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Item 2. Management’s Discussion and Analysis

2023-04-27 compared with 2022-10-27 · 201 added, 325 removed, 156 unchanged (77% of the section changed)

1 unchanged sentence

Refer to our Annual Report on Form 10-K for the year ended December 31, 2022 for management’s discussion and analysis of our financial condition and results of operations.

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

The following is management’s discussion and analysis of our financial condition and results of operations for the three months ended March 31, 2023 and 2022.

RECENTLY ANNOUNCED STRATEGIC ACTIONS

In January 2023, we announced the following planned strategic actions that are intended to enhance our operational effectiveness, accelerate innovation and drive additional stockholder value:

(a) a proposed spinoff of our Renal Care and Acute Therapies product categories into an independent publicly traded company focused on kidney care (the proposed spinoff), (b) our development of a new operating model to simplify our operations and (c) our pursuit of strategic alternatives (including a potential sale) for our BioPharma Solutions (BPS) product category.

The proposed spinoff is currently expected to be completed by July 2024 or earlier, subject to the satisfaction of customary conditions.

In the first quarter of 2023 we generated $1.1 billion of net sales from our Renal Care and Acute Therapies product categories, representing approximately 29% of our consolidated net sales.

Additionally, in the first quarter of 2023 we generated $139 million of net sales from our BPS product category, representing approximately 4% of our consolidated net sales.

During the first quarter of 2023 we incurred significant separation and transaction-related costs related to the proposed spinoff and our pursuit of strategic alternatives (including a potential sale) for our BPS product category.

For the remainder of 2023 and the first half of 2024 we expect to continue to incur such costs, which will adversely impact our earnings and operating cash flows.

Additionally, if these proposed actions are consummated, we expect to incur some amount of dis-synergies following those transactions due to the reduced size of our company and, as a result, we will need to undertake actions to help ensure that our cost structure is appropriate to support our remaining businesses.

There can be no guarantees that the proposed spinoff or the sale of, or other strategic transaction involving, our BPS product category will be completed in the manner or over the timeframes described above, or at all.

We are also starting to implement a new operating model intended to simplify and streamline our operations and better align our manufacturing footprint and supply chain to our commercial activities.

The new operating model will have significant impacts on our systems and processes across our entire company and we expect to have those broader operational changes, including our updated management reporting framework for the new operating model, fully implemented during the second half of 2023.

At that time, we expect that our reportable segments will be changed to align with the new operating model.

However, there could be no guarantees that the implementation of our new operating model will be completed within that timeframe.

FACTORS AFFECTING OUR RESULTS OF OPERATIONS

Supply Constraints, 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, increased interest rates, disruptions to certain ports of call around the world, the war in Ukraine and other geopolitical events.

Due to the nature of our products, which include dense consumable medical products such as IV fluids, and the geographic locations of our manufacturing facilities, which often require us to transport our products long distances, we are more susceptible to increases in freight costs and other supply chain challenges than certain of our industry peers.

We expect to continue 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 (including those acquired in our December 2021 acquisition of Hill-Rom Holdings, Inc.

(Hillrom)) due to our inability to fully satisfy demand and may continue to have a negative impact on our sales in the future.

Our results of operations are also affected by macroeconomic conditions and levels of business confidence.

The war in Ukraine and the sanctions and other measures being imposed in response to this conflict have increased the levels of economic and political uncertainty.

In response, we continue to monitor the developing situation with respect to

ongoing business in Russia and are working on reducing our product offerings in Russia while remaining compliant with all applicable U.S.

and European Union sanctions and regulations.

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

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

COVID-19 had, and COVID-19 or any other future public health crisis could in the future have, an adverse impact on, among other things, our expenses, operations, supply chains and distribution systems.

Over the course of the COVID-19 pandemic, our business was impacted by shifting healthcare priorities and significant volatility in the demand for our products, and any resurgence of the pandemic or any new public health crisis could again impact healthcare priorities and cause volatility in the demand for our products.

In addition, the existence of high inflation rates in the United States and in many of the countries where we conduct business has resulted in, and may continue to result in, higher interest rates, shipping costs, labor costs and other costs and expenses, as well as weakening exchange rates.

We have experienced and may continue to experience inflationary increases in manufacturing costs and operating expenses as well as negative impacts from weakening exchange rates as a result of general macroeconomic factors, and may not be able to pass these cost increases on to our customers in a timely manner or at all, which could have a material adverse impact on our profitability and results of operations.

Inflation and general macroeconomic factors have caused certain of our customers to reduce or delay orders for our products and services and could cause them to do so in the future, which could have a material adverse impact on our sales and results of operations.

For further discussion, please refer to Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

RESULTS OF OPERATIONS

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.

While the current year periods include the results of operations and cash flows of Hillrom, the prior year periods do not as they preceded the acquisition date.

In the third quarter of 2022, we recognized impairments of goodwill and certain indefinite-lived intangible assets that arose from the Hillrom acquisition.

See Note 4, Goodwill and Other Intangible Assets, Net, of the accompanying condensed consolidated financial statements for additional information about those impairments.

Net income (loss) attributable to Baxter stockholders for the three and nine months ended September 30, 2022 totaled $(2,937) million, or $(5.83) per diluted share, and $(2,614) million, or $(5.20) per diluted share, compared to $450 million, or $0.89 per diluted share, and $1,046 million, or $2.06 per diluted share, for the three and nine months ended September 30, 2021.

Net income (loss) for the three and nine months ended September 30, 2022 included special items which decreased net income by $3.4 billion and $3.9 billion, respectively, or $6.65 and $7.81 per diluted share, respectively, as further discussed below.

Net income (loss) for the three and nine months ended September 30, 2021 included special items which decreased net income by $66 million and $265 million, respectively, or $0.13 and $0.52 per diluted share, respectively, as further discussed below.

Net income attributable to Baxter stockholders for the three months ended March 31, 2023 totaled $44 million, or $0.09 per diluted share, compared to $71 million, or $0.14 per diluted share, for the three months ended March 31, 2022.

Net income for the three months ended March 31, 2023 included special items which decreased net income by $253 million, or $0.50 per diluted share, respectively, as further discussed below.

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

Special Items

The following table provides a summary of our special items and the related impact by line item on our results for the three and nine months ended September 30, 2022 and 2021.

The following table provides a summary of our special items and the related impact by line item on our results for the three months ended March 31, 2023 and 2022.

