What changed in this filing

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Item 1. Financial Statements

2023-11-02 compared with 2023-07-27 · 399 added, 294 removed, 687 unchanged (50% of the section changed)

3 unchanged sentences

(in millions, except share information)

September 30,

2023 December 31,

41 unchanged sentences

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2023 2022 2023 2022

4 unchanged sentences

Research and development expenses 166 151 495 448

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

Goodwill impairments — 2,785 — 2,785

Other operating expense (income), net — 48 ( 14 ) 20

Operating income (loss) ( 51 ) ( 2,880 ) 61 ( 2,533 )

1 unchanged sentence

Other (income) expense, net ( 7 ) 61 33 1

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

Income tax expense 10 34 24 40

Loss from continuing operations before income taxes ( 172 ) ( 3,045 ) ( 341 ) ( 2,812 )

Income tax benefit ( 223 ) ( 54 ) ( 199 ) ( 14 )

Income (loss) from continuing operations 51 ( 2,991 ) ( 142 ) ( 2,798 )

17 unchanged sentences

Baxter International Inc.

Condensed Consolidated Statements of Comprehensive Loss (unaudited)

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

(in millions)

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

2023 2022 2023 2022

1 unchanged sentence

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.

Currency translation adjustments, net of tax expense (benefit) of $ 10 and $( 16 ) for the three months ended September 30, 2023 and 2022, respectively, and $ 1 and ($ 25 ) for the nine months ended September 30, 2023 and 2022, respectively.

( 67 ) ( 274 ) ( 62 ) ( 650 )

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.

Pension and other postretirement benefits, net of tax expense (benefit) of zero and $ 5 for the three months ended September 30, 2023 and 2022, respectively, and ($ 3 ) and $ 13 the nine months ended September 30, 2023 and 2022, respectively.

( 1 ) 15 ( 12 ) 47

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.

Hedging activities, net of tax expense (benefit) of $ 2 and $ 5 for the three months ended September 30, 2023 and 2022, respectively, and $ 3 and $ 8 for the nine months ended September 30, 2023 and 2022, respectively.

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

Total other comprehensive loss from continuing operations, net of tax ( 63 ) ( 243 ) ( 64 ) ( 574 )

1 unchanged sentence

Income from discontinued operations, net of tax 2,460 57 2,559 192

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

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

Other comprehensive income (loss) from discontinued operations

Currency translation adjustments, net of tax expense (benefit) of zero for the three and nine months ended September 30, 2023 and 2022

165 ( 45 ) 185 ( 101 )

Pension and other postretirement benefits, net of tax expense (benefit) of zero for the three and nine months ended September 30, 2023 and 2022

( 4 ) 1 ( 4 ) 1

Total other comprehensive income (loss) from discontinued operations 161 ( 44 ) 181 ( 100 )

Comprehensive income from discontinued operations 2,621 13 2,740 92

Comprehensive income (loss) 2,609 ( 3,221 ) 2,534 ( 3,280 )

Comprehensive income attributable to noncontrolling interests 3 3 6 8

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

Comprehensive income (loss) attributable to Baxter stockholders $ 2,606 $ ( 3,224 ) $ 2,528 $ ( 3,288 )

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

2 unchanged sentences

(in millions)

For the three months ended June 30, 2023

For the three months ended September 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 )

Balance as of July 1, 2023 683 $ 683 177 $ ( 11,296 ) $ 6,341 $ 13,655 $ ( 3,814 ) $ 5,569 $ 62 $ 5,631

Net income — — — — — 2,508 — 2,508 3 2,511

Other comprehensive income (loss) — — — — — — 98 98 — 98

2 unchanged sentences

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

Balance as of June 30, 2023

Balance as of September 30, 2023

683 $ 683 176 $ ( 11,249 ) $ 6,368 $ 16,015 $ ( 3,716 ) $ 8,101 $ 65 $ 8,166

For the six months ended June 30, 2023

For the nine months ended September 30, 2023

Baxter International Inc.

2 unchanged sentences

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

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

Net income — — — — — 2,411 — 2,411 6 2,417

Other comprehensive income (loss) — — — — — — 117 117 — 117

2 unchanged sentences

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

Balance as of June 30, 2023

Balance as of September 30, 2023

683 $ 683 176 $ ( 11,249 ) $ 6,368 $ 16,015 $ ( 3,716 ) $ 8,101 $ 65 $ 8,166

For the three months ended June 30, 2022

For the three months ended September 30, 2022

Baxter International Inc.

1 unchanged sentence

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 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

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

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

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

3 unchanged sentences

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

Balance as of September 30, 2022 683 $ 683 179 $ ( 11,406 ) $ 6,297 $ 14,015 $ ( 4,054 ) $ 5,535 $ 44 $ 5,579

For the nine months ended September 30, 2022

Baxter International Inc.

2 unchanged sentences

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

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

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

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

3 unchanged sentences

Change in noncontrolling interests — — — — — — — — ( 8 ) ( 8 )

Balance as of June 30, 2022

Balance as of September 30, 2022

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

3 unchanged sentences

(in millions)

Six months ended

Nine Months Ended September 30,

Cash flows from operations

1 unchanged sentence

Income from discontinued operations, net of tax 2,559 192

Income (loss) from continuing operations ( 193 ) 193

Loss from continuing operations ( 142 ) ( 2,798 )

Adjustments to reconcile net income to cash flows from operations:

3 unchanged sentences

Net periodic pension and other postretirement costs ( 12 ) 42

Property, plant and equipment impairments 271 7

Goodwill impairments — 2,785

Intangible asset impairments 77 332

Other long-lived asset impairments 461 —

Loss on product divestiture arrangement — 54

Reclassification of cumulative translation loss to earnings — 65

Other 45 ( 34 )

18 unchanged sentences

Repayments of debt ( 353 ) ( 953 )

Net decreases in debt with original maturities of three months or less ( 51 ) ( 45 )

Net increases in debt with original maturities of three months or less 214 30

Cash dividends on common stock ( 439 ) ( 427 )

Proceeds from stock issued under employee benefit plans 86 114

Purchases of treasury stock — ( 32 )

Other financing activities, net ( 62 ) ( 51 )

1 unchanged sentence

Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash ( 14 ) ( 130 )

Decrease in cash, cash equivalents and restricted cash 4 ( 1,100 )

Increase (decrease) in cash, cash equivalents and restricted cash 4,070 ( 1,352 )

Cash, cash equivalents and restricted cash at beginning of period (1)

1 unchanged sentence

$ 5,792 $ 1,604

(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

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

September 30, 2023 December 31, 2022 September 30, 2022

Cash and cash equivalents $ 5,788 $ 1,718 $ 1,601

7 unchanged sentences

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

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

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

generally accepted accounting principles (U.S.

4 unchanged sentences

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

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

In January 2023, we announced our intention to separate our Kidney Care business into a new, publicly traded company.

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

Additionally, we announced that we are pursuing strategic alternatives 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.

On September 29, 2023, we completed the sale of our BioPharma Solutions (BPS) business and received net pre-tax cash proceeds of $ 3.96 billion from that transaction.

The financial position, results of operations and cash flows of our BPS business, including our gain from the sale of that business and the related cash proceeds received, are reported as discontinued operations in the accompanying condensed consolidated financial statements.

See Note 2 for additional information.

1 unchanged sentence

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, 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.

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.

While we have seen 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.

On September 29, 2023, we sold our BPS business to Advent International and Warburg Pincus (collectively, the "buyers").

Under the terms of the related Equity Purchase agreement entered into with the buyers in May 2023, we were entitled to aggregate consideration of $ 4.25 billion, subject to adjustment for specified items.

After giving effect to those adjustments, we received cash proceeds of $ 3.96 billion.

We recognized a pre-tax gain on the sale of $ 2.89 billion ($ 2.60 billion net of tax), which represents the excess of (a) the $ 3.91 billion in net consideration received, consisting of (i) $ 3.96 billion in cash proceeds from the buyers, less (ii) $ 47 million in transaction costs, over (b) the sum of (i) the $ 840 million net book value of the BPS business upon the closing of the transaction and (ii) BPS's $ 181 million other comprehensive loss, which was reclassified to earnings.

The BPS business, which was historically 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 was historically operated through our former, wholly-owned subsidiaries Baxter Pharmaceutical Solutions LLC, a Delaware limited liability company, and Baxter Oncology GmbH, a German limited liability company (collectively, the "divested entities").

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.

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 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 had been met.

As such, the financial position, results of operations and cash flows of that business, including our gain from the sale of that business and the related cash proceeds received, are reported as discontinued operations in the accompanying condensed 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.

At closing of the transaction, Baxter Pharmaceutical Solutions LLC included a BPS manufacturing facility in Bloomington Indiana and Baxter Oncology GmbH included a manufacturing facility in Halle Germany.

Previously, Baxter Oncology GmbH included an additional manufacturing site in Bielefeld Germany that was not part of the BPS business and was transferred to another Baxter entity prior to closing of the divestiture.

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).

At closing of the transaction, Baxter entered into a Transition Services Agreement (TSA) and a Master Commercial Manufacturing and Supply Agreement (MSA) with the divested entities.

Pursuant to the TSA, Baxter and the divested entities 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 minimize disruptions.

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

Pursuant to the MSA, the divested entities 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:

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

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

(in millions) 2023 2022 2023 2022

4 unchanged sentences

Research and development expenses 1 1 2 2

Other income, net ( 1 ) — — —

Income from discontinued operations before income taxes 57 76 113 156

Other (income) expense, net 2 2 2 2

Income from discontinued operations before gain on disposition and income taxes 92 79 205 235

Gain on disposition 2,890 — 2,890 —

Income tax expense 522 22 536 43

Income from discontinued operations, net of tax $ 2,460 $ 57 $ 2,559 $ 192

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,

For the three and nine months ended September 30, 2023, selling, general and administrative expenses include $ 4 million and $ 19 million, respectively, of separation-related costs incurred in connection with the sale of BPS.

(in millions) December 31,

Accounts receivable, net of allowances $ 88

2 unchanged sentences

Property, plant and equipment, net 284

Goodwill 386 391

Operating lease right-of-use assets 9

8 unchanged sentences

Allowance for Doubtful Accounts

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.

