
| Total before tax | |||||||||||
| Less: Tax effect | ( | Income tax expense | |||||||||
| $ | $ | Net of tax | |||||||||
| Total reclassifications for the period | $ | ( | $ | ( | Total net of tax | ||||||
(a) Amounts in parentheses indicate reductions to net income
9. REVENUES
Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. A performance obligation is a promise in a contract to transfer a distinct good or service to the
17
customer and is the unit of account in the contract. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Some of our contracts have multiple performance obligations. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. Our global payment terms are typically between 30 -90 days.
Our primary customers are hospitals, healthcare distribution companies, and government agencies that purchase healthcare products on behalf of providers. Most of our performance obligations are satisfied at a point in time. This includes sales of our broad portfolio of essential healthcare products across our business segments. We earn revenues from sterile IV solutions; infusion systems and devices; parenteral nutrition therapies; inhaled anesthetics; generic injectable pharmaceuticals; surgical hemostat and sealant products; smart bed systems; patient monitoring and diagnostic technologies; respiratory health devices; and advanced equipment for the surgical space. For most of those offerings, our performance obligation is satisfied upon delivery to the customer. Shipping and handling activities are considered to be fulfillment activities and are not considered to be a separate performance obligation.
To a lesser extent, we enter into arrangements for which revenue may be recognized over time. For example, we lease medical equipment to customers under operating lease arrangements and recognize the related revenues on a monthly basis over the lease term. Our Healthcare Systems and Technologies segment includes connected care solutions and collaboration tools that are implemented over time. We recognize revenue for these arrangements over time or at a point in time depending on our evaluation of when the customer obtains control of the promised goods or services. We also earn revenue from contract manufacturing activities, which is recognized over time as the services are performed. Revenue is recognized over time when we are creating or enhancing an asset that the customer controls as the asset is created or enhanced or our performance does not create an asset with an alternative use and we have an enforceable right to payment for performance completed.
As of September 30, 2024, we had $2.75 billion of transaction price allocated to remaining performance obligations related to executed contracts with an original duration of more than one year, which are primarily included in the Medical Products and Therapies segment. Some contracts in the United States included in this amount contain index-dependent price increases, which are not known at this time. We expect to recognize approximately 25 % of this amount as revenue over the remainder of 2024, 25 % in 2025, 20 10 % thereafter.
Significant Judgments
Revenues from product sales are recorded at the net sales price, which include estimates of variable consideration primarily related to rebates and wholesaler chargebacks. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are included in accrued expenses and other current liabilities and as reductions of accounts receivable, net on the condensed consolidated balance sheets. Management's estimates take into consideration historical experience, current contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns. Overall, these reserves reflect our best estimates of the amount of consideration to which we are entitled based on the terms of the contract using the expected value method. The amount of variable consideration included in the net sales price is limited to the amount for which it is probable that a significant reversal in revenue will not occur when the related uncertainty is resolved. Revenue recognized during the three and nine months ended September 30, 2024 and 2023 related to performance obligations satisfied in prior periods was no
Contract Balances
The timing of revenue recognition, billings and cash collections results in the recognition of trade accounts receivable, unbilled receivables, contract assets and customer advances, and deposits (contract liabilities) on our condensed consolidated balance sheets. Net trade accounts receivable was $1.54
For contract manufacturing arrangements, revenue is primarily recognized throughout the production cycle, which typically lasts up to 90 days, resulting in the recognition of contract assets until the related services are completed and the customers are billed. Additionally, for certain arrangements containing a performance obligation to deliver software that can be used with medical devices, we recognize revenue upon delivery of the software, which results in the recognition of contract assets when customers are billed over time, generally over to five years . For bundled
18
contracts involving equipment delivered up-front and consumable medical products to be delivered over time, total contract revenue is allocated between the equipment and consumable medical products. In certain of those arrangements, a contract asset is created for the difference between the amount of equipment revenue recognized upon delivery and the amount of consideration initially receivable from the customer. In those arrangements, the contract asset becomes a trade account receivable as consumable medical products are delivered and billed, generally over to seven years .
The following table summarizes our contract assets:
| (in millions) | September 30, 2024 | December 31, 2023 | ||||||
| Contract manufacturing services | $ | $ | ||||||
| Software sales | ||||||||
| Bundled equipment and consumable medical products contracts | ||||||||
| Contract assets | $ | $ | ||||||
Contract liabilities represent deferred revenues that arise as a result of cash received from customers or where the timing of billing for services precedes satisfaction of our performance obligations. Such remaining performance obligations represent the portion of the contract price for which work has not been performed and are primarily related to our installation and service contracts. We expect to satisfy the majority of the remaining performance obligations and recognize revenue related to installation and service contracts within the next 12 months with most of the non-current performance obligations satisfied within 24 months.
The following table summarizes contract liability activity for the nine months ended September 30, 2024 and 2023. The contract liability balance represents the transaction price allocated to the remaining performance obligations.
| Nine Months Ended September 30, | ||||||||
| (in millions) | 2024 | 2023 | ||||||
| Balance at beginning of period | $ | $ | ||||||
| New revenue deferrals | ||||||||
| Revenue recognized upon satisfaction of performance obligations | ( | ( | ||||||
| Currency translation | ( | |||||||
| Balance at end of period | $ | $ | ||||||
For the nine months ended September 30, 2024 and 2023, $94 million and $111 million of revenue was recognized that was included in contract liabilities as of December 31, 2023 and 2022, respectively.
The following table summarizes the classification of contract assets and contract liabilities as reported in the condensed consolidated balance sheets:
| (in millions) | September 30, 2024 | December 31, 2023 | ||||||
| Prepaid expenses and other current assets | $ | $ | ||||||
| Other non-current assets | ||||||||
| Contract assets | $ | $ | ||||||
| Accrued expenses and other current liabilities | $ | $ | ||||||
| Other non-current liabilities | ||||||||
| Contract liabilities | $ | $ | ||||||
Disaggregation of Net Sales
Refer to Note 16 for additional information on our net sales including the disaggregation of net sales within each of our segments and net sales by geographic location.
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Lease Revenue
We lease medical equipment, such as smart beds and infusion pumps, to customers, often in conjunction with arrangements to provide consumable medical products such as IV fluids and inhaled anesthetics. Certain of our equipment leases are classified as sales-type leases and the remainder are operating leases. The terms of the related contracts, including the proportion of fixed versus variable payments and any options to shorten or extend the lease term, vary by customer. We allocate revenue between equipment leases and medical products based on their standalone selling prices.
The components of lease revenue for the three and nine months ended September 30, 2024 and 2023 were:
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| (in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Sales-type lease revenue | $ | $ | $ | $ | |||||||||||||
| Operating lease revenue | |||||||||||||||||
| Variable lease revenue | |||||||||||||||||
| Total lease revenue | $ | $ | $ | $ | |||||||||||||
Our net investment in sales-type leases was $36 million as of September 30, 2024, of which $5 million originated in 2020 and prior, $10 million in 2021, $5 million in 2022, $7 million in 2023, and $9 million in 2024.
10. BUSINESS OPTIMIZATION CHARGES
In recent years, we have undertaken actions to transform our cost structure and enhance operational efficiency. These efforts include restructuring the organization, optimizing the manufacturing footprint, R&D operations and supply chain network, employing disciplined cost management, and centralizing and streamlining certain support functions. The related costs of those actions consisted primarily of employee termination costs, implementation costs, contract termination costs, and asset impairments. We currently expect to incur additional pre-tax costs, primarily related to the implementation of business optimization programs, of approximately $5 million through the completion of initiatives that are currently underway. We continue to pursue cost savings initiatives, including those related to our newly implemented operating model, intended to simplify and streamline our operations, and to the extent further cost savings opportunities are identified (including after completion of the pending Kidney Care sale), we would incur additional restructuring charges and costs to implement business optimization programs in future periods.
During the three and nine months ended September 30, 2024 and 2023, we recorded the following charges related to business optimization programs.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| (in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Restructuring charges | $ | $ | $ | $ | |||||||||||||
| Costs to implement business optimization programs | |||||||||||||||||
| Total business optimization charges | $ | $ | $ | $ | |||||||||||||
For segment reporting purposes, business optimization charges are unallocated expenses.
Costs to implement business optimization programs for the three and nine months ended September 30, 2024 and 2023, respectively, consisted primarily of external consulting and transition costs, including employee compensation and related costs. These costs were primarily included within cost of sales and SG&A expense.
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During the three and nine months ended September 30, 2024 and 2023, we recorded the following restructuring charges.
| Three months ended September 30, 2024 | ||||||||||||||
| (in millions) | COGS | SG&A | Total | |||||||||||
| Employee termination costs | $ | $ | $ | |||||||||||
| Contract termination and other costs | ||||||||||||||
| Total restructuring charges | $ | $ | $ | |||||||||||
| Three months ended September 30, 2023 | ||||||||||||||
| (in millions) | COGS | SG&A | R&D | Total | ||||||||||
| Employee termination costs | $ | $ | $ | $ | ||||||||||
| Contract termination and other costs | ||||||||||||||
| Total restructuring charges | $ | $ | $ | $ | ||||||||||
| Nine months ended September 30, 2024 | ||||||||||||||
| (in millions) | COGS | SG&A | Total | |||||||||||
| Employee termination costs | $ | $ | $ | |||||||||||
| Contract termination and other costs | ||||||||||||||
| Total restructuring charges | $ | $ | $ | |||||||||||
| Nine months ended September 30, 2023 | ||||||||||||||
| (in millions) | COGS | SG&A | R&D | Total | ||||||||||
| Employee termination costs | $ | $ | $ | $ | ||||||||||
| Contract termination and other costs | ||||||||||||||
| Asset impairments | ||||||||||||||
| Total restructuring charges | $ | $ | $ | $ | ||||||||||
For the three and nine months ended September 30, 2024, $7 million and $14 million of the restructuring charges reflected in the table above, consisting of employee termination costs, were related to business optimization initiatives within our Healthcare Systems and Technologies segment. Additionally, for the nine months ended September 30, 2024, $7 million of the restructuring charges reflected in the table above, consisting of employee termination costs, were related to our recent implementation of a new operating model intended to simplify and streamline our operations.
For the three and nine months ended September 30, 2023, $11 million and $79 million, respectively, of the restructuring charges reflected in the table above, consisting of employee termination costs, were related to the implementation of our previously announced new operating model intended to simplify and streamline our operations.
The following table summarizes activity in the liability related to our restructuring initiatives.
| (in millions) | |||||
| Liability balance as of December 31, 2023 | $ | ||||
| Charges | |||||
| Payments | ( | ||||
| Reserve adjustments | ( | ||||
| Currency translation | |||||
| Liability balance as of September 30, 2024 | $ | ||||
Substantially all of our restructuring liabilities as of September 30, 2024 relate to employee termination costs, with the remaining liabilities attributable to contract termination costs. Substantially all of the cash payments for those liabilities are expected to be disbursed by the end of 2025.
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11. PENSION AND OTHER POSTRETIREMENT BENEFIT PROGRAMS
The following is a summary of net periodic benefit cost relating to our pension and OPEB plans.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| (in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Pension benefits | |||||||||||||||||
| Service cost | $ | $ | $ | $ | |||||||||||||
| Interest cost | |||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | |||||||||||||
| Amortization of net losses and prior service costs | |||||||||||||||||
| Net periodic pension cost | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||
| OPEB | |||||||||||||||||
| Interest cost | $ | $ | $ | $ | |||||||||||||
| Amortization of net loss and prior service credit | ( | ( | ( | ( | |||||||||||||
| Net periodic OPEB cost (income) | $ | ( | $ | ( | $ | ( | $ | ( | |||||||||
12. INCOME TAXES
Our effective income tax rate was 11.6 % and 42.2 % for the three months ended September 30, 2024 and 2023, respectively, and 30.2 % and 281.0 % for the nine months ended September 30, 2024 and 2023, respectively. Our effective income tax rate can differ from the 21 % U.S. federal statutory rate due to a number of factors, including foreign rate differences, tax incentives, non-deductible expenses, non-taxable income, increases or decreases in valuation allowances, increases or decreases in liabilities for uncertain tax positions, and excess tax benefits or shortfalls on stock compensation awards.
For the three months ended September 30, 2024, the difference between our effective income tax rate and the U.S. federal statutory rate was primarily attributable to a favorable geographic earnings mix, the tax impacts of the write-off of damaged inventory and fixed assets at our North Cove facility caused by Hurricane Helene, and a change in our assertion on the reinvested foreign earnings related to the pending sale of our Kidney Care segment allocated to continuing operations, partially offset by a $26 million valuation allowance recorded to reduce the carrying amount of a tax attribute carryforward in the U.S. related to the pending sale of our Kidney Care segment.
For the nine months ended September 30, 2024, the difference between our effective income tax rate and the U.S. federal statutory rate was primarily attributable to a $26 million valuation allowance recorded to reduce the carrying amount of a tax attribute carryforward in the U.S. related to the pending sale of our Kidney Care segment, an increase in a valuation allowance in a foreign jurisdiction resulting from changes in future projected income, an increase in income tax expense resulting from internal reorganization transactions related to the pending sale of our Kidney Care segment, and an increase in our liabilities for various uncertain tax positions, partially offset by a favorable geographic earnings mix.
For the three months ended September 30, 2023, the difference between our effective income tax rate and the U.S. federal statutory rate was primarily attributable to an increase in the valuation allowance in a foreign jurisdiction resulting from changes in future projected income, partially offset by a favorable geographic earnings mix.
13. EARNINGS PER SHARE
The numerator for both basic and diluted earnings per share (EPS) is net income (loss) attributable to Baxter stockholders. The denominator for basic EPS is the weighted-average number of shares outstanding during the period. The dilutive effect of outstanding stock options, RSUs and PSUs is reflected in the denominator for diluted EPS using the treasury stock method.
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The following table is a reconciliation of income (loss) from continuing operations to net income (loss) attributable to Baxter stockholders.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| (in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Income (loss) from continuing operations | $ | $ | $ | $ | ( | ||||||||||||
| Less: Net income attributable to noncontrolling interests included in continuing operations | |||||||||||||||||
| Income (loss) from continuing operations attributable to Baxter stockholders | ( | ||||||||||||||||
| Income (loss) from discontinued operations | ( | ||||||||||||||||
| Less: Net income attributable to noncontrolling interests included in discontinued operations | |||||||||||||||||
| Income (loss) from discontinued operations attributable to Baxter stockholders | ( | ||||||||||||||||
| Net income (loss) attributable to Baxter stockholders | $ | $ | $ | ( | $ | ||||||||||||
The following table is a reconciliation of basic shares and diluted shares.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| (in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Basic shares | |||||||||||||||||
| Effect of dilutive securities | |||||||||||||||||
| Diluted shares | |||||||||||||||||
14. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
We operate on a global basis and are exposed to the risk that our earnings, cash flows and equity could be adversely impacted by fluctuations in foreign exchange and interest rates. Our hedging policy attempts to manage these risks to an acceptable level based on our judgment of the appropriate trade-off between risk, opportunity and costs.
We are primarily exposed to foreign exchange risk with respect to recognized assets and liabilities, forecasted transactions and net assets denominated in the Euro, British Pound, Chinese Renminbi, Japanese Yen, Swedish Krona, Mexican Peso, Australian Dollar, Canadian Dollar, Turkish Lira, and Indian Rupee. We manage our foreign currency exposures on a consolidated basis, which allows us to net exposures and take advantage of any natural offsets. In addition, we use derivative and nonderivative instruments to further reduce our net exposure to foreign exchange risk. Gains and losses on the hedging instruments offset losses and gains on the hedged transactions and reduce the earnings and equity volatility resulting from changes in foreign exchange rates. Financial market and currency volatility may limit our ability to cost-effectively hedge these exposures.
We are also exposed to the risk that our earnings and cash flows could be adversely impacted by fluctuations in interest rates. Our policy is to manage interest costs using the mix of fixed- and floating-rate debt that we believe is appropriate at that time. To manage this mix in a cost-efficient manner, we periodically enter into interest rate swaps in which we agree to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional amount.
We do not hold any instruments for trading purposes and none of our outstanding derivative instruments contain credit-risk-related contingent features.
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Derivative instruments are recognized as either assets or liabilities at fair value in the condensed consolidated balance sheets and are classified as short-term or long-term based on the scheduled maturity of the instrument. We designate certain of our derivatives and foreign-currency denominated debt as hedging instruments in cash flow, fair value or net investment hedges.
Cash Flow Hedges
We may use options, including collars and purchased options, forwards and cross-currency swaps to hedge the foreign exchange risk to earnings relating to forecasted transactions and recognized assets and liabilities. We periodically use treasury rate locks to hedge the risk to earnings associated with movements in interest rates relating to anticipated issuances of debt.
For each derivative instrument that is designated and effective as a cash flow hedge, the gain or loss on the derivative is recorded in AOCI and then recognized in earnings consistent with the underlying hedged item. Option premiums or net premiums paid are initially recorded as assets and reclassified to other comprehensive income (OCI) over the life of the option, and then recognized in earnings consistent with the underlying hedged item. Cash flow hedges are classified in cost of sales and interest expense, net, and are primarily related to forecasted intra-company sales denominated in foreign currencies and forecasted interest payments on anticipated issuances of debt, respectively.
The notional amounts of foreign exchange contracts designated as cash flow hedges were $225 million and $340 million as of September 30, 2024 and December 31, 2023, respectively. The maximum term over which we have cash flow hedge contracts in place related to forecasted transactions at September 30, 2024 is 12 months for foreign exchange contracts. There were no
Fair Value Hedges
We periodically use interest rate swaps to convert a portion of our fixed-rate debt into variable-rate debt. These instruments hedge our earnings from changes in the fair value of debt due to fluctuations in the designated benchmark interest rate. For each derivative instrument that is designated and effective as a fair value hedge, the gain or loss on the derivative is recognized immediately to earnings, and offsets changes in fair value attributable to a particular risk, such as changes in interest rates, of the hedged item, which are also recognized in earnings. Changes in the fair value of hedge instruments designated as fair value hedges are classified in interest expense, net, as they hedge the interest rate risk associated with certain of our fixed-rate debt.
There were no
In October 2023, we entered into a foreign currency forward contract with a notional amount of $798 million and designated that derivative as a fair value hedge of our €750 million of 0.40 % senior notes due May 2024. This forward contract matured in May 2024.
Net Investment Hedges
In May 2017, we issued €600 million of 1.3 % senior notes due May 2025. In May 2019, we issued €750 million of 1.3 % senior notes due May 2029. We have designated these debt obligations as hedges of our net investment in our European operations and, as a result, mark to spot rate adjustments on the outstanding debt balances are recorded as a component of AOCI.
In May 2019, we issued €750 million of 0.40 % senior notes due May 2024. We had designated these debt obligations as hedges of our investment in our European operations and, as a result, mark to spot rate adjustments of the outstanding debt balances were previously recorded as a component of AOCI. In October 2023, we dedesignated this previously designated net investment hedge and concurrently entered into a fair value hedging relationship as discussed in the "Fair Value Hedges" section above.
As of September 30, 2024, we had an accumulated pre-tax unrealized translation gain in AOCI of $18 million related to the Euro-denominated senior notes.
