What changed in this filing

/stocks — the workspaceLOADING

Item 8. Financial Statements and Supplementary Data

2024-02-08 compared with 2023-02-09 · 619 added, 500 removed, 1473 unchanged (43% of the section changed)

7 unchanged sentences

Prepaid expenses and other current assets 892 857

Current assets of discontinued operations — 186

Total current assets 9,600 8,011

4 unchanged sentences

Other non-current assets 1,126 1,109

Non-current assets of discontinued operations — 686

Total assets $ 28,276 $ 28,287

4 unchanged sentences

Accrued expenses and other current liabilities 2,594 2,170

Current liabilities of discontinued operations — 61

Total current liabilities 6,503 4,745

Long-term debt and finance lease obligations 15,232 17,149

Long-term debt and finance lease obligations, less current portion 11,130 15,232

Operating lease liabilities 438 447

Other non-current liabilities 1,737 1,848

Non-current liabilities of discontinued operations — 120

Total liabilities 19,808 22,392

5 unchanged sentences

Retained earnings 16,114 14,050

Accumulated other comprehensive (loss) income ( 3,833 ) ( 3,380 )

Accumulated other comprehensive income (loss) ( 3,554 ) ( 3,833 )

Total Baxter stockholders’ equity 8,402 5,833

15 unchanged sentences

Other (income) expense, net 51 12 41

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

Income tax expense (benefit) 68 182 182

Income (loss) from continuing operations before income taxes ( 103 ) ( 2,650 ) 1,116

Income tax (benefit) expense ( 34 ) 4 83

Income (loss) from continuing operations ( 69 ) ( 2,654 ) 1,033

Income from discontinued operations, net of tax 2,732 233 262

Net income (loss) 2,663 ( 2,421 ) 1,295

1 unchanged sentence

Net income (loss) attributable to Baxter stockholders $ 2,656 $ ( 2,433 ) $ 1,284

Earnings (loss) per share

Income (loss) from continuing operations per common share

Basic $ ( 0.15 ) $ ( 5.29 ) $ 2.04

Diluted $ ( 0.15 ) $ ( 5.29 ) $ 2.01

Income from discontinued operations per common share

Basic $ 5.40 $ 0.46 $ 0.52

Diluted $ 5.40 $ 0.46 $ 0.52

Net Income (loss) per common share

Basic $ 5.25 $ ( 4.83 ) $ 2.56

Diluted $ 5.25 $ ( 4.83 ) $ 2.53

Weighted-average number of shares outstanding

4 unchanged sentences

years ended December 31 (in millions) 2023 2022 2021

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

Other comprehensive (loss) income, net of tax:

Income (loss) from continuing operations $ ( 69 ) $ ( 2,654 ) $ 1,033

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

Currency translation adjustments, net of tax expense (benefit) of ($ 18 ) in 2023, $ 41 in 2022 and $ 30 in 2021

1 unchanged sentence

Pension and other postretirement benefit plans, net of tax expense of $( 27 ) in 2023, $ 12 in 2022 and $ 60 in 2021

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

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

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

( 117 ) ( 2 ) 218

Hedging activities, net of tax expense (benefit) of zero in 2023, $ 2 in 2022 and $ 7 in 2021

Available-for-sale debt securities, net of tax expense of zero in 2023, $ 1 in 2022 and zero in 2021

Total other comprehensive income (loss) from continuing operations, net of tax 95 ( 437 ) ( 19 )

Comprehensive income (loss) from continuing operations 26 ( 3,091 ) 1,014

Income from discontinued operations, net of tax 2,732 233 262

Other comprehensive income (loss) from discontinued operations

Currency translation adjustments, net of tax expense (benefit) of zero in 2023, 2022 and 2021

185 ( 34 ) ( 56 )

Pension and other postretirement benefit plans, net of tax expense of zero in 2023, 2022 and 2021

Total other comprehensive income from discontinued operations 181 ( 16 ) ( 47 )

Comprehensive income from discontinued operations 2,913 217 215

Comprehensive income (loss) 2,939 ( 2,874 ) 1,229

Net income attributable to noncontrolling interests 7 12 11

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

Other comprehensive income (loss) attributable to noncontrolling interests ( 3 ) ( 5 ) —

Comprehensive income (loss) attributable to Baxter stockholders $ 2,935 $ ( 2,881 ) $ 1,218

5 unchanged sentences

Balance as of January 1, 2021

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

683 $ 683 179 $ ( 11,051 ) $ 6,043 $ 16,328 $ ( 3,314 ) $ 8,689 $ 37 $ 8,726

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

3 unchanged sentences

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

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

Change in noncontrolling interests — — — — — — — — ( 4 ) ( 4 )

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

4 unchanged sentences

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

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

Change in noncontrolling interests — — — — — — — — 11 11

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

1 unchanged sentence

Other comprehensive income (loss) — — — — — — 279 279 ( 3 ) 276

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

Stock issued under employee benefit plans and other — — ( 3 ) 159 67 — — 226 — 226

Dividends declared on common stock — — — — — ( 592 ) — ( 592 ) — ( 592 )

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

Balance as of December 31, 2023 683 $ 683 176 $ ( 11,230 ) $ 6,389 $ 16,114 $ ( 3,554 ) $ 8,402 $ 66 $ 8,468

4 unchanged sentences

Net income (loss) $ 2,663 $ ( 2,421 ) $ 1,295

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

Income from discontinued operations, net of tax 2,732 233 262

Loss from continuing operations ( 69 ) ( 2,654 ) 1,033

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

Depreciation and amortization 1,263 1,380 867

Pension settlement and curtailment (gains) losses 1 ( 12 ) 2

Net periodic pension benefit and other postretirement costs 51 99 81

Net periodic pension and other postretirement costs ( 19 ) 50 99

Deferred income taxes ( 499 ) ( 230 ) ( 161 )

1 unchanged sentence

Losses on debt extinguishments — — 5

Intangible asset impairments 344 — 17

Goodwill impairments — 2,812 —

Intangible asset impairments 77 344 —

Other long-lived asset impairments 470 9 11

Loss on product divestiture arrangement — 54 —

1 unchanged sentence

Loss on subsidiary liquidation — 21 —

Settlement of interest rate derivative contracts — — ( 173 )

Other 77 ( 20 ) 81

13 unchanged sentences

Other investing activities, net 26 11 45

Cash flows from investing activities - continuing operations ( 672 ) ( 872 ) ( 11,148 )

Cash flows from investing activities - discontinued operations 3,885 ( 59 ) ( 52 )

Cash flows from investing activities 3,213 ( 931 ) ( 11,200 )

2 unchanged sentences

Repayments of debt ( 2,634 ) ( 954 ) ( 2,823 )

Net increase (decrease) in debt with original maturities of three months or less 55 246 ( 226 )

Net (decreases) increases in debt with original maturities of three months or less ( 299 ) 55 246

Cash dividends on common stock ( 586 ) ( 573 ) ( 530 )

19 unchanged sentences

Nature of Operations

Baxter International Inc., through our subsidiaries (collectively, Baxter, we, our or us), provides a broad portfolio of essential healthcare products, including acute and chronic dialysis therapies;

sterile intravenous (IV) solutions;

infusion systems and devices;

Baxter International Inc., through our subsidiaries (collectively, Baxter, we, our or us), provides a broad portfolio of essential healthcare products, including sterile intravenous (IV) solutions;

infusion systems, administrative sets;

parenteral nutrition therapies;

inhaled anesthetics;

generic injectable pharmaceuticals;

surgical hemostat and sealant products, advanced surgical equipment;

smart bed systems;

patient monitoring and diagnostic technologies;

and respiratory health devices.