Three months ended

September 30, Nine months ended

September 30,

(in millions) 2023 2022

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Business optimization items 1

(13) (20) (21) (51)

Acquisition and integration expenses 2

2 (1) (171) (1)

Acquisition and integration items 2

European medical devices regulation 3

(12) (11) (35) (30)

Divestiture-related costs 4

Product-related items 5

(20) — (43) —

Intangible asset impairments 6

(332) — (332) —

Total Special Items $ (158) $ (322)

Impact on Gross Margin Ratio (12.9 pts) (3.1 pts) (8.5 pts) (3.0 pts)

Impact on Gross Margin Ratio (4.3 pts) (8.6 pts)

Selling, General and Administrative (SG&A) Expenses

1 unchanged sentence

Business optimization items 1

Acquisition and integration expenses 2

Investigation and related costs 4

Acquisition and integration items 2

Divestiture-related costs 4

Total Special Items $ 165 $ 197

Impact on SG&A Ratio 3.3 pts 1.3 pts 4.1 pts 0.9 pts

Impact on SG&A Ratio 4.5 pts 5.3 pts

Research and Development (R&D) Expenses

Business optimization items 1

$ 3 $ — $ 4 $ —

Acquisition and integration expenses 2

Total Special Items $ 7 $ 1

Impact on R&D Ratio 0.1 pts 0.0 pts 0.0 pts 0.0 pts

Goodwill Impairments

Goodwill impairments 6

$ 2,785 $ — $ 2,785 $ —

Total Special Items $ 2,785 $ — $ 2,785 $ —

Impact on R&D Ratio 0.2 pts 0.0 pts

Other Operating Expense (Income), net

Loss on product divestiture arrangement 7

$ 54 $ — $ 54 $ —

Acquisition and integration expenses 2

(6) (1) (34) (6)

Total Special Items $ 48 $ (1) $ 20 $ (6)

Interest Expense, net

Acquisition and integration expenses 2

$ — $ 18 $ — $ 18

Total Special Items $ — $ 18 $ — $ 18

Other Income (Expense), net

Pension curtailment 8

Acquisition and integration items 2

$ (13) $ (17)

Reclassification of cumulative translation loss to earnings 9

Total Special Items $ (13) $ (17)

Income Tax Expense

Tax matters 10

$ — $ (58) $ — $ (36)

Tax effects of special items 6

1 unchanged sentence

Total Special Items $ (64) $ (103)

Impact on Effective Tax Rate (22.7 pts) (15.0 pts) (22.2 pts) (4.3 pts)

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

Impact on Effective Tax Rate 12.7 pts 1.5 pts

Intangible asset amortization expense is identified as a special item to facilitate an evaluation of current and past operating performance and is consistent with how management and our Board of Directors assess performance.

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

Management believes that providing the separate impact of those items may provide a more complete understanding and facilitate a fuller analysis of our results of operations, particularly in evaluating performance from one period to another.

1 In 2022 and 2021, our results were impacted by costs associated with our execution of programs to optimize our organization and cost structure.

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

In the current period, restructuring charges include actions taken in connection with our integration of Hillrom, which we acquired in December 2021.

Our results in 2022 included business optimization charges of $73 million in the third quarter and $196 million in the first nine months.

Our results in 2021 included business optimization charges of $36 million in the third quarter and $81 million in the first nine months.

Management believes that providing the separate impact of those items on our results in accordance with U.S.

GAAP may provide a more complete understanding of our operations and can facilitate a fuller analysis of our results of operations, particularly in evaluating performance from one period to another.

1 Our results in 2023 and 2022 were impacted by costs associated with our execution of programs to optimize our organization and cost structure.

These restructuring and other business optimization costs included actions related to our current implementation of a new operating model intended to simplify and streamline our operations, our integration of Hillrom, rationalization of certain manufacturing and distribution facilities and transformation of certain general and administrative functions.

Our results in 2023 and 2022 included business optimization charges of $134 million and $81 million, respectively.

Refer to Note 9 in Item 1 of this Quarterly Report on Form 10-Q for further information regarding these charges and related liabilities.

2 Our results in 2022 included $4 million in the third quarter and $193 million in the first nine months of acquisition and integration-related expenses.

Those costs included $10 million in the third quarter and $227 million in the first nine months related to our acquisition of Hillrom, primarily reflecting $159 million of incremental costs of sales in the first nine months from the fair value step-ups on acquired Hillrom inventory that was sold in the first quarter.

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

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

Those acquisition and integration-related expenses related to Hillrom were partially offset by a $6 million benefit in the third quarter and a $34 million benefit in the first nine months from changes in the estimated fair value of contingent consideration liabilities.

Our results in 2021 included acquisition, integration and related financing expenses of $39 million in the third quarter and $36 million in the first nine months.

This included acquisition, integration and related financing expenses for our acquisition of Hillrom and the acquisition to the rights to Caelyx and Doxil for specified territories outside of the U.S.

These expenses were partially offset by benefits in the third quarter and first nine months from changes in the estimated fair value of contingent consideration liabilities.

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

3 Our results in 2022 included $12 million in the third quarter and $35 million in the first nine months of costs related to updating our quality systems and product labeling to comply with the new medical device reporting regulation and other requirements of the European Union’s regulations for medical devices that became effective in stages beginning in 2021.

Our results in 2021 included $11 million in the third quarter and $30 million in the first nine months of costs related to these requirements.

4 Our results in 2021 included charges of $3 million in the third quarter and $31 million in the first nine months for investigation and related cost for matters associated with our previously announced investigation of foreign exchange gains and losses.

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

5 Our results in 2022 included charges of $20 million in the third quarter and $43 million in the first nine months related to warranty and remediation activities arising from two field corrective actions on certain of our infusion pumps.

6 Our results in 2022 included charges of $3.1 billion in the third quarter and first nine months for goodwill and indefinite-lived intangible asset impairments.

Refer to Note 4 in Item 1 of this Quarterly Report on Form 10-Q for further information regarding the impairments.

7 Our results in 2022 included a loss of $54 million in the third quarter and first nine months under an arrangement to divest certain product rights for an amount that is less than our cost of those product rights, which was triggered by U.S.

and European Union regulatory approvals of the related products.

Refer to Note 2 in Item 1 of this Quarterly Report on Form 10-Q for further information about the related transactions.

8 Our results in 2022 included a curtailment gain of $11 million in the first nine months related to an announced change for active non-bargaining participants in our U.S.

Hillrom pension plan.

9 Our results in 2022 included a charge of $65 million in the third quarter and first nine months for cumulative translation adjustments (CTA) reclassified from accumulated other comprehensive income (loss) as a result of the substantial liquidation of our operations in Argentina.

10 Our results in the third quarter and first nine months of 2021 included a $58 million tax benefit related to a tax-deductible foreign statutory loss on an investment in a foreign subsidiary.

Our results in the first nine months of 2021 also included a charge of $22 million related to an unfavorable court ruling for an uncertain tax position.

2 Our results in 2023 included $7 million of net benefits from acquisition and integration-related items.

Acquisition and integration benefits reflected $13 million of net gains from changes in the estimated fair

values of contingent consideration liabilities, partially offset by $6 million of integration costs, which primarily included third party consulting costs related to our integration of Hillrom.

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

Those costs included $29 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.

Other integration expenses in 2022 included third party consulting costs related to our integration and related cost savings activities.

Those acquisition and integration-related expenses related to Hillrom were partially offset by $17 million of net gains from changes in the estimated fair values of contingent consideration liabilities assumed in the Hillrom acquisition.

3 Our results in 2023 and 2022 included $12 million and $11 million, respectively, of incremental costs to comply with the European Union's medical device regulations for previously registered products, which primarily consist of contractor costs and other direct third-party costs.

We consider the adoption of these regulations to be a significant one-time regulatory charge and believe that the costs of initial compliance for previously registered products over the implementation period are not indicative of our core operating results.

4 Our results in 2023 included $16 million of divestiture-related costs, primarily reflecting costs of external advisors supporting our activities to prepare for the proposed spinoff of our Renal Care and Acute Therapies product categories and our pursuit of strategic alternatives (including a potential sale) for our BPS product category.

Refer to "Recently Announced Strategic Actions" above for more information.

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

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

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

FACTORS AFFECTING OUR RESULTS OF OPERATIONS

Risks and Uncertainties Related to COVID-19

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

COVID-19 has had, and we expect will continue to have, an adverse impact on our operations, supply chains and distribution systems and has increased and 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 in Item 1 of this Quarterly Report on Form 10-Q.

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.

Supply Constraints, 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 results of operations are also affected by macroeconomic conditions and levels of business confidence.

The war in Ukraine and the sanctions and other measures being imposed in response to this conflict have increased the levels of economic and political uncertainty.

In response, we continue to monitor the developing situation with respect to ongoing business in Russia and are working on appropriate contingency plans that will support our desire to serving existing, chronically ill patient populations while remaining compliant with all applicable U.S.

and European Union sanctions and regulations.

In addition, the existence of inflation in the United States and in many of the countries where we conduct business has resulted in, and may continue to result in, higher interest rates and capital costs, shipping costs, increased costs of labor, weakening exchange rates and other similar effects.

We have experienced and may continue to experience inflationary increases in manufacturing costs and operating expenses as well as negative impacts from weakening exchange rates, caused by the COVID-19 pandemic or as a result of general macroeconomic factors, and may not be able to pass these cost increases on to our customers in a timely manner or at all, which could have a material adverse impact on our profitability and results of operations.

Inflation may also cause our customers to reduce or delay orders for our products and services, which could have a material adverse impact on our sales and results of operations.

In addition to acquisitions and organic reinvestment, we consistently look for opportunities to optimize our portfolio.

As such, we may divest businesses, discontinue products or exit markets (in a manner consistent with our commitments to patient safety and quality) to create value and drive enhanced future performance in line with our strategic objectives.

Regulatory Environment

Our operations and products, and those of our customers, are subject to regulation globally by numerous government agencies.

We, like other businesses in our industry, face challenges inherent in product development, including the potential inability to obtain and maintain regulatory approvals and registrations in the United States and abroad, which could preclude or delay commercialization of a product and increase development costs.

New or changing laws and regulations, or changes in enforcement practices in response to requests from various regulatory authorities, could also affect our domestic and foreign operations.

In particular, the U.S.

and other countries may impose new requirements regarding registration, labeling or prohibited materials (including DEHP and polyvinyl chloride) that may require us to re-register products already on the market or change product formulations or otherwise impact our ability to market our products.

Environmental laws, particularly with respect to the emission of greenhouse gases, are also becoming more stringent throughout the world.

Product efficacy or safety concerns regarding products could result in regulatory action on the part of the FDA or foreign counterparts, declining sales and product liability claims, and damage to our reputation.

For example, manufacturers across the pharmaceutical industry, including us, are evaluating their product portfolios for the potential presence or formation of nitrosamines.

We expect that these challenges and conditions, among other factors, may continue to have an adverse effect on our business.

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

Three Months Ended September 30, Percent change

(in millions) 2022 2021 At actual

currency rates At constant currency rates

United States $ 1,849 $ 1,319 40 % 40 %

International $ 1,924 1,907 1 % 12 %

Total net sales $ 3,773 $ 3,226 17 % 23 %

Nine Months Ended September 30, Percent change

Three Months Ended March 31, Percent change

(in millions) 2023 2022 At actual

3 unchanged sentences

Total net sales $ 3,649 $ 3,707 (2) % 2 %

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

Foreign currency unfavorably impacted net sales by 6 and 5 percentage points during the third quarter and first nine months of 2022, respectively, compared to the prior-year periods, principally due to the strengthening of the U.S.

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

Foreign currency unfavorably impacted net sales by 4 percentage points during the first quarter of 2023 compared to the prior-year period, principally due to the strengthening of the U.S.

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

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

This measure provides information on the change in net sales assuming that foreign currency exchange rates had remained constant between the prior and the current period.

This measure provides information on the change in net sales assuming that foreign currency exchange rates had not changed between the prior and the current period.

We believe that the non-GAAP measure of change in net sales at constant currency rates, when used in conjunction with the U.S.

1 unchanged sentence

Product Category Net Sales Reporting

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

Patient Support Systems, Front Line Care and Surgical Solutions.

Our product categories include the following:

2 unchanged sentences

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

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

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

• 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

• 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.

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

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

• Other includes sales of other miscellaneous product and service offerings.

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

Three Months Ended September 30, Percent change

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

$ 942 $ 981 (4) % 4 %

Medication Delivery

725 747 (3) % (0) %

Pharmaceuticals

525 589 (11) % (3) %

Clinical Nutrition

231 244 (5) % 4 %

Advanced Surgery

247 249 (1) % 6 %

Acute Therapies

158 185 (15) % (9) %

BioPharma Solutions 172 206 (17) % (10) %

Patient Support Systems 380 — N/A N/A

Front Line Care 279 — N/A N/A

Surgical Solutions 76 — N/A N/A

38 25 52 % 56 %

Total Baxter $ 3,773 $ 3,226 17 % 23 %

Nine months ended September 30, Percent change

Three Months Ended March 31, Percent change

(in millions) 2023 2022 At actual currency rates At constant currency rates

11 unchanged sentences

BioPharma Solutions 139 156 (11) % (9) %

Patient Support Systems 1,127 — N/A N/A

Front Line Care 855 — N/A N/A

Surgical Solutions 223 — N/A N/A

Patient Support Systems 348 383 (9) % (8) %

Front Line Care 302 294 3 % 4 %

Global Surgical Solutions 81 78 4 % 8 %

27 32 (16) % (16) %

Total Baxter $ 3,649 $ 3,707 (2) % 2 %

Renal Care net sales decreased 4% in the third quarter and 3% in the first nine months of 2022, as compared to the prior-year periods.

The decrease in the third quarter and first nine months was driven by an 8% and 5%, respectively, negative impact from foreign exchange rate changes, as compared to the prior-year periods, and lower in-center HD sales, partially offset by global patient growth in PD.

Medication Delivery net sales decreased 3% in the third quarter and increased 2% in the first nine months of 2022, as compared to the prior-year periods.

The decrease in the third quarter was driven by a 3% negative impact from foreign exchange rates as compared to the prior-year period.

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

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

customer rebates in the current year period.

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

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

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

Pharmaceuticals net sales decreased 11% in the third quarter and 7% in the first nine months of 2022, as compared to the prior-year periods.

The decrease in the third quarter and first nine months was primarily driven by a 8% and 6%, respectively, negative impact from foreign exchange rates, as compared to the prior-year periods.

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

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

Clinical Nutrition net sales decreased 5% in the third quarter and 4% in the first nine months of 2022, as compared to the prior-year periods.

The decrease in the third quarter and first nine months was driven by a 9% and 7%, respectively, negative impact from foreign exchange rate changes, as compared to the prior-year periods, and lower sales of vitamins resulting from ongoing supply constraints.

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

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

Advanced Surgery net sales decreased 1% in the third quarter and increased 2% in the first nine months of 2022, as compared to the prior-year periods.

The decrease in the third quarter was driven by a 7% negative impact from foreign exchange rate changes, as compared to the prior-year period, partially offset by continued recovery in surgical procedures.

The increase in the first nine months was driven by the continued recovery in surgical procedures, particularly in EMEA, and benefits from competitor supply constraints, partially offset by a 5% negative impact from foreign exchange rates, as compared to the prior-year period.

Acute Therapies net sales decreased 15% in the third quarter and 11% in the first nine months of 2022, as compared to the prior-year periods.

The decrease in the third quarter and first nine months was driven by lower COVID-related

demand for our CRRT systems and a 6% and 4%, respectively, negative impact from foreign exchange rate changes, as compared to the prior-year periods.

BioPharma Solutions net sales decreased 17% in the third quarter and 6% in the first nine months of 2022, as compared to the prior-year periods.

The decrease in the third quarter and first nine months includes a 7% and 6%, respectively, negative impact from foreign exchange rates, as compared to the prior-year periods.

The decrease in the third quarter was also driven by lower sales from manufacturing services and supply packaging related to the production of COVID-19 vaccines on behalf of multiple pharmaceutical companies, reflecting a challenging comparison against a strong prior-year period.

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

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

Renal Care net sales were flat in the first quarter of 2023, as compared to the prior-year period.

Sales performance for the period reflects a 4% negative impact from foreign exchange rates, as compared to the prior-year period, and lower sales in China primarily due to government-based procurement initiatives and the recent termination of a distribution agreement in the U.S., partially offset by patient growth in PD and recent government tender awards in EMEA.

Medication Delivery net sales decreased 3% in the first quarter of 2023, as compared to the prior-year period.

The decrease was driven by lower sales of infusion pumps, primarily due to supply constraints, higher U.S.

distributor chargebacks and customer rebates in the current year period and a 3% negative impact from foreign exchange rates, partially offset by increased international demand for our IV administration sets and solutions, reflecting a recovery in hospital admission rates and surgical procedures.

Pharmaceuticals net sales were flat in the first quarter of 2023, as compared to the prior-year period, reflecting increased demand for our international pharmacy compounding services and U.S.

injectable products, partially offset by a 5% negative impact from foreign exchange rates, as compared to the prior-year period, and lower demand internationally for injectable products.

Clinical Nutrition net sales decreased 1% in the first quarter of 2023, as compared to the prior-year period.

The decrease was driven by a 4% negative impact from foreign exchange rate changes, as compared to the prior-year period, partially offset by increased demand for our nutrition compounding services.

Advanced Surgery net sales increased 8% in the first quarter of 2023, as compared to the prior-year period.

The increase was driven by continued recovery in surgical procedures, partially offset by a 3% negative impact from foreign exchange rate changes, as compared to the prior-year period.

Acute Therapies net sales decreased 4% in the first quarter of 2023, as compared to the prior-year period.

The decrease was driven by a 3% negative impact from foreign exchange rate changes, as compared to the prior-year period, and lower COVID-related demand for our CRRT systems.

BioPharma Solutions net sales decreased 11% in the first quarter of 2023, as compared to the prior-year period.

The decrease was primarily driven by lower sales of manufacturing services and supply packaging related to the production of COVID-19 vaccines on behalf of multiple pharmaceutical companies, reflecting a challenging comparison against a strong prior-year period.

The decrease also includes a 2% negative impact from foreign exchange rates, as compared to the prior-year period.

Patient Support Systems net sales decreased 9% in the first quarter of 2023, as compared to the prior-year period.

The decrease reflects lower demand for hospital beds, which we believe was driven by current capital spending constraints at certain of our customers, lower rental revenues and a 1% negative impact from foreign exchange rates, as compared to the prior-year period, partially offset by increased sales in our connected care offerings.

Front Line Care net sales increased 3% in the first quarter of 2023, as compared to the prior-year period.

The increase was driven by increased demand for our physical assessment tools and cardiology products, partially offset by a 1% negative impact from foreign exchange rates, as compared to the prior-year period.

Global Surgical Solutions net sales increased 4% in the first quarter of 2023, as compared to the prior-year period.

The increase was driven by strong international demand, partially offset by a 4% negative impact from foreign exchange rates, as compared to the prior-year period.

Gross Margin and Expense Ratios

Three months ended September 30,

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

Gross margin $ 1,133 30.0 % $ 1,321 40.9 % $ (188) (14.2) %

SG&A $ 947 25.1 % $ 680 21.1 % $ 267 39.3 %

R&D $ 152 4.0 % $ 129 4.0 % $ 23 17.8 %

Nine months ended September 30,

Three months ended March 31,

2023 % of net sales 2022 % of net sales $ change % change

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R&D $ 164 4.5 % $ 150 4.0 % $ 14 9.3 %

The gross margin ratio was 30.0% and 35.0% in the third quarter and first nine months of 2022, respectively.

The special items identified above had an unfavorable impact of approximately 12.9 and 8.5 percentage points on the gross margin ratio in the third quarter and first nine months of 2022, respectively.

The gross margin ratio was 40.9% and 39.9% in the third quarter and first nine months of 2021, respectively.

The special items identified above had an unfavorable impact of approximately 3.1 and 3.0 percentage points on the gross margin ratio in the third quarter and first nine months of 2021, respectively.

The gross margin ratio was 36.9% and 36.4% in the first quarter of 2023 and 2022, respectively.

The special items identified above had an unfavorable impact of approximately 4.3 and 8.6 percentage points on the gross margin ratio in the first quarter of 2023 and 2022, respectively.

Refer to the Special Items caption above for additional detail.

Excluding the impact of the special items, the gross margin ratio decreased in the third quarter and increased in the first nine months of 2022 compared to the prior-year periods.

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

The increase in the first nine months resulted from a favorable product mix that was that was primarily driven by our acquisition of Hillrom and lower bonus accruals under our annual employee incentive compensation plans, which exceeded the adverse impacts of raw materials inflation and increased supply chain costs for the year-to-date period.

The SG&A expenses ratio was 25.1% and 26.5% in the third quarter and first nine months of 2022, respectively.

The special items identified above had an unfavorable impact of approximately 3.3 and 4.1 percentage points on the SG&A expenses ratio in the third quarter and first nine months of 2022, respectively.

The SG&A expenses ratio was 21.1% and 21.4% in the third quarter and first nine months of 2021, respectively.

The special items identified above had an unfavorable impact of approximately 1.3 and 0.9 percentage points on the SG&A expenses ratio in the third quarter and first nine months of 2021, respectively.

Excluding the impact of the special items, the gross margin ratio decreased in the first quarter of 2023 compared to the prior-year period primarily due to the adverse cost impacts of raw materials inflation.

The SG&A expenses ratio was 27.7% and 28.4% in the first quarter of 2023 and 2022, respectively.

The special items identified above had an unfavorable impact of approximately 4.5 and 5.3 percentage points on the SG&A expenses ratio in the first quarter of 2023 and 2022, respectively.

Refer to the Special Items caption above for additional detail.

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

The R&D expenses ratio was 4.0% in the third quarter and first nine months of 2022.

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

The R&D expenses ratio remained relatively flat in the third quarter and first nine months of 2022 compared to the prior-year periods, with the increase in total spend primarily driven by the Hillrom acquisition, partially offset by lower bonus accruals under our annual employee incentive compensation plans.

Excluding the impact of the special items, the SG&A expenses ratio was flat in the first quarter of 2023 compared to the prior-year period.

The R&D expenses ratio was 4.5% and 4.0% in the first quarter of 2023 and 2022, respectively.

The special items identified above had an unfavorable impact of approximately 0.2 percentage points on the R&D expenses ratio in the first quarter of 2023 and no impact on the R&D expenses ratio in the first quarter of 2022.

Refer to the Special Items caption above for additional detail.

Excluding the impact of the special items the R&D expenses ratio increased in the first quarter of 2023 compared to the prior-year period as a result of increased project-related expenditures, particularly related to our connected care portfolio.

Business Optimization Items

In recent years, we have undertaken actions to transform our cost structure and enhance operational efficiency.

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

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

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

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

From the commencement of our business optimization actions 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 the 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.

Goodwill Impairments

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.

As described above, 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.

Further adverse changes to macroeconomic conditions or our earnings forecasts could lead to additional goodwill or intangible asset impairment charges in future periods and such charges could be material to our results of operations.

Other Operating Expense (Income), Net

Other operating expense (income), net was $48 million and $20 million in the third quarter and first nine months of 2022, respectively.

The current year periods include a loss of $54 million under an arrangement to divest certain product rights for an amount that is less than our cost of those product rights, which was triggered by U.S.

and European Union regulatory approvals of the related products.

Refer to Note 2 in Item 1 of this Quarterly Report on

Form 10-Q for further information about the related transactions.

That loss was partially offset by gains from net decreases in the estimated fair values of contingent consideration liabilities of $6 million and $34 million in the third quarter and first nine months of 2022, respectively.

Other operating expense (income), net was $1 million and $6 million in the third quarter and first nine months of 2021, respectively, which consisted of gains from net decreases in the estimated fair values of contingent consideration liabilities.

We continue to pursue cost savings initiatives 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.

For example, we expect to incur additional restructuring charges during 2023 related to our implementation of a new operating model intended to simplify and streamline our operations (including our manufacturing footprint), as discussed above under "Recently Announced Strategic Actions." Refer to Note 9 in Item 1 of this Quarterly Report on Form 10-Q for additional information regarding our business optimization programs.

Other Operating Income, Net

Other operating income, net was $13 million in the first quarter of 2023 and $17 million in the first quarter of 2022.

In both periods these amounts were comprised of changes in the estimated fair value of contingent consideration liabilities.

Interest Expense, Net

Interest expense, net was $104 million and $278 million in the third quarter and first nine months of 2022, respectively, and $50 million and $118 million in the third quarter and first nine months of 2021, respectively.

The increases in the third quarter and first nine months of 2022 were primarily driven by higher average debt outstanding in connection with the Hillrom acquisition.

Other (Income) Expense, Net

Other (income) expense, net was an expense of $63 million and $3 million in the third quarter and first nine months of 2022, respectively, and an expense of $12 million and $15 million in the third quarter and first nine months of 2021, respectively.

The increases in the third quarter of 2022 compared to the prior year period was primarily due to the reclassification of a cumulative translation loss from accumulated other comprehensive income (loss) to earnings due to the substantial liquidation of our operations in Argentina, partially offset by pension benefits in the current-year period.

The decrease in the first nine months of 2022 compared to the prior year was primarily due to foreign exchange gains in the current-year period versus losses in the prior-year period, pension benefits in the current-year period versus expenses in the prior-year period and a pension curtailment gain in the current-year period, partially offset by the reclassification of the Argentina cumulative translation loss to earnings.

Our effective income tax rate was 1.1% and (0.2)% in the third quarter, and (1.1)% and 11.8% in the first nine months of 2022 and 2021, respectively.

Interest expense, net was $117 million in the first quarter of 2023 and $85 million in the first quarter of 2022.

The increase in 2023 was driven by higher interest rates on our floating rate debt.

Other Income, Net

Other income, net was $1 million in the first quarter of 2023 and $16 million in the first quarter of 2022.

In the first quarter of 2023, other income, net was primarily due to pension and other postretirement benefits and increases in the fair value of marketable equity securities partially offset by foreign exchange losses.

In the first quarter of 2022, other income, net was due to foreign exchange gains and pension and other postretirement benefits.

Our effective income tax rate was 35.7% and 22.3% in the first quarter of 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.

Segment Results

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

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

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

assess the ongoing performance of our segments.

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

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

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

Net sales Operating income (loss)

Three months ended September 30, Nine months ended September 30, Three months ended September 30, Nine months ended September 30,

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

(in millions) 2023 2022 2023 2022

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Total $ 3,649 $ 3,707 $ 186 $ 163

Segment net sales and operating income were $1.7 billion and $588 million, respectively, in the third quarter and $5.0 billion and $1.8 billion, respectively, in the first nine months of 2022.

Segment net sales and operating income were $1.7 billion and $676 million, respectively, in the third quarter and $4.9 billion and $1.9 billion, respectively, in the first nine months of 2021.

The decrease in operating income in the third quarter of 2022 was due to higher supply chain costs and lower sales in our BioPharma Solutions, Pharmaceuticals and Acute Therapies product categories, partially offset by higher sales in our Renal Care and Advanced Surgery product categories.

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

Segment net sales and operating income were $692 million and $145 million, respectively, in the third quarter and $2.1 billion and $433 million, respectively, in the first nine months of 2022.

Segment net sales and operating income were $779 million and $167 million, respectively, in the third quarter and $2.3 billion and $461 million, respectively, in the first nine months of 2021.

The decrease in operating income in the third quarter and first nine months of 2022 was primarily due to an unfavorable impact of foreign exchange rates on results as compared to the prior-year period, lower sales in our Acute Therapies and BioPharma Solutions product categories and higher supply chain costs, partially offset by lower operating expenses and improved gross margin, driven by a favorable product mix.

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

Segment net sales and operating income were $643 million and $152 million, respectively, in the third quarter and $1.9 billion and $459 million, respectively, in the first nine months of 2022.

Segment net sales and operating income were $720 million and $166 million, respectively, in the third quarter and $2.1 billion and $456 million, respectively, in the first nine months of 2021.

The decrease in operating income in the third quarter of 2022 was driven by the unfavorable impact of foreign exchange rates on results as compared to the prior-year period.

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

Segment net sales and operating income were $735 million and $215 million, respectively, in the third quarter and $2.2 billion and $564 million, respectively, in the first nine months of 2022.

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

Segment net sales and operating income were $1.6 billion and $481 million, respectively, in the first quarter of 2023 and $1.6 billion and $610 million, respectively, in the first quarter of 2022.

The decrease in operating income was due to raw materials inflation, higher supply chain costs and lower sales in our BioPharma Solutions and Acute Therapies product categories, partially offset by higher sales in our Pharmaceuticals, Advanced Surgery and Renal Care product categories.

Segment net sales and operating income were $714 million and $106 million, respectively, in the first quarter of 2023 and $699 million and $119 million, respectively, in the first quarter of 2022.

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

Segment net sales and operating income were $602 million and $107 million, respectively, in the first quarter 2023 and $627 million and $151 million, respectively, in the first quarter of 2022.

The decrease in operating income was driven by the unfavorable impact of foreign exchange rates on results, as compared to the prior-year period, and higher supply chain and raw materials costs.

Segment net sales and operating income were $731 million and $158 million, respectively, in the first quarter of 2023 and $755 million and $200 million, respectively, in the first quarter of 2022.

The decrease in operating income was due to lower sales in our Patient Support Systems product category, an unfavorable product mix and higher supply chain costs, partially offset by higher sales in our Front Line Care and Global Surgical Solutions product categories.

Corporate and Other

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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, are now presented within Corporate as well.

The Corporate operating loss in the third quarter was significantly higher than the prior-year period primarily due to goodwill and intangible asset impairments, higher intangible asset amortization expense, acquisition and integration-related expenses and business optimization charges and increased manufacturing variances and centrally managed supply chain costs, partially offset by lower bonus accruals under our annual employee incentive compensation plans.

The Corporate operating loss in the first quarter of 2023 was lower than the prior-year period primarily due to lower intangible asset amortization expense and acquisition and integration-related expenses, partially offset by higher business optimization charges and increased centrally managed manufacturing and supply chain costs.

LIQUIDITY AND CAPITAL RESOURCES

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

Nine months ended September 30,

The following table is a summary of the statement of cash flows for the three-month periods ended March 31, 2023 and 2022.

Three months ended March 31,

(in millions) 2023 2022

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Cash Flows from Operations

In the first nine months of 2022, cash provided by operating activities was $772 million, as compared to cash provided by operating activities of $1.5 billion in the first nine months of 2021, a decrease of $757 million.

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

In the first three months of 2023, cash provided by operating activities was $479 million, as compared to cash provided by operating activities of $208 million in the first three months of 2022, an increase of $271 million.

Cash flows from operations in the current year period was favorably impacted, as compared to the prior year period, by lower annual payouts under our employee incentive compensation plans, which were determined based on our 2022 performance, and by the timing of accounts payable payments.

Cash Flows from Investing Activities

In the first nine months of 2022, cash used for investing activities included payments for acquisitions and investments of $206 million, primarily related to our payment to acquire the rights to Zosyn, and capital expenditures of $479 million.

In the first nine months of 2021, cash used for investing activities included payments for acquisitions and investments of $463 million, primarily related to Caelyx and Doxil, Transderm Scop and PerClot Polysaccharide Hemostatic System (PerClot), and capital expenditures of $508 million.

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

In the first three months of 2023, cash used for investing activities included payments for acquisitions and investments of $3 million and capital expenditures of $172 million.

In the first three months of 2022, cash used for investing activities included payments for acquisitions and investments of $174 million and capital expenditures of $140 million.

Cash Flows from Financing Activities

In the first nine months of 2022, cash used in financing activities included debt repayments of $953 million and dividend payments of $427 million, partially offset by a net increase in commercial paper borrowings of $30 million and proceeds from stock issued under employee benefit plans of $114 million.

In the first nine months of 2021, cash used for financing activities included payments for treasury stock repurchases of $600 million, debt repayments of $407 million and dividend payments of $390 million, partially offset by proceeds from stock issued under employee benefit plans of $135 million and the net proceeds from commercial paper borrowings of $300 million.

In the first three months of 2023, cash used in financing activities included a net decrease in commercial paper borrowings of $249 million, dividend payments of $146 million and debt repayments of $3 million, partially offset by proceeds from stock issued under employee benefit plans of $36 million.

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

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

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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.

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

We did not repurchase any shares under this authority in the first three months of 2023.

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

Credit Facilities and Access to Capital and Credit Ratings

Credit Facilities

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

As of March 31, 2023, our U.S.

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

There were no borrowings outstanding under these credit facilities as of 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.

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

In the third quarter of 2022, we amended the credit agreement governing 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.

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

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.

As of March 31, 2023, we were in compliance with the financial covenants in these agreements.

Based on our covenant calculations as of March 31, 2023, we had capacity to draw approximately $2.2 billion under our credit facilities, less outstanding commercial paper borrowings, which were $50 million as of March 31, 2023.

The non-performance of any financial institution supporting either of the credit facilities would reduce the maximum capacity of these facilities by

the institution’s respective commitment.

Additionally, a deterioration in our financial performance may further reduce our ability to draw on our credit facilities.

Access to Capital and Credit Ratings

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

We had $1.6 billion of cash and cash equivalents as of September 30, 2022, with adequate cash available to meet operating requirements in each jurisdiction in which we operate.

We had $1.7 billion of cash and cash equivalents as of March 31, 2023, with adequate cash available to meet operating requirements in each jurisdiction in which we operate.

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

As of September 30, 2022, we had approximately $16.4 billion of long-term debt and finance lease obligations, including current maturities, and short-term debt.

As of March 31, 2023, we had approximately $16.4 billion of long-term debt and finance lease obligations, including current maturities, and short-term debt.

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

Our ability to generate cash flows from operations, issue debt or enter into other financing arrangements on acceptable terms could be adversely affected if there is a material decline in the demand for our products or in the solvency of our customers or suppliers, deterioration in our key financial ratios or credit ratings or other significantly unfavorable changes in conditions, including global economic conditions.

However, we believe we have sufficient financial flexibility to issue debt, enter into other financing arrangements and attract long-term capital on acceptable terms to support our growth objectives.

Although our outlook was downgraded from stable to negative by two of the rating agencies during the third quarter of 2022, there have been no changes to our investment grade credit ratings that we disclosed in our 2021 Annual Report.

Our ability to generate cash flows from operations, issue debt, including commercial paper, or enter into other financing arrangements on acceptable terms could be adversely affected if there is a material decline in the demand for our products or in the solvency of our customers or suppliers, deterioration in our key financial ratios or credit ratings or other significantly unfavorable changes in conditions.

However, we believe we have sufficient financial flexibility to issue debt, enter into other financing arrangements and attract long-term capital on acceptable terms to support our growth objectives and reduce our post-acquisition debt levels as we take actions consistent with our capital allocation priorities.

In January 2023, Fitch revised our senior debt credit rating outlook from negative to rating watch negative.

There have been no changes to our investment grade credit ratings that we disclosed in our 2022 Annual Report.

In 2017, the United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer compel banks to submit the rates required to calculate the London Interbank Offered Rate (LIBOR) and other interbank offered rates, which have been widely used as reference rates for various securities and financial contracts, including loans, debt and derivatives.

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dollar-denominated revolving credit facility and our $4.0 billion Term Loan Credit Agreement were amended to reference SOFR-based rates.

Currently, our €200 million Euro-denominated revolving credit facility references LIBOR-based rates.

The discontinuation of LIBOR will require this arrangement to be modified in order to replace LIBOR with an alternative reference interest rate, which could impact our cost of funds.

That credit facility agreement includes provisions related to the determination of a successor LIBOR rate.

Currently, our €200 million Euro-denominated revolving credit facility references EURIBOR-based rates.

A discontinuation would require this arrangement to be modified in order to replace EURIBOR with an alternative reference interest rate, which could impact our cost of funds.

That credit facility agreement includes provisions related to the determination of a successor rate.

CRITICAL ACCOUNTING POLICIES

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A summary of our significant accounting policies is included in Note 1 to our consolidated financial statements in our 2022 Annual Report.

of our accounting policies are considered critical, as these policies are the most important to the depiction of our financial statements and require significant, difficult or complex judgments by us, often employing the use of estimates about the effects of matters that are inherently uncertain.

Certain of our accounting policies are considered critical, as these policies are the most important to the depiction of our financial statements and require significant, difficult or complex judgments by us, often employing the use of estimates about the effects of matters that are inherently uncertain.

Such policies are summarized in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in our 2022 Annual Report.

We identified the Valuation of Intangible Assets, Including IPR&D, as one of our critical accounting policies in our 2021 Annual Report.

We currently consider the valuation of goodwill to be a part of that critical accounting policy.

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.

We have the option to assess goodwill for impairment by initially performing a qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount.

If we determine that it is not more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, then the quantitative goodwill impairment test is not required to be performed.

If we determine that it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount, or if we do not elect the option to perform an initial qualitative assessment, we perform a quantitative goodwill impairment test.

In the quantitative impairment test, we calculate the estimated fair value of the reporting unit.

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

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.

During the third quarter of 2022, we recognized $2.8 billion of goodwill impairment charges and $332 million of indefinite-lived intangible asset impairment charges.

See Note 4, Goodwill and Other Intangible Assets, Net in Item 1 of this Quarterly Report on Form 10-Q for further information about those impairments.

There have been no other updates to our critical accounting policies and no significant changes in the application of our critical accounting policies during the first nine months of 2022.

The valuation of goodwill and intangible assets is one of our critical accounting policies and we recognized significant impairment charges during 2022.

During the current year-to-date period, our Patient Support Systems reporting unit has been experiencing lower levels of customer orders for certain products than what we had previously expected.

Certain of the products sold by that reporting unit are subject to our customers’ capital budgets and we believe that many of those customers are delaying significant capital purchases due to uncertainty in the current economic environment.

We currently expect that such capital spending constraints will likely continue throughout much of 2023.

However, we have not reduced our longer-term outlook for that reporting unit as we currently expect that such capital spending constraints, which are often cyclical and closely aligned with broader economic conditions, will improve in the foreseeable future.

Based on the excess of the reporting unit’s fair value over its carrying amount during our most recent annual impairment test in the fourth quarter of 2022 and our expectations for its performance over the forecast period, we determined that it is not more likely than not that the goodwill of that reporting unit was impaired as of

March 31, 2023.

Therefore, we did not perform a trigger-based quantitative goodwill impairment test during the first quarter of 2023.

However, we are continuing to closely monitor the performance of our Patient Support Systems reporting unit and if there is a significant adverse change in our outlook for that business in the future a goodwill impairment could arise at that time.

There have been no significant changes in the application of our critical accounting policies during the first three months of 2023.

RECENT ACCOUNTING PRONOUNCEMENTS

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

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

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

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

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

LEGAL CONTINGENCIES

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CERTAIN REGULATORY MATTERS

Food and Drug Administration (FDA) commenced an inspection of Claris’ facilities in Ahmedabad, India in July 2017, immediately prior to the closing of our acquisition of Claris Injectables Limited (Claris).

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

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

On September 1, 2022, FDA notified the company that the inspection had been classified as voluntary action indicated (VAI).

Since the issuance of the Claris Warning Letter, we have implemented corrective and preventive actions to address FDA’s prior

observations and other items we identified and management has begun working with other manufacturing locations, including contract manufacturing organizations, to support the production of new products for distribution in the U.S.

In July 2017, immediately prior to the closing of our acquisition of Claris Injectables Limited (Claris), the U.S.

Food and Drug Administration (FDA) commenced an inspection of the Claris’ facilities in Ahmedabad, India.

FDA completed the inspection and subsequently issued a Warning Letter based on observations identified in the 2017 inspection (Claris Warning Letter).¹ FDA re-inspected the facilities and issued a Form 483 on May 17, 2022.

On September 1, 2022, FDA notified us that the inspection had been classified as voluntary action indicated (VAI).

On January 19, 2023, FDA arrived to re-inspect the facilities and issued a Form 483 on January 27, 2023.

On April 26, 2023, FDA notified us that the inspection had been classified as official action indicated (OAI).

Since the issuance of the Claris Warning Letter, we have implemented corrective and preventive actions to address FDA's prior observations and other items we identified and management has begun working with other manufacturing locations, including contract manufacturing organizations, to support the production of new products for distribution in the U.S.

1 Available online at https://www.fda.gov/ICECI/EnforcementActions/WarningLetters/ucm613538.htm

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

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

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

and specific OUS rights to Transderm Scop, PerClot, Hillrom and certain rights to Zosyn in the U.S.

and Canada), business optimization and portfolio rationalization initiatives, cost saving initiatives, future capital and R&D expenditures, future debt issuances, manufacturing expansion, the adequacy of credit facilities, tax provisions and reserves, the effective tax rate and all other statements that do not relate to historical facts.

These forward-looking statements may include statements with respect to plan to implement a simplified operating model, the proposed spinoff of our Renal Care and Acute Therapies product categories, review of strategic alternatives (including a potential sale) for our BPS product category and other potential portfolio management activities we may undertake in the future, accounting estimates and assumptions, global economic conditions and the impacts of the COVID-19 pandemic, litigation-related matters including outcomes, impacts of the internal investigation related to foreign exchange gains and losses, future regulatory filings and our R&D pipeline, sales from new product offerings, credit exposure to foreign governments, the adequacy of cash flows and credit facilities, potential developments with respect to credit ratings, investment of foreign earnings, estimates of liabilities including those related to uncertain tax positions, contingent payments, future pension plan contributions, costs, discount rates and rates of return, our exposure to financial market volatility and foreign currency, interest rate and credit risks (including as a result of recent banking crises), the impact of inflation on our business, the impact of competition, future sales growth, business development activities, cost saving initiatives, future capital and R&D expenditures, future debt issuances, the adequacy of tax provisions and reserves, the effective tax rate and all other statements that do not relate to historical facts.

These forward-looking statements are based on certain assumptions and analyses made in light of our experience and perception of historical trends, current conditions, and expected future developments as well as other factors that we believe are appropriate in the circumstances.

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

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

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

our ability to execute and complete strategic initiatives, asset dispositions and other transactions, including the proposed spinoff of our Renal Care and Acute Therapies product categories, our plans to simplify our operating model and manufacturing footprint and our evaluation of strategic alternatives for our BPS product category, the timing for such transactions, the ability to satisfy any applicable conditions and the expected proceeds, consideration and benefits;

failure to accurately forecast or achieve our short-and long-term financial improvement performance and goals (including with respect to our strategic actions) and related impacts on our liquidity;

our ability to execute on our capital allocation plans, including our debt repayment plans, the timing and amount of any dividends, share repurchases and divestiture proceeds and the capital structure of the public company that we expect to form as a result of the proposed spinoff (and the resulting capital structure for the remaining company);

the impact of global economic conditions (including, among other things, inflation levels, interest rates, financial market volatility, banking crises, the potential for a recession, the ongoing war in Ukraine, the related economic sanctions being imposed globally in response to the conflict and potential trade wars) and continuing public health crises, pandemics and epidemics, such as the ongoing COVID-19 pandemic, or the anticipation of any of the foregoing, on our operations and our employees, customers and suppliers, including foreign governments in countries in which we operate;

downgrades to our credit ratings or ratings outlooks, and the related impact on our funding costs and liquidity;

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

the continuity, availability and pricing of acceptable raw materials and component parts (and our ability to pass some or all of these costs to our customers through recent price increases), and the related continuity of our manufacturing and distribution and those of our suppliers;

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

product development risks, including satisfactory clinical performance and obtaining required regulatory approvals (including as a result of evolving regulatory requirements), the ability to manufacture at appropriate scale, and the general unpredictability associated with the product development cycle;

product development risks, including satisfactory clinical performance and obtaining and maintaining required regulatory approvals (including as a result of evolving regulatory requirements), the ability to manufacture at appropriate scale, and the general unpredictability associated with the product development cycle;

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

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

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

loss of key employees, the occurrence of labor disruptions or the inability to identify and recruit new employees;

product quality or patient safety issues leading to product recalls, withdrawals, launch delays, warning letters, import bans, sanctions, seizures, litigation, or declining sales, including the focus on evaluating product portfolios for the potential presence or formation of nitrosamines;

breaches or failures of our information technology systems or products, including by cyber-attack, data leakage, unauthorized access or theft (as a result of increased remote working arrangements or otherwise);

breaches or failures of our information technology systems or products, including by cyber-attack, data leakage, unauthorized access or theft (as a result of remote working arrangements or otherwise);

future actions of (or failures to act or delays in acting by) FDA, the European Medicines Agency or any other regulatory body or government authority (including the SEC, DOJ or the Attorney General of any State) that could delay, limit or suspend product development, manufacturing or sale or result in seizures, recalls, injunctions, monetary sanctions or criminal or civil liabilities, including the continued delay in lifting the warning letter at our Ahmedabad facility;

failures with respect to our quality, compliance or ethics programs;

future actions of third parties, including third-party payers and our customers and distributors (including group purchasing organizations and formed integrated delivery networks), the impact of healthcare reform and its implementation, suspension, repeal, replacement, amendment, modification and other similar actions undertaken by the United States or foreign governments, including with respect to pricing, reimbursement, taxation and rebate policies;

legislation, regulation and other governmental pressures in the United States or globally, including the cost of compliance and potential penalties for purported noncompliance thereof, all of which may affect pricing, reimbursement, taxation and rebate policies of government agencies and private payers or other elements of our business, including new or amended laws, rules and regulations (such as the California Consumer Privacy Act of 2018, the European Union’s General Data Protection Regulation and proposed regulatory changes of the U.S.

future actions of third parties, including third-party payers and our customers and distributors (including GPOs and IDNs), the impact of healthcare reform and its implementation, suspension, repeal, replacement, amendment, modification and other similar actions undertaken by the United States or foreign governments, including with respect to pricing, reimbursement, taxation and rebate policies;

Department of Health and Human Services in kidney health policy and reimbursement, which may substantially change the U.S.

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

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

the impact of competitive products and pricing, including generic competition, drug reimportation and disruptive technologies;

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fluctuations in foreign exchange and interest rates;

any changes in law concerning the taxation of income (whether with respect to current or future tax reform), including income earned outside the United States and potential taxes associated with the Base Erosion and Anti-Abuse Tax or the Build Back Better framework;

any changes in law concerning the taxation of income (whether with respect to current or future tax reform);

actions by tax authorities in connection with ongoing tax audits;

loss of key employees, the occurrence of labor disruptions or the inability to identify and recruit new employees;

other factors identified elsewhere in this report and other filings with the SEC, including those factors described in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022, all of which are available on our website.

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis