What changed in this filing

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Item 1. Financial Statements

2023-04-27 compared with 2022-10-27 · 170 added, 443 removed, 571 unchanged (52% of the section changed)

3 unchanged sentences

(in millions, except share information)

September 30,

2023 December 31,

34 unchanged sentences

Baxter International Inc.

Condensed Consolidated Statements of Income (Loss) (unaudited)

Condensed Consolidated Statements of Income (unaudited)

(in millions, except per share data)

Three months ended

September 30, Nine months ended

September 30,

2022 2021 2022 2021

Net sales $ 3,649 $ 3,707

3 unchanged sentences

Research and development expenses 164 150

Goodwill impairments 2,785 — 2,785 —

Other operating expense (income), net 48 ( 1 ) 20 ( 6 )

Operating income (loss) ( 2,799 ) 513 ( 2,296 ) 1,327

Other operating income, net ( 13 ) ( 17 )

Operating income 186 163

Interest expense, net 117 85

Other (income) expense, net 63 12 3 15

Income (loss) before income taxes ( 2,966 ) 451 ( 2,577 ) 1,194

Income tax expense (benefit) ( 32 ) ( 1 ) 29 141

Net income (loss) ( 2,934 ) 452 ( 2,606 ) 1,053

Other income, net ( 1 ) ( 16 )

Income before income taxes 70 94

Income tax expense 25 21

Net income 45 73

Net income attributable to noncontrolling interests 1 2

Net income (loss) attributable to Baxter stockholders $ ( 2,937 ) $ 450 $ ( 2,614 ) $ 1,046

Earnings (loss) per share

Net income attributable to Baxter stockholders $ 44 $ 71

Earnings per share

Basic $ 0.09 $ 0.14

5 unchanged sentences

Baxter International Inc.

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

Condensed Consolidated Statements of Comprehensive Income (unaudited)

(in millions)

Three months ended

September 30, Nine months ended

September 30,

2022 2021 2022 2021

Net income (loss) $ ( 2,934 ) $ 452 $ ( 2,606 ) $ 1,053

Net income $ 45 $ 73

Other comprehensive income (loss), net of tax:

Currency translation adjustments, net of tax expense (benefit) of ($ 16 ) and $ 3 for the three months ended September 30, 2022 and 2021, respectively, and ($ 25 ) and $ 16 for the nine months ended September 30, 2022 and 2021, respectively.

( 319 ) ( 137 ) ( 751 ) ( 257 )

Pension and other postretirement benefits, net of tax expense of $ 5 and $ 8 for the three months ended September 30, 2022 and 2021, respectively, and $ 13 and $ 19 for the nine months ended September 30, 2022 and 2021, respectively.

Hedging activities, net of tax expense of $ 5 and $ 3 for the three months ended September 30, 2022 and 2021, respectively, and $ 8 and $ 8 for the nine months ended September 30, 2022 and 2021, respectively.

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

Currency translation adjustments, net of tax expense (benefit) of ($ 13 ) and $( 11 ) for the three months ended March 31, 2023 and 2022, respectively.

Pension and other postretirement benefits, net of tax expense (benefit) of ($ 1 ) and $ 3 for the three months ended March 31, 2023 and 2022, respectively.

Hedging activities, net of tax expense (benefit) of ($ 1 ) for the three months ended March 31, 2023 and 2022.

Available-for-sale debt securities, net of tax expense of zero and $ 1 for the three months ended March 31, 2023 and 2022, respectively.

Total other comprehensive income (loss), net of tax 94 ( 7 )

Comprehensive income (loss) ( 3,221 ) 346 ( 3,280 ) 885

Comprehensive income 139 66

Comprehensive income attributable to noncontrolling interests 1 2

Comprehensive income (loss) attributable to Baxter stockholders $ ( 3,224 ) $ 344 $ ( 3,288 ) $ 878

Comprehensive income attributable to Baxter stockholders $ 138 $ 64

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

2 unchanged sentences

(in millions)

For the three months ended September 30, 2022

For the three months ended March 31, 2023

Baxter International Inc.

4 unchanged sentences

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

Balance as of July 1, 2022 683 $ 683 180 $ ( 11,409 ) $ 6,253 $ 17,099 $ ( 3,767 ) $ 8,859 $ 44 $ 8,903

Net income (loss) — — — — — ( 2,937 ) — ( 2,937 ) 3 ( 2,934 )

Other comprehensive income (loss) — — — — — — ( 287 ) ( 287 ) — ( 287 )

Purchases of treasury stock — — — ( 24 ) — — — ( 24 ) — ( 24 )

Stock issued under employee benefit plans and other — — ( 1 ) 27 44 — — 71 — 71

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

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

Balance as of September 30, 2022

683 $ 683 179 $ ( 11,406 ) $ 6,297 $ 14,015 $ ( 4,054 ) $ 5,535 $ 44 $ 5,579

For the nine months ended September 30, 2022

Baxter International Inc.

stockholders' equity

Common stock shares Common stock Common stock shares in treasury Common stock in treasury Additional contributed capital Retained earnings Accumulated other comprehensive income (loss) Total Baxter stockholders' equity Noncontrolling interests Total equity

Balance as of January 1, 2023 683 $ 683 179 $ ( 11,389 ) $ 6,322 $ 14,050 $ ( 3,833 ) $ 5,833 $ 62 $ 5,895

Net income (loss) — — — — — ( 2,614 ) — ( 2,614 ) 8 ( 2,606 )

Other comprehensive income (loss) — — — — — — ( 674 ) ( 674 ) — ( 674 )

Purchases of treasury stock — — — ( 32 ) — — — ( 32 ) — ( 32 )

Net income — — — — — 44 — 44 1 45

Other comprehensive income — — — — — — 94 94 — 94

Stock issued under employee benefit plans and other — — ( 1 ) 65 ( 10 ) — — 55 — 55

1 unchanged sentence

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

Balance as of September 30, 2022

Balance as of March 31, 2023

683 $ 683 178 $ ( 11,324 ) $ 6,312 $ 13,947 $ ( 3,739 ) $ 5,879 $ 62 $ 5,941

For the three months ended September 30, 2021

Baxter International Inc.

stockholders' equity

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

Net income (loss) — — — — — 450 — 450 2 452

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

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

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

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

Balance as of September 30, 2021 683 $ 683 183 $ ( 11,529 ) $ 6,131 $ 16,967 $ ( 3,482 ) $ 8,770 $ 45 $ 8,815

For the nine months ended September 30, 2021

For the three months ended March 31, 2022

Baxter International Inc.

2 unchanged sentences

Balance as of January 1, 2022 683 $ 683 182 $ ( 11,488 ) $ 6,197 $ 17,065 $ ( 3,380 ) $ 9,077 $ 44 $ 9,121

Net income (loss) — — — — — 1,046 — 1,046 7 1,053

Other comprehensive income (loss) — — — — — — ( 168 ) ( 168 ) — ( 168 )

Purchases of treasury stock — — 7 ( 600 ) — — — ( 600 ) — ( 600 )

Net income — — — — — 71 — 71 2 73

Other comprehensive income — — — — — — ( 7 ) ( 7 ) — ( 7 )

Stock issued under employee benefit plans and other — — ( 2 ) 66 10 — — 76 — 76

1 unchanged sentence

Change in noncontrolling interests — — — — — — — — ( 2 ) ( 2 )

Balance as of September 30, 2021

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

Balance as of March 31, 2022 683 $ 683 180 $ ( 11,422 ) $ 6,207 $ 16,994 $ ( 3,387 ) $ 9,075 $ 44 $ 9,119

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

2 unchanged sentences

(in millions)

Nine months ended

September 30,

Three months ended

Cash flows from operations

Net income (loss) $ ( 2,606 ) $ 1,053

Adjustments to reconcile net income (loss) to cash flows from operations:

Net income $ 45 $ 73

Adjustments to reconcile net income to cash flows from operations:

Depreciation and amortization 319 380

2 unchanged sentences

Net periodic pension and other postretirement costs ( 4 ) 14

Intangible asset impairments 332 —

Goodwill impairments 2,785 —

Loss on product divestiture arrangement 54 —

Reclassification of cumulative translation loss to earnings 65 —

Other 14 ( 12 )

14 unchanged sentences

Repayments of debt ( 3 ) ( 404 )

Issuances of debt — 50

Net increases (decreases) in debt with original maturities of three months or less 30 251

Net decreases in debt with original maturities of three months or less ( 249 ) ( 45 )

Cash dividends on common stock ( 146 ) ( 140 )

Proceeds from stock issued under employee benefit plans 36 66

Purchases of treasury stock ( 32 ) ( 600 )

Debt issuance costs — ( 37 )

Other financing activities, net ( 10 ) ( 25 )

5 unchanged sentences

$ 1,677 $ 2,299

(1) The following table provides a reconciliation of cash, cash equivalents and restricted cash shown above to the amounts reported within the condensed consolidated balance sheet as of September 30, 2022, December 31, 2021, and September 30, 2021 (in millions):

September 30, 2022 December 31, 2021 September 30, 2021

(1) The following table provides a reconciliation of cash, cash equivalents and restricted cash shown above to the amounts reported within the condensed consolidated balance sheet as of March 31, 2023, December 31, 2022, and March 31, 2022 (in millions):

March 31, 2023 December 31, 2022 March 31, 2022

Cash and cash equivalents $ 1,673 $ 1,718 $ 2,294

6 unchanged sentences

The unaudited interim condensed consolidated financial statements of Baxter International Inc.

and its subsidiaries (we or our) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial reporting.

and its subsidiaries (we, our or Baxter) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial reporting.

Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S.

5 unchanged sentences

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

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

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

COVID-19 has had, and we expect will continue to have, an adverse impact on our operations, supply chains and distribution systems and has increased and we expect will continue to increase our expenses.

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 9.

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

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

and other governments may continue existing measures or implement new restrictions and other requirements in light of the continuing spread of the pandemic (including with respect to moratoriums on elective procedures and mandatory quarantines and travel restrictions), resulting in higher levels of absenteeism, including at our manufacturing and distribution facilities.

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

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

While the completion of the proposed spinoff is subject to satisfaction of customary conditions, we are targeting completion of the planned separation by July 2024 or earlier.

Additionally, we announced that we are pursuing strategic alternatives (including a potential sale) for our BioPharma Solutions product category.

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.

1 unchanged sentence

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

We expect that the challenges caused by the pandemic as well as global economic conditions, among other factors, may continue to have an adverse effect on our business.

New Accounting Standards

Recently adopted accounting pronouncements

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

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 condensed consolidated financial statements.

ACQUISITIONS AND OTHER ARRANGEMENTS

On December 13, 2021, we completed our 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, 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 outstanding Hillrom common share.

The following table summarizes the fair value of the total consideration paid:

(in millions)

Cash consideration paid to Hillrom shareholders (a)

Fair value of equity awards issued to Hillrom equity award holders (b)

Total Consideration $ 10,476

(a) Represents cash consideration transferred of $ 156.00 per outstanding Hillrom common share to existing shareholders and holders of equity awards that vested at closing pursuant to their original terms.

(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 September 30, 2022.

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

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:

(in millions)

Assets acquired and liabilities assumed

Cash and cash equivalents $ 399

Accounts receivable 562

Inventories 557

Prepaid expenses and other current assets 49

Property, plant and equipment 514

Goodwill 6,810

Other intangible assets 6,029

Operating lease right-of-use assets 74

Other non-current assets 132

Short-term debt ( 250 )

Accounts payable ( 140 )

Accrued expenses and other current liabilities ( 558 )

Long-term debt and finance lease obligations ( 2,118 )

Operating lease liabilities ( 57 )

Other non-current liabilities ( 1,527 )

Total assets acquired and liabilities assumed $ 10,476

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

Individually the

measurement period adjustments were not material and in total increased goodwill by $ 25 million.

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

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

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

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

Other Business Development Activities

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

In December 2020, we entered into an agreement with a third party to divest 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 owe Celerity following those regulatory approvals and the proceeds that we will receive from our divestiture of those product rights.

That loss is reported within other operating expense (income), net in our condensed consolidated statements of operations for the three and nine months ended September 30, 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 currently, received specified intellectual property, including patent rights, in the first quarter and will receive additional intellectual property, including the product rights to Zosyn, in the first quarter of 2023.

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

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.

We expect that the challenges caused by global economic conditions, among other factors, may continue to have an adverse effect on our business.

SUPPLEMENTAL FINANCIAL INFORMATION

Allowance for Doubtful Accounts

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

The following table is a summary of the changes in our allowance for doubtful accounts for the three months ended March 31, 2023 and 2022.

Three months ended

September 30, Nine months ended

September 30,

(in millions) 2023 2022

4 unchanged sentences

Balance at end of period $ 122 $ 129

(in millions) September 30,

(in millions) March 31,

2023 December 31,

4 unchanged sentences

Property, Plant and Equipment, Net

(in millions) September 30,

(in millions) March 31,

2023 December 31,

2 unchanged sentences

Property, plant and equipment, net $ 5,000 $ 4,979

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 September 30, 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 and the net book value of the assets approximates the transaction price net of estimated selling costs.

Interest Expense, Net

Three months ended

September 30, Nine months ended

September 30,

(in millions) 2023 2022

2 unchanged sentences

Interest expense, net $ 117 $ 85

Other (Income) Expense, Net

Other Income, Net

Three months ended

September 30, Nine months ended

September 30,

(in millions) 2023 2022

1 unchanged sentence

Pension and other postretirement benefit plans ( 10 ) ( 5 )

Pension curtailment — — ( 11 ) —

Change in fair value of marketable equity securities ( 5 ) 1

Reclassification of cumulative translation loss to earnings 65 — 65 —

Other, net — ( 1 )

Other (income) expense, net $ 63 $ 12 $ 3 $ 15

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.

Other income, net $ ( 1 ) $ ( 16 )

Non-Cash Operating and Investing Activities

Right-of-use operating lease assets obtained in exchange for lease obligations for the nine months ended September 30, 2022 and 2021 were $ 59 million and $ 69 million, respectively.

Purchases of property, plant and equipment included in accounts payable as of September 30, 2022 and 2021 were $ 65 million and $ 49 million, respectively.

Right-of-use operating lease assets obtained in exchange for lease obligations for the three months ended March 31, 2023 and 2022 were $ 26 million and $ 14 million, respectively.

Purchases of property, plant and equipment included in accounts payable as of March 31, 2023 and 2022 were $ 70 million and $ 53 million, respectively.

GOODWILL AND OTHER INTANGIBLE ASSETS, NET

2 unchanged sentences

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

Acquisition accounting adjustments — — — 25 25

Impairments — — — ( 2,785 ) ( 2,785 )

Currency translation 18 2 2 3 25

Balance as of September 30, 2022 $ 2,276 $ 280 $ 202 $ 3,881 $ 6,639

We assess goodwill and indefinite-lived intangible assets for impairment annually during the fourth quarter or whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable.

We recognize a goodwill impairment charge for the amount by which a reporting unit's carrying amount exceeds its fair value.

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.

The impairment tests resulted in total pre-tax goodwill impairment charges of $ 2.8 billion in the third quarter of 2022, consisting of a $ 1.4 billion goodwill impairment for our Patient Support Systems reporting unit, a $ 1.0 billion goodwill impairment for our Front Line Care reporting unit and a $ 0.4 billion goodwill impairment for our Surgical

Solutions reporting unit.

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

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

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

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

Balance as of March 31, 2023 $ 2,374 $ 291 $ 212 $ 3,991 $ 6,868

For the periods ended March 31, 2023 and 2022, there were no reductions in goodwill relating to impairment losses.

Other intangible assets, net

2 unchanged sentences

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

September 30, 2022

March 31, 2023

Gross other intangible assets $ 3,454 $ 3,862 $ 326 $ 1,571 $ 202 $ 9,415

5 unchanged sentences

Other intangible assets, net $ 2,982 $ 1,948 $ 90 $ 1,571 $ 202 $ 6,793

Intangible asset amortization expense was $ 168 million and $ 68 million for the three months ended September 30, 2022 and 2021, respectively, and $ 578 million and $ 199 million for the nine months ended September 30, 2022 and 2021.

