What changed in this filing

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Item 1. Financial Statements

2021-07-29 compared with 2021-04-29 · 241 added, 132 removed, 648 unchanged (37% of the section changed)

17 unchanged sentences

Current liabilities:

Short-term debt $ 51 $ —

Current maturities of long-term debt and finance lease obligations 406 406

22 unchanged sentences

Three months ended

June 30, Six months ended

2021 2020 2021 2020

Net sales $ 3,098 $ 2,718 $ 6,044 $ 5,520

6 unchanged sentences

Interest expense, net 34 36 68 57

Other expense, net 5 10

Other (income) expense, net ( 2 ) 6 3 16

Income before income taxes 392 289 743 667

11 unchanged sentences

Baxter International Inc.

Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)

Condensed Consolidated Statements of Comprehensive Income (unaudited)

(in millions)

Three months ended

June 30, Six months ended

2021 2020 2021 2020

Net income $ 301 $ 247 $ 601 $ 580

Other comprehensive income (loss), net of tax:

Currency translation adjustments, net of tax expense (benefit) of $ 17 and $( 8 ) for the three months ended March 31, 2021 and 2020, respectively

Currency translation adjustments, net of tax expense (benefit) of ($ 4 ) and $ 2 for the three months ended June 30, 2021 and 2020, respectively, and $ 13 and ($ 6 ) for the six months ended June 30, 2021 and 2020

88 189 ( 120 ) ( 170 )

Pension and other postretirement benefits, net of tax expense of $ 8 and $ 6 for the three months ended March 31, 2021 and 2020, respectively

Hedging activities, net of tax expense (benefit) of $ 3 and ($ 39 ) for the three months ended March 31, 2021 and 2020, respectively

Pension and other postretirement benefits, net of tax expense of $ 3 and $ 1 for the three months ended June 30, 2021 and 2020, respectively, and $ 11 and $ 7 for the six months ended June 30, 2021 and 2020

Hedging activities, net of tax expense (benefit) of $ 2 and $ 1 for the three months ended June 30, 2021 and 2020, respectively, and $ 5 and ($ 38 ) for the six months ended June 30, 2021 and 2020

5 ( 4 ) 17 ( 134 )

Total other comprehensive income (loss), net of tax 104 189 ( 62 ) ( 278 )

Comprehensive income (loss) 134 ( 134 )

Comprehensive income 405 436 539 302

Comprehensive income attributable to noncontrolling interests 3 1 5 2

Comprehensive income (loss) attributable to Baxter stockholders $ 132 $ ( 135 )

Comprehensive income attributable to Baxter stockholders $ 402 $ 435 $ 534 $ 300

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

2 unchanged sentences

(in millions)

For the three months ended March 31, 2021

For the three months ended June 30, 2021

Baxter International Inc.

4 unchanged sentences

income (loss) Total Baxter stockholders' equity Noncontrolling interests Total equity

Balance as of April 1, 2021 683 $ 683 181 $ ( 11,296 ) $ 6,043 $ 16,502 $ ( 3,480 ) $ 8,452 $ 38 $ 8,490

Net income — — — — — 298 — 298 3 301

Other comprehensive income (loss) — — — — — — 104 104 — 104

Purchases of treasury stock — — 3 ( 300 ) — — — ( 300 ) — ( 300 )

Stock issued under employee benefit plans and other — — — 35 47 — — 82 — 82

Dividends declared on common stock — — — — — ( 142 ) — ( 142 ) — ( 142 )

Balance as of June 30, 2021 683 $ 683 184 $ ( 11,561 ) $ 6,090 $ 16,658 $ ( 3,376 ) $ 8,494 $ 41 $ 8,535

For the six months ended June 30, 2021

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, 2021 683 $ 683 179 $ ( 11,051 ) $ 6,043 $ 16,328 $ ( 3,314 ) $ 8,689 $ 37 $ 8,726

5 unchanged sentences

Change in noncontrolling interests — — — — — — — — ( 1 ) ( 1 )

Balance as of March 31, 2021 683 $ 683 181 $ ( 11,296 ) $ 6,043 $ 16,502 $ ( 3,480 ) $ 8,452 $ 38 $ 8,490

For the three months ended March 31, 2020

Balance as of June 30, 2021 683 $ 683 184 $ ( 11,561 ) $ 6,090 $ 16,658 $ ( 3,376 ) $ 8,494 $ 41 $ 8,535

For the three months ended June 30, 2020

Baxter International Inc.

1 unchanged sentence

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

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 standard — — — — — ( 4 ) — ( 4 ) — ( 4 )

Adoption of new accounting standards — — — — — ( 4 ) — ( 4 ) — ( 4 )

Net income — — — — — 578 — 578 2 580

2 unchanged sentences

Dividends declared on common stock — — — — — ( 237 ) — ( 237 ) — ( 237 )

Balance as of March 31, 2020 683 $ 683 175 $ ( 10,677 ) $ 5,935 $ 15,935 $ ( 4,177 ) $ 7,699 $ 31 $ 7,730

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.

2 unchanged sentences

(in millions)

Three months ended

Six months ended

Cash flows from operations

5 unchanged sentences

Net periodic pension and other postretirement costs 51 40

Intangible asset impairments — 17

Changes in balance sheet items:

15 unchanged sentences

Issuances of debt — 1,240

Net increase (decrease) in debt with original maturities of three months or less 51 ( 225 )

Cash dividends on common stock ( 249 ) ( 223 )

8 unchanged sentences

$ 3,140 $ 4,094

(1) We did not have any restricted cash balances as of March 31, 2020 or December 31, 2019.

The following table provides a reconciliation of cash, cash equivalents and restricted cash shown above to the amounts reported within the condensed consolidated balance sheet as of March 31, 2021 and December 31, 2020 (in millions):

March 31, 2021 December 31, 2020

(1) We did not have any restricted cash balances as of December 31, 2019.

