What changed in this filing

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Item 1. Financial Statements

2023-07-27 compared with 2023-04-27 · 374 added, 134 removed, 607 unchanged (46% of the section changed)

9 unchanged sentences

Prepaid expenses and other current assets 858 857

Current assets of discontinued operations 233 186

Total current assets 8,205 8,011

4 unchanged sentences

Other non-current assets 1,067 1,109

Non-current assets of discontinued operations 698 686

Total assets $ 27,885 $ 28,287

4 unchanged sentences

Accrued expenses and other current liabilities 2,278 2,170

Current liabilities of discontinued operations 70 61

Total current liabilities 5,765 4,745

2 unchanged sentences

Other non-current liabilities 1,622 1,848

Non-current liabilities of discontinued operations 123 120

Total liabilities 22,254 22,392

12 unchanged sentences

Baxter International Inc.

Condensed Consolidated Statements of Income (unaudited)

Condensed Consolidated Statements of Income (Loss) (unaudited)

(in millions, except per share data)

Three months ended

June 30, Six months ended

2023 2022 2023 2022

Net sales $ 3,707 $ 3,594 $ 7,220 $ 7,152

4 unchanged sentences

Other operating income, net ( 1 ) ( 11 ) ( 14 ) ( 28 )

Operating income 186 163

Operating income (loss) ( 17 ) 264 112 347

Interest expense, net 124 89 241 174

Other income, net ( 1 ) ( 16 )

Income before income taxes 70 94

Other (income) expense, net 42 ( 44 ) 40 ( 60 )

Income (loss) from continuing operations before income taxes ( 183 ) 219 ( 169 ) 233

Income tax expense 10 34 24 40

Net income 45 73

Income (loss) from continuing operations ( 193 ) 185 ( 193 ) 193

Income from discontinued operations, net of tax 54 70 99 135

Net income (loss) ( 139 ) 255 ( 94 ) 328

Net income attributable to noncontrolling interests 2 3 3 5

Net income attributable to Baxter stockholders $ 44 $ 71

Earnings per share

Net income (loss) attributable to Baxter stockholders $ ( 141 ) $ 252 $ ( 97 ) $ 323

Income (loss) from continuing operations per common share

Basic $ ( 0.39 ) $ 0.36 $ ( 0.39 ) $ 0.37

Diluted $ ( 0.39 ) $ 0.36 $ ( 0.39 ) $ 0.37

Income from discontinued operations per common share

Basic $ 0.11 $ 0.14 $ 0.20 $ 0.27

Diluted $ 0.11 $ 0.14 $ 0.20 $ 0.27

Net income (loss) per common share

Basic $ ( 0.28 ) $ 0.50 $ ( 0.19 ) $ 0.64

Diluted $ ( 0.28 ) $ 0.50 $ ( 0.19 ) $ 0.64

Weighted-average number of shares outstanding

3 unchanged sentences

Baxter International Inc.

Condensed Consolidated Statements of Comprehensive Income (unaudited)

Condensed Consolidated Statements of Comprehensive Loss (unaudited)

(in millions)

Three months ended

Net income $ 45 $ 73

Other comprehensive income (loss), net of tax:

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

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

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

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

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

Comprehensive income 139 66

June 30, Six months ended

2023 2022 2023 2022

Income (loss) from continuing operations $ ( 193 ) $ 185 $ ( 193 ) $ 193

Other comprehensive income (loss) from continuing operations, net of tax:

Currency translation adjustments, net of tax expense (benefit) of $ 4 and $ 2 for the three months ended June 30, 2023 and 2022, respectively, and ($ 9 ) and ($ 9 ) for the six months ended June 30, 2023 and 2022, respectively.

( 76 ) ( 372 ) 5 ( 376 )

Pension and other postretirement benefits, net of tax expense (benefit) of ($ 2 ) and $ 5 for the three months ended June 30, 2023 and 2022, respectively, and ($ 3 ) and $ 8 the six months ended June 30, 2023 and 2022, respectively.

( 5 ) 23 ( 11 ) 32

Hedging activities, net of tax expense (benefit) of $ 2 for the three months ended June 30, 2023 and 2022, respectively, and $ 1 and $ 3 for the six months ended June 30, 2023 and 2022, respectively.

Available-for-sale debt securities, net of tax expense of zero for the three months ended June 30, 2023 and 2022 and zero and $ 1 for the six months ended June 30, 2023 and 2022, respectively.

Total other comprehensive loss from continuing operations, net of tax ( 74 ) ( 335 ) ( 1 ) ( 331 )

Comprehensive loss from continuing operations ( 267 ) ( 150 ) ( 194 ) ( 138 )

Income from discontinued operations, net of tax 54 70 99 135

Other comprehensive income (loss) from discontinued operations, net of tax - currency translation adjustments ( 1 ) ( 45 ) 20 ( 56 )

Comprehensive loss ( 214 ) ( 125 ) ( 75 ) ( 59 )

Comprehensive income attributable to noncontrolling interests 2 3 3 5

Comprehensive income attributable to Baxter stockholders $ 138 $ 64

Comprehensive loss attributable to Baxter stockholders $ ( 216 ) $ ( 128 ) $ ( 78 ) $ ( 64 )

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

2 unchanged sentences

(in millions)

For the three months ended March 31, 2023

For the three months ended June 30, 2023

Baxter International Inc.

