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Item 2. Management’s Discussion and Analysis

2022-07-28 compared with 2022-04-28 · 208 added, 137 removed, 208 unchanged (62% of the section changed)

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Refer to our Annual Report on Form 10-K for the year ended December 31, 2021 for management’s discussion and analysis of our financial condition and results of operations.

The following is management’s discussion and analysis of our financial condition and results of operations for the three months ended March 31, 2022 and 2021.

The following is management’s discussion and analysis of our financial condition and results of operations for the three and six months ended June 30, 2022 and 2021.

RESULTS OF OPERATIONS

Net income attributable to Baxter stockholders for the three months ended March 31, 2022 totaled $71 million, or $0.14 per diluted share, compared to $298 million, or $0.58 per diluted share, for the three months ended March 31, 2021.

The first quarter of 2022 is the first full quarter reflecting Hillrom results of operations after the December 13, 2021 acquisition.

Net income for the three months ended March 31, 2022 included special items which decreased net income by $400 million, or $0.79 per diluted share, respectively, as further discussed below.

Net income for the three months ended March 31, 2021 included special items which decreased net income by $88 million, or $0.18 per diluted share, as further discussed below.

Net income attributable to Baxter stockholders for the three and six months ended June 30, 2022 totaled $252 million, or $0.50 per diluted share, and $323 million, or $0.64 per diluted share, compared to $298 million, or $0.59 per diluted share, and $596 million, or $1.17 per diluted share, for the three and six months ended June 30, 2021.

The first quarter of 2022 was the first full quarter reflecting Hillrom results of operations after the December 13, 2021 acquisition.

Net income for the three and six months ended June 30, 2022 included special items which decreased net income by $191 million and $591 million, respectively, or $0.37 and $1.16 per diluted share, respectively, as further discussed below.

Net income for the three and six months ended June 30, 2021 included special items which decreased net income by $111 million and $199 million, respectively, or $0.21 and $0.39 per diluted share, respectively, as further discussed below.

Special Items

The following table provides a summary of our special items and the related impact by line item on our results for the three months ended March 31, 2022 and 2021.

The following table provides a summary of our special items and the related impact by line item on our results 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

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Business optimization items 1

(6) (10) (8) (31)

Acquisition and integration expenses 2

(9) — (173) —

European medical devices regulation 3

(12) (11) (23) (19)

Product-related items 5

Total Special Items $ (139) $ (88) $ (461) $ (181)

Impact on Gross Margin Ratio (8.6 pts) (3.1 pts)

Impact on Gross Margin Ratio (3.7 pts) (2.8 pts) (6.2 pts) (3.0 pts)

Selling, General and Administrative (SG&A) Expenses

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Total Special Items $ 137 $ 26 $ 334 $ 44

Impact on SG&A Ratio 5.3 pts 0.6 pts

Impact on SG&A Ratio 3.7 pts 0.9 pts 4.5 pts 0.7 pts

Research and Development (R&D) Expenses

Business optimization items 1

$ — $ — $ 1 $ —

Total Special Items $ — $ — $ 1 $ —

Impact on R&D Ratio 0.0 pts 0.0 pts

Impact on R&D Ratio 0.0 pts 0.0 pts 0.0 pts 0.0 pts

Other Operating Income, net

Acquisition and integration expenses 2

$ (11) $ (5) $ (28) $ (5)

Total Special Items $ (11) $ (5) $ (28) $ (5)

Other Income (Expense), net

Pension curtailment 6

$ (11) $ — $ (11) $ —

Total Special Items $ (11) $ — $ (11) $ —

Income Tax Expense

Tax matters 7

$ — $ 22 $ — $ 22

Tax effects of special items 8

(63) (20) (166) (43)

Total Special Items $ (63) $ 2 $ (166) $ (21)

Impact on Effective Tax Rate 1.5 pts (1.5 pts)

Intangible asset amortization expense, which increased significantly from the prior year due to the Hillrom acquisition, is identified as a special item to facilitate an evaluation of current and past operating performance and is consistent

with how management and our Board of Directors assess performance.

Impact on Effective Tax Rate (5.2 pts) 5.2 pts (4.1 pts) 2.1 pts

Additional special items are identified above because they are highly variable, difficult to predict and of a size that may substantially impact our reported results of operations for the period.

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These actions included streamlining our international operations, rationalizing our manufacturing and distribution facilities, reducing our general and administrative infrastructure, re-aligning certain R&D activities and cancelling certain R&D programs.

In the current period, restructuring charges include actions taken in connection with our integration of Hill-Rom Holdings, Inc.

(Hillrom), which we acquired in December 2021.

Our results in 2022 and 2021 included business optimization charges of $81 million and $27 million, respectively.

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

December 2021.

Our results in 2022 included business optimization charges of $42 million in the second quarter and $123 million in the first half.

Our results in 2021 included business optimization charges of $18 million in the second quarter and $45 million in the first half.

Refer to Note 10 in Item 1 of this Quarterly Report on Form 10-Q for further information regarding these charges and related liabilities.

2 Our results in 2022 included $171 million of acquisition and integration-related expenses.

Those costs included $188 million related to our acquisition of Hillrom, primarily reflecting $159 million of incremental cost of sales from the fair value step-ups on acquired Hillrom inventory that was sold in the current period.

We do not expect to incur significant incremental cost of sales from those inventory fair value step-ups after the first quarter 2022.

