What changed in this filing

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Item 1. Financial Statements

2022-07-28 compared with 2022-04-28 · 271 added, 150 removed, 676 unchanged (38% of the section changed)

42 unchanged sentences

Three months ended

June 30, Six months ended

2022 2021 2022 2021

Net sales $ 3,746 $ 3,098 $ 7,453 $ 6,044

20 unchanged sentences

Baxter International Inc.

Condensed Consolidated Statements of Comprehensive Income (unaudited)

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

(in millions)

Three months ended

June 30, Six months ended

2022 2021 2022 2021

Net income $ 255 $ 301 $ 328 $ 601

Other comprehensive income (loss), net of tax:

Currency translation adjustments, net of tax expense (benefit) of ($ 11 ) and $ 17 for the three months ended March 31, 2022 and 2021, respectively.

Currency translation adjustments, net of tax expense (benefit) of $ 2 and $( 4 ) for the three months ended June 30, 2022 and 2021, respectively, and ($ 9 ) and $ 13 for the six months ended June 30, 2022 and 2021, respectively.

( 417 ) 88 ( 432 ) ( 120 )

Pension and other postretirement benefits, net of tax expense of $ 3 and $ 8 for the three months ended March 31, 2022 and 2021, respectively.

Hedging activities, net of tax expense (benefit) of ($ 1 ) and $ 3 for the three months ended March 31, 2022 and 2021, respectively.

Debt securities, net of tax expense of $ 1 and zero for the three months ended March 31, 2022 and 2021, respectively

Total other comprehensive loss, net of tax ( 7 ) ( 166 )

Comprehensive income 66 134

Pension and other postretirement benefits, net of tax expense of $ 5 and $ 3 for the three months ended June 30, 2022 and 2021, respectively, and $ 8 and $ 11 for the six months ended June 30, 2022 and 2021, respectively.

Hedging activities, net of tax expense of $ 4 and $ 2 for the three months ended June 30, 2022 and 2021, respectively, and $ 3 and $ 5 for the six months ended June 30, 2022 and 2021, respectively.

Available-for-sale debt securities, net of tax expense of zero for the three months ended June 30, 2022 and 2021, respectively, and $ 1 and zero for the six months ended June 30, 2022 and 2021, respectively.

Total other comprehensive income (loss), net of tax ( 380 ) 104 ( 387 ) ( 62 )

Comprehensive income (loss) ( 125 ) 405 ( 59 ) 539

Comprehensive income attributable to noncontrolling interests 3 3 5 5

Comprehensive income attributable to Baxter stockholders $ 64 $ 132

Comprehensive income (loss) attributable to Baxter stockholders $ ( 128 ) $ 402 $ ( 64 ) $ 534

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, 2022

For the three months ended June 30, 2022

Baxter International Inc.

4 unchanged sentences

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

Balance as of April 1, 2022 683 $ 683 180 $ ( 11,422 ) $ 6,207 $ 16,994 $ ( 3,387 ) $ 9,075 $ 44 $ 9,119

Net income — — — — — 252 — 252 3 255

Other comprehensive income (loss) — — — — — — ( 380 ) ( 380 ) — ( 380 )

Purchases of treasury stock — — — ( 8 ) — — — ( 8 ) — ( 8 )

Stock issued under employee benefit plans and other — — — 21 46 — — 67 — 67

Dividends declared on common stock — — — — — ( 147 ) — ( 147 ) — ( 147 )

Change in noncontrolling interests — — — — — — — — ( 3 ) ( 3 )

Balance as of June 30, 2022

683 $ 683 180 $ ( 11,409 ) $ 6,253 $ 17,099 $ ( 3,767 ) $ 8,859 $ 44 $ 8,903

For the six months ended June 30, 2022

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, 2022 683 $ 683 182 $ ( 11,488 ) $ 6,197 $ 17,065 $ ( 3,380 ) $ 9,077 $ 44 $ 9,121

1 unchanged sentence

Other comprehensive income (loss) — — — — — — ( 387 ) ( 387 ) — ( 387 )

Purchases of treasury stock — — — ( 8 ) — — — ( 8 ) — ( 8 )

Stock issued under employee benefit plans and other — — ( 2 ) 87 56 — — 143 — 143

1 unchanged sentence

Change in noncontrolling interests — — — — — — — — ( 5 ) ( 5 )

Balance as of March 31, 2022

Balance as of June 30, 2022

683 $ 683 180 $ ( 11,409 ) $ 6,253 $ 17,099 $ ( 3,767 ) $ 8,859 $ 44 $ 8,903

For the three months ended March 31, 2021

For the three months ended June 30, 2021

Baxter International Inc.