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Dedesignations
If it is determined that a derivative or nonderivative hedging instrument is no longer highly effective as a hedge, we discontinue hedge accounting prospectively. Gains or losses relating to terminations of effective cash flow hedges generally continue to be deferred and are recognized consistent with the loss or income recognition of the underlying hedged items. However, if it is probable that the hedged forecasted transactions will not occur, any gains or losses would be immediately reclassified from AOCI to earnings.
There were no
If we terminate a fair value hedge, an amount equal to the cumulative fair value adjustment to the hedged item at the date of termination is amortized to earnings over the remaining term of the hedged item. There were no
If we remove a net investment hedge designation, any gain or loss recognized in AOCI is not reclassified to earnings until we sell, liquidate, or deconsolidate the foreign investments that were being hedged. There were no
Undesignated Derivative Instruments
We use forward contracts to hedge earnings from the effects of foreign exchange relating to certain of our intra-company and third-party receivables and payables denominated in a foreign currency. These derivative instruments are generally not formally designated as hedges and the terms of these instruments generally do not exceed one month.
The total notional amount of undesignated derivative instruments was $527 million as of September 30, 2024 and $305 million as of December 31, 2023.
Gains and Losses on Hedging Instruments and Undesignated Derivative Instruments
The following tables summarize the gains and losses on our hedging instruments and the classification of those gains and losses within our condensed consolidated financial statements for the three months ended September 30, 2024 and 2023.
| Gain (loss) recognized in OCI | Location of gain (loss) in income statement | Gain (loss) reclassified from AOCI into income | ||||||||||||||||||||||||
| (in millions) | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
| Cash flow hedges | ||||||||||||||||||||||||||
| Interest rate contracts | $ | $ | Interest expense, net | $ | ( | $ | ( | |||||||||||||||||||
| Foreign exchange contracts | ( | Cost of sales | ||||||||||||||||||||||||
| Net investment hedges | ( | Other (income) expense, net | ||||||||||||||||||||||||
| Total | $ | ( | $ | $ | $ | |||||||||||||||||||||
| Location of gain (loss) in income statement | Gain (loss) recognized in income | |||||||||||||
| (in millions) | 2024 | 2023 | ||||||||||||
| Undesignated derivative instruments | ||||||||||||||
| Foreign exchange contracts | Other (income) expense, net | ( | ||||||||||||
| Total | $ | $ | ( | |||||||||||
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The following tables summarize the gains and losses on our hedging instruments and the classification of those gains and losses within our condensed consolidated financial statements for the nine months ended September 30, 2024 and 2023.
| Gain (loss) recognized in OCI | Location of gain (loss) in income statement | Gain (loss) reclassified from AOCI into income | ||||||||||||||||||||||||
| (in millions) | 2024 | 2023 | 2024 | 2023 | ||||||||||||||||||||||
| Cash flow hedges | ||||||||||||||||||||||||||
| Interest rate contracts | $ | $ | Interest expense, net | $ | ( | $ | ( | |||||||||||||||||||
| Foreign exchange contracts | Cost of sales | |||||||||||||||||||||||||
| Fair value hedges | ||||||||||||||||||||||||||
| Foreign exchange contracts | ( | Other (income) expense, net | ( | |||||||||||||||||||||||
| Net investment hedges | ( | Other (income) expense, net | ||||||||||||||||||||||||
| Total | $ | ( | $ | $ | $ | |||||||||||||||||||||
| Location of gain (loss) in income statement | Gain (loss) recognized in income | |||||||||||||
| (in millions) | 2024 | 2023 | ||||||||||||
| Fair value hedges | ||||||||||||||
| Foreign exchange contracts | Other (income) expense, net | $ | ( | $ | ||||||||||
| Undesignated derivative instruments | ||||||||||||||
| Foreign exchange contracts | Other (income) expense, net | ( | ||||||||||||
| Total | $ | ( | $ | ( | ||||||||||
As of September 30, 2024, $8 million of deferred, net after-tax losses on derivative instruments included in AOCI are expected to be recognized in earnings during the next 12 months, coinciding with when the hedged items are expected to impact earnings.
Derivative Assets and Liabilities
The following table summarizes the classification and fair values of derivative instruments reported in the condensed consolidated balance sheet as of September 30, 2024.
| Derivatives in asset positions | Derivatives in liability positions | ||||||||||||||||
| (in millions) | Balance sheet location | Fair value | Balance sheet location | Fair value | |||||||||||||
| Undesignated derivative instruments | |||||||||||||||||
| Foreign exchange contracts | Prepaid expenses and other current assets | $ | Accrued expenses and other current liabilities | $ | |||||||||||||
| Derivative instruments designated as hedges | |||||||||||||||||
| Foreign exchange contracts | Prepaid expenses and other current assets | Accrued expenses and other current liabilities | |||||||||||||||
| Total derivative instruments | $ | $ | |||||||||||||||
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The following table summarizes the classification and fair values of derivative instruments reported in the condensed consolidated balance sheet as of December 31, 2023.
| Derivatives in asset positions | Derivatives in liability positions | ||||||||||||||||
| (in millions) | Balance sheet location | Fair value | Balance sheet location | Fair value | |||||||||||||
| Undesignated derivative instruments | |||||||||||||||||
| Foreign exchange contracts | Prepaid expenses and other current assets | $ | Accrued expenses and other current liabilities | $ | |||||||||||||
| Derivative instruments designated as hedges | |||||||||||||||||
| Foreign exchange contracts | Prepaid expenses and other current assets | Accrued expenses and other current liabilities | |||||||||||||||
| Total derivative instruments | $ | $ | |||||||||||||||
While some of our derivatives are subject to master netting arrangements, we present our assets and liabilities related to derivative instruments on a gross basis within the condensed consolidated balance sheets. Additionally, we are not required to post collateral for any of our outstanding derivatives.
The following table provides information on our derivative positions as if they were presented on a net basis, allowing for the right of offset by counterparty.
| September 30, 2024 | December 31, 2023 | ||||||||||||||||
| (in millions) | Asset | Liability | Asset | Liability | |||||||||||||
| Gross amounts recognized in the condensed consolidated balance sheets | $ | $ | $ | $ | |||||||||||||
| Gross amount subject to offset in master netting arrangements not offset in the condensed consolidated balance sheet | ( | ( | ( | ( | |||||||||||||
| Total | $ | $ | $ | $ | |||||||||||||
The following table presents the amounts recorded on the condensed consolidated balance sheet related to fair value hedges:
| Carrying amount of hedged item | Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged item (a) | ||||||||||||||||
| (in millions) | Balance as of September 30, 2024 | Balance as of December 31, 2023 | Balance as of September 30, 2024 | Balance as of December 31, 2023 | |||||||||||||
| Long-term debt | $ | $ | $ | $ | |||||||||||||
(a) These fair value hedges were terminated in 2018 and earlier periods.
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15. FAIR VALUE MEASUREMENTS
The following tables summarize our assets and liabilities that are measured at fair value on a recurring basis.
| Basis of fair value measurement | ||||||||||||||
| (in millions) | Balance as of September 30, 2024 | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | ||||||||||
| Assets | ||||||||||||||
| Foreign exchange contracts | $ | $ | $ | $ | ||||||||||
| Available-for-sale debt securities | ||||||||||||||
| Marketable equity securities | ||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||
| Liabilities | ||||||||||||||
| Foreign exchange contracts | $ | $ | $ | $ | ||||||||||
| Contingent payments related to acquisitions | ||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||
| Basis of fair value measurement | ||||||||||||||
| (in millions) | Balance as of December 31, 2023 | Quoted prices in active markets for identical assets (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | ||||||||||
| Assets | ||||||||||||||
| Foreign exchange contracts | $ | $ | $ | $ | ||||||||||
| Available-for-sale debt securities | ||||||||||||||
| Marketable equity securities | ||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||
| Liabilities | ||||||||||||||
| Foreign exchange contracts | $ | $ | $ | $ | ||||||||||
| Contingent payments related to acquisitions | ||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||
As of September 30, 2024 and December 31, 2023, cash and cash equivalents of $1.42 billion and $3.08 billion, respectively, included money market funds of approximately $427 million and $1.63 billion, respectively, which are considered Level 2 in the fair value hierarchy.
For assets that are measured using quoted prices in active markets, the fair value is the published market price per unit multiplied by the number of units held, without consideration of transaction costs. A majority of the derivatives entered into by us are valued using internal valuation techniques as no quoted market prices exist for such instruments. The principal techniques used to value these instruments are discounted cash flow and Black-Scholes models. The key inputs, which are considered observable and vary depending on the type of derivative, include contractual terms, interest rate yield curves, foreign exchange rates and volatility.
Available-for-sale debt securities, which consist of convertible debt and convertible redeemable preferred shares issued by nonpublic entities, are measured using discounted cash flow and option pricing models. Those available-for-sale debt securities are classified as Level 3 fair value measurements when there are no observable transactions near the balance sheet date due to the lack of observable data over certain fair value inputs such as equity volatility. The fair values of available-for-sale debt securities increase when interest rates decrease, equity volatility increases, or the fair values of the equity shares underlying the conversion options increase.
Contingent payments related to acquisitions, which consist of milestone payments and sales-based payments, are valued using discounted cash flow techniques incorporating management's expectations of future outcomes. The fair value of milestone payments increases as the estimated probability of payment increases or the expected timing of payments is accelerated. The fair value of sales-based payments is based upon probability-weighted future revenue
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estimates, and increases as revenue estimates increase, probability weighting of higher revenue scenarios increases or the expected timing of payment is accelerated.
The following table is a reconciliation of recurring fair value measurements that use significant unobservable inputs (Level 3), which consist of contingent payments related to acquisitions and available-for-sale debt securities.
| Three Months Ended September 30, | |||||||||||||||||
| 2024 | 2023 | ||||||||||||||||
| (in millions) | Contingent payments related to acquisitions | Available-for-sale debt securities | Contingent payments related to acquisitions | Available-for-sale debt securities | |||||||||||||
| Fair value at beginning of period | $ | $ | $ | $ | |||||||||||||
| Payments | ( | ( | |||||||||||||||
| Fair value at end of period | $ | $ | $ | $ | |||||||||||||
| Nine Months Ended September 30, | |||||||||||||||||
| 2024 | 2023 | ||||||||||||||||
| (in millions) | Contingent payments related to acquisitions | Available-for-sale debt securities | Contingent payments related to acquisitions | Available-for-sale debt securities | |||||||||||||
| Fair value at beginning of period | $ | $ | $ | $ | |||||||||||||
| Change in fair value recognized in earnings | ( | ( | |||||||||||||||
| Transfers out of Level 3 | ( | ||||||||||||||||
| Payments | ( | ( | |||||||||||||||
| Fair value at end of period | $ | $ | $ | $ | |||||||||||||
During the nine months ended September 30, 2023, available-for-sale debt securities were reclassified from Level 3, upon conversion to marketable equity securities, which are classified as Level 1 in the fair value hierarchy, upon initial public offerings of the investees.
Financial Instruments Not Measured at Fair Value
In addition to the financial instruments that we are required to recognize at fair value in the condensed consolidated balance sheets, we have certain financial instruments that are recognized at amortized cost or some basis other than fair value. For these financial instruments, the following table provides the values recognized in the condensed consolidated balance sheets and the estimated fair values as of September 30, 2024 and December 31, 2023.
| Book values | Fair values(a) | ||||||||||||||||
| (in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Liabilities | |||||||||||||||||
| Current maturities of long-term debt and finance lease obligations | $ | $ | $ | $ | |||||||||||||
| Long-term debt and finance lease obligations | |||||||||||||||||
(a) These fair value amounts are classified as Level 2 within the fair value hierarchy as they are estimated based on observable inputs.
The estimated fair values of current and long-term debt were computed by multiplying price by the notional amount of the respective debt instruments. Price is calculated using the stated terms of the respective debt instrument and yield curves commensurate with our credit risk. The carrying values of other financial instruments not presented in the above table, such as accounts receivable and accounts payable, approximate their fair values due to the short-term maturities of most of those assets and liabilities.
Investments Without Readily Determinable Fair Values
The carrying values of equity investments without readily determinable fair values that we measure at cost, less impairment were $33 million as of September 30, 2024 and December 31, 2023. When applicable, we also adjust the measurement of such equity investments for observable prices in orderly transactions for an identical or similar investment of the same issuer. Those investments are included in Other non-current assets on our condensed
29
consolidated balance sheets. During the first nine months of 2023, several of our investees either completed or were in the process of undertaking new financing rounds at lower enterprise valuations as compared to their valuations at the time of our investments. As a result, we recognized $8 million of impairments of equity investments without readily determinable fair values in the prior year period. In addition, we recognized a $5 million impairment of a convertible debt investment, which is accounted for as an available-for-sale security, during the first nine months of 2023. The fair value measurements of investments in non-marketable equity and convertible debt securities are classified as Level 3 in the fair value hierarchy because they involve significant unobservable inputs.
16. SEGMENT INFORMATION
In the third quarter of 2023, we completed the implementation of a new operating model intended to simplify and streamline our operations and better align our manufacturing and supply chain to our commercial activities. Under this new operating model, our business is currently comprised of four segments: Medical Products and Therapies, Healthcare Systems and Technologies, Pharmaceuticals, and Kidney Care (which we are planning to divest through the pending sale and accordingly, the results are reported in discontinued operations as discussed in Note 1).
The Medical Products and Therapies segment includes sales of our sterile IV solutions, infusion systems, administration sets, parenteral nutrition therapies and surgical hemostat, sealant, and adhesion prevention products. The Healthcare Systems and Technologies segment includes sales of our connected care solutions and collaboration tools, including smart bed systems, patient monitoring systems and diagnostic technologies, respiratory health devices, and advanced equipment for the surgical space, including operating room integration technologies, precision positioning devices, and other accessories. The Pharmaceuticals segment includes sales of specialty injectable pharmaceuticals, inhaled anesthesia, and drug compounding. Other sales not allocated to a segment primarily include sales of products and services provided directly through certain of our manufacturing facilities and royalty income under a business development arrangement that ended in early 2023 when we acquired the related product rights.
Disaggregation of Net Sales
The following tables present our U.S. and International disaggregated net sales. Intersegment sales, which are eliminated in consolidation, are not presented in the table below.
| Three Months Ended September 30, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| (in millions) | U.S. | International | Total | U.S. | International | Total | |||||||||||||||||
Infusion Therapies and Technologies | $ | $ | $ | $ | $ | $ | |||||||||||||||||
Advanced Surgery | |||||||||||||||||||||||
| Medical Products and Therapies | |||||||||||||||||||||||
Care and Connectivity Solutions | |||||||||||||||||||||||
Front Line Care | |||||||||||||||||||||||
Healthcare Systems and Technologies | |||||||||||||||||||||||
Injectables and Anesthesia | |||||||||||||||||||||||
| Drug Compounding | |||||||||||||||||||||||
| Pharmaceuticals | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total Baxter | $ | $ | $ | $ | $ | $ | |||||||||||||||||
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| Nine Months Ended September 30, | |||||||||||||||||||||||
| 2024 | 2023 | ||||||||||||||||||||||
| (in millions) | U.S. | International | Total | U.S. | International | Total | |||||||||||||||||
Infusion Therapies and Technologies | $ | $ | $ | $ | $ | $ | |||||||||||||||||
Advanced Surgery | |||||||||||||||||||||||
| Medical Products and Therapies | |||||||||||||||||||||||
Care and Connectivity Solutions | |||||||||||||||||||||||
Front Line Care | |||||||||||||||||||||||
Healthcare Systems and Technologies | |||||||||||||||||||||||
Injectables and Anesthesia | |||||||||||||||||||||||
| Drug Compounding | |||||||||||||||||||||||
| Pharmaceuticals | |||||||||||||||||||||||
| Other | |||||||||||||||||||||||
| Total Baxter | $ | $ | $ | $ | $ | $ | |||||||||||||||||
Geographic Sales Information
Our net sales are attributed to the following geographic regions based on the location of the customer.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| 2024 | 2023 | 2024 | 2023 | ||||||||||||||
| United States | $ | $ | $ | $ | |||||||||||||
Emerging markets1 | |||||||||||||||||
Rest of world2 | |||||||||||||||||
| Total Baxter | $ | $ | $ | $ | |||||||||||||
1 Emerging markets includes sales from our operations in Eastern Europe, the Middle East, Africa, Latin America, and Asia (except for Japan).
2 Rest of world includes sales from our operations in Western Europe, Canada, Japan, Australia, and New Zealand.
Segment Operating Income
We use segment operating income to evaluate the performance of our segments and to make resource allocation decisions. Segment operating income represents income before income taxes, interest and other non-operating income or expense, unallocated corporate costs, intangible asset amortization, and other special items. Special items, which are presented below in our reconciliations of segment operating income to income from continuing operations before income taxes, are excluded from segment operating income because they are highly variable, difficult to predict and of a size that may substantially impact our reported results of operations for the period.
Most global functional support costs, overhead costs and other shared costs that benefit our segments are allocated to those segments. Corporate costs that are not allocated to our segments, as well as any differences between actual corporate costs and the amounts allocated to our segments, are presented as unallocated corporate costs. With the results of our Kidney Care segment reported in discontinued operations, corporate costs that had previously been allocated to the Kidney Care segment which will not convey with the Kidney Care segment in the pending sale, are
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now presented as unallocated corporate costs. The following table presents our segment operating income and reconciliations of segment operating income to income from continuing operations before income taxes.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| (in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Medical Products and Therapies | $ | $ | $ | $ | |||||||||||||
| Healthcare Systems and Technologies | |||||||||||||||||
| Pharmaceuticals | |||||||||||||||||
| Other | |||||||||||||||||
| Total | |||||||||||||||||
| Unallocated corporate costs | ( | ( | ( | ( | |||||||||||||
| Intangible asset amortization expense | ( | ( | ( | ( | |||||||||||||
| Legal matters | ( | ( | ( | ( | |||||||||||||
| Business optimization items | ( | ( | ( | ( | |||||||||||||
| Acquisition and integration items | ( | ( | ( | ( | |||||||||||||
| European Medical Devices Regulation | ( | ( | ( | ( | |||||||||||||
| Hurricane Helene costs | ( | ( | |||||||||||||||
| Product-related items | ( | ( | |||||||||||||||
| Total operating income | |||||||||||||||||
| Interest expense, net | |||||||||||||||||
| Other (income) expense, net | ( | ( | ( | ||||||||||||||
| Income from continuing operations before income taxes | $ | $ | $ | $ | |||||||||||||
Our chief operating decision maker does not receive any asset information by reportable segment and, accordingly, we do not report asset information by reportable segment.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Refer to our Annual Report on Form 10-K for the year ended December 31, 2023 (2023 Annual Report) for management’s discussion and analysis of our financial condition and results of operations. The following is management’s discussion and analysis of our financial condition and results of operations for the three and nine months ended September 30, 2024 and 2023.
RECENT STRATEGIC ACTIONS
In mid-2022, our Board of Directors authorized a strategic review of our business portfolio, with the goal of increasing stockholder value. As part of that review process, we identified and evaluated a range of potential strategic actions, including opportunities for sales and other separation transactions. In January 2023, following the completion of that review, we announced a number of planned strategic actions, as discussed below, which are intended to enhance our operational effectiveness, accelerate innovation and drive additional stockholder value.
