What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2023-02-09 compared with 2022-02-23 · 406 added, 451 removed, 1567 unchanged (35% of the section changed)

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

CONSOLIDATED STATEMENTS OF INCOME

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

years ended December 31 (in millions, except per share data) 2022 2021 2020

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Research and development expenses 605 534 521

Other operating income, net ( 6 ) ( 19 ) ( 141 )

Operating income 1,710 1,616 1,772

Goodwill impairments 2,812 — —

Other operating expense (income), net 36 ( 6 ) ( 19 )

Operating income (loss) ( 1,943 ) 1,710 1,616

Interest expense, net 395 192 134

Other expense, net 41 190 731

Income before income taxes 1,477 1,292 970

Other (income) expense, net 15 41 190

Income (loss) before income taxes ( 2,353 ) 1,477 1,292

Income tax expense (benefit) 68 182 182

Net income 1,295 1,110 1,011

Net income (loss) ( 2,421 ) 1,295 1,110

Net income attributable to noncontrolling interests 12 11 8

Net income attributable to Baxter stockholders $ 1,284 $ 1,102 $ 1,001

Earnings per share

Net income (loss) attributable to Baxter stockholders $ ( 2,433 ) $ 1,284 $ 1,102

Earnings (loss) per share

Basic $ ( 4.83 ) $ 2.56 $ 2.17

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

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

years ended December 31 (in millions) 2022 2021 2020

Net income $ 1,295 $ 1,110 $ 1,011

Net income (loss) $ ( 2,421 ) $ 1,295 $ 1,110

Other comprehensive (loss) income, net of tax:

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Hedging activities, net of tax expense (benefit) of $ 2 in 2022, $ 7 in 2021 and ($ 34 ) in 2020

27 ( 112 ) ( 39 )

Available-for-sale debt securities, net of tax expense of $ 1 in 2022, zero in 2021 and zero in 2020

Total other comprehensive (loss) income, net of tax ( 453 ) ( 66 ) 396

Comprehensive income 1,229 1,506 1,285

Comprehensive income attributable to noncontrolling interests 11 8 10

Comprehensive income attributable to Baxter stockholders $ 1,218 $ 1,498 $ 1,275

Comprehensive income (loss) ( 2,874 ) 1,229 1,506

Net income attributable to noncontrolling interests 12 11 8

Other comprehensive loss attributable to noncontrolling interests ( 5 ) — —

Comprehensive income (loss) attributable to Baxter stockholders $ ( 2,881 ) $ 1,218 $ 1,498

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

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Adoption of new accounting standard — — — — — ( 4 ) — $ ( 4 ) — $ ( 4 )

Net income — — — — — 1,001 — $ 1,001 10 $ 1,011

Net income (loss) — — — — — 1,102 — $ 1,102 8 $ 1,110

Other comprehensive income (loss) — — — — — — 396 396 — 396

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Dividends declared on common stock — — — — — ( 488 ) — ( 488 ) — ( 488 )

Changes in noncontrolling interests — — — — — — — — ( 2 ) ( 2 )

Other changes in noncontrolling interests — — — — — — — — ( 1 ) ( 1 )

Balance as of December 31, 2020 683 $ 683 179 $ ( 11,051 ) $ 6,043 $ 16,328 $ ( 3,314 ) $ 8,689 $ 37 $ 8,726

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

Net income — — — — — 1,102 — 1,102 8 1,110

Net income (loss) — — — — — 1,284 — 1,284 11 1,295

Other comprehensive income (loss) — — — — — — ( 66 ) ( 66 ) — ( 66 )

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Dividends declared on common stock — — — — — ( 547 ) — ( 547 ) — ( 547 )

Changes in noncontrolling interests — — — — — — — — ( 1 ) ( 1 )

Other changes in noncontrolling interests — — — — — — — — ( 4 ) ( 4 )

Balance as of December 31, 2021 683 $ 683 182 $ ( 11,488 ) $ 6,197 $ 17,065 $ ( 3,380 ) $ 9,077 $ 44 $ 9,121

Net income — — — — — 1,284 — 1,284 11 1,295

Net income (loss) — — — — — ( 2,433 ) — ( 2,433 ) 12 ( 2,421 )

Other comprehensive income (loss) — — — — — — ( 453 ) ( 453 ) ( 5 ) ( 458 )

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Dividends declared on common stock — — — — — ( 582 ) — ( 582 ) — ( 582 )

Changes in noncontrolling interests — — — — — — — — ( 4 ) ( 4 )

Other changes in noncontrolling interests — — — — — — — — 11 11

Balance as of December 31, 2022 683 $ 683 179 $ ( 11,389 ) $ 6,322 $ 14,050 $ ( 3,833 ) $ 5,833 $ 62 $ 5,895

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Cash flows from operations

Net income $ 1,295 $ 1,110 $ 1,011

Adjustments to reconcile net income to net cash from operating activities:

Net income (loss) $ ( 2,421 ) $ 1,295 $ 1,110

Adjustments to reconcile net income (loss) to net cash from operating activities:

Depreciation and amortization 1,403 890 823

Pension settlement charges 2 46 755

Pension settlement and curtailment (gains) losses ( 12 ) 2 46

Net periodic pension benefit and other postretirement costs 51 99 81

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Stock compensation 154 146 130

Loss on debt extinguishment 5 110 —

Losses on debt extinguishments — 5 110

Intangible asset impairments 344 — 17

Goodwill impairments 2,812 — —

Loss on product divestiture arrangement 54 — —

Reclassification of cumulative translation loss to earnings 65 — —

Loss on subsidiary liquidation 21 — —

Settlement of interest rate derivative contracts — — ( 173 )

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$ 1,722 $ 2,956 $ 3,736

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

The following table provides a reconciliation of cash, cash equivalents and restricted cash amounts as shown in the consolidated statement of cash flows to the

amount reported in the consolidated balance sheet as of December 31, 2021 and 2020:

(1) The following table provides a reconciliation of cash, cash equivalents and restricted cash amounts as shown in the consolidated statement of cash flows to the amount reported in the consolidated balance sheet as of December 31, 2022, 2021, and 2020:

As of December 31 (in millions) 2022 2021 2020

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Americas, EMEA, APAC and Hillrom which are described in Note 17.

Risks and Uncertainties Related to COVID-19

In January 2023, we announced our intention to separate our Renal Care and Acute Therapies product categories into a new, publicly traded company.

While completion of the proposed spinoff is subject to satisfaction of customary conditions, we are targeting completion of the planned separation in 12 to 18 months after the initial announcement.

Risks and Uncertainties

Supply Constraints and Global Economic Conditions

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 other geopolitical events.

We expect to experience some of 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 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.

Over the course of the pandemic, our business has been impacted by shifting healthcare priorities and significant volatility in the demand for our products.

For further information about our revenues by product category, refer to Note 10.

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 and Delta variants 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 and moratoriums on elective procedures).

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

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

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

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

Concerns remain regarding the pace of economic recovery due to virus resurgence across the globe from the Omicron variants, subvariants and other virus mutations.

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 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 continued volatility.

We expect that the challenges caused by global economic conditions (including the COVID-19 pandemic), among other factors, may continue to have an adverse effect on our business.

Use of Estimates

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Generally Accepted Accounting Principles (U.S.

GAAP) requires us to make estimates and assumptions that affect reported amounts and related disclosures.

GAAP) requires us to make estimates and assumptions that affect the reported amounts and related disclosures in the consolidated financial statements and accompanying notes.

Actual results could differ from those estimates.

Basis of Presentation

The consolidated financial statements include the accounts of Baxter and our majority-owned subsidiaries that we control, after elimination of intra-company transactions.

Certain reclassifications have been made to conform the prior period consolidated financial statements to the current period presentation.

On December 13, 2021, we completed the previously announced acquisition of all outstanding equity interests of Hill-Rom Holdings, Inc.

(Hillrom) for a purchase price of $ 10.5 billion.

Including the assumption of Hillrom's

outstanding debt obligations, the enterprise value of the transaction was approximately $ 12.8 billion.

Beginning December 13, 2021, our financial statements include the assets, liabilities and operating results of Hillrom.

Refer to Note 2 for additional information.

On July 29, 2021, we acquired certain assets related to PerClot Polysaccharide Hemostatic System (PerClot), including distribution rights for the U.S.

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

for an upfront purchase price of $ 25 million and the potential for additional cash consideration of up to $ 36 million, which had an acquisition-date fair value of $ 28 million, based upon regulatory and commercial milestones.

Beginning July 29, 2021, our financial statements include the assets, liabilities and operating results of PerClot.

Refer to Note 2 for additional information.

On March 31, 2021, we acquired the rights to Transderm Scop (TDS) for the U.S.

and specified territories outside of the U.S.

from subsidiaries of GlaxoSmithKline for an upfront purchase price of $ 60 million including the cost of acquired inventory and the potential for additional cash consideration of $ 30 million, which had an acquisition-date fair value of $ 24 million, based upon regulatory approval of a new contract manufacturer by a specified date.

We previously sold this product under a distribution license to the U.S.

institutional market.

Beginning on March 31, 2021, our financial statements include the assets, liabilities and operating results of TDS.

Refer to Note 2 for additional information.

On February 17, 2021, we acquired the rights to Caelyx and Doxil, the branded versions of liposomal doxorubicin, from a subsidiary of Johnson & Johnson for specified territories outside of the U.S for approximately $ 325 million in cash.

Beginning February 17, 2021, our financial statements include the assets, liabilities and operating results of Caelyx and Doxil.

Refer to Note 2 for additional information.

On February 14, 2020, we completed the acquisition of the product rights to Seprafilm Adhesion Barrier (Seprafilm) from Sanofi for approximately $ 342 million in cash .

Beginning February 14, 2020, our financial statements include the assets, liabilities and operating results of Seprafilm.

Refer to Note 2 for additional information.

On October 25, 2019, we acquired 100 percent of Cheetah Medical, Inc.

(Cheetah) for total cash consideration of $ 188 million, net of cash acquired, with the potential for additional cash consideration, up to $ 40 million, based on clinical and commercial milestones for which the acquisition date fair value was $ 18 million.

Beginning October 25, 2019, our financial statements include the assets, liabilities and operating results of Cheetah.

Refer to Note 2 for additional information.

Principles of Consolidation

The consolidated financial statements include the accounts of Baxter and our majority-owned subsidiaries that we control, after elimination of intra-company balances and transactions.

Reclassifications

Certain prior year amounts have been reclassified to conform to the current year presentation.

Revenue Recognition

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Our global payment terms are typically between 30 - 90 days.

The majority of our performance obligations are satisfied at a point in time.

This includes sales of our broad portfolio of essential healthcare products across our geographic segments, including acute and chronic dialysis therapies;

Most of our performance obligations are satisfied at a point in time.

This includes sales of our broad portfolio of essential healthcare products across our business segments.

Our three legacy Baxter geographic segments including acute and chronic dialysis therapies;

sterile IV solutions;

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and surgical hemostat and sealant products.

For a majority of these sales, our performance obligation is satisfied upon delivery to the customer.

Our legacy Hillrom segment includes smart bed systems;

patient monitoring and diagnostic technologies, respiratory health devices;

and advanced equipment for the surgical space.

For most of these sales, our performance obligation is satisfied upon delivery to the customer.

Shipping and handling activities are considered to be fulfillment activities and are not considered to be a separate performance obligation.

To a lesser extent, in all of our segments, we enter into other types of contracts, including contract manufacturing arrangements, equipment leases, and certain subscription software and licensing arrangements.

To a lesser extent, we enter into arrangements for which revenue may be recognized over time.

For example, our Americas segment includes contract manufacturing arrangements, our Hillrom segment includes digital and connected care solutions and collaboration tools that are implemented over time and all our segments include equipment leases and certain subscription software and licensing arrangements.

We recognize revenue for these arrangements over time or at a point in time depending on our evaluation of when the customer obtains control of the promised goods or services.

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 when our performance does not create an asset with an alternative use and we have an enforceable right to payment for performance completed.

As of December 31, 2021, we had $ 7.8 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.

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 December 31, 2022, we had $ 10.7 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.

We expect to recognize approximately 35 % of this amount as revenue in 2022, 30 % in 2023, 15 % in each of 2024 and 2025, and 5 % in 2026.

We expect to recognize approximately 35 % of this amount as revenue in 2023, 30 % in 2024, 20 % in 2025, 10 % in 2026, and 5 % in 2027.