1 unchanged sentence

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

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

Balance as of June 30, 2021

683 $ 683 184 $ ( 11,561 ) $ 6,090 $ 16,658 $ ( 3,376 ) $ 8,494 $ 41 $ 8,535

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

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(in millions)

Three months ended

Six months ended

Cash flows from operations

21 unchanged sentences

Repayments of debt ( 749 ) —

Net decreases in debt with original maturities of three months or less ( 45 ) —

Net increases (decreases) in debt with original maturities of three months or less ( 45 ) 51

Cash dividends on common stock ( 281 ) ( 249 )

8 unchanged sentences

$ 1,856 $ 3,140

(1) 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, 2022, December 31, 2021, and March 31, 2021 (in millions):

March 31, 2022 December 31, 2021 March 31, 2021

(1) 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, 2022, December 31, 2021, and June 30, 2021 (in millions):

June 30, 2022 December 31, 2021 June 30, 2021

Cash and cash equivalents $ 1,852 $ 2,951 $ 3,136

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The results of operations for the current interim period are not necessarily indicative of the results of operations to be expected for the full year.

Risks and Uncertainties Related to COVID-19 and Global Economic Conditions

Risks and Uncertainties Related to COVID-19 and Global Economic and Other Conditions

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 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.

As a result, 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.

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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, moratoriums on elective procedures and mandatory quarantines and travel restrictions).

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, disruptions to certain ports of call around the world and certain geopolitical events) 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.

These measures have caused, and may continue to cause in the future, increased levels of absenteeism, including at our manufacturing and distributing facilities.

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.

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 to our global supply chain in recent periods, including production delays and interruptions, increased costs and shortages of raw materials and component parts (including resins and electromechanical devices) and higher transportation costs, resulting from the pandemic and other exogenous factors including significant weather events, elevated inflation levels, disruptions to certain ports of call around the world, the war in Ukraine and certain other geopolitical events.

We may continue to experience these and other challenges related to our supply chain in future periods.

These challenges, including the unavailability of certain raw materials and component parts, have also had a negative impact on our sales for certain product categories due to our inability to fully satisfy demand and may continue to have a negative impact on our sales in the future.

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.

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Recently adopted accounting pronouncements

As of January 1, 2022, we adopted Accounting Standards Update (ASU) 2021-05, Leases (Topic 842), which requires a lessor to classify a lease with variable lease payments (that do not depend on an index or rate) as an operating lease if (1) the lease would have been classified as a sales-type or direct financing lease, and (2) the lessor would have recognized a selling loss at lease commencement.

have recognized a selling loss at lease commencement.

These changes are intended to avoid recognizing a day-one loss for a lease with variable payments even though the lessor expects the arrangement will be profitable overall.

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(b) Represents the pre-acquisition service portion of the fair value of 668 thousand replacement restricted stock units issued to Hillrom equity award holders at closing.

The valuation of assets acquired and liabilities assumed has not yet been finalized as of March 31, 2022.

The valuation of assets acquired and liabilities assumed has not yet been finalized as of June 30, 2022.

Finalization of the valuation during the measurement period could result in a change in the amounts recorded for acquired intangible assets, goodwill and income taxes among other items.

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Total assets acquired and liabilities assumed $ 10,476

In the first quarter of 2022, we recorded measurement period adjustments to increase other intangible assets of $ 7 million, increase deferred income tax liabilities of $ 11 million, other individually insignificant adjustments for a net

decrease to assets acquired and liabilities assumed of $ 6 million and a corresponding increase to goodwill of $ 10 million.

The measurement period adjustments did not have a significant impact our results of operations.

The goodwill, which is not deductible for tax purposes, includes the value of an assembled workforce as well as the overall strategic benefits provided to our product portfolio and is included in the Hillrom segment.

For the three months ended March 31, 2022, we recognized $ 159 million of incremental costs of sales from the fair value step-ups on acquired Hillrom inventory that was sold in the current period.

In the first half of 2022 we recorded measurement period adjustments, primarily impacting accounts receivable, other intangible assets, and deferred income tax liabilities.

Individually the measurement period adjustments were not

material and in total increased goodwill by $ 35 million.

The measurement period adjustments did not have a significant impact to our results of operations.

The goodwill from the Hillrom acquisition, which is not deductible for tax purposes, includes the value of an assembled workforce as well as the overall strategic benefits provided to our product portfolio and is included in the Hillrom segment.

For the six months ended June 30, 2022, we recognized $ 159 million of incremental costs of sales from the fair value step-ups on acquired Hillrom inventory that was sold in the first quarter.

Other Business Development Activities

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Zosyn is used for the treatment of intra-abdominal infections, nosocomial pneumonia, skin and skin structure infections, female pelvic infections and community-acquired pneumonia.

Under the terms of the acquisition, we paid the acquisition price of $ 122 million currently, received specified intellectual property, including patent rights, in the current period and will receive additional intellectual property, including the product rights to Zosyn, in one year.

Under the terms of the acquisition, we paid the acquisition price of $ 122 million currently, received specified intellectual property, including patent rights, in the first quarter and will receive additional intellectual property, including the product rights to Zosyn, in the first quarter of 2023.

Under the arrangement, we are entitled to receive profit sharing payments from sales of Zosyn until the product rights transfer to us in March 2023.

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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, 2022 and 2021.

The following table is a summary of the changes in our allowance for doubtful accounts for the three and six months ended June 30, 2022 and 2021.