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

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

(in millions) 2023 2022 2023 2022

4 unchanged sentences

Balance at end of period $ 132 $ 120 $ 132 $ 120

(in millions) June 30,

(in millions) September 30,

2023 December 31,

4 unchanged sentences

Property, Plant and Equipment, Net

(in millions) June 30,

(in millions) September 30,

2023 December 31,

2 unchanged sentences

Property, plant and equipment, net $ 4,278 $ 4,695

Impairment of Manufacturing Facility

Impairments of Property, Plant and Equipment and Certain Other Long-Lived Assets

We review the carrying amounts of long-lived assets used in operations for potential impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

In evaluating recoverability of long-lived assets other than goodwill and intangible assets not subject to amortization, we group assets and liabilities at the lowest level such that the identified cash flows relating to the group are largely independent of the cash flows of other assets and liabilities.

If the carrying amount of an asset group is greater than the related estimated undiscounted future cash flows, the carrying value is not considered recoverable.

In that case, an impairment charge is recorded if, and to the extent that, the amount by which the asset group's carrying amount exceeds its fair value.

However, the portion of an impairment loss allocated to an individual long-lived asset within an asset group cannot reduce the carrying amount of that asset below its fair value is determinable without undue cost and effort.

Impairment of Opelika, Alabama Manufacturing Facility

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

1 unchanged sentence

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.

3 unchanged sentences

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

Other Impairments of Long-Lived Assets Related to HD Business

In the third quarter of 2023, we completed the implementation of a new operating model intended to simplify and streamline our operations and better align our manufacturing and supply chain to our commercial activities.

Our segments were changed during the third quarter of 2023 to align with our new operating model.

See further discussion in Note 16, Segment Information.

In connection with that segment change, we identified new reporting units for impairment testing purposes and performed fair value measurements of our reporting units to reallocate goodwill to the new reporting units based on their relative fair values and to assess those reporting units for impairment.

We identified our HD business within our Kidney Care segment as one of the new reporting units.

Based on the estimated fair value of that reporting unit, we allocated no goodwill to it.

Additionally, we determined that a triggering event was present to review the carrying amounts of long-lived assets within the HD reporting unit, which include four manufacturing facilities that primarily manufacture HD products, HD equipment leased to customers under operating leases and developed technology intangible assets, for potential impairment.

In connection with that evaluation, we determined that the carrying amount of the asset group represented by our HD reporting unit, which is the lowest level for which identifiable cash flows are largely independent of other assets and liabilities, exceeded its forecasted undiscounted cash flows.

We then measured the excess of the carrying amount of that asset group over its fair value and allocated the resulting impairment to its long-lived assets, limiting the impairments of individual assets within the group to amounts that would not result in their carrying amounts being written down below their fair values.

As a result, we recognized $ 267 million of long-lived asset impairment charges, comprised of (i) a $ 190 million impairment charge related to certain manufacturing equipment, operating lease right-of-use assets and HD equipment leased to customers and (ii) a $ 77 million impairment charge related to developed technology intangible assets.

The impairments are classified within cost of sales in the accompanying consolidated statements of income (loss) for the three and nine months ended September 30, 2023.

The fair value of the HD asset group was based on a discounted cash flow model (an income approach).

Significant assumptions used in the determination of its fair value include forecasted cash flows, discount rates and terminal growth rates.

The discounted cash flow model used to determine the fair value of the HD asset group during the third quarter 2023 reflected our most recent cash flow projections, a discount rate of 8 % and a terminal growth rate of 1.5 %.

We also measured the fair values of individual assets within that asset group to ensure that the allocation of the asset group’s impairment to the long-lived assets within that group would not reduce the carrying amount of any individual asset below its fair value.

The fair values of the buildings, manufacturing equipment and HD equipment leased to customers within that asset group were determined based on transaction prices of comparable assets (a market approach).

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

The fair value of the right-of-use asset within that group was determined based on market rents and discount rates.

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

September 30, Nine months ended

September 30,

(in millions) 2023 2022 2023 2022

4 unchanged sentences

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

(in millions) 2023 2022 2023 2022

3 unchanged sentences

Change in fair value of marketable equity securities ( 3 ) 3 3 ( 5 )

Reclassification of cumulative translation loss to earnings — 65 — 65

Non-marketable investment impairments — — 23 —

2 unchanged sentences

Non-Cash Operating and Investing Activities

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

Right-of-use operating lease assets obtained in exchange for lease obligations for the nine months ended September 30, 2023 and 2022 were $ 73 million and $ 59 million, respectively.

Purchases of property, plant and equipment included in accounts payable as of September 30, 2023 and 2022 were $ 43 million and $ 65 million, respectively.

GOODWILL AND OTHER INTANGIBLE ASSETS, NET

The following is a reconciliation of goodwill by business segment.

(in millions) Americas EMEA APAC Hillrom Total

The following is a reconciliation of goodwill by segment.

(in millions) Americas EMEA APAC Medical Products and Therapies Healthcare Systems and Technologies 1

Pharmaceuticals Kidney Care Total

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

Currency translation and other ( 27 ) ( 4 ) ( 3 ) ( 2 ) ( 7 ) ( 1 ) ( 1 ) ( 45 )

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.