Pending Sale of Kidney Care Business
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 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.
Since the initial announcement of the proposed separation of our Kidney Care business (which is now structured as a pending sale), we have incurred significant separation-related costs, which are reflected in discontinued operations, that have adversely impacted our earnings and cash flows. We expect to continue to incur significant separation costs, which will continue to adversely impact our earnings and cash flows, in connection with the pending sale transaction. Additionally, upon completion of the pending sale transaction, we expect to incur some amount of dis-synergies due to the reduced size of our company and, as a result, we will need to undertake various actions, including cost savings initiatives, to help ensure that our cost structure is appropriate to support our remaining businesses.
There can be no guarantees that the pending sale of our Kidney Care business or our proposed cost savings initiatives will be completed in the manner or over the timeframe described above, or at all, or that they will achieve their intended results.
Implementation of New Operating Model and Resulting Segment Change
In the third quarter of 2023, we completed the implementation of a new operating model intended to simplify and streamline our operations and better align our manufacturing and supply chain to our commercial activities. Under this new operating model, our business is currently comprised of four segments: Medical Products and Therapies, Healthcare Systems and Technologies, Pharmaceuticals, and Kidney Care (which we are planning to divest through the pending sale and accordingly, the results are reported in discontinued operations as discussed in Note 1 in Item 1 of this Quarterly Report on Form 10-Q). Our segments were changed during the third quarter of 2023 to align with our new operating model. See Note 16 in Item 1 of this Quarterly Report on Form 10-Q for additional information. As discussed above, we have entered into the EPA to sell our Kidney Care business in a transaction that 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.
Sale of BioPharma Solutions (BPS) Business
On September 29, 2023, we completed the sale of our BioPharma Solutions (BPS) business and received cash proceeds of $3.96 billion from that transaction. The results of operations and cash flows of our BPS business for the three and nine months ended September 30, 2023 are reported as discontinued operations in the accompanying condensed consolidated financial statements. We used substantially all of the after-tax proceeds from this transaction
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to repay certain of our debt obligations, including $514 million of commercial paper borrowings and $2.28 billion of long-term debt that we repaid during the fourth quarter of 2023, as well as €750 million of senior notes that we repaid during the second quarter of 2024. See Note 2 in Item 1 of this Quarterly Report on Form 10-Q for additional information.
FACTORS AFFECTING OUR RESULTS OF OPERATIONS
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. Given the temporary disruptions to our facility as a result of the storm, we currently expect net sales in the fourth quarter to be negatively impacted by approximately $200 million, including an estimated $40 million to $50 million impact on Kidney Care sales and an estimated $150 million to $160 million impact on Medical Products & Therapies sales. We also expect to incur an estimated $350 million to $400 million of charges in the fourth quarter primarily consisting of remediation costs, air freight (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) and other charges, which we expect to be partially offset by insurance recoveries. Refer to Footnote 1 for further discussion of insurance recoveries related to Hurricane Helene.
Supply Constraints, Global Economic Conditions, and Regulatory Matters
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 ports 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 in raw materials and on transportation costs, some of these challenges (including certain of those set forth above as we work to fully remediate our North Cove facility) are expected to have a negative impact on our results of operations in the future.
Our results of operations are also affected by macroeconomic conditions and levels of business confidence. The war in Ukraine, the conflict in the Middle East, tensions amongst China, Taiwan, and the U.S., and the sanctions and other measures being imposed in response to these conflicts (and the potential for escalation of these conflicts) have increased the levels of economic and political uncertainty and we continue to closely monitor the developing situations. While we have substantially completed our wind down efforts related to our business in Russia, a significant escalation or expansion of economic disruption or the current scope of the war in Ukraine could have an adverse effect on our operations (including our supply chain) in the region.
The existence of high inflation rates in the United States and in many of the countries where we conduct business has resulted in, and may in the future result in, higher interest rates, shipping costs, labor costs, and other costs and expenses. Additionally, adverse changes in foreign currency exchange rates have increased, and could continue to increase, our costs of sourcing certain raw materials in some jurisdictions. We have experienced and may in the future experience inflationary increases in manufacturing costs and operating expenses and we may not be able to pass these cost increases on to our customers in a timely manner or at all, which could have a material adverse impact on our profitability and results of operations. Inflation and general macroeconomic factors have caused certain of our customers to reduce or delay orders for our products and services and could cause them to do so in the future, which could have a material adverse impact on our sales and results of operations.
As a medical products company, our operations and many of the products manufactured or sold by us are subject to extensive regulation by numerous government agencies, both within and outside the United States. These regulations (as described in Item 1, Government Regulation, of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023) require that we obtain specific approval from the Food and Drug Administration (FDA) or applicable non-U.S. regulatory authorities before we can market and sell most of our products in a particular country. Failure to obtain or maintain those approvals or clearances (including temporary importation authorizations) could have a material adverse impact on our business (including with respect to our ability to compete in the product
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markets in which we currently operate). Furthermore, the FDA in the United States, the European Medicines Agency in Europe, the China Food and Drug Administration in China, and other government agencies, inside and outside of the United States, administer requirements covering the testing, safety, effectiveness, manufacturing, labeling, promotion and advertising, pricing, distribution, and post-market surveillance of our products. Our failure to comply with these requirements may subject us to various actions, including warning letters, product recalls or seizures, monetary sanctions, injunctions to halt the manufacture and distribution of products, civil or criminal sanctions, refusal of a government to grant approvals or licenses, restrictions on operations or withdrawal of existing approvals and licenses, and may have a material adverse impact on our results of operations.
For further discussion, please refer to Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023.
NON-GAAP FINANCIAL MEASURES
Our presentation of percentage changes in net sales at constant currency rates, which is computed using current period local currency sales at the prior period’s foreign exchange rates, is a non-GAAP financial measure. This measure provides information about growth (or declines) in our net sales as if foreign currency exchange rates had not changed between the prior period and the current period. We believe that the non-GAAP measure of percent change in net sales at constant currency rates, when used in conjunction with the U.S. GAAP measure of percent change in net sales at actual currency rates, may provide a more complete understanding and facilitate a fuller analysis of our results of operations, particularly in evaluating performance from one period to another.
RESULTS OF OPERATIONS
Net income attributable to Baxter stockholders for the three months ended September 30, 2024 was $140 million, or $0.27 per diluted share compared to $2.51 billion, or $4.93 per diluted share for the three months ended September 30, 2023. For the three months ended September 30, 2024, our results included special items that adversely impacted net income attributable to Baxter stockholders by $271 million, or $0.53 per diluted share. For the three months ended September 30, 2023, our results included special items which increased net income attributable to Baxter stockholders by $2.09 billion, or $4.11 per diluted share. Net income (loss) attributable to Baxter stockholders for the nine months ended September 30, 2024 as $(137) million, or $(0.27) per diluted share compared to $2.41 billion, or $4.76 per diluted share for the nine months ended September 30, 2023. For the nine months ended September 30, 2024, our results included special items that adversely impacted net income attributable to Baxter stockholders by $1.22 billion, or $2.40 per diluted share. For the nine months ended September 30, 2023, our results included special items which increased net income attributable to Baxter stockholders by $1.36 billion, or $2.69 per diluted share.
Net income from continuing operations for the three months ended September 30, 2024 was $61 million, or $0.12 per diluted share compared to $37 million, or $0.07 per diluted share for the three months ended September 30, 2023. Net income from continuing operations for the three months ended September 30, 2024 included special items that adversely impacted net income by $191 million, or $0.37 per diluted share. Net income from continuing operations for the three months ended September 30, 2023 included special items that adversely impacted net income by $184 million, or $0.36 per diluted share. Net income (loss) from continuing operations for the nine months ended September 30, 2024 was $162 million, or $0.32 per diluted share compared to $(38) million, or $(0.08) per diluted share for the nine months ended September 30, 2023. For the nine months ended September 30, 2024, our results included special items that adversely impacted net income (loss) from continuing operations by $507 million, or $0.99 per diluted share. For the nine months ended September 30, 2023, our results included special items that impacted net income (loss) from continuing operations by $571 million, or $1.13 per diluted share.
See the subsection entitled “Special Items” for information about special items for all periods presented.
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CONSOLIDATED NET SALES
| Three Months Ended September 30, | Percent change | ||||||||||||||||
| (in millions) | 2024 | 2023 | At actual currency rates | At constant currency rates 1 | |||||||||||||
| United States | $ | 1,500 | $ | 1,467 | 2 | % | 2 | % | |||||||||
Emerging markets2 | 347 | 353 | (2) | % | 1 | % | |||||||||||
Rest of world3 | 852 | 779 | 9 | % | 8 | % | |||||||||||
| Total net sales | $ | 2,699 | $ | 2,599 | 4 | % | 4 | % | |||||||||
| Nine Months Ended September 30, | Percent change | ||||||||||||||||
| (in millions) | 2024 | 2023 | At actual currency rates | At constant currency rates 1 | |||||||||||||
| United States | $ | 4,340 | $ | 4,300 | 1 | % | 1 | % | |||||||||
Emerging markets2 | 1,001 | 985 | 2 | % | 3 | % | |||||||||||
Rest of world3 | 2,542 | 2,349 | 8 | % | 8 | % | |||||||||||
| Total net sales | $ | 7,883 | $ | 7,634 | 3 | % | 3 | % | |||||||||
1 Percent change in net sales at constant currency rates is a non-GAAP financial measure. See the section entitled “Non-GAAP Financial Measures” for additional information about our use of that measure.
2 Emerging markets includes sales from our operations in Eastern Europe, the Middle East, Africa, Latin America, and Asia (except for Japan).
3 Rest of world includes sales from our operations in Western Europe, Canada, Japan, Australia, and New Zealand.
As set forth above, foreign currency had no impact on net sales during the three months ended September 30, 2024, compared to the prior year period, due to the strengthening of the U.S. Dollar relative to the Turkish Lira, Mexican Peso, and Brazilian Real, offset by the weakening of the U.S. Dollar relative to the Euro, British Pound, Australian Dollar and Chinese Renminbi. Foreign currency had no impact on net sales during the nine months ended September 30, 2024, compared to the prior year period, due to the strengthening of the U.S. Dollar relative to Turkish Lira, Japanese Yen, Chinese Renminbi, and Brazilian Real, offset by the weakening of the U.S. Dollar relative to the Colombian Peso, British Pound, and Euro.
NET SALES BY SEGMENT
Medical Products and Therapies
Our Medical Products and Therapies segment includes sales of our sterile IV solutions, infusion systems, administration sets, parenteral nutrition therapies and surgical hemostat, sealant, and adhesion prevention products.
| Three Months Ended September 30, | Percent change | |||||||||||||||||||
| (in millions) | 2024 | 2023 | At actual currency rates | At constant currency rates 1 | ||||||||||||||||
Infusion Therapies and Technologies | $ | 1,070 | $ | 1,003 | 7 | % | 7 | % | ||||||||||||
| Advanced Surgery | 272 | 255 | 7 | % | 7 | % | ||||||||||||||
| Total Medical Product and Therapies net sales | $ | 1,342 | $ | 1,258 | 7 | % | 7 | % | ||||||||||||
| Nine Months Ended September 30, | Percent change | ||||||||||||||||
| (in millions) | 2024 | 2023 | At actual currency rates | At constant currency rates 1 | |||||||||||||
Infusion Therapies and Technologies | $ | 3,081 | $ | 2,918 | 6 | % | 6 | % | |||||||||
| Advanced Surgery | 812 | 773 | 5 | % | 6 | % | |||||||||||
| Total Medical Product and Therapies net sales | $ | 3,893 | $ | 3,691 | 5 | % | 6 | % | |||||||||
1 Percent change in net sales at constant currency rates is a non-GAAP financial measure. See the section entitled “Non-GAAP Financial Measures” for additional information about our use of that measure.
Medical Product and Therapies segment net sales increased 7% in the third quarter and increased 5% in the first nine months of 2024, as compared to the prior year periods.
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Infusion Therapies and Technologies net sales increased 7% in the third quarter and increased 6% in the first nine months of 2024, as compared to the prior year periods. Sales performance in the third quarter primarily reflected growth in Infusion Systems as a result of our Novum IQ large volume infusion and syringe pump sales in the U.S., and to a lesser extent, sales of IV solutions and nutrition product offerings, which collectively were attributable to both pricing initiatives and increased sales volume.
Advanced Surgery net sales increased 7% in the third quarter and increased 5% in the first nine months of 2024, as compared to the prior year periods. Sales performance primarily reflected growth in hemostats and sealants and was primarily attributable to increased sales volume. Foreign currency exchange rates adversely impacted sales growth by 1% for the first nine months of 2024, as compared to the prior year period.
Healthcare Systems and Technologies
Our Healthcare Systems and Technologies segment includes sales of our connected care solutions and collaboration tools, including smart bed systems, patient monitoring systems and diagnostic technologies, respiratory health devices, and advanced equipment for the surgical space, including operating room integration technologies, precision positioning devices, and other accessories.
| Three Months Ended September 30, | Percent change | ||||||||||||||||
| (in millions) | 2024 | 2023 | At actual currency rates | At constant currency rates 1 | |||||||||||||
| Care and Connectivity Solutions | $ | 456 | $ | 443 | 3 | % | 3 | % | |||||||||
| Front Line Care | 296 | 301 | (2) | % | (2) | % | |||||||||||
| Total Healthcare Systems and Technologies net sales | $ | 752 | $ | 744 | 1 | % | 1 | % | |||||||||
| Nine Months Ended September 30, | Percent change | ||||||||||||||||
| (in millions) | 2024 | 2023 | At actual currency rates | At constant currency rates 1 | |||||||||||||
| Care and Connectivity Solutions | $ | 1,310 | $ | 1,307 | 0 | % | 0 | % | |||||||||
| Front Line Care | 857 | 911 | (6) | % | (6) | % | |||||||||||
| Total Healthcare Systems and Technologies net sales | $ | 2,167 | $ | 2,218 | (2) | % | (3) | % | |||||||||
1 Percent change in net sales at constant currency rates is a non-GAAP financial measure. See the section entitled “Non-GAAP Financial Measures” for additional information about our use of that measure.
Healthcare Systems and Technologies segment net sales increased 1% in the third quarter and decreased 2% in the first nine months of 2024, as compared to the prior year periods.
Care and Connectivity Solutions net sales increased 3% in the third quarter and were flat in the first nine months of 2024, as compared to the prior year periods. The growth in the third quarter was primarily driven by increased order volume associated with capital spending as compared to the prior year quarterly period, partially offset by declines in care communications products driven by the shifting of installations to future periods and lower sales outside of the U.S.
Front Line Care net sales decreased 2% in the third quarter and decreased 6% in the first nine months of 2024, as compared to the prior year periods. The sales decline as compared to the prior year periods was primarily driven by a backlog reduction in the prior year period, as well as softer demand in the primary care market and lower government orders, partially offset by growth in our cardiology products.
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Pharmaceuticals
Our Pharmaceuticals segment includes sales of specialty injectable pharmaceuticals, inhaled anesthesia and drug compounding.
| Three Months Ended September 30, | Percent change | ||||||||||||||||
| (in millions) | 2024 | 2023 | At actual currency rates | At constant currency rates 1 | |||||||||||||
Injectables and Anesthesia | $ | 321 | $ | 351 | (9) | % | (9) | % | |||||||||
| Drug Compounding | 267 | 229 | 17 | % | 14 | % | |||||||||||
| Total Pharmaceuticals net sales | $ | 588 | $ | 580 | 1 | % | 1 | % | |||||||||
| Nine Months Ended September 30, | Percent change | ||||||||||||||||
| (in millions) | 2024 | 2023 | At actual currency rates | At constant currency rates 1 | |||||||||||||
Injectables and Anesthesia | $ | 990 | $ | 987 | 0 | % | 1 | % | |||||||||
| Drug Compounding | 778 | 665 | 17 | % | 17 | % | |||||||||||
| Total Pharmaceuticals net sales | $ | 1,768 | $ | 1,652 | 7 | % | 7 | % | |||||||||
1 Percent change in net sales at constant currency rates is a non-GAAP financial measure. See the section entitled “Non-GAAP Financial Measures” for additional information about our use of that measure.
Pharmaceuticals segment net sales increased 1% in the third quarter and increased 7% in the first nine months of 2024, as compared to the prior year periods.
Injectables and Anesthesia net sales decreased 9% in the third quarter and were flat for the first nine months of 2024, as compared to the prior year periods. The decrease in the third quarter was driven by the the timing of certain orders shifting to the fourth quarter, a delay of an anticipated new product launch, as well as supply constraints impacting international sales. Despite the decrease in the third quarter, we believe the Injectables fundamentals and growth prospects remain strong driven largely driven by strength in both core products and recent new product launches in the U.S., partially offset by inhaled anesthesia products. Foreign currency exchange rates adversely impacted sales growth by 1% for the first nine months of 2024, as compared to the prior year period.
Drug Compounding net sales increased 17% in the third quarter and for the first nine months of 2024, as compared to the prior year periods. The increase in the current year periods was driven by increased demand for our international pharmacy compounding offerings due, in part, to customer capacity constraints that resulted in increased outsourcing of compounding activities. Foreign currency exchange rates favorably impacted sales growth by 3% for the third quarter of 2024, as compared to the prior year period.
Other
Other sales, which represent sales not attributable to our reportable segments, were $17 million for both the three months ended September 30, 2024 and 2023, and $55 million and $73 million for the nine months ended September 30, 2024 and 2023, respectively. In the current and prior year periods, Other sales primarily represent revenues earned by certain of our manufacturing facilities from contract manufacturing activities. The nine-month period ended September 30, 2023 also included royalty income under a business development arrangement. The decrease in other sales for the nine months ended September 30, 2024 as compared to the prior year period primarily reflects lower contract manufacturing volume and, to a lesser extent, termination of the royalty arrangement following our acquisition of the rights to the underlying product.