The following table provides a reconciliation of cash, cash equivalents and restricted cash shown above to the amounts reported within the condensed consolidated balance sheet as of June 30, 2021,

December 31, 2020, and June 30, 2020 (in millions):

June 30, 2021 December 31, 2020 June 30, 2020

Cash and cash equivalents $ 3,136 $ 3,730 $ 4,085

10 unchanged sentences

GAAP) in the United States have been condensed or omitted.

These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2020 (2020 Annual Report).

These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our Current Report on Form 8-K filed with the SEC on April 29, 2021 (2020 Annual Report), which revised and superseded the corresponding sections of the Annual Report on Form 10-K for the year ended December 31, 2020.

In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented.

7 unchanged sentences

In addition to travel restrictions put in place in early 2020, governments have closed borders, imposed prolonged quarantines and may continue those measures or implement other restrictions and requirements in light of the continuing spread of the pandemic.

We expect that these evolving restrictions and requirements, as well as the corresponding need to adapt to new methods of conducting business remotely, will continue to have an adverse effect on our business.

We expect that these evolving restrictions and requirements will continue to have an adverse effect on our business.

ACQUISITIONS AND OTHER ARRANGEMENTS

20 unchanged sentences

The valuation of the assets acquired are preliminary and measurement period adjustments may be recorded in the future as we finalize our fair value estimates.

The results of operations of the acquired business have been included in our consolidated statement of income since the date the business was acquired and were insignificant during the three months ended March 31, 2021.

The results of operations of the acquired business have been included in our consolidated statement of income since the date the business was acquired and were not material for the three and six months ended June 30, 2021.

We allocated $ 64 million of the total consideration to the TDS developed product rights with an estimated useful life of 9 years and $ 3 million to customer relationships with an estimated useful life of 7 years.

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The purchase price of $ 325 million was allocated to the assets acquired, which included a $ 314 million developed-technology intangible asset with an estimated useful life of 9 years and an $ 11 million customer relationship intangible asset with an estimated useful life of 8 years.

Net sales related to this acquisition from the acquisition date through March 31, 2021 were $ 13 million.

Net sales related to this acquisition were $ 28 million and $ 41 million, respectively, for the three and six months ended June 30, 2021 .

In July 2021, we acquired certain assets related to PerClot Polysaccharide Hemostatic System (PerClot), including distribution rights for the U.S.

and specified territories outside of the U.S., from CryoLife, Inc.

for an upfront purchase price of $ 25 million and the potential for additional cash consideration of up to $ 36 million based upon regulatory and commercial milestones.

PerClot is an absorbable powder hemostat indicated for use in surgical procedures, including cardiac, vascular, orthopedic, spinal, neurological, gynecological, ENT and trauma surgery as an adjunct hemostat when control of bleeding from capillary, venous, or arteriolar vessels by pressure, ligature, and other conventional means is either ineffective or impractical.

PerClot is approved for distribution in the European Union and other markets and is expected to be submitted for Pre-Market Approval (PMA) for distribution in the U.S.

in the second half of 2021.

SUPPLEMENTAL FINANCIAL INFORMATION

1 unchanged sentence

Three months ended

June 30, Six months ended

(in millions) 2021 2020 2021 2020

2 unchanged sentences

Interest expense, net $ 34 $ 36 $ 68 $ 57

Other Expense, Net

Oth er (Income) Expense, Net

Three months ended

June 30, Six months ended

(in millions) 2021 2020 2021 2020

1 unchanged sentence

Pension and other postretirement benefit plans 3 ( 1 ) 7 ( 2 )

Change in fair value of marketable equity securities ( 9 ) — ( 7 ) —

Other, net ( 4 ) ( 3 ) ( 2 ) ( 3 )

Other expense, net $ 5 $ 10

Other (income) expense, net $ ( 2 ) $ 6 $ 3 $ 16

Allowance for Doubtful Accounts

The following table is a summary of the changes in our allowance for doubtful accounts for the three months ended March 31, 2021 and 2020.

The following table is a summary of the changes in our allowance for doubtful accounts for the three and six months ended June 30, 2021 and 2020.

Three months ended

June 30, Six months ended

(in millions) 2021 2020 2021 2020

2 unchanged sentences

Charged to costs and expenses ( 4 ) 5 ( 3 ) 12

Write-offs ( 1 ) ( 1 ) ( 1 ) ( 1 )

Currency translation adjustments 2 2 ( 4 ) ( 7 )

Balance at end of period $ 117 $ 120 $ 117 $ 120

(in millions) March 31,

(in millions) June 30,

2021 December 31,

4 unchanged sentences

Property, Plant and Equipment, Net

(in millions) March 31,

(in millions) June 30,

2021 December 31,

3 unchanged sentences

Non-Cash Operating and Investing Activities

Right-of-use operating lease assets obtained in exchange for lease obligations for the three months ended March 31, 2021 and 2020 were $ 5 million and $ 15 million, respectively.

As of March 31, 2021, we have entered into lease agreements with aggregate future lease payments of approximately $ 46 million for facilities and equipment that have not yet commenced.

Purchases of property, plant and equipment included in accounts payable as of March 31, 2021 and 2020 were $ 63 million and $ 49 million, respectively.

Unsettled share repurchases included in accrued expenses and other current liabilities were $ 47 million as of March 31, 2021.

There were no unsettled share repurchases as of March 31, 2020.

Right-of-use operating lease assets obtained in exchange for lease obligations for the six months ended June 30, 2021 and 2020 were $ 21 million and $ 35 million, respectively.

Right-of-use finance lease assets obtained in exchange for lease obligations for the six months ended June 30, 2020 were $ 7 million.

As of June 30, 2021, we have entered into lease agreements with aggregate future lease payments of approximately $ 46 million for facilities and equipment that have not yet commenced.

Purchases of property, plant and equipment included in accounts payable as of June 30, 2021 and 2020 were $ 70 million and $ 42 million, respectively.

Unsettled share repurchases included in accrued expenses and other current liabilities were $ 35 million as of June 30, 2021.

There were no unsettled share repurchases as of June 30, 2020.

GOODWILL AND OTHER INTANGIBLE ASSETS, NET

5 unchanged sentences

Currency translation ( 58 ) ( 7 ) ( 5 ) ( 70 )

Balance as of March 31, 2021 $ 2,567 $ 315 $ 229 $ 3,111

As of March 31, 2021, there were no reductions in goodwill relating to impairment losses.

Balance as of June 30, 2021 $ 2,598 $ 318 $ 232 $ 3,148

As of June 30, 2021, there were no reductions in goodwill relating to impairment losses.

As discussed in Note 16 - Segment Information, we made a change to our reportable segments in the first quarter of 2021.

4 unchanged sentences

(in millions) Developed technology, including patents Other amortized intangible assets Indefinite-lived intangible assets

March 31, 2021

June 30, 2021

Gross other intangible assets $ 3,044 $ 501 $ 169 $ 3,714

5 unchanged sentences

Other intangible assets, net $ 1,339 $ 163 $ 169 $ 1,671

Intangible asset amortization expense was $ 64 million and $ 52 million for the three months ended March 31, 2021 and 2020, respectively.

Intangible asset amortization expense was $ 67 million and $ 56 million for the three months ended June 30, 2021 and 2020, respectively, and $ 131 million and $ 108 million for the six months ended June 30, 2021 and 2020, respectively.

In the second quarter of 2020, we recognized an impairment charge of $ 17 million related to a developed-technology intangible asset due to a decline in market expectations for the related product.

The fair value of the intangible asset was measured using a discounted cash flow approach and the charge is classified within cost of sales in the accompanying condensed consolidated statement of income.

We consider the fair value of the asset to be a Level 3 measurement due to the significant estimates and assumptions we used in establishing the estimated fair value.

FINANCING ARRANGEMENTS

Significant Debt Activity

In 2020, we issued $ 500 million of 3.95 % senior notes due in April 2030 and $ 650 million of 1.73 % senior notes due in 2031 (the Notes).

In conjunction with the issuances of the Notes, we entered into registration rights agreements in which we agreed to file a registration statement with the SEC with respect to an offer to exchange the Notes for new

issues of Notes with the same terms registered under the Securities Act of 1933.

Those exchange offers with respect to the Notes were completed in May 2021.

In July 2021, Baxter redeemed $ 400 million in 1.7 % Senior Notes due August 2021, which was partially funded by the issuance of commercial paper.

Credit Facilities

dollar-denominated revolving credit facility has a capacity of $ 2.0 billion and our Euro-denominated revolving credit facility has a capacity of approximately € 200 million.

As of March 31, 2021 and December 31, 2020, there were no borrowings outstanding under our U.S.

As of June 30, 2021 and December 31, 2020, there were no borrowings outstanding under our U.S.

dollar or Euro-denominated credit facilities.

Commercial Paper

As of June 30, 2021, we had $ 50 million of commercial paper outstanding with a weighted-average interest rate of 0.3 %.

There was no commercial paper outstanding as of December 31, 2020.

COMMITMENTS AND CONTINGENCIES

3 unchanged sentences

If a loss is not probable or a probable loss cannot be reasonably estimated, no liability is recorded.

As of March 31, 2021 and December 31, 2020, our total recorded reserves with respect to legal and environmental matters were $ 53 million and $ 40 million, respectively, and there was a $ 7 million insurance receivable as of March 31, 2021.

As of June 30, 2021 and December 31, 2020, our total recorded reserves with respect to legal and environmental matters were $ 72 million and $ 40 million, respectively, and we had a $ 7 million insurance receivable as of June 30, 2021.

We have established reserves for certain of the matters discussed below.

12 unchanged sentences

Separate from these Superfund cases, we are involved in an ongoing voluntary environmental remediation associated with historic operations at our Irvine, California, United States facility.

As of March 31, 2021 and December 31, 2020, our environmental reserves, which are measured on an undiscounted basis, were $ 19 million and $ 20 million, respectively.

As of June 30, 2021 and December 31, 2020, our environmental reserves, which are measured on an undiscounted basis, were $ 19 million and $ 20 million, respectively.

After considering these reserves, the outcome of these matters is not expected to have a material adverse effect on our financial position or results of operations.

34 unchanged sentences

A final approval hearing is currently scheduled for August 10, 2021.

We are fully reserved for the settlement amount as of March 31, 2021.

In addition, we have received a stockholder request for inspection of our books and records in connection with the announcement made in our Form 8-K on October 24, 2019 that we had commenced an internal investigation into certain intra-company transactions that impacted our previously reported non-operating foreign exchange gains and

We are fully reserved for the settlement amount as of June 30, 2021.

As initially disclosed on October 24, 2019, we also voluntarily advised the staff of the SEC of our internal investigation and we are continuing to cooperate with the staff of the SEC.

2 unchanged sentences

STOCKHOLDERS’ EQUITY

Stock-Based Compensation

Stock compensation expense totaled $ 22 million and $ 29 million in the first quarter of 2021 and 2020, respectively.

Approximately 75 % of stock compensation expense is classified within SG&A expense with the remainder classified in cost of sales and R&D expense.

We awarded stock compensation grants which consisted of 4.0 million stock options, 0.5 million restricted stock units (RSUs) and 0.3 million performance stock units (PSUs) during the first quarter of 2021.

The grant date fair values of stock options, RSUs and PSUs awarded in the first quarter of 2021 were $ 62 million, $ 40 million and $ 27 million, respectively.

Stock options and RSUs generally vest in one-third increments over a three-year period.

Approximately 12.5 % of the PSUs with a grant date in the current period related to the establishment of the adjusted operating margin vesting condition for awards issued in 2019.

The remainder of PSUs granted in the current period were awarded in March 2021, for which the vesting conditions are equally divided based on our compound annual sales growth rate performance, our adjusted return on invested capital performance and on our stock performance relative to a specified peer group.

All of the PSUs vest at the end of the applicable three-year service period.

Stock Options

The weighted-average Black-Scholes assumptions used in establishing the fair value of stock options granted during the period, along with weighted-average grant date fair values, were as follows:

Three months ended

Expected volatility 25 % 26 %

Expected life (in years) 5.5 5.5

Risk-free interest rate 0.8 % 0.6 %

Dividend yield 1.3 % 1.2 %

Fair value per stock option $ 16 $ 16

The total intrinsic value of stock options exercised was $ 21 million and $ 52 million during the first quarters of 2021 and 2020, respectively.

As of March 31, 2021, the unrecognized compensation cost related to all unvested stock options of $ 109 million is expected to be recognized as expense over a weighted-average period of 2.1 years.

As of March 31, 2021, the unrecognized compensation cost related to all unvested RSUs of $ 75 million is expected to be recognized as expense over a weighted-average period of 2.1 years.

As of March 31, 2021, the unrecognized compensation cost related to all unvested PSUs of $ 46 million is expected to be recognized as expense over a weighted-average period of 1.8 years.

Stock Options Award Modification

4 unchanged sentences

Cash Dividends

Cash dividends declared per share for the three months ended March 31, 2021 and March 31, 2020 were $ 0.245 and $ 0.22 , respectively.

Cash dividends declared per share for the three and six months ended June 30, 2021 were $ 0.28 and $ 0.525 , respectively.

Cash dividends declared per share for the three and six months ended June 30, 2020 were $ 0.245 and $ 0.465 , respectively.

Stock Repurchase Programs

1 unchanged sentence

The Board of Directors increased this authority by an additional $ 1.5 billion in each of November 2016 and February 2018, by an additional $ 2.0 billion in November 2018 and by an additional $ 1.5 billion in October 2020.

During the first quarter of 2021, we repurchased 3.6 million shares under this authority pursuant to a Rule 10b5-1 plan.

During the first quarter of 2020, we did not repurchase any shares under this authority.

As of March 31, 2021, we recognized a liability within accrued expenses and other current liabilities of $ 47 million for share repurchases that settled in April 2021.

We had $ 1.6 billion remaining available under the authorization as of March 31, 2021.

During the first half of 2021, we repurchased 7.3 million shares under this authority pursuant to Rule 10b5-1 plans.

During the first half of 2020, we did not repurchase any shares under this authority.

As of June 30, 2021, we recognized a liability within accrued expenses and other current liabilities of $ 35 million for share repurchases that settled in July 2021.

We had $ 1.3 billion remaining available under the authorization as of June 30, 2021.

ACCUMULATED OTHER COMPREHENSIVE INCOME

Comprehensive income includes all changes in stockholders’ equity that do not arise from transactions with stockholders, and consists of net income, currency translation adjustments (CTA), certain gains and losses from pension and other postretirement employee benefit (OPEB) plans and gains and losses on cash flow hedges.

The following table is a net-of-tax summary of the changes in accumulated other comprehensive (loss) income (AOCI) by component for the three months ended March 31, 2021 and 2020.

The following table is a net-of-tax summary of the changes in accumulated other comprehensive (loss) income (AOCI) by component for the six months ended June 30, 2021 and 2020.

(in millions) CTA Pension and OPEB plans Hedging activities Total

5 unchanged sentences

Net other comprehensive income (loss) ( 120 ) 41 17 ( 62 )

Balance as of March 31, 2021 $ ( 2,795 ) $ ( 544 ) $ ( 141 ) $ ( 3,480 )

Balance as of June 30, 2021 $ ( 2,707 ) $ ( 533 ) $ ( 136 ) $ ( 3,376 )

(in millions) CTA Pension and OPEB plans Hedging activities Total

5 unchanged sentences

Net other comprehensive income (loss) ( 170 ) 26 ( 134 ) ( 278 )

Balance as of March 31, 2020 $ ( 3,313 ) $ ( 693 ) $ ( 171 ) $ ( 4,177 )

Balance as of June 30, 2020 $ ( 3,124 ) $ ( 689 ) $ ( 175 ) $ ( 3,988 )

(a) See table below for details about these reclassifications.

The following is a summary of the amounts reclassified from AOCI to net income during the three months ended March 31, 2021 and 2020.

The following is a summary of the amounts reclassified from AOCI to net income during the three and six months ended June 30, 2021 and 2020.

Amounts reclassified from AOCI (a)

(in millions) Three months ended March 31, 2021 Three Months Ended March 31, 2020 Location of impact in income statement

(in millions) Three months ended June 30, 2021 Six months ended

June 30, 2021 Location of impact in income statement

Amortization of pension and OPEB items

Amortization of net losses and prior service costs or credits $ ( 21 ) $ ( 15 ) Other expense, net

Amortization of net losses and prior service costs or credits $ ( 20 ) $ ( 41 ) Other (income) expense, net

Tax effect 4 8 Income tax expense

8 unchanged sentences

(a) Amounts in parentheses indicate reductions to net income

Amounts reclassified from AOCI (a)

(in millions) Three months ended June 30, 2020 Six months ended June 30, 2020 Location of impact in income statement

Amortization of pension and OPEB items

Amortization of net losses and prior service costs or credits $ ( 15 ) $ ( 30 ) Other (income) expense, net

Tax effect 3 6 Income tax expense

$ ( 12 ) $ ( 24 ) Net of tax

Gains on hedging activities

Foreign exchange contracts $ 5 $ 4 Cost of sales

Tax effect ( 1 ) ( 1 ) Income tax expense

$ 4 $ 3 Net of tax

Total reclassifications for the period $ ( 8 ) $ ( 21 ) Total net of tax

Refer to Note 11 for additional information regarding the amortization of pension and OPEB items and Note 14 for additional information regarding hedging activity.

18 unchanged sentences

Revenue is recognized over time when we are creating or enhancing an asset that the customer controls as the asset is created or enhanced or our performance does not create an asset with an alternative use and we have an enforceable right to payment for performance completed.

As of March 31, 2021, we had $ 7.9 billion of transaction price allocated to remaining performance obligations related to executed contracts with an original duration of one year or more, which are primarily included in the Americas segment.

As of June 30, 2021, we had $ 8.7 billion of transaction price allocated to remaining performance obligations related to executed contracts with an original duration of one year or more, which are primarily included in the Americas segment.

