bax-20200630

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 June 30, 2020


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-4448

_________________________________________________________________________________

BAXTER INTERNATIONAL INC.

(Exact name of registrant as specified in its charter)

_________________________________________________________________________________

Delaware

36-0781620

(State or other jurisdiction of
incorporation or organization)

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

One Baxter Parkway,

Deerfield,

Illinois

60015

(Address of Principal Executive Offices)

(Zip Code)

224.

948.2000

(Registrant’s telephone number, including area code)

_________________________________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $1.00 par value

BAX (NYSE)

New York Stock Exchange

Chicago Stock Exchange

0.4% Global Notes due 2024

BAX 24

New York Stock Exchange

1.3% Global Notes due 2025

BAX 25

New York Stock Exchange

1.3% Global Notes due 2029

BAX 29

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 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 July 21, 2020 was 506,231,732 shares.

BAXTER INTERNATIONAL INC.

FORM 10-Q

For the quarterly period ended June 30, 2020

TABLE OF CONTENTS


		Page Number
PART I.	FINANCIAL INFORMATION	2
Item 1.	Financial Statements (unaudited)	2
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Income	3
	Condensed Consolidated Statements of Comprehensive Income	4
	Condensed Consolidated Statements of Changes in Equity	5
	Condensed Consolidated Statements of Cash Flows	7
	Notes to Condensed Consolidated Financial Statements	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	38
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	52
Item 4.	Controls and Procedures	53
Review by Independent Registered Public Accounting Firm			55
Report of Independent Registered Public Accounting Firm			56

PART II.	OTHER INFORMATION	57
Item 1.	Legal Proceedings	57
Item 1A.	Risk Factors	57
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58
Item 6.	Exhibits	59
Signature		60

Explanatory Note

As previously disclosed, we restated our audited consolidated financial statements as of December 31, 2018 and for the years ended December 31, 2018 and December 31, 2017. The restatements of those consolidated financial statements were presented within our Annual Report on Form 10-K for the year ended December 31, 2019 (2019 Annual Report). See Note 2, Restatement of Previously Issued Consolidated Financial Statements, to the consolidated financial statements in the 2019 Annual Report for additional information related to those restatements.

Additionally, as previously disclosed, we restated our unaudited interim financial information as of and for the quarterly periods ended June 30, 2019, March 31, 2019, June 30, 2018, and March 31, 2018, for the quarterly period ended December 31, 2018, for the six months ended June 30, 2019 and as of September 30, 2018. The restatements of that unaudited interim financial information were presented within our 2019 Annual Report. See Note 19, Quarterly Financial Data (unaudited), to the consolidated financial statements in the 2019 Annual Report for additional information related to these restatements for each of those periods. See Note 2, Restatement of Previously Issued Condensed Consolidated Financial Statements, to the condensed consolidated financial statements within our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2020 for additional information related to the restatement of our condensed consolidated financial statements for the three months ended March 31, 2019.

Additionally, as previously disclosed, we restated our unaudited condensed consolidated financial statements for the three and nine months ended September 30, 2018. The restatements of those unaudited condensed consolidated financial statements were presented within our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2019. See Note 2, Restatement of Previously Issued Consolidated Financial Statements, to the condensed consolidated financial statements in that Quarterly Report on Form 10-Q for additional information related to those restatements.

This Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2020 includes unaudited condensed consolidated financial statements as of June 30, 2020 and December 31, 2019 and for the three and six months ended June 30, 2020 and 2019. As previously disclosed in our 2019 Annual Report, we have restated certain information within this Quarterly Report on Form 10-Q, including the condensed consolidated financial statements for the three and six months ended June 30, 2019. See Note 2, Restatement of Previously Issued Condensed Consolidated Financial Statements, in Item 1, Financial Statements, for additional information related to the restatement.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Baxter International Inc.