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COSTS AND EXPENSES
Special Items
The following table provides a summary of our special items from continuing operations and the related impact by line item on our results 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 | |||||||||||||
| Gross Margin | |||||||||||||||||
| Intangible asset amortization expense | $ | (108) | $ | (96) | $ | (316) | $ | (279) | |||||||||
Business optimization items1 | (2) | — | (8) | (23) | |||||||||||||
Acquisition and integration items2 | — | (1) | (1) | (1) | |||||||||||||
European medical devices regulation3 | (9) | (12) | (25) | (32) | |||||||||||||
Product related items4 | (3) | — | (3) | — | |||||||||||||
Hurricane Helene costs5 | (25) | — | (25) | — | |||||||||||||
| Total Special Items | $ | (147) | $ | (109) | $ | (378) | $ | (335) | |||||||||
| Impact on Gross Margin Ratio | (5.4) pts | (4.2) pts | (4.8) pts | (4.3) pts | |||||||||||||
| Selling, General and Administrative (SG&A) Expenses | |||||||||||||||||
| Intangible asset amortization expense | $ | 51 | $ | 51 | $ | 155 | $ | 155 | |||||||||
Business optimization items1 | 16 | 44 | 41 | 134 | |||||||||||||
Acquisition and integration items2 | 5 | 1 | 15 | 15 | |||||||||||||
Legal matters6 | 17 | 13 | 17 | 13 | |||||||||||||
| Total Special Items | $ | 89 | $ | 109 | $ | 228 | $ | 317 | |||||||||
| Impact on SG&A Ratio | 3.3 pts | 4.2 pts | 2.9 pts | 4.1 pts | |||||||||||||
| Research and Development (R&D) Expenses | |||||||||||||||||
Business optimization items1 | $ | — | $ | 4 | $ | — | $ | 10 | |||||||||
| Total Special Items | $ | — | $ | 4 | $ | — | $ | 10 | |||||||||
| Impact on R&D Ratio | (0.0) pts | 0.1 pts | (0.0) pts | 0.1 pts | |||||||||||||
| Other Operating Income, net | |||||||||||||||||
Acquisition and integration items2 | $ | — | $ | — | $ | — | $ | (14) | |||||||||
| Total Special Items | $ | — | $ | — | $ | — | $ | (14) | |||||||||
| Other (Income) Expense, net | |||||||||||||||||
Investment impairments7 | $ | — | $ | — | $ | — | $ | 10 | |||||||||
| Total Special Items | $ | — | $ | — | $ | — | $ | 10 | |||||||||
| Income Tax Expense | |||||||||||||||||
Tax matters8 | $ | 11 | $ | 16 | $ | 45 | $ | 67 | |||||||||
Tax effects of special items9 | (56) | (54) | (144) | (154) | |||||||||||||
| Total Special Items | $ | (45) | $ | (38) | $ | (99) | $ | (87) | |||||||||
| Impact on Effective Tax Rate | (5.8) pts | 19.5 pts | 10.0 pts | 259.5 pts | |||||||||||||
1Our results for third quarter of 2024 and 2023 included business optimization charges of $18 million and $48 million, respectively. Our results for the first nine months of 2024 and 2023 included business optimization charges of $49 million and $167 million, respectively. These restructuring and other business optimization costs included costs primarily related to our implementation of a new operating model intended to simplify and streamline our operations and better align our manufacturing and supply chain to our commercial activities, third-party costs incurred to support the transformation of certain general and administrative functions, and rationalization of certain other manufacturing and distribution facilities. Refer to Note 10 in Item 1 of this Quarterly Report on Form 10-Q for further information regarding these charges and related liabilities.
2Our results for the third quarter of 2024 and 2023 included $5 million and $2 million, respectively, and for both the first nine months of 2024 and 2023 included $16 million, of integration costs which primarily reflected third party consulting costs related to our integration of Hillrom. In 2023, those costs were partially offset by a $14 million benefit in the first nine months related to changes in the estimated fair values of contingent consideration liabilities.
3Our results for the third quarter of 2024 and 2023 included $9 million and $12 million, respectively, and for the first nine months of 2024 and 2023 included $25 million and $32 million, respectively, of incremental costs to comply with the European Union's medical device regulations for
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previously registered products, which primarily consist of contractor costs and other direct third-party costs. We consider the adoption of these regulations to be a significant one-time regulatory charge and believe that the costs of initial compliance for previously registered products over the implementation period are not indicative of our core operating results.
4Our results for the third quarter and first nine months of 2024 included charges of $3 million related to a revised estimate of warranty and remediation activities arising from a field corrective action on certain of our infusion pumps initially recorded in 2022.
5Our results in the third quarter and first nine months of 2024 included net charges of $25 million related to Hurricane Helene. This amount consisted of a charge of $44 million related to the write-off of damaged inventory and fixed assets, partially offset by a $19 million benefit related to insurance recoveries expected as a result of those asset write-offs. Refer to Note 1 in Item 1 of this Quarterly Report on Form 10-Q for further information.
6Our results in the third quarter and first nine months of 2024 included charges of $17 million related to environmental reserves for remediation actions associated with historic operations at certain of our facilities. Our results in the third quarter and first nine months of 2023 included costs, including associated legal fees, of $13 million related to matters involving alleged violations of the False Claims Act related to a now-discontinued legacy Hillrom sales line and alleged injury from environmental exposure.
7Our results in 2023 included $10 million of pre-tax losses from non-marketable investments in several early stage companies in the first nine months, consisting of $13 million of noncash impairment write-downs, partially offset by a $3 million gain from the sale of an investment.
8Our results for the third quarter of 2024 included $11 million of income tax expense consisting of a $26 million valuation allowance recorded to reduce the carrying amount of a tax attribute carryforward in the U.S. related to the pending sale of our Kidney Care segment, partially offset by application of the intraperiod tax allocation between continuing operations and discontinued operations. Our results for the third quarter of 2023 included $16 million of income tax expense resulting from separation-related income tax costs associated with the sale of our BPS business. Our results for the first nine months of 2024 included $45 million of income tax expense consisting of a $26 million valuation allowance recorded to reduce the carrying amount of a tax attribute carryforward in the U.S. and internal reorganization transactions related to the pending sale of our Kidney Care segment. Our results for the first nine months of 2023 included $67 million of income tax expense consisting of a $30 million valuation allowance recorded to reduce the carrying amount of a deferred tax asset for a tax basis step-up related to previously enacted Swiss tax reform legislation to reflect our current estimate of its recoverability and separation-related income tax costs associated with the sale of our BPS business.
9This item reflects the income tax impact of the special items identified in this table. The tax effect of each special item is based on the jurisdiction in which the item was incurred and the tax laws in effect for each such jurisdiction.
Gross Margin and Expense Ratios
| Three Months Ended September 30, | ||||||||||||||||||||
| 2024 | % of net sales | 2023 | % of net sales | $ change | % change | |||||||||||||||
| Gross margin | $ | 1,033 | 38.3 | % | $ | 1,056 | 40.6 | % | $ | (23) | (2.2) | % | ||||||||
| SG&A | $ | 754 | 27.9 | % | $ | 744 | 28.6 | % | $ | 10 | 1.3 | % | ||||||||
| R&D | $ | 129 | 4.8 | % | $ | 133 | 5.1 | % | $ | (4) | (3.0) | % | ||||||||
| Nine Months Ended September 30, | ||||||||||||||||||||
| 2024 | % of net sales | 2023 | % of net sales | $ change | % change | |||||||||||||||
| Gross margin | $ | 3,025 | 38.4 | % | $ | 3,050 | 40.0 | % | $ | (25) | (0.8) | % | ||||||||
| SG&A | $ | 2,206 | 28.0 | % | $ | 2,270 | 29.7 | % | $ | (64) | (2.8) | % | ||||||||
| R&D | $ | 379 | 4.8 | % | $ | 391 | 5.1 | % | $ | (12) | (3.1) | % | ||||||||
Gross Margin
Our gross margin ratio was 38.3% and 40.6% for the three months ended September 30, 2024 and 2023, respectively. The special items identified earlier in this section had an unfavorable impact of approximately 5.4 and 4.2 percentage points on the gross margin ratio for the three months ended September 30, 2024 and 2023, respectively. Our gross margin ratio was 38.4% and 40.0% for the nine months ended September 30, 2024 and 2023, respectively. The special items identified earlier in this section had an unfavorable impact of approximately 4.8 and 4.3 percentage points on the gross margin ratio for the nine months ended September 30, 2024 and 2023, respectively. Refer to the Special Items caption above for additional detail.
Excluding the impact of special items, the gross margin ratio decreased by 1.1 percentage points in both the third quarter and first nine months of 2024, respectively, compared to the prior year periods. The lower gross margins were driven by an unfavorable product mix, partially offset by initiatives to reduce our manufacturing and supply chain costs.
SG&A
Our SG&A expenses ratio was 27.9% and 28.6% for the three months ended September 30, 2024 and 2023, respectively. The special items identified earlier in this section had an unfavorable impact of approximately 3.3 and 4.2
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percentage points on the SG&A expenses ratio for the three months ended September 30, 2024 and 2023, respectively. Our SG&A expenses ratio was 28.0% and 29.7% for the nine months ended September 30, 2024 and 2023, respectively. The special items identified earlier in this section had an unfavorable impact of approximately 2.9 and 4.1 percentage points on the SG&A expenses ratio for the nine months ended September 30, 2024 and 2023, respectively.
Excluding the impact of special items, the SG&A expenses ratio increased by 0.2 percentage points in the third quarter compared to the prior year period, due to higher corporate function costs and annual compensation increases, partially offset by lower accruals under our annual employee incentive compensation plans. Excluding the impact of special items, the SG&A expenses ratio decreased 0.5 percentage points in first nine months of 2024 compared to the prior year period, due to lower accruals under our annual employee incentive compensation plans, partially offset by annual compensation increases.
R&D
Our R&D expenses ratio was 4.8% and 5.1% for the three months ended September 30, 2024 and 2023, respectively. The special items identified earlier in this section had no impact and an unfavorable impact of 0.1 percentage points on the R&D expense ratio in the third quarter of 2024 and 2023, respectively. The R&D expenses ratio was 4.8% and 5.1% for the nine months ended September 30, 2024 and 2023, respectively. The special items identified earlier in this section had no impact and an unfavorable impact of 0.1 percentage points on the R&D expenses ratio for the nine months ended September 30, 2024 and 2023, respectively.
Excluding the impact of special items, the R&D expenses ratio decreased by 0.2 percentage points in both the third quarter and first nine months of 2024, compared to the prior year periods.
Business Optimization Items
In recent years, we have undertaken actions to transform our cost structure and enhance operational efficiency. These efforts have included restructuring the organization, optimizing our manufacturing footprint, R&D operations, and supply chain network, employing disciplined cost management, and centralizing and streamlining certain support functions. The related costs of these actions consisted primarily of employee termination costs, implementation costs, contract termination costs, and asset impairments.
For the three months ended months ended September 30, 2024, $7 million and $14 million of the restructuring charges, consisting of employee termination costs, related to business optimization initiatives within our Healthcare Systems and Technologies segment. Additionally, for the nine months ended September 30, 2024, $7 million of the restructuring charges, consisting of employee termination costs, related to our recent implementation of a new operating model intended to simplify and streamline our operations.
We currently expect to incur additional pre-tax costs, primarily related to the implementation of business optimization programs, of approximately $5 million through the completion of initiatives that are currently underway. We continue to pursue cost savings initiatives and, to the extent further cost savings opportunities are identified (including after the completion of the pending sale of our Kidney Care business), we would incur additional restructuring charges and costs to implement business optimization programs in future periods. Refer to Note 10 in Item 1 of this Quarterly Report on Form 10-Q for additional information regarding our business optimization programs.
Other Operating Income, Net
Other operating income, net was $5 million for the three months ended September 30, 2024. In the third quarter of 2024, this amount was comprised of income from transition services arrangements related to the divestiture of our BPS business. Other operating income, net was $9 million and $14 million for the nine months ended September 30, 2024 and 2023, respectively. In the first nine months of 2024, this amount was comprised of income from transition services arrangements related to the divestiture of our BPS business. In the first nine months of 2023, this amount was comprised of gains from changes in the estimated fair value of contingent consideration arrangements.
Interest Expense, Net
Interest expense, net was $87 million and $127 million for the three months ended September 30, 2024 and 2023, respectively and $251 million and $367 million for the nine months ended September 30, 2024 and 2023, respectively.
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The decrease in 2024 was driven by debt repayments in the fourth quarter of 2023 and, to a lesser extent, higher interest income due to a higher average cash balance and higher interest rates during the current year period.
Other (Income) Expense, net
Other (income) expense, net was income of $1 million and income of $12 million for the three months ended September 30, 2024 and 2023, respectively, and income of $34 million and expense of $15 million for the nine months ended September 30, 2024 and 2023, respectively. In the current year periods, other income, net was primarily driven by pension and other postretirement benefits, partially offset by foreign exchange losses. In the three months ended September 30, 2023, other income, net was primarily driven by pension and other postretirement benefits. In the nine months ended September 30, 2023, other expense, net was primarily driven by foreign exchange losses, non-marketable investment impairments and decreases in the fair value of marketable equity securities, partially offset by pension and postretirement benefits.
Income Taxes
Our effective income tax rate was 11.6% and 42.2% in the third quarter of 2024 and 2023, respectively, and 30.2% and 281.0% for the first nine months of 2024 and 2023, respectively. Our effective income tax rate can differ from the 21% U.S. federal statutory rate due to a number of factors, including foreign rate differences, tax incentives, non-deductible expenses, non-taxable income, increases or decreases in valuation allowances, increases or decreases in liabilities for uncertain tax positions, and excess tax benefits or shortfalls on stock compensation awards. Our effective income tax rate during interim periods reflects our estimated annual effective tax rate and discrete items.
For the three months ended September 30, 2024, the difference between our effective income tax rate and the U.S. federal statutory rate was primarily attributable to a favorable geographic earnings mix, the tax impacts of the write-off of damaged inventory and fixed assets at our North Cove facility caused by Hurricane Helene, and a change in our assertion on the reinvested foreign earnings related to the pending sale of our Kidney Care segment allocated to continuing operations, partially offset by a $26 million valuation allowance recorded to reduce the carrying amount of a tax attribute carryforward in the U.S. related to the pending sale of our Kidney Care segment.
For the nine months ended September 30, 2024, the difference between our effective income tax rate and the U.S. federal statutory rate was primarily attributable to a $26 million valuation allowance recorded to reduce the carrying amount of a tax attribute carryforward in the U.S. related to the pending sale of our Kidney Care segment, an increase in a valuation allowance in a foreign jurisdiction resulting from changes in future projected income, an increase in income tax expense resulting from internal reorganization transactions related to the pending sale of our Kidney Care segment, and an increase in our liabilities for various uncertain tax positions, partially offset by a favorable geographic earnings mix.
For the three months ended September 30, 2023, the difference between our effective income tax rate and the U.S. federal statutory rate was primarily attributable to an increase in the valuation allowance in a foreign jurisdiction resulting from changes in future projected income, partially offset by a favorable geographic earnings mix.
For the nine months ended September 30, 2023, the difference between our effective income tax rate and the U.S. federal statutory rate was primarily attributable to a $30 million increase in the valuation allowance related to a deferred tax asset from a tax basis step-up that arose from previously enacted Swiss tax reform legislation, an increase in the valuation allowance in a foreign jurisdiction resulting from changes in future projected income, and excess tax shortfalls on stock compensation awards.
The Organization of Economic Co-operation and Development (OECD) and the G20 Inclusive Framework on Base Erosion and Profit Shifting (the Inclusive Framework) has put forth two proposals—Pillar One and Pillar Two—that (i) revise the existing profit allocation and nexus rules and (ii) ensure a minimal level of taxation, respectively. On December 12, 2022, the EU member states agreed to implement the Inclusive Framework’s global corporate minimum tax rate of 15%, and various countries both within and outside the EU have enacted new laws implementing Pillar Two or have draft legislation proposed for adoption. The OECD continues to release additional guidance on the two-pillar framework, with widespread implementation occurring in 2024. We currently expect that the impact of the Pillar Two legislation on our income tax expense for the year ending December 31, 2024 will be approximately $10 million to $15 million. We are continuing to evaluate the potential impacts of the Inclusive Framework for 2025 and future years, pending legislative adoption by individual countries, which could result in further adverse impacts on our income tax expense and cash flows.
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Discontinued Operations
In August 2024, we entered into a definitive agreement to sell our Kidney Care business and its results have been presented as discontinued operations for the three and nine months ended September 30, 2024 and 2023. On September 29, 2023, we completed the sale of our BPS business and it's results have been presented as discontinued operations for the three and nine months ended September 30, 2023. Income from discontinued operations, net of tax was $83 million in the third quarter of 2024, compared to $2.47 billion in the third quarter of 2023. Income (loss) from discontinued operations, net of tax was $(290) million in the first nine months of 2024, compared to $2.46 billion in the first nine months of 2023. The decreases were primarily driven by the $2.89 billion pre-tax gain from the sale of BPS ($2.60 billion net of tax). Refer to Note 2 within Item 1 for additional information.
SEGMENT OPERATING INCOME
The following is a summary of our operating income for our reportable segments.
| Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||||
| (in millions) | 2024 | 2023 | 2024 | 2023 | |||||||||||||
| Medical Products and Therapies | $ | 268 | $ | 245 | $ | 733 | $ | 706 | |||||||||
| % of Segment Net Sales | 20.0 | % | 19.5 | % | 18.8 | % | 19.1 | % | |||||||||
| Healthcare Systems and Technologies | 136 | 115 | 323 | 327 | |||||||||||||
| % of Segment Net Sales | 18.1 | % | 15.5 | % | 14.9 | % | 14.7 | % | |||||||||
| Pharmaceuticals | 58 | 108 | 211 | 284 | |||||||||||||
| % of Segment Net Sales | 9.9 | % | 18.6 | % | 11.9 | % | 17.2 | % | |||||||||
| Other | 2 | 6 | 15 | 19 | |||||||||||||
| Total | 464 | 474 | 1,282 | 1,336 | |||||||||||||
| Unallocated corporate costs | (73) | (73) | (227) | (285) | |||||||||||||
| Intangible asset amortization expense | (159) | (147) | (471) | (434) | |||||||||||||
| Legal matters | (17) | (13) | (17) | (13) | |||||||||||||
| Business optimization items | (18) | (48) | (49) | (167) | |||||||||||||
| Acquisition and integration items | (5) | (2) | (16) | (2) | |||||||||||||
| European Medical Devices Regulation | (9) | (12) | (25) | (32) | |||||||||||||
| Product-related items | (3) | — | (3) | — | |||||||||||||
| Hurricane Helene Costs | (25) | — | (25) | — | |||||||||||||
| Total operating income | 155 | 179 | 449 | 403 | |||||||||||||
| Interest expense, net | 87 | 127 | 251 | 367 | |||||||||||||
| Other (income) expense, net | (1) | (12) | (34) | 15 | |||||||||||||
| Loss from continuing operations before income taxes | $ | 69 | $ | 64 | $ | 232 | $ | 21 | |||||||||
Medical Products and Therapies
Segment operating income was $268 million and $245 million for the third quarter of 2024 and 2023, respectively, and $733 million and $706 million for the first nine months of 2024 and 2023, respectively. The increase in segment operating income in the third quarter and the nine months ended September 30, 2024 compared to the prior year periods was primarily driven by higher sales in the current year periods, partially offset by increased allocations of manufacturing and supply chain overheads, annual compensation increases, and higher corporate shared costs.
Healthcare Systems and Technologies
Segment operating income was $136 million and $115 million for the three months ended September 30, 2024 and 2023, respectively, and $323 million and $327 million for the nine months ended September 30, 2024 and 2023, respectively. Segment operating income increased in the third quarter compared to the prior year period primarily due to increased gross profit and lower operating expenses from margin improvement initiatives and increased gross profit from higher sales of Care and Connectivity Solutions product offerings, partially offset by lower sales of our Front Line
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Care product offerings. Segment operating income decreased in the nine months ended September 30, 2024 compared to the prior year period primarily due to decreased gross profit from lower sales.
Pharmaceuticals
Segment operating income was $58 million and $108 million for the three months ended September 30, 2024 and 2023, respectively, and $211 million and $284 million for the nine months ended September 30, 2024 and 2023, respectively. The decreases in segment operating income for these periods were driven by lower gross margin percentages, due to an unfavorable product mix in the third quarter and reflecting the increased cost of certain inventory manufactured by our former BPS business, which now includes a third-party mark-up following our divestiture of that business in September 2023, and increased operating expenses, including marketing-related costs in connection with recent product launches.