2 Our results in 2022 included $18 million in the second quarter and $189 million in the first half of acquisition and integration-related expenses.

Those costs included $29 million in the second quarter and $217 million in the first half related to our acquisition of Hillrom, primarily reflecting $159 million of incremental costs of sales in the first half from the fair value step-ups on acquired Hillrom inventory that was sold in the first quarter.

We have not incurred and we do not expect to incur significant incremental cost of sales from those inventory fair value step-ups beyond what was recognized in the first quarter 2022.

Other integration expenses in the current period included third party consulting costs related to our integration and related cost savings activities.

Those acquisition and integration-related expenses related to Hillrom were partially offset by a $17 million benefit from a change in the estimated fair value of contingent consideration liabilities assumed in the Hillrom acquisition.

Our results in 2021 included $1 million of integration expenses related to our acquisition of the rights to Caelyx and Doxil for specified territories outside of the U.S.

Those acquisition and integration-related expenses related to Hillrom were partially offset by an $11 million benefit in the second quarter and a $28 million benefit in the first half from changes in the estimated fair value of contingent consideration liabilities.

Our results in 2021 included $1 million in the second quarter and $2 million in the first half of integration expenses related to our acquisition of the rights to Caelyx and Doxil for specified territories outside of the U.S.

that was offset by a benefit of $5 million in the second quarter for the change in the estimated fair value of contingent consideration liabilities.

Refer to Note 2 in Item 1 of this Quarterly Report on Form 10-Q for further information regarding business development activities.

3 Our results in 2022 and 2021 included $11 million and $8 million, respectively, related to updating our quality systems and product labeling to comply with the new medical device reporting regulation and other requirements of the European Union’s regulations for medical devices that became effective in stages beginning in 2021.

4 Our results in 2021 included charges of $11 million for investigation and related cost for matters associated with our previously announced investigation of foreign exchange gains and losses.

3 Our results in 2022 included $12 million in the second quarter and $23 million in the first half of costs related to updating our quality systems and product labeling to comply with the new medical device reporting regulation and other requirements of the European Union’s regulations for medical devices that became effective in stages beginning in 2021.

Our results in 2021 included $11 million in the second quarter and $19 million in the first half of costs related to these requirements.

4 Our results in 2021 included charges of $17 million in the second quarter and $28 million in the first half for investigation and related cost for matters associated with our previously announced investigation of foreign exchange gains and losses.

Refer to Note 6 in Item 1 of this Quarterly Report on Form 10-Q for further information regarding the investigation.

5 Our results in 2022 included charges of $23 million related to warranty and remediation activities arising from two field corrective actions on certain of our infusion pumps.

5 Our results in 2022 included charges $23 million in the first half related to warranty and remediation activities arising from two field corrective actions on certain of our infusion pumps.

6 Our results in 2022 included a curtailment gain of $11 million in the second quarter and first half related to an announced change for active non-bargaining participants in our U.S.

Hillrom pension plan.

7 Our results in 2021 included a charge of $22 million related to an unfavorable court ruling for an uncertain tax position.

8 Reflected in this item is the income tax impact of the special items identified in this table.

The tax effect of each special item is based on the jurisdiction in which the item was incurred and the tax laws in effect for each such jurisdiction.

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.

Some of these disruptions and impacts (including the suspension or postponement of elective medical procedures) in certain of our principal markets have continued into 2021 and 2022.

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

For further discussion, refer to the Product Category Net Sales Reporting section below.

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.

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 Omicron variants, sub variants and other virus mutations as well as vaccine distribution and hesitancy.

For example, concerns remain regarding the pace of economic recovery due to virus resurgence across the globe from the Omicron variants, subvariants 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, 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.

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.

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.

Our results of operations are affected by economic conditions, including macroeconomic conditions and levels of business confidence.

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While Russia and Ukraine do not constitute a material portion of our business, a significant escalation or expansion of economic disruption or the conflict’s current scope could have an adverse effect on our business.

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.

For further discussion, please refer to Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Three Months Ended March 31, Percent change

Three Months Ended June 30, Percent change

(in millions) 2022 2021 At actual

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Total net sales $ 3,746 $ 3,098 21 % 26 %

Our acquisition of Hillrom favorably impacted net sales by 26 percentage points during the first quarter of 2022 compared to the prior year period.

Foreign currency unfavorably impacted net sales by 3 percentage points, during the first quarter of 2022 compared to the prior-year period, principally due to the strengthening of the U.S.

Dollar relative to the Euro, Turkish Lira, Australian Dollar and Japanese Yen.

Six Months Ended June 30, Percent change

(in millions) 2022 2021 At actual

currency rates At constant currency rates

United States $ 3,521 $ 2,378 48 % 48 %

International $ 3,932 3,666 7 % 14 %

Total net sales $ 7,453 $ 6,044 23 % 27 %

Our acquisition of Hillrom favorably impacted net sales by 23 and 24 percentage points during the second quarter and first half of 2022, respectively, compared to the prior year periods.

Foreign currency unfavorably impacted net sales by 5 and 4 percentage points during the second quarter and first half of 2022, respectively, compared to the prior-year periods, principally due to the strengthening of the U.S.

Dollar relative to the Euro, British Pound, Turkish Lira, Australian Dollar and Japanese Yen.

The comparisons presented at constant currency rates reflect local currency sales at the prior period’s foreign exchange rates.

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Product Category Net Sales Reporting

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

Upon our acquisition of Hillrom, we added three new product categories:

Patient Support Systems, Front Line Care and Surgical Solutions.

Following these additions, our product categories include the following:

Our product categories include the following:

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

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The following is a summary of net sales by product category:

Three Months Ended March 31, Percent change

Three Months Ended June 30, Percent change

(in millions) 2022 2021 At actual currency rates At constant currency rates

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Total Baxter $ 3,746 $ 3,098 21 % 26 %

Renal Care net sales decreased 3% in the first quarter of 2022, as compared to the prior-year period.

That decrease was driven by a 4% negative impact from foreign exchange rate changes, as compared to the prior-year period, and lower in-center HD sales, partially offset by global patient growth in PD.

Medication Delivery net sales increased 8% in the first quarter of 2022, as compared to the prior-year period.

That increase was driven by increased demand for IV administration sets and solutions, reflecting a recovery in hospital admission rates and elective surgeries, and by lower U.S.

Six months ended June 30, Percent change

(in millions) 2022 2021 At actual currency rates At constant currency rates

$ 1,825 $ 1,886 (3) % 1 %

Medication Delivery

1,416 1,349 5 % 7 %

Pharmaceuticals

1,049 1,098 (4) % 1 %

Clinical Nutrition

457 471 (3) % 3 %

Advanced Surgery

491 473 4 % 8 %

Acute Therapies

361 395 (9) % (6) %

BioPharma Solutions 319 318 0 % 6 %

Patient Support Systems 747 — N/A N/A

Front Line Care 576 — N/A N/A

Surgical Solutions 147 — N/A N/A

65 54 20 % 22 %

Total Baxter $ 7,453 $ 6,044 23 % 27 %

Renal Care net sales decreased 3% in the second quarter and 3% in the first half of 2022, as compared to the prior-year periods.

The decrease in the second quarter and first half was driven by a 5% and 4%, respectively, negative impact from foreign exchange rate changes, as compared to the prior-year periods, and lower in-center HD sales, partially offset by global patient growth in PD.

Medication Delivery net sales increased 2% in the second quarter and 5% in the first half of 2022, as compared to the prior-year periods.

The increase in the second quarter and first half was driven by increased demand for IV administration sets and solutions, reflecting a recovery in hospital admission rates and surgical procedures.

The first half of 2022 was also favorably impacted by lower U.S.

customer rebates in the current year period.

Those items were partially offset by a 2% negative impact from foreign exchange rates as compared to the prior-year period.

Pharmaceuticals net sales decreased 6% in the first quarter of 2022, as compared to the prior-year period.

That decrease was primarily driven by a 4% negative impact from foreign exchange rates, as compared to the prior-year period.

Additionally, pharmaceuticals net sales were adversely impacted by new market entrants increasing competition for certain molecules and due to supply constraints driven, in part, by labor shortages at certain of our manufacturing facilities.

Clinical Nutrition net sales decreased 3% in the first quarter of 2022, as compared to the prior-year period.

That decrease was driven by a 4% negative impact from foreign exchange rate changes, as compared to the prior-year period and lower sales of vitamins resulting from supply constraints.

Those items were partially offset by lower sales of infusion pumps, a 2% negative impact in the second quarter and first half of 2022 from foreign exchange rates as compared to the prior-year periods and sales headwinds in China driven by COVID-related lockdowns.

Supply chain constraints, including constraints related to the availability of semiconductor components and other components used in the production of our infusion pumps, and the fact that our new infusion pump platform has not yet received FDA clearance in the U.S.

have contributed to lower sales of infusion pumps in the current year periods.

Pharmaceuticals net sales decreased 3% in the second quarter and 4% in the first half of 2022, as compared to the prior-year periods.

The decrease in the second quarter and first half was primarily driven by a 6% and 5%, respectively, negative impact from foreign exchange rates, as compared to the prior-year periods.

Additionally, pharmaceuticals net sales were adversely impacted by new market entrants increasing competition for certain molecules.

Those items were partially offset by increased sales internationally for inhaled anesthesia products.

Clinical Nutrition net sales decreased 3% in the second quarter and the first half of 2022, as compared to the prior-year periods.

The decrease in the second quarter and first half was driven by a 7% and 6%, respectively, negative impact from foreign exchange rate changes, as compared to the prior-year periods, and lower sales of vitamins resulting from ongoing supply constraints.

Those decreases were partially offset by growth in the U.S.

for our PN therapies and related products.

Advanced Surgery net sales increased 5% in the first quarter of 2022, as compared to the prior-year period.

That increase was driven by a partial recovery in elective surgeries and benefits from competitor supply constraints.

Partially offsetting that increase was a 3% negative impact from foreign exchange rates, as compared to the prior-year period.

Acute Therapies net sales decreased 9% in the first quarter of 2022, as compared to the prior-year period.

That decrease was driven by lower COVID-related demand for our CRRT systems and a 2% negative impact from foreign exchange rate changes, as compared to the prior-year period.

BioPharma Solutions net sales increased 16% in the first quarter of 2022, as compared to the prior-year period.

That increase was driven by manufacturing services and supply packaging related to the production of COVID-19 vaccines on behalf of multiple pharmaceutical companies, partially offset by a 5% negative impact from foreign exchange rate changes, as compared to the prior-year period.

The Patient Support Systems, Front Line Care and Surgical Solutions product categories were added in connection with our acquisition of Hillrom.

for our PN therapies and related products, including our PN multi-chamber bags.

Advanced Surgery net sales increased 3% in the second quarter and 4% in the first half of 2022, as compared to the prior-year periods.

The increase in the second quarter and first half was driven by continued recovery in surgical procedures, particularly in EMEA, and benefits from competitor supply constraints.

Partially offsetting that increase was a 5% and 4%, respectively, negative impact from foreign exchange rates, as compared to the prior-year periods.

Acute Therapies net sales decreased 8% in the second quarter and 9% in the first half of 2022, as compared to the prior-year periods.

The decrease in the second quarter and first half was driven by lower COVID-related demand for our CRRT systems and a 4% and 3%, respectively, negative impact from foreign exchange rate changes, as compared to the prior-year periods.

BioPharma Solutions net sales decreased 11% in the second quarter and was flat in the first half of 2022, as compared to the prior-year periods.

The decrease in the second quarter includes a 6% negative impact from foreign

exchange rates, as compared to the prior-year quarterly period, and lower sales from manufacturing services and supply packaging related to the production of COVID-19 vaccines on behalf of multiple pharmaceutical companies, reflecting a challenging comparison against a strong prior-year quarterly period.

The flat net sales for the first half of 2022 reflects the offsetting impacts of a 6% negative impact from foreign exchange rates and higher sales of manufacturing services and supply packaging related to the production of COVID-19 vaccines, both as compared to the first half of 2021.

The Patient Support Systems, Front Line Care and Surgical Solutions product categories were added in connection with our acquisition of Hillrom in December of 2021.

Net sales of those product categories have been adversely impacted in the current year periods by ongoing supply chain constraints, particularly related to components used in our Front Line Care product offerings, and by delays in product installations for Patient Support Systems and Surgical Solutions resulting from limitations on hospital access due, in part, to staffing challenges being experienced by those customers.

Gross Margin and Expense Ratios

Three months ended March 31,

Three months ended June 30,

2022 % of net sales 2021 % of net sales $ change % change

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R&D $ 148 4.0 % $ 139 4.5 % $ 9 6.5 %

The gross margin ratio was 36.4% and 38.9% in the first quarter of 2022 and 2021, respectively.

The special items identified above had an unfavorable impact of approximately 8.6 and 3.1 percentage points on the gross margin ratio in the first quarter of 2022 and 2021, respectively.

Refer to the Special Items caption above for additional detail.

Excluding the impact of the special items, the gross margin ratio increased in the first quarter of 2022 compared to the prior-year period.

The increase was due to a favorable product mix, primarily driven by our acquisition of Hillrom, which was partially offset by higher manufacturing and supply chain costs resulting from raw materials inflation and the continuing impact of the COVID-19 pandemic.

The SG&A expenses ratio was 28.4% and 21.3% in the first quarter of 2022 and 2021, respectively.

The special items identified above had an unfavorable impact of approximately 5.3 and 0.6 percentage points on the SG&A expenses ratio in the first quarter of 2022 and 2021, respectively.

Six months ended June 30,

2022 % of net sales 2021 % of net sales $ change % change

Gross margin $ 2,801 37.6 % $ 2,378 39.3 % $ 423 17.8 %

SG&A $ 2,028 27.2 % $ 1,302 21.5 % $ 726 55.8 %

R&D $ 298 4.0 % $ 267 4.4 % $ 31 11.6 %

The gross margin ratio was 38.8% and 37.6% in the second quarter and first half of 2022, respectively.

The special items identified above had an unfavorable impact of approximately 3.7 and 6.2 percentage points on the gross margin ratio in the second quarter and first half of 2022, respectively.

The gross margin ratio was 39.8% and 39.3% in the second quarter and first half of 2021, respectively.

The special items identified above had an unfavorable impact of approximately 2.8 and 3.0 percentage points on the gross margin ratio in the second quarter and first half of 2021, respectively.

Refer to the Special Items caption above for additional detail.

Excluding the impact of the special items, the SG&A expenses ratio increased in the first quarter of 2022 compared to the prior-year period primarily due to the acquisition of Hillrom and increased outbound freight costs.

The R&D expenses ratio was 4.0% and 4.3% in the first quarter of 2022 and 2021, respectively.

The special items identified above had no impact on the R&D expenses ratio in the first quarter of 2022 and 2021.

Excluding the impact of the special items, the gross margin ratio decreased in the second quarter and first half of 2022 compared to the prior-year periods.

The decrease was primarily driven by raw materials inflation and increased supply chain costs, partially offset by a favorable product mix that was primarily driven by our acquisition of Hillrom and lower bonus accrual under our annual employee incentive compensation plans.

The SG&A expenses ratio was 26.1% and 27.2% in the second quarter and first half of 2022, respectively.

The special items identified above had an unfavorable impact of approximately 3.7 and 4.5 percentage points on the SG&A expenses ratio in the second quarter and first half of 2022, respectively.

The SG&A expenses ratio was 21.8% and 21.5% in the second quarter and first half of 2021, respectively.

The special items identified above had an unfavorable impact of approximately 0.9 and 0.7 percentage points on the SG&A expenses ratio in the second quarter and first half of 2021, respectively.

Refer to the Special Items caption above for additional detail.

The R&D expenses ratio decreased in the first quarter of 2022 compared to the prior-year period as a result of decreased project-related expenditures.

Excluding the impact of the special items, the SG&A expenses ratio increased in the second quarter and first half of 2022 compared to the prior-year periods primarily due to the acquisition of Hillrom and increased outbound freight costs, partially offset by lower bonus accruals under our annual employee incentive compensation plans.

The R&D expenses ratio was 4.0% in the second quarter and first half of 2022.

The R&D expenses ratio was 4.5% and 4.4% in the second quarter and first half of 2021, respectively.

The R&D expenses ratio decreases in the second quarter and first half of 2022 compared to the prior-year periods were driven by lower bonus accruals under our annual employee incentive compensation plans and decreased project-related expenditures.

Business Optimization Items

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

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

From the commencement of our business optimization actions 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.

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

From the commencement of our business optimization actions 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.

The reductions in our cost base from these actions in the aggregate are expected to provide cumulative annual pre-tax savings of more than $1.2 billion once the remaining actions are complete.

The savings from these actions have reduced cost of sales, SG&A expenses, and R&D expenses.

Approximately 99 percent of the expected annual pre-tax savings are expected to be realized by the end of 2022, with the remainder by the end of 2023.

The savings from completed or in-process actions have reduced cost of sales, SG&A expenses, and R&D expenses.

Approximately 99 percent of the expected annual pre-tax savings from those actions are expected to be realized by the end of 2022, with the remainder by the end of 2023.

We currently expect to incur additional pre-tax costs, primarily related to the 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.

Other Operating Income, Net

Other operating income, net was income of $17 million in the first quarter of 2022, which was comprised of changes in the estimated fair value of contingent consideration liabilities.

In September 2013, we entered into an agreement with Celerity Pharmaceutical, LLC (Celerity) to develop certain acute care generic injectable premix and oncolytic products through regulatory approval.

We transferred our rights in these products to Celerity and Celerity assumed ownership and responsibility for development of the products.

We are obligated to purchase the individual product rights from Celerity if the products obtain regulatory approval.

In December 2020, we entered into an agreement with a third party to divest one of the products that is currently being developed by Celerity if that product receives regulatory approval in the U.S.

and/or European Union.

If regulatory approval is obtained, we would incur a loss ranging from $30 million to $60 million for the difference between our purchase price and the divestiture proceeds in connection with that transaction.

Other operating income, net was $11 million and $28 million in the second quarter and first half of 2022, respectively, and $5 million in the second quarter and first half of 2021.

Those amounts reflect net decreases in the estimated fair values of contingent consideration liabilities.

Interest Expense, Net

Interest expense, net was $85 million in the first quarter of 2022 and $34 million in the first quarter of 2021.

The increase in 2022 was driven by higher average debt outstanding in connection with the Hillrom acquisition.

Interest expense, net was $89 million and $174 million in the second quarter and first half of 2022, respectively, and $34 million and $68 million in the second quarter and first half of 2021, respectively.

The increases in the second quarter and first half of 2022 were driven by higher average debt outstanding in connection with the Hillrom acquisition.

Other (Income) Expense, Net

Other (income) expense, net was income of $16 million and expense of $5 million in the first quarter of 2022 and 2021, respectively.

The increase in the first quarter of 2022 compared to the prior year was primarily due to higher foreign exchange gains in the current-year period, higher pension benefits and an investment impairment in the prior year.

Other (income) expense, net was income of $44 million and $60 million in the second quarter and first half of 2022, respectively, and income of $2 million and expense of $3 million in the second quarter and first half of 2021, respectively.

The increases in the second quarter and first half of 2022 compared to the prior year were primarily due to foreign exchange gains in the current-year periods versus losses in the prior-year periods, pension benefits in the current-year periods versus expenses in the prior-year periods and a pension curtailment gain in the current-year periods.

In the first quarter of 2021, we began to wind down our operations in Argentina.

Upon substantial liquidation of those operations in the future, we expect to reclassify currency translation adjustments (CTA) from accumulated other comprehensive (loss) income to other (income) expense, net and recognize a non-cash charge.

As of March 31, 2022, the CTA loss for our Argentina operations was in excess of $60 million.

Our effective income tax rate was 22.3% and 14.5% in the first quarter 2022 and 2021, respectively.

As of June 30, 2022, the CTA loss for our Argentina operations was in excess of $60 million.

Our effective income tax rate was 13.6% and 23.2% in the second quarter, and 15.7% and 19.1% in the first half of 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.

Segment Results

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Americas, EMEA and APAC, and a new global segment for our recently acquired Hillrom business.

We use net sales and operating income on a segment basis to make resource allocation decisions and

assess the ongoing performance of our segments.

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

The following is a summary of financial information for our reportable segments:

Net sales Operating income (loss)

Three months ended March 31, Three months ended March 31,

Three months ended June 30, Six months ended June 30, Three months ended June 30, Six months ended June 30,

(in millions) 2022 2021 2022 2021 2022 2021 2022 2021

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Total $ 3,746 $ 3,098 $ 7,453 $ 6,044 $ 340 $ 424 $ 503 $ 814

Segment net sales and operating income were $1.6 billion and $610 million, respectively, in the first quarter of 2022 and $1.6 billion and $599 million, respectively, in the first quarter of 2021.

The increase in operating profit in the first quarter was due to favorable sales performance in our BioPharma Solutions, Medication Delivery and Advanced Surgery product categories, partially offset by unfavorable performance in Pharmaceuticals and higher supply chain costs.

Segment net sales and operating income were $699 million and $119 million, respectively, in the first quarter of 2022 and $738 million and $135 million, respectively, in the first quarter of 2021.

The decrease in operating profit in the first quarter was primarily due to an unfavorable impact of foreign exchange rates on results as compared to the prior-year period and higher supply chain costs, partially offset by having a full quarter of sales from our February 2021 acquisition of the rights to Caelyx and Doxil for specified territories outside the U.S.

Segment net sales and operating income were $627 million and $151 million, respectively, in the first quarter of 2022 and $648 million and $138 million, respectively, in the first quarter of 2021.

The increase in operating profit in the first quarter was due to improved gross margin, driven by a favorable product mix, and lower operating expenses, partially offset by the unfavorable impact of foreign exchange rates on results as compared to the prior year period.

Segment net sales and operating income were $755 million and $200 million, respectively, in the first quarter of 2022.

The increase in operating profit in the first quarter was due to the acquisition of Hillrom in December 2021.

Segment net sales and operating income were $1.6 billion and $567 million, respectively, in the second quarter and $3.3 billion and $1.2 billion, respectively, in the first half of 2022.

Segment net sales and operating income were $1.6 billion and $632 million, respectively, in the second quarter and $3.2 billion and $1.2 billion, respectively, in the first half of 2021.

The decrease in operating income in the second quarter of 2022 was due to raw materials inflation, higher supply chain costs and lower sales in our BioPharma Solutions and Acute Therapies product categories, partially offset by higher sales in our Medication Delivery and Renal Care product categories.

The decrease in operating income in the first half of 2022 was due to raw materials inflation, higher supply chain costs and lower sales in our Pharmaceuticals and Acute Therapies product categories, partially offset by higher sales in Medication Delivery, Renal Care and Advanced Surgery.

Segment net sales and operating income were $738 million and $169 million, respectively, in the second quarter and $1.4 billion and $288 million, respectively, in the first half of 2022.

Segment net sales and operating income were $783 million and $159 million, respectively, in the second quarter and $1.5 billion and $294 million, respectively, in the first half of 2021.

The increase in operating income in the second quarter was primarily due to lower operating expenses and improved gross margin, driven by a favorable product mix, partially offset by the unfavorable impact of foreign exchange rates on results as compared to the prior-year period, raw materials inflation and higher supply chain costs.

The decrease in the first half of 2022 was primarily due to an unfavorable impact of foreign exchange rates on results as compared to the prior-year period, raw materials inflation and higher supply chain costs.

For the first half of 2022, the decrease in operating income was partially offset by having a full six months of sales from our February 2021 acquisition of the rights to Caelyx and Doxil for specified territories outside the U.S.

Segment net sales and operating income were $647 million and $156 million, respectively, in the second quarter and $1.3 billion and $307 million, respectively, in the first half of 2022.

Segment net sales and operating income were $691 million and $152 million, respectively, in the second quarter and $1.3 billion and $290 million, respectively, in the first half of 2021.

The increase in operating income in the second quarter and first half of 2022 was due to lower operating expenses and an improved gross margin, driven by a favorable product mix, partially offset by the unfavorable impact of foreign exchange rates on results as compared to the prior-year period, raw materials inflation, higher supply chain costs and sales headwinds in China driven by COVID-related lockdowns.

Segment net sales and operating income were $715 million and $149 million, respectively, in the second quarter and $1.5 billion and $349 million, respectively, in the first half of 2022.

The increases in net sales and operating income in the first quarter and first half of 2022, from zero in the prior year periods, were due to our acquisition of Hillrom in December 2021.

Corporate and Other

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 categories 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.

The Corporate operating loss in the first quarter was significantly higher than the prior-year period primarily due to higher intangible asset amortization expense, acquisition and integration-related expenses and business optimization charges, all driven by the Hillrom acquisition.

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.

The Corporate operating loss in the second quarter was significantly higher than the prior-year period primarily due to higher intangible asset amortization expense, acquisition and integration-related expenses and business optimization charges, all driven by the Hillrom acquisition, partially offset by lower bonus accruals under our annual employee incentive compensation plans.

We transferred our rights in these products to Celerity and Celerity assumed ownership and responsibility for development of the products.

We are obligated to purchase the individual product rights from Celerity if the products obtain regulatory approval.

In December 2020, we entered into an agreement with a third party to divest one of the products that is currently being developed by Celerity if that product receives regulatory approval in the U.S.

and/or European Union.

LIQUIDITY AND CAPITAL RESOURCES

The following table is a summary of the statement of cash flows for the three-month periods ended March 31, 2022 and 2021.

Three months ended March 31,

The following table is a summary of the statement of cash flows for the six-month periods ended June 30, 2022 and 2021.

Six months ended June 30,

(in millions) 2022 2021

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Cash Flows from Operations

In the first three months of 2022, cash provided by operating activities was $208 million, as compared to cash provided by operating activities of $377 million in the first three months of 2021, a decrease of $169 million.

The decrease was primarily due to a decrease in our net income in 2022 and higher annual payouts under our employee incentive compensation plans in the current year period, partially offset by favorable accounts receivable collection performance and a lower increase in inventories compared to the prior year period.

In the first half of 2022, cash provided by operating activities was $482 million, as compared to cash provided by operating activities of $854 million in the first half of 2021, a decrease of $372 million.

The decrease was primarily due to a decrease in our net income in 2022, increases in inventory levels and higher annual payouts under our employee incentive compensation plans in the current year period compared to the prior year period.

Cash Flows from Investing Activities

In the first three months of 2022, cash used for investing activities included payments for acquisitions and investments of $174 million, primarily related to our payment to acquire the rights to Zosyn, and capital expenditures of $140 million.

In the first three months of 2021, cash used for investing activities included payments for acquisitions and investments of $381 million, primarily related to Caelyx and Doxil and Transderm Scop, and capital expenditures of $171 million.

In the first half of 2022, cash used for investing activities included payments for acquisitions and investments of $190 million, primarily related to our payment to acquire the rights to Zosyn, and capital expenditures of $311 million.

In the first half of 2021, cash used for investing activities included payments for acquisitions and investments of $417 million, primarily related to Caelyx and Doxil and Transderm Scop, and capital expenditures of $329 million.

See Note 2 in Item 1 of this Quarterly Report on Form 10-Q for further information regarding business development activities.

Cash Flows from Financing Activities

In the first three months of 2022, cash used in financing activities included debt repayments of $404 million, dividend payments of $140 million, and a $45 million net repayment of short-term borrowings, partially offset by proceeds from stock issued under employee benefit plans of $66 million.

In the first three months of 2021, cash used for financing activities included payments for treasury stock repurchases of $253 million and dividend payments of $125 million, partially offset by proceeds from stock issued under employee benefit plans of $48 million.

As authorized by the Board of Directors, we repurchase our stock depending upon our cash flows, net debt levels and market conditions.

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.

We did not repurchase any shares under this authority in the first three months of 2022.

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

In the first half of 2022, cash used in financing activities included debt repayments of $749 million, dividend payments of $281 million, and a net repayment of short-term borrowings of $45 million, partially offset by proceeds from stock issued under employee benefit plans of $88 million.

In the first half of 2021, cash used for financing activities included payments for treasury stock repurchases of $565 million and dividend payments of $249 million, partially offset by proceeds from stock issued under employee benefit plans of $93 million and the net proceeds from commercial paper borrowings of $50 million.

As authorized by our Board of Directors, we repurchase our stock depending upon our cash flows, net debt levels and market conditions.

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 approximately 0.1 million shares under this authority pursuant to Rule 10b5-1 plans.

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

Credit Facilities and Access to Capital and Credit Ratings

Credit Facilities

As of March 31, 2022, our U.S.

As of June 30, 2022, our U.S.

dollar-denominated revolving credit facility and Euro-denominated revolving credit facility had a maximum capacity of $2.5 billion and €200 million, respectively.

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

As of March 31, 2022, we were in compliance with the financial covenants in these agreements.

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.

As of June 30, 2022, we were in compliance with the financial covenants in these agreements.

The non-performance of any financial institution supporting either of the credit facilities would reduce the maximum capacity of these facilities by the institution’s respective commitment.

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We intend to fund short-term and long-term obligations as they mature through cash on hand, future cash flows from operations or by issuing additional debt.

We had $2.3 billion of cash and cash equivalents as of March 31, 2022, with adequate cash available to meet operating requirements in each jurisdiction in which we operate.

We had $1.9 billion of cash and cash equivalents as of June 30, 2022, with adequate cash available to meet operating requirements in each jurisdiction in which we operate.

We invest our excess cash in money market and other funds and diversify the concentration of cash among different financial institutions.

As of March 31, 2022, we had approximately $17.2 billion of long-term debt and finance lease obligations, including current maturities, and short-term debt.

As of June 30, 2022, we had approximately $16.7 billion of long-term debt and finance lease obligations, including current maturities, and short-term debt.

Subject to market conditions, we regularly evaluate opportunities with respect to our capital structure.

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Such policies are summarized in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in our 2021 Annual Report.

There have been no significant changes in the application of our critical accounting policies during the first three months of 2022.

There have been no significant changes in the application of our critical accounting policies during the first six months of 2022.

RECENT ACCOUNTING PRONOUNCEMENTS

There are no accounting standards issued but not yet effective that we believe will have a material impact on our condensed consolidated financial statements.

In June 2022, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2022-03, Fair Value Measurement (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sales Restrictions, which (1) clarifies the guidance in Topic 820 on the fair value measurement of an equity security that is subject to contractual restrictions that prohibit the sale of an equity security and (2) requires specific disclosures related to such an equity security.

The standard is effective for our financial statements beginning in 2024.

The impact of the adoption of this ASU is not expected to have a material effect on our condensed consolidated financial statements.

LEGAL CONTINGENCIES

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FDA completed the inspection and subsequently issued a Warning Letter based on observations identified in the 2017 inspection (Claris Warning Letter).

1 Due to challenges with the ongoing COVID-19 pandemic, FDA has not yet re-inspected the facilities and management cannot speculate on when the Claris Warning Letter will be lifted.

1 FDA re-inspected the facilities and issued a Form 483 on May 17, 2022.

Classification is still pending.

Management cannot speculate on when the Claris Warning Letter will be lifted.

However, we are continuing to implement corrective and preventive actions to address FDA’s prior observations and other items we identified and management continues to pursue and implement other manufacturing locations, including contract manufacturing organizations, to support the production of new products for distribution in the U.S.

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Use of the words “may,” “will,” “would,” “could,” “should,” “believes,” “estimates,” “projects,” “potential,” “expects,” “plans,” “seeks,” “intends,” “evaluates,” “pursues,” “anticipates,” “continues,” “designs,” “impacts,” “affects,” “forecasts,” “target,” “outlook,” “initiative,” “objective,” “designed,” “priorities,” “goal,” or the negative of those words or other similar expressions is intended to identify forward-looking statements that represent our current judgment about possible future events.

These forward-looking statements may include statements with respect to accounting estimates and assumptions, impacts of the COVID-19 pandemic, litigation-related matters including outcomes, impacts of the internal investigation related to foreign exchange gains and losses, future regulatory filings and our R&D pipeline, strategic objectives, sales from new product offerings, credit exposure to foreign governments, potential developments with respect to credit ratings, investment of foreign earnings, estimates of liabilities including those related to uncertain tax positions, contingent payments, future pension plan contributions, costs, discount rates and rates of return, our exposure to financial market volatility and foreign currency and interest rate risks, potential tax liabilities associated with the separation of our biopharmaceuticals business from our medical products businesses, the impact of competition, future sales growth, business development activities (including the acquisitions of Cheetah, Seprafilm, certain outside of the U.S.

These forward-looking statements may include statements with respect to accounting estimates and assumptions, impacts of the COVID-19 pandemic and global economic conditions, litigation-related matters including outcomes, impacts of the internal investigation related to foreign exchange gains and losses, future regulatory filings and our R&D pipeline, strategic objectives, sales from new product offerings, credit exposure to foreign governments, potential developments with respect to credit ratings, investment of foreign earnings, estimates of liabilities including those related to uncertain tax positions, contingent payments, future pension plan contributions, costs, discount rates and rates of return, our exposure to financial market volatility and foreign currency and interest rate risks, potential tax liabilities associated with the separation of our biopharmaceuticals business from our medical products businesses, the impact of competition, future sales growth, business development activities (including the acquisitions of Cheetah, Seprafilm, certain outside of the U.S.

(OUS) rights to Caelyx and Doxil, full U.S.

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While these statements represent our judgment on what the future may hold, and we believe these judgments are reasonable, these statements are not guarantees of any events or financial results.

Whether actual future results and developments will conform to expectations and predictions is subject to a number of risks and uncertainties, including the following factors, many of which are beyond our control:

demand for and market acceptance risks for and competitive pressures related to new and existing products (including challenges with our ability to accurately predict changing customer preferences and needs and advances in technology and the resulting impact on customer inventory levels and the impact of reduced hospital admission rates and elective surgery volumes), and the impact of those products on quality and patient safety concerns;

Whether actual future results and developments will conform to expectations and predictions is

subject to a number of risks and uncertainties, including the following factors, many of which are beyond our control:

demand for and market acceptance risks for and competitive pressures related to new and existing products (including challenges with our ability to accurately predict changing customer preferences (which has led to and may continue to lead to increased inventory levels) and needs and advances in technology and the resulting impact on customer inventory levels and the impact of reduced hospital admission rates and elective surgery volumes), and the impact of those products on quality and patient safety concerns;

the continuity, availability and pricing of acceptable raw materials and component parts (and our ability to pass some or all of these costs on to our customers), and the related continuity of our manufacturing and distribution (including impacts from COVID-19) and those of our suppliers;

inability to create additional production capacity in a timely manner or the occurrence of other manufacturing, sterilization or supply difficulties (including as a result of natural disaster, public health crises and epidemics/pandemics, regulatory actions or otherwise);

product development risks, including satisfactory clinical performance and obtaining required regulatory approvals, the ability to manufacture at appropriate scale, and the general unpredictability associated with the product development cycle;

our ability to finance and develop new products or enhancements on commercially acceptable terms or at all;

the impact of global economic conditions (including, among other things, the ongoing war in Ukraine and the related economic sanctions being imposed globally in response to the conflict and potential trade wars) and continuing public health crises, pandemics and epidemics, such as the ongoing COVID-19 pandemic, on us and our employees, customers and suppliers, including foreign governments in countries in which we operate;

the continuity, availability and pricing of acceptable raw materials and component parts, and the related continuity of our manufacturing and distribution (including impacts from COVID-19) and those of our suppliers;

the impact of global economic conditions (including, among other things, the ongoing war in Ukraine, the related economic sanctions being imposed globally in response to the conflict and potential trade wars and global inflationary pressures) and continuing public health crises, pandemics and epidemics, such as the ongoing COVID-19 pandemic, on us and our employees, customers and suppliers, including foreign governments in countries in which we operate;

our ability to identify business development and growth opportunities and to successfully execute on business development strategies (including the Hillrom acquisition and related integration and restructuring activities);

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end stage renal disease market and demand for our peritoneal dialysis products, necessitating significant multi-year capital expenditures, which are difficult to estimate in advance);

the outcome of pending or future litigation, including the opioid litigation and current or future ethylene oxide litigation or other claims;

the outcome of pending or future litigation, including the opioid litigation and ethylene oxide litigation or other claims;

• failure to achieve our short- and long-term financial goals;

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis