Analysis of Debt
Total Debt (Carrying Amount)
Baxter International Inc., balance sheet: debt
US$ in millions
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
The total debt and lease obligations exhibited a significant upward trajectory between 2011 and 2014, followed by a substantial contraction in 2015. Total carrying amounts rose from US$ 5,195 million in 2011 to a peak of US$ 9,305 million in 2014, before decreasing to US$ 6,520 million by the end of 2015.
- Long-Term Debt Dynamics
- Long-term debt and lease obligations, excluding current maturities, served as the primary driver of total debt increases through 2013, peaking at US$ 8,126 million. This category experienced a sharp decline in 2015, falling to US$ 3,935 million, which accounts for the primary reduction in the overall debt carrying amount during that year.
- Short-Term Debt Volatility
- Short-term debt showed a divergent trend relative to long-term obligations toward the end of the period. After remaining relatively low between 2011 and 2013, short-term debt increased sharply to US$ 913 million in 2014 and further escalated to US$ 1,775 million in 2015.
- Current Maturities Analysis
- Current maturities of long-term debt and lease obligations increased from US$ 190 million in 2011 to a peak of US$ 859 million in 2013. Following this peak, these obligations stabilized, maintaining a range between US$ 786 million and US$ 810 million through 2015.
- Overall Debt Composition Shift
- A structural shift in the debt profile is observable by 2015. While the total debt carrying amount decreased, the proportion of short-term debt increased significantly, suggesting a transition from long-term financing to shorter-term obligations or a strategic repayment of long-term debt.
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Total Debt (Fair Value)
| Dec 31, 2015 | |
|---|---|
| Selected Financial Data (US$ in millions) | |
| Short-term debt | 1,775) |
| Current maturities of long-term debt and lease obligations | 818) |
| Long-term debt and lease obligations, excluding current maturities | 4,089) |
| Total debt and lease obligations (fair value) | 6,682) |
| Financial Ratio | |
| Debt, fair value to carrying amount ratio | 1.02 |
Based on: 10-K (reporting date: 2015-12-31).
Weighted-average Interest Rate on Debt
Weighted-average effective interest rate on debt: 2.88%
| Interest rate | Debt amount1 | Interest rate × Debt amount | Weighted-average interest rate2 |
|---|---|---|---|
| 6.00% | 302) | 18) | |
| 1.10% | 500) | 6) | |
| 2.00% | 500) | 10) | |
| 5.50% | 502) | 28) | |
| 2.00% | 750) | 15) | |
| 4.60% | 531) | 24) | |
| 4.40% | 299) | 13) | |
| 0.70% | 281) | 2) | |
| 2.60% | 212) | 6) | |
| 3.60% | 147) | 5) | |
| 6.20% | 101) | 6) | |
| 6.40% | 266) | 17) | |
| 4.00% | 6) | —) | |
| 4.60% | 257) | 12) | |
| 1.41% | 1,450) | 20) | |
| 0.60% | 300) | 2) | |
| Total | 6,404) | 184) | |
| 2.88% | |||
Based on: 10-K (reporting date: 2015-12-31).
1 US$ in millions
2 Weighted-average interest rate = 100 × 184 ÷ 6,404 = 2.88%
Interest Costs Incurred
Baxter International Inc., interest costs incurred
US$ in millions
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
Total interest costs exhibited a growth trajectory from 2011 through 2014, followed by a notable contraction in 2015. The overall movement reflects an increase in the financial burden of debt servicing and investment-related financing during the first four years of the period, which was subsequently mitigated in the final year.
- Interest Expense Trends
- Annual interest expense demonstrated a consistent upward trend from 2011 to 2014, rising from 92 million US$ to 167 million US$. This period of growth peaked in 2014 before a reduction to 146 million US$ was recorded in 2015, indicating a decrease in the periodic cost of maintaining outstanding debt.
- Capitalized Interest Costs
- Interest costs capitalized increased from 40 million US$ in 2011 to 70 million US$ by 2013, remaining stagnant at that level through 2014. A significant decrease occurred in 2015, with capitalized costs falling to 51 million US$. This pattern suggests an intensification of capital-intensive projects between 2011 and 2014, followed by a reduction in such activities or the completion of qualifying assets in 2015.
- Aggregate Interest Cost Analysis
- Total interest costs rose from 132 million US$ in 2011 to a peak of 237 million US$ in 2014. The trajectory shows that the most aggressive growth occurred between 2012 and 2013, where costs jumped from 165 million US$ to 225 million US$. The subsequent decline to 197 million US$ in 2015 represents a 16.9% year-over-year decrease, reflecting a synchronized reduction in both the expensed and capitalized components of interest.
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Adjusted Interest Coverage Ratio
Based on: 10-K (reporting date: 2015-12-31), 10-K (reporting date: 2014-12-31), 10-K (reporting date: 2013-12-31), 10-K (reporting date: 2012-12-31), 10-K (reporting date: 2011-12-31).
2015 Calculations
1 Interest coverage ratio (without capitalized interest) = EBIT ÷ Interest expense
= 574 ÷ 146 = 3.93
2 Adjusted interest coverage ratio (with capitalized interest) = EBIT ÷ Interest costs
= 574 ÷ 197 = 2.91
A consistent and significant downward trend is observed in the company's ability to cover interest expenses between 2011 and 2015. Both measured ratios indicate a progressive deterioration in financial headroom, culminating in a sharp decline during the final year of the period analyzed.
- Interest Coverage Ratio (without capitalized interest)
- This metric experienced a steady decrease over the five-year period, falling from 31.53 in 2011 to 15.60 in 2014. The most precipitous drop occurred between 2014 and 2015, where the ratio plummeted to 3.93, representing a substantial reduction in the margin of safety for meeting interest obligations from operating earnings.
- Adjusted Interest Coverage Ratio (with capitalized interest)
- The adjusted ratio followed a near-identical trajectory, starting at 21.98 in 2011 and declining to 11.00 by 2014. A severe contraction is noted in 2015, with the ratio falling to 2.91. The consistent gap between this and the non-adjusted ratio highlights the ongoing impact of capitalized interest on the total debt burden.
- Comparative Solvency Analysis
- The simultaneous decline across both metrics suggests a systemic increase in interest expenses relative to earnings or a decline in operating profitability. The sharp collapse in coverage capacity in 2015 indicates a significant shift in the financial profile, as the ability to service debt from current earnings reached its lowest point in the reported period, thereby increasing financial risk and sensitivity to interest rate fluctuations.
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