Significant Judgments

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

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

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

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 as reductions of accounts receivable, net on the 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.

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 that is probable not to result in a significant reversal in the amount of the cumulative revenue recognized in a future period.

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 in the years ended December 31, 2022, 2021 and 2020 related to performance obligations satisfied in prior periods was not material.

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In determining the amount of the allowance for doubtful accounts, we consider, among other items, historical credit losses, the past-due status of receivables, payment histories, other customer-specific information, current economic conditions and reasonable and supportable future forecasts.

Receivables are written off when we determine they are uncollectible.

The following table summarizes the allowance for doubtful accounts.

years ended December 31

(in millions) 2021 2020

Balance at beginning of period $ 125 $ 112

Acquisition 13 —

Adoption of new accounting standard — 4

Charged to costs and expenses ( 2 ) 11

Write-offs ( 5 ) ( 4 )

Currency translation adjustments ( 9 ) 2

Balance at end of period $ 122 $ 125

Receivables are written off when we determine that they are uncollectible.

Shipping and Handling Costs

Shipping costs, which are costs incurred to physically move product from our premises to the customer’s premises, are classified as selling, general and administrative (SG&A) expenses.

Handling costs, which are costs incurred to

store, move and prepare products for shipment, are classified as cost of sales.

Shipping costs incurred to physically move product from our premises to the customer’s premises are classified as selling, general and administrative (SG&A) expenses.

Handling costs, which are costs incurred to store, move and prepare products for shipment, are classified as cost of sales.

Approximately $ 493 million in 2022, $ 381 million in 2021 and $ 325 million in 2020 of shipping costs were classified in SG&A expenses.

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Employee termination costs are primarily recorded when actions are probable and estimable.

Costs for one-time

termination benefits in which the employee is required to render service until termination in order to receive the benefits are recognized ratably over the future service period.

Costs for one-time termination benefits in which the employee is required to render service until termination in order to receive the benefits are recognized ratably over the future service period.

Refer to the discussion below regarding the accounting for asset impairment charges.

Goodwill, Intangible Assets and Other Long-Lived Assets

Goodwill is the excess of the purchase price over the fair value of acquired assets and liabilities in a business combination.

Goodwill is initially measured as the excess of the purchase price over the fair value (or other measurement attribute required by U.S.

GAAP) of acquired assets and liabilities in a business combination.

Goodwill is not amortized but is subject to an impairment review annually and whenever indicators of impairment exist.

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If the carrying amount of the reporting unit exceeds the estimated fair value, an impairment charge is recorded for the amount that its carrying amount, including goodwill, exceeds its fair value, limited to the total amount of goodwill allocated to that reporting unit.

In 2021, we changed the measurement date of our annual goodwill impairment test from December 31st to November 1st.

In a quantitative goodwill impairment test, the fair values of our reporting units are generally determined based on a discounted cash flow model (an income approach) and earnings multiples (a market approach).

Significant inputs to reporting unit fair value measurements generally include forecasted cash flows, discount rates, terminal growth rates and earnings multiples.

Each of those inputs can significantly affect the fair values of our reporting units.

In 2021, we changed the measurement date of our annual goodwill impairment test from December 31 to November 1.

This change better aligns the timing of the goodwill impairment test with our long-term business planning process.

The change was not material to our consolidated financial statements as it did not result in the delay, acceleration or avoidance of an impairment charge.

Indefinite-lived intangible assets, such as IPR&D acquired in business combinations and certain trademarks with indefinite lives, are subject to an impairment review annually and whenever indicators of impairment exist.

Indefinite-lived intangible assets, such as IPR&D acquired in business combinations and certain trade names with indefinite lives, are subject to an impairment review annually and whenever indicators of impairment exist.

We have the option to assess indefinite-lived intangible assets for impairment by first performing qualitative assessments to determine whether it is more-likely-than-not that the fair values of the indefinite-lived intangible assets are less than the carrying amounts.

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If the carrying amount exceeds the fair value of the indefinite-lived intangible asset, we write the carrying amount down to the fair value.

In 2021, we changed the measurement date of our annual indefinite-lived intangible asset impairment tests from December 31st to November 1st.

In 2021, we changed the measurement date of our annual indefinite-lived intangible asset impairment tests

from December 31 to November 1.

This change better aligns the timing of the impairment tests with our long-term business planning process.

The change was not material to our consolidated financial statements as it did not result in the delay, acceleration or avoidance of an impairment charge.

We review the carrying amounts of long-lived assets, other than goodwill and intangible assets not subject to amortization, for potential impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

During the third quarter of 2022, we performed trigger-based impairment tests of the goodwill of each of our Hillrom reporting units as well as the indefinite-lived intangible assets, consisting primarily of trade names, that we acquired in connection with the Hillrom acquisition.

We recognized $ 2.8 billion of goodwill impairment charges and $ 332 million of pre-tax impairment charges related to those indefinite-lived intangible assets.

In connection with our annual goodwill impairment assessment in the fourth quarter of 2022, we performed quantitative impairment tests for all of our reporting units and recorded an additional $ 27 million goodwill impairment related to one of our Hillrom reporting units.

See Note 4, Goodwill and Other Intangible Assets, Net for further information about those impairments.

We review the carrying amounts of long-lived assets used in operations, other than goodwill and intangible assets not subject to amortization, for potential impairment when events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

In evaluating recoverability, we group assets and liabilities at the lowest level such that the identifiable cash flows relating to the group are largely independent of the cash flows of other assets and liabilities.

We then compare the carrying amounts of the assets or asset groups with the related estimated undiscounted future cash flows.

In the event impairment exists, an impairment charge is recorded as the amount by which the carrying amount of the asset or asset group exceeds the fair value.

In the event an asset (or asset group) is not recoverable, an impairment charge is recorded as the amount by which the carrying amount of the asset (or asset group) exceeds its fair value.

Long-lived assets are classified as held for sale when certain criteria are met, including when management has committed to sell the asset, the asset is available for sale in its present condition and the sale is probable of being completed within one year of the balance sheet date.

Assets held for sale are no longer depreciated or amortized and they are reported at the lower of their carrying amount or fair value less cost to sell.

Investments in Equity Securities

Our investments in marketable equity securities are classified as other non-current assets and are measured at fair value with gains and losses recognized in other expense, net.

Our investments in marketable equity securities are classified as other non-current assets and are measured at fair value with gains and losses recognized in other (income) expense, net.

We have elected to apply the measurement alternative to equity securities without readily determinable fair values.

As such, our non-marketable equity securities are measured at cost, less any impairment, and are adjusted for changes in fair value resulting from observable transactions for identical or similar investments of the same issuer.

Gains and losses on non-marketable equity securities are also recognized in other expense, net.

Gains and losses on non-marketable equity securities are also recognized in other (income) expense, net.

Noncontrolling investments in common stock or in-substance common stock are accounted for under the equity method if we have the ability to exercise significant influence over the operating and financial policies of the investee.

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With respect to uncertain tax positions, we determine whether the position is more-likely-than-not to be sustained upon examination based on the technical merits of the position.

tax position that meets the more-likely-than-not recognition threshold is measured and recognized in the consolidated financial statements at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

Any tax position that meets the more-likely-than-not recognition threshold is measured and recognized in the consolidated financial statements at the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement.

The liability relating to uncertain tax positions is classified as current in the consolidated balance sheets to the extent that we anticipate making a payment within one year.

Interest and penalties associated with income taxes are classified in the income tax expense line in the consolidated statements of income.

Interest and penalties associated with income taxes are classified in the income tax expense (benefit) line in the consolidated statements of income (loss).

Foreign Currency Translation

Currency translation adjustments (CTA) related to foreign operations are included in other comprehensive income (OCI).

For foreign operations in highly inflationary economies, translation gains and losses are included in other expense, net, and were not material in 2021, 2020 and 2019.

Cumulative translation adjustments (CTA) related to foreign operations are included in other comprehensive (loss) income (OCI).

For foreign operations in highly inflationary economies, translation gains and losses are included in other (income) expense, net, and were not material in 2022, 2021 and 2020.

Derivatives and Hedging Activities

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

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

For each derivative instrument that is designated and effective as a cash flow hedge, the gain or loss on the derivative is recorded in accumulated other comprehensive income (AOCI) and then recognized in earnings consistent with the underlying hedged item.

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

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

For each derivative instrument that is designated and effective as a cash flow hedge, the gain or loss on the derivative is recorded in accumulated other comprehensive income (loss) (AOCI) and then recognized in earnings consistent with the underlying hedged item.

Option premiums or net premiums paid are initially recorded as assets and reclassified to OCI over the life of the option, and then recognized in earnings consistent with the underlying hedged item.

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We have designated our Euro-denominated senior notes 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.

For derivative instruments that are not designated as hedges, the change in fair value is recorded directly to other expense, net.

For derivative instruments that are not designated as hedges, the change in fair value is recorded directly to other (income) expense, net.

If it is determined that a derivative or nonderivative hedging instrument is no longer highly effective as a hedge, we discontinue hedge accounting prospectively.

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Cash flows for all other derivatives, including those that are not designated as a hedge, are classified in the same line item as the cash flows of the related hedged item, which is generally within operating activities.

Refer to Note 15 for further information regarding our derivative and hedging activities.

New Accounting Standards

Recently issued accounting standards not yet adopted

In July 2021, the Financial Accounting Standards Board (FASB) issued 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.

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.

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.

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Recently adopted accounting pronouncements

As of January 1, 2022, we adopted 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.

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.

The adoption of this ASU did not have a material impact on our consolidated financial statements.

In the fourth quarter of 2021, we adopted ASU 2021-08, Business Combinations - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers.

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The impact of the adoption of this ASU was an increase to our allowance for doubtful accounts and a decrease to retained earnings of $ 4 million.

As of January 1, 2020, we adopted ASU No.

2018-15, Intangibles-Goodwill and Other-Internal-Use Software, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software.

Our policies for capitalizing implementation costs incurred in a hosting arrangement were not impacted by this ASU.

However, we have historically classified those capitalized costs within property, plant and equipment, net on our consolidated balance sheets and as capital expenditures on our consolidated statements of cash flows.

Under the new ASU, those capitalized costs are presented as other non-current assets on our consolidated balance sheets and within operating cash flows on our consolidated statements of cash flows.

We adopted this ASU on a prospective basis and capitalized $ 45 million and $ 44 million of implementation costs related to hosting arrangements that are service contracts during the years ended December 31, 2021 and 2020, respectively.

As of January 1, 2020, we adopted ASU No.

2017-04, Intangibles – Goodwill and Other, Simplifying the Test for Goodwill Impairment.

This standard eliminates Step 2 of the goodwill impairment test and requires a goodwill impairment to be measured as the amount by which a reporting unit’s carrying amount exceeds its fair value, not to exceed the carrying amount of its goodwill.

The adoption of this standard did not impact our consolidated financial statements.

As of January 1, 2020, we adopted ASU No.

2018-14, Compensation – Retirement Benefits – Defined Benefit Plans – General (Topic 715-20):

Disclosure Framework – Changes to the Disclosure Requirements for Defined Benefit Plans.

This ASU amends ASC 715 to remove certain disclosures, clarify certain existing disclosures and add additional disclosures.

The adoption of this standard did not have a material impact on our consolidated financial statements.

As of January 1, 2019, we adopted ASU No.

2016-02, Leases (Topic 842).

Under this guidance, lessees are required to recognize a right-of-use asset and a lease liability on the balance sheet for all operating leases, other than those that meet the definition of a short-term lease.

We adopted Topic 842 using the modified retrospective method.

We elected the following practical expedients when assessing the transition impact:

i) not to reassess whether any expired or existing contracts as of the adoption date are or contain leases;

ii) not to reassess the lease

classification for any expired or existing leases as of the adoption date;

and iii) not to reassess initial direct costs for any existing leases as of the adoption date.

The impact to the consolidated statements of income was not material and there was no net impact to the consolidated statements of cash flows.

As of January 1, 2019, we adopted ASU No.

2018-02, Reclassification of Certain Tax Effects from AOCI.

This guidance provides for a reclassification of certain tax effects from AOCI to retained earnings.

The impact of the adoption of this standard was a $ 161 million increase to retained earnings.

ACQUISITIONS AND OTHER ARRANGEMENTS

Results of operations of acquired companies are included in our results of operations as of the respective acquisition dates.

Results of operations of acquired businesses are included in our results of operations beginning as of the respective acquisition dates.