4 unchanged sentences

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

Balance as of April 1, 2023 683 $ 683 178 $ ( 11,324 ) $ 6,312 $ 13,947 $ ( 3,739 ) $ 5,879 $ 62 $ 5,941

Net income (loss) — — — — — ( 141 ) — ( 141 ) 2 ( 139 )

Other comprehensive income (loss) — — — — — — ( 75 ) ( 75 ) — ( 75 )

Stock issued under employee benefit plans and other — — ( 1 ) 28 29 — — 57 — 57

Dividends declared on common stock — — — — — ( 151 ) — ( 151 ) — ( 151 )

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

Balance as of June 30, 2023

683 $ 683 177 $ ( 11,296 ) $ 6,341 $ 13,655 $ ( 3,814 ) $ 5,569 $ 62 $ 5,631

For the six months ended June 30, 2023

Baxter International Inc.

stockholders' equity

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

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

Net income — — — — — 44 — 44 1 45

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

Net income (loss) — — — — — ( 97 ) — ( 97 ) 3 ( 94 )

Other comprehensive income (loss) — — — — — — 19 19 — 19

Stock issued under employee benefit plans and other — — ( 2 ) 93 19 — — 112 — 112

1 unchanged sentence

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

Balance as of March 31, 2023

Balance as of June 30, 2023

683 $ 683 177 $ ( 11,296 ) $ 6,341 $ 13,655 $ ( 3,814 ) $ 5,569 $ 62 $ 5,631

For the three months ended March 31, 2022

For the three months ended June 30, 2022

Baxter International Inc.

1 unchanged sentence

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

Net income (loss) — — — — — 252 — 252 3 255

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

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

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

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

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

Balance as of June 30, 2022 683 $ 683 180 $ ( 11,409 ) $ 6,253 $ 17,099 $ ( 3,767 ) $ 8,859 $ 44 $ 8,903

For the six months ended June 30, 2022

Baxter International Inc.

stockholders' equity

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

Net income — — — — — 71 — 71 2 73

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

Net income (loss) — — — — — 323 — 323 5 328

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

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

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

1 unchanged sentence

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

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

Balance as of June 30, 2022

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

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

2 unchanged sentences

(in millions)

Three months ended

Six months ended

Cash flows from operations

Net income $ 45 $ 73

Net income (loss) $ ( 94 ) $ 328

Income from discontinued operations, net of tax 99 135

Income (loss) from continuing operations ( 193 ) 193

Adjustments to reconcile net income to cash flows from operations:

3 unchanged sentences

Net periodic pension and other postretirement costs ( 8 ) 28

Property, plant and equipment impairments 271 7

Other 31 ( 48 )

6 unchanged sentences

Other ( 26 ) ( 85 )

Cash flows from operations - continuing operations 780 369

Cash flows from operations - discontinued operations 50 113

Cash flows from operations 830 482

3 unchanged sentences

Other investing activities, net 5 10

Cash flows from investing activities - continuing operations ( 326 ) ( 457 )

Cash flows from investing activities - discontinued operations ( 17 ) ( 34 )

Cash flows from investing activities ( 343 ) ( 491 )

11 unchanged sentences

$ 1,726 $ 1,856

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

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

(1) The following table provides a reconciliation of cash, cash equivalents and restricted cash shown above to the amounts reported within the condensed consolidated balance sheet as of June 30, 2023, December 31, 2022, and June 30, 2022 (in millions):

June 30, 2023 December 31, 2022 June 30, 2022

Cash and cash equivalents $ 1,722 $ 1,718 $ 1,852

16 unchanged sentences

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

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

Additionally, we announced that we are pursuing strategic alternatives for our BioPharma Solutions (BPS) product category.

In May 2023, we entered into a definitive agreement to sell that business.

Closing of that transaction is subject to satisfaction of regulatory approvals and other customary conditions.

See Note 2 for additional information.

Risks and Uncertainties

Supply Constraints and Global Economic Conditions

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

We 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.

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.

While we have begun to see improvements in the availability of certain component parts and improved pricing in certain raw materials, these challenges have not completely subsided and may continue to have a negative impact on our sales in the future.

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

DISCONTINUED OPERATIONS

In May 2023, we entered into a definitive agreement to sell our BPS business.

That business, which has historically been reported within our Americas segment, provides contract manufacturing and development services, which include sterile fill-finish manufacturing and support services across clinical and commercial applications, primarily serving customers in the pharmaceutical industry.

BPS has historically operated through our wholly-owned subsidiaries Baxter Pharmaceutical Solutions, LLC, a Delaware limited liability company, and Baxter Oncology GmbH, a German limited liability company.

Under the related equity purchase agreement (EPA), we expect to sell those entities to Advent International and Warburg Pincus for $ 4.25 billion in cash, subject to certain adjustments specified in the EPA.

After giving effect to those adjustments, we currently expect to receive approximately $ 3.92 billion of net pre-tax cash proceeds (approximately $ 3.40 billion after tax).

The transaction is currently expected to close during the second half of 2023, subject to satisfaction of regulatory approvals and other customary conditions.

We intend to use the net after-tax proceeds from this transaction to repay certain of our debt obligations.

We concluded that our BPS business met the criteria to be classified as held-for-sale in May 2023.

A component of an entity is reported in discontinued operations after meeting the criteria for held-for-sale classification if the disposition

represents a strategic shift that has (or will have) a major effect on the entity's operations and financial results.

We analyzed the quantitative and qualitative factors relevant to the pending divestiture of our BPS business, including its significance to our overall net income (loss) and earnings (loss) per share, and determined that those conditions for discontinued operations presentation have been met.

As such, the financial position, results of operations and cash flows of that business are reported as discontinued operations in the accompanying consolidated financial statements.

Prior period amounts have been adjusted to reflect discontinued operations presentation.

Baxter Pharmaceutical Solutions, LLC includes our BPS manufacturing facility in Bloomington Indiana and Baxter Oncology GmbH includes our manufacturing facilities in Halle and Bielefeld Germany.

The Bielefeld site is not part of the BPS business, so it is not part of the pending divestiture transaction and its activities and net assets will be transferred to another Baxter subsidiary prior to closing.

Accordingly, amounts related to the Bielefeld site continue to be presented as continuing operations in the accompanying condensed consolidated financial statements.

At closing of the transaction, Baxter will enter into a Transition Services Agreement (TSA) and a Master Commercial Manufacturing and Supply Agreement (MSA) with Baxter Pharmaceutical Solutions, LLC and Baxter Oncology GmbH.

Pursuant to the TSA, Baxter on the one hand and Baxter Pharmaceutical Solutions, LLC and Baxter Oncology GmbH on the other hand will provide to each other, on an interim basis, specific transition services for up to 24 months post-closing to help ensure business continuity and minimized disruptions.

Services to be provided by Baxter under the TSA include finance, information technology, human resources, integrated supply chain and certain other administrative services.

Pursuant to the MSA, Baxter Pharmaceutical Solutions, LLC and Baxter Oncology GmbH will provide development, manufacturing, regulatory and other related services for certain Baxter pharmaceutical products for up to 5 years post-closing (with certain extension rights as provided therein).

Results of Discontinued Operations and Assets and Liabilities of Discontinued Operations

The following table summarizes the major classes of line items included in income from discontinued operations, net of tax, for the three and six months ended June 30, 2023 and 2022:

Three months ended

June 30, Six months ended

(in millions) 2023 2022 2023 2022

Net sales $ 142 $ 152 $ 278 $ 301

Cost of sales 71 70 135 133

Gross margin 71 82 143 168

Selling, general and administrative expenses 14 6 29 11

Research and development expenses 1 — 1 1

Other income, net ( 1 ) — — —

Income from discontinued operations before income taxes 57 76 113 156

Income tax expense 3 6 14 21

Income from discontinued operations, net of tax $ 54 $ 70 $ 99 $ 135

For the three and six months ended June 30, 2023, selling, general and administrative expenses include $ 8 million and $ 15 million, respectively, of separation-related costs incurred in connection with the pending sale of BPS.

The following table summarizes the carrying amounts of the major classes of assets and liabilities classified as discontinued operations in the condensed consolidated balance sheets as of June 30, 2023 and December 31, 2022:

(in millions) June 30,

2023 December 31,

Accounts receivable, net of allowances $ 82 $ 88

Inventories 60 39

Prepaid expenses and other current assets 91 59

Property, plant and equipment, net 297 284

Goodwill 386 391

Operating lease right-of-use assets 9 9

Other non-current assets 6 2

Assets of discontinued operations $ 931 $ 872

Accounts payable $ 40 $ 29

Accrued expenses and other current liabilities 30 32

Operating lease liabilities 8 9

Other non-current liabilities 115 111

Liabilities of discontinued operations $ 193 $ 181

SUPPLEMENTAL FINANCIAL INFORMATION

Allowance for Doubtful Accounts

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

The following table is a summary of the changes in our allowance for doubtful accounts for the three and six months ended June 30, 2023 and 2022.

Three months ended

June 30, Six months ended

(in millions) 2023 2022 2023 2022

4 unchanged sentences

Balance at end of period $ 128 $ 125 $ 128 $ 125

(in millions) March 31,

(in millions) June 30,

2023 December 31,

4 unchanged sentences

Property, Plant and Equipment, Net

(in millions) March 31,

(in millions) June 30,

2023 December 31,

2 unchanged sentences

Property, plant and equipment, net $ 4,494 $ 4,695

Impairment of Manufacturing Facility

Our manufacturing facility in Opelika, Alabama is one of three Baxter manufacturing facilities that currently produce dialyzers used in hemodialysis (HD) treatments.

The current competitive environment has increased the global supply of those products and, in connection with our initiatives to streamline our manufacturing footprint and improve our profitability, we have made the decision to cease production of dialyzers at the Opelika facility near the end of 2023.

We believe that there is more than adequate availability of dialyzers in the United States and globally, and we intend to continue to manufacture those products at volumes aligned with the related market demand at our other manufacturing facilities that currently produce them.

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

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

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

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

As a result of our decision to cease dialyzer production at this manufacturing facility, we performed a trigger-based recoverability assessment of its long-lived assets, which consist of a building and manufacturing equipment, including specialized equipment used in the production of dialyzers.

The carrying amount of that asset group exceeded the estimated undiscounted cash flows expected to be generated, and we recognized an impairment charge of $ 243 million, classified within cost of sales in the accompanying condensed consolidated statements of income (loss), during the second quarter of 2023 to reduce the carrying amounts to their estimated fair values.