These products are used by hospitals, kidney dialysis centers, nursing homes, rehabilitation centers, doctors’ offices and patients at home under physician supervision.

surgical hemostat, sealant and adhesion prevention products;

connected care solutions and collaboration tools, including smart bed systems, patient monitoring systems and diagnostic technologies;

respiratory health devices;

advanced equipment for the surgical space, including surgical video technologies, precision positioning devices and other accessories;

injectable pharmaceuticals;

inhaled anesthesia;

drug compounding;

chronic and acute dialysis therapies and services, including peritoneal dialysis (PD), hemodialysis (HD), continuous renal replacement therapies (CRRT) and other organ support therapies.

These products are used by hospitals, kidney dialysis centers, nursing homes, rehabilitation centers, ambulatory surgery centers, doctors’ offices and patients at home under physician supervision.

Our global footprint and the critical nature of our products and services play a key role in expanding access to healthcare in emerging and developed countries.

We operate in four segments:

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

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

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

Our reportable segments were previously comprised of the following geographic segments related to our legacy Baxter business:

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

Under this 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 which are described in Note 18.

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.

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

While we continue to evaluate all strategic options in the interest of maximizing stockholder value, we continue to progress towards our current target of July 2024 for completion of the proposed spinoff of this business.

Risks and Uncertainties

Supply Constraints and Global Economic Conditions

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

We expect to experience some of these and other challenges related to our supply chain in future periods.

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

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

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

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

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

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

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

and other governments may continue existing measures or implement new restrictions and other requirements in light of the continuing spread of the pandemic (including with respect to moratoriums on elective procedures and mandatory quarantines and travel restrictions).

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

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

We have experienced significant challenges to our global supply chain in recent periods, including production delays and interruptions, increased costs and shortages of raw materials and component parts (including resins and electromechanical devices) and higher transportation costs, resulting from the pandemic and other exogenous factors including significant weather events, elevated inflation levels, disruptions to certain ports of call and access to shipping lanes around the world, the war in Ukraine, the conflict in the Middle East (including recent attacks on merchant ships in the Red Sea), tensions between China and Taiwan and other geopolitical events.

We expect to continue to experience some of these and other challenges related to our supply chain in future periods.

While we have seen improvements in the availability of certain component parts and improved pricing of 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.

Use of Estimates

14 unchanged sentences

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

Our primary customers are hospitals, healthcare distribution companies, dialysis providers and government agencies that purchase healthcare products on behalf of providers.

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

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

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

We earn revenues from acute and chronic dialysis therapies;

sterile IV solutions;

3 unchanged sentences

generic injectable pharmaceuticals;

and surgical hemostat and sealant products.

Our legacy Hillrom segment includes smart bed systems;

patient monitoring and diagnostic technologies, respiratory health devices;

surgical hemostat and sealant products, smart bed systems;

patient monitoring and diagnostic technologies;

respiratory health devices;

and advanced equipment for the surgical space.

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

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 our segments include equipment leases and certain subscription software and licensing arrangements.

For example, we lease medical equipment to customers under operating lease arrangements and recognize the related revenues on a monthly basis over the lease term.

Our Healthcare Systems and Technologies segment includes connected care solutions and collaboration tools that are implemented over time.

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.

We also earn revenue from contract manufacturing activities, which is recognized over time as the services are performed.

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

As of December 31, 2022, we had $ 10.7 billion of transaction price allocated to remaining performance obligations related to executed contracts with an original duration of more than one year, which are primarily included in the Americas segment.

As of December 31, 2023, we had $ 6.51 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.

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

We expect to recognize approximately 50 % of this amount as revenue in 2024, 25 % in 2025, 15 % in 2026, 10 % in 2027 and the remainder thereafter.

Significant Judgments

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

Revenues from product sales are recorded at the net sales price, which includes estimates of variable consideration, primarily related to rebates and distributor 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 as reductions of accounts receivable, net on the consolidated balance sheets.

40 unchanged sentences

Collaborative Arrangements

We enter into collaborative arrangements in the normal course of business.

We periodically enter into collaborative arrangements in the normal course of business.

These collaborative arrangements take a number of forms and structures and are designed to enhance and expedite long-term sales and profitability growth.

1 unchanged sentence

We may be responsible for ongoing costs associated with the arrangements, including R&D cost reimbursements to the counterparty.

See the R&D section of this note regarding the accounting treatment of upfront and contingent milestone payments.

See the Research and Development section of this note regarding the accounting treatment of upfront and contingent milestone payments.

Any royalty and profit-sharing payments during the commercialization phase are expensed as cost of sales when they become due and payable.

14 unchanged sentences

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

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

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

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

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

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

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

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

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

2 unchanged sentences

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

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

from December 31 to November 1.

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

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

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

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

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

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

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

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

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

of other assets and liabilities.

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

2 unchanged sentences

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

Investments in Equity Securities

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

See Notes 4 and 5 for further information about impairments of goodwill and other long-lived assets recognized in the accompanying consolidated financial statements.

Investments in Debt and Equity Securities

Investments in debt securities classified as available-for-sale are measured at fair value with changes in fair value reported in other comprehensive (loss) income (OCI).

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

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

2 unchanged sentences

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

We review our investments in debt and equity securities for impairment and adjust impaired investments to fair value through earnings, as required.

Deferred taxes are recognized for the future tax effects of temporary differences between financial and income tax reporting based on enacted tax laws and rates.

5 unchanged sentences

Foreign Currency Translation

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

Cumulative translation adjustments (CTA) related to foreign operations are included in OCI.

For foreign operations in highly inflationary economies, translation gains and losses are included in other (income) expense, net, and were not material in 2023, 2022 and 2021.

Derivatives and Hedging Activities

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

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

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

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

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

For each derivative instrument that is designated and effective as a cash flow hedge, the gain or loss on the derivative is recorded in OCI and then recognized in earnings consistent with the underlying hedged item.

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

1 unchanged sentence

For each derivative instrument that is designated and effective as a fair value hedge, the gain or loss on the derivative is recognized immediately to earnings, and offsets changes in fair value attributable to a particular risk, such as changes in interest rates, of the hedged item, which are also recognized in earnings.

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.

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

We have designated certain of our Euro-denominated senior notes as hedges of our net investment in our European operations and, as a result, mark to spot rate adjustments on the outstanding debt balances are recorded as a component of AOCI.

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

1 unchanged sentence

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.

However, if it is probable that the hedged forecasted transactions will not occur, any gains or losses would be immediately reclassified from accumulated other comprehensive income (loss) (AOCI) to earnings.

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.

4 unchanged sentences

Recently issued accounting standards not yet adopted

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

In November 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2023-07, Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures, which requires enhanced disclosures about segment expenses on an annual and interim basis.

This standard is effective for our annual consolidated financial statements for the year ending December 31, 2024 and for interim periods beginning in 2025.

We are currently evaluating the impact of this standard on our consolidated financial statements.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740):

Improvement to Income Tax Disclosures, which requires (1) disclosure of specific categories in the rate reconciliation and (2) additional information for reconciling items that meet a quantitative threshold.

Additionally, the amendment requires disclosure of certain disaggregated information about income taxes paid, income from continuing operations before income tax expense (benefit) and income tax expense (benefit).

The standard is effective for our annual consolidated financial statements for the year ending December 31, 2025.

We are currently evaluating the impact of this standard on our consolidated financial statements.

In June 2022, the FASB issued ASU 2022-03, Fair Value Measurement (Topic 820):

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

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

The standard is effective for our annual consolidated financial statements for the year ending December 31, 2024 and for interim periods beginning in 2025.

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

1 unchanged sentence

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

These changes are intended to avoid recognizing a day-one loss for a lease with variable payments even though the lessor expects the arrangement will be profitable overall.

These changes are intended to avoid recognizing a day-one loss for a lease with

variable payments even though the lessor expects the arrangement will be profitable overall.

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

3 unchanged sentences

In accordance with this ASU we recognized contract liabilities of $ 142 million as part of the Hillrom acquisition in December 2021.

We did not acquire contract assets or liabilities in connection with other acquisitions completed in 2021.

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

2016-13, Financial Instruments - Credit Losses, which requires the measurement of expected lifetime credit losses, rather than incurred losses, for financial instruments held at the reporting date based on historical experience, current conditions and reasonable forecasts.

The main objective of this ASU is to provide financial statement users with more decision-useful information about the expected credit losses on financial instruments and other commitments to extend credit held by a reporting entity at each reporting date.

We adopted this ASU using the modified retrospective approach.

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

We did not acquire contract assets or liabilities in connection with other acquisitions completed since the adoption of this ASU.

DISCONTINUED OPERATIONS

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 $ 2.88 billion ($ 2.59 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 former Americas segment, provided 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 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 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 consolidated financial statements.

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

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 consolidated financial statements.

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 years ended December 31, 2023, 2022 and 2021:

(in millions) 2023 2022 2021

Net sales $ 469 $ 607 $ 638

Cost of sales 216 276 253

Gross margin 253 331 385

Selling, general and administrative expenses 45 28 22

Research and development expenses 1 3 3

Interest expense, net ( 1 ) — ( 1 )

Other (income) expense, net 1 3 —

Income from discontinued operations before gain on disposition and income taxes 207 297 361

Gain on disposition 2,882 — —

Income tax expense 357 64 99

Income from discontinued operations, net of tax $ 2,732 $ 233 $ 262

For the years ended December 31, 2023 and 2022, SG&A expenses include $ 17 million and $ 5 million, respectively, of separation-related costs incurred in connection with the sale of BPS.

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

as of December 31 (in millions) 2022

Accounts receivable, net of allowances $ 88

Inventories 39

Prepaid expenses and other current assets 59

Property, plant and equipment, net 284

Operating lease right-of-use assets 9

Other non-current assets 2

Assets of discontinued operations $ 872

Accounts payable $ 29

Accrued expenses and other current liabilities 32

Operating lease liabilities 9

Other non-current liabilities 111

Liabilities of discontinued operations $ 181

ACQUISITIONS AND OTHER ARRANGEMENTS

3 unchanged sentences

Any purchase price in excess of these net assets is recorded as goodwill.

The allocation of purchase price in certain cases may be subject to revision based on the final determination of fair values during the measurement period, which may be up to one year from the acquisition date.

Contingent consideration related to business combinations is recognized at its estimated fair value on the acquisition date.

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

Subsequent changes to the fair value of those contingent consideration arrangements are

recognized in earnings.

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

36 unchanged sentences

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

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

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

We allocated $ 804 million of the total consideration to developed technology with a weighted-average useful life of 5 years, $ 1.91 billion to trade names with an indefinite useful life, $ 62 million to trade names with a weighted-average useful life of 7 years, $ 3.19 billion to customer relationships with a weighted-average useful life of 15 years and $ 30 million to IPR&D that is considered an indefinite lived intangible asset.

2 unchanged sentences

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

We also recognized $ 1.3 billion of deferred income tax liabilities in connection with the acquisition, which are included in other non-current liabilities in the accompanying consolidated balance sheet as of December 31, 2021.

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

We also recognized $ 1.33 billion of deferred income tax liabilities in connection with the acquisition.

See Note 5 for additional information about the impairments recognized in the second half of 2022 related to goodwill and certain intangible assets acquired in the Hillrom acquisition.

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

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

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

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

The Hillrom acquisition contributed $ 212 million of net sales and a $ 96 million of pretax loss for the year ended December 31, 2021.

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

For the year ended December 31, 2023, we incurred $ 19 million of integration-related costs related to the Hillrom acquisition.

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

3 unchanged sentences

See Note 6 for additional information about financing arrangements related to the Hillrom acquisition.

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

years ended December 31 (in millions) 2021 2020

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

year ended December 31 (in millions) 2021

Net sales $ 15,574

2 unchanged sentences

In order to reflect the occurrence of the acquisition as if it occurred on January 1, 2020 as required, the unaudited pro forma combined financial information includes adjustments to reflect incremental depreciation and amortization expense based on the current preliminary fair values of the identifiable tangible and intangible assets acquired, additional interest expense associated with the issuance of debt to finance the acquisition, nonrecurring costs directly attributable to the acquisition and the income tax effects of the pro forma adjustments.

Those nonrecurring costs, which consist of $ 201 million of costs from inventory fair value step-ups and $ 314 million of acquisition-related costs for both Baxter and Hillrom, are reflected in the unaudited pro forma combined financial information for the year ended December 31, 2020.

The unaudited pro forma combined financial information is not necessarily indicative of what the consolidated results of operations would have been had the acquisition been completed on January 1, 2020.

In addition, the unaudited pro forma combined financial information is not a projection of future results of operations of the combined company nor does it reflect the expected realization of any potential synergies or cost savings associated with the acquisition.

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

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

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

1 unchanged sentence

PerClot is an absorbable powder hemostat indicated for use in surgical procedures, including cardiac, vascular, orthopedic, spinal, neurological, gynecological, ENT and trauma surgery as an adjunct hemostat when control of bleeding from capillary, venous, or arteriolar vessels by pressure, ligature, and other conventional means is either ineffective or impractical.

PerClot is approved for distribution in the European Union and other markets and was submitted for Pre-Market Approval (PMA) for distribution in the U.S.

in the fourth quarter of 2021.

PerClot is approved for distribution in the European Union and other markets and was submitted for Pre-Market Approval for distribution in the U.S.

in the fourth quarter of 2021, for which approval was subsequently received in May 2023.

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

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

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

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

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

12 unchanged sentences

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

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

Transderm Scop

On March 31, 2021, we acquired the rights to TDS for the U.S.

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

and specified territories outside of the U.S.

4 unchanged sentences

and motion sickness in European markets.

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

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

The fair value of the potential contingent consideration payment was estimated by applying a probability-weighted expected payment model and is a Level 3 fair value measurement due to the significant estimates and assumptions used by management in establishing the estimated fair value.

13 unchanged sentences

The discount rates used to measure the intangible assets were 22.5 % for developed product rights and 15.5 % for customer relationships.

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

The goodwill, which is deductible for tax purposes, includes the value of overall strategic benefits provided to our pharmaceutical portfolio and is included in the Americas segment.

Seprafilm Adhesion Barrier

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

Seprafilm is indicated for use in patients undergoing abdominal or pelvic laparotomy as an adjunct intended to reduce the incidence, extent and severity of postoperative adhesions between the abdominal wall and the underlying viscera such as omentum, small bowel, bladder, and stomach, and between the uterus and surrounding structures such as tubes and ovaries, large bowel, and bladder.

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

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

(in millions)

Assets acquired

Inventories $ 18

Other intangible assets 296

Total assets acquired $ 342

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

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

Acquisition and integration costs, primarily incremental cost of sales relating to inventory fair value step-ups, associated with the acquisition were $ 15 million for the year ended December 31, 2020.

We allocated $ 286 million and $ 10 million of the total consideration to the Seprafilm developed product rights and customer relationships with useful lives of 10 and 7 years, respectively.

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

The discount rates used to measure the developed product rights and customer relationship intangible assets were 14.8 % and 11.0 %, respectively.

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

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

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

We consider the fair values

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

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

These acquisitions did not materially affect our results of operations.

Excluding Hillrom, we have not presented pro forma financial information for any of the 2022, 2021 or 2020 acquisitions because their results are not material to our consolidated financial statements.

Except for Hillrom, we have not presented pro forma financial information for any of the 2023, 2022 or 2021 acquisitions because their results are not material to our consolidated financial statements.