Three months ended

June 30, Six months ended

(in millions) 2022 2021 2022 2021

4 unchanged sentences

Balance at end of period $ 125 $ 117 $ 125 $ 117

(in millions) March 31,

(in millions) June 30,

2022 December 31,

4 unchanged sentences

Property, Plant and Equipment, Net

(in millions) March 31,

(in millions) June 30,

2022 December 31,

4 unchanged sentences

Three months ended

June 30, Six months ended

(in millions) 2022 2021 2022 2021

4 unchanged sentences

Three months ended

June 30, Six months ended

(in millions) 2022 2021 2022 2021

1 unchanged sentence

Pension and other postretirement benefit plans ( 7 ) 3 ( 12 ) 7

Pension curtailment ( 11 ) — ( 11 ) —

Change in fair value of marketable equity securities ( 8 ) ( 9 ) ( 8 ) ( 7 )

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

1 unchanged sentence

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, 2022 and 2021 were $ 14 million and $ 5 million, respectively.

Purchases of property, plant and equipment included in accounts payable as of March 31, 2022 and 2021 were $ 53 million and $ 63 million, respectively.

There were no unsettled share repurchases as of March 31, 2022.

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

Right-of-use operating lease assets obtained in exchange for lease obligations for the six months ended June 30, 2022 and 2021 were $ 23 million and $ 21 million, respectively.

Purchases of property, plant and equipment included in accounts payable as of June 30, 2022 and 2021 were $ 66 million and $ 70 million, respectively.

Unsettled share repurchases included in accrued expenses and other current liabilities as of June 30, 2022 and 2021 were $ 8 million and $ 35 million , respectively.

GOODWILL AND OTHER INTANGIBLE ASSETS, NET

4 unchanged sentences

Currency translation ( 150 ) ( 17 ) ( 14 ) ( 46 ) ( 227 )

Balance as of March 31, 2022 $ 2,488 $ 306 $ 221 $ 6,801 $ 9,816

As of March 31, 2022, there were no reductions in goodwill relating to impairment losses.

Balance as of June 30, 2022 $ 2,367 $ 292 $ 210 $ 6,775 $ 9,644

As of June 30, 2022, there were no reductions in goodwill relating to impairment losses.

Other intangible assets, net

The following is a summary of our other intangible assets.

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

March 31, 2022

Indefinite-lived intangible assets

(in millions) Customer relationships Developed technology, including patents Other amortized intangible assets Trade names In process Research and Development

June 30, 2022

Gross other intangible assets $ 3,452 $ 3,802 $ 319 $ 1,910 $ 230 $ 9,713

5 unchanged sentences

Other intangible assets, net $ 3,275 $ 2,245 $ 132 $ 1,910 $ 230 $ 7,792

Intangible asset amortization expense was $ 217 million and $ 64 million for the three months ended March 31, 2022 and 2021, respectively.

Intangible asset amortization expense was $ 193 million and $ 67 million for the three months ended June 30, 2022 and 2021, respectively, and $ 410 million and $ 131 million for the six months ended June 30, 2022 and 2021.

FINANCING ARRANGEMENTS

Significant Debt Activity

In March 2022, we repaid $ 170 million of our $ 2.0 billion three-year term loan facility and $ 175 million of our $ 2.0 billion five-year term loan facility.

In the first half of 2022, we repaid $ 335 million of our $ 2.0 billion three-year term loan facility and $ 355 million of our $ 2.0 billion five-year term loan facility.

The loss from the early extinguishment of this debt was not significant.

In December 2021, we issued $ 800 million of 0.868 % senior notes due in 2023, $ 1.4 billion of 1.322 % senior notes due in 2024, $ 1.45 billion of 1.915 % senior notes due in 2027, $ 1.25 billion of 2.272 % senior notes due in 2028, $ 1.55 billion of 2.539 % senior notes due in 2032, $ 750 million of 3.132 % senior notes due in 2051, $ 300 million of floating rate senior notes due in 2023 and $ 300 million of floating rate senior notes due in 2024 (collectively, the Hillrom notes) to fund a portion of the consideration for the Hillrom acquisition, repay certain indebtedness of Hillrom and to pay fees and expenses related to the foregoing.

In conjunction with the issuances of the Hillrom notes, we entered into a registration rights agreement in which we agreed to file a registration statement with the SEC with respect to an offer to exchange the Hillrom notes for new issues of notes with the same terms registered under the Securities Act of 1933, as amended.

Those exchange offers with respect to the Hillrom notes were completed in June 2022.

Credit Facilities

1 unchanged sentence

Each of the facilities matures in 2026.

There were no borrowings outstanding under these credit facilities as of March 31, 2022 or December 31, 2021.

There were no borrowings outstanding under these credit facilities as of June 30, 2022 or December 31, 2021.

dollar-denominated revolving credit facility guarantees our obligations under commercial paper borrowings, which reduces our borrowing capacity by the amount of such outstanding commercial paper borrowings.

Commercial Paper

As of March 31, 2022, we had $ 200 million of commercial paper outstanding with a weighted-average interest rate of 0.5 % and an original weighted-average term of 89 days.