Indefinite-lived 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 related to 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 condensed consolidated statements of income (loss) for the three and nine months ended September 30, 2022.

The fair values of the indefinite-lived intangible assets tested for impairment were determined using a discounted cash flow model and significant inputs included forecasted cash flows, royalty rates and discount rates.

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

Intangible asset amortization expense was $ 162 million and $ 217 million for the three months ended March 31, 2023 and 2022, respectively.

FINANCING ARRANGEMENTS

Significant Debt Activity

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

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

Securities Act of 1933, as amended.

Those exchange offers with respect to the Hillrom notes were completed in the second quarter of 2022.

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.

dollar-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 dues due in 2022.

Credit Facilities

In the first quarter of 2023, we amended the credit agreements governing our U.S.

dollar-denominated term loan credit facility and revolving credit facility and the guaranty agreement with respect to our Euro-denominated revolving credit facility, in each case to amend the net leverage ratio covenant to increase the maximum net leverage ratio for the four fiscal quarters ending March 31, 2023, June 30, 2023, September 30, 2023 and December 31, 2023.

dollar-denominated revolving credit facility has a capacity of $ 2.5 billion and our Euro-denominated revolving credit facility has a capacity of € 200 million.

Each of the facilities matures in 2026.

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

There were no borrowings outstanding under these credit facilities as of March 31, 2023 or December 31, 2022.

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 March 31, 2023 we have capacity to draw approximately $ 2.2 billion under our credit facilities, less commercial paper borrowings which were $ 50 million as of March 31, 2023.

Commercial Paper

As of September 30, 2022, we had $ 275 million of commercial paper outstanding with a weighted-average interest rate of 3.02 % and an original weighted-average term of 49 days.

As of March 31, 2023, we had $ 50 million of commercial paper outstanding with a weighted-average interest rate of 5.42 % and an original weighted-average term of 28 days.

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.

4 unchanged sentences

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

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

As of March 31, 2023 and December 31, 2022, our total recorded reserves with respect to legal and environmental matters were $ 29 million and $ 28 million, respectively.

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

We are not able to estimate the amount or range of any loss for certain contingencies for which there is no reserve or additional loss for matters already reserved.

While our liability in connection with these claims cannot be estimated and the resolution thereof in any reporting period could have a significant impact on our results of operations and cash flows for that period, the outcome of these legal proceedings is not expected to have a material adverse effect on our consolidated financial position.

While we believe that we have valid defenses in the matters set forth below, litigation is inherently uncertain, excessive verdicts do occur, and we may incur material judgments or enter into material settlements of claims.

9 unchanged sentences

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

As of September 30, 2022 and December 31, 2021, our

environmental reserves, which are measured on an undiscounted basis, were $ 17 million and $ 18 million, respectively.

As of March 31, 2023 and December 31, 2022, our environmental reserves, which are measured on an undiscounted basis, were $ 17 million and $ 19 million, respectively.

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

6 unchanged sentences

We manufactured generic injectable opiate products in our facility in Cherry Hill, NJ, which we divested in 2011.

In November 2019, we and certain of our officers were named in a class action complaint captioned Ethan E.

Silverman et al.

Baxter International Inc.

that was filed in the United States District Court for the Northern District of Illinois.

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 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.

Plaintiffs filed an amended complaint on June 25, 2020 containing substantially the same allegations.

On August 24, 2020, we filed a motion to dismiss the amended complaint.

On January 12, 2021, the Court granted our motion to dismiss the amended complaint but gave plaintiffs an opportunity to file a further-amended complaint.

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

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

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

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

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

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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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.

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 (DHHS) requesting documents and information related to compliance with the False Claims Act and the Anti-Kickback Statute.

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.

We acquired Hill-Rom Holdings, Inc.

(Hillrom) on December 13, 2021.

In July 2021, Hill-Rom, Inc., a wholly-owned subsidiary of Hillrom, 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 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 is cooperating fully 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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Hill-Rom Services, Inc.

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 and filed on May 27, 2022, a motion challenging certain aspects of plaintiff's case.

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 and filed a motion challenging certain aspects of plaintiff's case on May 27, 2022.

STOCKHOLDERS’ EQUITY

Cash Dividends

Cash dividends declared per share for the three and nine months ended September 30, 2022 were $ 0.29 and $ 0.86 .

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

Cash dividends declared per share for the three months ended March 31, 2023 and 2022 were $ 0.29 and $ 0.28 , respectively.

Stock Repurchase Programs

1 unchanged sentence

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

During the first nine months of 2022, we repurchased 0.5 million shares under this authority pursuant to a Rule 10b5-1 plan.

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

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

ACCUMULATED OTHER COMPREHENSIVE INCOME

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

The following table is a net-of-tax summary of the changes in accumulated other comprehensive income (loss) (AOCI) by component for the nine months ended September 30, 2022 and 2021.

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

During the first quarter of 2023 and 2022, we did not repurchase any shares under this authority.

We had $ 1.3 billion remaining available under the authorization as of March 31, 2023.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

Comprehensive income includes all changes in stockholders’ equity that do not arise from transactions with stockholders, and consists of net income, cumulative translation adjustments (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 accumulated other comprehensive income (loss) (AOCI) by component for the three months ended March 31, 2023 and 2022.

Gains (losses)

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

Balance as of December 31, 2022

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Net other comprehensive income (loss) 102 ( 6 ) ( 2 ) — 94

Balance as of September 30, 2022 $ ( 3,658 ) $ ( 299 ) $ ( 99 ) $ 2 $ ( 4,054 )

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

Balance as of March 31, 2023 $ ( 3,284 ) $ ( 337 ) $ ( 121 ) $ 3 $ ( 3,739 )

Gains (losses)

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

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

2 unchanged sentences

Amounts reclassified from AOCI (a)

— 7 ( 1 ) — 6

Net other comprehensive income (loss) ( 15 ) 9 ( 2 ) 1 ( 7 )

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

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

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

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

The following is a summary of the amounts reclassified from AOCI to net income during the three months ended March 31, 2023 and 2022.

Amounts reclassified from AOCI (a)

(in millions) Three months ended September 30, 2022 Nine months ended

September 30, 2022 Location of impact in income statement

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

Tax effect — — Income tax expense

$ ( 65 ) $ ( 65 ) Net of tax

(in millions) Three months ended March 31, 2023 Three months ended March 31, 2022 Location of impact in income statement

Pension and OPEB items

Amortization of net losses and prior service costs or credits $ ( 8 ) $ ( 25 ) Other (income) expense, net

Amortization of net losses and prior service costs or credits $ 5 $ ( 9 ) Other income, net

Tax effect ( 2 ) 2 Income tax expense

8 unchanged sentences

(a) Amounts in parentheses indicate reductions to net income

Amounts reclassified from AOCI (a)

(in millions) Three months ended September 30, 2021 Nine months ended September 30, 2021 Location of impact in income statement

Amortization of pension and OPEB items

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

Tax effect 4 12 Income tax expense

$ ( 17 ) $ ( 50 ) Net of tax

Gains on hedging activities

Foreign exchange contracts $ ( 5 ) $ ( 23 ) Cost of sales

Interest rate contracts ( 1 ) ( 4 ) Interest expense, net

( 6 ) ( 27 ) Total before tax

Tax effect 1 6 Income tax expense

$ ( 5 ) $ ( 21 ) Net of tax

Total reclassifications for the period $ ( 22 ) $ ( 71 ) Total net of tax

Refer to Note 3 for additional information regarding the reclassification of a cumulative translation loss to earnings, Note 11 for additional information regarding the amortization of pension and OPEB items and Note 14 for additional information regarding hedging activity .

Refer to Note 10 for additional information regarding the amortization of pension and OPEB items and Note 13 for additional information regarding hedging activity .

Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services.

2 unchanged sentences

Some of our contracts have multiple performance obligations.

For contracts with multiple performance obligations, we allocate the

contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract.

For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract.

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

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

As of September 30, 2022, we had $ 10.9 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.

As of March 31, 2023, we had $ 9.9 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 10 % of this amount as revenue over the remainder of 2022, 30 % in each of 2023 and 2024, 15 % in 2025 and 15 % thereafter.

We expect to recognize approximately 25 % of this amount as revenue over the remainder of 2023, 35 % in 2024, 20 % in 2025, 10 % in 2026 and 10 % thereafter.

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.

Revenues from product sales are recorded at the net sales 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 condensed consolidated balance sheets.

2 unchanged sentences

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

Revenue recognized during the three and nine months ended September 30, 2022 and 2021 related to performance obligations satisfied in prior periods was not material.

Revenue recognized during the three months ended March 31, 2023 and 2022 related to performance obligations satisfied in prior periods was not material.

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

2 unchanged sentences

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

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

Net trade accounts receivable was $ 2.3 billion and $ 2.4 billion as of March 31, 2023 and December 31, 2022, respectively.

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

2 unchanged sentences

In certain of those arrangements, a contract asset is created for the difference between the amount of equipment revenue recognized upon delivery and the amount of consideration initially receivable from the customer.

In those arrangements, the

contract asset becomes a trade account receivable as consumable medical products are delivered and billed, generally over one to seven years .

In those arrangements, the contract asset becomes a trade account receivable as consumable medical products are delivered and billed, generally over one to seven years .

The following table summarizes our contract assets:

(in millions) September 30,

(in millions) March 31,

2023 December 31,

3 unchanged sentences

Contract assets $ 211 $ 215

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

(in millions) September 30,

2022 December 31,

Prepaid expenses and other current assets $ 106 $ 84

Other non-current assets 123 111

Contract assets $ 229 $ 195

Accrued expenses and other current liabilities $ 158 $ 162

Other non-current liabilities 82 84

Contract liabilities $ 240 $ 246

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.

1 unchanged sentence

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 nine months ended September 30, 2022.

The following table summarizes contract liability activity for the three months ended March 31, 2023 and 2022.

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

Nine months ended

September 30, 2022

Three Months Ended March 31,

(in millions) 2023

Balance at beginning of period $ 244 $ 246

3 unchanged sentences

Balance at end of period $ 237 $ 240

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

For the three months ended March 31, 2023 and 2022, $ 68 million and $ 50 million of revenue was recognized that was included in contract liabilities as of December 31, 2022 and 2021, respectively.

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

(in millions) March 31,

2023 December 31,

Prepaid expenses and other current assets $ 92 $ 93

Other non-current assets 119 122

Contract assets $ 211 $ 215

Accrued expenses and other current liabilities $ 160 $ 164

Other non-current liabilities 77 80

Contract liabilities $ 237 $ 244

Disaggregation of Net Sales

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

Patient Support Systems, Front Line Care and Surgical Solutions.

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

and international:

Three Months Ended September 30,

(in millions) U.S.

International Total U.S.

