Description
Non-Gaap Measures and Groupon
Due: Tuesday February 6
Groupon, Inc. (GRPN)
Groupon Inc., headquartered in Chicago, IL, is a ‘local commerce marketplace that connects merchants to consumers by offering goods and services at a discount’. Groupon began operations in 2008 as a private company and grew rapidly during the first few years. The Company filed its first Form S-1, the IPO prospectus, with the SEC on June 2, 2011 and successfully completed its IPO in early November 2011, selling 35 million shares at $20 per share to raise $700 million. The company’s stock price, however, drifted from above $30 on November 4, 2011, its first day of trading as a public company, to under $10 within one year. In June of 2020, the stock price has been hovering between $3 and $6 util they conducted an unusual reverse share split (1 for 20). In 2022 before the recent decline in the market Groupon’s share price was in the low 20’s, currently it trades at approximately $13.50 per share.
Groupon has faced are some accounting woes that arose right after it first filed Form S-1. On June 29, 2011, the SEC sent a comment letter to Groupon that presented a number of issues and inquiries about the Groupon S-1 filed on June 2, 2011. Groupon responded to the comments on July 14, 2011. If you are curious about the full exchange between SEC and Groupon, files can be located on EDGAR using filing type ‘UPLOAD’ (SEC letters) and ‘CORRESP’ (Company responses).
Required:
Obtain and read/review the following materials:
Readings on Non-GAAP earnings (under Assessments on Blackboard)
Form S-1 filed by Groupon on June 2, 2011 (on SEC EDGAR website)
Amended Form S-1 (S-1/A) filed by Groupon on November 1, 2011 (on SEC EDGAR website)
The SEC’s letter to Groupon dated June 29, 2011 (under Assessments on Blackboard)
Groupon’s response to the SEC dated July 14, 2011 (under Assessments on Blackboard)
Groupon Q3 2023 Earnings Announcement on Nov 9, 2023 (under Assessments on Blackboard)
Address the questions below – be sure to address each part of the questions. In your responses please be sure to answer each of the questions (and sub questions, asked below). You are encouraged to use the writing tips given in the “Being Clear and Concise” section of “Memo Guidelines Updated.pdf” document found in the Syllabus and Policies Section of Blackboard.
Your memo should include the following Honor Code Statement:
“I pledge my honor that I have not violated the Honor Code during this assignment. I recognize that this is an individual assignment and that I have turned in my own effort even if I have discussed the assignment or worked in a group setting in preparing this assignment.”
Questions to address in this assignment:
Groupon and non-GAAP measures in 2011:
What is ACSOI? How does Groupon define it? Why do you think Groupon chose to use this measure to supplement its GAAP earnings information in its S-1?
Why did the SEC question the inclusion of ACSOI in Groupon’s S-1? In your answer, discuss both the SEC’s view and reaction to the expanded use of non-GAAP measures by companies in general and their specific concerns about Groupon’s ACSOI measure.
Do you agree with Groupon’s argument that discretionary expenses, such as subscription acquisition costs, should be excluded from the financial measures of a company’s performance?
In general, what are some potential advantages and disadvantages of disclosing non-GAAP earnings? Do you feel that these measures can be informative to investors? Why or why not?
Groupon and non-GAAP measures in 2023:
Groupon and Revenue Presentation:
Compare the reported revenues, for fiscal years 2008, 2009, and 2010, in the original S-1 (June 2, 2011) and in the amended S-1 (November 1, 2011). What was the cause the changes? Did the changes have a material effect on reported revenues, cost of revenue and gross margin? Show calculations to support your conclusion on materiality.
Which of the two approaches do you think Groupon preferred? Why did they prefer it? Do you agree with Groupon or the SEC on this matter? Briefly explain.
In its original S-1 filing on June 2, 2011, Groupon presented a non-GAAP measure called ACSOI. It was later removed in an amended S-1/A after the SEC objected.
Unlike GAAP numbers, companies may adapt their usage of non-GAAP numbers and other supporting disclosures over time and even from year to year.
Using Groupon’s Q3 earnings press release dated November 9, 2023, describe the two non-GAAP measures related to earnings that Groupon highlights on the second page.
What were Groupon’s Billings and Revenues for the period, which measure would be more relevant to you as an investor in Groupon?
Groupon discusses their non-GAAP measures in detail on towards the top of Page 4 of the earnings release and presents the required reconciliations of GAAP to non-GAAP measures on page 15 and 16. Focusing on Q3 2023 column on page 15, list 3 of the larger non-GAAP adjustment line items in the non-GAAP reconciliation of reported (i.e., GAAP) net income to non-GAAP net income over the two years. For each item you highlight, comment on why Groupon might adjust net income for the item and whether and why you think each adjustment might provide valuable information for investors.
One of the key comments from the SEC in its June 29, 2011 letter to Groupon involved Groupon’s choice between gross and net reporting for revenues.
Unformatted Attachment Preview
NYSE: BAX
BAXTER INTERNATIONAL INC
Report created Nov 3, 2023 Page 1 OF 5
Based in Deerfield, Illinois, Baxter International provides critical care, nutrition, renal, hospital, and surgical
products. The company has approximately 60,000 employees. BAX shares are a component of the S&P
500.
Argus Recommendations
Twelve Month Rating
SELL HOLD BUY
Five Year Rating
SELL HOLD BUY
Sector Rating
Under Market Over
Weight Weight Weight
Analyst’s Notes
Analysis by Jim Corridore, November 3, 2023
ARGUS RATING: HOLD
• Challenging near-term outlook
• BAX shares have underperformed over the past quarter, declining 22% compared to a 4% drop for
the S&P 500.
• Baxter recently reported 3Q23 adjusted EPS from continuing operations that fell 4% from the prior
year but matched Street expectations.
• From a technical standpoint, the shares have been in a bearish pattern of lower highs and lower lows
since February 2020.
• We do not see current valuations as attractive given planned business divestitures and believe that a
HOLD rating remains appropriate.
INVESTMENT THESIS
Our rating on Baxter International Inc. (NYSE: BAX), a producer of critical care,
nutrition, renal, hospital, and surgical products, is HOLD. Baxter continues to face
headwinds from macroeconomic uncertainty and uneven demand for its products. It also
faces higher costs for materials and components, and has temporarily closed some facilities
due to the lack of supplies. It is working to accelerate synergies from the acquired Hillrom
business in order to offset these higher costs, while also preparing to spin off its Renal Care
and Acute Therapies businesses. At a time when procedural volumes are recovering, we
believe that Baxter should be positioning itself for growth. Instead, it is retreating by
spinning off or selling businesses. From a technical standpoint, BAX shares have been in a
bearish pattern of lower highs and lower lows since February 2020. We do not see current
valuations as attractive given the company’s planned business divestitures, and believe that
a HOLD rating remains appropriate.
RECENT DEVELOPMENTS
BAX shares have underperformed over the past quarter, falling 22% compared to a 4%
decline for the S&P 500. They have also underperformed over the past year, with a 32%
decline compared to a 15% advance for the index. They have underperformed the
Healthcare industry ETF IYH over the past one- and five-year periods. The beta on BAX is
Market Data Pricing reflects previous trading week’s closing price.
200-Day Moving Average
52 Week High: $37.39
52 Week Low: $31.01
Closed at $32.16 on 10/27
Price
($)
Argus assigns a 12-month BUY, HOLD, or SELL rating to each
stock under coverage.
• BUY-rated stocks are expected to outperform the market (the
benchmark S&P 500 Index) on a risk-adjusted basis over the
next year.
• HOLD-rated stocks are expected to perform in line with the
market.
• SELL-rated stocks are expected to underperform the market
on a risk-adjusted basis.
The distribution of ratings across Argus’ entire company
universe is: 71% Buy, 29% Hold, 0% Sell.
Key Statistics
Key Statistics pricing data reflects previous trading day’s closing
price. Other applicable data are trailing 12-months unless
otherwise specified
Market Overview
Price
Target Price
52 Week Price Range
Shares Outstanding
Dividend
$34.25
-$31.01 to $56.92
507.32 Million
$1.16
Sector Overview
Sector
Sector Rating
Total % of S&P 500 Market Cap.
Healthcare
MARKET WEIGHT
13.00%
Financial Strength
Financial Strength Rating
Debt/Capital Ratio
Return on Equity
Net Margin
Payout Ratio
Current Ratio
Revenue
After-Tax Income
MEDIUM-LOW
74.5%
23.2%
17.3%
0.45
1.69
$14.95 Billion
$2.59 Billion
Valuation
Current FY P/E
Prior FY P/E
Price/Sales
Price/Book
Book Value/Share
Market Capitalization
75
50
Rating
BUY
HOLD
SELL
Forecasted Growth
EPS
($)
Quarterly
0.76
0.80
1.02
1.03
0.93
0.87
3.50
Annual
0.82
0.88
0.51
3.61
0.62
0.68
0.78
2.59 ( Estimate)
0.55
0.65
0.90
1.00
3.10 ( Estimate)
Revenue
2.9
3.1
3.2
3.5
3.7
3.7
3.8
3.9
3.7
Q1
Q2
Q3
2021
Q4
Q1
Q2
Q3
2022
Q4
Q1
12.8
Annual
FY ends
Dec 31
1 Year EPS Growth Forecast
-28.25%
5 Year EPS Growth Forecast
12.00%
1 Year Dividend Growth Forecast
0%
Risk
($ in Bil.)
Quarterly
13.22
9.49
1.16
3.11
$11.00
$17.38 Billion
15.1
3.7
3.8
4.0
15.3 ( Estimate)
Q2
Q3
2023
Q4
3.8
Q1
3.8
4.0
4.1
15.7 ( Estimate)
Q2
Q3
2024
Beta
Institutional Ownership
0.81
87.29%
Q4
Please see important information about this report on page 5
©2023 Argus Research Company
Argus Analyst Report
NYSE: BAX
BAXTER INTERNATIONAL INC
Report created Nov 3, 2023 Page 2 OF 5
Analyst’s Notes …Continued
0.81.