As of June 30, 2022, we had $ 200 million of commercial paper outstanding with a weighted-average interest rate of 1.8 % and an original weighted-average term of 51 days.

As of December 31, 2021, we had $ 300 million of commercial paper outstanding with a weighted-average interest rate of 0.27 % and an original weighted-average term of 88 days.

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If the reasonable estimate of a probable loss is a range, and no amount within the range is a better estimate, the minimum amount in the range is accrued.

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

As of March 31, 2022 and December 31, 2021, our total recorded reserves with respect to legal and environmental matters were $ 57 million and $ 72 million, respectively.

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

As of June 30, 2022 and December 31, 2021, our total recorded reserves with respect to legal and environmental matters were $ 38 million and $ 72 million, respectively.

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

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With respect to governmental and regulatory matters, these actions may lead to product recalls, injunctions, and other restrictions on our operations and monetary sanctions, including significant civil or criminal penalties.

With respect to

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

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.

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Separate from these Superfund cases noted above, we are involved in an ongoing environmental remediations associated with historic operations at certain of our facilities.

As of March 31, 2022 and December 31, 2021, our environmental reserves, which are measured on an undiscounted basis, were $ 18 million, respectively.

As of June 30, 2022 and December 31, 2021, our environmental reserves, which are measured on an undiscounted basis, were $ 18 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.

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The Company has cooperated with the staff of the SEC in its investigation into related matters, and on February 18, 2022, we reached a settlement with the SEC.

Without admitting or denying the findings in the administrative order issued by the SEC, we agreed to pay a civil penalty of $ 18 million and to cease and desist from violations of specified provisions of the federal securities laws and related rules.

admitting or denying the findings in the administrative order issued by the SEC, we agreed to pay a civil penalty of $ 18 million and to cease and desist from violations of specified provisions of the federal securities laws and related rules.

In the order, the SEC acknowledged the Company’s cooperation.

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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, which were paid in the fourth quarter of 2021.

The parties reached agreement to settle these lawsuits in the third quarter of 2021 for amounts that were not material to our financial results, which were paid in the fourth quarter of 2021.

We have since resolved, without litigation, additional claims of injuries from exposure to ethylene oxide at Mountain Home for amounts within accruals previously established as of December 31, 2021.

The settlement of these claims does not preclude potential future lawsuits.

In July 2021, Hill-Rom, Inc.

received a subpoena (from the United States Office of Inspector General for the Department of Health and Human Services (the DHHS) requesting documents and information related to compliance

with the False Claims Act and the Anti-Kickback Statute.

received a subpoena (from the United States Office of Inspector General for the Department of Health and Human Services (the DHHS) requesting documents and information related to compliance with the False Claims Act and the Anti-Kickback Statute.

Hillrom has been working with the DHHS and the DOJ to provide information responsive to the subpoena.

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Linet alleges that Hillrom violated Sections 1, 2 and 3 of The Sherman Antitrust Act of 1890 and the Illinois Antitrust Act by allegedly engaging in anti-competitive conduct in alleged markets for standard, ICU and birthing beds.

Hillrom filed an answer to the complaint on January 28, 2022.

Hillrom filed an answer to the complaint on January 28, 2022 and filed on May 27, 2022, a motion challenging certain aspects of plaintiff's case.

STOCKHOLDERS’ EQUITY

Stock-Based Compensation

Stock compensation expense totaled $ 32 million and $ 22 million in the first quarter of 2022 and 2021, respectively.

Approximately 75 % of stock compensation expense is classified within selling, general and administrative (SG&A) expense with the remainder classified in cost of sales and research and development (R&D) expense.

We awarded stock compensation grants which consisted of 1.8 million stock options, 1.2 million restricted stock units (RSUs) and 0.4 million performance stock units (PSUs) during the first quarter of 2022.

The grant date fair values of stock options, RSUs and PSUs awarded in the first quarter of 2022 were $ 33 million, $ 102 million and $ 34 million, respectively.

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

The vesting conditions for PSUs granted 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 24 % 25 %

Expected life (in years) 5.5 5.5

Risk-free interest rate 1.8 % 0.8 %

Dividend yield 1.3 % 1.3 %

Fair value per stock option $ 18 $ 16

The total intrinsic value of stock options exercised was $ 27 million and $ 21 million during the first quarters of 2022 and 2021, respectively.

As of March 31, 2022, the unrecognized compensation cost related to all unvested stock options of $ 80 million is expected to be recognized as expense over a weighted-average period of 1.9 years.

As of March 31, 2022, the unrecognized compensation cost related to all unvested RSUs of $ 163 million is expected to be recognized as expense over a weighted-average period of 2.2 years.

As of March 31, 2022, the unrecognized compensation cost related to all unvested PSUs of $ 50 million is expected to be recognized as expense over a weighted-average period of 1.9 years.

Cash Dividends

Cash dividends declared per share for the three months ended March 31, 2022 and 2021 were $ 0.28 and $ 0.245 , respectively.

Cash dividends declared per share for the three and six months ended June 30, 2022 were $ 0.29 and $ 0.57 .

