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DISCONTINUED OPERATIONS | 6 Months Ended
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Jun. 30, 2023
Discontinued Operations and Disposal Groups [Abstract] |
DISCONTINUED OPERATIONS | DISCONTINUED OPERATIONS In May 2023, we entered into a definitive agreement to sell our BPS business. That business, which has historically been reported within our Americas segment, provides 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 has historically operated through our wholly-owned subsidiaries Baxter Pharmaceutical Solutions, LLC, a Delaware limited liability company, and Baxter Oncology GmbH, a German limited liability company. Under the related equity purchase agreement (EPA), we expect to sell those entities to Advent International and Warburg Pincus for $4.25 billion in cash, subject to certain adjustments specified in the EPA. After giving effect to those adjustments, we currently expect to receive approximately $3.92 billion of net pre-tax cash proceeds (approximately $3.40 billion after tax). The transaction is currently expected to close during the second half of 2023, subject to satisfaction of regulatory approvals and other customary conditions. We intend to use the net after-tax proceeds from this transaction to repay certain of our debt obligations. We concluded that our BPS business met the criteria to be classified as held-for-sale in May 2023. 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. We analyzed the quantitative and qualitative factors relevant to the pending divestiture of our BPS business, including its significance to our overall net income (loss) and earnings (loss) per share, and determined that those conditions for discontinued operations presentation have been met. As such, the financial position, results of operations and cash flows of that business are reported as discontinued operations in the accompanying consolidated financial statements. Prior period amounts have been adjusted to reflect discontinued operations presentation. Baxter Pharmaceutical Solutions, LLC includes our BPS manufacturing facility in Bloomington Indiana and Baxter Oncology GmbH includes our manufacturing facilities in Halle and Bielefeld Germany. The Bielefeld site is not part of the BPS business, so it is not part of the pending divestiture transaction and its activities and net assets will be transferred to another Baxter subsidiary prior to closing. Accordingly, amounts related to the Bielefeld site continue to be presented as continuing operations in the accompanying condensed consolidated financial statements. At closing of the transaction, Baxter will enter into a Transition Services Agreement (TSA) and a Master Commercial Manufacturing and Supply Agreement (MSA) with Baxter Pharmaceutical Solutions, LLC and Baxter Oncology GmbH. Pursuant to the TSA, Baxter on the one hand and Baxter Pharmaceutical Solutions, LLC and Baxter Oncology GmbH on the other hand will provide to each other, on an interim basis, specific transition services for up to 24 months post-closing to help ensure business continuity and minimized disruptions. Services to be provided by Baxter under the TSA include finance, information technology, human resources, integrated supply chain and certain other administrative services. Pursuant to the MSA, Baxter Pharmaceutical Solutions, LLC and Baxter Oncology GmbH will 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 table summarizes the major classes of line items included in income from discontinued operations, net of tax, for the three and six months ended June 30, 2023 and 2022:
| Three months ended June 30, | Six months ended June 30,
(in millions) | 2023 | 2022 | 2023 | 2022
Net sales | $ | 142 |  | $ | 152 |  | $ | 278 |  | $ | 301 |
Cost of sales | 71 |  | 70 |  | 135 |  | 133 |
Gross margin | 71 |  | 82 |  | 143 |  | 168 |
Selling, general and administrative expenses | 14 |  | 6 |  | 29 |  | 11 |
Research and development expenses | 1 |  | — |  | 1 |  | 1 |
Other income, net | (1) |  | — |  | — |  | — |
Income from discontinued operations before income taxes | 57 |  | 76 |  | 113 |  | 156 |
Income tax expense | 3 |  | 6 |  | 14 |  | 21 |
Income from discontinued operations, net of tax | $ | 54 |  | $ | 70 |  | $ | 99 |  | $ | 135 |
For the three and six months ended June 30, 2023, selling, general and administrative expenses include $8 million and $15 million, respectively, of separation-related costs incurred in connection with the pending sale of BPS. The following table summarizes the carrying amounts of the major classes of assets and liabilities classified as discontinued operations in the condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022:
(in millions) | June 30, 2023 | December 31, 2022
Accounts receivable, net of allowances | $ | 82 |  | $ | 88 |
Inventories | 60 |  | 39 |
Prepaid expenses and other current assets | 91 |  | 59 |
Property, plant and equipment, net | 297 |  | 284 |
Goodwill | 386 |  | 391 |
Operating lease right-of-use assets | 9 |  | 9 |
Other non-current assets | 6 |  | 2 |
Assets of discontinued operations | $ | 931 |  | $ | 872 |
Accounts payable | $ | 40 |  | $ | 29 |
Accrued expenses and other current liabilities | 30 |  | 32 |
Operating lease liabilities | 8 |  | 9 |
Other non-current liabilities | 115 |  | 111 |
Liabilities of discontinued operations | $ | 193 |  | $ | 181 |

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- Definition The entire disclosure related to a disposal group. Includes, but is not limited to, a discontinued operation, disposal classified as held-for-sale or disposed of by means other than sale or disposal of an individually significant component. + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 205 -SubTopic 20 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//205-20/tableOfContent Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 360 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//360/tableOfContent + Details
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