International Total

$ 240 $ 702 $ 942 $ 222 $ 759 $ 981

Medication Delivery 2

475 250 725 490 257 747

Pharmaceuticals 3

173 352 525 188 401 589

Clinical Nutrition 4

92 139 231 88 156 244

Advanced Surgery 5

141 106 247 135 114 249

Acute Therapies 6

53 105 158 69 116 185

BioPharma Solutions 7

99 73 172 109 97 206

Patient Support Systems 8

301 79 380 — — —

Front Line Care 9

209 70 279 — — —

Surgical Solutions 10

38 38 76 — — —

28 10 38 18 7 25

Total Baxter $ 1,849 $ 1,924 $ 3,773 $ 1,319 $ 1,907 $ 3,226

Nine Months Ended September 30,

Three Months Ended March 31,

(in millions) U.S.

18 unchanged sentences

221 81 302 207 87 294

Surgical Solutions 10

Global Surgical Solutions 10

38 43 81 37 41 78

4 unchanged sentences

3 Pharmaceuticals includes sales of our premixed and oncology drug platforms, inhaled anesthesia and critical care products and pharmacy compounding services.

4 Clinical Nutrition includes sales of our parenteral nutrition (PN) therapies and related products.

4 Clinical Nutrition includes sales of our parenteral nutrition therapies and related products.

5 Advanced Surgery includes sales of our biological products and medical devices used in surgical procedures for hemostasis, tissue sealing and adhesion prevention.

4 unchanged sentences

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.

10 Surgical Solutions includes sales of our surgical video technologies, tables, lights, pendants, precision positioning devices and other accessories.

10 Global Surgical Solutions includes sales of our surgical video technologies, tables, lights, pendants, precision positioning devices and other accessories.

11 Other includes sales of miscellaneous product and service offerings.

Lease Revenue

We lease smart beds, such as bariatric, critical care, maternal, and home care beds, as well as other surfaces, to customers during periods of peak demand or for specialty purposes.

We also 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, 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, IV fluids and inhaled anesthetics.

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

1 unchanged sentence

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

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

(in millions) Three months ended September 30, 2022 Nine months ended September 30, 2022

Sales-type lease revenue $ 3 $ 11

Operating lease revenue 145 380

Variable lease revenue 9 41

Total lease revenue $ 157 $ 432

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

The components of lease revenue for the three months ended March 31, 2023 and 2022 were:

(in millions) Three months ended March 31, 2023 Three months ended March 31, 2022

Sales-type lease revenue $ 4 $ 3

2 unchanged sentences

Total lease revenue $ 143 $ 145

Our net investment in sales-type leases was $ 95 million as of September 30, 2022, of which $ 18 million originated in 2018 and prior, $ 19 million in 2019, $ 26 million in 2020, $ 24 million in 2021, and $ 8 million in 2022.

Our net investment in sales-type leases was $ 82 million as of March 31, 2023, of which $ 24 million originated in 2019 and prior, $ 21 million in 2020, $ 20 million in 2021, $ 14 million in 2022, and $ 3 million in 2023.

BUSINESS OPTIMIZATION CHARGES

1 unchanged sentence

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

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

From the commencement of our business optimization activities in the second half of 2015 through September 30, 2022, we have incurred cumulative pre-tax costs of $ 1.4 billion related to these actions.

From the commencement of our business optimization activities in the second half of 2015 through March 31, 2023, we have incurred cumulative pre-tax costs of $ 1.6 billion related to these actions.

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

We currently expect to incur additional pre-tax costs, primarily related to implementation of business optimization programs, of approximately $ 24 million through the completion of initiatives that are currently underway.

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

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

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

We continue to pursue cost savings initiatives, including those related the ongoing implementation of our previously announced new operating model intended to simplify and streamline our operations, and, to the extent further cost savings opportunities are identified, we would incur additional restructuring charges and costs to implement business optimization programs in future periods.

During the three months ended March 31, 2023 and 2022, we recorded the following charges related to business optimization programs.

Three Months Ended March 31,

(in millions) 2023 2022

3 unchanged sentences

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

Costs to implement business optimization programs for the three and nine months ended September 30, 2022 and 2021, respectively, consisted primarily of external consulting and transition costs, including employee compensation and related costs.

Costs to implement business optimization programs for the three months ended March 31, 2023 and 2022, respectively, consisted primarily of external consulting and transition costs, including employee compensation and related costs.

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

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

Three months ended September 30, 2022

During the three months ended March 31, 2023 and 2022, we recorded the following restructuring charges.

Three months ended March 31, 2023

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

3 unchanged sentences

Total restructuring charges $ 32 $ 71 $ 7 $ 110

Three months ended September 30, 2021

(in millions) COGS SG&A Total

Employee termination costs $ 11 $ 8 $ 19

Contract termination and other costs — 2 2

Asset impairments 11 — 11

Total restructuring charges $ 22 $ 10 $ 32

Nine months ended September 30, 2022

Three months ended March 31, 2022

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

3 unchanged sentences

Total restructuring charges $ 2 $ 65 $ — $ 67

Nine months ended September 30, 2021

(in millions) COGS SG&A Total

Employee termination costs $ 35 $ 14 $ 49

Contract termination and other costs — 2 2

Asset impairments 16 — 16

Total restructuring charges $ 51 $ 16 $ 67

For the three months ended March 31, 2023, $ 78 million of the restructuring charges reflected in the table above, consisting of employee termination costs, were related to the ongoing implementation of our previously announced new operating model intended to simplify and streamline our operations.

For the three months ended March 31, 2022, $ 56 million of the restructuring charges reflected in the table above were related to integration activities for the Hillrom acquisition, consisting of $ 38 million of employee termination costs, $ 12 million of contract termination and other costs and $ 6 million of asset impairments.

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

4 unchanged sentences

Currency translation 1

Liability balance as of September 30, 2022 $ 128

Substantially all of our restructuring liabilities as of September 30, 2022 relate to employee termination costs, with the remaining liabilities attributable to contract termination costs.

Liability balance as of March 31, 2023 $ 175

Substantially all of our restructuring liabilities as of March 31, 2023 relate to employee termination costs, with the remaining liabilities attributable to contract termination costs.

Substantially all of the cash payments for those liabilities are expected to be disbursed by the end of 2024.

2 unchanged sentences

Three months ended

September 30, Nine months ended

September 30,

(in millions) 2023 2022

8 unchanged sentences

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

Hillrom Pension Plan Amendment

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

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

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

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

Our effective income tax rate was 1.1 % and ( 0.2 )% for the three months ended September 30, 2022 and 2021, respectively, and ( 1.1 )% and 11.8 % for the nine months ended September 30, 2022 and 2021, respectively.

Our effective income tax rate was 35.7 % and 22.3 % for the three months ended March 31, 2023 and 2022, respectively.

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

federal statutory rate due to a number of factors, including foreign rate differences, tax incentives, 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.

For the three and nine months ended September 30, 2022, the difference between our effective income tax rate and the U.S.

federal statutory rate was primarily attributable to non-deductible goodwill impairments.

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

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

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

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

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, increases or decreases in liabilities for uncertain tax positions and excess tax benefits or shortfalls on stock compensation awards.

For the three months ended March 31, 2023, the difference between our effective income tax rate and the U.S.

federal statutory rate was primarily attributable to tax shortfalls on stock compensation awards and an increase in our liabilities for uncertain tax positions, partially offset by a favorable geographic earnings mix.

For the three months ended March 31, 2022, the difference between our effective income tax rate and the U.S.

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

EARNINGS PER SHARE

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

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

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

2 unchanged sentences

Three months ended

September 30, Nine months ended

September 30,

(in millions) 2023 2022

2 unchanged sentences

Diluted shares 507 509

Basic and diluted shares are the same for the three and nine months ended September 30, 2022 due to our net losses for those periods.

The effect of dilutive securities for the three and nine months ended September 30, 2021 includes unexercised stock options, unvested RSUs and contingently issuable shares related to granted PSUs.

Diluted EPS excludes 23 million shares issuable under equity awards for the three and nine months ended September 30, 2022, respectively, and 7 million shares issuable under equity awards for the three and nine months ended September 30, 2021, respectively, because their inclusion would have had an anti-dilutive effect on diluted EPS.

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

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

The computation of diluted EPS excludes 17 million and 4 million shares issuable under equity awards for the three months ended March 31, 2023 and 2022, respectively, because their inclusion would have had an anti-dilutive effect on diluted EPS.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

17 unchanged sentences

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

Cash flow hedges are

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

The notional amounts of foreign exchange contracts designated as cash flow hedges were $ 407 million and $ 377 million as of September 30, 2022 and December 31, 2021, respectively.

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

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

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

The notional amounts of foreign exchange contracts designated as cash flow hedges were $ 386 million and $ 398 million as of March 31, 2023 and December 31, 2022, respectively.

The maximum term over which we have cash flow hedge contracts in place related to forecasted transactions at March 31, 2023 is 12 months for foreign exchange contracts.

There were no outstanding interest rate contracts designated as cash flow hedges as of March 31, 2023 and December 31, 2022.

Fair Value Hed g es

3 unchanged sentences

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

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

There were no outstanding interest rate contracts designated as fair value hedges as of March 31, 2023 and December 31, 2022.

Net Investment Hed g es

2 unchanged sentences

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

As of September 30, 2022, we had an accumulated pre-tax unrealized translation gain in AOCI of $ 265 million related to the Euro-denominated senior notes.

As of March 31, 2023, we had an accumulated pre-tax unrealized translation gain in AOCI of $ 47 million related to the Euro-denominated senior notes.

Dedesignations

2 unchanged sentences

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

There were no hedge dedesignations in the first nine months of 2022 or 2021 resulting from changes in our assessment of the probability that the hedged forecasted transactions would occur.

There were no cash flow hedge dedesignations in the first three months of 2023 or 2022 resulting from changes in our assessment of the probability that the hedged forecasted transactions would occur.

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

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

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

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

There were no fair value hedges terminated during the first three months of 2023 or 2022.

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

There were no net investment hedges terminated during the first three months of 2023 or 2022.

Undesignated Derivative Instruments

1 unchanged sentence

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

The total notional amount of undesignated derivative instruments was $ 548 million as of September 30, 2022 and $ 851 million as of December 31, 2021.

The total notional amount of undesignated derivative instruments was $ 632 million as of March 31, 2023 and $ 753 million as of December 31, 2022.

Gains and Losses on Hedging Instruments and Undesignated Derivative Instruments

The following tables summarize the gains and losses on our hedging instruments and the classification of those gains and losses within our condensed consolidated financial statements for the three months ended September 30, 2022 and 2021.

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

4 unchanged sentences

Foreign exchange contracts — ( 3 ) Cost of sales 4 2

Net investment hedges 126 60 Other (income) expense, net — —

Net investment hedges ( 48 ) 42 Other income, net — —

Total $ ( 48 ) $ 39 $ 3 $ 1

2 unchanged sentences

Undesignated derivative instruments

Foreign exchange contracts Other (income) expense, net $ ( 11 ) $ ( 7 )

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

in income statement Gain (loss) reclassified from AOCI

(in millions) 2022 2021 2022 2021

Cash flow hedges

Interest rate contracts $ — $ — Interest expense, net $ ( 4 ) $ ( 4 )

Foreign exchange contracts 42 7 Cost of sales 11 ( 23 )

Net investment hedges 311 143 Other (income) expense, net — —

Total $ 353 $ 150 $ 7 $ ( 27 )

Location of gain (loss)

in income statement Gain (loss) recognized in income

(in millions) 2022 2021

Undesignated derivative instruments

Foreign exchange contracts Other (income) expense, net $ ( 34 ) $ ( 26 )

As of September 30, 2022, $ 22 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.

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

As of March 31, 2023, $ 3 million of deferred, net after-tax losses on derivative instruments included in AOCI are expected to be recognized in earnings during the next 12 months, coinciding with when the hedged items are expected to impact earnings.

Derivative Assets and Liabilities

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

The following table summarizes the classification and fair values of derivative instruments reported in the condensed consolidated balance sheet as of March 31, 2023.

Derivatives in asset positions Derivatives in liability positions

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

September 30, 2022 December 31, 2021

March 31, 2023 December 31, 2022

(in millions) Asset Liability Asset Liability

5 unchanged sentences

in the carrying amount of the hedged item (a)

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

(in millions) Balance as of March 31, 2023 Balance as of December 31, 2022 Balance as of March 31, 2023 Balance as of December 31, 2022

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

3 unchanged sentences

Basis of fair value measurement

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

(in millions) Balance as of March 31, 2023 Quoted prices in active markets for identical assets

(Level 1) Significant other

22 unchanged sentences

Total $ 96 $ — $ 12 $ 84

As of September 30, 2022 and December 31, 2021, cash and cash equivalents of $ 1.6 billion and $ 3.0 billion, respectively, included money market and other short-term funds of approximately $ 161 million and $ 816 million, respectively, which are considered Level 2 in the fair value hierarchy.

As of March 31, 2023 and December 31, 2022, cash and cash equivalents of $ 1.7 billion, respectively, included money market and other short-term funds of approximately $ 369 million and $ 341 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 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.

Three months ended September 30,

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

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

Additions — — 28

Change in fair value recognized in earnings ( 6 ) — ( 1 )

Payments ( 17 ) — —

Fair value at end of period $ 90 $ 44 $ 61

Nine months ended September 30,

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

Three months ended March 31,

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

Fair value at beginning of period $ 84 $ 47 $ 143 $ 30

2 unchanged sentences

Change in fair value recognized in AOCI — — — 2

Payments ( 19 ) — ( 16 )

Transfers out of Level 3 — ( 5 ) — —

Currency translation — — 1

Payments ( 1 ) — ( 2 ) —

Fair value at end of period $ 70 $ 42 $ 124 $ 53

During the nine months ended September 30, 2022, $ 8 million of available-for-sale debt securities that were previously classified as Level 3 converted to marketable equity securities, which are classified as Level 1 in the fair value hierarchy, upon the initial public offering of the investee.

Financial Instruments Not Measured at Fair Value

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

For these financial instruments, the following table provides the values recognized in the condensed consolidated balance sheets and the estimated fair values as of September 30, 2022 and December 31, 2021.

For these financial instruments, the following table provides the values recognized in the condensed consolidated balance sheets and the estimated fair values as of March 31, 2023 and December 31, 2022.

Book values Fair values(a)

8 unchanged sentences

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

Equity investments not measured at fair value are comprised of other equity investments without readily determinable fair values and were $ 102 million as of September 30, 2022 and $ 114 million as of December 31, 2021.

The carrying values of equity investments without readily determinable fair values that we measure at cost, less impairment were $ 103 million as of March 31, 2023 and $ 104 million as of December 31, 2022.

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.

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

1 unchanged sentence

We manage our business 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 the acquired Hillrom business.

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

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

5 unchanged sentences

and surgical hemostat and sealant products.

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.

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.

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

2 unchanged sentences

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

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

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

Those unallocated costs related to Hillrom, which totaled $ 3.0 billion and $ 3.3 billion for the three and nine months ended September 30, 2022, respectively, and primarily related to goodwill and intangible asset impairments are now presented within Corporate as well.

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

1 unchanged sentence

Three months ended

September 30, Nine months ended

September 30,

(in millions) 2023 2022

Americas $ 1,602 $ 1,626

EMEA 692 779 2,129 2,300

APAC 643 720 1,917 2,059

Hillrom 731 755

2 unchanged sentences

Americas $ 481 $ 610

EMEA 145 167 433 461

APAC 152 166 459 456

Hillrom 158 200

2 unchanged sentences

Three months ended

September 30, Nine months ended

September 30,

(in millions) 2023 2022

1 unchanged sentence

Corporate and other ( 666 ) ( 917 )

Total operating income (loss) ( 2,799 ) 513 ( 2,296 ) 1,327

Total operating income 186 163

Interest expense, net 117 85

Other (income) expense, net 63 12 3 15

Income (loss) before income taxes $ ( 2,966 ) $ 451 $ ( 2,577 ) $ 1,194

Refer to Note 9 for additional information on Net Sales by product category.

Other income, net ( 1 ) ( 16 )

Income before income taxes $ 70 $ 94

We are implementing 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, which is currently expected in the second half of 2023.

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

What changed 10-Q

Item 1. Financial Statements