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

Stock Repurchase Programs

In July 2012, the Board of Directors authorized the repurchase of up to $ 2.0 billion of our common stock.

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 2022, we did not repurchase any shares under this authority.

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

We had $ 1.3 billion remaining available under the authorization as of March 31, 2022.

In July 2012, our Board of Directors authorized the repurchase of up to $ 2.0 billion of our common stock.

Our 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 second quarter of 2022 we repurchased 0.1 million shares under this authority pursuant to Rule 10b5-1 plans.

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

We had $ 1.3 billion remaining available under the authorization as of June 30, 2022.

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, 2022 and 2021.

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

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, 2022 and 2021.

(in millions) CTA Pension and OPEB plans Hedging activities Available-for-sale Debt securities Total

Gains (losses)

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Net other comprehensive income (loss) ( 432 ) 32 11 2 ( 387 )

Balance as of March 31, 2022 $ ( 2,922 ) $ ( 338 ) $ ( 128 ) $ 1 $ ( 3,387 )

Balance as of June 30, 2022 $ ( 3,339 ) $ ( 315 ) $ ( 115 ) $ 2 $ ( 3,767 )

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

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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 )

(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, 2022 and 2021.

The following is a summary of the amounts reclassified from AOCI to net income during the three and six months ended June 30, 2022 and 2021.

Amounts reclassified from AOCI (a)

(in millions) Three months ended March 31, 2022 Three months ended March 31, 2021 Location of impact in income statement

(in millions) Three months ended June 30, 2022 Six months ended

June 30, 2022 Location of impact in income statement

Pension and OPEB items

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(a) Amounts in parentheses indicate reductions to net income

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

Amortization of pension and OPEB items

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

Tax effect 4 8 Income tax expense

$ ( 16 ) $ ( 33 ) Net of tax

Gains on hedging activities

Foreign exchange contracts $ ( 8 ) $ ( 18 ) Cost of sales

Interest rate contracts ( 2 ) ( 3 ) Interest expense, net

( 10 ) ( 21 ) Total before tax

Tax effect 3 5 Income tax expense

$ ( 7 ) $ ( 16 ) Net of tax

Total reclassifications for the period $ ( 23 ) $ ( 49 ) 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.

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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, 2022, we had $ 8.2 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, 2022, we had $ 10.8 billion of transaction price allocated to remaining performance obligations related to executed contracts with an original duration of more than one year, 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.

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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.

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.

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, 2022 and 2021 related to performance obligations satisfied in prior periods was not material.

Revenue recognized during the three and six months ended June 30, 2022 and 2021 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 $ 2.3 billion and $ 2.4 billion as of March 31, 2022 and December 31, 2021, respectively.

Net trade accounts receivable was $ 2.3 billion and $ 2.4 billion as of June 30, 2022 and December 31, 2021, 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,

2022 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,

2022 December 31,

8 unchanged sentences

We expect to satisfy the majority of the remaining performance obligations and recognize revenue related to installation and service contracts within the next 12 months with most of the non-current performance obligations satisfied within 24 months.

The following table summarizes contract liability activity for the three months ended March 31, 2022.

The following table summarizes contract liability activity for the six months ended June 30, 2022.

The contract liability balance represents the transaction price allocated to the remaining performance obligations.

Three Months Ended March 31, 2022

Six months ended

June 30, 2022

Balance at beginning of period $ 246

1 unchanged sentence

Revenue recognized upon satisfaction of performance obligations ( 290 )

Currency translation ( 5 )

Balance at end of period $ 233

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

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

Disaggregation of Net Sales

In connection with our acquisition of Hillrom in December 2021, we have added three new product categories:

In connection with our acquisition of Hillrom in December 2021, we added three new product categories:

Patient Support Systems, Front Line Care and Surgical Solutions.

1 unchanged sentence

and international:

Three Months Ended March 31,

Three Months Ended June 30,

(in millions) U.S.

22 unchanged sentences

Total Baxter $ 1,764 $ 1,982 $ 3,746 $ 1,198 $ 1,900 $ 3,098

Six Months Ended June 30,

(in millions) U.S.

International Total U.S.

International Total

$ 450 $ 1,375 $ 1,825 $ 433 $ 1,453 $ 1,886

Medication Delivery 2

931 485 1,416 855 494 1,349

Pharmaceuticals 3

321 728 1,049 362 736 1,098

Clinical Nutrition 4

174 283 457 167 304 471

Advanced Surgery 5

287 204 491 270 203 473

Acute Therapies 6

126 235 361 142 253 395

BioPharma Solutions 7

127 192 319 109 209 318

Patient Support Systems 8

579 168 747 — — —

Front Line Care 9

409 167 576 — — —

Surgical Solutions 10

73 74 147 — — —

44 21 65 40 14 54

Total Baxter $ 3,521 $ 3,932 $ 7,453 $ 2,378 $ 3,666 $ 6,044

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

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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, 2022 and 2021 were:

(in millions) Three months ended March 31, 2022 Three months ended March 31, 2021

The components of lease revenue for the three and six months ended June 30, 2022 and 2021 were:

(in millions) Three months ended June 30, 2022 Six months ended June 30, 2022

Sales-type lease revenue $ 5 $ 8

2 unchanged sentences

Total lease revenue $ 130 $ 275

Our net investment in sales-type leases was $ 109 million as of March 31, 2022, of which $ 38 million originated in 2018 and prior, $ 16 million in 2019, $ 28 million in 2020, $ 25 million in 2021, and $ 2 million in 2022.