The fair values of the building and manufacturing equipment tested for impairment during the second quarter of 2023 were determined based on transaction prices of comparable assets (a market approach).

Significant assumptions used in the determination of the fair values included the identification of representative comparable assets.

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

Interest Expense, Net

Three months ended

June 30, Six months ended

(in millions) 2023 2022 2023 2022

2 unchanged sentences

Interest expense, net $ 124 $ 89 $ 241 $ 174

Other Income, Net

Other (Income) Expense, Net

Three months ended

June 30, Six months ended

(in millions) 2023 2022 2023 2022

1 unchanged sentence

Pension and other postretirement benefit plans ( 11 ) ( 7 ) ( 21 ) ( 12 )

Pension curtailment — ( 11 ) — ( 11 )

Change in fair value of marketable equity securities 11 ( 8 ) 6 ( 8 )

Non-marketable investment impairments 23 — 23 —

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

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

Other (income) expense, net $ 42 $ ( 44 ) $ 40 $ ( 60 )

Non-Cash Operating and Investing Activities

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

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

Right-of-use operating lease assets obtained in exchange for lease obligations for the six months ended June 30, 2023 and 2022 were $ 45 million and $ 23 million, respectively.

Purchases of property, plant and equipment included in accounts payable as of June 30, 2023 and 2022 were $ 57 million and $ 62 million, respectively.

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

GOODWILL AND OTHER INTANGIBLE ASSETS, NET

2 unchanged sentences

Balance as of December 31, 2022 $ 1,965 $ 289 $ 210 $ 3,988 $ 6,452

Currency translation 18 2 2 3 25

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

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

Currency translation and other ( 22 ) ( 3 ) ( 2 ) ( 7 ) ( 34 )

Balance as of June 30, 2023 $ 1,943 $ 286 $ 208 $ 3,981 $ 6,418

For the periods ended June 30, 2023 and 2022, there were no reductions in goodwill relating to impairment losses.

Other intangible assets, net

2 unchanged sentences

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

March 31, 2023

June 30, 2023

Gross other intangible assets $ 3,444 $ 3,863 $ 320 $ 1,570 $ 163 $ 9,360

5 unchanged sentences

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

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

Intangible asset amortization expense was $ 157 million and $ 193 million for the three months ended June 30, 2023 and 2022, respectively, and $ 319 million and $ 410 million for the six months ended June 30, 2023 and 2022, respectively.

FINANCING ARRANGEMENTS

4 unchanged sentences

Each of the facilities matures in 2026.

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

There were no borrowings outstanding under these credit facilities as of June 30, 2023 or December 31, 2022.

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

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

Based on our covenant calculations as of June 30, 2023 we have capacity to draw approximately $ 2.63 billion under our credit facilities, less commercial paper borrowings which were $ 249 million as of June 30, 2023.

In the second quarter of 2023, we repaid $ 140 million of our $ 2.00 billion three-year term loan facility.

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

Commercial Paper

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

As of June 30, 2023, we had $ 249 million of commercial paper outstanding with a weighted-average interest rate of 5.52 % and an original weighted-average term of 38 days.

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

4 unchanged sentences

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

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

As of June 30, 2023 and December 31, 2022, our total recorded reserves with respect to legal and environmental matters were $ 28 million.

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

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

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

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

9 unchanged sentences

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

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

As of June 30, 2023 and December 31, 2022, our environmental reserves, which are measured on an undiscounted basis, were $ 17 million and $ 19 million, respectively.

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

6 unchanged sentences

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

On July 17, 2023, we were voluntarily dismissed from the litigation without prejudice.

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

The plaintiffs sought damages, including compensatory and punitive damages in an unspecified amount, and unspecified injunctive and declaratory relief.

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

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

quarter of 2021.

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

18 unchanged sentences

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

Hillrom filed an

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

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

In July 2023, we and certain of our officers were named in a class action complaint captioned Grover J.

Kelley et al.

Baxter International Inc.

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

The plaintiff, who allegedly purchased securities during the specified class period, filed this putative class action on behalf of himself and shareholders who acquired Baxter securities on the public market between May 25, 2022, and February 8, 2023.

The plaintiff alleges that we and certain officers violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the Exchange Act), and Rule 10b-5 promulgated thereunder by making allegedly false and misleading statements and failing to disclose material facts relating to supply chain and financial guidance.

STOCKHOLDERS’ EQUITY

Cash Dividends

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

Cash dividends declared per share for the three and six months ended June 30, 2023 were $ 0.29 and $ 0.58 , respectively.

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

Stock Repurchase Programs

1 unchanged sentence

Our Board of Directors increased this authority by an additional $ 1.50 billion in each of November 2016 and February 2018, by an additional $ 2.00 billion in November 2018 and by an additional $ 1.50 billion in October 2020.

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

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

During the first half of 2023 we did not repurchase any shares under this authority.

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

We had $ 1.30 billion remaining available under the authorization as of June 30, 2023.

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

The following table is a net-of-tax summary of the changes in accumulated other comprehensive income (loss) (AOCI) by component for the three months ended March 31, 2023 and 2022.

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

The following table is a net-of-tax summary of the changes in accumulated other comprehensive income (loss) (AOCI) by component for the six months ended June 30, 2023 and 2022.