The purchase price of each acquisition is allocated to the net assets acquired based on estimates of their fair values (or other measurement attribute required under U.S.

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Subsequent changes to the fair value of those contingent consideration arrangements are recognized in earnings.

Contingent consideration related to acquisitions may consist of development, regulatory and commercial milestone payments, and sales or earnings-based payments, and are valued using discounted cash flow techniques.

Contingent consideration related to business acquisitions may consist of development, regulatory and commercial milestone payments, and sales or earnings-based payments, and are valued using discounted cash flow techniques.

The fair value of development, regulatory and commercial milestone payments reflects management’s expectations of the probability of payment, and increases or decreases as the probability of payment or expectation of timing or amount of payments changes.

The fair value of sales-based payments is based upon probability-weighted future revenue estimates and increases or decreases as revenue estimates or expectation of timing or amount of payments changes.

On December 13, 2021, we completed the previously announced acquisition of all outstanding equity interests of Hillrom for a purchase price of $ 10.5 billion.

On December 13, 2021, we completed our acquisition of all outstanding equity interests of Hillrom for a purchase price of $ 10.5 billion.

Including the assumption of Hillrom's outstanding debt obligations, the enterprise value of the transaction was approximately $ 12.8 billion.

Under the terms of the transaction agreement, Hillrom shareholders received $ 156.00 in cash per each outstanding Hillrom common share.

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

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

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

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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 December 31, 2021.

As a result, we recorded preliminary estimates for the fair value of assets acquired and liabilities assumed as of the acquisition date.

Finalization of the valuation during the measurement period could result in a change in the

amounts recorded for the acquisition date fair value of intangible assets, goodwill and income taxes among other items.

The completion of the valuation will occur no later than one year from the acquisition date.

The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed as of the acquisition date:

The valuation of assets acquired and liabilities assumed was finalized during the fourth quarter of 2022.

The following table summarizes the fair values of the assets acquired and liabilities assumed as of the acquisition date:

(in millions)

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Total assets acquired and liabilities assumed $ 10,476

In the fourth quarter of 2022, we finalized our valuation of the acquisition date assets acquired and liabilities assumed.

The measurement period adjustments recorded in 2022 primarily impacted accounts receivable, property plant and equipment, other intangible assets, accrued expenses and other current liabilities and deferred income tax liabilities.

Individually, the measurement period adjustments were not material and in total increased goodwill by $ 49 million.

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

We allocated $ 804 million of the total consideration to developed technology with a weighted-average useful life of 5 years, $ 1.9 billion to trade names with an indefinite useful life, $ 62 million to trade names with a weighted-average useful life of 7 years, $ 3.2 billion to customer relationships with a weighted-average useful life of 15 years and $ 30 million to IPR&D that is considered an indefinite lived intangible asset.

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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.

The results of operations of the acquired business have been included in our consolidated statement of income since the date the business was acquired.

The Hillrom acquisition contributed $ 212 million of net sales and a $ 96 million of pretax loss, including integration costs and interest expense on acquisition financing, for the year ended December 31, 2021.

Costs directly resulting from the Hillrom acquisition, included acquisition and integration costs of $ 139 million and the incremental cost of sales relating to inventory fair value step-ups of $ 42 million in 2021.

See Note 4 for additional information about the impairments recognized in the second half of 2022 related to goodwill and certain intangible assets acquired in the Hillrom acquisition.

The results of operations of the acquired business have been included in our consolidated statement of income (loss) since the date the business was acquired.

The Hillrom acquisition contributed $ 2.9 billion and $ 212 million of net sales for the years ended December 31, 2022 and 2021, respectively, and $ 3.6 billion and $ 96 million of pretax losses, for the years ended December 31, 2022 and 2021.

Significant drivers of Hillrom’s pretax loss in 2022 included goodwill and intangible asset impairments, intangible asset amortization expense, incremental cost of sales from fair value step-ups on acquired inventory, restructuring charges related to the integration and interest expense on the borrowings used to finance the acquisition.

Significant drivers of Hillrom’s pretax loss for 2021, which reflects the period from the December 13, 2021 acquisition date through year-end, included intangible asset amortization expense, incremental cost of sales from fair value step-ups on acquired inventory, acquisition-related expenses and interest expense on the borrowings used to finance the acquisition.

For the year ended December 31, 2022, we incurred $ 93 million of integration-related costs and $ 159 million of incremental cost of sales from the fair value step-ups on acquired Hillrom inventory that was sold in 2022.

We also incurred $ 85 million of restructuring charges in 2022 related to our integration of Hillrom.

See Note 11 for additional information about our restructuring activities.

For the year ended December 31, 2021, we incurred $ 139 million of acquisition and integration-related costs, $ 48 million of bridge facility fees and other pre-acquisition financing costs and $ 42 million of incremental cost of sales from the fair value step-ups on acquired Hillrom inventory that was sold in 2021.

See Note 5 for additional information about financing arrangements related to the Hillrom acquisition.

The following table presents the unaudited pro forma combined results of Baxter and Hillrom for the years ended December 31, 2021 and 2020 as if the acquisition of Hillrom had occurred on January 1, 2020:

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

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

The fair values of the potential contingent consideration payments were estimated by applying probability-weighted

expected payment models and are Level 3 fair value measurements due to the significant estimates and assumptions used by management in establishing the estimated fair values.

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

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Total assets acquired $ 53

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

The results of operations of the acquired business have been included in our consolidated statement of income since the date the business was acquired and were not material for the year ended December 31, 2021.

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

The results of operations of the acquired business have been included in our consolidated statement of income (loss) since the date the business was acquired and were not material for the year ended December 31, 2021.

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

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

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Total assets acquired $ 84

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

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Total assets acquired $ 342

The results of operations of the acquired business have been included in our consolidated statement of income since the date the business was acquired.

The results of operations of the acquired business have been included in our consolidated statement of income (loss) since the date the business was acquired.

The acquisition contributed $ 94 million of net sales and $ 18 million of pretax income for the year ended December 31, 2020.

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

Cheetah Medical, Inc.

On October 25, 2019, we acquired 100 percent of Cheetah Medical, Inc.

(Cheetah), a leading provider of hemodynamic monitoring technologies, for total upfront cash consideration of $ 195 million, net of cash acquired, with the potential for additional cash consideration, up to $ 40 million, based on clinical and commercial milestones for which the acquisition date fair value was $ 18 million.

In 2020, we received $ 7 million from the sellers as a result of an acquisition price adjustment in accordance with the acquisition agreement.

The fair value of the potential contingent consideration payments was estimated by applying a probability-weighted expected payment model for the clinical milestone and a Monte Carlo simulation model for the commercial milestone, which were then discounted to present value.

The fair value measurements were based on Level 3 inputs.

The following table summarizes the fair value of consideration transferred:

(in millions)

Cash consideration transferred $ 190

Contingent consideration 18

Total consideration $ 208

The following table summarizes the fair values of the assets acquired and liabilities assumed as of the acquisition date:

(in millions)

Assets acquired and liabilities assumed

Accounts receivable, net 3

Inventories 1

Prepaid expenses and other current assets 1

Property, plant and equipment 1

Other intangible assets 131

Operating lease right-of-use assets 1

Accounts payable and accrued liabilities ( 4 )

Other non-current liabilities ( 12 )

Total assets acquired and liabilities assumed $ 208

The results of operations of the acquired business have been included in our consolidated statement of income since the date the business was acquired and were not significant.

Acquisition and integration costs associated with the acquisition were $ 5 million and $ 3 million in 2020 and 2019, respectively.

We allocated $ 123 million of the total consideration to the developed product rights with a weighted-average useful life of 15 years and $ 8 million to customer relationships with a useful life of 13 years.

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

The discount rates used to measure the intangible assets were 11.0 % for developed product rights and 10.0 % for customer relationships.

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

The goodwill, which is not deductible for tax purposes, includes the value of potential future technologies as well as the overall strategic benefits provided to our product portfolio and is included primarily in the Americas segment.

Other Business Combinations

Total consideration transferred for other acquisitions totaled $ 32 million, $ 21 million and $ 18 million in 2022, 2021 and 2020, respectively, and primarily resulted in the recognition of goodwill and other intangible assets.

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Other Business Development Activities

Celerity Pharmaceuticals, LLC

In September 2013, we entered into an agreement with Celerity Pharmaceuticals, 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 were obligated to purchase the individual product rights from Celerity if the products obtained regulatory approval.

In December 2020, we entered into an agreement with a third party to divest our rights to one of the products that was being developed by Celerity, a generic version of liposomal doxorubicin, for less than $ 1 million if that product were to receive regulatory approval in the U.S.

and European Union in 2022.

Liposomal doxorubicin is a chemotherapy medicine used to treat various types of cancer and we entered into this transaction to divest our rights to this generic version of that product after we had separately entered into a transaction to acquire the branded version.

The related regulatory approvals were subsequently obtained for the generic version of liposomal doxorubicin and we recognized a loss of approximately $ 54 million in the third quarter of 2022, representing the difference between the amount we owed Celerity following those regulatory approvals and the proceeds that we were entitled to receive from our divestiture of those product rights.

That loss is reported within other operating expense (income), net in our consolidated statements of operations for the year ended December 31, 2022.

In March 2022, we entered into an agreement with a subsidiary of Pfizer Inc.

to acquire the rights to Zosyn, a premixed frozen piperacillin-tazobactam product, in the U.S.

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 and received specified intellectual property, including patent rights, in the first quarter of 2022 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.

The related profit sharing payments that were received during 2022 were not material.

The transaction has been accounted for as an asset acquisition, as substantially all of the fair value of the assets being acquired under the arrangement was concentrated in the product rights that we will receive, which we classify as a developed technology intangible asset.

Accordingly, the $ 122 million purchase price was primarily allocated to the developed technology intangible asset class and will be amortized over an estimated useful life of 9 years.

Caelyx and Doxil

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Net sales related to this acquisition were $ 108 million for the year ended December 31, 2021.

Celerity Pharmaceuticals, LLC

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.

We did not purchase any product rights from Celerity in 2021 or 2020.

In 2019, we paid $ 86 million to acquire the rights to various products that have received regulatory approval.

We capitalized the purchase prices of products that were purchased upon regulatory approval as intangible assets and are amortizing the assets over their estimated useful lives of 12 years.

As of December 31, 2021, our contingent future payments total up to $ 77 million upon Celerity’s achievement of specified regulatory approvals.

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 Asset Acquisitions

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During 2021 and 2020, we also entered into distribution license arrangements for multiple products that have not yet obtained regulatory approval for upfront cash payments of $ 3 million and $ 22 million, respectively.

The cash paid was treated as R&D expenses on our consolidated statements of income.

The cash paid was treated as R&D expenses on our consolidated statements of income (loss).

We could make additional payments of up to $ 36 million upon the achievement of certain development, regulatory or commercial milestones.

During 2019, we acquired the rights to multiple products for an aggregate purchase price of $ 80 million.

The purchase prices were capitalized primarily as developed-technology intangible assets and are being amortized over a weighted-average useful life of 10 years.

In addition to the significant arrangements described above, we have entered into several other collaborative arrangements.

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SUPPLEMENTAL FINANCIAL INFORMATION

Allowance for Doubtful Accounts

The following table is a summary of changes in our allowance for doubtful accounts for the years ended December 31, 2022 and 2021.

years ended December 31

(in millions) 2022 2021

Balance at beginning of period $ 122 $ 125

Acquisition — 13

Charged to costs and expenses 7 ( 2 )

Write-offs ( 7 ) ( 5 )

Currency translation adjustments ( 8 ) ( 9 )

Balance at end of period $ 114 $ 122

as of December 31 (in millions) 2022

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Contract assets 93 84

Assets held for sale 50 —

Other 399 390

Prepaid expenses and other current assets $ 916 $ 839

In September 2022, we signed a purchase agreement with a buyer to sell our corporate headquarters in Deerfield, Illinois for $ 52 million.

The related assets are classified as held for sale and are presented within prepaid expenses and other current assets in the accompanying consolidated balance sheet as of December 31, 2022.

While the closing remains subject to the satisfaction of various closing conditions (including satisfactory completion of municipal diligence by the buyer), we expect the transaction to close in 2023.

The net book value of the assets approximates the transaction price net of estimated selling costs.

Property, Plant and Equipment, Net

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Interest expense, net $ 395 $ 192 $ 134

Other Expense, net

Other (Income) Expense, net

years ended December 31 (in millions) 2022 2021 2020

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Loss on debt extinguishment — 5 110

Pension settlements 2 46 755

Pension and other postretirement benefit plans 11 ( 3 ) ( 53 )

Pension settlement and curtailment (gains) losses ( 12 ) 2 46

Pension and other postretirement benefit (gains) losses ( 25 ) 11 ( 3 )

Reclassification of cumulative translation loss to earnings 65 — —

Other, net ( 2 ) ( 3 ) 1

Other expense, net $ 41 $ 190 $ 731

Other (income) expense, net $ 15 $ 41 $ 190

We have been winding down our operations in Argentina since early 2021 and we determined that the net assets of the related entities were substantially liquidated during the third quarter of 2022.

As a result of that determination, we reclassified their $ 65 million cumulative translation loss from accumulated other comprehensive income (loss) to other (income) expense, net.

Supplemental Cash Flow Information

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December 31, 2020 $ 2,574 $ 406 $ 237 $ — $ 3,217

Reallocation of Goodwill 81 ( 81 ) — — —

Additions 4 1 — 6,785 6,790

Acquisition accounting adjustments ( 45 ) ( 6 ) ( 2 ) — ( 53 )

Currency translation ( 142 ) ( 17 ) ( 13 ) 1 ( 171 )

December 31, 2021 $ 2,517 $ 309 $ 224 $ 6,786 $ 9,836

Reallocation of goodwill 81 ( 81 ) — — —

Additions 4 1 — 6,785 6,790

Impairments — — — ( 2,812 ) ( 2,812 )

Measurement period adjustments — — — 49 49

Currency translation ( 161 ) ( 20 ) ( 14 ) ( 35 ) ( 230 )

December 31, 2022 $ 2,356 $ 289 $ 210 $ 3,988 $ 6,843

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

As discussed in Note 17 - Segment Information, we made a change to our reportable segments in the first quarter of 2021.

As a result of this change, we reallocated goodwill from our EMEA segment to the Americas segment using a relative fair value approach.

In addition, we completed an assessment of any potential goodwill impairment for all reporting units immediately prior to and following the reallocation and determined that no impairment existed.

Goodwill Impairments

As described in Note 2, we acquired Hillrom on December 13, 2021 and recognized $ 6.8 billion of goodwill and $ 6.0 billion of other intangible assets, including $ 1.9 billion of indefinite-lived intangible assets, in connection with that acquisition.

Our Hillrom segment includes the following three reporting units:

Patient Support Systems, Front Line Care and Surgical Solutions.

During the third quarter of 2022, we performed trigger-based impairment tests of the goodwill of each of those three reporting units, as well as the indefinite-lived intangible assets, consisting primarily of trade names, that we acquired in connection with the Hillrom acquisition.

We performed those tests as of September 30, 2022 due to (a) current macroeconomic conditions, including the rising interest rate environment and broad declines in equity valuations, and (b) reduced earnings forecasts for our three Hillrom reporting units, driven primarily by current shortages of certain component parts used in our products, raw materials inflation and increased supply chain costs.

Those impairment tests resulted in total pre-tax goodwill impairment charges of $ 2.8 billion in the third quarter of 2022 relating to our Patient Support Systems, Front Line Care and Surgical Solutions reporting units.

No goodwill impairments were recorded for our remaining reporting units in connection with our annual goodwill impairment tests because the fair values of those reporting units exceeded their carrying amounts.

See further discussion below for information regarding intangible asset impairment charges recognized during the third and fourth quarters of 2022.

The fair values of the reporting units tested for impairment during 2022 were determined based on a discounted cash flow model (an income approach) and earnings multiples (a market approach) based on the guideline public company method.

Significant assumptions used in the determination of fair value of our reporting units generally include forecasted cash flows, discount rates, terminal growth rates and earnings multiples.

The discounted cash flow models used to determine the fair values of our reporting units during 2022 reflected our most recent cash flow projections, discount rates ranging from 9 % to 10 % and terminal growth rates ranging from 2 % to 3 %.

Our reporting unit fair value measurements are classified as Level 3 in the fair value hierarchy because they involve significant unobservable inputs.

Other Intangible Assets, Net

The following is a summary of our other intangible assets.

(in millions) Developed technology,

Indefinite-lived intangible assets

(in millions) Customer relationships Developed technology,

including patents Other amortized

intangible assets Customer relationships Indefinite-lived

intangible assets Total

intangible assets Trade Names In process Research and Development Total

December 31, 2022

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The anticipated annual amortization expense for definite-lived intangible assets recorded as of December 31, 2022 is $ 635 million in 2023, $ 615 million in 2024, $ 583 million in 2025, $ 553 million in 2026 and $ 385 million in 2027.

In the second quarters of 2020 and 2019, we recognized impairment charges of $ 17 million and $ 31 million, respectively, related to developed-technology intangible assets due to declines in market expectations for the related products.

The fair values of the intangible assets were measured using a discounted cash flow approach and the charges are classified within cost of sales in the accompanying consolidated statements of income for the years ended December 31, 2020 and 2019.

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

Intangible Asset Impairments

In addition to the goodwill impairments discussed above, we recognized pre-tax impairment charges of $ 332 million in the third quarter of 2022 to reduce the carrying amounts of certain indefinite-lived intangible assets, which primarily related to the Hillrom and Welch Allyn trade names acquired in the Hillrom acquisition, to their estimated fair values.

Those intangible asset impairment charges are classified within cost of sales in the accompanying consolidated statements of income (loss) for the year ended December 31, 2022.

The fair values of the trade name intangible assets were determined using the relief from royalty method.

Significant assumptions used in the determination of the fair value of the trade name intangible assets included revenue growth rates, terminal growth rates, discount rates and royalty rates.

The relief from royalty models used in the determination of the fair values of our trade name intangible assets during 2022 reflected our most recent revenue projections, a discount rate of 9.5 %, royalty rates ranging from 3 % to 5 % and terminal growth rates ranging from 2 % to 3 %.

Our trade name intangible asset fair value measurements are classified as Level 3 in the fair value hierarchy because they involve significant unobservable inputs.

In the fourth quarter of 2022 and second quarter of 2020, we recognized impairment charges of $ 12 million and $ 17 million, respectively, related to developed-technology intangible assets due to declines in market expectations for the related products.

We consider the fair values of the assets to be Level 3 measurements due to the significant estimates and assumptions, including forecasted future cash flows, that we used in establishing the estimated fair values.

DEBT AND CREDIT FACILITIES

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1.1 % 799 797

0.868 % notes due 2023

Floating-rate notes due 2023 2.3 % 299 298

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Term loan due 2024 3.0 % 1,664 1,998

1.3 % notes due in 2025

1.3 % notes due 2025

1.5 % 640 678

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3.132 % notes due 2051

3.2 % 742 742

Finance leases and other 9.4 % 70 81

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Significant Debt Activity

In May 2019, we issued € 750 million of 0.40 % senior notes due May 2024 and € 750 million of 1.3 % senior notes due May 2029.

We have designated these debt instruments as net investment hedges of our European operations.

Refer to Note 15 for additional information.

In March 2020, we issued $ 750 million of 3.75 % senior notes due in October 2025 and $ 500 million of 3.95 % senior notes due in April 2030 (collectively, the March 2020 senior notes).

Pursuant to a registration rights agreement (the March 2020 Registration Rights Agreement) with the initial purchasers of the March 2020 senior notes, we agreed

to use our commercially reasonable efforts to file a registration statement with respect to a registered offer to exchange the March 2020 senior notes for new notes with terms substantially identical in all material respects to the March 2020 senior notes and to have such registration statement declared effective under the U.S.

Pursuant to a registration rights agreement (the March 2020 Registration Rights Agreement) with the initial purchasers of the March 2020 senior notes, we agreed to use our commercially reasonable efforts to file a registration statement with respect to a registered offer to exchange the March 2020 senior notes for new notes with terms substantially identical in all material respects to the March 2020 senior notes and to have such registration statement declared effective under the U.S.

Securities Act of 1933.

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We used the proceeds from the November 2020 senior notes, along with cash on hand, to redeem the $ 750 million of 3.75 % senior notes due in October 2025 that were issued in March 2020.

In connection with the redemption of the $ 750 million of 3.75 % senior notes due in October 2025, including the payment of a $ 104 million make-whole premium to the debt holders, we recognized a pre-tax loss of $ 110 million from the early extinguishment of debt, which is included in other expense, net in 2020.

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

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

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

Loans under the Term Loan Facility were funded on the closing date of the Hillrom acquisition to fund a portion of the consideration for the Hillrom acquisition, repay certain indebtedness of Hillrom, and pay fees and expenses related to the foregoing.

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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 pay fees and expenses related to the foregoing.

Pursuant to a registration rights agreement (the Hillrom Notes Registration Rights Agreement) with the initial purchasers of the Hillrom notes, we agreed to use our commercially reasonable efforts to file a registration statement with respect to a registered offer to exchange the Hillrom notes for new notes with terms substantially identical in all material respects to the Hillrom notes and to have such registration statement declared effective under the U.S.

Securities Act of 1933.

If we fail to have such registration statement declared effective by March 25, 2023 (a registration default), the annual interest rate on the Hillrom notes would increase by 0.25 % for the 90-day period immediately following such registration default and by an additional 0.25 % thereafter.

The maximum additional interest rate is 0.50 % per annum and if a registration default is corrected, the Hillrom notes would revert to the original interest rates.

The payment of additional interest is the sole remedy for the holders of the Hillrom notes in the event of a registration default.

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 the second quarter of 2022.

On September 1, 2021, we entered into a bridge facility commitment letter with JPMorgan Chase Bank, N.A.

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The commitments under the Bridge Facility were reduced by $ 4.0 billion on September 30, 2021 when we entered into the Term Loan Facility and the remaining commitments were reduced to zero on December 1, 2021 when we issued the Hillrom notes, both in accordance with the terms of the commitment letter.

As a result, the Bridge Facility was

terminated and the remaining unamortized upfront fees related to the Bridge Facility were charged to interest expense, net during the year ended December 31, 2021.

As a result, the Bridge Facility was terminated and the remaining unamortized upfront fees related to the Bridge Facility were charged to interest expense, net during the year ended December 31, 2021.

Baxter assumed debt with an acquisition-date fair value of $ 2.4 billion as part of the acquisition of Hillrom.

Baxter used the proceeds from the Hillrom notes, the Term Loan Facility and cash on hand to repay substantially all of this indebtedness, including accrued interest and applicable early redemption premiums, and recognized a net loss on the early extinguishment of debt of $ 5 million.

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 the third quarter of 2022, we amended the credit agreements governing our term loan facility and our U.S.

denominated revolving credit facility and the guaranty agreement with respect to our Euro-denominated revolving credit facility, in each case to delay the commencement of our net leverage ratio covenant step-down schedule until June 30, 2024.

We also amended the credit agreements governing our term loan facility and our U.S.

dollar denominated revolving credit facility to transition the benchmark rate from LIBOR to the Secured Overnight Financing Rate (SOFR).

In the third quarter of 2022, we repaid $ 203 million of our 2.4 % senior notes due in 2022.

Credit Facilities

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

Fees under the credit facilities are 0.09 % annually as of December 31, 2021 and are based on our credit ratings and the total capacity of the facility.

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

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

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

Fees under the credit facilities are 0.125 % and 0.09 % annually as of December 31, 2022 and 2021, respectively, and are based on our credit ratings and the total capacity of the facility.

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

Our commercial paper borrowing arrangements require us to maintain undrawn borrowing capacity under our credit facilities for an amount at least equal to our outstanding commercial paper borrowings.

Based on our covenant calculations as of December 31, 2022 we have capacity to draw approximately $ 2.1 billion under our credit facilities, less commercial paper borrowings which were $ 299 million at year-end.

We also maintain other credit arrangements, which totaled approximately $ 230 million and $ 225 million as of December 31, 2022 and 2021, respectively.

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As of December 31, 2022, we had $ 299 million of commercial paper outstanding with a weighted-average interest rate of 4.75 % and an original weighted-average term of 32 days.

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

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.

Future Debt Maturities

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The incremental borrowing rate is equal to the rate of interest that we would have to pay to borrow on a collateralized basis over a similar term in an amount equal to the lease payments in a similar economic environment.

For operating leases that commenced prior to our adoption of Topic 842, we measured the lease liabilities and right-of-use assets using our incremental borrowing rate as of January 1, 2019.

The components of lease cost for the years ended December 31, 2022, 2021 and 2020 were:

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Right-of-use finance lease assets obtained in exchange for lease obligations 3 4 8

There are no material lease transactions that we entered into but have not yet commenced as of December 31, 2021.

Supplemental balance sheet information related to leases as of December 31, 2021 and 2020 include:

We have entered into lease agreements with aggregate future payments of $ 13 million for leases that have not yet commenced as of December 31, 2022.

Supplemental balance sheet information related to leases as of

December 31, 2022 and 2021 include:

(in millions) 2022 2021

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Lessor Activity

We lease medical equipment, such as renal dialysis equipment and infusion pumps, to customers, primarily in conjunction with arrangements to provide consumable medical products such as dialysis therapies, intravenous (IV) fluids and inhaled anesthetics.

We lease medical equipment, such as smart beds, renal dialysis equipment and infusion pumps, to customers, often in conjunction with arrangements to provide consumable medical products such as dialysis therapies, intravenous (IV) fluids and inhaled anesthetics.

Certain of our equipment leases are classified as sales-type leases and the remainder are operating leases.

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General litigation

In November 2016, a putative antitrust class action complaint seeking monetary and injunctive relief was filed in the United States District Court for the Northern District of Illinois.

The complaint alleges a conspiracy among manufacturers of IV solutions to restrict output and affect pricing in connection with a shortage of such solutions.

Similar parallel actions subsequently were filed.

In January 2017, a single consolidated complaint covering these matters was filed in the Northern District of Illinois.

We filed a motion to dismiss the consolidated complaint in February 2017.

The court granted our motion to dismiss the consolidated complaint without prejudice in July 2018.

The plaintiffs filed an amended complaint, which we moved to dismiss on November 9, 2018.

The court granted our motion to dismiss the amended complaint with prejudice on April 3, 2020.

The plaintiffs did not file an appeal.

In April 2017, we became aware of a criminal investigation by the U.S.

Department of Justice (DOJ), Antitrust Division and a federal grand jury in the United States District Court for the Eastern District of Pennsylvania.

We and an employee received subpoenas seeking production of documents and testimony regarding the manufacturing, selling, pricing and shortages of IV solutions and containers (including saline solutions and certain other injectable

medicines sold by us) and communications with competitors regarding the same.

On November 30, 2018, the DOJ notified us that it had closed the investigation.

The New York Attorney General has also requested that we provide information regarding business practices in the IV saline industry.

We cooperated with that request and have been advised that the matter has now been closed.

In August 2019, we were named in an amended complaint filed by Fayette County, Georgia in the MDL In re:

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The plaintiff, who allegedly purchased shares of our common stock during the specified class period, filed this putative class action on behalf of himself and shareholders who acquired Baxter common stock between February 21, 2019 and October 23, 2019.

The plaintiff alleges that we and certain officers violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making allegedly false and misleading statements and failing to disclose material facts relating to certain intra-company transactions undertaken for the purpose of generating foreign exchange gains or avoiding foreign exchange losses, as well as our internal controls over financial reporting.

The plaintiff alleged that we and certain officers violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by

making allegedly false and misleading statements and failing to disclose material facts relating to certain intra-company transactions undertaken for the purpose of generating foreign exchange gains or avoiding foreign exchange losses, as well as our internal controls over financial reporting.

On January 29, 2020, the Court appointed Varma Mutual Pension Insurance Company and Louisiana Municipal Police Employees Retirement System as lead plaintiffs in the case.

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The Court granted final approval of the settlement on August 11, 2021 and the settlement became effective on September 13, 2021.

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

As initially disclosed on October 24, 2019, we also voluntarily advised the staff of the SEC of our internal investigation and we have been cooperating with the staff of the SEC.

On February 18, 2022, we reached a settlement with the SEC, which resolved the SEC’s investigation into related matters.

As initially disclosed in our Form 8-K on October 24, 2019, we voluntarily advised the staff of the SEC of an internal investigation into certain intra-company transactions that impacted our previously reported non-operating foreign exchange gains and losses.

We also received a stockholder request for inspection of our books and records in connection with the October 24, 2019 announcement.

The Company 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.

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

We are fully accrued for the civil penalty as of December 31, 2021 and we expect to pay the penalty in the first quarter of 2022.

We paid the penalty in the first quarter of 2022.

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

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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 settlement of these claims does not preclude potential future lawsuits.

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.

On October 20, 2022, a lawsuit was filed against us in the Western District of Arkansas alleging injury as a result of exposure to ethylene oxide at Mountain Home.

On December 16, 2022, we filed a motion to dismiss and for a more definite statement.

In response, Plaintiffs filed a First Amended Complaint on January 6, 2023.

We answered the First Amended Complaint on January 27, 2023.

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.

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

Hillrom has been working with the DHHS and the Department of Justice (DOJ) to provide information responsive to the subpoena.

Hillrom also voluntarily began a related internal review and Hillrom and now Baxter have been cooperating fully with the DHHS and the DOJ with respect to these matters.

The DHHS often issues this type of subpoena when investigating alleged violations of the False Claims Act.

In October 2022, the DOJ issued a separate Civil Investigative Demand (CID) addressed to Hillrom, requesting documents and information related to compliance with the False Claims Act and the Anti-Kickback Statute.

Baxter intends to cooperate with the DOJ in responding to the CID.

The DHHS and DOJ often issue these types of requests when investigating alleged violations of the False Claims Act.

On December 28, 2021, Linet Americas, Inc.

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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.

As previously disclosed, in 2008 we recalled our heparin sodium injection products in the United States.

Following the recall, more than 1,000 lawsuits alleging that plaintiffs suffered various reactions to a heparin contaminant, in some cases resulting in fatalities, were filed.

In January 2019, the last of these cases was settled.

In 2019, following the resolution of an insurance dispute, we received cash proceeds of $ 39 million for our allocation of the insurance proceeds under a settlement and cost-sharing agreement related to the defense of the heparin product liability cases.

We recognized a $ 37 million gain in connection with the resolution of the dispute with the insurer that is classified within other operating income, net on the consolidated statement of income for the year ended December 31, 2019.

In September 2017, Hurricane Maria caused damage to certain of our assets in Puerto Rico and disrupted operations.

In 2019, we recognized $ 100 million of insurance recoveries related to the losses from the hurricane, which are classified within other operating income, net on the consolidated statement of income.

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

STOCKHOLDERS’ EQUITY

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The fair value of stock options is determined using the Black-Scholes model.

The weighted-average assumptions used in estimating the fair value of stock options granted during each year, along with the weighted-average grant-

date fair values, were as follows:

The weighted-average assumptions used in estimating the fair value of stock options granted during each year, along with the weighted-average grant-date fair values, were as follows:

years ended December 31 2022 2021 2020

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Granted 1,433 $ 81.53

Replacement RSUs granted in acquisition 668 $ 80.86

Vested ( 971 ) $ 76.09

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Nonvested RSUs as of December 31, 2022 1,912 $ 79.51

In connection with the Hillrom acquisition, during the fourth quarter of 2021, we issued 668 thousand replacement RSUs to holders of Hillrom equity awards.

Refer to Note 2 for additional information regarding the Hillrom acquisition.

As of December 31, 2022, $ 97 million of unrecognized compensation cost related to RSUs is expected to be recognized as expense over a weighted-average period of approximately 1.9 years.

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Our annual equity awards stock compensation program for senior management includes the issuance of PSUs.

In 2020 and 2021, the PSUs awarded were based on our compound annual sales growth rate (CAGR) performance, our adjusted return on invested capital (ROIC) performance and on our stock performance relative to our peer group.

The PSUs awarded were based on our compound annual sales growth rate (CAGR) performance, our adjusted return on invested capital (ROIC) performance and on our stock performance relative to our peer group.

PSUs awarded between 2018 and 2019 were based on adjusted operating margin as well as stock performance relative to our peer group.

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A quarterly dividend of $ 0.28 per share ($ 1.12 on an annualized basis) was declared in February 2022 and was paid in April 2022.

Quarterly dividends of $ 0.28 per share ($ 1.12 on an annualized basis) were declared in May and July of 2021 and were paid in July and October of 2021, respectively.

A quarterly dividend of $ 0.29 per share ($ 1.16 on an annualized basis) was declared in May and July of 2022 and were paid in July and October of 2022, respectively.

Our Board of Directors declared a quarterly dividend of $ 0.29 per share in November of 2022, which was paid in January of 2023.

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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 repurchased 7.3 million shares under this authority pursuant to Rule 10b5-1 plans for $ 600 million in cash in 2021, 6.3 million shares under this authority pursuant to a Rule 10b5-1 plan for $ 500 million in cash in 2020 and 16.5 million shares under this authority pursuant to Rule 10b5-1 plans and otherwise for $ 1.3 billion in cash in 2019.

We repurchased 0.5 million shares under this authority pursuant to a Rule 10b5-1 plan for $ 32 million in cash in 2022, 7.3 million shares under this authority pursuant to Rule 10b5-1 plans for $ 600 million in cash in 2021 and 6.3 million shares under this authority pursuant to a Rule 10b5-1 plan for $ 500 million in cash in 2020.

We had $ 1.3 billion of purchase authority available as of December 31, 2022.

Accelerated Share Repurchase Agreement

In December 2018, we entered into a $ 300 million accelerated share repurchase agreement (ASR Agreement) with an investment bank.

We funded the ASR Agreement with available cash.

The ASR Agreement was executed pursuant to the 2012 Repurchase Authorization described above.

Under the ASR Agreement, we received 3.6 million shares upon execution.

Based on the volume-weighted average price of our common stock during the term of the ASR Agreement, we received an additional 0.6 million shares from the investment bank at settlement in May 2019.

In addition to common stock, our authorized capital structure includes 100 million shares of preferred stock, no par value.

As of December 31, 2022 and 2021, no shares of preferred stock were outstanding.

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, CTA, certain gains and losses from other postretirement employee benefit (OPEB) plans and gains and losses on cash flow hedges.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Comprehensive income (loss) includes all changes in stockholders’ equity that do not arise from transactions with stockholders, and consists of net income (loss), CTA, certain gains and losses from pension and other postretirement employee benefit (OPEB) plans, gains and losses on cash flow hedges and unrealized gains and losses on available-for-sale debt securities.

The following table is a net-of-tax summary of the changes in AOCI by component for the years ended December 31, 2022 and 2021.

(in millions) CTA Pension and OPEB plans Hedging

activities Total

activities Available-for-sale debt securities Total

Gains (losses)

Balance as of December 31, 2021 $ ( 2,907 ) $ ( 347 ) $ ( 126 ) $ — $ ( 3,380 )

Other comprehensive (loss) income before reclassifications ( 320 ) 160 4 ( 156 )

Other comprehensive income (loss) before reclassifications ( 544 ) ( 9 ) 22 3 ( 528 )

Amounts reclassified from AOCI (a) 65 25 ( 15 ) — 75

Net other comprehensive (loss) income ( 320 ) 227 27 ( 66 )

Net other comprehensive income (loss) ( 479 ) 16 7 3 ( 453 )

Balance as of December 31, 2022 $ ( 3,386 ) $ ( 331 ) $ ( 119 ) $ 3 $ ( 3,833 )

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Amounts reclassified from AOCI (a) — 67 23 90

Net other comprehensive (loss) income 367 141 ( 112 ) 396

Net other comprehensive income (loss) ( 320 ) 227 27 ( 66 )

Balance as of December 31, 2021 $ ( 2,907 ) $ ( 347 ) $ ( 126 ) $ ( 3,380 )

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

The following table is a summary of the amounts reclassified from AOCI to net income during the years ended December 31, 2021 and 2020.

The following table is a summary of the amounts reclassified from AOCI to net income (loss) during the years ended December 31, 2022 and 2021.

Amounts reclassified from

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in income statement

Reclassification of cumulative translation loss to earnings $ ( 65 ) $ — Other (income) expense, net

Tax effect — — Income tax expense (benefit)

Pension and OPEB items

Amortization of net losses and prior service costs or credits $ ( 82 ) $ ( 59 ) Other expense, net

Settlement charges ( 2 ) ( 46 ) Other expense, net

Amortization of net losses and prior service costs or credits $ ( 30 ) $ ( 82 ) Other (income) expense, net

Settlement charges ( 1 ) ( 2 ) Other (income) expense, net

( 31 ) ( 84 ) Total before tax

Tax effect 17 23 Income tax expense

Tax effect 6 17 Income tax expense (benefit)

$ ( 25 ) $ ( 67 ) Net of tax

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20 ( 29 ) Total before tax

Tax effect 6 1 Income tax expense

Tax effect ( 5 ) 6 Income tax expense (benefit)

$ 15 $ ( 23 ) Net of tax

Total reclassification for the period $ ( 90 ) $ ( 87 ) Total net of tax

Total reclassifications for the period $ ( 75 ) $ ( 90 ) Total net of tax

(a) Amounts in parentheses indicate reductions to net income.

Refer to Note 12 for additional information regarding the amortization of pension and OPEB items and Note 15 for additional information regarding hedging activity.

Refer to Note 3 for additional information regarding the reclassification of a cumulative translation loss to earnings, Note 12 for additional information regarding the amortization of pension and OPEB items and Note 15 for additional information regarding hedging activity.

Contract Balances

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 consolidated balance sheets.

Net trade accounts receivable was $ 2.4 billion and $ 1.7 billion as of December 31, 2021 and 2020, respectively.

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

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.

Additionally, for arrangements containing a performance obligation to deliver software that can be used with medical devices, we recognize revenue upon delivery of the software, which results in the recognition of contract assets when customers are billed over time, generally over one to five years .

Additionally, for certain arrangements containing a performance obligation to deliver software that can be used with medical devices, we recognize revenue upon delivery of the software, which results in the recognition of contract assets when customers are billed over time, generally over one to five years .

For bundled contracts involving equipment delivered up-front and consumable medical products to be delivered over time, total contract revenue is allocated between the equipment and consumable medical products.

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Contract liabilities $ 244 $ 246

In 2021, $ 20 million of revenue was recognized that was included in contract liabilities as of December 31, 2020.

In 2020 and 2019, the amount of revenue recognized that was included in contract liabilities as of December 31, 2019 and 2018 was not significant.

Contract liabilities represent deferred revenues that arise as a result of cash received from customers or where the timing of billing for services precedes satisfaction of our performance obligations.

Such remaining performance obligations represent the portion of the contract price for which work has not been performed and are primarily related to our installation and service contracts.

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 year ended December 31, 2022.

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

year ended December 31 (in millions) 2022

Balance at beginning of period $ 246

New revenue deferrals 666

Revenue recognized upon satisfaction of performance obligations ( 662 )

Currency translation ( 6 )

Balance at end of period $ 244

In 2022 and 2021, $ 121 million and $ 20 million of revenue was recognized that was included in contract liabilities as of December 31, 2021 and 2020, respectively.

In 2020, the amount of revenue recognized that was included in contract liabilities as of December 31, 2019 was not significant.

Disaggregation of Net Sales

Beginning in the first quarter of 2021, our product category net sales disclosures (previously referred to as global business units (GBUs)) separately present net sales from our BioPharma Solutions business, which was previously included within Other.

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

Net sales for 2020 and 2019 have been recast to conform to this presentation.

Additionally, with the acquisition of Hillrom in December 2021, we have added three new product categories:

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

Patient Support Systems, Front Line Care and Surgical Solutions.

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8 Patient Support Systems includes sales of our connected care solutions:

devices, software, communications and integration technologies.

devices, software, communications and integration technologies and smart beds.

9 Front Line Care includes sales of our integrated patient monitoring and diagnostic technologies to help diagnose, treat and manage a wide variety of illness and diseases, including respiratory therapy, cardiology, vision screening and physical assessment.

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These 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 cash costs of

approximately $ 30 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.

We currently expect to incur additional pre-tax cash costs of approximately $ 46 million through the completion of the 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.

We recorded the following charges related to business optimization programs in 2022, 2021, and 2020:

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Costs to implement business optimization programs 62 23 23

Accelerated depreciation — — 5

Total business optimization charges $ 225 $ 114 $ 134

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Costs to implement business optimization programs for the years ended December 31, 2022, 2021 and 2020, respectively, consisted primarily of external consulting and transition costs, including employee compensation and related costs.

The costs were generally included within cost of sales, SG&A expense and R&D expense.

For the year ended December 31, 2019, we recognized accelerated depreciation, primarily associated with facilities to be closed.

The costs were recorded within cost of sales and SG&A expense.

The costs were primarily included within cost of sales, SG&A expense and R&D expense.

During the years ended December 31, 2022, 2021 and 2020, we recorded the following restructuring charges:

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Total restructuring charges $ 48 $ 61 $ 2 $ 111

For the year ended December 31, 2022, $ 85 million of the restructuring charges reflected in the table above were related to integration activities for the Hillrom acquisition, consisting of $ 55 million of employee termination costs, $ 22 million of contract terminations and other costs and $ 8 million of asset impairments.

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

This benefit is reflected within other operating income, net in our consolidated statement of income for the year ended December 31, 2020.

This benefit is reflected within other operating expense (income), net in our consolidated statement of income (loss) for the year ended December 31, 2020.

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

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Liability balance as of December 31, 2020 113

Assumed in acquisition 6

Payments ( 78 )

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Liability balance as of December 31, 2021 109

Assumed in acquisition 6

Payments ( 145 )

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Amortization of loss to earnings, net of tax of $ 6 in 2022, $ 17 in 2021 and $ 12 in 2020

Settlement charges, net of tax of $ 0 in 2021, $ 11 in 2020 and $ 188 in 2019

Settlement charges, net of tax of zero in 2022, zero in 2021 and $ 11 in 2020

Pension and other employee benefits $ 16 $ 227 $ 141

In 2022, 2021 and 2020, OCI activity for pension and OPEB plans was primarily related to actuarial gains and losses.

In 2019, OCI activity for pension and OPEB plans was primarily related to the U.S.

pension settlement charge and actuarial gains and losses.

Net Periodic Benefit Cost

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Amortization of net losses and other deferred amounts 44 91 77

Curtailment gain ( 13 ) — —

Settlement charges 1 2 46

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Other holdings 152 21 122 9 —

Collateral held on loaned securities 19 — 19 — —

Collateral to be paid on loaned securities ( 19 ) ( 19 ) — — —

Fair value of pension plan assets $ 3,784 $ 758 $ 1,928 $ 9 $ 1,089

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Balance at December 31, 2021 9

Transfers out ( 1 )

Balance at December 31, 2022 $ 8

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This option expired in November 2020 and approximately 40% of the eligible participants accepted the offer.

Payments from plan assets to participants who accepted the offer were made in December 2020 and totaled $ 252 million.

Payments from plan assets to participants who

accepted the offer were made in December 2020 and totaled $ 252 million.

As a result of these transactions, we recognized non-cash pretax pension settlement charges of $ 43 million in the fourth quarter of 2020.

As part of our continued effort to reduce pension plan obligations, we transferred approximately $ 2.4 billion of U.S.

qualified pension plan liabilities to an insurance company through the purchase of a group annuity contract in October 2019.

As a result of this transaction, we recognized a non-cash pretax pension settlement charge of $ 755 million in the fourth quarter of 2019.

Pension Plan Amendments

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 consolidated statements of income (loss) for the year ended December 31, 2022.

As of December 31, 2022, we transferred the assets and liabilities of the Baxter International Inc.

and Subsidiaries Pension Plan II to the Baxter International Inc.

and Subsidiaries Pension Plan, resulting in one qualified U.S.

defined benefit plan.

Defined Contribution Plan

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We recognized expense of $ 96 million in 2022, $ 59 million in 2021 and $ 61 million in 2020 related to contributions to this plan.

Income Before Income Tax Expense (Benefit) by Category

Income (Loss) Before Income Tax Expense (Benefit) by Category

years ended December 31 (in millions) 2022 2021 2020

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International 1,406 1,901 1,621

Income before income taxes $ 1,477 $ 1,292 $ 970

Income (loss) before income taxes $ ( 2,353 ) $ 1,477 $ 1,292

Income Tax Expense (Benefit)

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International 286 329 270

Current income tax expense 328 270 269

Current income tax expense (benefit) 293 328 270

United States

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At December 31, 2022, we had U.S.

state operating loss carryforwards totaling $ 1.1 billion, U.S.

state operating loss carryforwards totaling $ 744 million, U.S.

federal operating loss carryforwards totaling $ 285 million and tax credit carryforwards totaling $ 410 million, which includes a U.S.

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We will continue to evaluate the need for additional valuation allowances and, as circumstances change, the valuation allowance may change.

As a result of Swiss tax reform legislation enacted during 2019, we recognized an $ 863 million net asset basis step-up that is amortizable as a tax deduction ratably over tax years 2025 through 2029.

Accordingly, a deferred tax asset of $ 161 million and $ 174 million was recognized as of December 31, 2021 and 2020, respectively.

We expect to realize some, but not all, of the Swiss deferred tax assets based principally on expected future earnings generated by the Swiss subsidiary during the period in which the tax basis will be amortized.

Therefore, a valuation allowance of $ 59 million and $ 72 million was recognized on the Swiss deferred tax assets as of December 31, 2021 and 2020, respectively.

As a result of Swiss tax reform legislation enacted during 2019, we recognized an $ 863 million net asset tax basis step-up that is amortizable as a tax deduction ratably over tax years 2025 through 2029.

A deferred tax asset of $ 151 million and $ 161 million for the tax basis step-up was recognized as of December 31, 2022 and 2021, respectively.

We expect to realize some, but not all, of the Swiss deferred tax assets for that tax basis step-up based on expected future earnings generated by our Swiss subsidiary during the period in which the tax basis will be amortized.

Therefore, a valuation allowance of $ 84 million and $ 59 million was recognized on the Swiss deferred tax assets for the tax basis step-up as of December 31, 2022 and 2021, respectively.

For the year ended December 31, 2022, we recognized $ 25 million of deferred tax expense to increase our valuation allowance to reflect our current estimate of its recoverability.

As part of the acquisition of Hillrom in 2021, we recorded deferred tax liabilities of $ 1.3 billion related to the step-up in our U.S.

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years ended December 31 (in millions) 2022 2021 2020

Income tax expense at U.S.

Income tax expense (benefit) at U.S.

statutory rate $ ( 494 ) $ 310 $ 271

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Unfavorable court decision in a foreign jurisdiction related to an uncertain tax position

Swiss tax reform net asset basis step-up — — ( 159 )

Deferred tax revaluation due to 2017 Tax Act and foreign tax reform — — ( 19 )

Transition tax due to 2017 Tax Act — — ( 16 )

Non-deductible goodwill impairments 591 — —

Notional interest deduction benefit ( 306 ) ( 97 ) ( 54 )

Valuation allowances 314 ( 61 ) 8

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Income tax expense (benefit) $ 68 $ 182 $ 182

W e plan to repatriate our foreign earnings with the exception of approximately $ 286 million of accumulated earnings that are indefinitely reinvested as of December 31, 2021 related to one of our foreign operations.

Additional withholding and capital gain taxes of $ 29 million would be incurred if such earnings were remitted currently.

Our tax provisions for 2021, 2020 and 2019 do not include any tax charges related to either the Base Erosion and Anti-Abuse Tax (BEAT) or Global Intangible Low Taxed Income (GILTI) provisions, except for the inability to fully utilize foreign tax credits against such GILTI.

Our accounting policy is to recognize any GILTI charge as a period cost.

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.

In 2021, our effective rate was impacted favorably by geographic earnings mix, a $ 58 million tax benefit related to a tax-deductible foreign statutory loss on an investment in a foreign subsidiary, a tax benefit related to a change in U.S.

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

In 2022, our effective rate was adversely impacted by non-deductible impairments of goodwill acquired in the Hillrom acquisition and valuation allowance increases, including the increase described above related to deferred tax assets from a tax basis step-up that arose from Swiss tax reform legislation in 2019.

Those items were partially offset by a $ 47 million net tax benefit, after related valuation allowances, from notional interest deductions that are received by certain wholly-owned foreign subsidiaries that have financed their operations with equity capital.

In 2021, our effective rate was impacted favorably by geographic earnings mix, including a $ 50 million net tax benefit, after related valuation allowances from notional interest deductions, a $ 58 million tax benefit related to a tax-deductible foreign statutory loss on an investment in a foreign subsidiary, a tax benefit related to a change in U.S.

foreign tax credit regulations, which is reflected in the valuation allowances item in the table above, and excess tax benefits on stock compensation awards, partially offset by an unfavorable court decision in a foreign jurisdiction related to an uncertain tax position.

In 2020, our effective tax rate was impacted favorably by geographic earnings mix and excess tax benefits on stock compensation awards.

In 2019, Switzerland and India enacted tax reform legislation that had a material impact on our effective tax rate.

We recognized a deferred tax benefit of $ 90 million to reflect a tax basis step-up, net of a valuation allowance, partially offset by a $ 5 million deferred tax revaluation to reflect an increase in the statutory tax rate, under the newly enacted Swiss tax laws.

We also recognized a net deferred tax benefit of $ 24 million associated with deferred tax revaluation in India to reflect a decrease in the statutory tax rate.

Our effective tax rate was also favorably impacted by $ 57 million in 2019 related to a notional interest deduction on the share capital of a foreign subsidiary.

The gross tax benefit of the deduction is included in the table above within impact of foreign taxes and the portion not expected to be realized is included within valuation allowances.

In 2020, our effective tax rate was impacted favorably by geographic earnings mix, including a $ 49 million net tax benefit, after related valuation allowances, from notional interest deductions, and excess tax benefits on stock compensation awards.

We plan to repatriate our foreign earnings with the exception of approximately $ 423 million of accumulated earnings that are indefinitely reinvested as of December 31, 2022 related to two of our foreign operations.

Additional withholding and capital gain taxes of $ 50 million would be incurred if such earnings were remitted currently.

Our tax provisions for 2022, 2021 and 2020 do not include any significant tax charges related to either the Base Erosion and Anti-Abuse Tax (BEAT) or Global Intangible Low Taxed Income (GILTI) provisions, except for the inability to fully utilize foreign tax credits against such GILTI.

Our accounting policy is to recognize any GILTI charge as a period cost.

Unrecognized Tax Benefits

We classify interest and penalties associated with income taxes in income tax expense (benefit) within the consolidated statements of income.

We classify interest and penalties associated with income taxes in income tax expense (benefit) within the consolidated statements of income (loss).

Net interest and penalties recognized were not significant during 2022, 2021 and 2020.

The liability recognized related to interest and penalties was $ 19 million and $ 17 million as of December 31, 2021 and 2020, respectively.

The liability recognized related to interest and penalties was $ 16 million and $ 19 million as of

December 31, 2022 and 2021, respectively.

The total amount of gross unrecognized tax benefits that, if recognized, would impact the effective tax rate are $ 33 million, $ 39 million and $ 48 million as of December 31, 2022, 2021 and 2020, respectively.

The following table is a reconciliation of our unrecognized tax benefits, including those related to discontinued operations, for the years ended December 31, 2021, 2020 and 2019.

We believe that it is reasonably possible that our gross unrecognized tax benefits will be reduced within the next 12 months by $ 8 million.

The following table is a reconciliation of our unrecognized tax benefits for the years ended December 31, 2022, 2021 and 2020.

as of and for the years ended (in millions) 2022 2021 2020

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We have received tax incentives in Puerto Rico, Switzerland, Dominican Republic, Costa Rica and Thailand.

The financial impact of the reductions as compared to the statutory tax rates is indicated in the income tax expense reconciliation table above.

The tax reductions as compared to the local statutory rate favorably impacted earnings per diluted share by $ 0.38 in 2021, $ 0.33 in 2020, and $ 0.27 in 2019.

The financial impact of the reductions as compared to the statutory tax rates is indicated in the income tax expense (benefit) reconciliation table above.

The tax reductions as compared to the local statutory rate favorably impacted earnings (loss) per diluted share by $ 0.31 in 2022, $ 0.38 in 2021 and $ 0.33 in 2020.

The above grants provide that our manufacturing operations are and will be partially exempt from local taxes with varying expirations from 2024 to 2034.

Examinations of Tax Returns

As of December 31, 2021, we had ongoing audits in the United States, Germany, United Kingdom, China and other jurisdictions.

As of December 31, 2022, we had ongoing audits in the United States, Germany, Belgium and other jurisdictions.

During 2022, we closed U.S.

tax years 2017-2018 with the IRS with no material adjustments to our financial statements.

Tax years 2017 and forward remain under examination by the IRS and tax years 2012 and forward remain under examination by various foreign taxing authorities.

We believe that it is reasonably possible that our gross unrecognized tax benefits will be reduced within the next 12 months by $ 30 million.

Tax years 2019 and 2020 remain under examination by the IRS and tax years 2012 and forward remain under examination by various foreign taxing authorities.

While the final outcome of these matters is inherently uncertain, we believe we have made adequate tax provisions for all years subject to examination.

EARNINGS PER SHARE

The numerator for both basic and diluted earnings per share (EPS) is net income attributable to Baxter stockholders.

EARNINGS (LOSS) PER SHARE

The numerator for both basic and diluted earnings (loss) per share (EPS) is net income (loss) attributable to Baxter stockholders.

The denominator for basic EPS is the weighted-average number of shares outstanding during the period.

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Diluted shares 504 508 517

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

Basic and diluted shares are the same for the year ended December 31, 2022 due to our net loss for the period.

The effect of dilutive securities for the years ended December 31, 2021 and 2020, included unexercised stock

options, unvested RSUs and contingently issuable shares related to granted PSUs.

The computation of diluted EPS excluded 22 million, 7 million, and 4 million equity awards in 2022, 2021, and 2020, respectively, because their inclusion would have had an anti-dilutive effect on diluted EPS.

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Sold receivables at end of year $ 71 $ 81 $ 96

The net losses relating to the sales of accounts receivable were immaterial for each year.

The net gains or losses relating to the sales of accounts receivable were immaterial for each year.

Concentrations of Credit Risk

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In addition, we use derivative and nonderivative instruments to further reduce the net exposure to foreign exchange risk.

Gains and losses on the hedging instruments offset

losses and gains on the hedged transactions and reduce the earnings and equity volatility resulting from changes in foreign exchange rates.

Gains and losses on the hedging instruments offset losses and gains on the hedged transactions and reduce the earnings and equity volatility resulting from changes in foreign exchange rates.

Financial market and currency volatility may limit our ability to cost-effectively hedge these exposures.

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Our policy is to manage interest costs using the mix of fixed- and floating-rate debt that we believe is appropriate at that time.

To manage this mix in a cost-efficient manner, we periodically enter into interest rate swaps in which we agree to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional amount.

To manage this mix in a cost-efficient manner, we periodically enter into interest rate swaps

in which we agree to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional amount.

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

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

As of December 31, 2021, we had an accumulated pre-tax unrealized translation loss in AOCI of $ 45 million related to the Euro-denominated senior notes.

In May 2019, we entered into forward contracts designated as net investment hedges to reduce exposure to changes in currency rates on € 1.2 billion of our net investment in our European operations.

Those hedges were entered into in advance of the issuance of our senior notes mentioned above, were settled in the second quarter of 2019 and resulted in an insignificant loss.

As of December 31, 2022, we had an accumulated pre-tax unrealized translation gain in AOCI of $ 95 million related to the Euro-denominated senior notes.

Dedesignations

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There were no cash flow hedge dedesignations in 2022, 2021 or 2020 resulting from changes in our assessment of the probability that the hedged forecasted transactions would occur.

In 2020, we terminated interest rate contracts with a notional amount of $ 550 million for

$ 173 million in cash payments.

In 2020, we terminated interest rate contracts with a notional amount of $ 550 million for $ 173 million in cash payments.

The losses relating to these terminations continue to be deferred and are being recognized consistent with the underlying hedged item, interest expense on the issuance of debt.

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

In 2019, we dedesignated € 1.2 billion of forward contracts designated as a net investment hedge of our European operations.

There were no net investment hedges terminated in 2022, 2021 or 2020.

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

The total notional amount of undesignated derivative instruments was $ 851 million and $ 1.0 billion as of December 31, 2021 and 2020, respectively.

The total notional amount of undesignated derivative instruments was $ 753 million and $ 851 million as of December 31, 2022 and 2021, respectively.

Gains and Losses on Hedging Instruments and Undesignated Derivative Instruments

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Foreign exchange contracts 28 5 ( 21 ) Cost of sales 26 ( 23 ) ( 5 )

Net investment hedges 200 ( 224 ) 12 Other expense, net — — —

Net investment hedges 141 200 ( 224 ) Other (income) expense, net — — —

Total $ 169 $ 205 $ ( 376 ) $ 20 $ ( 29 ) $ ( 6 )

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Undesignated derivative instruments

Foreign exchange contracts Other expense, net $ ( 36 ) $ 49 $ 17

Foreign exchange contracts Other (income) expense, net $ ( 30 ) $ ( 36 ) $ 49

The following table summarizes net-of-tax activity in AOCI, a component of stockholders’ equity, related to our cash flow hedges.

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Accumulated other comprehensive income (loss) balance at beginning of year $ ( 126 ) $ ( 153 ) $ ( 41 )

Adoption of new accounting standard — — ( 1 )

(Loss) gain in fair value of derivatives during the year 22 4 ( 117 )

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Accumulated other comprehensive income (loss) balance at end of year $ ( 119 ) $ ( 126 ) $ ( 153 )

As of December 31, 2021, $ 2 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.

As of December 31, 2022, less than $ 1 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

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The following table presents the amounts recorded on the consolidated balance sheets related to fair value hedges:

Carrying amount of hedged item Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged item (a)

Carrying amount of hedged items Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged items (a)

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

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Foreign exchange contracts $ 14 $ — $ 14 $ —

Debt securities 30 — — 30

Available-for-sale debt securities 47 — — 47

Marketable equity securities 32 32 — —

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Foreign exchange contracts $ 8 $ — $ 8 $ —

Debt securities 13 — 13 —

Available-for-sale debt securities 30 — — 30

Marketable equity securities 10 10 — —

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Total $ 148 $ — $ 5 $ 143

As of December 31, 2021 and 2020, cash and cash equivalents of $ 3.0 billion and $ 3.7 billion, respectively, included money market and other short-term funds of approximately $ 816 million and $ 1.8 billion, respectively, which are considered Level 2 in the fair value hierarchy.

As of December 31, 2022 and 2021, cash and cash equivalents of $ 1.7 billion and $ 3.0 billion, respectively, included money market and other short-term funds of approximately $ 341 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.

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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 were reclassified to Level 3 as of December 31, 2021 because there were no observable transactions for those debt securities near the balance sheet date.

There was no change in the estimated fair value of those debt securities for the year ended December 31, 2021.

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

as of and for the years ended December 31 (in millions) 2021 2020

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 available-for-sale debt securities.

as of and for the years ended December 31 (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

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Change in fair value recognized in earnings ( 39 ) — ( 6 )

Change in fair value recognized in AOCI — 4 —

Payments ( 20 ) — ( 16 )

Transfers out of Level 3 — ( 10 ) —

Fair value at end of period $ 84 $ 47 $ 143

During the year ended December 31, 2022, $ 10 million of available-for-sale debt securities were reclassified from Level 3, including $ 8 million that 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 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 consolidated

balance sheets and the estimated fair values.

For these financial instruments, the following table provides the values recognized in the consolidated balance sheets and the estimated fair values.

Book values Fair values(a)

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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 $ 114 million and $ 105 million at December 31, 2021 and 2020, respectively.

These amounts are included in Other non-current assets on our consolidated balance sheets.

The carrying values of equity investments without readily determinable fair values that we measure at cost, less impairment were $ 104 million and $ 114 million at December 31, 2022 and 2021, respectively.

When applicable, we also adjust the measurement of such equity investments for observable prices in orderly transactions for an identical or similar investment of the same issuer.

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

SEGMENT INFORMATION

We manage our global operations based on four segments, consisting of the following geographic segments related to our legacy Baxter business:

Americas (North and South America), EMEA (Europe, Middle East and Africa) and APAC (Asia-Pacific), and a new global segment for our recently acquired Hillrom business.

The Americas, EMEA and APAC segments provide a broad portfolio of essential healthcare products, including acute and chronic dialysis therapies;

Americas (North and South America), EMEA (Europe, Middle East and Africa) and APAC (Asia-Pacific), and a global segment for our recently acquired Hillrom business.

The Americas, EMEA and

APAC segments provide a broad portfolio of essential healthcare products, including acute and chronic dialysis therapies;

sterile IV solutions;

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The Hillrom segment provides digital and connected care solutions and collaboration tools, including smart bed systems, patient monitoring and diagnostic technologies, respiratory health devices, and advanced equipment for the surgical space.

In the first quarter of 2021, the information provided to our Chief Executive Officer for purposes of allocating resources and assessing performance was updated to reallocate contracted services activities performed at a German manufacturing facility from our EMEA segment to our Americas segment.

The contracted services performed at that facility are part of our BioPharma Solutions business, which is managed as part of the Americas segment.

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

Segment results for 2020 and 2019 have been recast to conform to this presentation.

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

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

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

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 $ 127 million related to 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 of 2022, we updated the measure of profitability for our Hillrom segment by excluding such unallocated costs, consistent with our legacy Baxter segments.

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

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Total net sales $ 15,113 $ 12,784 $ 11,673

Operating income:

Operating income (loss):

Americas $ 2,384 $ 2,612 $ 2,389

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Total capital expenditures $ 688 $ 709 $ 724

The following table is a reconciliation of segment operating income to income before income taxes per the consolidated statements of income.

The following table is a reconciliation of segment operating income to income (loss) before income taxes per the consolidated statements of income (loss).

for the years ended December 31 (in millions) 2022 2021 2020

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Corporate and other ( 6,287 ) ( 2,077 ) ( 1,887 )

Total operating income 1,710 1,616 1,772

Total operating income (loss) ( 1,943 ) 1,710 1,616

Net interest expense 395 192 134

Other expense, net 41 190 731

Income before income taxes $ 1,477 $ 1,292 $ 970

Other (income) expense, net 15 41 190

Income (loss) before income taxes $ ( 2,353 ) $ 1,477 $ 1,292

We are designing a new operating model intended to simplify and streamline our operations and we expect that our reportable segments will be changed to align with that new operating model when it is fully implemented.

Geographic information

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EMEA 1,452 1,576

APAC 978 1,024

Latin America and Canada 929 917

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We have audited the accompanying consolidated balance sheets of Baxter International Inc.

and its subsidiaries (the “Company”) as of December 31, 2021 and 2020, and the related consolidated statements of income, of comprehensive income, of changes in equity and of cash flows for each of the three years in the period ended December 31, 2021, including the related notes and financial statement schedule listed in the index appearing under Item 15 (2) (collectively referred to as the “consolidated financial statements”).

and its subsidiaries (the “Company”) as of December 31, 2022 and 2021, and the related consolidated statements of income (loss), of comprehensive income (loss), of changes in equity and of cash flows for each of the three years in the period ended December 31, 2022, including the related notes and financial statement schedule listed in the index appearing under Item 15 (2) (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

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We believe that our audits provide a reasonable basis for our opinions.

As described in Management's Assessment of Internal Control Over Financial Reporting, management has excluded Hill-Rom Holdings, Inc.

(Hillrom) from its assessment of internal control over financial reporting as of December 31, 2021 because it was acquired by the Company in a purchase business combination during 2021.

We have also excluded Hillrom from our audit of internal control over financial reporting.

Hillrom is a wholly-owned subsidiary whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting represent approximately 6% and 2%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2021.

Definition and Limitations of Internal Control over Financial Reporting

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The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing a separate opinion on the critical audit matters or on the accounts or disclosures to which they relate.

Valuation Allowance on United States (U.S.) Foreign Tax Credit Carryforwards

As described in No te 13 to the consolidated financial statements, as of December 31, 2021, the Company has $1,462 million of total deferred tax assets, including $339 million of deferred tax assets for U.S.

foreign tax credit carryforwards in the United States.

The deferred tax assets for U.S.

foreign tax credit carryforwards is partially offset by a valuation allowance of $98 million .

As disclosed by management, valuation allowances are maintained unless it is more likely than not that all or a portion of the deferred tax asset will be realized.

In determining whether a valuation allowance is warranted, management evaluates factors such as prior earnings history, expected future earnings, carryback and carryforward periods, and tax strategies that could potentially enhance the likelihood of realization of a deferred tax asset.

After evaluating the 2017 Tax Act and related U.S.

Treasury Regulations, any elections or other opportunities that may be available, and the future expiration of certain U.S.

tax provisions that will impact the utilization of the Company’s U.S.

foreign tax credit carryforwards, management expects to be able to realize some, but not all, of the U.S.

foreign tax credit deferred tax assets up to its overall domestic loss balance plus other recurring and non-recurring foreign inclusions.

The principal considerations for our determination that performing procedures relating to the valuation allowance on U.S.

foreign tax credit carryforwards is a critical audit matter are the significant judgment by management when assessing factors related to expected future earnings, which in turn led to a high degree of auditor judgment, subjectivity, and audit effort in performing procedures and evaluating audit evidence related to management’s expected future earnings.

The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Trigger-Based Goodwill Impairment Assessments - Patient Support Systems, Front Line Care, and Surgical Solutions Reporting Units

As described in Notes 1 and 4 to the consolidated financial statements, the Company’s consolidated goodwill balance as of December 31, 2022 was $6.8 billion.

The goodwill associated with the Hillrom segment as of December 31, 2022 was $4.0 billion.

The Hillrom segment includes the following three reporting units:

Patient Support Systems, Front Line Care, and Surgical Solutions.

Goodwill is not amortized but is subject to an impairment review annually and whenever indicators of impairment exist.

During the third quarter of 2022, management performed trigger-based impairment tests of the goodwill of each of those three reporting units.

The impairment tests resulted in total pre-tax goodwill impairment charges of $2.8 billion to the Company's Patient Support Systems, Front Line Care and Surgical Solutions reporting units.

The fair values of the reporting units tested for impairment during the third quarter of 2022 were determined by management based on a discounted cash flow model (an income approach) and earnings multiples (a market approach) based on the guideline public company method.

Significant assumptions used by management in the determination of fair value of these reporting units include forecasted cash flows, discount rates, terminal growth rates, and earnings multiples.

The principal considerations for our determination that performing procedures relating to the trigger-based goodwill impairment assessments of the Patient Support Systems, Front Line Care, and Surgical Solutions reporting units is a critical audit matter are (i) the significant judgment by management when developing the fair value estimates of these reporting units;

(ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to forecasted cash flows, discount rates, terminal growth rates, and earnings multiples;

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls over the valuation allowance on U.S.

foreign tax credit carryforwards, including controls over the development of expected future earnings.

These procedures also included, among others, evaluating management’s assessment of the realizability of the deferred tax assets, including evaluating the reasonableness of expected future earnings during the applicable periods.

Evaluating management’s assumption related to expected future earnings involved evaluating whether the factors were reasonable considering the current and past performance of the Company and evidence obtained in other areas of the audit.

Valuation of Certain Acquired Intangible Assets - Hill-Rom Holdings, Inc.

(Hillrom) Acquisition

As described in Note 2 to the consolidated financial statements, on December 13, 2021, the Company acquired all of the outstanding equity interests of Hillrom for a purchase price of $10.5 billion.

Management allocated $804 million of the total consideration to the developed technology with a weighted-average useful life of 5 years, $1.9 billion to trade names with an indefinite useful life, and $3.2 billion to customer relationships with a weighted-average useful life of 15 years.

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

Significant estimates and assumptions were used by management in establishing the estimated fair value.

As disclosed by management, the significant estimates and assumptions inherent in a discounted cash flow analysis (income approach) include the amount and timing of projected future cash flows, the discount rate used to measure the risks inherent in the future cash flows, the asset’s life cycle, royalty rates, terminal growth rate, contributory asset charges, and customer attrition rates.

Each of these factors and assumptions can significantly affect the value of the intangible asset.

The principal considerations for our determination that performing procedures relating to the valuation of certain acquired intangible assets in connection with the Hillrom acquisition is a critical audit matter are (i) the significant judgment by management when developing the fair value of the developed technology, trade names and customer relationships intangible assets;

(ii) a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating management’s significant assumptions related to the amount and timing of future projected cash flows for each of the aforementioned intangible assets, the royalty rates for the developed technology and trade names intangible assets, the attrition rates, discount rate and contributory asset charges for the customer relationships intangible asset, and the asset’s life cycle and discount rate for the trade names intangible asset;

These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessments, including controls over the valuation of the Company’s reporting units.

These procedures also included, among others, (i) testing management’s process for developing the fair value estimates of the Patient Support Systems, Front Line Care, and Surgical Solutions reporting units;

(ii) evaluating the appropriateness of the discounted cash flow model and market-based approach;

(iii) testing the completeness and accuracy of underlying data used in the discounted cash flow model and market-based approach;

(iv) and evaluating the reasonableness of the significant assumptions used by management related to the forecasted cash flows, discount rates, terminal growth rates, and earnings multiples.

Evaluating management’s significant assumptions related to the forecasted cash flows, discount rates, terminal growth rates, and earnings multiples involved evaluating whether the assumptions used were reasonable considering (i) the current and past performance of the Patient Support Systems, Front Line Care, and Surgical Solutions reporting units, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge

were used to assist in evaluating the appropriateness of the discounted cash flow model and market-based approach and the reasonableness of the discount rates, terminal growth rates and earnings multiples assumptions.

Trigger-Based Indefinite-Lived Intangible Asset Impairment Assessments - Hillrom and Welch Allyn Trade Names

As described in Notes 1 and 4 to the consolidated financial statements, the Company’s consolidated trade names indefinite-lived intangible asset balance as of December 31, 2022 was $1,571 million.

Indefinite-lived intangible assets are subject to an impairment review annually and whenever indicators of impairment exist.

During the third quarter of 2022, management performed trigger-based impairment tests of the trade names acquired in connection with the Hillrom acquisition.

The Company recognized pre-tax impairment charges of $332 million to reduce the carrying amounts of certain indefinite-lived intangible assets, which primarily related to the Hillrom and Welch Allyn trade names, to their estimated fair values.

Fair values of the trade names intangible assets were determined by management using a relief from royalty method.

Significant assumptions used by management in the determination of fair value of the trade names include revenue growth rates, terminal growth rates, discount rates, and royalty rates.

The principal considerations for our determination that performing procedures relating to the Hillrom and Welch Allyn trade names trigger-based impairment assessments is a critical audit matter are (i) the significant judgment by management when developing the fair value estimates of the Hillrom and Welch Allyn trade names;

(ii) a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to revenue growth rates, terminal growth rates, discount rates, and royalty rates;

and (iii) the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements.

These procedures included testing the effectiveness of controls relating to acquisition accounting, including controls over management’s valuation of the intangible assets and controls over the development of the assumptions related to the amount and timing of projected future cash flows, the discount rates, the asset’s life cycle, royalty rates, terminal growth rate, contributory asset charges, and customer attrition rates.

These procedures also included, among others, (i) reading the purchase agreement, and (ii) testing management’s process for estimating the fair value of intangible assets.

Testing management’s process included (i) evaluating the appropriateness of the income approaches used to fair value the intangible assets, (ii) testing the completeness and accuracy of data provided by management, and (iii) evaluating the reasonableness of the significant assumptions related to the amount and timing of projected future cash flows, the discount rates, the asset’s life cycle, royalty rates, terminal growth rate, contributory asset charges, and customer attrition rates .

Evaluating management’s assumptions involved evaluating whether the assumptions used were reasonable considering current and past performance of the acquired entity, consistency with external market and industry data, and consistency with evidence obtained in other areas of the audit, as applicable.

Professionals with specialized skill and knowledge were used to assist in the evaluation of management’s income approaches and the discount rates, the asset’s life cycle, royalty rates, terminal growth rate, contributory asset charges, and customer attrition rates assumptions.

These procedures included testing the effectiveness of controls relating to management’s indefinite-lived intangible asset impairment assessments, including controls over the valuation of the Company’s trade names.

These procedures also included, among others, (i) testing management’s process for developing the fair value estimates of the Hillrom and Welch Allyn trade names;

(ii) evaluating the appropriateness of the relief from royalty valuation models;

(iii) testing the completeness and accuracy of underlying data used in the models;

(iv) and evaluating the reasonableness of the significant assumptions used by management related to the revenue growth rates, terminal growth rates, discount rates, and royalty rates.

Evaluating management’s significant assumptions related to the revenue growth rates, terminal growth rates, discount rates, and royalty rates involved evaluating whether the assumptions used were reasonable considering (i) the current and past performance of the products supported by the trade names, (ii) the consistency with external market and industry data, and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of the relief from royalty models and the reasonableness of the discount rates, terminal growth rates and royalty rates assumptions.

/s/ PricewaterhouseCoopers LLP

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What changed 10-K

Item 8. Financial Statements and Supplementary Data