What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-10-28 compared with 2021-07-29 · 241 added, 164 removed, 725 unchanged (36% of the section changed)

3 unchanged sentences

(in millions, except share information)

September 30,

2021 December 31,

37 unchanged sentences

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2021 2020 2021 2020

4 unchanged sentences

Research and development expenses 129 123 396 386

Other operating income, net ( 5 ) — ( 5 ) ( 20 )

Other operating expense (income), net ( 1 ) 1 ( 6 ) ( 19 )

Operating income 513 470 1,327 1,210

Interest expense, net 50 39 118 96

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

Other expense, net 12 16 15 32

Income before income taxes 451 415 1,194 1,082

Income tax expense 91 42 142 87

Income tax (benefit) expense ( 1 ) 56 141 143

Net income 452 359 1,053 939

12 unchanged sentences

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2021 2020 2021 2020

1 unchanged sentence

Other comprehensive income (loss), net of tax:

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

Currency translation adjustments, net of tax expense (benefit) of $ 3 and $ 18 for the three months ended September 30, 2021 and 2020, respectively, and $ 16 and $ 12 for the nine months ended September 30, 2021 and 2020, respectively

( 137 ) 127 ( 257 ) ( 43 )

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

Pension and other postretirement benefits, net of tax expense of $ 8 and $ 0 for the three months ended September 30, 2021 and 2020, respectively, and $ 19 and $ 7 for the nine months ended September 30, 2021 and 2020, respectively

Hedging activities, net of tax expense (benefit) of $ 3 and $ 5 for the three months ended September 30, 2021 and 2020, respectively, and $ 8 and ($ 33 ) for the nine months ended September 30, 2021 and 2020, respectively

9 22 26 ( 112 )

7 unchanged sentences

(in millions)

For the three months ended June 30, 2021

For the three months ended September 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

Balance as of July 1, 2021 683 $ 683 184 $ ( 11,561 ) $ 6,090 $ 16,658 $ ( 3,376 ) $ 8,494 $ 41 $ 8,535

Net income — — — — — 450 — 450 2 452

Other comprehensive income (loss) — — — — — — ( 106 ) ( 106 ) — ( 106 )

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

Stock issued under employee benefit plans and other — — ( 1 ) 32 41 — — 73 — 73

Dividends declared on common stock — — — — — ( 141 ) — ( 141 ) — ( 141 )

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

Change in noncontrolling interests — — — — — — — — 2 2

Balance as of September 30, 2021

683 $ 683 183 $ ( 11,529 ) $ 6,131 $ 16,967 $ ( 3,482 ) $ 8,770 $ 45 $ 8,815

For the nine months ended September 30, 2021

Baxter International Inc.

8 unchanged sentences

Change in noncontrolling interests — — — — — — — — 1 1

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

Balance as of September 30, 2021

683 $ 683 183 $ ( 11,529 ) $ 6,131 $ 16,967 $ ( 3,482 ) $ 8,770 $ 45 $ 8,815

For the three months ended September 30, 2020

Baxter International Inc.

1 unchanged sentence

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 April 1, 2020 683 $ 683 175 $ ( 10,677 ) $ 5,935 $ 15,935 $ ( 4,177 ) $ 7,699 $ 31 $ 7,730

Balance as of July 1, 2020 683 $ 683 173 $ ( 10,597 ) $ 5,975 $ 16,055 $ ( 3,988 ) $ 8,128 $ 32 $ 8,160

Net income — — — — — 356 — 356 3 359

2 unchanged sentences

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

Balance as of September 30, 2020 683 $ 683 173 $ ( 10,571 ) $ 6,009 $ 16,285 $ ( 3,839 ) $ 8,567 $ 35 $ 8,602

For the nine months ended September 30, 2020

Baxter International Inc.

7 unchanged sentences

Dividends declared on common stock — — — — — ( 363 ) — ( 363 ) — ( 363 )

Balance as of June 30, 2020 683 $ 683 173 $ ( 10,597 ) $ 5,975 $ 16,055 $ ( 3,988 ) $ 8,128 $ 32 $ 8,160

Balance as of September 30, 2020

683 $ 683 173 $ ( 10,571 ) $ 6,009 $ 16,285 $ ( 3,839 ) $ 8,567 $ 35 $ 8,602

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

2 unchanged sentences

(in millions)

Six months ended

Nine months ended

September 30,

Cash flows from operations

5 unchanged sentences

Net periodic pension and other postretirement costs 77 59

Intangible asset impairments — 17

Intangible asset impairment — 17

Changes in balance sheet items:

14 unchanged sentences

Cash flows from financing activities

Repayments of debt ( 407 ) —

Issuances of debt 50 1,240

3 unchanged sentences

Purchases of treasury stock ( 600 ) —

Debt issuance costs ( 37 ) ( 3 )

Other financing activities, net ( 33 ) ( 45 )

6 unchanged sentences

(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

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 September 30, 2021,

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

September 30, 2021 December 31, 2020 September 30, 2020

Cash and cash equivalents $ 3,258 $ 3,730 $ 4,359

16 unchanged sentences

Risks and Uncertainties Related to COVID-19

Our global operations expose us to risks associated with public health crises and epidemics/pandemics, such as the novel strain of coronavirus (COVID-19).

COVID-19 has had, and we expect will continue to have, an adverse impact on our operations, supply chains and distribution systems and has increased and will continue to increase our expenses, including as a result of impacts associated with preventive and precautionary measures that we, other businesses and governments are taking.

These measures have led to unprecedented restrictions on, disruptions in, and other related impacts on businesses and personal activities.

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 will continue to have an adverse effect on our business.

Our global operations expose us to risks associated with public health crises and epidemics/pandemics, such as the COVID-19 pandemic.

COVID-19 has had, and we expect will continue to have, an adverse impact on our operations, supply chains and distribution systems and has increased and we expect will continue to increase our expenses, including as a result of impacts associated with preventive and precautionary measures that we, other businesses and governments have taken and continue to take.

Initial measures taken in 2020 led to unprecedented restrictions on, disruptions in, and other related impacts on business and personal activities, including a shift in healthcare priorities, which resulted in a significant decline in medical procedures in 2020.

The pandemic has created significant volatility in the demand for our products.

For further information about our revenues by product category, refer to Note 9 - Revenues.

Significant uncertainty remains regarding the duration and overall impact of the COVID-19 pandemic.

For example, concerns remain regarding the pace of economic recovery due to virus resurgence across the globe from the Delta variant and other virus mutations as well as vaccine distribution and hesitancy.

and other governments may continue existing measures or implement new restrictions and other requirements in light of the continuing spread of the pandemic (including with respect to mandatory vaccinations for certain of our employees).

Due to the uncertainty caused by the pandemic, our operating performance and financial results, particularly in the short term, may be subject to volatility.

We have experienced significant challenges, including lengthy delays, shortages and interruptions, posed by the pandemic and other exogenous factors (including significant weather events and disruptions to certain ports of call around the world) to our global supply chain, including the cost and availability of raw materials and component parts (including resins and electromechanical devices) and higher transportation costs, and may experience these and other challenges in future periods.

Many of our manufacturing plant and distribution center personnel are currently unvaccinated, and we may also experience employee resistance in complying with current and future government vaccine and testing mandates, which may cause labor shortages significantly impacting manufacturing production and distribution center productivity.

We expect that these challenges as well as evolving governmental restrictions and requirements, among other factors, may continue to have an adverse effect on our business.

ACQUISITIONS AND OTHER ARRANGEMENTS

Proposed Acquisition of Hillrom

On September 2, 2021, we announced that we have entered into a definitive agreement to acquire all of the outstanding equity interests of Hill-Rom Holdings, Inc.

(Hillrom) for total cash consideration of approximately $ 10.5 billion.

Including the assumption of Hillrom's outstanding debt obligations, the enterprise value of the transaction will be approximately $ 12.4 billion.

Under the terms of the transaction agreement, Hillrom shareholders will receive

$ 156.00 in cash for each Hillrom share.

The transaction is expected to close in early 2022, subject to the approval of Hillrom shareholders a nd the satisfaction of customary closing conditions, including regulatory approvals.

Hillrom is a global medical technology leader whose products and services help enable earlier diagnosis and treatment, optimize surgical efficiency, and accelerate patient recovery while simplifying clinical communication and shifting care closer to home.

Hillrom makes those outcomes possible through digital and connected care solutions and collaboration tools, including smart bed systems, patient monitoring and diagnostic technologies, respiratory health devices, advanced equipment for the surgical space and more, delivering actionable, real-time insights at the point of care.

In connection with the proposed acquisition of Hillrom, on September 1, 2021, we entered into a bridge facility commitment letter with JPMorgan Chase Bank, N.A.

(JP Morgan) and Citigroup Global Markets Inc.

(Citi) pursuant to which JP Morgan and Citi have committed to provide a 364 -day senior unsecured bridge term loan facility in an aggregate principal amount of $ 11.4 billion (the Bridge Facility) for the purpose of funding the consideration for the Hillrom acquisition, refinancing certain indebtedness of Hillrom, and paying fees and expenses related to the foregoing.

Loans under the Bridge Facility will bear interest at variable rates, will be due 364 days after the loan is issued and contain various covenants, including a maximum net leverage ratio.

The Bridge Facility included upfront fees of $ 40 million that will increase to $ 53 million if the Bridge Facility is not terminated within 120 days of the date the Bridge Facility was executed.

The commitments in respect of the Bridge Facility were syndicated to additional financial institutions on September 30, 2021.

Undrawn commitments in respect of the Bridge Facility will be subject to a ticking fee commencing on the later of (x) the date that definitive documentation with respect to the Bridge Facility is executed and (y) November 30, 2021 at a rate per annum equal to 0.125 %.

Loans under the Bridge Facility, if funded, will bear interest at variable rates, will be due 364 days after the initial funding of such loans and contain various covenants, including a maximum net leverage ratio.

In addition, loans drawn under the Bridge Facility will be subject to a duration fee equal to (i) 0.5 % of the outstanding loans on the 90 th day after the initial funding of such loans, (ii) 0.75 % of the outstanding loans on the 180 th day after the initial funding of such loans and (iii) 1 % of the outstanding loans on the 270 th day after the initial funding of such loans.

On September 30, 2021, we entered into a term loan credit agreement (the Term Loan Credit Agreement), pursuant to which a syndicate of financial institutions has committed to provide us with a senior unsecured term loan facility in an aggregate principal amount of $ 4.0 billion (the Term Loan Facility), consisting of a $ 2.0 billion three-year term loan and a $ 2.0 billion five-year term loan.

Loans under the Term Loan Facility will be available on the closing date of the Hillrom acquisition to fund the consideration for the Hillrom acquisition, refinance certain indebtedness of Hillrom, and pay fees and expenses related to the foregoing.

Loans under the Term Loan Facility will bear interest at variable rates, will be subject to amortization at an annual rate of 0.625 % for the first year and 1.25 % thereafter (with loans outstanding under the five -year tranche subject to amortization at an annual rate of 1.875 % after the second anniversary of the commencement of amortization and 2.500 % after the third anniversary of the commencement of amortization).

The Term Loan Credit Agreement contains various covenants, including a maximum net leverage ratio.

Undrawn commitments under the Term Loan Facility are subject to a ticking fee commencing on November 30, 2021 at a rate per annum equal to 0.125 %.

The aggregate principal amount of the commitments under the Term Loan Facility have replaced a corresponding amount under the commitment letter in respect of the Bridge Facility, in accordance with the terms of the commitment letter.

As a result, there are now $ 7.4 billion in bridge facility commitments remaining.

We expect to replace these remaining commitments with cash on the balance sheet and/or permanent financing in the form of the issuance of debt securities prior to the closing of the proposed acquisition of Hillrom.

Transderm Scop

7 unchanged sentences

W e concluded that the acquired assets met the definition of a business and accounted for the transaction as a business combination using the acquisition method of accounting.

The fair value of the potential contingent consideration payment was estimated by applying a probability-weighted expected payment model and is a Level 3 fair value measurement due to the significant estimates and assumptions used by management in establishing the estimated fair value.

The fair value of the potential contingent consideration payment was estimated by applying a probability-

weighted expected payment model and is a Level 3 fair value measurement due to the significant estimates and assumptions used by management in establishing the estimated fair value.

The following table summarizes the fair value of the consideration transferred:

7 unchanged sentences

Other intangible assets 67

Total assets required $ 84

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 not material for the three and six months ended June 30, 2021.

Total assets acquired $ 84

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.

1 unchanged sentence

The discount rates used to measure the intangible assets were 22.5 % for developed product rights and 15.5 % for customer relationships.

We consider the fair value of the intangible assets to be Level 3 measurements due to the significant estimates and assumptions used by management in establishing the estimated fair values.

The goodwill, which is deductible for tax purposes, includes the value of overall strategic benefits provided to our pharmaceutical portfolio and is included in the Americas and EMEA segments.

We have not presented pro forma financial information for the acquisition because its results are not material to our consolidated financial statements.

We consider the fair values of the intangible assets to be Level 3 measurements due to the significant estimates and assumptions used by management in establishing the estimated fair values.

The goodwill, which is deductible for tax purposes, includes the value of overall strategic benefits provided to our pharmaceutical portfolio and is included in the Americas segment.

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, which had an acquisition-date fair value of $ 28 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 fourth quarter of 2021.

We concluded that the acquired assets met the definition of a business and accounted for the transaction as a business combination using the acquisition method of accounting.

The fair values of the potential contingent consideration payments were estimated by applying probability-weighted expected payment models and are Level 3 fair value measurements due to the significant estimates and assumptions used by management in establishing the estimated fair values.

The following table summarizes the fair value of the consideration transferred:

(in millions)

Contingent Consideration 28

Total Consideration $ 53

The following table summarizes the fair value of the assets acquired as of the acquisition date:

(in millions)

Assets acquired

Other intangible assets $ 49

Total assets acquired $ 53

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.

We allocated $ 39 million of the total consideration to an in-process research and development (IPR&D) asset with an indefinite useful life, $ 9 million to the approved PerClot developed product rights with an estimated useful life of 10 years and $ 1 million to customer relationships with an estimated useful life of 10 years.

The fair values of the intangible assets were determined using the income approach.

The discount rates used to measure the intangible assets were 18.7 % for IPR&D, 16.0 % for developed product rights and 15.0 % for customer relationships.

We consider the fair values of the intangible assets to be Level 3 measurements due to the significant estimates and assumptions used by management in establishing the estimated fair values.

The goodwill, which is deductible for tax purposes, includes the value of overall strategic benefits provided to our surgical portfolio of hemostats and sealants and is included in the Americas and EMEA segments.

We have not presented pro forma financial information for either of the 2021 business combinations because their results are not material to our consolidated financial statements.

Caelyx and Doxil

5 unchanged sentences

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 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 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.

Net sales related to this acquisition were $ 32 million and $ 73 million, respectively, for the three and nine months ended September 30, 2021.

SUPPLEMENTAL FINANCIAL INFORMATION

1 unchanged sentence

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

(in millions) 2021 2020 2021 2020

2 unchanged sentences

Interest expense, net $ 50 $ 39 $ 118 $ 96

Oth er (Income) Expense, Net

Other Expense, Net

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

(in millions) 2021 2020 2021 2020

3 unchanged sentences

Other, net ( 1 ) 2 ( 3 ) ( 1 )

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

Other expense, net $ 12 $ 16 $ 15 $ 32

Allowance for Doubtful Accounts

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.

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

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

(in millions) 2021 2020 2021 2020

5 unchanged sentences

Balance at end of period $ 115 $ 122 $ 115 $ 122

(in millions) June 30,

(in millions) September 30,

2021 December 31,

4 unchanged sentences

Property, Plant and Equipment, Net

(in millions) June 30,

(in millions) September 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 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.

Right-of-use operating lease assets obtained in exchange for lease obligations for the nine months ended September 30, 2021 and 2020 were $ 69 million and $ 42 million, respectively.

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

Purchases of property, plant and equipment included in accounts payable as of September 30, 2021 and 2020 were $ 49 million and $ 48 million, respectively.

GOODWILL AND OTHER INTANGIBLE ASSETS, NET

5 unchanged sentences

Currency translation ( 103 ) ( 12 ) ( 9 ) ( 124 )

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.

Balance as of September 30, 2021 $ 2,556 $ 314 $ 228 $ 3,098

As of September 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

June 30, 2021

September 30, 2021

Gross other intangible assets $ 3,019 $ 498 $ 207 $ 3,724

5 unchanged sentences

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

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.

Intangible asset amortization expense was $ 68 million and $ 57 million for the three months ended September 30, 2021 and 2020, respectively, and $ 199 million and $ 165 million for the nine months ended September 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.

3 unchanged sentences

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.

In connection with the proposed acquisition of Hillrom, we entered into the Bridge Facility and the Term Loan Agreement that would provide for total debt commitments of $ 11.4 billion for the purpose of funding the consideration for the Hillrom acquisition, refinancing certain indebtedness of Hillrom, and paying fees and expenses related to the foregoing.

Refer to Note 2 for additional information.

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

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

1 unchanged sentence

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

dollar or Euro-denominated credit facilities.

On September 30, 2021, we entered into a new U.S.

dollar-denominated revolving credit facility (the USD Revolver), and on October 1, 2021, we amended our existing Euro-denominated revolving credit facility (as amended, the Euro Revolver).

Our USD Revolver has a capacity of $ 2.5 billion and our Euro Revolver has a capacity of € 200 million.

Each of the facilities matures in 2026.

The facilities enable us to borrow funds on an unsecured basis at variable interest rates, and contain various covenants, including a maximum net leverage ratio.

Fees under the credit facilities are 0.09 % annually as of September 30, 2021 and are based on our credit ratings and the total capacity of the facility.

Prior to entering into the USD Revolver and the Euro Revolver, our previous U.S.

dollar-denominated revolving credit facility and Euro-denominated revolving credit facility had a maximum capacity of $ 2.0 billion and € 200 million, respectively.

Fees under these credit facilities were 0.09 % annually as of December 31, 2020 and were based on our credit ratings and the total capacity of the facility.

There were no borrowings outstanding under these credit facilities as of September 30, 2021 or December 31, 2020.

Commercial Paper

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

As of September 30, 2021, we had $ 300 million of commercial paper outstanding with a weighted-average interest rate of 0.23 % and an original weighted-average term of 90 days.

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

4 unchanged sentences

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

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.

As of September 30, 2021 and December 31, 2020, our total recorded reserves with respect to legal and environmental matters were $ 73 million and $ 40 million, respectively, and we had a $ 7 million insurance receivable as of September 30, 2021.

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

5 unchanged sentences

With respect to intellectual property, we may be exposed to significant litigation concerning the scope of our and others’ rights.

Such litigation could result in a loss of patent protection or the ability to market products, which could lead to a significant loss of sales, or otherwise materially affect future results of operations.

litigation could result in a loss of patent protection or the ability to market products, which could lead to a significant loss of sales, or otherwise materially affect future results of operations.

Environmental

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

As of September 30, 2021 and December 31, 2020, our environmental reserves, which are measured on an undiscounted basis, were $ 18 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.

32 unchanged sentences

The parties reached an agreement to settle the case for $ 16 million, subject to the completion of confirmatory discovery and final approval by the Court.

The Court granted preliminary approval of the settlement on April 20, 2021.

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

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

The Court granted final approval of the settlement on August 11, 2021.

We were fully reserved for the settlement amount as of September 30, 2021.

certain intra-company transactions that impacted our previously reported non-operating foreign exchange gains and losses.

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.

In March 2020, two lawsuits were filed against us in the Northern District of Illinois by plaintiffs alleging injuries as a result of exposure to ethylene oxide used in our manufacturing facility in Mountain Home, Arkansas to sterilize certain of our products.

The plaintiffs seek damages, including compensatory and punitive damages in an unspecified amount, and unspecified injunctive and declaratory relief.

The plaintiffs sought damages, including compensatory and punitive damages in an unspecified amount, and unspecified injunctive and declaratory relief.

The parties reached agreement to settle these lawsuits in the third quarter of 2021 for amounts that are not material to our financial results.

The settlement of these claims does not preclude potential future lawsuits on behalf of other plaintiffs.

STOCKHOLDERS’ EQUITY

5 unchanged sentences

Cash Dividends

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.

Cash dividends declared per share for the three and nine months ended September 30, 2021 were $ 0.280 and $ 0.805 , respectively.

Cash dividends declared per share for the three and nine months ended September 30, 2020 were $ 0.245 and $ 0.710 , 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 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.

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

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

We had $ 1.3 billion remaining available under the authorization as of September 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 six months ended June 30, 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 nine months ended September 30, 2021 and 2020.

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

5 unchanged sentences

Net other comprehensive income (loss) ( 257 ) 63 26 ( 168 )

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

Balance as of September 30, 2021 $ ( 2,844 ) $ ( 511 ) $ ( 127 ) $ ( 3,482 )

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

5 unchanged sentences

Net other comprehensive income (loss) ( 43 ) 26 ( 112 ) ( 129 )

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

Balance as of September 30, 2020 $ ( 2,997 ) $ ( 689 ) $ ( 153 ) $ ( 3,839 )

(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 and six months ended June 30, 2021 and 2020.

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

Amounts reclassified from AOCI (a)

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

June 30, 2021 Location of impact in income statement

(in millions) Three months ended September 30, 2021 Nine months ended

September 30, 2021 Location of impact in income statement

Amortization of pension and OPEB items

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

Amortization of net losses and prior service costs or credits $ ( 21 ) $ ( 62 ) Other expense, net

Tax effect 4 12 Income tax expense

9 unchanged sentences

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

(in millions) Three months ended September 30, 2020 Nine months ended September 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

Amortization of net losses and prior service costs or credits $ ( 14 ) $ ( 44 ) Other expense, net

Tax effect 3 9 Income tax expense

5 unchanged sentences

Total reclassifications for the period $ ( 12 ) $ ( 33 ) Total net of tax

(a) Amounts in parentheses indicate reductions to net income

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 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.

As of September 30, 2021, we had $ 8.3 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 20 % of this amount as revenue over the remainder of 2021, 30 % in 2022, 25 % in 2023, 15 % in 2024 and 10 % in 2025.

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

Significant Judgments

2 unchanged sentences

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.

Overall, these reserves reflect our best estimates of the amount of consideration to which we are entitled based on the terms of the contract using the expected value method.

Overall, these

reserves reflect our best estimates of the amount of consideration to which we are entitled based on the terms of the contract using the expected value method.

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

Revenue recognized during the three and nine months ended September 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 $ 1.8 billion and $ 1.7 billion as of June 30, 2021 and December 31, 2020, respectively.

Net trade accounts receivable was $ 1.8 billion and $ 1.7 billion as of September 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) June 30,

(in millions) September 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) June 30,

(in millions) September 30,

2021 December 31,

6 unchanged sentences

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

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.

During the nine months ended September 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 three and six months ended June 30, 2020 have been recast to conform to the current period presentation.

Net sales for the three and nine months ended September 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 June 30,

Three Months Ended September 30,

(in millions) U.S.

16 unchanged sentences

Total Baxter $ 1,319 $ 1,907 $ 3,226 $ 1,244 $ 1,728 $ 2,972

Six Months Ended June 30,

Nine Months Ended September 30,

(in millions) U.S.

29 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 and six months ended June 30, 2021 were:

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

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

(in millions) Three months ended September 30, 2021 Nine months ended September 30, 2021

Sales-type lease revenue $ 3 $ 19

2 unchanged sentences

Total lease revenue $ 51 $ 168

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

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

(in millions) Three months ended September 30, 2020 Nine months ended September 30, 2020

Sales-type lease revenue $ 11 $ 27

2 unchanged sentences

Total lease revenue $ 46 $ 128

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.

Our net investment in sales-type leases was $ 119 million as of September 30, 2021, of which $ 16 million originated in 2017 and prior, $ 29 million in 2018, $ 26 million in 2019, $ 33 million in 2020 and $ 15 million in 2021.

BUSINESS OPTIMIZATION CHARGES

1 unchanged sentence

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 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.

From the commencement of our business optimization activities in the second half of 2015 through September 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.

1 unchanged sentence

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 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,

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

Three Months Ended September 30, Nine Months Ended September 30,

(in millions) 2021 2020 2021 2020

3 unchanged sentences

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

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.

Costs to implement business optimization programs for the three and nine months ended September 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 and six months ended June 30, 2021 and 2020, we recorded the following restructuring charges.

Three months ended June 30, 2021

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

Three months ended September 30, 2021

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

Employee termination costs $ 11 $ 8 $ — $ 19

Contract termination and other costs — 2 — 2

Asset impairments 11 — — 11

Total restructuring charges $ 22 $ 10 $ — $ 32

Three months ended June 30, 2020

Three months ended September 30, 2020

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

3 unchanged sentences

Total restructuring charges $ 5 $ 20 $ 1 $ 26

Six months ended June 30, 2021

Nine months ended September 30, 2021

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

Employee termination costs $ 35 $ 14 $ — $ 49

Contract termination and other costs — 2 — 2

Asset impairments 16 — — 16

Total restructuring charges $ 51 $ 16 $ — $ 67

Six months ended June 30, 2020

Nine months ended September 30, 2020

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

4 unchanged sentences

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.

This gain is reflected within other operating expense (income), net in our condensed consolidated statement of income for the nine months ended September 30, 2020.

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

4 unchanged sentences

Currency translation ( 6 )

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.

Liability balance as of September 30, 2021 $ 96

Substantially all of our restructuring liabilities as of September 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.

2 unchanged sentences

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

(in millions) 2021 2020 2021 2020

8 unchanged sentences

Net periodic OPEB cost (income) $ ( 1 ) $ ( 3 ) $ ( 4 ) $ ( 9 )

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 was ( 0.2 )% and 13.5 % for the three months ended September 30, 2021 and 2020, respectively, and 11.8 % and 13.2 % for the nine months ended September 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 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.

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

federal statutory rate was primarily attributable to a $ 58 million tax benefit related to a tax-deductible foreign statutory loss on an investment in a foreign subsidiary, as well as changes related to our ability to realize tax credit carryforwards based on a favorable tax ruling in a foreign jurisdiction.

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

federal statutory rate was primarily attributable to a $ 58 million tax benefit related to a tax-deductible foreign statutory loss on an investment in a foreign subsidiary, as well as a favorable geographic earnings mix and changes related to our ability to realize tax credit carryforwards based on a favorable tax ruling in a foreign jurisdiction.

For the three months ended September 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 changes related to our ability to realize foreign tax credits.

For the nine months ended September 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 .

5 unchanged sentences

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

(in millions) 2021 2020 2021 2020

3 unchanged sentences

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 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.

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

11 unchanged sentences

We do not hold any instruments for trading purposes and none of our outstanding derivative instruments contain credit-risk-related contingent features.

All derivative instruments are recognized as either assets or liabilities at fair value in the condensed consolidated balance sheets and are generally classified as short-term or long-term based on the scheduled maturity of the instrument.

All derivative instruments are recognized as either assets or liabilities at fair value in the condensed consolidated balance sheets and are classified as short-term or long-term based on the scheduled maturity of the instrument.

We designate certain of our derivatives and foreign-currency denominated debt as hedging instruments in cash flow, fair value, or net investment hedges.

5 unchanged sentences

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 $ 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.

The notional amounts of foreign exchange contracts designated as cash flow hedges were $ 365 million and $ 345 million as of September 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 September 30, 2021 is 12 months for foreign exchange contracts.

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

Fair Value Hed g es

2 unchanged sentences

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.

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.

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 September 30, 2021 and December 31, 2020.

Net Investment Hed g es

2 unchanged sentences

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

As of September 30, 2021, we had an accumulated pre-tax unrealized translation loss in AOCI of $ 102 million related to the Euro-denominated senior notes.

Dedesignations

2 unchanged sentences

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 six 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 nine 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 six months of 2021 or 2020.

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

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

Undesignated Derivative Instruments

1 unchanged sentence

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 $ 904 million as of June 30, 2021 and $ 1.0 billion as of December 31, 2020.

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

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

4 unchanged sentences

Foreign exchange contracts 6 ( 6 ) Cost of sales ( 5 ) ( 2 )

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

Net investment hedges 60 ( 103 ) Other expense, net — —

Total $ 66 $ ( 78 ) $ ( 6 ) $ ( 2 )

2 unchanged sentences

Undesignated derivative instruments

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

Foreign exchange contracts Other expense, net $ ( 7 ) $ 7

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

4 unchanged sentences

Foreign exchange contracts 7 1 Cost of sales ( 23 ) 2

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

Net investment hedges 143 ( 104 ) Other expense, net — —

Total $ 150 $ ( 247 ) $ ( 27 ) $ 2

3 unchanged sentences

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.

Foreign exchange contracts Other expense, net $ ( 26 ) $ 22

As of September 30, 2021, $ 1 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 June 30, 2021.

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

Derivatives in asset positions Derivatives in liability positions

18 unchanged sentences

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.

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

(in millions) Asset Liability Asset Liability

5 unchanged sentences

in the carrying amount of the hedged item (a)

(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

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

Long-term debt $ 102 $ 102 $ 4 $ 5

3 unchanged sentences

Basis of fair value measurement

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

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

(Level 1) Significant other

22 unchanged sentences

Total $ 49 $ — $ 19 $ 30

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.

As of September 30, 2021 and December 31, 2020, cash and cash equivalents of $ 3.3 billion and $ 3.7 billion, respectively, included money market and other short-term funds of approximately $ 1.5 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.

5 unchanged sentences

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

September 30, Nine months ended

September 30,

(in millions) 2021 2020 2021 2020

7 unchanged sentences

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 June 30, 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 September 30, 2021 and December 31, 2020.

Book values Fair values(a)

8 unchanged sentences

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 $ 108 million at June 30, 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 September 30, 2021 and $ 105 million at December 31, 2020.

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

12 unchanged sentences

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

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

Segment results for the three and nine months ended September 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.

1 unchanged sentence

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

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

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).

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.

1 unchanged sentence

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

(in millions) 2021 2020 2021 2020

10 unchanged sentences

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

(in millions) 2021 2020 2021 2020

2 unchanged sentences

Total operating income 513 470 1,327 1,210

Net interest expense 34 36 68 57

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

Interest expense, net 50 39 118 96

Other expense, net 12 16 15 32

Income before income taxes $ 451 $ 415 $ 1,194 $ 1,082

1 unchanged sentence

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