Gains (losses)

4 unchanged sentences

Amounts reclassified from AOCI (a) — ( 7 ) ( 3 ) — ( 10 )

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

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

Net other comprehensive income (loss) from continuing operations 25 ( 11 ) 5 — 19

Balance as of June 30, 2023 $ ( 3,361 ) $ ( 342 ) $ ( 114 ) $ 3 $ ( 3,814 )

Gains (losses)

1 unchanged sentence

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

Other comprehensive income (loss) before

reclassifications ( 15 ) 2 ( 1 ) 1 ( 13 )

Other comprehensive income (loss) before reclassifications ( 432 ) 19 13 2 ( 398 )

Amounts reclassified from AOCI (a)

— 13 ( 2 ) — 11

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

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

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

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

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

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

The following is a summary of the amounts reclassified from AOCI to net income during the three and six months ended June 30, 2023 and 2022.

Amounts reclassified from AOCI (a)

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

(in millions) Three months ended June 30, 2023 Six months ended June 30, 2023 Location of impact in income statement

Pension and OPEB items

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

Amortization of net losses and prior service costs or credits $ 5 $ 10 Other (income) expense, net

Tax effect ( 1 ) ( 3 ) Income tax expense

8 unchanged sentences

(a) Amounts in parentheses indicate reductions to net income

Amounts reclassified from AOCI (a)

(in millions) Three months ended June 30, 2022 Six months ended June 30, 2022 Location of impact in income statement

Amortization of pension and OPEB items

Amortization of net losses and prior service costs or credits $ ( 8 ) $ ( 17 ) Other (income) expense, net

Tax effect 2 4 Income tax expense

$ ( 6 ) $ ( 13 ) Net of tax

Gains on hedging activities

Foreign exchange contracts $ 3 $ 5 Cost of sales

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

1 2 Total before tax

Tax effect — — Income tax expense

$ 1 $ 2 Net of tax

Total reclassifications for the period $ ( 5 ) $ ( 11 ) Total net of tax

Refer to Note 11 for additional information regarding the amortization of pension and OPEB items and Note 14 for additional information regarding hedging activity .

7 unchanged sentences

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

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

Our three legacy Baxter segments include acute and chronic dialysis therapies;

sterile IV solutions;

14 unchanged sentences

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

As of March 31, 2023, we had $ 9.9 billion of transaction price allocated to remaining performance obligations related to executed contracts with an original duration of more than one year, which are primarily included in the Americas segment.

As of June 30, 2023, we had $ 7.99 billion of transaction price allocated to remaining performance obligations related to executed contracts with an original duration of more than one year, which are primarily included in the Americas segment.

Some contracts in the United States included in this amount contain index-dependent price increases, which are not known at this time.

2 unchanged sentences

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

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

These reserves are based on estimates of the amounts

earned or to be claimed on the related sales and are included in accrued expenses and other current liabilities and accounts receivable, net on the condensed consolidated balance sheets.

Management's estimates take into consideration historical experience, current contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns.

1 unchanged sentence

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

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

Revenue recognized during the three and six months ended June 30, 2023 and 2022 related to performance obligations satisfied in prior periods was not material.

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

2 unchanged sentences

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

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

Net trade accounts receivable was $ 2.27 billion and $ 2.34 billion as of June 30, 2023 and December 31, 2022, respectively.

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

4 unchanged sentences

The following table summarizes our contract assets:

(in millions) March 31,

(in millions) June 30,

2023 December 31,

6 unchanged sentences

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

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

The following table summarizes contract liability activity for the six months ended June 30, 2023 and 2022.

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

Three Months Ended March 31,

Six Months Ended June 30,

(in millions) 2023

4 unchanged sentences

Balance at end of period $ 199 $ 184

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

For the six months ended June 30, 2023 and 2022, $ 64 million and $ 77 million of revenue was recognized that was included in contract liabilities as of December 31, 2022 and 2021, respectively.

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

(in millions) March 31,

(in millions) June 30,

2023 December 31,

8 unchanged sentences

and international:

Three Months Ended March 31,

Three Months Ended June 30,

(in millions) U.S.

12 unchanged sentences

60 120 180 58 115 173

BioPharma Solutions 7

Patient Support Systems 7

276 83 359 284 80 364

Front Line Care 8

227 80 307 202 80 282

Global Surgical Solutions 9

35 42 77 36 33 69

17 5 22 31 13 44

Total Baxter $ 1,751 $ 1,956 $ 3,707 $ 1,700 $ 1,894 $ 3,594

Six Months Ended June 30,

(in millions) U.S.

International Total U.S.

International Total

$ 466 $ 1,362 $ 1,828 $ 450 $ 1,375 $ 1,825

Medication Delivery 2

923 525 1,448 931 485 1,416

Pharmaceuticals 3

355 719 1,074 321 728 1,049

Clinical Nutrition 4

161 306 467 174 283 457

Advanced Surgery 5

294 224 518 287 204 491

Acute Therapies 6

121 239 360 126 235 361

Patient Support Systems 7

6 unchanged sentences

Total Baxter $ 3,418 $ 3,802 $ 7,220 $ 3,412 $ 3,740 $ 7,152

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

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

2 Medication Delivery includes sales of our intravenous (IV) therapies, infusion pumps, administration sets and drug reconstitution devices.