Some contracts in the United States included in this amount contain index-dependent price increases, which are not known at this time.

We expect to recognize approximately 25 % of this amount as revenue over the remainder of 2021, 30 % in 2022, 25 % in 2023, and 10 % in each of 2024 and 2025.

We expect to recognize approximately 20 % of this amount as revenue over the remainder of 2021, 30 % in 2022, 25 % in 2023, 15 % in 2024 and 10 % in 2025.

Significant Judgments

Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration primarily related to rebates and wholesaler chargebacks.

These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are included in accounts receivable, net and accrued expenses and other current liabilities on the condensed consolidated balance sheets.

These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are included in accrued expenses and other current liabilities and accounts receivable, net on the condensed consolidated balance sheets.

Management's estimates take into consideration historical experience, current contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns.

1 unchanged sentence

The amount of variable consideration included in the net sales price is limited to the amount for which it is probable that a significant reversal in revenue will not occur when the related uncertainty is resolved.

Revenue recognized during the three months ended March 31, 2021 and 2020 related to performance obligations satisfied in prior periods was not material.

Revenue recognized during the three and six months ended June 30, 2021 and 2020 related to performance obligations satisfied in prior periods was not material.

Additionally, our contracts with customers often include promises to transfer multiple products and services to a customer.

2 unchanged sentences

The timing of revenue recognition, billings and cash collections results in the recognition of trade accounts receivable, unbilled receivables, contract assets and customer advances and deposits (contract liabilities) on our condensed consolidated balance sheets.

Net trade accounts receivable was $ 1.6 billion and $ 1.7 billion as of March 31, 2021 and December 31, 2020, respectively.

Net trade accounts receivable was $ 1.8 billion and $ 1.7 billion as of June 30, 2021 and December 31, 2020, respectively.

For contract manufacturing arrangements, revenue is primarily recognized throughout the production cycle, which typically lasts up to 90 days, resulting in the recognition of contract assets until the related services are completed and the customers are billed.

4 unchanged sentences

The following table summarizes our contract assets:

(in millions) March 31,

(in millions) June 30,

2021 December 31,

4 unchanged sentences

The following table summarizes the classification of contract assets and contract liabilities as reported in the condensed consolidated balance sheets:

(in millions) March 31,

(in millions) June 30,

2021 December 31,

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Contract liabilities are recognized when a customer pays consideration before we transfer goods or provide services.

During the three months ended March 31, 2021 and 2020, the amount of revenue recognized that was included in contract liabilities as of December 31, 2020 and 2019 was not significant.

During the six months ended June 30, 2021 and 2020, the amount of revenue recognized that was included in contract liabilities as of December 31, 2020 and 2019 was not significant.

Disaggregation of Net Sales

1 unchanged sentence

Concurrent with that disaggregation of net sales from our BioPharma Solutions business, we have also allocated certain previously unallocated sales deductions from Other to various categories, primarily based on their respective net sales.

Net sales for the first quarter of 2020 have been recast to conform to the current period presentation.

Net sales for the three and six months ended June 30, 2020 have been recast to conform to the current period presentation.

The following tables disaggregate our net sales from contracts with customers by product category between the U.S.

and international:

Three Months Ended March 31,

Three Months Ended June 30,

(in millions) U.S.

16 unchanged sentences

Total Baxter $ 1,198 $ 1,900 $ 3,098 $ 1,127 $ 1,591 $ 2,718

Six Months Ended June 30,

(in millions) U.S.

International Total U.S.

International Total

$ 433 $ 1,453 $ 1,886 $ 413 $ 1,376 $ 1,789

Medication Delivery 2

855 494 1,349 843 440 1,283

Pharmaceuticals 3

362 736 1,098 428 569 997

Clinical Nutrition 4

167 304 471 154 279 433

Advanced Surgery 5

270 203 473 231 161 392

Acute Therapies 6

142 253 395 132 210 342

BioPharma Solutions 7

109 209 318 102 128 230

40 14 54 41 13 54

Total Baxter $ 2,378 $ 3,666 $ 6,044 $ 2,344 $ 3,176 $ 5,520

1 Renal Care includes sales of our peritoneal dialysis (PD), hemodialysis (HD) and additional dialysis therapies and services.

11 unchanged sentences

We allocate revenue between equipment leases and medical products based on their standalone selling prices.

The components of lease revenue for the three months ended March 31, 2021 and 2020 were:

Three Months Ended March 31,

(in millions) 2021 2020

The components of lease revenue for the three and six months ended June 30, 2021 were:

(in millions) Three months ended June 30, 2021 Six months ended June 30, 2021

Sales-type lease revenue $ 10 $ 16

2 unchanged sentences

Total lease revenue $ 60 $ 117

Our net investment in sales-type leases was $ 131 million as of March 31, 2021, of which $ 19 million originated in 2017 and prior, $ 32 million in 2018, $ 36 million in 2019, $ 38 million in 2020 and $ 6 million in 2021.

The components of lease revenue for the three and six months ended June 30, 2020 were:

(in millions) Three months ended June 30, 2020 Six months ended June 30, 2020

Sales-type lease revenue $ 10 $ 16

Operating lease revenue 14 28

Variable lease revenue 20 38

Total lease revenue $ 44 $ 82

Our net investment in sales-type leases was $ 125 million as of June 30, 2021, of which $ 17 million originated in 2017 and prior, $ 33 million in 2018, $ 27 million in 2019, $ 35 million in 2020 and $ 13 million in 2021.

BUSINESS OPTIMIZATION CHARGES

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These efforts include restructuring the organization, optimizing the manufacturing footprint, R&D operations and supply chain network, employing disciplined cost management, and centralizing and streamlining certain support functions.

From the commencement of our business optimization activities through March 31, 2021, we have incurred cumulative pre-tax costs of $ 1.1 billion related to these actions.

From the commencement of our business optimization activities in the second half of 2015 through June 30, 2021, we have incurred cumulative pre-tax costs of $ 1.2 billion related to these actions.

The costs consisted primarily of employee termination costs, implementation costs, contract termination costs, asset impairments and accelerated depreciation.

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We continue to pursue cost savings initiatives and, to the extent further cost savings opportunities are identified, we may incur additional restructuring charges and costs to implement business optimization programs in future periods.

During the three months ended March 31, 2021 and 2020, we recorded the following charges related to business optimization programs.

Three Months Ended March 31,

During the three and six months ended June 30, 2021 and 2020, we recorded the following charges related to business optimization programs.

Three Months Ended June 30, Six Months Ended June 30,

(in millions) 2021 2020 2021 2020

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For segment reporting purposes, business optimization charges are unallocated expenses.

Costs to implement business optimization programs for the three months ended March 31, 2021 and 2020, respectively, consisted primarily of external consulting and transition costs, including employee compensation and related costs.

Costs to implement business optimization programs for the three and six months ended June 30, 2021 and 2020, respectively, consisted primarily of external consulting and transition costs, including employee compensation and related costs.

These costs were primarily included within cost of sales and SG&A expense.

During the three months ended March 31, 2021 and 2020, we recorded the following restructuring charges.

Three months ended March 31, 2021

During the three and six months ended June 30, 2021 and 2020, we recorded the following restructuring charges.

Three months ended June 30, 2021

(in millions) COGS SG&A R&D Total

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Total restructuring charges $ 9 $ 1 $ — $ 10

Three months ended March 31, 2020

Three months ended June 30, 2020

(in millions) COGS SG&A R&D Total

Employee termination costs $ 3 $ 3 $ ( 3 ) $ 3

Contract termination and other costs 2 — — 2

Asset impairments 2 — — 2

Total restructuring charges $ 7 $ 3 $ ( 3 ) $ 7

In conjunction with our business optimization initiatives in 2020, we sold property that resulted in a gain of $ 17 million.

This gain is reflected within other operating income, net in our condensed consolidated statement of income for the three months ended March 31, 2020.

Six months ended June 30, 2021

(in millions) COGS SG&A R&D Total

Employee termination costs $ 24 $ 6 $ — $ 30

Asset impairments 5 — — 5

Total restructuring charges $ 29 $ 6 $ — $ 35

Six months ended June 30, 2020

(in millions) COGS SG&A R&D Total

Employee termination costs $ 5 $ 19 $ ( 2 ) $ 22

Contract termination and other costs 2 — — 2

Asset impairments 8 — — 8

Total restructuring charges $ 15 $ 19 $ ( 2 ) $ 32

In conjunction with our business optimization initiatives in the first quarter of 2020, we sold property that resulted in a gain of $ 17 million.

This gain is reflected within other operating income, net in our condensed consolidated statement of income for the six months ended June 30, 2020.

The following table summarizes activity in the liability related to our restructuring initiatives.

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Payments ( 46 )

Reserve adjustments ( 3 )

Currency translation ( 3 )

Liability balance as of March 31, 2021 $ 107

Substantially all of our restructuring liabilities as of March 31, 2021 relate to employee termination costs, with the remaining liabilities attributable to contract termination costs.

Liability balance as of June 30, 2021 $ 94

Substantially all of our restructuring liabilities as of June 30, 2021 relate to employee termination costs, with the remaining liabilities attributable to contract termination costs.

Substantially all of the cash payments for those liabilities are expected to be disbursed by the end of 2022.

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Three months ended

June 30, Six months ended

(in millions) 2021 2020 2021 2020

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Net periodic OPEB cost (income) $ ( 2 ) $ ( 3 ) $ ( 3 ) $ ( 6 )

Our effective income tax rate was 14.5 % and 11.9 % for the three months ended March 31, 2021 and 2020, respectively.

Our effective income tax rate was 23.2 % and 14.5 % for the three months ended June 30, 2021 and 2020, respectively, and 19.1 % and 13.0 % for the six months ended June 30, 2021 and 2020, respectively.

Our effective income tax rate can differ from the 21 % U.S.

federal statutory rate due to a number of factors, including foreign rate differences, tax incentives, increases or decreases in valuation allowances and liabilities for uncertain tax positions and excess tax benefits on stock compensation awards.

For the three months ended March 31, 2021, the difference between our effective income tax rate and the U.S.

federal statutory rate was primarily attributable to decreases in accrued withholding taxes in several foreign jurisdictions and a favorable geographic earnings mix.

As of March 31, 2021, we had an uncertain tax position under appeal in a foreign jurisdiction for which we did not record income tax expense because we believed that the position had a more-likely-than-not chance of being sustained based on its technical merits under the applicable tax laws.

On April 23, 2021, we received an unfavorable court decision related to this matter.

As a result of that decision, we will record a discrete income tax expense of $ 22 million to reflect the resolution of this tax matter in the second quarter of 2021.

For the three months ended March 31, 2020, the difference between our effective income tax rate and the U.S.

For the three months ended June 30, 2021, the difference between our effective income tax rate and the U.S.

federal statutory rate was primarily attributable to an unfavorable court decision in a foreign jurisdiction related to an uncertain tax position.

For the six months ended June 30, 2021, the difference between our effective income tax rate and the U.S.

federal statutory rate was primarily attributable to a favorable geographic earnings mix and decreases in accrued withholding taxes in several foreign jurisdictions, partially offset by an unfavorable court decision in a foreign jurisdiction related to an uncertain tax position.

For the three and six months ended June 30, 2020, the difference between our effective income tax rate and the U.S.

federal statutory rate was primarily attributable to a favorable geographic earnings mix and excess tax benefits on stock compensation awards.

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Three months ended

June 30, Six months ended

(in millions) 2021 2020 2021 2020

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The effect of dilutive securities includes unexercised stock options, unvested RSUs and contingently issuable shares related to granted PSUs.

The computation of diluted EPS excludes 7 million and 1 million equity awards for the three months ended March 31, 2021, and 2020, respectively, because their inclusion would have had an anti-dilutive effect on diluted EPS.

The computation of diluted EPS excludes 7 million equity awards for the three and six months ended June 30, 2021, respectively, and 4 million and 3 million equity awards for the three and six months

ended June 30, 2020, respectively, because their inclusion would have had an anti-dilutive effect on diluted EPS.

Refer to Note 7 for additional information regarding items impacting basic and diluted shares.

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Cash flow hedges are classified in cost of sales and interest expense, net, and are primarily related to forecasted third-party sales denominated in foreign currencies, forecasted intra-company sales denominated in foreign currencies, and forecasted interest payments on anticipated issuances of debt, respectively.

The notional amounts of foreign exchange contracts designated as cash flow hedges were $ 355 million and $ 345 million as of March 31, 2021 and December 31, 2020, respectively.

The maximum term over which we have cash flow hedge contracts in place related to forecasted transactions at March 31, 2021 is 12 months for foreign exchange contracts.

There were no outstanding interest rate contracts designated as cash flow hedges as of March 31, 2021 and December 31, 2020.

The notional amounts of foreign exchange contracts designated as cash flow hedges were $ 357 million and $ 345 million as of June 30, 2021 and December 31, 2020, respectively.

The maximum term over which we have cash flow hedge contracts in place related to forecasted transactions at June 30, 2021 is 12 months for foreign exchange contracts.

There were no outstanding interest rate contracts designated as cash flow hedges as of June 30, 2021 and December 31, 2020.

Fair Value Hed g es

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For each derivative instrument that is designated and effective as a fair value hedge, the gain or loss on the derivative is recognized immediately to earnings, and offsets changes in fair value attributable to a particular risk, such as changes in interest rates, of the hedged item, which are also recognized in earnings.

Changes in the fair value of hedge instruments designated as fair value hedges are classified in interest expense, net, as they hedge the interest rate risk associated with certain of our fixed-rate debt.

There were no outstanding interest rate contracts designated as fair value hedges as of March 31, 2021 and December 31, 2020.

in the fair value of hedge instruments designated as fair value hedges are classified in interest expense, net, as they hedge the interest rate risk associated with certain of our fixed-rate debt.

There were no outstanding interest rate contracts designated as fair value hedges as of June 30, 2021 and December 31, 2020.

Net Investment Hed g es

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We have designated these debt obligations as hedges of our net investment in our European operations and, as a result, mark to spot rate adjustments on the outstanding debt balances are recorded as a component of AOCI.

As of March 31, 2021, we had an accumulated pre-tax unrealized translation loss in AOCI of $ 131 million related to the Euro-denominated senior notes.

As of June 30, 2021, we had an accumulated pre-tax unrealized translation loss in AOCI of $ 162 million related to the Euro-denominated senior notes.

Dedesignations

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However, if it is probable that the hedged forecasted transactions will not occur, any gains or losses would be immediately reclassified from AOCI to earnings.

There were no hedge dedesignations in the first three months of 2021 or 2020 resulting from changes in our assessment of the probability that the hedged forecasted transactions would occur.

There were no hedge dedesignations in the first six months of 2021 or 2020 resulting from changes in our assessment of the probability that the hedged forecasted transactions would occur.

If we terminate a fair value hedge, an amount equal to the cumulative fair value adjustment to the hedged item at the date of termination is amortized to earnings over the remaining term of the hedged item.

There were no fair value hedges terminated during the first three months of 2021 or 2020.

There were no fair value hedges terminated during the first six months of 2021 or 2020.

If we remove a net investment hedge designation, any gain or loss recognized in AOCI is not reclassified to earnings until we sell, liquidate, or deconsolidate the foreign investments that were being hedged.

There were no net investment hedges terminated during the first three months of 2021 or 2020.

There were no net investment hedges terminated during the first six months of 2021 or 2020.

Undesignated Derivative Instruments

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These derivative instruments are generally not formally designated as hedges and the terms of these instruments generally do not exceed one month.

The total notional amount of undesignated derivative instruments was $ 780 million as of March 31, 2021 and $ 1.0 billion as of December 31, 2020.

The total notional amount of undesignated derivative instruments was $ 904 million as of June 30, 2021 and $ 1.0 billion as of December 31, 2020.

Gains and Losses on Hedging Instruments and Undesignated Derivative Instruments

The following tables summarize the gains and losses on our hedging instruments and the classification of those gains and losses within our condensed consolidated financial statements for the three months ended March 31, 2021 and 2020.

Gain (loss) recognized in OCI Location of gain (loss)

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Foreign exchange contracts ( 3 ) ( 7 ) Cost of sales ( 8 ) 5

Net investment hedges 114 49 Other expense, net — —

Net investment hedges ( 31 ) ( 50 ) Other (income) expense, net — —

Total $ ( 34 ) $ ( 48 ) $ ( 10 ) $ 5

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Undesignated derivative instruments

Foreign exchange contracts Other expense, net $ ( 22 ) $ 2

As of March 31, 2021, $ 12 million of deferred, net after-tax losses on derivative instruments included in AOCI are expected to be recognized in earnings during the next 12 months, coinciding with when the hedged items are expected to impact earnings.

Foreign exchange contracts Other (income) expense, net $ 3 $ 13

Gain (loss) recognized in OCI Location of gain (loss)

in income statement Gain (loss) reclassified from AOCI

(in millions) 2021 2020 2021 2020

Cash flow hedges

Interest rate contracts $ — $ ( 175 ) Interest expense, net $ ( 3 ) $ —

Foreign exchange contracts 1 7 Cost of sales ( 18 ) 4

Net investment hedges 83 ( 1 ) Other (income) expense, net — —

Total $ 84 $ ( 169 ) $ ( 21 ) $ 4

Location of gain (loss)

in income statement Gain (loss) recognized in income

(in millions) 2021 2020

Undesignated derivative instruments

Foreign exchange contracts Other (income) expense, net $ ( 19 ) $ 15

As of June 30, 2021, $ 9 million of deferred, net after-tax losses on derivative instruments included in AOCI are expected to be recognized in earnings during the next 12 months, coinciding with when the hedged items are expected to impact earnings.

Derivative Assets and Liabilities

The following table summarizes the classification and fair values of derivative instruments reported in the condensed consolidated balance sheet as of March 31, 2021.

The following table summarizes the classification and fair values of derivative instruments reported in the condensed consolidated balance sheet as of June 30, 2021.

Derivatives in asset positions Derivatives in liability positions

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The following table provides information on our derivative positions as if they were presented on a net basis, allowing for the right of offset by counterparty.

March 31, 2021 December 31, 2020

June 30, 2021 December 31, 2020

(in millions) Asset Liability Asset Liability

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in the carrying amount of the hedged item (a)

(in millions) Balance as of March 31, 2021 Balance as of December 31, 2020 Balance as of March 31, 2021 Balance as of December 31, 2020

(in millions) Balance as of June 30, 2021 Balance as of December 31, 2020 Balance as of June 30, 2021 Balance as of December 31, 2020

Long-term debt $ 102 $ 102 $ 5 $ 5

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Basis of fair value measurement

(in millions) Balance as of March 31, 2021 Quoted prices in active markets for identical assets

(in millions) Balance as of June 30, 2021 Quoted prices in active markets for identical assets

(Level 1) Significant other

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Total $ 49 $ — $ 19 $ 30

As of March 31, 2021 and December 31, 2020, cash and cash equivalents of $ 3.2 billion and $ 3.7 billion, respectively, included money market and other short-term funds of approximately $ 1.7 billion and $ 1.8 billion, respectively, which are considered Level 2 in the fair value hierarchy.

As of June 30, 2021 and December 31, 2020, cash and cash equivalents of $ 3.1 billion and $ 3.7 billion, respectively, included money market and other short-term funds of approximately $ 1.4 billion and $ 1.8 billion, respectively, which are considered Level 2 in the fair value hierarchy.

For assets that are measured using quoted prices in active markets, the fair value is the published market price per unit multiplied by the number of units held, without consideration of transaction costs.

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The fair value of sales-based payments is based upon probability-weighted future revenue estimates, and increases as revenue estimates increase, probability weighting of higher revenue scenarios increases or the expected timing of payment is accelerated.

The following table is a reconciliation of recurring fair

value measurements that use significant unobservable inputs (Level 3), which consist of contingent payments related to acquisitions.

The following table is a reconciliation of recurring fair value measurements that use significant unobservable inputs (Level 3), which consist of contingent payments related

to acquisitions.

Three months ended

June 30, Six months ended

(in millions) 2021 2020 2021 2020

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Payments — — ( 16 ) ( 1 )

Currency translation 1 — 1 —

Fair value at end of period $ 34 $ 39 $ 34 $ 39

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In addition to the financial instruments that we are required to recognize at fair value in the condensed consolidated balance sheets, we have certain financial instruments that are recognized at amortized cost or some basis other than fair value.

For these financial instruments, the following table provides the values recognized in the condensed consolidated balance sheets and the estimated fair values as of March 31, 2021 and December 31, 2020.

For these financial instruments, the following table provides the values recognized in the condensed consolidated balance sheets and the estimated fair values as of June 30, 2021 and December 31, 2020.

Book values Fair values(a)

(in millions) 2021 2020 2021 2020

Short-term debt $ 51 $ — $ 51 $ —

Current maturities of long-term debt and finance lease obligations 406 406 406 409

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(a) These fair value amounts are classified as Level 2 within the fair value hierarchy as they are estimated based on observable inputs.

The estimated fair values of current and long-term debt were computed by multiplying price by the notional amount of the respective debt instruments.

The carrying value of short-term debt approximates its fair value due to the short-term maturities of the obligations.

The estimated fair values of long-term debt were computed by multiplying price by the notional amount of the respective debt instruments.

Price is calculated using the stated terms of the respective debt instrument and yield curves commensurate with our credit risk.

The carrying values of other financial instruments, such as accounts receivable and accounts payable, approximate their fair values due to the short-term maturities of most of those assets and liabilities.

Equity investments not measured at fair value are comprised of other equity investments without readily determinable fair values and were $ 98 million at March 31, 2021 and $ 105 million at December 31, 2020.

Equity investments not measured at fair value are comprised of other equity investments without readily determinable fair values and were $ 108 million at June 30, 2021 and $ 105 million at December 31, 2020.

Those investments are included in Other non-current assets on our condensed consolidated balance sheets.

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Accordingly, the reported financial results of the Americas segment now include the contracted services activities performed at that facility.

Segment results for the first quarter of 2020 have been recast to conform to the current period presentation.

Segment results for the three and six months ended June 30, 2020 have been recast to conform to the current period presentation.

We use operating income on a segment basis to make resource allocation decisions and assess the ongoing performance of our business segments.

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Certain items are maintained at Corporate and are not allocated to a segment.

They primarily include corporate headquarters costs, certain R&D costs, certain product category support costs, stock compensation expense, certain employee benefit plan costs, certain foreign currency hedging activities, and certain gains, losses, and other charges (such as business optimization, acquisition and integration costs, intangible asset amortization and asset

impairments).

(such as business optimization, acquisition and integration costs, intangible asset amortization and asset impairments).

Our chief operating decision maker does not receive any asset information by operating segment and, accordingly, we do not report asset information by operating segment.

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Three months ended

June 30, Six months ended

(in millions) 2021 2020 2021 2020

Americas $ 1,624 $ 1,469 $ 3,184 $ 3,034

EMEA 783 669 1,521 1,357

APAC 691 580 1,339 1,129

Total net sales $ 3,098 $ 2,718 $ 6,044 $ 5,520

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Americas $ 632 $ 527 $ 1,231 $ 1,115

EMEA 159 121 294 238

APAC 152 143 290 271

Total segment operating income $ 943 $ 791 $ 1,815 $ 1,624

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Three months ended

June 30, Six months ended

(in millions) 2021 2020 2021 2020

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Net interest expense 34 36 68 57

Other expense, net 5 10

Other (income) expense, net ( 2 ) 6 3 16

Income before income taxes $ 392 $ 289 $ 743 $ 667

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements