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DISCONTINUED OPERATIONS | 3 Months Ended
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Mar. 31, 2025
Discontinued Operations and Disposal Groups [Abstract] |
DISCONTINUED OPERATIONS | 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 as described below. Discontinued Operations - Kidney Care On January 31, 2025, we completed the sale of our Kidney Care business to Carlyle for an aggregate purchase price of $3.80 billion in cash, subject to certain closing cash, working capital and debt adjustments. After giving effect to certain adjustments, we received approximately $3.71 billion pre-tax cash proceeds at closing of the transaction. We recognized a pre-tax gain on the sale of $191 million ($111 million net of tax). 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 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 sale of the Kidney Care business, pursuant to the Equity Purchase Agreement (EPA), Baxter and Vantive entered into several agreements, including a Manufacturing and Supply Agreement (Kidney Care MSA), a Transition Services Agreement (Kidney Care TSA), a Long Term Master Services Agreement, a Distribution Agreement and certain other arrangements providing for short-term supply of saline products, and an Intellectual Property Agreement. Pursuant to the Kidney Care MSA, Baxter and the Kidney Care divested entities provide each other with certain dialysis-related products, other products, product components and fulfillment services for up to 10 years post-closing (with certain extension rights and early exit rights as provided therein). Pursuant to the Kidney Care MSA, our sales to Vantive are recognized in net sales in the condensed consolidated statements of income (loss). Pursuant to the Kidney Care TSA, Baxter and the entities that were divested in connection with the Kidney Care sale (the Kidney Care divested entities) provide each other, on an interim basis, certain transitional services for up to 30 months post-closing (with certain extension rights and early exit rights as provided therein) to help ensure business continuity and help minimize disruptions to the operations of both parties post-closing. Services provided under the Kidney Care TSA include information technology applications and support, supply chain and certain other corporate and administrative services. Billings by us under the Kidney Care TSA are recorded in other operating income, net in the condensed consolidated statements of income. The costs to provide each respective service is recorded in the applicable expense category in the condensed consolidated statements of income (loss). In accordance with the EPA, we have agreed to indemnify Vantive for certain items, including taxes imposed on or with respect to the Kidney Care divested entities, for pre-closing tax periods. The net indemnification liability as of March 31, 2025 was $37 million. Further, in accordance with the EPA, Baxter recorded a contingent liability for payments to reimburse Vantive for qualifying capital expenditures over a period of three years post sale. The contingent liability as of March 31, 2025 was $133 million. Certain of the business guarantees originally entered by us on behalf of the Kidney Care business were not released prior to the completion of the sale and remain outstanding. These legacy guarantees primarily relate to leases, performance contracts and ones to support regulatory requirements of the Kidney Care business. As of March 31, 2025, the total amount of Kidney Care business guarantees retained by us is approximately $300 million. Under terms of the EPA, Carlyle has agreed to indemnify us for any cost or expense, or payments made in the future under these arrangements. 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 months ended March 31, 2025 and 2024:
| Three Months Ended March 31, |  |  |  |
(in millions) | 2025 | 2024 |  |  |  |  |  |
Net sales | $ | 352 |  | $ | 1,102 |  |  |  |  |  |  |
Cost of sales | 206 |  | 676 |  |  |  |  |  |  |
Gross margin | 146 |  | 426 |  |  |  |  |  |  |
Selling, general and administrative expenses | 116 |  | 298 |  |  |  |  |  |  |
Research and development expenses | 16 |  | 56 |  |  |  |  |  |  |
Operating income (loss) | 14 |  | 72 |  |  |  |  |  |  |
Interest expense, net | 13 |  | — |  |  |  |  |  |  |
Other (income) expense, net | 7 |  | 2 |  |  |  |  |  |  |
Income (loss) from discontinued operations before gain on disposition and income taxes | (6) |  | 70 |  |  |  |  |  |  |
Gain on disposition | 191 |  | — |  |  |  |  |  |  |
Income tax expense (benefit) | 123 |  | 37 |  |  |  |  |  |  |
Income from discontinued operations, net of tax | 62 |  | 33 |  |  |  |  |  |  |
Less: Net income attributable to noncontrolling interest included in discontinued operations | — |  | 2 |  |  |  |  |  |  |
Net income attributable to Baxter stockholders included in discontinued operations | $ | 62 |  | $ | 31 |  |  |  |  |  |  |
For the three months ended March 31, 2025 and 2024, selling, general and administrative expenses (SG&A) includes $37 million and $88 million, respectively, of separation-related costs incurred in connection with the sale of our Kidney Care business. 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 December 31, 2024:
(in millions) |  | December 31, 2024
Cash and cash equivalents |  | $ | 648 |
Accounts receivable, net of allowances |  | 942 |
Inventories |  | 821 |
Prepaid expenses and other current assets |  | 200 |
Current assets of discontinued operations |  | 2,611 |
Property, plant and equipment, net |  | 1,516 |
Goodwill |  | 265 |
Other intangible assets, net |  | 148 |
Operating lease right-of-use assets |  | 204 |
Other non-current assets |  | 367 |
Non-current assets of discontinued operations |  | 2,500 |
Assets of discontinued operations |  | $ | 5,111 |
Current maturities of finance lease obligations |  | $ | 1 |
Accounts payable |  | 344 |
Accrued expenses and other current liabilities |  | 585 |
Current liabilities of discontinued operations |  | 930 |
Long-term finance lease obligations, less current portion |  | 37 |
Operating lease liabilities |  | 173 |
Other non-current liabilities |  | 344 |
Non-current liabilities of discontinued operations |  | 554 |
Liabilities of discontinued operations |  | $ | 1,484 |

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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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