Reallocation of goodwill ( 1,938 ) ( 285 ) ( 207 ) 1,195 — 542 693 —

Balance as of September 30, 2023 $ — $ — $ — $ 1,193 $ 3,981 $ 541 $ 692 $ 6,407

1 Prior to the third quarter of 2023, our Healthcare Systems and Technologies segment was referred to as our Hillrom segment.

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.

Change in Reportable Segments

As discussed in Note 16, Segment Information, our reportable segments were previously comprised 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.

Our segments were changed during the third quarter of 2023 to align with our new operating model.

Our business is comprised of four segments under this new operating model:

Medical Products and Therapies, Healthcare Systems and Technologies (formerly referred to as our Hillrom segment), Pharmaceuticals and Kidney Care.

As a result of this segment change, we reallocated the goodwill from our previous Americas, EMEA and APAC segments to the reporting units within our new Medical Products and Therapies, Pharmaceuticals and Kidney Care segments based on the relative fair values of those reporting units.

We also performed goodwill impairment assessments of all of our reporting units during the third quarter of 2023, including both our legacy reporting units and the reporting units of our new segments, and we did not identify any goodwill impairments.

Goodwill Impairments

We acquired Hill-Rom Holdings, Inc.

in December 2021 and recognized $ 6.83 billion of goodwill and $ 6.03 billion of other intangible assets, including $ 1.91 billion of indefinite-lived intangible assets, in connection with that acquisition.

During the third quarter of 2022, we performed trigger-based impairment tests for each of the reporting units within our Hillrom segment (currently referred to as our Healthcare Systems and Technologies segment), 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 Hillrom reporting units, driven primarily by shortages of certain component parts used in our products, raw materials inflation and increased supply chain costs.

Those impairment tests resulted in total pre-tax goodwill impairment charges of $ 2.79 billion in the third quarter of 2022.

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

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

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

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

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

Other intangible assets, net

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

June 30, 2023

September 30, 2023

Gross other intangible assets $ 3,442 $ 3,778 $ 320 $ 1,571 $ 163 $ 9,274

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

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.

Intangible asset amortization expense was $ 162 million and $ 168 million for the three months ended September 30, 2023 and 2022, respectively, and $ 481 million and $ 578 million for the nine months ended September 30, 2023 and 2022, respectively.

Intangible Asset Impairments

Impairment of Developed Technology Intangible Asset Related to HD Business

In the third quarter of 2023, we reviewed the long-lived assets of our HD reporting unit for potential impairment and recognized a $ 77 million impairment of developed technology intangible assets, in addition to other impairments of property, plant and equipment and operating lease right-of-use assets.

See Note 3, Supplemental Financial Information, for information about the impairment of this intangible asset, impairments of other long-lived assets related to our HD business and related fair value measurements.

Impairment of Indefinite-Lived Intangible Assets from Our Hillrom Acquisition

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

Those intangible asset impairment charges are classified within cost of sales in the accompanying consolidated statements of income (loss) for the three and nine months ended September 30, 2022.

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

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

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

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

FINANCING ARRANGEMENTS

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Each of the facilities matures in 2026.

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

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

Based on our covenant calculations as of September 30, 2023 we have capacity to draw on the full amounts under our credit facilities, less commercial paper borrowings which were $ 514 million as of September 30, 2023.

In the first nine months of 2023, we repaid $ 350 million of our $ 2.00 billion three-year term loan facility.

In October 2023, we repaid an additional $ 950 million under that term loan facility and our entire $ 514 million of outstanding commercial paper borrowings, both using proceeds from the sale of our BPS business.

The losses from our early extinguishments of debt were not significant.

Commercial Paper

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 September 30, 2023, we had $ 514 million of commercial paper outstanding with a weighted-average interest rate of 5.53 % and an original weighted-average term of 13 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.

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We record a liability when a loss is considered probable and the amount can be reasonably estimated.

If the reasonable estimate of a probable loss is a range, and no amount within the range is a better estimate, the minimum amount in the range is accrued.

If the reasonable estimate of a probable loss is a range, and no amount within the range is a better estimate than any other amount, the minimum amount in the range is accrued.

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

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

As of September 30, 2023 and December 31, 2022, our total recorded reserves with respect to legal and environmental matters were $ 33 million and $ 28 million, respectively.

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

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In addition to the matters described below, we remain subject to the risk of future administrative and legal actions.

With respect to governmental and regulatory matters, these actions may lead to product recalls, injunctions, and other restrictions on our operations and monetary sanctions, including significant civil or criminal penalties.

With respect to governmental and regulatory matters, these actions may lead to product recalls, injunctions, and other restrictions on our operations (including our ability to launch new products) and monetary sanctions, including significant civil or criminal penalties.

With respect to intellectual property, we may be exposed to significant litigation concerning the scope of our and others’ rights.

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The laws generally provide that a PRP may be held jointly and severally liable for the costs of investigating and remediating the site.

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

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

As of September 30, 2023 and December 31, 2022, our environmental reserves, which are measured on an undiscounted basis, were $ 16 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.

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District Court, Northern District of Ohio.

The complaint alleges that multiple manufacturers and distributors of opiate products improperly marketed and diverted these products, which caused harm to Fayette County.

The complaint alleges that

multiple manufacturers and distributors of opiate products improperly marketed and diverted these products, which caused harm to Fayette County.

The complaint is limited in its allegations as to Baxter and does not distinguish between injectable opiate products and orally administered opiates.

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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.

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

The parties reached agreement to settle this lawsuit in the third quarter of 2023 for an amount that was not material to our financial results, which was paid in the fourth quarter of 2023.

The case was dismissed on October 17, 2023.

We acquired Hill-Rom Holdings, Inc.

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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.

The plaintiff alleges that we and certain officers violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, 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.

The Court appointed Kelley as lead plaintiff on September 20, 2023.

STOCKHOLDERS’ EQUITY

Cash Dividends

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.

Cash dividends declared per share for the three and nine months ended September 30, 2023 were $ 0.29 and $ 0.87 , respectively.

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

Stock Repurchase Programs

In July 2012, our Board of Directors authorized the repurchase of up to $ 2.00 billion of our common stock.

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 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.

In July 2012, our Board of Directors authorized a share repurchase program and the related authorization amount was subsequently increased a number of times.

During the first nine months of 2023 we did not repurchase any shares

under this authority.

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

We had $ 1.30 billion remaining available under the authorization as of September 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 (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.

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

Gains (losses)

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Amounts reclassified from AOCI (a) 185 ( 16 ) ( 5 ) — 164

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 )

Net other comprehensive income (loss) 123 ( 16 ) 10 — 117

Balance as of September 30, 2023 $ ( 3,263 ) $ ( 347 ) $ ( 109 ) $ 3 $ ( 3,716 )

Gains (losses)

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65 19 ( 6 ) — 78

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 )

Net other comprehensive income (loss) ( 751 ) 48 27 2 ( 674 )

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

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

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

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

Amounts reclassified from AOCI (a)

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

(in millions) Three months ended September 30, 2023 Nine months ended September 30, 2023 Location of impact in income statement

Reclassification of cumulative translation loss to earnings from BPS divestiture $ ( 185 ) $ ( 185 ) Income from discontinued operations, net of tax

Tax effect — — Income from discontinued operations, net of tax

$ ( 185 ) $ ( 185 ) Net of tax

Pension and OPEB items

Amortization of net losses and prior service costs or credits $ 5 $ 15 Other (income) expense, net

Pension settlement from BPS divestiture 4 4 Income from discontinued operations, net of tax

Tax effect — ( 3 ) Income tax expense

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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

(in millions) Three months ended September 30, 2022 Nine months ended September 30, 2022 Location of impact in income statement

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

Tax effect — — Income tax expense

$ ( 65 ) $ ( 65 ) Net of tax

Amortization of pension and OPEB items

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

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

We earn revenues from acute and chronic dialysis therapies;

sterile IV solutions;

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generic injectable pharmaceuticals;

and surgical hemostat and sealant products.

Our legacy Hillrom segment includes smart bed systems;

surgical hemostat and sealant products;

smart bed systems;

patient monitoring and diagnostic technologies;

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and advanced equipment for the surgical space.

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

For most of those offerings, our performance obligation is satisfied upon delivery to the customer.

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

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

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

For example, our recently divested BPS business, which is reported within discontinued operations and included contract manufacturing arrangements, our Healthcare Systems and Technologies segment includes digital and connected care solutions and collaboration tools that are implemented over time and all of our segments include equipment leases and certain subscription software and licensing arrangements.

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

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

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.

As of September 30, 2023, we had $ 7.35 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 Medical Product and Therapies and Kidney Care segments.

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

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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.

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

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

Revenue recognized during the three and nine months ended September 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.

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Contract Balances

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

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

consolidated balance sheets.

Net trade accounts receivable was $ 2.28 billion and $ 2.34 billion as of September 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.

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The following table summarizes our contract assets:

(in millions) June 30,

(in millions) September 30,

2023 December 31,

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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 six months ended June 30, 2023 and 2022.

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

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

Six Months Ended June 30,

Nine Months Ended September 30,

(in millions) 2023

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Balance at end of period $ 195 $ 188

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.

For the nine months ended September 30, 2023 and 2022, $ 119 million and $ 99 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) June 30,

(in millions) September 30,

2023 December 31,

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Disaggregation of Net Sales

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

and international:

Three Months Ended June 30,

(in millions) U.S.

International Total U.S.

International Total

$ 234 $ 702 $ 936 $ 225 $ 706 $ 931

Medication Delivery 2

487 274 761 459 251 710

Pharmaceuticals 3

182 368 550 164 364 528

Clinical Nutrition 4

83 160 243 90 140 230

Advanced Surgery 5

150 122 272 151 112 263

Acute Therapies 6

60 120 180 58 115 173

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

536 171 707 579 168 747

Front Line Care 8

448 161 609 409 167 576

Global Surgical Solutions 9

73 85 158 73 74 147

41 10 51 62 21 83

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

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

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

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

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 Patient Support Systems includes sales of our connected care solutions:

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

8 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.

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

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.

Refer to Note 16 for additional information on our net sales including the disaggregation of net sales within each of our segments and net sales by geographic location.

Lease Revenue

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

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

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

(in millions) Three months ended September 30, 2023 Nine Months Ended September 30, 2023

Sales-type lease revenue $ 2 $ 9

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Total lease revenue $ 138 $ 430

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

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

Sales-type lease revenue $ 3 $ 11

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Total lease revenue $ 157 $ 432

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.

Our net investment in sales-type leases was $ 68 million as of September 30, 2023, of which $ 10 million originated in 2019 and prior, $ 19 million in 2020, $ 19 million in 2021, $ 13 million in 2022, and $ 7 million in 2023.

BUSINESS OPTIMIZATION CHARGES

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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 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.

The related costs of those actions consisted primarily of employee termination costs, implementation costs, contract termination costs and asset impairments.

We currently expect to incur additional pre-tax costs, primarily related to implementation of business optimization programs, of approximately $ 25 million through the completion of initiatives that are currently underway.

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 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,

We continue to pursue cost savings initiatives, including those related to our newly implemented 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 and nine months ended September 30, 2023 and 2022, we recorded the following charges related to business optimization programs.

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

(in millions) 2023 2022 2023 2022

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

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.

Costs to implement business optimization programs for the three and nine months ended September 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 and six months ended June 30, 2023 and 2022, we recorded the following restructuring charges.

Three months ended June 30, 2023

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

Three months ended September 30, 2023

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

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Total restructuring charges $ 24 $ 35 $ 5 $ 64

Three months ended June 30, 2022

Three months ended September 30, 2022

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

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Total restructuring charges $ 14 $ 39 $ 4 $ 57

Six months ended June 30, 2023

Nine months ended September 30, 2023

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

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Total restructuring charges $ 322 $ 127 $ 12 $ 461

Six months ended June 30, 2022

Nine months ended September 30, 2022

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

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Total restructuring charges $ 20 $ 126 $ 4 $ 150

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.

For the three and nine months ended September 30, 2023, $ 14 million and $ 111 million, respectively, of the restructuring charges reflected in the table above, consisting of employee termination costs, were related to the implementation of our previously announced new operating model intended to simplify and streamline our operations.

For the nine months ended September 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.

For the three months ended September 30, 2022, $ 14 million of the restructuring charges reflected in the table above were related to integration activities for the Hillrom acquisition, consisting of $ 12 million of employee termination costs and $ 2 million of contract termination.

For the nine months ended September 30, 2022, $ 97 million of the restructuring charges reflected in the table above were related to integration activities for the Hillrom acquisition, consisting of $ 71 million of employee termination costs, $ 19 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.

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Currency translation ( 5 )

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.

Liability balance as of September 30, 2023 $ 171

Substantially all of our restructuring liabilities as of September 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.

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Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

(in millions) 2023 2022 2023 2022

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Net periodic OPEB cost (income) $ ( 4 ) $ ( 2 ) $ ( 12 ) $ ( 6 )

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 was 129.7 % and 1.8 % for the three months ended September 30, 2023 and 2022, respectively, and 58.4 % and 0.5 % for the nine months ended September 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 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.

Our effective income tax rate during interim periods reflects our estimated annual effective tax rate excluding discrete items.

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

federal statutory rate was primarily driven by the jurisdictional mix of global earnings, which was impacted by the long-lived asset impairments we recognized during the second and third quarters of 2023, and by the significance of non-deductible items to our anticipated pre-tax income for the full year.

For the three months ended September 30, 2023, our effective tax rate was also impacted by $ 13 million of separation-related income tax costs.

For the nine months ended September 30, 2023, our effective tax rate was also impacted by a $ 30 million valuation allowance recorded to reduce the carrying amount of a deferred tax asset for a tax basis step-up related to previously enacted Swiss tax legislation and by $ 17 million of separation-related income tax costs.

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 .

EARNINGS PER SHARE

4 unchanged sentences

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

(in millions) 2023 2022 2023 2022

4 unchanged sentences

Net income (loss) attributable to Baxter stockholders $ 2,508 $ ( 2,937 ) $ 2,411 $ ( 2,614 )

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

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

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

(in millions) 2023 2022 2023 2022

2 unchanged sentences

Diluted shares 509 504 506 503

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.

The effect of dilutive securities for the three months ended September 30, 2023 includes unexercised stock options, unvested RSUs and contingently issuable shares related to granted PSUs.

Basic and diluted shares are the same for the three months ended September 30, 2022 and the nine months ended September 30, 2023 and 2022 due to our net losses from continuing operations for those periods.

Diluted EPS excludes 18 million and 25 million shares issuable under equity awards for the three and nine months ended September 30, 2023, respectively, and 23 million shares issuable under equity awards for the three and nine months ended September 30, 2022, respectively, because their inclusion would have had an anti-dilutive effect on diluted EPS.

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

3 unchanged sentences

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

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

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

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

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

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

3 unchanged sentences

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

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

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

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

5 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 $ 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.

The notional amounts of foreign exchange contracts designated as cash flow hedges were $ 437 million and $ 398 million as of September 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 September 30, 2023 is 12 months for foreign exchange contracts.

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

There were no outstanding interest rate contracts designated as fair value hedges as of September 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 June 30, 2023, we had an accumulated pre-tax unrealized translation gain in AOCI of $ 57 million related to the Euro-denominated senior notes.

As of September 30, 2023, we had an accumulated pre-tax unrealized translation gain in AOCI of $ 105 million related to the Euro-denominated senior notes.

Dedesignations

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

Gains or losses relating to terminations of effective cash flow hedges generally continue to be deferred and are recognized consistent with the loss or income recognition of the underlying hedged items.

Gains or losses relating to terminations of effective cash flow hedges generally continue to be deferred and are recognized consistent with the loss or income recognition of the underlying

hedged items.

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 six 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 nine 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 six months of 2023 or 2022.

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

There were no net investment hedges terminated during the first nine 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 $ 688 million as of June 30, 2023 and $ 753 million as of December 31, 2022.

The total notional amount of undesignated derivative instruments was $ 626 million as of September 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 June 30, 2023 and 2022.

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

10 unchanged sentences

Foreign exchange contracts Other (income) expense, net $ 2 $ ( 11 )

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

11 unchanged sentences

Foreign exchange contracts Other (income) expense, net $ ( 16 ) $ ( 34 )

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.

As of September 30, 2023, $ 7 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 June 30, 2023.

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

June 30, 2023 December 31, 2022

September 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 June 30, 2023 Balance as of December 31, 2022 Balance as of June 30, 2023 Balance as of December 31, 2022

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

Long-term debt $ 100 $ 101 $ 3 $ 4

3 unchanged sentences

Basis of fair value measurement

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

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

(Level 1) Significant other

22 unchanged sentences

Total $ 96 $ — $ 12 $ 84

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.

As of September 30, 2023 and December 31, 2022, cash and cash equivalents of $ 5.79 billion and $ 1.72 billion, respectively, included money market and other short-term funds of approximately $ 4.34 billion 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.

The majority of the derivatives entered into by us are valued using internal valuation techniques as no quoted market prices exist for such instruments.

A majority of the derivatives entered into by us are valued using internal valuation techniques as no quoted market prices exist for such instruments.

The principal techniques used to value these instruments are discounted cash flow and Black-Scholes models.

7 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 June 30,

Three months ended September 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 $ 21 $ 37 $ 113 $ 44

Additions — 2 — —

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

Change in fair value recognized in AOCI — — — 1

Transfers out of Level 3 — — — ( 10 )

Payments ( 2 ) — ( 17 ) —

Fair value at end of period $ 19 $ 39 $ 90 $ 44

Six months ended June 30,

Nine months ended September 30,

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

6 unchanged sentences

Fair value at end of period $ 19 $ 39 $ 90 $ 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.

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

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 June 30, 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 September 30, 2023 and December 31, 2022.

Book values Fair values(a)

8 unchanged sentences

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.

The carrying values of equity investments without readily determinable fair values that we measure at cost, less impairment were $ 74 million as of September 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.

During the first nine months of 2023, several of our investees either completed or were 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 second quarter.

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 first nine months 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

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

Our reportable segments were previously comprised 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.

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

sterile IV solutions;

infusion systems and devices;

parenteral nutrition therapies;

inhaled anesthetics;

generic injectable pharmaceuticals;

and surgical hemostat and sealant products.

The Hillrom segment provides digital and connected care solutions and collaboration tools, including smart bed systems;

patient monitoring and diagnostic technologies;

respiratory health devices;

and advanced equipment for the surgical space.

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

Our business is comprised of four segments under this new operating model:

Medical Products and Therapies, Healthcare Systems and Technologies (formerly referred to as our Hillrom segment), Pharmaceuticals and Kidney Care.

Our segments were changed during the third quarter of 2023 to align with our new operating model and prior period segment disclosures have been revised to reflect the new segment presentation.

The Medical Products and Therapies segment includes sales of our sterile IV solutions, infusion systems, administration sets, parenteral nutrition therapies and surgical hemostat, sealant and adhesion prevention products.

The Healthcare Systems and Technologies segment includes sales of our connected care solutions and collaboration tools, including smart bed systems, patient monitoring systems and diagnostic technologies, respiratory health devices and advanced equipment for the surgical space, including surgical video technologies, precision positioning devices and other accessories.

The Pharmaceuticals segment includes sales of specialty injectable pharmaceuticals, inhaled anesthesia and drug compounding.

The Kidney Care segment includes sales of chronic and acute dialysis therapies and services, including peritoneal dialysis, hemodialysis, continuous renal replacement therapies (CRRT) and other organ support therapies.

Other sales not allocated to a segment primarily include sales of products and services provided directly through certain of our manufacturing facilities and royalty income under a business development arrangement that ended in early 2023 when we acquired the related product rights.

Disaggregation of Net Sales

The following tables present our U.S.

and International disaggregated net sales.

Intersegment sales are eliminated in consolidation.

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

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).

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

Financial information for our segments is as follows.

Three Months Ended September 30,

(in millions) U.S.

International Total U.S.

International Total

Infusion Therapies and Technologies

$ 570 $ 433 $ 1,003 $ 567 $ 389 $ 956

Advanced Surgery

139 116 255 141 106 247

Medical Products and Therapies 709 549 1,258 708 495 1,203

Care and Connectivity Solutions

317 126 443 339 117 456

Front Line Care

234 67 301 209 70 279

Healthcare Systems and Technologies

551 193 744 548 187 735

Injectables and Anesthesia

195 156 351 173 152 325

Drug Compounding — 229 229 — 200 200

Pharmaceuticals 195 385 580 173 352 525

Chronic Therapies 1

233 688 921 236 698 934

Acute Therapies 1

66 122 188 57 109 166

Kidney Care 299 810 1,109 293 807 1,100

12 5 17 36 10 46

Total Baxter $ 1,766 $ 1,942 $ 3,708 $ 1,758 $ 1,851 $ 3,609

Nine Months Ended September 30,

(in millions) U.S.

International Total U.S.

International Total

Infusion Therapies and Technologies

$ 1,654 $ 1,264 $ 2,918 $ 1,672 $ 1,157 $ 2,829

Advanced Surgery

433 340 773 428 310 738

Medical Products and Therapies 2,087 1,604 3,691 2,100 1,467 3,567

Care and Connectivity Solutions

926 381 1,307 991 359 1,350

Front Line Care

681 230 911 618 237 855

Healthcare Systems and Technologies

1,607 611 2,218 1,609 596 2,205

Injectables and Anesthesia

550 437 987 494 467 961

Drug Compounding — 665 665 — 613 613

Pharmaceuticals 550 1,102 1,652 494 1,080 1,574

Chronic Therapies 1

689 2,041 2,730 675 2,069 2,744

Acute Therapies 1

194 370 564 194 348 542

Kidney Care 883 2,411 3,294 869 2,417 3,286

56 17 73 98 31 129

Total Baxter $ 5,183 $ 5,745 $ 10,928 $ 5,170 $ 5,591 $ 10,761

1 In connection with our segment change in the third quarter of 2023, we made the following reclassifications of prior period sales amounts to conform to the current period presentation.

We reclassified $ 16 million of sales from the first half of 2023 and $ 8 million and $ 23 million for the three and nine months ended September 30, 2022, respectively, from Chronic Therapies to Acute Therapies.

Additionally, in connection with the reclassification of our BPS business to discontinued operations during the second quarter of 2023, we reclassified $ 2 million of contract manufacturing revenues from the first quarter of 2023 and $ 8 million and $ 26 million for the three and nine months ended September 30, 2022, respectively, from BPS to Other (within continuing operations), as the related manufacturing facility was not part of that divestiture transaction.

Geographic Sales Information

Our net sales are attributed to the following geographic regions based on the location of the customer.

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

Total net sales $ 3,707 $ 3,594 $ 7,220 $ 7,152

Operating income :

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 (loss) from continuing operations before income taxes per the condensed consolidated statements of income.

September 30, Nine Months Ended

September 30,

2023 2022 2023 2022

United States $ 1,766 $ 1,758 $ 5,183 $ 5,170

Emerging markets 1

852 820 2,447 2,355

Rest of world 2

1,090 1,031 3,298 3,236

Total Baxter $ 3,708 $ 3,609 $ 10,928 $ 10,761

1 Emerging markets include sales from our operations in Eastern Europe, the Middle East, Africa, Latin America and Asia (except for Japan).

2 Rest of world includes sales from our operations in Western Europe, Canada, Japan, Australia and New Zealand.

Segment Operating Income

We use segment operating income to evaluate the performance of our segments and to make resource allocation decisions.

Segment operating income represents income before income taxes, interest and other non-operating income or expense, unallocated corporate costs, intangible asset amortization and other special items.

Special items, which are presented below in our reconciliations of segment operating income to income (loss) from continuing operations before income taxes, are excluded from segment operating income because they are highly variable, difficult to predict and of a size that may substantially impact our reported results of operations for the period.

Under our new operating model, most global functional support costs, overhead costs and other shared costs that benefit our segments are allocated to those segments.

Corporate costs that are not allocated to our segments, as well as any differences between actual corporate costs and the amounts allocated to our segments, are presented as

unallocated corporate costs.

The following table presents our segment operating income and reconciliations of segment operating income to income (loss) from continuing operations before income taxes.

Three months ended

June 30, Six months ended

September 30, Nine months ended

September 30,

(in millions) 2023 2022 2023 2022

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

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

Medical Products and Therapies $ 245 $ 257 $ 706 $ 703

Healthcare Systems and Technologies 115 108 327 367

Pharmaceuticals 108 82 284 295

Kidney Care 96 103 208 307

Other 6 17 19 52

Total 570 567 1,544 1,724

Unallocated corporate costs ( 5 ) 1 ( 51 ) ( 41 )

Intangible asset amortization expense ( 162 ) ( 168 ) ( 481 ) ( 578 )

Long-lived asset impairments ( 267 ) ( 332 ) ( 267 ) ( 332 )

Legal matters ( 13 ) — ( 13 ) —

Goodwill impairments — ( 2,785 ) — ( 2,785 )

Business optimization items ( 81 ) ( 73 ) ( 508 ) ( 196 )

Acquisition and integration items ( 2 ) ( 4 ) ( 2 ) ( 193 )

Loss on product divestiture arrangement — ( 54 ) — ( 54 )

Separation-related costs ( 77 ) — ( 123 ) —

European Medical Devices Regulation ( 14 ) ( 12 ) ( 38 ) ( 35 )

Product-related items — ( 20 ) — ( 43 )

Total operating income (loss) ( 51 ) ( 2,880 ) 61 ( 2,533 )

1 unchanged sentence

Other (income) expense, net ( 7 ) 61 33 1

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.

Loss from continuing operations before income taxes $ ( 172 ) $ ( 3,045 ) $ ( 341 ) $ ( 2,812 )

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

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