Condensed Consolidated Balance Sheets (unaudited)

(in millions, except share information)


	June 30, 2020		December 31, 2019
Current assets:
Cash and cash equivalents	$	4,085	$	3,335
Accounts receivable, net of allowances of $120 in 2020 and $112 in 2019	1,884		1,896
Inventories	1,905		1,653
Prepaid expenses and other current assets	692		619
Total current assets	8,566		7,503
Property, plant and equipment, net	4,382		4,512
Goodwill	3,052		3,030
Other intangible assets, net	1,716		1,471
Operating lease right-of-use assets	581		608
Other non-current assets	1,168		1,069
Total assets	$	19,465	$	18,193
Current liabilities:
Short-term debt	$	1	$	226
Current maturities of long-term debt and finance lease obligations	318		315
Accounts payable and accrued liabilities	2,561		2,689
Total current liabilities	2,880		3,230
Long-term debt and finance lease obligations	6,055		4,809
Operating lease liabilities	488		510
Other non-current liabilities	1,882		1,732
Total liabilities	11,305		10,281
Commitments and contingencies
Equity:
Common stock, $1 par value, authorized 2,000,000,000 shares, issued 683,494,944 shares in 2020 and 2019	683		683
Common stock in treasury, at cost, 173,312,541 shares in 2020 and 177,340,358 shares in 2019	(10,597)		(10,764)
Additional contributed capital	5,975		5,955
Retained earnings	16,055		15,718
Accumulated other comprehensive (loss) income	(3,988)		(3,710)
Total Baxter stockholders’ equity	8,128		7,882
Noncontrolling interests	32		30
Total equity	8,160		7,912
Total liabilities and equity	$	19,465	$	18,193

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

Baxter International Inc.

Condensed Consolidated Statements of Income (unaudited)

(in millions, except per share data)


	Three months ended June 30,						Six months ended June 30,
			As Restated				As Restated
	2020		2019		2020		2019
Net sales	$	2,718	$	2,834	$	5,520	$	5,472
Cost of sales	1,680		1,681		3,319		3,239
Gross margin	1,038		1,153		2,201		2,233
Selling, general and administrative expenses	590		641		1,218		1,242
Research and development expenses	117		166		263		295
Other operating income, net	—		(4)		(20)		(37)
Operating income	331		350		740		733
Interest expense, net	36		20		57		38
Other (income) expense, net	6		4		16		(17)
Income before income taxes	289		326		667		712
Income tax expense	42		13		87		57
Net income	247		313		580		655
Net income attributable to noncontrolling interests	1		—		2		—
Net income attributable to Baxter stockholders	$	246	$	313	$	578	$	655
Earnings per share
Basic	$	0.48	$	0.61	$	1.14	$	1.28
Diluted	$	0.48	$	0.60	$	1.12	$	1.26
Weighted-average number of shares outstanding
Basic	509		510		508		511
Diluted	517		519		517		520

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

Baxter International Inc.

Condensed Consolidated Statements of Comprehensive Income (unaudited)

(in millions)


	Three months ended June 30,						Six months ended June 30,
			As Restated				As Restated
	2020		2019		2020		2019
Net income	$	247	$	313	$	580	$	655
Other comprehensive income (loss), net of tax:
Currency translation adjustments, net of tax (benefit) expense of $2 and $2 for the three months ended June 30, 2020 and 2019, respectively, and ($6) and $2 for the six months ended June 30, 2020 and 2019, respectively	189		2		(170)		(95)
Pension and other postretirement benefits, net of tax expense of $1 and $2 for the three months ended June 30, 2020 and 2019, respectively, and $7 and $6 for the six months ended June 30, 2020 and 2019, respectively	4		6		26		20
Hedging activities, net of tax (benefit) expense of $1 and ($3) for the three months ended June 30, 2020 and 2019, respectively, and ($38) and ($8) for the six months ended June 30, 2020 and 2019, respectively	(4)		(12)		(134)		(27)
Total other comprehensive income (loss), net of tax	189		(4)		(278)		(102)
Comprehensive income	436		309		302		553
Less: Comprehensive income attributable to noncontrolling interests	1		—		2		—
Comprehensive income attributable to Baxter stockholders	$	435	$	309	$	300	$	553

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

Baxter International Inc.

Condensed Consolidated Statements of Changes in Equity (unaudited)

(in millions)


	For the three months ended June 30, 2020
	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 April 1, 2020	683	$	683	175	$	(10,677)	$	5,935	$	15,935	$	(4,177)	$	7,699	$	31	$	7,730

Net income	—	—		—	—		—		246		—		246		1		247
Other comprehensive income (loss)	—	—		—	—		—		—		189		189		—		189

Stock issued under employee benefit plans and other	—	—		(2)	80		40		—		—		120		—		120
Dividends declared on common stock	—	—		—	—		—		(126)		—		(126)		—		(126)

Balance as of June 30, 2020	683	$	683	173	$	(10,597)	$	5,975	$	16,055	$	(3,988)	$	8,128	$	32	$	8,160


	For the six months ended June 30, 2020
	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, 2020	683	$	683	177	$	(10,764)	$	5,955	$	15,718	$	(3,710)	$	7,882	$	30	$	7,912
Adoption of new accounting standards	—	—		—	—		—		(4)		—		$	(4)	—		$	(4)
Net income	—	—		—	—		—		578		—		578		2		580
Other comprehensive income (loss)	—	—		—	—		—		—		(278)		(278)		—		(278)

Stock issued under employee benefit plans and other	—	—		(4)	167		20		—		—		187		—		187
Dividends declared on common stock	—	—		—	—		—		(237)		—		(237)		—		(237)

Balance as of June 30, 2020	683	$	683	173	$	(10,597)	$	5,975	$	16,055	$	(3,988)	$	8,128	$	32	$	8,160

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

Baxter International Inc.

Condensed Consolidated Statements of Changes in Equity (unaudited)

(in millions)


	For the three months ended June 30, 2019
	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 April 1, 2019 (As Restated)	683	$	683	173	$	(10,284)	$	5,839	$	15,414	$	(4,082)	$	7,570	$	23	$	7,593

Net income	—	—		—	—		—		313		—		313		—		313
Other comprehensive income (loss)	—	—		—	—		—		—		(4)		(4)		—		(4)
Purchases of treasury stock	—	—		2	(157)		46		—		—		(111)		—		(111)
Stock issued under employee benefit plans and other	—	—		(2)	119		21		(17)		—		123		—		123
Dividends declared on common stock	—	—		—	—		—		(112)		—		(112)		—		(112)
Change in noncontrolling interests	—	—		—	—		—		—		—		—		1		1
Balance as of June 30, 2019 (As Restated)	683	$	683	173	$	(10,322)	$	5,906	$	15,598	$	(4,086)	$	7,779	$	24	$	7,803


	For the six months ended June 30, 2019
	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, 2019 (As Restated)	683	$	683	170	$	(9,989)	$	5,898	$	15,075	$	(3,823)	$	7,844	$	22	$	7,866
Adoption of new accounting standards	—	—		—	—		—		161		(161)		—		—		—
Net income	—	—		—	—		—		655		—		655		—		655
Other comprehensive income (loss)	—	—		—	—		—		—		(102)		(102)		—		(102)
Purchases of treasury stock	—	—		10	(743)		46		—		—		(697)		—		(697)
Stock issued under employee benefit plans and other	—	—		(7)	410		(38)		(83)		—		289		—		289
Dividends declared on common stock	—	—		—	—		—		(210)		—		(210)		—		(210)
Change in noncontrolling interests	—	—		—	—		—		—		—		—		2		2
Balance as of June 30, 2019 (As Restated)	683	$	683	173	$	(10,322)	$	5,906	$	15,598	$	(4,086)	$	7,779	$	24	$	7,803

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

Baxter International Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)

(in millions)


	Six months ended June 30,
			As Restated
	2020		2019
Cash flows from operations
Net income	$	580	$	655
Adjustments to reconcile net income to cash flows from operations:
Depreciation and amortization	401		385
Deferred income taxes	(23)		(63)
Stock compensation	64		57
Net periodic pension benefit and other postretirement costs	40		7
Intangible asset impairments	17		31
Other	27		44
Changes in balance sheet items:
Accounts receivable, net	(25)		(60)
Inventories	(261)		(91)
Accounts payable and accrued liabilities	(48)		(299)
Other	(124)		(86)
Cash flows from operations – continuing operations	648		580
Cash flows from operations – discontinued operations	(2)		(6)
Cash flows from operations	646		574
Cash flows from investing activities
Capital expenditures	(316)		(338)
Acquisitions, net of cash acquired, and investments	(453)		(111)
Other investing activities, net	11		1
Cash flows from investing activities	(758)		(448)
Cash flows from financing activities
Issuances of debt	1,240		1,661
Net decreases in debt with original maturities of three months or less	(225)		—
Cash dividends on common stock	(223)		(198)
Proceeds from stock issued under employee benefit plans	151		262
Purchases of treasury stock	—		(720)
Other financing activities, net	(34)		(37)
Cash flows from financing activities	909		968
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash	(38)		2
Increase in cash, cash equivalents and restricted cash	759