3 unchanged sentences

6 Acute Therapies includes sales of our continuous renal replacement therapies (CRRT) and other organ support therapies focused in the intensive care unit (ICU).

7 BioPharma Solutions includes sales of contracted services we provide to various pharmaceutical and biopharmaceutical companies.

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

3 unchanged sentences

10 Other includes sales of miscellaneous product and service offerings.

Contract manufacturing revenues earned by our manufacturing facility in Round Lake Illinois, which totaled $ 2 million for the six months ended June 30, 2023 and $ 11 million and $ 18 million for the three and six months ended June 30, 2022, respectively, were historically presented as BPS sales.

Those sales transactions, which are not impacted by the pending divestiture of our BPS business, continue to be presented as continuing operations in the accompanying consolidated financial statements and have been reclassified to our Other product category for all periods presented.

Lease Revenue

3 unchanged sentences

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

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

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

The components of lease revenue for the three and six months ended June 30, 2023 and 2022 were:

(in millions) Three months ended June 30, 2023 Six Months Ended June 30, 2023

Sales-type lease revenue $ 3 $ 7

2 unchanged sentences

Total lease revenue $ 149 $ 292

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

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

Sales-type lease revenue $ 5 $ 8

Operating lease revenue 113 235

Variable lease revenue 12 32

Total lease revenue $ 130 $ 275

Our net investment in sales-type leases was $ 75 million as of June 30, 2023, of which $ 15 million originated in 2019 and prior, $ 21 million in 2020, $ 20 million in 2021, $ 14 million in 2022, and $ 5 million in 2023.

BUSINESS OPTIMIZATION CHARGES

1 unchanged sentence

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

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

From the commencement of our business optimization activities in the second half of 2015 through June 30, 2023, we have incurred cumulative pre-tax costs of $ 1.86 billion related to these actions.

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

1 unchanged sentence

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

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

Three Months Ended March 31,

During the three and six months ended June 30, 2023 and 2022, we recorded the following charges related to business optimization programs.

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

(in millions) 2023 2022 2023 2022

3 unchanged sentences

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

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

Costs to implement business optimization programs for the three and six months ended June 30, 2023 and 2022, respectively, consisted primarily of external consulting and transition costs, including employee compensation and related costs.

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

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

Three months ended March 31, 2023

During the three and six months ended June 30, 2023 and 2022, we recorded the following restructuring charges.

Three months ended June 30, 2023

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

3 unchanged sentences

Total restructuring charges $ 266 $ 21 $ — $ 287

Three months ended March 31, 2022

Three months ended June 30, 2022

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

3 unchanged sentences

Total restructuring charges $ 4 $ 22 $ — $ 26

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

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

Six months ended June 30, 2023

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

Employee termination costs $ 26 $ 82 $ 7 $ 115

Contract termination and other costs 3 2 — 5

Asset impairments 269 8 — 277

Total restructuring charges $ 298 $ 92 $ 7 $ 397

Six months ended June 30, 2022

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

Employee termination costs $ 6 $ 63 $ — $ 69

Contract termination and other costs — 17 — 17

Asset impairments — 7 — 7

Total restructuring charges $ 6 $ 87 $ — $ 93

For the three months and six months ended June 30, 2023, $ 19 million and $ 97 million, respectively, of the restructuring charges reflected in the table above, consisting of employee termination costs, were related to the ongoing implementation of our previously announced new operating model intended to simplify and streamline our operations.

For the three and six months ended June 30, 2023, $ 253 million of the restructuring charges reflected in the table above, consisting of $ 243 million of asset impairment charges and $ 10 million of employee termination costs, were related to our decision to cease production of dialyzers at one of our manufacturing facilities in connection with our initiatives to streamline our manufacturing footprint and improve our profitability.

See Note 3 for additional information.

For the three months ended June 30, 2022, $ 27 million of the restructuring charges reflected in the table above were related to integration activities for the Hillrom acquisition, consisting of $ 21 million of employee termination costs, $ 5 million of contract termination and other costs and $ 1 million of asset impairments.

For the six months ended June 30, 2022, $ 83 million of the restructuring charges reflected in the table above were related to integration activities for the Hillrom acquisition, consisting of $ 59 million of employee termination costs, $ 17 million of contract termination and other costs and $ 7 million of asset impairments.

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

4 unchanged sentences

Currency translation ( 1 )

Liability balance as of March 31, 2023 $ 175

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

Liability balance as of June 30, 2023 $ 163

Substantially all of our restructuring liabilities as of June 30, 2023 relate to employee termination costs, with the remaining liabilities attributable to contract termination costs.

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

2 unchanged sentences

Three months ended

June 30, Six months ended

(in millions) 2023 2022 2023 2022

8 unchanged sentences

Net periodic OPEB cost (income) $ ( 4 ) $ ( 2 ) $ ( 8 ) $ ( 4 )

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

Our effective income tax rate was ( 5.5 )% and 15.5 % for the three months ended June 30, 2023 and 2022, respectively, and ( 14.2 )% and 17.2 % for the six months ended June 30, 2023 and 2022 , respectively.

Our effective income tax rate can differ from the 21.0 % 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, 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.

For the three and six months ended June 30, 2023, the difference between our effective income tax rate and the U.S.

federal statutory rate was primarily attributable to a $ 30 million increase in the valuation allowance related to a deferred tax asset from a tax basis step-up that arose from previously enacted Swiss tax reform legislation and a favorable geographic earnings mix.

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

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

EARNINGS PER SHARE

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

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

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

The dilutive effect of outstanding stock options, RSUs and PSUs is reflected in the denominator for diluted EPS using the treasury stock method.

The following table is a reconciliation of net income (loss) attributable to Baxter stockholders.

Three months ended

June 30, Six months ended

(in millions) 2023 2022 2023 2022

Income (loss) from continuing operations $ ( 193 ) $ 185 $ ( 193 ) $ 193

Net income attributable to noncontrolling interests 2 3 3 5

Income (loss) from continuing operations attributable to Baxter stockholders ( 195 ) 182 ( 196 ) 188

Income from discontinued operations 54 70 99 135

Net income (loss) attributable to Baxter stockholders $ ( 141 ) $ 252 $ ( 97 ) $ 323

The following table is a reconciliation of basic shares to diluted shares.

Three months ended

June 30, Six months ended

(in millions) 2023 2022 2023 2022

2 unchanged sentences

Diluted shares 506 508 506 508

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

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

Basic and diluted shares are the same for the three and six months ended June 30, 2023 due to our net losses for the period.

The effect of dilutive securities for the three and six months ended June 30, 2022 includes unexercised stock options, unvested RSUs and contingently issuable shares related to granted PSUs.

Diluted EPS excludes 27 million and 25 million shares issuable under equity awards for the three and six months ended June 30, 2023, respectively, and 12 million and 8 million shares issuable under equity awards for the three and six months ended June 30, 2022, respectively, because their inclusion would have had an anti-dilutive effect on diluted EPS.

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

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

1 unchanged sentence

Our hedging policy attempts to manage these risks to an acceptable level based on our judgment of the appropriate trade-off between risk, opportunity and costs.

We are primarily exposed to foreign exchange risk with respect to recognized assets and liabilities, forecasted transactions and net assets denominated in the Euro, British Pound, Chinese Renminbi, Korean Won, Australian Dollar, Canadian Dollar, Japanese Yen, Colombian Peso, Brazilian Real, Mexican Peso, Turkish Lira, Indian Rupee and Swedish Krona.

We are primarily exposed to foreign exchange risk with respect to recognized assets and liabilities, forecasted transactions and net assets denominated in the Euro, Chinese Renminbi, Japanese Yen, Swedish Krona, British Pound, Polish Zloty, Mexican Peso, Australian Dollar, Canadian Dollar, Korean Won, Colombian Peso, Brazilian Real, Russian Ruble, Turkish Lira and Indian Rupee.

We manage our foreign currency exposures on a consolidated basis, which allows us to net exposures and take advantage of any natural offsets.

14 unchanged sentences

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

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

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

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

The notional amounts of foreign exchange contracts designated as cash flow hedges were $ 377 million and $ 398 million as of June 30, 2023 and December 31, 2022, respectively.

The maximum term over which we have cash flow hedge contracts in place related to forecasted transactions at June 30, 2023 is 12 months for foreign exchange contracts.

There were no outstanding interest rate contracts designated as cash flow hedges as of June 30, 2023 and December 31, 2022.

Fair Value Hed g es

3 unchanged sentences

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

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

There were no outstanding interest rate contracts designated as fair value hedges as of June 30, 2023 and December 31, 2022.

Net Investment Hed g es

2 unchanged sentences

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

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

As of June 30, 2023, we had an accumulated pre-tax unrealized translation gain in AOCI of $ 57 million related to the Euro-denominated senior notes.

Dedesignations

2 unchanged sentences

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

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

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

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

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

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

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

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

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

Undesignated Derivative Instruments

1 unchanged sentence

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

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

The total notional amount of undesignated derivative instruments was $ 688 million as of June 30, 2023 and $ 753 million as of December 31, 2022.

Gains and Losses on Hedging Instruments and Undesignated Derivative Instruments

The following tables summarize the gains and losses on our hedging instruments and the classification of those gains and losses within our condensed consolidated financial statements for the three months ended March 31, 2023 and 2022.

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

4 unchanged sentences

Foreign exchange contracts 10 19 Cost of sales 3 3

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

Net investment hedges 10 143 Other (income) expense, net — —

Total $ 20 $ 162 $ 1 $ 1

2 unchanged sentences

Undesignated derivative instruments

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

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

Foreign exchange contracts Other (income) expense, net $ ( 15 ) $ ( 26 )

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

in income statement Gain (loss) reclassified from AOCI

(in millions) 2023 2022 2023 2022

Cash flow hedges

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

Foreign exchange contracts 10 16 Cost of sales 7 5

Net investment hedges ( 38 ) 185 Other (income) expense, net — —

Total $ ( 28 ) $ 201 $ 4 $ 2

Location of gain (loss)

in income statement Gain (loss) recognized in income

(in millions) 2023 2022

Undesignated derivative instruments

Foreign exchange contracts Other (income) expense, net $ ( 18 ) $ ( 23 )

As of June 30, 2023, $ 2 million of deferred, net after-tax gains on derivative instruments included in AOCI are expected to be recognized in earnings during the next 12 months, coinciding with when the hedged items are expected to impact earnings.

Derivative Assets and Liabilities

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

The following table summarizes the classification and fair values of derivative instruments reported in the condensed consolidated balance sheet as of June 30, 2023.

Derivatives in asset positions Derivatives in liability positions

18 unchanged sentences

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

(in millions) Asset Liability Asset Liability

5 unchanged sentences

in the carrying amount of the hedged item (a)

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

(in millions) Balance as of June 30, 2023 Balance as of December 31, 2022 Balance as of June 30, 2023 Balance as of December 31, 2022

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

3 unchanged sentences

Basis of fair value measurement

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

(in millions) Balance as of June 30, 2023 Quoted prices in active markets for identical assets

(Level 1) Significant other

22 unchanged sentences

Total $ 96 $ — $ 12 $ 84

As of March 31, 2023 and December 31, 2022, cash and cash equivalents of $ 1.7 billion, respectively, included money market and other short-term funds of approximately $ 369 million and $ 341 million, respectively, which are considered Level 2 in the fair value hierarchy.

As of June 30, 2023 and December 31, 2022, cash and cash equivalents of $ 1.72 billion, included money market and other short-term funds of approximately $ 303 million and $ 341 million, respectively, which are considered Level 2 in the fair value hierarchy.

For assets that are measured using quoted prices in active markets, the fair value is the published market price per unit multiplied by the number of units held, without consideration of transaction costs.

9 unchanged sentences

The following table is a reconciliation of recurring fair value measurements that use significant unobservable inputs (Level 3), which consist of contingent payments related to acquisitions and available-for-sale debt securities.

Three months ended March 31,

Three months ended June 30,

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

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

Change in fair value recognized in earnings ( 1 ) ( 5 ) ( 11 ) —

Change in fair value recognized in AOCI — — — 1

Transfers out of Level 3 — — — ( 10 )

Payments ( 48 ) — — —

Fair value at end of period $ 21 $ 37 $ 113 $ 44

Six months ended June 30,

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

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

Additions — — — 21

4 unchanged sentences

Fair value at end of period $ 21 $ 37 $ 113 $ 44

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

Financial Instruments Not Measured at Fair Value

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

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

For these financial instruments, the following table provides the values recognized in the condensed consolidated balance sheets and the estimated fair values as of June 30, 2023 and December 31, 2022.

Book values Fair values(a)

(in millions) 2023 2022 2023 2022

Short-term debt $ 50 $ 299 $ 50 $ 299

Current maturities of long-term debt and finance lease obligations $ 1,928 $ 1,105 $ 1,894 $ 1,079

4 unchanged sentences

Price is calculated using the stated terms of the respective debt instrument and yield curves commensurate with our credit risk.

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

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

When applicable, we also adjust the measurement of such equity investments for observable prices in orderly transactions for an identical

or similar investment of the same issuer.

The carrying values of other financial instruments not presented in the above table, such as accounts receivable, short-term debt and accounts payable, approximate their fair values due to the short-term maturities of most of those assets and liabilities.

Investments Without Readily Determinable Fair Values

The carrying values of equity investments without readily determinable fair values that we measure at cost, less impairment were $ 88 million as of June 30, 2023 and $ 104 million as of December 31, 2022.

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

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

During the quarter ended June 30, 2023, several of our investees either completed or are in the process of undertaking new financing rounds at lower enterprise valuations as compared to their valuations at the time of our investments.

As a result, we recognized $ 18 million of impairments of equity investments without readily determinable fair values in the current period.

In addition, we recognized a $ 5 million impairment of a convertible debt investment, which is accounted for as an available-for-sale security, during the second quarter of 2023.

The fair value measurements of investments in non-marketable equity and convertible debt securities are classified as Level 3 in the fair value hierarchy because they involve significant unobservable inputs.

SEGMENT INFORMATION

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

Our business is currently comprised of four segments, consisting of the following geographic segments related to our legacy Baxter business:

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

17 unchanged sentences

Three months ended

June 30, Six months ended

(in millions) 2023 2022 2023 2022

Americas $ 1,564 $ 1,494 $ 3,030 $ 2,971

EMEA 762 738 1,476 1,437

APAC 638 647 1,240 1,274

Hillrom 743 715 1,474 1,470

2 unchanged sentences

Americas $ 498 $ 488 $ 918 $ 1,008

EMEA 112 169 218 288

APAC 118 156 225 307

Hillrom 147 149 305 349

Total segment operating income $ 875 $ 962 $ 1,666 $ 1,952

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

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

Three months ended

June 30, Six months ended

(in millions) 2023 2022 2023 2022

1 unchanged sentence

Corporate and other ( 892 ) ( 698 ) ( 1,554 ) ( 1,605 )

Total operating income 186 163

Total operating income (loss) ( 17 ) 264 112 347

Interest expense, net 124 89 241 174

Other income, net ( 1 ) ( 16 )

Income before income taxes $ 70 $ 94

Other (income) expense, net 42 ( 44 ) 40 ( 60 )

Income (loss) from continuing operations before income taxes $ ( 183 ) $ 219 $ ( 169 ) $ 233

We are implementing a new operating model intended to simplify and streamline our operations and we expect that our reportable segments will be changed to align with that new operating model when it is fully implemented, which is currently expected in the second half of 2023.

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

What changed 10-Q

Item 1. Financial Statements