Other
Other operating income, which represents operating income not attributable to our reportable segments, was $2 million and $6 million for the three months ended September 30, 2024 and 2023, respectively, and $15 million and $19 million for both the nine months ended September 30, 2024 and 2023, respectively. In the current and prior year periods, other operating income primarily represents income from revenues earned by certain of our manufacturing facilities from contract manufacturing activities. The prior year period also includes royalty income under a business development arrangement. The decrease in the third quarter of 2024 as compared to the prior year periods reflects the termination of the royalty arrangement following our acquisition of the rights to the underlying product, partially offset by improved gross margins from contract manufacturing.
Unallocated Corporate Costs
Under our new operating model, most global functional support costs, overhead costs and other shared costs that benefit our segments are allocated to those segments. Corporate costs that are not allocated to our segments, as well as any differences between actual corporate costs and the amounts allocated to our segments, are presented as unallocated corporate costs. With the results of our Kidney Care segment reported in discontinued operations, corporate costs that had previously been allocated to the Kidney Care segment which will not convey with the Kidney Care segment in the pending sale, are now presented as unallocated corporate costs. Additionally, intangible asset amortization and other special items are not allocated to our segments. Prior to the implementation of our new operating model in the third quarter of 2023, more costs were maintained at corporate and were not allocated to our previous segments. Certain of the costs that were previously maintained at corporate under our prior segment structure that are now allocated to our segments include manufacturing variances and centrally managed supply chain costs, certain R&D costs, product category support costs, stock compensation expense, and certain employee benefit plan costs.
LIQUIDITY AND CAPITAL RESOURCES
The following table is a summary of the statement of cash flows for the nine-month periods ended September 30, 2024 and 2023.
| Nine Months Ended September 30, | |||||||||||
| (in millions) | 2024 | 2023 | |||||||||
| Cash flows from operations - continuing operations | $ | 376 | $ | 792 | |||||||
| Cash flows from investing activities - continuing operations | (281) | $ | (325) | ||||||||
| Cash flows from financing activities | (1,222) | $ | (554) | ||||||||
Cash Flows from Operations - Continuing Operations
For the nine months ended September 30, 2024 and 2023, operating cash flows from continuing operations were $376 million and $792 million, respectively. Operating cash flows from continuing operations in the current year period were unfavorably impacted, as compared to the prior year period, by higher annual payouts under our employee incentive compensation plans, which were determined based on our 2023 performance and the timing of accounts receivable collections and accounts payable payments.
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Cash Flows from Investing Activities - Continuing Operations
For the nine months ended September 30, 2024, cash used in investing activities from continuing operations primarily included capital expenditures of $314 million, partially offset by $34 million of proceeds from sales of marketable securities. For the nine months ended September 30, 2023, cash used in investing activities from continuing operations primarily included capital expenditures of $340 million.
Cash Flows from Financing Activities
For the nine months ended September 30, 2024, cash used in financing activities included debt repayments of $827 million and dividend payments of $443 million, partially offset by proceeds from stock issued under employee benefit plans of $63 million. For the nine months ended September 30, 2023, cash used for financing activities included dividend payments of $439 million and debt repayments of $353 million and a net increase in commercial paper borrowings of $214 million, partially offset by proceeds from stock issued under employee benefit plans of $86 million.
As authorized by our Board of Directors, we repurchase our stock depending upon our cash flows, net debt levels and market conditions. In July 2012, our Board of Directors authorized a share repurchase program and the related authorization was subsequently increased a number of times. We did not repurchase any shares under this authority in the first nine months of 2024. We had $1.30 billion remaining available under this authorization as of September 30, 2024.
Credit Facilities, Commercial Paper Program and Access to Capital and Credit Ratings
Credit Facilities and Commercial Paper Program
As of September 30, 2024, we had a U.S. dollar-denominated term loan credit facility, which had two tranches of term loans outstanding, a U.S. dollar-denominated revolving credit facility and a Euro-denominated revolving credit facility.
As of September 30, 2024, we had $130 million outstanding under one tranche of our U.S. dollar-denominated term loan credit facility that matures in 2024 and $1.64 billion outstanding under the other tranche of our U.S. dollar-denominated term loan credit facility that matures in 2026. Borrowings under the term loan credit facility bear interest on the principal amount outstanding at either Term SOFR plus an applicable margin plus a credit spread adjustment or a “base rate” plus an applicable margin. The term loan credit facility contains various covenants, including a maximum net leverage ratio. We have the option to prepay outstanding amounts under the term loan credit facility in whole or in part at any time.
As of September 30, 2024, our U.S. dollar-denominated revolving credit facility and Euro-denominated revolving credit facility had a maximum capacity of $2.00 billion and €200 million, respectively. There were no borrowings outstanding under these credit facilities as of September 30, 2024 or December 31, 2023. Our commercial paper borrowing arrangements require us to maintain undrawn borrowing capacity under our credit facilities for an amount at least equal to our outstanding commercial paper borrowings.
On July 17, 2024, we entered into a credit agreement in which a group of banks have committed to provide us senior unsecured term loans in an aggregate principal amount of up to $2.05 billion ("the bridge facility"). Borrowings under the bridge facility will be available in up to three drawings to fund (a) the refinancing of our 1.322% Senior Notes due November 29, 2024, our Floating Rate Notes due November 29, 2024, and certain borrowings under our existing term loan facility and (b) payment of certain U.S. tax liabilities arising from internal reorganization transactions related to the pending sale of our Kidney Care business. Borrowings under the bridge facility will bear interest at a rate based on our long-term debt ratings in effect from time to time and the interest rate on any borrowings outstanding beyond December 31, 2024 would increase by 0.25%. We will also incur a ticking fee on undrawn commitments at a rate based on our long-term debt ratings in effect from time to time. The banks’ funding commitments under the bridge facility will terminate upon the earliest to occur of: (i) our consummation of the debt repayments and tax payments described above without us having borrowed under the bridge facility, (ii) our election to terminate the commitments under the bridge facility, (iii) our receipt of net cash proceeds from certain transactions (including from the pending sale of our Kidney Care business), (iv) the occurrence of three drawings under the bridge facility, and (v) December 31, 2024. Outstanding borrowings under the bridge facility will mature on the earlier of 364 days from the first funding date and November 24, 2025. Additionally, we are required to use the net cash proceeds from certain transactions (including from the pending sale of our Kidney Care business) to repay any outstanding borrowings under the bridge facility. The bridge facility contains financial and other covenants, including a net leverage covenant, and provides for
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customary events of default. There were no borrowings outstanding under this bridge facility as of September 30, 2024.
In the first quarter of 2024, we amended the credit agreements governing our U.S. dollar-denominated term loan credit facility and revolving credit facility and the guaranty agreement with respect to our Euro-denominated revolving credit facility to increase the maximum net leverage ratio covenant for the six fiscal quarters ending June 30, 2024, September 30, 2024, December 31, 2024, March 31, 2025, June 30, 2025, and September 30, 2025. The amendment further provides for the reduction of the capacity under our U.S dollar-denominated revolving credit facility from $2.50 billion to $2.00 billion on the earlier of September 30, 2024 or the date of the sale or spinoff of our Kidney Care business. As of September 30, 2024, we were in compliance with the financial covenants in these agreements. Based on our covenant calculations as of September 30, 2024, we had capacity to draw on the full amounts under our credit facilities. The non-performance of any financial institution supporting either of the credit facilities would reduce the maximum capacity of these facilities by the institution’s respective commitment. Additionally, a deterioration in our financial performance may further reduce our ability to draw on our credit facilities.
We have a commercial paper program that currently enables us to borrow efficiently at short-term interest rates. Upon maturity of any commercial paper borrowings under this program, and to the extent old issuances are not repaid by cash on hand, we are exposed to the rollover risk of not being able to issue new commercial paper. Our commercial paper borrowing arrangements require us to maintain undrawn borrowing capacity under our revolving credit facilities for an amount at least equal to our outstanding commercial paper borrowings. If we were not able to issue new commercial paper, we have the option of drawing on the revolving credit facilities; however, electing to do so would result in higher interest expense. We had no commercial paper borrowings outstanding as of September 30, 2024.
Access to Capital and Credit Ratings
We intend to fund short-term and long-term obligations as they mature through cash on hand, future cash flows from operations, and potentially by issuing debt, which could include commercial paper, bond issuances, or other financing arrangements, including the bridge facility. We had $1.42 billion of cash and cash equivalents as of September 30, 2024, with adequate cash available to meet operating requirements in each jurisdiction in which we operate. We invest our excess cash in money market and other funds and diversify the concentration of cash among different financial institutions. As of September 30, 2024, we had approximately $12.94 billion of long-term debt and finance lease obligations, including current maturities, and no short-term debt. We used substantially all of the remaining net after-tax cash proceeds from the BPS divestiture to repay indebtedness in the first half of 2024. Subject to market conditions, we regularly evaluate opportunities with respect to our capital structure. We intend to use the net after-tax proceeds from the pending sale of our Kidney Care business to repay certain of our debt obligations, consistent with our stated capital allocation priorities. Prior to the pending sale of our Kidney Care business, we plan to bring back a portion of the cash related to our Kidney Care business after giving effect to any applicable taxes and which is currently classified in discontinued operations.
Our ability to generate cash flows from operations and issue debt on acceptable terms or at all could be adversely affected if there is a material decline in the demand for our products or in the solvency of our customers or suppliers, deterioration in our key financial ratios or credit ratings, or other significantly unfavorable changes in market conditions. However, we believe we have sufficient financial flexibility to issue debt, enter into other financing arrangements, and attract long-term capital on acceptable terms to support our growth objectives and reduce our post-Hillrom acquisition debt levels as we take actions consistent with our capital allocation priorities and strategic initiatives (including completion of the pending Kidney Care sale).
In January 2024, Fitch revised our senior debt credit rating from BBB to BBB-, our senior debt credit rating outlook from rating watch negative to stable and our short-term debt credit rating from F2 to F3. In May 2024, our contract with Fitch expired. In June 2024, Fitch affirmed and withdrew ratings and coverage on us. As a result they no longer maintain ratings on our senior debt or our short-term debt. There have been no changes to our investment grade credit ratings from Standard & Poor's and Moody's that we disclosed in our 2023 Annual Report.
CRITICAL ACCOUNTING POLICIES
The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses. A summary of our significant accounting policies is included in Note 1 to our consolidated financial statements in our 2023 Annual Report. Certain of our accounting policies are considered critical, as these policies are the most important to the depiction of our financial statements and require significant, difficult or complex judgments by us, often employing the use of estimates
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about the effects of matters that are inherently uncertain. Such policies are summarized in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in our 2023 Annual Report.
Impairment of Goodwill and Other Long-Lived Assets
Front Line Care Reporting Unit
In connection with our November 1, 2023 annual goodwill impairment tests, we determined that the fair value of the Front Line Care reporting unit within our Healthcare Systems and Technologies segment exceeded its carrying value by approximately 5%. While no triggering events were identified during the nine months ended September 30, 2024, we are continuing to closely monitor the performance of this reporting unit, and if there is a significant adverse change in our outlook for this business in the future, a goodwill impairment could arise at that time. As of September 30, 2024, the carrying amount of goodwill for our Front Line Care reporting unit was $2.42 billion.
There have been no significant changes in the application of our critical accounting policies during the first nine months of 2024.
RECENT ACCOUNTING PRONOUNCEMENTS
In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures, which requires enhanced disclosures about segment expenses on an annual and interim basis. This standard is effective for our annual consolidated financial statements for the year ending December 31, 2024 and for interim periods beginning in 2025. Upon adoption of this standard, we expect to disclose additional income statement information for our reportable segments.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvement to Income Tax Disclosures, which requires (1) disclosure of specific categories in the rate reconciliation and (2) additional information for reconciling items that meet a quantitative threshold. Additionally, the amendment requires disclosure of certain disaggregated information about income taxes paid, income from continuing operations before income tax expense (benefit) and income tax expense (benefit). The standard is effective for our annual consolidated financial statements for the year ending December 31, 2025. We are currently evaluating the impact of this standard on our consolidated financial statements.
LEGAL CONTINGENCIES
Refer to Note 6 within Item 1 for a discussion of our legal contingencies. Upon resolution of any of these uncertainties, we may incur charges in excess of presently established liabilities. While our liability in connection with certain claims cannot be estimated with any certainty, and although the resolution in any reporting period of one or more of these matters could have a significant impact on our results of operations and cash flows for that period, the outcome of these legal proceedings is not expected to have a material adverse effect on our consolidated financial position. While we believe that we have valid defenses in these matters, litigation is inherently uncertain, excessive verdicts do occur, and we may in the future incur material judgments or enter into material settlements of claims.
CERTAIN REGULATORY MATTERS
In July 2017, immediately prior to the closing of our acquisition of Claris Injectables Limited (Claris), the U.S. Food and Drug Administration (FDA) commenced an inspection of the Claris’ facilities in Ahmedabad, India. FDA completed the inspection and subsequently issued a Warning Letter based on observations identified in the 2017 inspection (2017 Warning Letter).¹ FDA re-inspected the facilities and issued a Form FDA 483 on May 17, 2022. On September 1, 2022, FDA notified us that the inspection had been classified as voluntary action indicated. From January 19, 2023 to January 27, 2023, FDA performed an inspection at the Ahmedabad site, concluding with the issuance of a Form FDA 483. On April 26, 2023, FDA notified us that the inspection had been classified as official action indicated. We received a Warning Letter on July 25, 2023 based on observations identified in the January 2023 inspection (2023 Warning Letter)2. Since the issuance of the 2017 Warning Letter, we have implemented corrective and preventive actions to address FDA's related observations, as well as other enhancements at the site. We have fully responded to the 2023 Warning Letter, have implemented additional corrective and preventive actions, and continue to engage with FDA regarding the agency's observations. In addition, since the issuance of the 2017 Warning Letter, we have
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secured other sites in our manufacturing network and have launched and distribute select products from those sites in the U.S.
1 Available online at https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/ucm613538.htm
2 Available online at https://www.fda.gov/inspections-compliance-enforcement-and-criminal-investigations/warning-letters/baxter-healthcare-corporation-654136-07252023
FORWARD-LOOKING INFORMATION
Certain statements contained in this quarterly report on Form 10-Q may constitute “forward-looking statements,” as defined in the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. These statements by their nature address matters that are uncertain to different degrees. Use of the words “may,” “will,” “would,” “could,” “should,” “believes,” “estimates,” “projects,” “potential,” “expects,” “plans,” “seeks,” “intends,” “evaluates,” “pursues,” “anticipates,” “continues,” “designs,” “impacts,” “affects,” “forecasts,” “target,” “outlook,” “initiative,” “objective,” “designed,” “priorities,” “goal,” or the negative of those words or other similar expressions may identify forward-looking statements, although not all forward-looking statements contain such words. These forward-looking statements may include statements with respect to the pending sale of our Kidney Care business and other portfolio management activities we may undertake in the future, the costs, structure, and timing associated with strategic initiatives including the pending sale, the viability and accuracy of anticipated benefits of our strategic actions, our ability to successfully integrate acquisitions and complete divestitures, the expected growth rates for our segments, accounting estimates and assumptions (including with respect to goodwill and other intangible asset impairments), global economic conditions, severe storms and storm-related impacts, litigation-related matters, future regulatory filings (or the withdrawal or resubmission of any pending submissions) and our R&D pipeline (including anticipated product approvals or clearances), sales from new product offerings, credit exposure to foreign governments, the adequacy of cash flows and credit facilities, potential developments with respect to credit ratings, investment of foreign earnings, estimates of liabilities including those related to uncertain tax positions, contingent payments, future pension plan contributions, costs, discount rates and rates of return, our exposure to financial market volatility and foreign currency, interest rate and credit risks, our net interest expense, the impact of inflation on our business, the impact of competition, future sales growth, business development activities, cost saving initiatives, future capital and R&D expenditures, future debt issuances and refinancings, the adequacy of tax provisions and reserves, the effective income tax rate, and all other statements that do not relate to historical facts.
These forward-looking statements are based on certain assumptions and analyses made in light of our experience and perception of historical trends, current conditions, and expected future developments as well as other factors that we believe are appropriate in the circumstances. While these statements represent our judgment on what the future may hold, and we believe these judgments are reasonable, these statements are not guarantees of any events or financial results. Whether actual future results and developments will conform to expectations and predictions is subject to a number of risks and uncertainties, including the following factors, many of which are beyond our control:
•our ability to execute and complete strategic initiatives, asset dispositions, and other transactions, including the pending sale of our Kidney Care business, our plans to simplify our manufacturing footprint and the timing for such transactions, the ability of the parties to secure any required regulatory approvals or satisfy any applicable conditions, and our ability to realize the expected proceeds, consideration, and benefits of these transactions (including with respect to any post-sale arrangements or cost savings initiatives);
•failure to accurately forecast or achieve our short-and long-term financial performance and goals (including with respect to our strategic initiatives and other actions), market and category growth rates, and related impacts on our liquidity;
•our ability to finance and develop new products or enhancements on commercially acceptable terms or at all;
•product development risks, including satisfactory clinical performance and obtaining and maintaining required regulatory approvals (including as a result of evolving regulatory requirements or the withdrawal or resubmission of any pending applications), the ability to manufacture at appropriate scale, and the general unpredictability associated with the product development cycle;
•demand and market acceptance risks for, and competitive pressures related to, new and existing products, challenges with accurately predicting changing customer preferences and future expenditures and inventory
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levels and with being able to monetize new and existing products and services (and to sustain any related price increases), the impact of those products on quality and patient safety concerns, and the need for ongoing training and support for our products;
•our ability to successfully integrate acquisitions including the acquisition of Hillrom, and the related impact on our organization structure, senior leadership, culture, functional alignment, outsourcing and other areas, our management of resulting related personnel capacity constraints and potential institutional knowledge loss, and our ability to achieve anticipated performance or financial targets and maintain our reputation following integration;
•our ability to execute on our capital allocation plans, including our debt repayment plans, the timing and amount of any dividends, share repurchases and divestiture proceeds (including those resulting from the pending Kidney Care sale);
•the impact of global economic conditions (including, among other things, inflation levels, interest rates, financial market volatility, banking crises, the potential for a recession, the war in Ukraine, the conflict in the Middle East (including recent attacks on merchant ships in the Red Sea), tensions amongst China, Taiwan, and the U.S. and the potential for escalation of these conflicts, the related economic sanctions being imposed globally in response to the conflicts and potential trade wars and global public health crises, pandemics and epidemics, or the anticipation of any of the foregoing, on our operations and our employees, customers, suppliers, and foreign governments in countries in which we operate;
•the impact of physical effects of climate change, severe storms (including Hurricane Helene) and storm-related events, including our ability to import and distribute product from other facilities in connection with temporary importation authorizations, the reallocation of manufacturing capacity, the ability to receive necessary regulatory or other approvals required to reopen all or a portion of impacted facilities, the ability to resume production at our North Cove facility on the expected time frame or at all and physical, environmental or other obstacles identified during the course of remediation, including with respect to the availability of third party contractors and any equipment, transportation or other supplies needed to support the remediation efforts;
•inability to create additional production capacity in a timely manner or the occurrence of other manufacturing, sterilization, or supply difficulties, including as a result of natural disaster, war, terrorism, global public health crises and epidemics/pandemics, regulatory actions, or otherwise;
•downgrades to our credit ratings or ratings outlooks, or withdrawals by rating agencies from rating us and our indebtedness, and the related impact on our funding costs and liquidity;
•the impact of any goodwill, intangible asset, or other long-lived asset impairments on our operating results;
•regulatory agency inspections, product quality or patient safety issues leading to product recalls, withdrawals, labeling changes, launch delays, warning letters, import bans, denial of import certifications, sanctions, seizures, litigation, or declining sales, including the focus on evaluating product portfolios for the potential presence or formation of nitrosamines;
•future actions of, or failures to act or delays in acting by FDA, the European Medicines Agency, or any other regulatory body or government authority (including the SEC, DOJ, or the Attorney General of any state) that could delay, limit, or suspend product development, manufacturing, or sale, or result in seizures, recalls, injunctions, monetary sanctions, or criminal or civil liabilities;
•breaches, including by cyber-attack, data leakage, unauthorized access or theft, or failures of or vulnerabilities in, our information technology systems, or products;
•the continuity, availability, and pricing of acceptable raw materials and component parts, our ability to pass some or all of these costs to our customers through price increases or otherwise, and the related continuity of our manufacturing and distribution and those of our suppliers;
•loss of key employees (including those involved with any key strategic actions), the occurrence of labor disruptions (including as a result of labor disagreements under bargaining agreements or national trade union agreements or disputes with works councils) or the inability to attract, develop, retain, and engage employees;
•failures with respect to our quality, compliance, or ethics programs;
•future actions of third parties, including third-party payors and our customers and distributors (including GPOs and IDNs);
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•changes to legislation and regulation and other governmental pressures in the United States and globally, including the cost of compliance and potential penalties for purported noncompliance thereof, including new or amended laws, rules, and regulations, as well as the impact of healthcare reform and its implementation, suspension, repeal, replacement, amendment, modification, and other similar actions undertaken by the United States or foreign governments, including with respect to pricing, reimbursement, taxation, and rebate policies;
•the outcome of pending or future litigation;
•the impact of competitive products and pricing, including generic competition, drug reimportation, and disruptive technologies;
•global regulatory, trade, and tax policies, including with respect to climate change and other sustainability matters;
•the ability to protect or enforce our patents or other proprietary rights (including trademarks, copyrights, trade secrets, and know-how) or where the patents of third parties prevent or restrict our manufacture, sale, or use of affected products or technology;
•fluctuations in foreign exchange and interest rates;
•any changes in law concerning the taxation of income (whether with respect to current or future tax reform);
•actions by tax authorities in connection with ongoing tax audits;
•other factors identified elsewhere in this report and other filings with the SEC, including those factors described in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023, all of which are available on our website.
Actual results may differ materially from those projected in the forward-looking statements, which are more fully discussed in our Annual Report on Form 10-K for the year ended December 31, 2023. These forward-looking statements are not exclusive and are in addition to other factors discussed elsewhere in our Annual Report on Form 10-K for the year ended December 31, 2023. Further, other unknown or unpredictable factors could also have material adverse effects on future results. Any forward-looking statement in this Quarterly Report on Form 10-Q speaks only as of the date on which it is made. Except as required by law, we assume no obligation, and expressly disclaim any obligation, to update or revise any forward-looking statements, whether as a result of new information or future events.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Currency Risk
We are primarily exposed to foreign exchange risk with respect to revenues generated outside of the United States denominated in the Euro, British Pound, Chinese Renminbi, Korean Won, Australian Dollar, Canadian Dollar, Japanese Yen, Colombian Peso, Brazilian Real, Mexican Peso, Indian Rupee, and Swedish Krona. We manage our foreign currency exposures on a consolidated basis, which allows us to net exposures and take advantage of any natural offsets. In addition, we use derivative and nonderivative financial instruments to further reduce our net exposure to foreign exchange. Gains and losses on the hedging instruments offset losses and gains on the hedged transactions and reduce the earnings and stockholders’ equity volatility relating to foreign exchange. However, we don't hedge our entire foreign exchange exposure and are still subject to earnings and stockholders' equity volatility relating to foreign exchange risk. Financial market and currency volatility may limit our ability to cost-effectively hedge these exposures.
We primarily use forward contracts to hedge the foreign exchange risk to earnings relating to forecasted transactions and recognized assets and liabilities denominated in foreign currencies. The maximum term over which we have cash flow hedge contracts in place related to foreign exchange risk on forecasted transactions as of September 30, 2024 is 12 months. We also enter into derivative instruments to hedge foreign exchange risk on certain intra-company and third-party receivables and payables and debt denominated in foreign currencies.
As part of our risk-management program, we perform sensitivity analyses to assess potential changes in the fair value of our foreign exchange instruments relating to hypothetical and reasonably possible near-term movements in foreign exchange rates.
A sensitivity analysis of changes in the fair value of foreign exchange contracts outstanding as of September 30, 2024, while not predictive in nature, indicated that if the U.S. Dollar uniformly weakened by 10% against all currencies, the net pre-tax liability balance of $5 million with respect to those contracts would change by $5 million.
The sensitivity analysis model recalculates the fair value of the foreign exchange contracts outstanding as of September 30, 2024 by replacing the actual exchange rates as of September 30, 2024 with exchange rates that are 10% weaker compared to the actual exchange rates for each applicable currency. All other factors are held constant. These sensitivity analyses disregard the possibility that currency exchange rates can move in opposite directions and that gains from one currency may or may not be offset by losses from another currency. The analyses also disregard the offsetting change in value of the underlying hedged transactions and balances.
Interest Rate and Other Risks
Refer to the caption “Interest Rate and Other Risks” in the “Financial Instrument Market Risk” section of the 2023 Annual Report. There were no significant changes during the quarter ended September 30, 2024.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of September 30, 2024. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2024.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The information in Part I, Item 1, Note 6 is incorporated herein by reference.
Item 1A. Risk Factors
We do not believe that there have been any material changes to the risk factors previously disclosed in our 2023 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In July 2012, the Board of Directors authorized a share repurchase program and the related authorization was subsequently increased a number of times. During the third quarter of 2024, we did not repurchase any shares under this authority. We had $1.30 billion remaining under this program as of September 30, 2024. This program does not have an expiration date.
Item 5. Other Information
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Item 6. Exhibits
Exhibit Index:
| Exhibit Number | Description | ||||||||||
| 2.1 | |||||||||||
| 10.1 | Credit Agreement, dated as of July 17, 2024, among Baxter International Inc. as Borrower, JPMorgan Chase Bank, National Association as Administrative Agent, and certain other financial institutions named therein (incorporated by reference to Exhibit 10.1 to Baxter International Inc.'s Form 8-K, filed on July 18, 2024). | ||||||||||
| C 10.2* | |||||||||||
| C 10.3* | |||||||||||
| 31.1* | |||||||||||
| 31.2* | |||||||||||
| 32.1** | |||||||||||
| 32.2** | |||||||||||
| 101.INS* | XBRL Instance Document | ||||||||||
| 101.SCH* | XBRL Taxonomy Extension Schema Document | ||||||||||
| 101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | ||||||||||
| 101.LAB* | XBRL Taxonomy Extension Label Linkbase Document | ||||||||||
| 101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document | ||||||||||
| 101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document | ||||||||||
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained within the Inline XBRL Instance Document in Exhibit 101) | ||||||||||
_____________________________________
* Filed herewith.
** Furnished herewith. This exhibit shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.
C Management contract or compensatory plan or arrangement
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Signature
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| BAXTER INTERNATIONAL INC. | ||||||||
| (Registrant) | ||||||||
| Date: November 12, 2024 | ||||||||
| By: | /s/ Joel T. Grade | |||||||
| Joel T. Grade Executive Vice President, Chief Financial Officer and Interim Chief Accounting Officer, (duly authorized officer, principal financial officer and principal accounting officer) | ||||||||
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Exhibit 10.2
BAXTER INTERNATIONAL INC.
Non-Employee Director Compensation Plan
(As amended and restated effective January 1, 2025)
Terms and Conditions
1.Purpose
This Non-Employee Director Compensation Plan (the “Plan”) is adopted by the Board of Directors (the “Board”) of Baxter International Inc. (“Baxter”). This Plan is adopted pursuant to the Baxter International Inc. Amended and Restated 2021 Incentive Plan (the “Amended and Restated 2021 Incentive Plan”), for the purposes stated in the Amended and Restated 2021 Incentive Plan. Capitalized terms defined in the Amended and Restated 2021 Incentive Plan that are used without being defined in the Plan will have the same meaning as in the Amended and Restated 2021 Incentive Plan.
2.Participants
Each member of the Board who is not an employee of Baxter or any of its subsidiaries shall participate in the Plan (a “Participant”).
3.Unrestricted Shares of Stock
3.1 Subject to Section 3.4, on the date of Baxter’s annual meeting of stockholders in each year beginning with the Annual Meeting held on May 7, 2024 (the “Annual Meeting”), and subject to availability of Shares under the Amended and Restated 2021 Incentive Plan, each Participant upon completion of the Annual Meeting shall, automatically and without necessity of any action by the Board or any committee thereof, receive the number of Full Value Awards in the form of Shares of Baxter Common Stock, par value $0.01 per Share, (“Unrestricted Shares”) equal to the quotient of (A) $215,000 divided by (B) the Fair Market Value of a Share on the date of grant rounded up or down to the nearest whole number (the “Annual Unrestricted Share Grant Amount”).
3.2 Each Participant elected or appointed on a date other than the date of an Annual Meeting shall, on the date of such election or appointment and automatically and without necessity of any action by the Board or any committee thereof, receive the number of Unrestricted Shares equal to the product of (A) the Annual Unrestricted Share Grant Amount (as defined in Section 3.1, subject to adjustment in accordance with the Amended and Restated 2021 Incentive Plan) for the Unrestricted Shares awarded on the date of the immediately preceding Annual Meeting, multiplied by (B) the quotient of (i) the number of full calendar months before the next Annual Meeting divided by (ii) 12, rounded up or down to the nearest whole number. The number of Unrestricted Shares granted under this Section 3.2 shall not exceed the number available under the Amended and Restated 2021 Incentive Plan on the date of grant.
Exhibit 10.2
3.3 All Unrestricted Shares shall be granted with no vesting restrictions.
3.4 If a Participant ceases service as a member of the Board for any reason, other than death or disability and except in connection with any qualifying retirement (as set forth in Section 3.5), prior to the date that is six months after the grant date of Unrestricted Shares, Participant hereby agrees (i) to return any Unrestricted Shares which the Participant has not otherwise sold or transferred prior to the date of Participant’s departure from the Board (the “Termination Date”) to Baxter and (ii) with respect to any Unrestricted Shares that the Participant has sold or otherwise transferred prior to the Termination Date, to make a cash payment to Baxter equal to the amount of the net proceeds received from the sale, disposition or transfer of the Unrestricted Shares, less any taxes withheld at time of grant within ten Business Days of the Termination Date. Additionally, the Participant hereby agrees to promptly notify Baxter of any sale, transfer or other disposition of any Unrestricted Shares that occurs prior to six months after to the applicable grant date.
3.5 Qualifying Retirement shall mean the Termination of a Participant who is at least 72 years of age or who has served as a member of the Board for a continuous period of at least ten years.
4.Cash Compensation
4.1 Except as provided in the following section, participants acting as the chairperson of any committee of the Board shall receive an annual cash retainer of $20,000 for each committee chaired by him or her. A participant acting as the chairperson of the Audit Committee shall receive an annual cash retainer of $25,000. Amounts payable within this Section 4.1 shall be paid quarterly in arrears. For the purposes of determining the amount of such quarterly payment(s), a Participant must be a chairperson of a committee of the Board on or prior to the 15th day of a month in order to be entitled to receive such payment(s) with respect to that month.
4.2 Baxter shall pay each Participant a total annual cash retainer of $120,000 per calendar year (“Annual Cash Retainer”). Baxter shall pay an additional annual cash retainer of $50,000 per calendar year to the Lead Director (“Lead Director Retainer”). Both the Annual Cash Retainer and Lead Director Retainer shall be paid quarterly in arrears. For purposes of determining the amount of such quarterly payment(s), a Participant and/or the Lead Director must be a member of the Board on or prior to the 15th day of a month in order to be entitled to receive such payment(s) with respect to that month.
4.3 Participants shall be eligible to defer payment of cash compensation otherwise payable under this Section 4 pursuant to the terms and conditions of the Baxter Non-Employee Director Deferred Compensation Plan.
Exhibit 10.2
5.Availability of Shares
If on any grant date, the number of Shares which would otherwise be granted in the form of Unrestricted Shares granted under the Plan shall exceed the number of Shares then remaining available under the Amended and Restated 2021 Incentive Plan, the available Shares shall be allocated among the Participants in proportion to the number of Unrestricted Shares that Participants would otherwise be entitled to receive.
6.Change in Control
Notwithstanding any other provision of the Amended and Restated 2021 Incentive Plan or this Plan, if a Change in Control occurs, then all Awards previously unvested shall become immediately vested and exercisable.
7.General Provisions
7.1 Subject to the limitations contained in Section 13 of the Amended and Restated 2021 Incentive Plan, the Board or the Committee may, at any time and in any manner, amend, suspend, or terminate the Plan or any Award outstanding under the Plan.
7.2 Participation in the Plan does not give any Participant any right to continue as a member of the Board for any period of time or any right or claim to any benefit unless such right or claim has specifically accrued hereunder.
Exhibit 10.3
BAXTER INTERNATIONAL INC. EXECUTIVE SEVERANCE PLAN AND SUMMARY PLAN DESCRIPTION
INTRODUCTION
Baxter International Inc., a Delaware corporation adopts this Executive Severance Plan and Summary Plan Description (the “Plan”), effective as of the Effective Date (as defined below), for the benefit of certain Eligible Employees (as defined below). The purpose of the Plan is to provide assurances of specified severance benefits to Eligible Employees upon a Qualifying Termination (as defined below).
ARTICLE I
DEFINITIONS
As used herein, the following capitalized words and phrases shall have the following respective meanings unless the context clearly indicates otherwise:
1.1“Affiliate” shall have the meaning set forth in Rule 12b-2 under Section 12 of the Securities Exchange Act of 1934, as may be amended from time to time.
1.2“Board” means the Board of Directors of the Company.
1.3“Cause” means (i) the willful and continued failure by the Eligible Employee to substantially perform their duties with the Company that has not been cured within 30 days after written demand for substantial performance is delivered by the Company, which demand specifically identifies the manner in which the Eligible Employee has not substantially performed (other than any such failure resulting from the Eligible Employee’s incapacity due to Disability), or (ii) the willful engaging by the Eligible Employee in conduct which is demonstrably and materially injurious to the Company, monetarily, reputationally, or otherwise. For purposes hereof, no act, or failure to act, on the Eligible Employee’s part shall be deemed “willful” unless done, or omitted to be done, by the Eligible Employee not in good faith and without reasonable belief that such action was in the best interest of the Company. Notwithstanding the foregoing, if an Eligible Employee is a party to a Change in Control Agreement, “Cause” with respect to such Eligible Employee shall have the meaning given to such term in the Change in Control Agreement. The Company’s most senior Human Resources officer (or the company’s most senior Legal officer in the event of a termination involving the Company’s most senior Human Resources officer), shall make the determination as to whether the termination of employment is for Cause, and such determination shall be binding, final and conclusive on all concerned.
1.4“Change in Control” means the term “Change in Control” as defined in the Baxter International Inc. Amended and Restated 2021 Incentive Plan, as may be amended from time to time, or by any shareholder-approved successor plan thereto.
1.5“Change in Control Agreement” means an employment agreement, change in control agreement or plan, severance agreement or plan, or other agreement between the Company and an Eligible Employee or Company plan covering an Eligible Employee that provides for severance benefits upon a voluntary termination for good reason or involuntary termination without cause in connection with a Change in Control of the Company and that has been approved by the Board or the Committee.
1.6“Code” shall mean the Internal Revenue Code of 1986, as amended from time to time, including any rules and regulations promulgated thereunder, along with Treasury and IRS interpretations thereof. Reference to any section or subsection of the Code includes reference to any comparable or succeeding provisions of any legislation that amends, supplements or replaces such section or subsection.
1.7“Committee” shall mean the Compensation and Human Capital Committee of the Board.
1.8“Company” shall mean Baxter International Inc., a Delaware corporation, and its successors.
1.9“Disability” shall mean a condition entitling the Eligible Employee to receive benefits under a long-term disability plan sponsored by the Company in which such Eligible Employee is eligible to participate, or, in the absence of such a plan, the complete and permanent inability of the Eligible Employee by reason of illness or accident to perform the substantial duties of the occupation at which the Eligible Employee was employed or served when such disability commenced. Any determination of whether a Disability exists shall be made by the Committee (or designee) in its sole and absolute discretion.
1.10“Effective Date” shall mean November 16, 2020.
1.11“Eligible Employee” shall mean those salaried employees of the Company employed in the United States at a Vice President job level or above (including any salaried employee who is a United States expatriate on assignment in another country at the Vice President job level or above), but excluding the Chairman and Chief Executive Officer of the Company or any successor thereto. In all cases, the Committee, in its sole discretion, shall designate an Eligible Employee as a Group 1 Executive or Group 2 Executive for purposes of participation in the Plan.
1.12“Qualifying Termination” shall mean an involuntary termination on or after the Effective Date of an Eligible Employee by the Company for any reason other than due to death, Disability, or for Cause.
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ARTICLE II
SEVERANCE BENEFITS
2.1Severance Benefits. In the event of an Eligible Employee’s Qualifying Termination, provided the Eligible Employee’s Release (as defined below) has been executed in the timely manner provided in Article VIII and the period of revocation has expired, the terminated Eligible Employee will receive the following benefits following the Release Effective Date, which is determined in accordance with the timing set forth in Article VIII (collectively, “Severance Benefits”):
(a)Severance Payment. In the event of an Eligible Employee’s Qualifying Termination, such terminated Eligible Employee shall be eligible to receive the amount described below based on the Eligible Employee’s group, annual base salary and target annual incentive amount under the Management Incentive Compensation Plan (the “MICP”) (or any successor plan thereto) on the date the Eligible Employee terminates employment:
(i)Group 1 Executive: Sum of (a) annual base salary and target annual incentive amount multiplied by (b) 1.5.
(ii)Group 2 Executive: Sum of (a) annual base salary and target annual incentive amount multiplied by (b) 1.
Such amount shall be paid in equal regular payroll installments over a twelve (12) month period starting with the first payroll period after the Release Effective Date; provided, however, that in the event of a Change in Control of the Company, the amounts described above shall be paid in a lump sum, provided, further, that if the Eligible Employee is currently receiving installment payments, those payments shall continue in lieu of a lump sum. In all cases, such payments shall begin or occur within thirty (30) days following the Release Effective Date.
(b)Pro Rata Annual Incentive Payment. In the event an Eligible Employee’s Qualifying Termination is on or after February 1 but before the end of the applicable calendar year, the Eligible Employee shall remain eligible for a pro rata payment of the Eligible Employee’s annual incentive under the MICP (or any successor plan thereto) calculated using the number of days of active service completed by the Eligible Employee with the Company in the applicable calendar year. In the event an Eligible Employee’s Qualifying Termination is after the applicable calendar year but prior to payment of the annual incentive, the Eligible Employee shall remain eligible for a payment of the Eligible Employee’s annual incentive under the MICP (or any successor plan thereto) for the applicable calendar year prior to the Eligible Employee’s Qualifying Termination. Any payment under this Section 2.1(b) shall be based on actual financial performance of the Company and target (100%) individual performance. The timing of any payment under this Section 2.1(b) shall be consistent with the timing of annual
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incentive payments under the MICP (or any successor plan thereto) in the ordinary course to all United States employees generally; provided, however, the payment shall be made no later than March 15 of the calendar year following the calendar year of the Eligible Employee’s Qualifying Termination.
(c)Medical, Dental or Vision Coverage Payment. In the event of an Eligible Employee’s Qualifying Termination and if the Eligible Employee was currently enrolled in the Company’s group medical, dental or vision plan as of the date of a Qualifying Termination, then the Company shall pay to such Eligible Employee a lump-sum cash amount within thirty (30) days following the Release Effective Date outlined below using the current monthly employer cost of the applicable coverage and the Eligible Employee’s group:
(i)Group 1 Executive: Monthly employer cost of applicable group medical, dental or vision coverage multiplied by 18.
(ii) Group 2 Executive: Monthly employer cost of applicable group medical, dental or vision coverage multiplied by 12.
(d)Outplacement Benefits. In the event of an Eligible Employee’s Qualifying Termination, the Company shall provide outplacement services suitable to the Eligible Employee’s position via the Company’s third-party provider or otherwise for a period of up to eighteen (18) months or, if earlier, until the Eligible Employee accepts full-time employment, up to the amount specified below based on the Eligible Employee’s group:
(i)Group 1 Executive: Outplacement amount not to exceed a total of $35,000.
(ii)Group 2 Executive: Outplacement amount not to exceed a total of $20,000.
ARTICLE III
LIMITATION ON PAYMENT OF BENEFITS
3.1Non-Duplication of Benefits. Any Severance Benefits payable to an Eligible Employee under the Plan will be in lieu of and not in addition to any severance benefits to which the Eligible Employee would otherwise be entitled under any general severance policy or severance plan maintained by the Company or any agreement between the Eligible Employee and the Company that provides for severance benefits. Notwithstanding any other provision in the Plan to the contrary, the benefits provided hereunder shall be reduced by amounts paid or provided to an Eligible Employee by the Company under any other applicable plan or arrangement providing for a payment upon a termination of employment, including but not limited to, statutory severance or other termination pay arrangements, any Change in Control payments, or payments associated with individual employment or retention agreements. Additionally, no Eligible Employee shall otherwise be eligible for severance under the Baxter Severance Pay Plan (or any successor United States broad-based severance plan
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thereto). Notwithstanding the foregoing, this Section 3.1 shall not apply to any vesting or payments associated with an Eligible Employee’s long-term incentive awards granted under the Baxter International Inc. 2011 Incentive Plan, the Baxter International Inc. 2015 Incentive Plan or the Baxter International Inc. Amended and Restated 2021 Incentive Plan or any shareholder-approved successor plans.
3.2Section 280G. If any payment or benefit received or to be received by an Eligible Employee (including any payment or benefit received pursuant to this Plan or otherwise) would be, in whole or in part, subject to the excise tax imposed by Section 4999 of the Code, or any successor provision thereto, or any similar tax imposed by state or local law, or any interest or penalties with respect to such excise tax (such tax or taxes, together with any interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then the payments or benefits provided under this Plan or any other agreement pursuant to which the Eligible Employee receives payments that give rise to the Excise Tax will either be (a) paid in full, or (b) reduced to the extent necessary to make such payments and benefits not subject to such Excise Tax. The Company shall reduce or eliminate the payments in the following order of priority in a manner consistent with Section 409A of the Code: (i) first by reducing cash compensation, (ii) next from equity compensation, and then (iii) pro rata among all remaining payments and benefits, in each case, in reverse order beginning with payments that are to be paid the farthest in time from the determination. The Eligible Employee shall receive the greater, on an after-tax basis, of (a) or (b). In no event will the Company be required to gross up any payment or benefit to the Executive to avoid the effects of the Excise Tax or to pay any regular or excise taxes arising from the application of the Excise Tax. Unless the Company and the Eligible Employee otherwise agree in writing, any parachute payment calculation will be made in writing by the Accounting Firm (as defined below), whose calculations will be conclusive and binding upon the Company and the Eligible Employee for all purposes. The Company and the Eligible Employee will furnish to the Accounting Firm such information and documents as they may reasonably request in order to make a parachute payment determination. The Accounting Firm also will provide its calculations, together with detailed supporting documentation, both to the Company and to the Eligible Employee, before making any payments that may be subject to the Excise Tax. For purposes of this Plan, “Accounting Firm” shall mean the then-current independent auditors of the Company or such other nationally recognized certified public accounting firm as may be designated by the Company.
3.3Indebtedness of Eligible Employee. If an Eligible Employee is indebted to the Company as of the date of the Eligible Employee’s termination of employment, the Company reserves the right to offset any benefits under this Plan by the amount of such indebtedness, provided that such offset shall not give rise to any tax under Section 409A of the Code.
3.4Withholding. Amounts paid to an Eligible Employee hereunder shall be subject to all applicable federal, state and local withholding taxes, and all legally required deductions.
3.5Recoupment and Cessation; Reemployment. After amounts have been paid to an Eligible Employee under this Plan, if, within twelve (12) months of the Eligible Employee’s
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termination of employment: (a) the Eligible Employee violates his or her obligations to the Company and its Affiliates pursuant to an employment agreement, restrictive covenant or similar agreement, or (b) it is determined that the Eligible Employee could have been terminated for Cause, then, the Eligible Employee shall be required to repay to the Company all amounts paid under the Plan. Such repayment shall be made by Eligible Employee within thirty (30) days of demand for repayment by the Committee or its delegate. The Committee or its delegate shall cease any future payments under the Plan. By accepting benefits under this Plan, an Eligible Employee: (i) certifies his or her understanding that any failure by the Eligible Employee to comply with this Plan or with any employment agreement, restrictive covenant or similar agreement may result in legal action, and (ii) acknowledges that the Company and its Affiliates will face irreparable injury in the event of a breach or a threatened breach of such agreements and covenants which may be difficult to calculate in dollar terms, and therefore, agrees that in such event, (A) the Company shall be entitled, in addition to remedies otherwise available at law or in equity, to specific performance and/or immediate injunctive and/or other equitable relief, without the posting of a bond and without proof of damages; and (B) should the Company successfully enforce any portion of this Plan or such agreements in a lawsuit or other proceeding, the Company shall be entitled to all of its reasonable attorneys’ fees and costs, in addition to damages and equitable relief, incurred as a result of enforcing this Plan and such agreements. In the event the Eligible Employee becomes reemployed after a Qualifying Termination by the Company or its Affiliates prior to all payments being made under the Plan, the Eligible Employee shall be entitled to keep any payments made up to the date or reemployment, and any future payments shall cease.
ARTICLE IV
ADMINISTRATION, AMENDMENT AND TERMINATION; TERM
4.1Administration by the Committee. The Plan shall be administered by the Committee. The Committee will have and will exercise the powers and duties described herein, including, the power and duty to interpret this Plan and determine the benefit to which Eligible Employees are entitled hereunder. The Committee shall have the authority to delegate its powers and duties under the Plan to one or more individuals.
4.2Indemnification and Expenses. The Company shall indemnify and hold harmless members of the Committee against any and all expenses and liabilities arising out of their administrative functions or fiduciary responsibilities, including any expenses and liabilities that are caused by or result from an act or omission constituting the negligence of such member in the performance of such functions or responsibilities, but excluding expenses and liabilities that are caused by or result from such member's own gross negligence or willful misconduct. Expenses against which such member shall be indemnified hereunder shall include, without limitation, the amounts of any settlement or judgment, costs, counsel fees, and related charges reasonably incurred in connection with a claim asserted or a proceeding brought or settlement thereof. To the extent required by applicable law, but not otherwise, Committee members shall furnish bond or security for the performance of their duties hereunder. Any expenses properly incurred by the Committee incident to the administration,
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termination or protection of the Plan, including the cost of furnishing bond, shall be paid by the Company.
4.3Committee Powers and Responsibilities. The Committee or its delegate shall have all discretionary powers necessary to enable it to properly to carry out its duties with respect to the administration of the Plan. Not in limitation, but in amplification of the foregoing, the Committee shall have the power and authority, in its discretion, to:
(a)Construe the Plan to determine all questions that shall arise as to interpretations of the Plan’s provisions and factual findings, including determination of which individuals are eligible for severance benefits, the amount of severance benefits to which any employee may be entitled, and all other matters pertaining to the Plan;
(b)Adopt amendments to the Plan document which are deemed necessary or desirable to bring these documents into compliance with all applicable laws and regulations, including but not limited to Section 409A of the Code and the guidance thereunder; and
(c)If the Committee has delegated some of its powers and duties under the Plan to an individual who is also an Eligible Employee, such Eligible Employee may not act or vote in a decision specifically relating to themselves as an Eligible Employee in the Plan.
4.4Decisions of the Committee. Decisions of the Committee or its delegate made in good faith upon any matter within the scope of its authority shall be final, conclusive and binding upon all persons, including Eligible Employees, their heirs and their legal representatives.
4.5Plan Amendment and Termination. The Plan may be amended or terminated at any time and for any reason by action of the Committee.
ARTICLE V
CLAIMS FOR BENEFITS
Any person who believes they are entitled to benefits under this Plan may submit a claim for benefits within 90 days of a Qualifying Termination. The claim must be in writing and state the claimant’s reasons for claiming these benefits. The claims must be sent to the Committee (or its delegate). If the claim is denied, in whole or in part, written notice of the denial will be provided within ninety (90) days of initial receipt of the claim. If an extension of time is required for making a claim determination, a written notice of the extension will be provided prior to the end of the original 90-day period explaining the circumstances requiring the extension and the date by which the determination will be made.
The claim denial notice will include:
•The specific reason for the denial;
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•The specific Plan provisions on which the denial is based;
•A description of any additional material or information that is necessary to complete the claim and an explanation of why such material or information is necessary.
•A description of the appeal procedures.
•A statement of the right to bring suit under ERISA upon claim denial following a final appeal.
An individual whose claim for benefits is denied may: (i) file a request for review with the Committee or its delegate within sixty (60) days; (ii) receive reasonable access to and copies (free of charge) of all documents, records and other information relevant to the claim; and (iii) submit written comments, documents, records and other information relating to the claim. After receiving a request for review, the Committee or its delegate will render a final decision within sixty (60) days, unless circumstances require an extension of an additional sixty (60) days for the review. In this case, the Committee or its delegate will notify the claimant in writing of the need for an extension. The decision of the Committee or its delegate will be in writing, and will include:
•the specific reasons for the decision;
•specific references to the pertinent provisions of the Plan on which the decision is based;
•a statement regarding entitlement to access and copies of (free of charge) all documents and information relevant to the claim; and
•a statement concerning the right to bring action under ERISA Section 502(a) to recover benefits or enforce rights.
No person eligible for benefits under the Plan has a right to seek review of a denial of benefits—or to bring any action to enforce a claim for benefits—in any court, prior to filing a claim for benefits and exhausting all rights described under this section, or more than six months after receipt of the decision on appeal. Except as may be otherwise required by law, the decision of the Committee or its delegate will be binding on all parties.
ARTICLE VI MISCELLANEOUS
6.1 No Contract of Employment. The adoption and maintenance of the Plan shall not be deemed to be a contract of employment between the Company and any person or to be consideration for the employment of any person. Nothing in this Plan shall be construed as giving any Eligible Employee any right to be retained in the employ of the Company or shall affect the terms and conditions of an Eligible Employee’s employment with the Company prior to the Effective Date.
6.2 ERISA Plan. The Plan is intended to be a “top hat” “employee welfare benefit plan” within the meaning of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and 29 C.F.R. § 2520.104-24.
6.3 Effect of Plan. This Plan is intended to supersede provisions of prior oral or written policies of the Company to the extent that such provisions address severance payments or benefits
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provided upon a Qualifying Termination and all prior oral or written communications to Eligible Employees with respect to the subject matter hereof, and all such provisions of such prior policies or communications are hereby null and void and of no further force and effect. The terms of all individual agreements or long-term incentive plans (including without limitation, a Change in Control Agreement or any other change in control agreements providing for severance benefits in connection with a termination of employment following a change in control) shall continue without change and are not superseded, modified, voided or terminated by the Plan. Additionally, this Plan shall not apply to any Eligible Employee if (a) an Eligible Employee is subject to a Change in Control Agreement, and (b) an event occurs that is otherwise covered under the terms of such Change in Control Agreement. For the avoidance of doubt, in such a circumstance, the terms of the Change in Control Agreement shall govern in all cases involving a Change in Control.
6.4 Source of Payments. All payments provided under this Plan, other than payments made pursuant to any other Company employee benefit plan that provides otherwise, shall be paid in cash from the general funds of the Company, and no special or separate fund shall be established, and no other segregation of assets made, to assure payment. To the extent that any Eligible Employee acquires a right to receive payments from the Company hereunder, such right shall be no greater than the right of an unsecured creditor of the Company.
6.5 No Mitigation or Retirement Plan Offset. An Eligible Employee with a Qualifying Termination shall not be required to mitigate the amount of any payment provided for in this Plan by seeking other employment or otherwise, nor shall the amount of any payment or benefit provided for in this Plan be reduced by any compensation earned by such a terminated Eligible Employee as the result of employment by another employer or by retirement benefits paid by the Company or another employer after the date of the Eligible Employee’s termination of employment or otherwise.
6.6 Notice. For the purpose of this Plan, notices and all other communications shall be in writing and shall be deemed to have been duly given when delivered or mailed by overnight courier or United States registered mail, return receipt requested, postage prepaid, addressed to the Plan to the General Counsel, Baxter International Inc., One Baxter Parkway, Deerfield, Illinois 60015, and to an Eligible Employee to the address set forth in the Company’s payroll records or to such other address as either party may have furnished to the other in writing in accordance herewith, except that notice of change of address shall be effective only upon receipt.
6.7 Nonalienation of Benefits. No benefit under the Plan may be assigned, transferred, pledged as security for indebtedness or otherwise encumbered by any Eligible Employee or subject to any legal process for the payment of any claim against an Eligible Employee.
6.8 Application of Section 409A. The intent of the Company is that payments and benefits under the Plan are exempt from Section 409A of the Code (after first applying the exception for short-term deferrals, then applying the exception for severance benefits to any remaining amounts, and then applying the exception for small amounts to any further remaining amounts) or otherwise comply with Section 409A of the Code to the extent subject thereto, and, accordingly, to the maximum
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extent permitted, the Plan shall be interpreted and be administered to comply therewith. Notwithstanding anything to the contrary in the other provisions of the Plan, to the extent required in order to avoid accelerated taxation and/or tax penalties under Section 409A of the Code, an Eligible Employee shall not be considered to have terminated employment or service with the Company or its Affiliates for purposes of the Plan and no payment or benefit shall be due to the Eligible Employee under the Plan until the Eligible Employee would be considered to have incurred a “separation from service” from the Company or its Affiliates within the meaning of Section 409A of the Code. Additionally, if an Eligible Employee, at the date of a Qualifying Termination, is a “specified employee” as defined in the Baxter International Inc. and Subsidiaries Deferred Compensation Plan, and such amounts are subject to Section 409A of the Code, then amounts that would otherwise be payable and benefits that would otherwise be provided pursuant to this Plan during the six-month period immediately following the Eligible Employee’s termination of employment shall instead be paid on the first business day after the date that is six months following the Eligible Employee’s termination of employment (or upon the Eligible Employee’s death, if earlier) unless the Company reasonably determines, based on the advice of counsel, that such delayed commencement is not required to avoid an “additional tax” under Section 409A(a)(2) of the Code. Each amount to be paid or benefit to be provided pursuant to the Plan shall be construed as a separate identified payment for purposes of Section 409A of the Code.
6.9 Governing Law, Venue. The Plan shall be construed according to the laws of the State of Illinois, except to the extent such laws are preempted by federal law. Any litigation involving the Plan must be brought in federal court in Chicago, Illinois.
6.10 Validity. The invalidity or unenforceability of any provision of this Plan shall not affect the validity or enforceability of any other provision of this Plan, which shall remain in full force and effect.
6.11 Headings. The headings contained in this Plan are intended solely for convenience of reference and shall not affect the rights of the parties to this Plan.
6.12 Severability. In the event any provision of this document conflicts with applicable laws or laws under which this document is construed, or if any provision of this document is held to be illegal, invalid or unenforceable or partially illegal, invalid or unenforceable by a court with jurisdiction over the Plan or this document, then this document shall be modified to conform with said laws or judicial determination, such provision shall be construed and enforced only to such extent as it may be a legal and enforceable provision. Such illegal, invalid, and unenforceable provisions will not affect any other provision hereof, and this Plan will be construed and enforced as if such provisions had not been included, and all other provisions of this document shall be given full effect.
6.13 Recovery of Benefits. In the event an Eligible Employee receives any Severance Benefits which are in excess of the amount which should have been made, the Company shall have the right to recover the amount of such excess from the Eligible Employee. The Committee may, at its
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option, deduct the amount of such excess from any subsequent payments, as allowed under any applicable law.
ARTICLE VII
SUCCESSORS; BINDING AGREEMENT
7.1 Assumption by Successor. The Company will require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Company expressly to assume and to agree to perform the obligations under this Plan in the same manner and to the same extent that the Company would be required to perform it if no such succession had taken place; provided, however, that no such assumption shall relieve the Company of its obligations hereunder. As used in this Section 7, the “Company” shall include the Company as defined in Section 1.8 and any successor to its business and/or assets which shall assume and agree to perform the obligations arising under this Plan by operation of law or otherwise.
7.2 Enforceability; Beneficiaries. This Plan shall be binding upon and inure to the benefit of each Eligible Employee (and such Eligible Employee’s personal representatives and heirs) and the Company and any organization which succeeds to substantially all of the business or assets of the Company, whether by means of merger, consolidation, acquisition of all or substantially all of the stock, assets or business of the Company or otherwise, including, without limitation, as a result of a change in control or by operation of law. This Plan shall inure to the benefit of and be enforceable by each Eligible Employee’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If an Eligible Employee should die while any amount would still be payable hereunder if such Eligible Employee had continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Plan to such Eligible Employee’s devisee, legatee or other designee or, if there is no such designee, to such Eligible Employee’s estate.
ARTICLE VIII
RELEASE OF CLAIMS
As a condition to the receipt of any of the Severance Benefits, each Eligible Employee must execute and allow to become effective and not revoke a release substantially similar with the form on Appendix I (the “Release”) with such execution occurring not prior to the date of Eligible Employee’s termination of employment and not later than thirty (30) days (unless a greater period is required by applicable law) after the Eligible Employee's receipt thereof. The date on which such Release becomes effective and not revocable is the “Release Effective Date”. The Severance Benefits shall commence to an Eligible Employee promptly following the Release Effective Date in accordance with the terms of the Plan. Notwithstanding the foregoing, if the time for considering a Release spans the end of one calendar year and the beginning of the following calendar year, then the Severance Benefits shall be paid (or shall commence, as applicable) in the second calendar year (promptly following the later of the Release Effective Date or January 1 of the second calendar year) regardless of when the Release Effective Date occurs.
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ARTICLE IX
ADMINISTRATION
9.1 Funding. The Company pays Severance Benefits solely from current operating funds and general assets. No portion of the Plan is funded.
9.2 Plan Sponsor and Plan Administrator. The Plan is sponsored by Baxter International Inc. The Compensation and Human Capital Committee of the Board, or its delegate, is the Plan Administrator.
9.3 Plan Name. The name of the plan is the Baxter International Inc. Executive Severance Plan.
9.4 Plan Type. The Plan is intended to be a “top hat” “employee welfare benefit plan” within the meaning of the Employee Retirement Income Security Act of 1974, as amended (“ERISA”) and 29 C.F.R. § 2520.104-24.
9.5 Plan Year. The Plan Year is January 1 through December 31.
9.6 Agent for service of legal process. The agent for service of legal process on the Plan is:
Executive Vice President and General Counsel Baxter International Inc.
One Baxter Parkway
Deerfield, Illinois 60015
Legal process on the Plans may also be served on the Plan Administrator.
9.7 EIN. Baxter’s employer identification number is 36-0781620.
9.8 ERISA Rights.
Receive information about your plan and benefits
• Examine (without charge) at the Plan Administrator’s office and at other specified locations—such as work sites—all plan documents. These may include the latest annual report (Form 5500 series) filed by the Plan with the U.S. Department of Labor and available at the Public Disclosure Room of the Employee Benefits Security Administration (if applicable).
• Obtain, upon written request to the Plan Administrator, copies of all plan documents governing the operation of the Plan, including the most recent annual report (Form 5500 series) (if applicable), and an updated summary plan description. The administrator may make a reasonable charge for these copies.
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Enforcing your rights
If your claim for a benefit is denied or ignored, in whole or in part, you have the right to know why and to obtain copies of the documents relating to the decision without charge, and to appeal any denial, all within certain time schedules.
Under ERISA, there are steps you can take to enforce your ERISA rights. For instance:
• If you request a copy of plan documents or the latest annual report from the Plan and do not receive them within 30 days, you may file suit in a federal court. In such a case, the court may require the Plan Administrator to provide the materials and pay you up to $110 a day until you receive the materials—unless the materials were not sent because of reasons beyond the control of the Plan Administrator.
• If you have a claim for benefits which is denied or ignored—in whole or in part after going through the appeals procedure—you may file suit in a state or federal court.
• If it should happen that plan fiduciaries misuse the Plan’s money, or if you are discriminated against for asserting your ERISA rights, you may seek assistance from the U.S. Department of Labor, or you may file suit in a federal court.
If you file suit against the Plan, the court will decide who should pay court costs and legal fees. If you are successful, the court may order the person you have sued to pay these costs and fees. If you lose, the court may order you to pay these costs and fees—for example, if it finds your claim is frivolous.
Assistance with your questions
If you have any questions about the Plan, you should contact the Plan Administrator. If you have any questions about this statement or about your rights under ERISA, you should contact the nearest office of the Employee Benefits Security Administration, U.S. Department of Labor, listed in your telephone directory, or the Division of Technical Assistance and Inquiries, Employee Benefits Security Administration, U.S. Department of Labor, 200 Constitution Avenue N.W., Washington, D.C. 20210.
You may also obtain certain publications about your rights and responsibilities under ERISA by calling the Employee Benefits Security Administration Brochure Request Line at 1-800-998-7542, on the Internet at http://www.dol.gov/pwba/public/pubs/imain.htm, or by contacting the EBSA field office nearest you.
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APPENDIX I
FORM OF RELEASE AGREEMENT
Confidential Separation Agreement and General Release of Claims
This Confidential Separation Agreement and General Release of Claims (“Agreement”) is between [EMPLOYEE NAME] (“Employee”) and [EMPLOYER NAME] (the “Company”).
Employee and the Company, for good and valuable consideration, mutually agree to the following terms and conditions:
1.Notification Date and Separation Date
a.The Company provided Employee with this Agreement on [NOTIFICATION DATE] (“Notification Date”).
b.Employee’s employment with the Company will end on [SEPARATION DATE] (“Separation Date”).
c.[Option 1] Until the Separation Date, Employee will continue to report to work daily. [Option 2] As of the Notification Date, Employee will not report to work daily. Employee will assist in the transition, including, but not limited to, answering questions as necessary and requested by the Company through the Separation Date and as otherwise set forth below. Notwithstanding the foregoing, the parties hereto expect that, following the Notification Date, the average monthly time spent by Employee on services provided by the Employee shall be more than twenty percent (20%) of the average monthly time spent by Employee on services performed by the Employee for the Company during the thirty-six (36) months immediately preceding the Notification Date.
2.The Company’s Promises
a.The Company agrees to the following:
i.The Company will pay Employee the amounts in accordance with the Baxter International Inc. Executive Severance Plan (the “Plan”).
ii.The Company will not contest any claim for unemployment benefits filed with the state arising out of Employee’s employment with or separation from the Company, provided, however, that nothing herein prohibits the Company from providing information or documents to the state if requested or required by law. This provision shall not apply if Employee files for such benefits in the state of California.
b.Any payment specified in this Section will be made in accordance with the terms and conditions of the Plan. All consideration set forth in this Section is a gross amount and will be subject to all
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legally required and appropriate withholdings (including any unpaid premium deductions held in arrears).
c.Employee will not be eligible to receive the consideration set forth in this Section unless: (i) Employee signs and returns this Agreement by the deadline for Employee’s signature as specified below, and provided that Employee does not revoke acceptance of this Agreement within the revocation period described below; (ii) Employee timely returns all Company property in good working order as required below; and (iii) Employee is otherwise in compliance with this Agreement.
3.Payment for Work Performed
Employee has been and/or will be paid up through and including the Separation Date for all work performed on regularly scheduled pay dates at Employee’s current base salary (less withholdings). The Company has or will also pay the Employee for all earned but unused paid time off within thirty (30) days following the Separation Date, or sooner if required by law. These will be paid regardless of whether Employee signs this Agreement. Employee acknowledges and agrees that upon payment of these amounts, Employee has been paid for all work performed, including all wages, salary, bonuses, overtime, and any earned, unused paid time off up through and including the Separation Date. Employee agrees that Employee is entitled to no other payments or other compensation whatsoever arising out of Employee’s employment with, or termination from, the Company, unless otherwise expressly agreed to by the parties in this Agreement.
4.Employee’s Promises
Employee agrees to the following:
a.Employee releases and waives all claims on behalf of Employee and Employee’s heirs, assigns, executors, administrators and anyone claiming for or on Employee’s behalf, against the Company and/or the other Released Parties (defined below) which have arisen up to and including the date on which Employee signs this Agreement. “Released Parties” means the Company and its parents, subsidiaries, affiliates, and assigns, and all its and their executives, officers, directors, attorneys, employees, agents, and employee benefit plans. This waiver and release includes but is not limited to: (i) all claims alleging unlawful discrimination, harassment, or retaliation based on race, sex, gender, color, religion, national origin, sexual orientation, gender identity or expression, age, veteran or military status, disability or any other protected category under federal, state or local laws, including but not limited to any claims under the Age Discrimination in Employment Act as amended by the Older Workers’ Benefit Protection Act; (ii) all claims for unpaid compensation or benefits under any practice, policy, or plan, (iii) all tort or contract claims, whether seeking compensatory, punitive, legal or equitable damages, attorneys’ fees and/or costs of any kind, including, but not limited to, claims for wrongful or
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retaliatory discharge, breach of contract, violation of public policy, severance, defamation, libel, slander, invasion or breach of privacy, intentional and/or negligent infliction of emotional distress, or personal injury; and (iii) any other claims whatsoever up through and including the date Employee signs this Agreement and whether currently known or unknown (collectively the “Waived and Released Claims”).
Notwithstanding the foregoing, “Waived and Released Claims” do not include, and Employee is not waiving and releasing: (a) claims that by law may not be waived and released, including but not limited to any claim for unemployment or workers’ compensation benefits, or any claim for any vested, accrued benefits to which Employee is (or becomes) otherwise entitled pursuant to the terms and conditions of any of the applicable benefit plans in which Employee participated prior to the Separation Date; (b) claims arising out of conduct occurring after the date this Agreement is signed by Employee; or (c) Employee’s right to file a claim or lawsuit to enforce the terms of this Agreement after it becomes effective, or any claim or lawsuit to challenge the validity of this Agreement under the Age Discrimination in Employment Act as amended by the Older Workers’ Benefit Protection Act.
b.Employee will not accept any money or other personal relief on account of or as a remedy for Employee’s actual or alleged injury or damages, as a result of or in connection with any past, present or future lawsuit, charge or other claim filed with or by any federal, state, or local court, agency or other governmental entity or person that involves or is based upon any Waived and Released Claims (including without limitation any charge or other claim filed by or with the Equal Employment Opportunity Commission (“EEOC”) or any similar state or local governmental agency alleging any form of employment discrimination or retaliation), it being understood and agreed that Employee hereby waives and releases any such monetary or other personal recovery.
c.Employee will not file or become a plaintiff or claimant of any kind in, any lawsuit, arbitration or other legal proceeding against the Company (or any of the other Released Parties) for, or based on, any Waived and Released Claims. This includes, without limitation, Employee’s promise and agreement hereby not to become a named or opt-in plaintiff, class or collective action member or other claimant in any class action, collective action, representative action or other consolidated action in court or any arbitration proceeding for, or based on, any Waived and Released Claims, and to take all steps necessary to opt out of any such action or proceeding.
d.Employee will return, on or before Employee’s Separation Date or sooner as directed by the Company, all Company property in good working order (by way of example, this includes, but is not limited to, key cards, badges, computers, tablets, cell phones, credit cards, documents, electronic storage devices, building/parking passes, and keys).
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e.Employee will continue to abide by all obligations set forth in any contract or agreement with the Company which contain restrictive covenants related to confidentiality, non-competition, non-solicitation, and intellectual property ownership, and any such contract or agreement is are incorporated herein by reference and remains in full force and effect.
f.Employee will cooperate with the Company in any ongoing litigation, claim, investigation, or subpoena involving or relating to the Company for which Employee may have knowledge due to Employee’s employment with the Company. This will include Employee being available to meet with the Company’s legal representatives, and to appear and testify truthfully as a witness in administrative or court proceedings or in depositions provided that the Company will make reasonable efforts to schedule any such meetings or appearances at mutually agreeable times and locations.
g.Employee will, within forty-eight (48) hours of receipt of any subpoena or other legal requirement requiring testimony, information or cooperation from Employee, notify the Company’s General Counsel to allow the Company to assert all available legal defenses; provided, however, this obligation shall not apply to any legal proceeding for which Employee is legally prohibited from notifying the Company. Notwithstanding the foregoing, nothing in this Agreement (i) requires Employee to notify the Company of a subpoena, disclosure obligation or request from the Securities and Exchange Commission, National Labor Relations Board or Equal Employment Opportunity Commission or (ii) impedes Employee from cooperating directly with the aforementioned government entities.
h.If Employee is an officer or director of the Company or any parent, subsidiary, or affiliate of the Company, Employee shall sign, date and return with this Agreement the resignation form attached as Exhibit A to this Agreement.
i.Employee will not defame, disparage, libel or slander the Company or any of the Released Parties.
j.Employee will not seek future employment with the Company or any parent, subsidiary or affiliate of the Company. If Employee seeks future employment with any of the foregoing entities, this Agreement will be a legitimate reason to reject outright Employee for employment and/or rescind an offer of employment.
k.The consideration provided to Employee in this Agreement will be reported to appropriate governmental agencies as taxable income to the extent required by law. Employee agrees to indemnify the Company and the Released Parties and hold them harmless from any interest, taxes or penalties assessed against them by any governmental agency as a result of Employee’s non-payment of taxes on the consideration provided to Employee under this Agreement. The
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Company and the Released Parties make no representation as to the taxability of the consideration provided to Employee under this Agreement.
5.Additional Limitations on Employee’s Promises
This Agreement does not in any way, and is not intended to: (i) limit or restrict Employee’s non-waivable right to file an administrative complaint with the EEOC, the National Labor Relations Board (“NLRB”), or with another governmental agency; (ii) require Employee to dismiss any pending administrative complaint with the EEOC, NLRB, or with another governmental agency; (iii) limit or restrict Employee’s non-waivable right to participate as a witness or cooperate in any investigation by the EEOC, NLRB, or another governmental agency; or (iv) limit Employee’s right to receive an award for information provided to any governmental agency. The parties acknowledge that Employee has the right to: (1) report any good faith allegation of unlawful employment practices to any appropriate federal, state, or local government agency enforcing discrimination laws; (2) report any good faith allegation of criminal conduct to any appropriate federal, state, or local official; (3) participate in a proceeding with any appropriate federal, state, or local government agency enforcing discrimination laws; (4) make any truthful statements or disclosures required by law, regulation, or legal process; and (5) request or receive confidential legal advice.
6.Mutual Promises
a.WAIVER OF RIGHT TO JURY: Employee and the Company agree that, in the event there is any dispute arising out of or relating to this Agreement, including, without limitation, any claim regarding the validity or enforceability of the general release, or any claim not purportedly waived by the general release, the parties hereby irrevocably waive any right to a trial by jury of such dispute or claim.
b.The parties agree that maintaining the confidentiality of this Agreement is to their mutual benefit and is their preference. Therefore, the Company and Employee will keep the fact of and terms of this Agreement confidential, except that Employee may disclose the fact of and terms of this Agreement to Employee’s spouse, and any tax, financial or legal advisors, as necessary, provided that such persons are advised of and agree to maintain the confidentiality of this Agreement, and except as required by law or as requested by or disclosed to a governmental agency on a confidential basis. The Company may disclose the fact of and terms of this Agreement to its tax, financial or legal advisors, and any employee or agent of the Company necessary to execute the terms of the Agreement, and except as required by law or as requested by or disclosed to a governmental agency. This confidentiality requirement includes a promise not to disclose the fact
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of or terms of this Agreement in any medium, whether oral, written or electronic, including but not limited to, the Internet and social media.
7.Employee Representations Concerning Company Conduct
Unless provided to the Company in writing concurrently with this signed Agreement, Employee is not personally aware of any actions by the Company or any of the Released Parties up through and including the date Employee signs this Agreement that evidence: (i) any inappropriate, discriminatory, unlawful, unethical, or retaliatory conduct of any kind whatsoever (“Inappropriate Conduct”) against Employee or any other third person or entity, (ii) any failure of the Company to reasonably investigate or respond to any complaint that Employee has made about Inappropriate Conduct, or (iii) any failure by the Company to comply with any applicable laws, statutes, rules, or regulations whether under federal, state, or local law.
8.Miscellaneous Terms
a.This Agreement may be executed in multiple counterparts, each part constituting an original, and an electronic copy or signature will constitute an original.
b.This Agreement will not be construed as an admission of wrongdoing on the part of the Company, Employee, or the Released Parties.
c.The parties agree that the laws of the State of Illinois will govern this Agreement, without regard to its conflicts of laws principles. The parties further agree to, and submit to, on an exclusive basis, the personal jurisdiction and venue of the state and federal courts located in Illinois for any matters arising out of or related of this Agreement. The parties also irrevocably waive any claim that the courts in Illinois are an inconvenient forum. If Employee resides and is/was employed by the Company in California or Louisiana, this paragraph shall not apply.
d.If this Agreement is found to be unenforceable, in whole or in part, it will be modified to give full effect to the parties’ intentions or, if not possible, the unenforceable provision excised from the Agreement, with each remaining portion of the Agreement remaining in full force and effect.
e.This Agreement will supersede any prior oral or written communications concerning the subject matter or terms of this Agreement.
9.Employee’s Acknowledgement and Agreement
Employee understands, acknowledges and agrees that:
a.the consideration provided to Employee in this Agreement is of value and exceeds any amount to which Employee is otherwise entitled;
b.Employee has carefully read and fully understands this Agreement and is signing this Agreement knowingly and voluntarily and without duress or coercion;
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c.Employee has been advised by this Agreement in writing to consult with an attorney, at Employee’s own expense, prior to executing this Agreement;
d.Employee has been given a full twenty-one (21) calendar days to consider this Agreement before signing it; and
e.Employee has seven (7) calendar days following Employee’s execution of this Agreement to revoke his/her acceptance of this Agreement by delivering within that time period a written notice of revocation to “Executive Vice President and Chief Human Resources Officer, Baxter Healthcare Corporation, One Baxter Parkway, Deerfield, Illinois 60015.” This Agreement will not become effective or enforceable until this seven (7) day revocation period has expired without any revocation by Employee.
THIS AGREEMENT MAY NOT BE SIGNED BY EMPLOYEE UNTIL THE SEPARATION DATE OR AFTER.
THIS AGREEMENT MUST BE SIGNED BY EMPLOYEE AND RETURNED TO [HR CONTACT] BY [RETURN DATE] TO BE ENFORCEABLE. IF NOT RECEIVED BY THIS DATE, EMPLOYEE WILL BE DEEMED TO HAVE REJECTED THIS AGREEMENT.
ACCEPTED AND AGREED TO BY:
____________________________________ Employee ____________________________________ Employee’s Signature Date | ____________________________________ Authorized Company Representative ____________________________________ The Company’s Signature Date | ||||
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Exhibit A
| To: | Baxter International Inc. | ||||
| Attention: Corporate Secretary | |||||
| One Baxter Parkway | |||||
| Deerfield, IL 60015 | |||||
Effective as of the date of my signature below, I hereby resign as a director, member or officer of Baxter International Inc. and of each of its subsidiaries (collectively, “Baxter”) and as a member of any committee of Baxter or any board of directors, board of managers or special subcommittee thereof.
| [NAME] | Date | |||||||
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EXHIBIT 31.1
Certification of Chief Executive Officer
Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as Amended
I, José E. Almeida, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Baxter International Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| /s/ José E. Almeida | |||||
| José E. Almeida | |||||
| Chair, President and | |||||
| Chief Executive Officer | |||||
Date: November 12, 2024
EXHIBIT 31.2
Certification of Chief Financial Officer
Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as Amended
I, Joel T. Grade, certify that:
1.I have reviewed this Quarterly Report on Form 10-Q of Baxter International Inc.;
2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| /s/ Joel T. Grade | |||||
| Joel T. Grade | |||||
| Executive Vice President, Chief Financial Officer and Interim Chief Accounting Officer | |||||
Date: November 12, 2024
EXHIBIT 32.1
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
José E. Almeida, as Chair, President and Chief Executive Officer of Baxter International Inc. (the “Company”), certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ José E. Almeida | |||||
| José E. Almeida | |||||
| Chair, President and | |||||
| Chief Executive Officer | |||||
November 12, 2024
EXHIBIT 32.2
Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Joel T. Grade, as Executive Vice President, Chief Financial Officer and Interim Chief Accounting Officer of Baxter International Inc. (the “Company”), certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| /s/ Joel T. Grade | |||||
| Joel T. Grade | |||||
| Executive Vice President, Chief Financial Officer and Interim Chief Accounting Officer | |||||
November 12, 2024