Baxter recently reported 3Q23 adjusted EPS that declined 4%
from the prior year but matched Street expectations. On November
2, the company reported that revenue from continuing operations
rose 3% from the prior year to $3.7 billion, while the adjusted
operating margin narrowed by 50 basis points to 15.2%. Adjusted
EPS from continuing operations came to $0.68, down from $0.71 a
year earlier and in line with the consensus forecast of $0.68. In the
first nine months of 2023, the company has earned $1.72 per share
on an adjusted basis, down from $2.25 a year earlier.
The company continues to refine its portfolio of businesses.
During 3Q, the company divested its BioPharma Solutions business
(BPS) to Advent International. Baxter plans to use the proceeds to
pay down debt, consistent with its stated capital allocation
priorities. The BPS business accounted for less than 5% of Baxter’s
total revenue.
In January 2023, Baxter announced that it would spin off its
Renal Care and Acute Therapies businesses, which accounted for
nearly 30% of 2022 sales, as an independent publicly traded
company focused on kidney care. It believes that the new
standalone entity will benefit from an ‘enhanced management
focus’ and be ‘better positioned to pursue growth opportunities and
invest in innovation.’ It expects to complete the spinoff by July
2024.
Baxter has provided updated guidance for 2023. It expects sales
growth from continuing operations of 1%-2% and adjusted EPS
from continuing operations of $2.57-$2.60, including the earnings
impact of the BPS sale. It previously projected adjusted EPS of
$2.54-$2.62, which also assumed that the BPS sale would close in
2023.
EARNINGS & GROWTH ANALYSIS
In January 2023, Baxter announced plans to streamline its
operating model. It now has four segments, down from nine. The
new segments are Medical Products and Therapies (34% of 3Q
revenues), which includes infusion therapies and technologies as
well as advanced surgery products; Healthcare Systems and
Technologies (20%), which focuses on care and connectivity
solutions and front-line care; Pharmaceuticals (16%), including
injectables and anesthesia as well as drug compounding; and
Kidney Care (30%), which includes products for both chronic and
acute care.
Overall organic revenue rose 3% pace in 3Q. The
fastest-growing businesses were drug compounding (+15%) and
acute kidney care (+13%), while care and connectivity solutions
(-3%) and chronic kidney therapies (-1%) lagged.
By segment, U.S. sales (48% of 3Q revenue) grew only 0.4%,
while international sales (52% of 3Q sales) grew 5%.
Management keeps a close eye on costs. The 3Q adjusted
operating margin narrowed by 50 basis points from the prior year
to 15.2%. The gross margin widened by 120 basis points, while
R&D rose 30 basis points as a percentage of sales. SG&A expense
Growth & Valuation Analysis
Financial & Risk Analysis
GROWTH ANALYSIS
($ in Millions, except per share data)
Revenue
COGS
Gross Profit
SG&A
R&D
Operating Income
Interest Expense
Pretax Income
Income Taxes
Tax Rate (%)
Net Income
Diluted Shares Outstanding
EPS
Dividend
2018
11,099
6,340
4,759
2,621
654
1,583
45
1,617
65
4
1,546
546
2.83
0.73
2019
11,362
6,601
4,761
3,290
595
1,017
71
970
-41
—
1,001
519
1.93
0.85
2020
11,673
7,086
4,587
2,515
521
1,551
134
1,292
182
14
1,102
517
2.13
0.96
2021
12,784
7,679
5,105
2,878
534
1,693
192
1,477
182
12
1,284
508
2.53
1.09
2022
15,113
9,716
5,397
3,862
605
930
395
-2,353
68
—
-2,433
504
-4.83
1.15
GROWTH RATES (%)
Revenue
Operating Income
Net Income
EPS
Dividend
Sustainable Growth Rate
4.9
23.1
156.8
158.2
19.7
8.9
2.4
-35.8
-35.3
-32.0
16.4
14.0
2.7
52.5
10.1
10.4
12.4
5.4
9.5
9.2
16.5
18.8
13.6
7.8
18.2
-45.1
—
—
6.0
5.1
$78.38
$61.05
3.9 – 3.0
27.7 – 21.6
23.3 – 18.1
$89.93
$64.13
4.1 – 2.9
46.6 – 33.2
25.8 – 18.4
$95.19
$69.10
4.2 – 3.1
44.7 – 32.4
24.8 – 18.0
$88.32
$73.12
3.5 – 2.9
34.9 – 28.9
20.1 – 16.7
$89.70
$49.00
3.0 – 1.6
—-—
30.8 – 16.8
VALUATION ANALYSIS
Price: High
Price: Low
Price/Sales: High-Low
P/E: High-Low
Price/Cash Flow: High-Low
FINANCIAL STRENGTH
Cash ($ in Millions)
Working Capital ($ in Millions)
Current Ratio
LT Debt/Equity Ratio (%)
Total Debt/Equity Ratio (%)
2020
3,730
5,078
2.52
72.4
78.3
2021
2,951
4,636
2.09
194.7
201.7
2022
1,718
3,266
1.69
269.0
295.1
RATIOS (%)
Gross Profit Margin
Operating Margin
Net Margin
Return On Assets
Return On Equity
39.3
13.3
9.4
5.8
13.3
39.9
13.2
10.0
4.8
14.5
35.7
6.2
-16.1
-7.9
-32.6
RISK ANALYSIS
Cash Cycle (days)
Cash Flow/Cap Ex
Oper. Income/Int. Exp. (ratio)
Payout Ratio
103.1
2.6
9.4
26.4
115.6
3.0
8.2
52.5
116.2
1.8
-4.7
44.1
The data contained on this page of this report has been
provided by Morningstar, Inc. (© 2023 Morningstar, Inc.
All Rights Reserved). This data (1) is proprietary to
Morningstar and/or its content providers; (2) may not be
copied or distributed; and (3) is not warranted to be
accurate, complete or timely. Neither Morningstar nor its
content providers are responsible for any damages or
losses arising from any use of this information. Past
performance is no guarantee of future results. This data
is set forth herein for historical reference only and is not
necessarily used in Argus’ analysis of the stock set forth
on this page of this report or any other stock or other
security. All earnings figures are in GAAP.
Please see important information about this report on page 5
©2023 Argus Research Company
Argus Analyst Report
NYSE: BAX
BAXTER INTERNATIONAL INC
Report created Nov 3, 2023 Page 3 OF 5
Analyst’s Notes …Continued
rose 90 basis points from the prior year.
Turning to our estimates, based on recent sales trends,
management’s guidance, and recent and planned business
divestitures, we are raising our 2023 adjusted EPS estimate to
$2.59 from $2.55. Our estimate still implies an EPS decline of 28%
this year. However, we expect a return to growth in 2024, helped
by lower costs, and are raising our adjusted EPS forecast to $3.10
from $2.95.
$12.5 billion. Hillrom offers digital and connected-care solutions
and collaboration tools, including smart bed systems, patient
monitoring and diagnostic technologies, and respiratory health
devices. Hillrom reported sales of $2.939 billion in 2022.
Baxter faces uncertainty in the near term. While elective
procedural volumes are recovering post-COVID, which should be a
tailwind, the company is experiencing internal disruptions as it
prepares to spin off major businesses.
Baxter faces operational risk. Shortages of certain raw materials
and components, such as semiconductors, have disrupted
manufacturing cycles, raising operating costs.
Baxter faces regulatory risk. Many of its products are subject to
approval by the FDA and by regulatory agencies in Europe and
other markets. These products are also subject to reimbursement
coverage decisions by insurers.
FINANCIAL STRENGTH & DIVIDEND
Our financial strength rating on Baxter is Medium-Low. The
company receives below-average scores on our key financial
strength criteria of debt levels, fixed-cost coverage, cash flow
generation, earnings quality, and profitability.
The company had cash of $2.5 billion and $16.0 billion of
long-term debt at the end of the third quarter. The debt/cap ratio
was 66%.
Baxter pays a dividend of $1.16 per share for a yield of about
3.5%. We think the dividend is secure but unlikely to grow much
ahead of the planned Renal Care spinoff. Our dividend estimates
are $1.16 for 2023 and $1.20 for 2024.
COMPANY DESCRIPTION
Based in Deerfield, Illinois, Baxter International provides critical
care, nutrition, renal, hospital, and surgical products. The company
has approximately 60,000 employees. BAX shares are a component
of the S&P 500.
MANAGEMENT AND RISKS
Jose Almeida is the company’s chairman, president, and CEO.
James Saccaro is executive vice president and chief financial officer.
The company has a growth-by-acquisition strategy. Baxter
acquired Hillrom in December 2021 in a transaction valued at
VALUATION
We think that BAX shares are fairly valued at current prices
near $34, below the midpoint of their 52-week range of $31-$57.
From a technical standpoint, the shares have been in a bearish
pattern of lower highs and lower lows since February 2020.
Peer & Industry Analysis
Growth
20
ENOV
GEHC
P/E
BAX vs.
Market
BAX vs.
Sector
More Value
ITGR
HOLX
More Growth
Price/Sales
ZBH
BAX
IART
BAX vs.
Market
BAX vs.
Sector
10
More Value
More Growth
Price/Book
BAX vs.
Market
BAX vs.
Sector
0
SILK
P/E
The graphics in this section are designed to
allow investors to compare BAX versus its
industry peers, the broader sector, and the
market as a whole, as defined by the Argus
Universe of Coverage.
• The scatterplot shows how BAX stacks up
versus its peers on two key characteristics:
long-term growth and value. In general,
companies in the lower left-hand corner are
more value-oriented, while those in the
upper right-hand corner are more
growth-oriented.
• The table builds on the scatterplot by
displaying more financial information.
• The bar charts on the right take the
analysis two steps further, by broadening
the comparison groups into the sector level
and the market as a whole. This tool is
designed to help investors understand how
BAX might fit into or modify a diversified
portfolio.
Value 10
15
20
25
Current
FY P/E
18.2
14.7
13.2
17.0
12.1
18.0
20.0
-5.4
13.5
Net
Margin
(%)
8.9
7.0
17.3
12.0
6.5
5.3
-8.5
-32.5
2.0
1-yr EPS
Growth
(%)
13.2
7.0
19.7
6.1
11.8
11.6
15.2
13.2
12.2
5-yr Growth Rate(%)
Market Cap
Ticker Company
($ in Millions)
GEHC GE HealthCare Technologies Inc
31,526
ZBH Zimmer Biomet Holdings Inc
23,028
BAX Baxter International Inc.
17,376
HOLX Hologic, Inc.
16,316
IART Integra Lifesciences Hldgs Cor
2,955
ITGR Integer Holdings Corp
2,790
ENOV Enovis Corp
2,513
SILK Silk Road Medical Inc
322
Peer Average
12,103
5-yr
Growth
Rate (%)
8.0
10.0
12.0
14.0
11.0
12.0
8.0
25.0
12.5
More Value
More Growth
More Value
More Growth
PEG
Argus
Rating
BUY
HOLD
HOLD
BUY
HOLD
BUY
HOLD
HOLD
BAX vs.
Market
BAX vs.
Sector
5 Year Growth
BAX vs.
Market
BAX vs.
Sector
More Value
More Growth
Debt/Capital
BAX vs.
Market
BAX vs.
Sector
More Value
More Growth
Please see important information about this report on page 5
©2023 Argus Research Company
Argus Analyst Report
NYSE: BAX
BAXTER INTERNATIONAL INC
Report created Nov 3, 2023 Page 4 OF 5
Analyst’s Notes …Continued
On a fundamental basis, the shares are trading at 11-times our
2024 EPS estimate, at the low end of the historical range of 11-22.
On price/sales, the ratio is 1.1, also at the low end of the range of
1.1-3.5. However, we do not see these valuations as attractive
given the company’s planned business divestitures, and believe that
a HOLD rating remains appropriate.
On November 3 at midday, HOLD-rated BAX traded at
$34.01, down $0.24.
Please see important information about this report on page 5
©2023 Argus Research Company
Argus Analyst Report
NYSE: BAX
METHODOLOGY & DISCLAIMERS
Report created Nov 3, 2023 Page 5 OF 5
About Argus
Argus Research, founded by Economist Harold Dorsey in 1934,
has built a top-down, fundamental system that is used by Argus
analysts. This six-point system includes Industry Analysis, Growth
Analysis, Financial Strength Analysis, Management Assessment,
Risk Analysis and Valuation Analysis.
Utilizing forecasts from Argus’ Economist, the Industry Analysis
identifies industries expected to perform well over the next
one-to-two years.
The Growth Analysis generates proprietary estimates for
companies under coverage.
In the Financial Strength Analysis, analysts study ratios to
understand profitability, liquidity and capital structure.
During the Management Assessment, analysts meet with and
familiarize themselves with the processes of corporate management
teams.
Quantitative trends and qualitative threats are assessed under
the Risk Analysis.
And finally, Argus’ Valuation Analysis model integrates a
historical ratio matrix, discounted cash flow modeling, and peer
comparison.
THE ARGUS RESEARCH RATING SYSTEM
Argus uses three ratings for stocks: BUY, HOLD, and SELL.
Stocks are rated relative to a benchmark, the S&P 500.
• A BUY-rated stock is expected to outperform the S&P 500 on
a risk-adjusted basis over a 12-month period. To make this
determination, Argus Analysts set target prices, use beta as the
measure of risk, and compare expected risk-adjusted stock
returns to the S&P 500 forecasts set by the Argus Market
Strategist.
• A HOLD-rated stock is expected to perform in line with the
S&P 500.
• A SELL-rated stock is expected to underperform the S&P 500.
Argus Research Disclaimer
Argus Research Co. (ARC) is an independent investment research provider whose parent company, Argus Investors’ Counsel, Inc. (AIC), is registered with the U.S. Securities and
Exchange Commission. Argus Investors’ Counsel is a subsidiary of The Argus Research Group, Inc. Neither The Argus Research Group nor any affiliate is a member of the FINRA or
the SIPC. Argus Research is not a registered broker dealer and does not have investment banking operations. The Argus trademark, service mark and logo are the intellectual
property of The Argus Research Group, Inc. The information contained in this research report is produced and copyrighted by Argus Research Co., and any unauthorized use,
duplication, redistribution or disclosure is prohibited by law and can result in prosecution. The content of this report may be derived from Argus research reports, notes, or analyses.
The opinions and information contained herein have been obtained or derived from sources believed to be reliable, but Argus makes no representation as to their timeliness,
accuracy or completeness or for their fitness for any particular purpose. In addition, this content is not prepared subject to Canadian disclosure requirements. This report is not an
offer to sell or a solicitation of an offer to buy any security. The information and material presented in this report are for general information only and do not specifically address
individual investment objectives, financial situations or the particular needs of any specific person who may receive this report. Investing in any security or investment strategies
discussed may not be suitable for you and it is recommended that you consult an independent investment advisor. Nothing in this report constitutes individual investment, legal or
tax advice. Argus may issue or may have issued other reports that are inconsistent with or may reach different conclusions than those represented in this report, and all opinions are
reflective of judgments made on the original date of publication. Argus is under no obligation to ensure that other reports are brought to the attention of any recipient of this report.
Argus shall accept no liability for any loss arising from the use of this report, nor shall Argus treat all recipients of this report as customers simply by virtue of their receipt of this
material. Investments involve risk and an investor may incur either profits or losses. Past performance should not be taken as an indication or guarantee of future performance.
Argus has provided independent research since 1934. Argus officers, employees, agents and/or affiliates may have positions in stocks discussed in this report. No Argus officers,
employees, agents and/or affiliates may serve as officers or directors of covered companies, or may own more than one percent of a covered company’s stock. Argus Investors’
Counsel (AIC), a portfolio management business based in Stamford, Connecticut, is a customer of Argus Research Co. (ARC), based in New York. Argus Investors’ Counsel pays Argus
Research Co. for research used in the management of the AIC core equity strategy and model portfolio and UIT products, and has the same access to Argus Research Co. reports as
other customers. However, clients and prospective clients should note that Argus Investors’ Counsel and Argus Research Co., as units of The Argus Research Group, have certain
employees in common, including those with both research and portfolio management responsibilities, and that Argus Research Co. employees participate in the management and
marketing of the AIC core equity strategy and UIT and model portfolio products.
Morningstar Disclaimer
© 2023 Morningstar, Inc. All Rights Reserved. Certain financial information included in this report: (1) is proprietary to Morningstar and/or its content providers; (2) may not be
copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising
from any use of this information. Past performance is no guarantee of future results.
©2023 Argus Research Company
Argus Analyst Report
BAXTER — PAGE 10
BAXTER INTERNATIONAL INC.
Consolidated Statements of Income (Loss)
(unaudited)
(in millions, except per share and percentage data)
Three Months Ended
September 30,
NET SALES
$
2023
3,708
$
2022
3,609
Change
3%
COST OF SALES
2,591
2,564
1%
GROSS MARGIN
1,117
1,045
7%
% of Net Sales
30.1 %
1,002
29.0 %
941
1.1 pts
27.0 %
166
26.1 %
151
0.9 pts
4.5 %
—
4.2 %
2,785
0.3 pts
GOODWILL IMPAIRMENTS
OTHER OPERATING INCOME, NET
—
48
NM
OPERATING INCOME (LOSS)
(51)
(2,880)
% of Net Sales
(1.4)%
128
(79.8)%
104
(7)
61
NM
(172)
(223)
(3,045)
(54)
NM
INCOME TAX BENEFIT
% of Income (Loss) from Continuing Operations Before Income Taxes
129.7 %
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
% of Net Sales
RESEARCH AND DEVELOPMENT EXPENSES
% of Net Sales
INTEREST EXPENSE, NET
OTHER (INCOME) EXPENSE, NET
LOSS FROM CONTINUING OPERATIONS BEFORE INCOME TAXES
INCOME (LOSS) FROM CONTINUING OPERATIONS
1.8 %
6%
10 %
NM
NM
78.4 pts
23 %
NM
NM
51
(2,991)
NM
INCOME FROM DISCONTINUED OPERATIONS, NET OF TAX
2,460
57
NM
NET INCOME (LOSS)
2,511
(2,934)
NM
3
3
0%
NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS
NET INCOME (LOSS) ATTRIBUTABLE TO BAXTER STOCKHOLDERS
$
2,508
$
(2,937)
NM
Basic
$
0.09
$
(5.94)
NM
Diluted
$
0.09
$
(5.94)
NM
Basic
$
4.85
$
0.11
NM
Diluted
$
4.83
$
0.11
NM
Basic
$
4.95
$
(5.83)
NM
Diluted
$
4.93
$
(5.83)
NM
INCOME (LOSS) FROM CONTINUING OPERATIONS PER COMMON SHARE
INCOME FROM DISCONTINUED OPERATIONS PER COMMON SHARE
NET INCOME (LOSS) PER COMMON SHARE
WEIGHTED-AVERAGE NUMBER OF SHARES OUTSTANDING
Basic
507
504
Diluted
509
504
ADJUSTED OPERATING INCOME (excluding special items)¹
$
565
$
568
(1)%
ADJUSTED INCOME FROM CONTINUING OPERATIONS (excluding special
items)¹
$
347
$
365
(5)%
ADJUSTED INCOME FROM DISCONTINUED OPERATIONS (excluding special
items)1
$
71
$
52
37 %
415
$
414
0%
0.68
$
0.71
(4)%
0.14
$
0.10
40 %
0.82
$
0.82
0%
ADJUSTED NET INCOME ATTRIBUTABLE TO BAXTER STOCKHOLDERS
(excluding special items)¹
$
ADJUSTED DILUTED EPS FROM CONTINUING OPERATIONS (excluding special
items)¹
$
ADJUSTED DILUTED EPS FROM DISCONTINUED OPERATIONS (excluding
special items)¹
$
ADJUSTED DILUTED EPS (excluding special items)¹
1
Refer to page 11 for a description of the adjustments and a reconciliation to U.S. GAAP measures.
NM – Not Meaningful
$
BAXTER — PAGE 11
BAXTER INTERNATIONAL INC.
Description of Adjustments and Reconciliation of U.S. GAAP to Non-GAAP Measures
(unaudited, in millions)
The company’s U.S. GAAP results for the three months ended September 30, 2023 included special items which impacted the U.S. GAAP measures as follows:
Gross
Margin
$ 1,117
Reported
Selling, General
and
Administrative
Expenses
Research and
Development
Expenses
Operating
Income
(Loss)
Loss From
Continuing
Income
Income From
Operations
Income Tax (Loss) From Discontinued
Before Income
Expense
Continuing Operations,
Taxes
(Benefit)
Operations
Net of Tax
$
$
$
$
1,002
166
(51)
(172)
$
(223)
$
51
Reported percent of net sales (or effective
tax rate for income tax expense (benefit))
30.1 %
27.0 %
4.5 %
(1.4) %
(4.6) %
129.7 %
Intangible asset amortization1
111
(51)
—
162
162
35
127
2
Business optimization items
26
(50)
(5)
81
81
19
Acquisition and integration items3
1
(1)
—
2
2
1
10
(67)
—
77
77
—
14
—
—
14
14
4
—
(13)
—
13
13
Long-lived asset impairments
267
—
—
267
Gain on BPS Sale8
—
—
—
—
4
Separation-related costs
5
European medical devices regulation
6
Legal matters
7
—
Tax matters13
Adjusted
$ 1,546
Adjusted percent of net sales (or effective
tax rate for income tax expense (benefit))
—
$
41.7 %
820
22.1 %
$
—
—
161
$ 565
4.3 %
15.2 %
$
Income (loss) from continuing operations attributable to Baxter stockholders
0.09 $
4.83 $
4.93
127
127
0.25
0.00
0.25
62
1
63
63
0.12
0.00
0.12
1
—
1
1
0.00
0.00
0.00
77
4
81
81
0.15
0.01
0.16
10
—
10
10
0.02
0.00
0.02
3
10
—
10
10
0.02
0.00
0.02
267
62
205
—
205
205
0.40
0.00
0.40
—
—
—
(2,603)
(2,603)
(2,603)
0.00
(5.11)
(5.11)
(0.39)
0.41
0.03
0.68 $
0.14 $
0.82
196
$
51
48
97
21.8 %
Adjusted
$
3
$
$
—
12.0 %
Less: Net income attributable to noncontrolling interests
2,508
67.6 %
Reported
Income (loss) from continuing operations
$
67.7 %
444
1.4 %
$ 2,511
66.3 %
—
$
$ 2,460
Net
Income
(Loss)
Net Income
Diluted
Diluted
(Loss)
Earnings Per Earnings Per Diluted
Attributable Share from
Share from Earnings
to Baxter
Continuing Discontinued
Per
Stockholders Operations
Operations
Share
347
3
$
344
(196)
$
347
9.4 %
$
209
13
71
$ 418
1.9 %
11.3 %
13
$
415
11.2 %
$
BAXTER — PAGE 11
The company’s U.S. GAAP results for the three months ended September 30, 2022 included special items which impacted the U.S. GAAP measures as follows:
Income
(Loss) From
Continuing
Selling,
Other
Other
Operations
General and Research and
Operating Operating (Income)
Before
Gross Administrative Development Goodwill Expense, Income Expense,
Income
Margin
Expenses
Expenses
Impairment
Net
(Loss)
Net
Taxes
Income
Tax
Expense
(Benefit)
Income
(Loss)
From
Income From
Continuing Discontinued
Operations Operations
Net
Income
(Loss)
Diluted
Net Income
Earnings
Diluted
(Loss)
Per Share Earnings Per Diluted
Attributable
from
Share from Earnings
to Baxter
Continuing Discontinued
Per
Stockholders Operations Operations
Share
$1,045 $
Reported percent of net 29.0 %
941
$
26.1 %
151
$ 2,785
$ 48
$(2,880) $ 61
$ (3,045) $ (54) $ (2,991) $
4.2 %
77.2 %
1.3 % (79.8)%
1.7 %
(84.4)%
1.8 %
(82.9)%
57
$(2,934) $ (2,937) $
1.6 % (81.3)%
(81.4)%
(5.94) $
0.11 $ (5.83)
Intangible asset
amortization1
110
(58)
—
—
—
168
—
168
42
126
—
126
126
0.25
0.00
0.25
Business optimization
items2
13
(57)
(3)
—
—
73
—
73
21
52
—
52
52
0.10
0.00
0.10
Acquisition and
integration items3
(2)
(11)
(1)
—
6
4
—
4
2
2
—
2
2
0.00
0.00
0.00
European medical
devices regulation5
12
—
—
—
—
12
—
12
3
9
—
9
9
0.02
0.00
0.02
Product-related items9
20
—
—
—
—
20
—
20
2
18
—
18
18
0.04
0.00
0.04
Long-lived asset
impairments7
332
—
—
—
—
332
—
332
78
254
—
254
254
0.50
0.00
0.50
Goodwill
impairments10
—
—
—
(2,785)
—
2,785
—
2,785
—
2,785
—
2,785
2,785
5.49
0.00
5.49
Loss on product
divestiture
arrangement11
—
—
—
—
(54)
54
—
54
14
40
—
40
40
0.08
0.00
0.08
Reclassification of
cumulative translation
loss to earnings12
—
—
—
—
—
—
(65)
65
—
65
—
65
65
0.13
0.00
0.13
—
—
—
—
—
—
—
—
(5)
5
(5)
—
—
0.01
(0.01)
0.00
147
$
4.1 %
—
$ —
$ 568
$ (4) $
0.0 %
0.0 % 15.7 % (0.1)%
414
$
11.5 %
0.71 $
0.10 $ 0.82
Reported
sales (or effective tax
rate for income tax
expense (benefit))
13
Tax matters
$1,530 $
42.4 %
Adjusted percent of net
Adjusted
815
$
22.6 %
468
$ 103
$ 365
$
13.0 % 22.0 %
10.1 %
sales (or effective tax
rate for income tax
expense)
Income (loss) from continuing operations
Less: Net income attributable to noncontrolling interests
Income (loss) from continuing operations attributable to Baxter stockholders
Weighted-average diluted shares as reported
Effect of dilutive securities that were anti-dilutive to dilutive EPS as reported
Weighted-average diluted shares as adjusted
Reported
Adjusted
$(2,991) $
365
3
3
$(2,994) $
362
504
3
507
52
$ 417
$
1.4 % 11.6 %
BAXTER — PAGE 11
1
The company’s results in 2023 and 2022 included intangible asset amortization expense of $162 million ($127 million, or $0.25 per diluted share, on an after-tax basis) and $168 million
($126 million, or $0.25 per diluted share, on an after-tax basis), respectively.
2
The company’s results in 2023 and 2022 included charges of $81 million ($62 million, or $0.12 per diluted share, on an after-tax basis) and $73 million ($52 million, or $0.10 per
diluted share, on an after-tax basis), respectively, associated with its execution of programs to optimize its organization and cost structure. These restructuring and other business
optimization costs included actions related to its current implementation of a new operating model intended to simplify and streamline its operations, its integration of Hill-Rom
Holdings, Inc. (Hillrom), the decision to cease production of dialyzers at one of its U.S.-based manufacturing facilities later this year, which resulted in a $243 million noncash
impairment of property, plant and equipment in the second quarter of 2023, rationalization of certain other manufacturing and distribution facilities and transformation of certain general
and administrative functions.
3
The company’s results in 2023 included $2 million ($1 million, or $0.00 per diluted share, on an after-tax basis) of acquisition and integration-related items. That amount includes $2
million of integration costs, which included costs related to its integration of Hillrom. The company’s results in 2022 included $4 million ($2 million, or $0.00 per diluted share, on an
after-tax basis) of acquisition and integration-related items. That amount includes $10 million of costs related to its acquisition of Hillrom, partially offset by a $6 million benefit from a
change in the estimated fair value of contingent consideration liabilities.
4
The company’s results of continuing operations in 2023 included $77 million ($77 million, or $0.15 per diluted share, on an after-tax basis) of separation-related costs. This amount
includes costs of external advisors supporting its activities to prepare for the proposed spinoff of its Kidney Care segment, which are reported in continuing operations. The company’s
results of discontinued operations in 2023 included $4 million ($4 million, or $0.01 per diluted share, on an after-tax basis) of separation-related costs related to the sale of its BioPharma
Solutions (BPS) business.
5
The company’s results in 2023 and 2022 included costs of $14 million ($10 million, or $0.02 per diluted share, on an after-tax basis) and $12 million ($9 million, or $0.02 per diluted
share, on an after-tax basis), respectively, of incremental costs to comply with the European Union’s medical device regulations for previously registered products, which primarily
consist of contractor costs and other direct third-party costs. The company considers the adoption of these regulations to be a significant one-time regulatory change and believes that the
costs of initial compliance for previously registered products over the implementation period are not indicative of its core operating results.
6
The company’s results in 2023 included costs, including associated legal fees, of $13 million ($10 million, or $0.02 per diluted share, on an after-tax basis) 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.
7
The company’s results in 2023 included long-lived asset impairment charges of $267 million ($205 million, or $0.40 per diluted share, on an after-tax basis) related to the Hemodialysis
business within its Kidney Care segment. The company’s results in 2022 included charges of $332 million ($254 million, or $0.50) per diluted share, on an after-tax basis) related to
indefinite-lived intangible asset impairments.
8
The company’s results of discontinued operations in 2023 included a gain of $2.89 billion ($2.60 billion, or $5.11 per diluted share, on an after-tax basis) from the sale of its BPS
business.
9
The company’s results in 2022 included charges of $20 million ($18 million, or $0.04 per diluted share, on an after-tax basis) related to warranty and remediation activities from a field
corrective action on certain of our infusion pumps.
10
T