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

Sales-type lease revenue $ 10 $ 16

Operating lease revenue 35 69

Variable lease revenue 15 32

Total lease revenue $ 60 $ 117

Our net investment in sales-type leases was $ 101 million as of June 30, 2022, of which $ 21 million originated in 2018 and prior, $ 21 million in 2019, $ 28 million in 2020, $ 25 million in 2021, and $ 6 million in 2022.

BUSINESS OPTIMIZATION CHARGES

2 unchanged sentences

In the current period, restructuring charges include actions taken in connection with our integration of Hillrom.

From the commencement of our business optimization activities in the second half of 2015 through March 31, 2022, we have incurred cumulative pre-tax costs of $ 1.3 billion related to these actions.

From the commencement of our business optimization activities in the second half of 2015 through June 30, 2022, we have incurred cumulative pre-tax costs of $ 1.3 billion related to these actions.

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

We currently expect to incur additional pre-tax costs of approximately $ 25 million through the completion of the initiatives that are currently underway, primarily related to implementation costs.

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, 2022 and 2021, we recorded the following charges related to business optimization programs.

Three Months Ended March 31,

We currently expect to incur additional pre-tax costs, primarily related to implementation of business optimization programs, of approximately $ 29 million through the completion of initiatives that are currently underway.

We continue to pursue cost savings initiatives, including those related to our integration of Hillrom, and, to the extent further cost savings opportunities are identified, we would incur additional restructuring charges and costs to implement business optimization programs in future periods.

During the three and six months ended June 30, 2022 and 2021, we recorded the following charges related to business optimization programs.

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

(in millions) 2022 2021 2022 2021

3 unchanged sentences

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

Costs to implement business optimization programs for the three months ended March 31, 2022 and 2021, 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, 2022 and 2021, 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, 2022 and 2021, we recorded the following restructuring charges.

Three months ended March 31, 2022

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

During the three and six months ended June 30, 2022 and 2021, we recorded the following restructuring charges.

Three months ended June 30, 2022

(in millions) COGS SG&A Total

Employee termination costs $ 4 $ 16 $ 20

2 unchanged sentences

Total restructuring charges $ 4 $ 22 $ 26

Three months ended March 31, 2021

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

Three months ended June 30, 2021

(in millions) COGS SG&A Total

Employee termination costs $ 8 $ 1 $ 9

1 unchanged sentence

Total restructuring charges $ 9 $ 1 $ 10

Six months ended June 30, 2022

(in millions) COGS SG&A Total

Employee termination costs $ 6 $ 63 $ 69

Contract termination and other costs — 17 17

Asset impairments — 7 7

Total restructuring charges $ 6 $ 87 $ 93

Six months ended June 30, 2021

(in millions) COGS SG&A Total

Employee termination costs $ 24 $ 6 $ 30

Asset impairments 5 — 5

Total restructuring charges $ 29 $ 6 $ 35

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

2 unchanged sentences

Payments ( 70 )

Reserve adjustments ( 6 )

Currency translation ( 9 )

Liability balance as of March 31, 2022 $ 137

Substantially all of our restructuring liabilities as of March 31, 2022 relate to employee termination costs, with the remaining liabilities attributable to contract termination costs.

Liability balance as of June 30, 2022 $ 116

Substantially all of our restructuring liabilities as of June 30, 2022 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 2023.

2 unchanged sentences

Three months ended

June 30, Six months ended

(in millions) 2022 2021 2022 2021

8 unchanged sentences

Net periodic OPEB cost (income) $ ( 2 ) $ ( 2 ) $ ( 4 ) $ ( 3 )

Our effective income tax rate was 22.3 % and 14.5 % for the three months ended March 31, 2022 and 2021, respectively.

Hillrom Pension Plan Amendment

In May 2022, we announced that the pay and service amounts used to calculate pension benefits for active non-bargaining participants in our U.S.

Hillrom pension plan will freeze as of December 31, 2022.

Years of additional service earned and eligible compensation received after December 31, 2022 will not be included in the determination of the benefits payable to those participants.

This change resulted in an $ 11 million decline in the projected benefit obligation (PBO) with an offsetting curtailment gain included within other income (expense), net on the condensed consolidated statements of income for the three months and six months ended June 30, 2022.

Our effective income tax rate was 13.6 % and 23.2 % for the three months ended June 30, 2022 and 2021, respectively, and 15.7 % and 19.1 % for the six months ended June 30, 2022 and 2021, 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, 2022, the difference between our effective income tax rate and the U.S.

federal statutory rate was primarily attributable to discrete tax matters in various foreign jurisdictions, of which none are individually material, and an increase in our liabilities for uncertain tax positions, partially offset by excess tax benefits on stock compensation awards and a favorable geographic earnings mix.

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.

For the three and six months ended June 30, 2022, 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 discrete tax matters in various jurisdictions, of which none were individually material, partially offset by an increase in our liabilities for uncertain tax positions.

For the three and 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.

EARNINGS PER SHARE

4 unchanged sentences

Three months ended

June 30, Six months ended

(in millions) 2022 2021 2022 2021

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 4 million and 7 million equity awards for the three months ended March 31, 2022 and 2021, respectively, because their inclusion would have had an anti-dilutive effect on diluted EPS.

The computation of diluted EPS excludes 12 million and 8 million equity awards for the three and six months ended June 30, 2022, respectively, and 7 million equity awards for the three and six months ended June 30, 2021, 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.

19 unchanged sentences

Cash flow hedges are classified in cost of sales and interest expense, net, and are primarily related to 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 $ 402 million and $ 377 million as of March 31, 2022 and December 31, 2021, respectively.

The maximum term over which we have cash flow

hedge contracts in place related to forecasted transactions at March 31, 2022 is 12 months for foreign exchange contracts.

There were no outstanding interest rate contracts designated as cash flow hedges as of March 31, 2022 and December 31, 2021.

The notional amounts of foreign exchange contracts designated as cash flow hedges were $ 403 million and $ 377 million as of June 30, 2022 and December 31, 2021, respectively.

The maximum term over which we have cash flow hedge contracts in place related to forecasted transactions at June 30, 2022 is 12 months for foreign exchange contracts.

There were no outstanding interest rate contracts designated as cash flow hedges as of June 30, 2022 and December 31, 2021.

Fair Value Hed g es

3 unchanged sentences

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, 2022 and December 31, 2021.

There were no outstanding interest rate contracts designated as fair value hedges as of June 30, 2022 and December 31, 2021.

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 March 31, 2022, we had an accumulated pre-tax unrealized translation loss in AOCI of $ 4 million related to the Euro-denominated senior notes.

As of June 30, 2022, we had an accumulated pre-tax unrealized translation gain in AOCI of $ 139 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 three months of 2022 or 2021 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 2022 or 2021 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 2022 or 2021.

There were no fair value hedges terminated during the first six months of 2022 or 2021.

If we remove a net investment hedge designation, any gains or losses recognized in AOCI are 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 2022 or 2021.

There were no net investment hedges terminated during the first six months of 2022 or 2021.

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 $ 940 million as of March 31, 2022 and $ 851 million as of December 31, 2021.

The total notional amount of undesignated derivative instruments was $ 998 million as of June 30, 2022 and $ 851 million as of December 31, 2021.

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, 2022 and

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

10 unchanged sentences

Foreign exchange contracts Other (income) expense, net $ ( 26 ) $ 3

As of March 31, 2022, $ 5 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.

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

in income statement Gain (loss) reclassified from AOCI

(in millions) 2022 2021 2022 2021

Cash flow hedges

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

Foreign exchange contracts 16 1 Cost of sales 5 ( 18 )

Net investment hedges 185 83 Other (income) expense, net — —

Total $ 201 $ 84 $ 2 $ ( 21 )

Location of gain (loss)

in income statement Gain (loss) recognized in income

(in millions) 2022 2021

Undesignated derivative instruments

Foreign exchange contracts Other (income) expense, net $ ( 23 ) $ ( 19 )

As of June 30, 2022, $ 7 million of deferred, net after-tax gains 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, 2022.

The following table summarizes the classification and fair values of derivative instruments reported in the condensed consolidated balance sheet as of June 30, 2022.

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.

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

(in millions) Asset Liability Asset Liability

5 unchanged sentences

in the carrying amount of the hedged item (a)

(in millions) Balance as of March 31, 2022 Balance as of December 31, 2021 Balance as of March 31, 2022 Balance as of December 31, 2021

(in millions) Balance as of June 30, 2022 Balance as of December 31, 2021 Balance as of June 30, 2022 Balance as of December 31, 2021

Long-term debt $ 101 $ 101 $ 4 $ 4

3 unchanged sentences

Basis of fair value measurement

(in millions) Balance as of March 31, 2022 Quoted prices in active markets for identical assets

(in millions) Balance as of June 30, 2022 Quoted prices in active markets for identical assets

(Level 1) Significant other

3 unchanged sentences

Foreign exchange contracts $ 14 $ — $ 14 $ —

Debt securities 53 — — 53

Available-for-sale debt securities 44 — — 44

Marketable equity securities 30 30 — —

10 unchanged sentences

Foreign exchange contracts $ 8 $ — $ 8 $ —

Debt securities 30 — — 30

Available-for-sale debt securities 30 — — 30

Marketable equity securities 10 10 — —

3 unchanged sentences

Total $ 148 $ — $ 5 $ 143

As of March 31, 2022 and December 31, 2021, cash and cash equivalents of $ 2.3 billion and $ 3.0 billion, respectively, included money market and other short-term funds of approximately $ 426 million and $ 816 million, respectively, which are considered Level 2 in the fair value hierarchy.

As of June 30, 2022 and December 31, 2021, cash and cash equivalents of $ 1.9 billion and $ 3.0 billion, respectively, included money market and other short-term funds of approximately $ 247 million and $ 816 million, 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.

2 unchanged sentences

The key inputs, which are considered observable and vary depending on the type of derivative, include contractual terms, interest rate yield curves, foreign exchange rates and volatility.

Debt securities, which consist of convertible debt and convertible redeemable preferred shares issued by nonpublic entities, are measured using discounted cash flow and option pricing models.

Those debt securities are classified as Level 3 fair value measurements when there are no observable transactions near the balance sheet date due to the lack of observable data over certain fair value inputs such as equity volatility.

The fair values of debt securities increase when interest rates decrease, equity volatility increases, or the fair values of the equity shares underlying the conversion options increase.

Available-for-sale debt securities, which consist of convertible debt and convertible redeemable preferred shares issued by nonpublic entities, are measured using discounted cash flow and option pricing models.

Those available-for-sale debt securities are classified as Level 3 fair value measurements when there are no observable transactions near the balance sheet date due to the lack of observable data over certain fair value inputs such as equity volatility.

The fair values of available-for-sale debt securities increase when interest rates decrease, equity volatility increases, or the fair values of the equity shares underlying the conversion options increase.

Contingent payments related to acquisitions, which consist of milestone payments and sales-based payments, are valued using discounted cash flow techniques.

The fair value of milestone payments reflects management’s expectations of probability of payment, and increases as the probability of payment increases or the expected timing of payments is accelerated.

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 and debt securities.

Three months ended March 31,

(in millions) Contingent payments related to acquisitions Debt securities Contingent payments related to acquisitions

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.

Three months ended June 30,

(in millions) Contingent payments related to acquisitions Available-for-sale debt securities Contingent payments related to acquisitions

Fair value at beginning of period $ 124 $ 53 $ 38

Change in fair value recognized in earnings ( 11 ) — ( 5 )

Change in fair value recognized in AOCI — 1 —

Transfers out of Level 3 — ( 10 ) —

Currency translation — — 1

Fair value at end of period $ 113 $ 44 $ 34

Six months ended June 30,

(in millions) Contingent payments related to acquisitions Available-for-sale debt securities Contingent payments related to acquisitions

Fair value at beginning of period $ 143 $ 30 $ 30

Additions — 21 24

2 unchanged sentences

Payments ( 2 ) — ( 16 )

Transfers out of Level 3 — ( 10 ) —

Currency translation — — 1

Fair value at end of period $ 113 $ 44 $ 34

During the second quarter and first half of 2022, $ 8 million of available-for-sale debt securities that were previously classified as Level 3 converted to marketable equity securities, which are classified as Level 1 in the fair value hierarchy, upon the initial public offering of the investee.

Financial Instruments Not Measured at Fair Value

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, 2022 and December 31, 2021.

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, 2022 and December 31, 2021.

Book values Fair values(a)

5 unchanged sentences

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

The estimated fair values of current and 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 $ 110 million at March 31, 2022 and $ 114 million at December 31, 2021.

Equity investments not measured at fair value are comprised of other equity investments without readily determinable fair values and were $ 104 million as of June 30, 2022 and $ 114 million as of December 31, 2021.

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

13 unchanged sentences

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, and certain gains, losses, and other charges (such as business optimization, acquisition and integration costs, intangible asset amortization and asset impairments).

They primarily include corporate headquarters costs, certain R&D costs, manufacturing variances and centrally managed supply chain costs, product category support costs, stock compensation expense, certain employee benefit plan costs, and certain gains, losses, and other charges (such as business optimization, acquisition and integration costs, intangible asset amortization and asset impairments).

For the period from our acquisition of Hillrom on December 13, 2021 through December 31, 2021, we previously included all costs incurred by the Hillrom business within that segment, including the types of costs described in the preceding sentence that are maintained at Corporate for our legacy Baxter segments.

In connection with our ongoing integration activities, beginning in the first quarter 2022, we have updated the measure of profitability for our Hillrom segment by excluding such unallocated costs, consistent with our legacy Baxter segments.

Those unallocated costs related to Hillrom, which totaled $ 219 million for the three months ended March 31, 2022, are now presented within Corporate as well.

Those unallocated costs related to Hillrom, which totaled $ 61 million and $ 280 million for the three and six months ended June 30, 2022, respectively, are now presented within Corporate as well.

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

(in millions) 2022 2021 2022 2021

Americas $ 1,646 $ 1,624 $ 3,272 $ 3,184

EMEA 738 783 1,437 1,521

APAC 647 691 1,274 1,339

Hillrom 715 — 1,470 —

2 unchanged sentences

Americas $ 567 $ 632 $ 1,177 $ 1,231

EMEA 169 159 288 294

APAC 156 152 307 290

Hillrom 149 — 349 —

2 unchanged sentences

Three months ended

June 30, Six months ended

(in millions) 2022 2021 2022 2021

7 unchanged sentences

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