Other Business Development Activities

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

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

Zosyn is used for the treatment of intra-abdominal infections, nosocomial pneumonia, skin and skin structure infections, female pelvic infections and community-acquired pneumonia.

Under the terms of the acquisition, we paid the acquisition price of $ 122 million and received specified intellectual property, including patent rights, in the first quarter of 2022 and received additional intellectual property, including the product rights to Zosyn, in the first quarter of 2023.

Under the arrangement, we received profit sharing payments from sales of Zosyn until the product rights transferred to us in April 2023.

The related profit sharing payments that were earned during 2023 and 2022 were not material.

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

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

Celerity Pharmaceuticals, LLC

7 unchanged sentences

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

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

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

Zosyn is used for the treatment of intra-abdominal infections, nosocomial pneumonia, skin and skin structure infections, female pelvic infections and community-acquired pneumonia.

Under the terms of the acquisition, we paid the acquisition price of $ 122 million and received specified intellectual property, including patent rights, in the first quarter of 2022 and will receive additional intellectual property, including the product rights to Zosyn, in the first quarter of 2023.

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

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

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

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

Caelyx and Doxil

7 unchanged sentences

Other Asset Acquisitions

During 2020, we acquired the rights to multiple products for $ 73 million.

The purchase prices were capitalized as developed-technology intangible assets and are being amortized over a weighted-average estimated useful life of 11 years.

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

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

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

We could make additional payments of up to $ 32 million upon the achievement of certain development, regulatory or commercial milestones.

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

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

We could make additional payments of up to $ 19 million upon the achievement of certain development and regulatory milestones, in addition to future payments related to contingent commercialization milestones, profit-sharing and royalties.

21 unchanged sentences

Assets held for sale — 50

Derivative assets 51 14

Other 387 368

Prepaid expenses and other current assets $ 892 $ 857

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

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

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

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

In September 2022, we entered into a purchase agreement with a buyer to sell our corporate headquarters in Deerfield, Illinois for $ 52 million, which approximated its net book value.

The related assets were classified as held for sale at that time and were presented within prepaid expenses and other current assets in the accompanying

consolidated balance sheet as of December 31, 2022.

During 2023, the purchase agreement was terminated and the property was taken off the market.

We currently intend to continue using the property as our corporate headquarters for the foreseeable future and the related assets, which became classified as assets held for use upon termination of the purchase agreement, are presented within property, plant and equipment, net in the accompanying consolidated balance sheet as of December 31, 2023.

Property, Plant and Equipment, Net

9 unchanged sentences

Depreciation expense was $ 611 million in 2023, $ 627 million in 2022 and $ 592 million in 2021.

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 if its fair value is determinable without undue cost and effort.

Impairment of Opelika, Alabama Manufacturing Facility

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

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

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

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

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

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

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

Other Impairments of Long-Lived Assets Related to HD Business

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

See further discussion in Note 18, 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 at that time.

Based on the estimated fair value of our HD business, we allocated no goodwill to it, and we determined that a triggering event was present to review the carrying amounts of long-lived assets within the HD business, 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 business, 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 statement of income (loss) for the year ended December 31, 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 within that asset group were determined based on a cost approach.

Significant assumptions used in the determination of those fair values included replacement costs of assets with a similar age and condition.

The fair values of manufacturing equipment and HD equipment leased to customers within that group were determined based on transaction prices of comparable assets.

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.

Other Non-Current Assets

6 unchanged sentences

Investments 194 247

Other 118 129

Other non-current assets $ 1,126 $ 1,109

39 unchanged sentences

Reclassification of cumulative translation loss to earnings — 65 —

Non-marketable investment impairments 52 — —

Other, net ( 5 ) ( 8 ) 2

Other (income) expense, net $ 51 $ 12 $ 41

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

Following the wind down of our operations in Argentina, we determined that the net assets of the related entities were substantially liquidated during the third quarter of 2022.

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

8 unchanged sentences

The following is a reconciliation of goodwill by business segment.

(in millions) Americas EMEA APAC Hillrom Total

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

Reallocation of Goodwill 81 ( 81 ) — — —

Additions 4 1 — 6,785 6,790

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

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

Pharmaceuticals Kidney Care Total

December 31, 2021 $ 2,099 $ 309 $ 224 $ — $ 6,786 $ — $ — $ 9,418

3 unchanged sentences

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

Currency translation and other ( 27 ) ( 4 ) ( 3 ) 46 1 21 28 62

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

December 31, 2023 $ — $ — $ — $ 1,241 $ 3,989 $ 563 $ 721 $ 6,514

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

Change in Reportable Segments

As discussed in Note 18, 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.

Under this new operating model, our business is comprised of four segments:

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 performed goodwill impairment assessments both before and after the reporting unit change and we did not identify any goodwill impairments.

In connection with our November 1, 2023 annual goodwill impairment tests, we determined that no goodwill impairments had occurred.

The fair values of the Front Line Care reporting unit within our Healthcare Systems and Technologies segment and the Chronic Therapies reporting unit within our Kidney Care segment exceeded their

carrying values by approximately 5 % and 6 %, respectively.

We are continuing to closely monitor the performance of those reporting units, and if there is a significant adverse change in our outlook for those businesses in the future, a goodwill impairment could arise at that time.

As of December 31, 2023, the carrying amounts of goodwill for our Front Line Care and Chronic Therapies reporting units were $ 2.42 billion and $ 444 million, respectively.

Goodwill Impairments

As described in Note 3, we acquired Hillrom on December 13, 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.

Our Hillrom segment includes the following three reporting units:

Patient Support Systems, Front Line Care and Surgical Solutions.

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

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

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

During the third quarter of 2022, we performed trigger-based impairment tests of the goodwill of 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.

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

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

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

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

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 intangible asset impairment charges recognized during the third and fourth quarters of 2022.

Other Intangible Assets, Net

2 unchanged sentences

(in millions) Customer relationships Developed technology,

including patents Other amortized

including patents Trade Names Other amortized

intangible assets Trade Names In process Research and Development Total

9 unchanged sentences

The anticipated annual amortization expense for definite-lived intangible assets recorded as of December 31, 2023 is $ 665 million in 2024, $ 632 million in 2025, $ 602 million in 2026, $ 437 million in 2027 and $ 427 million in 2028.

As a result of an update to our long-term branding strategy, we reclassified two trade name intangible assets with carrying amounts of $ 870 million and $ 21 million from indefinite-lived intangible assets to amortizing intangible assets during the fourth quarter of 2023.

The estimated useful lives assigned to those assets were 15 years and 5 years, respectively, and we recognized $ 10 million of amortization expense on those intangible assets from the date of reclassification through December 31, 2023.

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

4 unchanged sentences

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

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

The fair values of the intangible assets were measured using a discounted cash flow approach and the charges are classified within cost of sales in the accompanying consolidated statements of income (loss) for the years ended December 31, 2022 and 2020.

In the fourth quarter of 2022, we recognized an impairment charge of $ 12 million related to developed-technology intangible assets due to declines in market expectations for the related products.

The fair values of the intangible assets were measured using a discounted cash flow approach and the charge is classified within cost of sales in the accompanying consolidated statements of income (loss) for the year ended December 31, 2022.

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

5 unchanged sentences

0.868 % notes due 2023

1.1 % 799 797

Floating-rate notes due 2023 — % — 299

5 unchanged sentences

Floating-rate notes due 2024 5.7 % 300 299

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

Term loan maturing 2024 6.9 % 130 1,664

1.3 % notes due 2025

2 unchanged sentences

2.7 % 748 748

Term loan due 2026 3.1 % 1,643 1,998

Term loan maturing 2026 6.5 % 1,643 1,643

7.65 % debentures due 2027

22 unchanged sentences

Finance leases and other 9.1 % 69 70

Total debt 16,636 17,660

Total debt and finance lease obligations 13,798 16,636

Short-term debt — ( 299 )

3 unchanged sentences

Significant Debt Activity

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

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

Securities Act of 1933.

The exchange offer with respect to the notes due April 2030 was completed in May 2021.

In October 2020, we repaid $ 322 million of variable-rate loans that matured in 2020.

In November 2020, we issued $ 650 million of 1.73 % senior notes due in April 2031 (the November 2020 senior notes).

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

Securities Act of 1933.

The exchange offer with respect to the November 2020 senior notes was completed in May 2021.

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

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

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

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

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

Loans under the Term Loan Facility bear interest at variable rates, are subject to amortization at a quarterly rate of 0.625 % for the first four quarters following the anniversary of our initial borrowing date and 1.25 % thereafter (with loans outstanding under the five-year tranche subject to amortization at a quarterly rate of 1.875 % after the second anniversary of the commencement of amortization and 2.500 % after the third anniversary of the commencement of amortization).

The Term Loan Credit Agreement contains various covenants, including a maximum net leverage ratio.

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

In conjunction with the issuances of the Hillrom notes, we entered into a registration rights agreement in which we agreed to file a registration statement with the SEC with respect to an offer to exchange the Hillrom notes for new issues of notes with the same terms registered under the Securities Act of 1933, as amended.

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

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

(JP Morgan) and Citigroup Global Markets Inc.

(Citi) pursuant to which JP Morgan and Citi committed to provide a 364-day senior unsecured bridge term loan facility in an aggregate principal amount of $ 11.4 billion (the Bridge Facility) for the purpose of funding the consideration for the Hillrom acquisition, repaying certain indebtedness of Hillrom, and paying fees and expenses related to the foregoing.

The Bridge Facility included upfront fees of $ 40 million.

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

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

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

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

In the first half of 2022, we repaid $ 335 million of our $ 2.0 billion three-year term loan facility and $ 355 million of our $ 2.0 billion five-year term loan facility.

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

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

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

In 2023, we repaid our $ 800 million 0.868 % notes due 2023, our $ 300 million floating rate notes due 2023 and $ 1.54 billion under our $ 2.00 billion three-year term loan facility maturing in 2024.

In 2022, we repaid our $ 203 million 2.4 % notes due 2022, $ 335 million under our $ 2.00 billion three-year term loan facility maturing in 2024 and $ 355 million under our $ 2.00 billion five-year term loan facility maturing in 2026.

The losses from our early extinguishments of debt in 2023 and 2022 were not significant.

Credit Facilities

As of December 31, 2023, we had a U.S.

Dollar-denominated term loan credit facility, which had two tranches of term loans outstanding, a U.S.

Dollar-denominated revolving credit facility and a Euro-denominated revolving credit facility.

Borrowings under the term loan credit facility bear interest on the principal amount outstanding at either Term SOFR plus an applicable margin plus a credit spread adjustment or a “base rate” plus an applicable margin.

The term loan credit facility contains various covenants, including a maximum net leverage ratio.

We have the option to prepay outstanding amounts under the term loan credit facility in whole or in part at any time.

Dollar-denominated revolving credit facility has a capacity of $ 2.50 billion and our Euro-denominated revolving credit facility has a capacity of € 200 million.

Fees under the credit facilities are 0.125 % annually as of December 31, 2023 and 2022, and are based on our credit ratings and the total capacity of the facility.

There were no borrowings outstanding under the revolving credit facilities as of December 31, 2023 and 2022.

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

Each of the revolving credit facilities matures in 2026.

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

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

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

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

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

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

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

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

Credit Facilities

On September 30, 2021, we entered into a new U.S.

dollar-denominated revolving credit facility (the USD Revolver), and on October 1, 2021, we amended our existing Euro-denominated revolving credit facility (as amended, the Euro Revolver).

Our USD Revolver has a capacity of $ 2.5 billion and our Euro Revolver has a capacity of € 200 million.

Each of the facilities matures in 2026.

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

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

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

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

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

Based on our covenant calculations as of December 31, 2023 we have capacity to draw on the full amounts under our revolving credit facilities.

We also maintain other credit arrangements, which totaled approximately $ 238 million and $ 230 million as of December 31, 2023 and 2022, respectively.

3 unchanged sentences

Commercial Paper

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

There was no commercial paper outstanding as of December 31, 2023.

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.

Future Debt Maturities

Future Debt and Finance Lease Maturities

as of and for the years ended December 31 (in millions) Debt maturities

Thereafter 5,302

Total obligations and commitments 16,702

Total debt and finance lease maturities 13,855

Discounts, premiums, and adjustments relating to hedging instruments ( 57 )

Total debt $ 16,636

Total debt and finance lease obligations $ 13,798

Lessee Activity

29 unchanged sentences

Right-of-use finance lease assets obtained in exchange for lease obligations 15 3 4

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

Supplemental balance sheet information related to leases as of

December 31, 2022 and 2021 include:

Supplemental balance sheet information related to leases as of December 31, 2023 and 2022 include:

(in millions) 2023 2022

42 unchanged sentences

Net investment in leases $ 71 $ 88

Our net investment in sales-type leases is classified as follows in the accompanying consolidated balance sheets:

(in millions) December 31, 2022 December 31, 2021

Our net investment in sales-type leases is classified as follows in the accompanying consolidated balance sheets as of December 31, 2023 and 2022:

(in millions) 2023 2022

Accounts receivable, net $ 31 $ 35

3 unchanged sentences

Maturities of sales-type and operating leases as of December 31, 2023 were:

(in millions) Sales-type Leases Operating Leases

(in millions) Sales-type Leases 1

Operating Leases

2024 $ 34 $ 80

1 unchanged sentence

Total minimum lease payments $ 71 $ 260

imputed interest ( 1 )

Present value of minimum lease payments $ 87

1 Unamortized imputed interest on minimum lease payments was less than $ 1 million as of December 31, 2023 .

In the third quarter of 2023, we recognized $ 267 million of long-lived asset impairments related to our HD business, which included impairments of $ 14 million of operating lease right-of-use assets and $ 58 million of equipment leased to customers.

See Note 4 for additional information.

COMMITMENTS AND CONTINGENCIES

Refer to Note 2 for information regarding our unfunded contingent payments associated with collaborative and other arrangements.

Refer to Note 3 for information regarding contingent payments associated with collaborative and other arrangements.

Indemnifications

6 unchanged sentences

and (v) contractual indemnities for our directors and certain of our executive officers for services provided to or at the request of us.

In addition, under our Amended and Restated Certificate of Incorporation, and consistent with Delaware General Corporation Law, we have agreed

to indemnify our directors and officers for certain losses and expenses upon the occurrence of certain prescribed events.

In addition, under our Amended and Restated Certificate of Incorporation, and consistent with Delaware General Corporation Law, we have agreed to indemnify our directors and officers for certain losses and expenses upon the occurrence of certain prescribed events.

The majority of these indemnities, commitments and guarantees do not provide for any limitation on the maximum potential for future payments that we could be obligated to make.

4 unchanged sentences

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.

5 unchanged sentences

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, all of which could materially affect future results of operations.

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.

5 unchanged sentences

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

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 December 31, 2023 and 2022, our environmental reserves, which are measured on an undiscounted basis, were $ 15 million and $ 19 million, respectively.

7 unchanged sentences

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

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

Silverman et al.

Baxter International Inc.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In November 2019, we and certain of our officers were named in a class action complaint alleging that we and certain officers violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making allegedly false and misleading statements and failing to disclose material facts relating to certain intra-company transactions undertaken for the purpose of generating foreign exchange gains or avoiding foreign exchange losses, as well as our internal controls over financial reporting.

The parties reached an agreement to settle the case for $ 16 million, which became effective on September 13, 2021 and was paid in 2021.

We also cooperated with the staff of the SEC in connection with its investigation into those matters and, on February 18, 2022, we reached a settlement with the SEC.

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

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

We paid the penalty in the first quarter of 2022.

In the order, the SEC acknowledged Baxter’s cooperation and we paid the penalty in the first quarter of 2022.

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

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 are 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.

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.

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

2 unchanged sentences

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

In July 2021, Hill-Rom, Inc.

received a subpoena (from the United States Office of Inspector General for the Department of Health and Human Services (the DHHS) requesting documents and information related to compliance with the False Claims Act and the Anti-Kickback Statute.

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

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

The 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.

In December 2023, five lawsuits were filed against us in the Circuit Court of Cook County, Illinois by plaintiffs alleging injuries as a result of exposure to ethylene oxide used by several companies, including us at our manufacturing facility in Round Lake, Illinois to sterilize certain of our products.

The plaintiffs seek damages in an unspecified amount.

We acquired Hillrom on December 13, 2021.

In July 2021, Hill-Rom, Inc., a wholly-owned subsidiary of Hillrom, received a subpoena from the United States Office of Inspector General for the Department of Health and Human Services (the DHHS) requesting documents and information related to compliance with the False Claims Act and the Anti-Kickback Statute.

The subpoena was related to a lawsuit brought under the qui tam provisions of False Claims Act.

The allegations included in the unsealed complaint relate to conduct prior to our acquisition of Hillrom, and the division involved is no longer operational.

Hillrom voluntarily began a related internal review and Hillrom and Baxter cooperated fully with the DHHS and the Department of Justice (DOJ) with respect to this matter.

In January 2024, the parties reached agreement to settle the allegations.

We paid the settlement amounts, which were not material to our financial results, in January 2024.

A stipulated request for dismissal has been filed and is pending before the court.

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

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

Baxter is cooperating fully with the DOJ in responding to the CID.

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

6 unchanged sentences

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

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

Hillrom filed an answer to the complaint on January 28, 2022 and filed a motion challenging certain aspects of plaintiff's case on May 27, 2022, which was denied on January 17, 2024, subject to further discovery.

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

Kelley et al.

Baxter International Inc.

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

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

The plaintiff alleged 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.

This matter was voluntarily dismissed on December 3, 2023.

STOCKHOLDERS' EQUITY

6 unchanged sentences

The related tax benefit recognized was $ 14 million in 2023, $ 34 million in 2022 and $ 36 million in 2021.

Included in the benefit in 2022, 2021 and 2020 were realized excess tax benefits for stock-based compensation of $ 5 million, $ 13 million and $ 27 million, respectively.

Stock compensation expense is recorded at the corporate level and is not allocated to the segments.

the benefit in 2023 was tax expense for stock-based compensation shortfalls of $ 11 million.

Included in the benefit in 2022 and 2021 were realized excess tax benefits for stock-based compensation of, $ 5 million and $ 13 million, respectively.

Approximately 70 % of stock compensation expense is classified in SG&A expenses, with the remainder classified in cost of sales and R&D expenses.

46 unchanged sentences

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

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

PSUs awarded after 2019 were based on our compound annual sales growth rate (CAGR) performance, our adjusted return on invested capital (ROIC) performance and on our stock performance relative to our peer group.

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

21 unchanged sentences

The employee purchase price is 85 % of the closing market price on the purchase date.

The Baxter International Inc.

Employee Stock Purchase Plan provides for 20 million shares of common stock available for issuance to eligible participants, of which approximately 10 million shares were available for future purchases as of December 31, 2022.

As of December 31, 2023, approximately 9 million shares of common stock were available for issuance to eligible participants.

During 2023, 2022, and 2021, we issued approximately 1.4 million, 0.9 million and 0.7 million shares, respectively, under the employee stock purchase plan.

Stock Options Award Modification

In the first quarter of 2020, we modified the terms of stock option awards granted to 123 employees.

Specifically, we extended the term for certain stock options that were scheduled to expire in the first quarter of 2020 as applicable employees were not permitted to exercise these awards due to our announcement in February 2020 that our previously issued financial statements should no longer be relied upon.

The stock options were extended in order to allow impacted employees to exercise their stock option awards for a brief period once we became current with our SEC reporting obligations, which occurred in March 2020.

As a result of the modifications, we recognized an additional $ 8 million of stock compensation expense during the first quarter of 2020.

Cash Dividends

Total cash dividends declared per share for 2023, 2022, and 2021 were $ 1.16 , $ 1.15 and $ 1.085 , respectively.

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

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

A quarterly dividend of $ 0.29 per share ($ 1.16 on an annualized basis) was declared in February, May and July of 2023 and was paid in April, July and October of 2023, respectively.

Our Board of Directors declared a quarterly dividend of $ 0.29 per share in November of 2023, which was paid in January of 2024.

1 unchanged sentence

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

In July 2012, the Board of Directors authorized the repurchase of up to $ 2.0 billion of our common stock.

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

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

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

We did not repurchase any shares under this authority in 2023.

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

We had $ 1.30 billion of purchase authority available as of December 31, 2023.

2 unchanged sentences

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

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

The following table is a net-of-tax summary of the changes in AOCI by component for the years ended December 31, 2023 and 2022.

8 unchanged sentences

(in millions) CTA Pension and OPEB plans Hedging

activities Total

activities Available-for-sale debt securities Total

Gains (losses)

10 unchanged sentences

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

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

( 185 ) ( 65 )

Tax effect — — Income tax expense (benefit)

$ ( 185 ) $ ( 65 )

Pension and OPEB items

1 unchanged sentence

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

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

20 ( 31 ) Total before tax

4 unchanged sentences

Interest rate contracts ( 6 ) ( 6 ) Interest expense, net

Fair value hedges ( 3 ) — Other (income) expense, net

7 20 Total before tax

6 unchanged sentences

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

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

Net trade accounts receivable was $ 2.43 billion and $ 2.34 billion as of December 31, 2023 and 2022.

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

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

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

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

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

6 unchanged sentences

Contract assets $ 166 $ 174

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

as of December 31 (in millions) 2022 2021

Prepaid expenses and other current assets $ 93 $ 84

Other non-current assets 122 111

Contract assets $ 215 $ 195

Accrued expenses and other current liabilities $ 164 $ 162

Other non-current liabilities 80 84

Contract liabilities $ 244 $ 246

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

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

We expect to satisfy the majority of the remaining performance

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

The following table summarizes contract liability activity for the year ended December 31, 2022.

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 years ended December 31, 2023 and 2022.

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

6 unchanged sentences

In 2023 and 2022, $ 127 million and $ 115 million of revenue was recognized that was included in contract liabilities as of December 31, 2022 and 2021, respectively.

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

In 2021, $ 17 million of revenue was recognized that was included in contract liabilities as of December 31, 2020.

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

as of December 31 (in millions) 2023 2022

Prepaid expenses and other current assets $ 53 $ 52

Other non-current assets 113 122

Contract assets $ 166 $ 174

Accrued expenses and other current liabilities $ 148 $ 154

Other non-current liabilities 46 40

Contract liabilities $ 194 $ 194

Disaggregation of Net Sales

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

Patient Support Systems, Front Line Care and Surgical Solutions.

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

and international:

2022 2021 2020

years ended December 31 (in millions) U.S.

International Total U.S.

International Total

$ 945 $ 2,803 $ 3,748 $ 890 $ 3,010 $ 3,900 $ 848 $ 2,909 $ 3,757

Medication Delivery 2

1,889 997 2,886 1,859 1,021 2,880 1,738 953 2,691

Pharmaceuticals 3

682 1,444 2,126 753 1,538 2,291 849 1,249 2,098

Clinical Nutrition 4

352 579 931 343 621 964 330 580 910

Advanced Surgery 5

574 424 998 545 432 977 516 370 886

Acute Therapies 6

241 460 701 287 495 782 286 454 740

BioPharma Solutions 7

305 339 644 273 396 669 234 252 486

Patient Support Systems 8

1,150 337 1,487 86 29 115 — — —

Front Line Care 9

840 308 1,148 51 19 70 — — —

Surgical Solutions 10

145 159 304 12 15 27 — — —

100 40 140 81 28 109 77 28 105

Total Baxter $ 7,223 $ 7,890 $ 15,113 $ 5,180 $ 7,604 $ 12,784 $ 4,878 $ 6,795 $ 11,673

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

2 Medication Delivery includes sales of our 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 (PN) 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 BioPharma Solutions includes sales of contracted services we provide to various pharmaceutical and biopharmaceutical companies.

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

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

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

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

11 Other includes sales of miscellaneous product and service offerings.

Refer to Note 18 for additional information on our net sales including the disaggregation of net sales within each of our segments and net sales by geographic location.

BUSINESS OPTIMIZATION CHARGES

1 unchanged sentence

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

From the commencement of our business optimization activities in the second half of 2015 through December 31, 2022, we have incurred cumulative pre-tax costs of approximately $ 1.4 billion related to these actions.

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

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

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

We currently expect to incur additional pre-tax cash costs, primarily related to the implementation of business optimization programs, of approximately $ 50 million through the completion of initiatives that are currently underway.

We continue to pursue cost savings initiatives, including those intended to mitigate a portion of the dis-synergies expected to arise as a result of the proposed spinoff of our Kidney Care business, and to the extent further cost savings opportunities are identified, we would incur additional restructuring charges and costs to implement business optimization programs in future periods.

For segment reporting, business optimization charges are unallocated expenses.

We recorded the following charges related to business optimization programs in 2023, 2022, and 2021:

3 unchanged sentences

Total business optimization charges $ 534 $ 225 $ 114

For segment reporting, business optimization charges are unallocated expenses.

1 Costs to implement business optimization programs for the years ended December 31, 2023, 2022 and 2021, respectively, consisted primarily of external consulting and transition costs, including employee compensation and related costs.

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

The costs were primarily included within cost of sales and SG&A expenses.

The costs of restructuring actions consisted primarily of employee termination costs, contract termination costs and asset impairments.

During the years ended December 31, 2023, 2022 and 2021, we recorded the following restructuring charges:

14 unchanged sentences

Total restructuring charges $ 53 $ 37 $ 1 $ 91

For the year ended December 31, 2023, $ 111 million of the restructuring charges reflected 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 year ended December 31, 2023, $ 267 million of the restructuring charges reflected in the table above, consisting of $ 243 million of long-lived asset impairment charges, $ 14 million of other asset write-downs related to inventory and spare parts and $ 10 million of employee termination costs, were related to our decision to cease production at one of our dialyzer manufacturing facilities in connection with our initiatives to streamline our manufacturing footprint and improve our profitability.

See Note 4 for additional information.

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

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

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

For the year ended December 31, 2021, $ 37 million and $ 12 million, respectively, of restructuring charges reflected in the table above, consisting of employee termination costs, were related to global programs to simplify and streamline our supply chain and finance functions.

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

1 unchanged sentence

Liability balance as of December 31, 2020 $ 113

Assumed in acquisition 6

Payments ( 78 )

2 unchanged sentences

Liability balance as of December 31, 2021 109

Assumed in acquisition 6

Payments ( 145 )

12 unchanged sentences

We also sponsor certain unfunded contributory healthcare and life insurance benefits for substantially all domestic retired employees.

Newly hired employees in the United States and Puerto Rico are not eligible to participate in the pension plans but receive a higher level of company contributions in the defined contribution plans.

Newly hired employees in the United States and Puerto Rico are not eligible to participate in the pension plans but receive a higher level of company contributions in our defined contribution plans.

Reconciliation of Pension and Other Postretirement Benefit Plan Obligations, Assets and Funded Status

32 unchanged sentences

Actuarial gains and losses result from changes in actuarial assumptions (such as changes in the discount rate and revised mortality rates).

Actuarial gains in 2022 and losses in 2021 related to plan benefit obligations were primarily the result of changes in discount rates.

Actuarial losses in 2023 and gains in 2022 related to plan benefit obligations were primarily the result of changes in discount rates.

The pension obligation information in the table above represents the projected benefit obligation (PBO).

36 unchanged sentences

Amortization of loss to earnings, net of tax of $( 5 ) in 2023, $ 6 in 2022 and $ 16 in 2021

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

Settlement charges, net of tax of zero in 2023, 2022 and 2021

Pension and other employee benefits $ 121 $ 16 $ 227

14 unchanged sentences

Amortization of net losses and prior service credit ( 24 ) ( 14 ) ( 9 )

Curtailment gain ( 1 ) — —

Net periodic OPEB cost $ ( 17 ) $ ( 9 ) $ ( 4 )

69 unchanged sentences

Fixed income securities

Cash and cash equivalents $ 371 $ 74 $ 297 $ — $ —

Cash equivalents $ 399 $ — $ 399 $ — $ —

government and government agency issues 96 — 96 — —

15 unchanged sentences

Fixed income securities

Cash and cash equivalents $ 368 $ 50 $ 318 $ — $ —

Cash equivalents $ 297 $ — $ 297 $ — $ —

government and government agency issues 46 — 46 — —

11 unchanged sentences

Balance at December 31, 2021 $ 9

Balance at December 31, 2021 9

Transfers out ( 1 )

Balance at December 31, 2022 8

Balance at December 31, 2023 $ 157

1 Purchases in 2023 included $ 148 million for an insurance contract buy-in related to our pension plan in the United Kingdom.

The assets and liabilities of our pension plans are valued using the following valuation methods:

Investment category Valuation methodology

Cash and cash equivalents These largely consist of a short-term investment fund, U.S.

Cash equivalents These largely consist of a short-term investment fund, U.S.

Dollars and foreign currency.

6 unchanged sentences

Partnership investments Values are based on the net asset value of the participation by us in the investment as determined by the general partner or investment manager of the respective partnership.

Other holdings The value of these assets vary by investment type, but primarily are determined by reputable pricing vendors, who use pricing matrices or models that use observable inputs.

Collateral held on loaned securities Values are based on the net asset value per unit of the fund in which the collateral is invested.

Collateral to be paid on loaned securities Values are based on the fair value of the underlying securities loaned on the valuation date.

Other holdings Other holdings includes assets valued by pricing vendors using pricing matrices or models that use observable inputs and an insurance contract held by our pension plan in the United Kingdom, which is measured using a discounted cash flow model.

In addition to observable market inputs such as interest rates, the fair value measurement of the insurance contract also reflects unobservable inputs, such as qualitative judgments about pricing of similar contracts in the insurance market.

Expected Pension and OPEB Plan Funding

1 unchanged sentence

Volatility in the global financial markets could have an unfavorable impact on future funding requirements.

We have no obligation to fund our principal plans in the United States and Puerto Rico in 2023.

We continually reassess the amount and timing of any discretionary contributions.

In 2023, we expect to make contributions of at least $ 43 million to our foreign pension plans.

We expect to have net cash outflows relating to our OPEB plans of approximately $ 18 million in 2023.

In 2024, we have no obligation to fund our principal plans in the United States, but we regularly reassess the amount and timing of any discretionary contributions.

Conversely, we do expect to make contributions of at least $ 18 million to our Puerto Rico plan and $ 48 million to our foreign pension plans in 2024.

Additionally, we expect to have net cash outflows relating to our OPEB plans of approximately $ 17 million in 2024.

The following table details the funded status percentage of our pension plans as of December 31, 2023, including certain plans that are unfunded in accordance with the guidelines of our funding policy outlined above.

6 unchanged sentences

Funded status percentage 88 % n/a 111 % n/a 80 %

Pension Settlement Transactions

In October 2020, we offered certain former U.S.

employees with vested pension benefits a limited-time option to take a lump sum distribution in lieu of future monthly payments.

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

Payments from plan assets to participants who

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

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

Pension Plan Amendments

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

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

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

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

This change resulted in an $ 11 million decline in the projected benefit obligation (PBO) with an offsetting curtailment gain included within other (income) expense, net on the consolidated statements of income (loss) for the year ended December 31, 2022.

This change resulted in an $ 11 million decline in the

projected benefit obligation (PBO) with an offsetting curtailment gain included within other (income) expense, net on the consolidated statements of income (loss) for the year ended December 31, 2022.

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

9 unchanged sentences

International 1,563 1,181 1,621

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

Income (loss) from continuing operations before income taxes $ ( 103 ) $ ( 2,650 ) $ 1,116

Income Tax Expense (Benefit)

32 unchanged sentences

federal and state operating loss and tax credit carryforwards expire between 2024 and 2043, with $ 165 million of the operating loss carryforwards having no expiration date.

At December 31, 2022, with respect to our operations outside the U.S., we had foreign operating loss carryforwards totaling $ 1.2 billion and foreign tax credit carryforwards totaling $ 15 million.

At December 31, 2023, with respect to our operations outside the U.S., we had foreign operating loss carryforwards totaling $ 698 million and foreign tax credit carryforwards totaling $ 15 million.

The foreign operating loss carryforwards expire between 2024 and 2040 with $ 432 million having no expiration date.

7 unchanged sentences

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

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

foreign tax credit deferred tax assets up to its recurring and non-recurring foreign inclusions.

Therefore, a valuation allowance of $ 130 million and $ 119 million was recognized with respect to the foreign tax credit carryforwards as of December 31, 2023 and 2022, respectively.

5 unchanged sentences

For the year ended December 31, 2023, we recognized $ 9 million of deferred tax expense to increase our valuation allowance to reflect our current estimate of its recoverability.

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

GAAP basis of tangible and intangible assets and liabilities to fair market value which is in excess of the assets’ historical tax bases.

The following table is a summary of changes in our deferred tax valuation allowance for the years ended December 31, 2023, 2022 and 2021.

years ended December 31 (in millions) 2023 2022 2021

Balance at beginning of period $ 704 $ 401 $ 454

Acquisition — — 38

Divestiture ( 5 ) — —

Charged to income tax expense 90 315 37

Deductions ( 135 ) ( 1 ) ( 98 )

Currency translation adjustments 4 ( 11 ) ( 30 )

Balance at end of period $ 658 $ 704 $ 401

Income Tax Expense (Benefit) Reconciliation

8 unchanged sentences

Non-deductible goodwill impairments — 591 —

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

Non-deductible separation-related costs 26 — —

Notional interest deduction expense (benefit) 31 ( 306 ) ( 97 )

Valuation allowances ( 45 ) 314 ( 61 )

Stock compensation windfall tax benefits ( 5 ) ( 13 ) ( 27 )

Stock compensation (windfall) shortfall tax expense (benefit) 11 ( 5 ) ( 13 )

Research and development tax credits ( 21 ) ( 10 ) ( 4 )

Uncertain tax positions 5 ( 13 ) 14

Unutilized foreign tax credits 20 43 13

Subpart F income 26 11 10

Foreign tax credits ( 9 ) 6 ( 2 )

Other, net — 24 30

1 unchanged sentence

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

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

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

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

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

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

In 2023, our effective income tax rate was impacted favorably by geographic earnings mix, which was impacted by the long-lived asset impairments we recognized during 2023, a $ 50 million net tax benefit after related valuation allowances from notional interest deductions that are received by certain wholly-owned foreign subsidiaries that have financed their operations with equity capital and a $ 21 million tax benefit related to research and development tax credits, partially offset by non-deductible separation-related costs and tax shortfalls on stock compensation awards.

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

Those items were partially offset by a $ 47 million net tax benefit after related valuation allowances from notional interest deductions.

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

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

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

We plan to repatriate our foreign earnings with the exception of approximately $ 505 million of accumulated earnings that are indefinitely reinvested as of December 31, 2023 related to two of our foreign operations.

5 unchanged sentences

Net interest and penalties recognized were not significant during 2023, 2022 and 2021.

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

December 31, 2022 and 2021, respectively.

The liability recognized related to interest and penalties was $ 23 million and $ 16 million as of December 31, 2023 and 2022, respectively.

The total amount of gross unrecognized tax benefits that, if recognized, would impact the effective tax rate are $ 57 million, $ 33 million and $ 39 million as of December 31, 2023, 2022 and 2021, respectively.

16 unchanged sentences

Examinations of Tax Returns

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

As of December 31, 2023, we had ongoing audits in the United States, Germany, Italy and other jurisdictions.

During 2022, we closed U.S.

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

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

Tax years 2019 and 2020 remain under examination by the IRS and tax years 2012 and forward remain

under examination by various foreign taxing authorities.

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

3 unchanged sentences

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

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

years ended December 31(in millions) 2023 2022 2021

Income (loss) from continuing operations $ ( 69 ) $ ( 2,654 ) $ 1,033

Net income attributable to noncontrolling interests 7 12 11

Income (loss) from continuing operations attributable to Baxter stockholders ( 76 ) ( 2,666 ) 1,022

Income from discontinued operations 2,732 233 262

Net income (loss) attributable to Baxter stockholders $ 2,656 $ ( 2,433 ) $ 1,284

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

3 unchanged sentences

Diluted shares 506 504 508

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

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

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

Basic and diluted shares are the same for the years ended December 31, 2023 and 2022 due to our net losses from continuing operations for those periods.

The effect of dilutive securities for the year ended December 31, 2021 includes unexercised stock options, unvested RSUs and contingently issuable shares related to granted PSUs.

The computation of diluted EPS excluded 25 million, 22 million, and 7 million equity awards in 2023, 2022, and 2021, respectively, because their inclusion would have had an anti-dilutive effect on diluted EPS.

2 unchanged sentences

Accounts Receivable Sales

For accounts receivable originated in Japan, we have entered into agreements with financial institutions in which the entire interest in and ownership of the receivable is sold.

For accounts receivable originated in Japan, we have entered into agreements with a financial institution in which the entire interest in and ownership of the receivable is sold.

We continue to service the receivables in this arrangement.

Servicing assets or liabilities are not recognized because we receive adequate compensation to service the sold receivables.

The Japanese arrangement includes limited recourse provisions, which are not material.

The following is a summary of the activity relating to the arrangement.

11 unchanged sentences

Global economic conditions, governmental actions and customer-specific factors may require us to re-evaluate the collectability of our receivables and we could potentially incur additional credit losses.

These conditions may also impact the stability of the Euro.

Foreign Currency and Interest Rate Risk Management

1 unchanged sentence

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

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

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

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

4 unchanged sentences

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

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

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

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

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

9 unchanged sentences

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

In October 2023, we entered into a foreign currency forward contract with a notional amount of $ 798 million maturing in May 2024 and designated that derivative as a fair value hedge of our € 750 million of 0.40 % senior notes due May 2024.

Net Investment Hedges

In May 2017, we issued € 600 million of 1.3 % senior notes due May 2025.

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

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

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

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

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

In October 2023, we dedesignated this previously designated net investment hedge and concurrently entered into a fair value hedging relationship as discussed in the “Fair Value Hedges” section above.

As of December 31, 2023, we had an accumulated pre-tax unrealized translation gain in AOCI of $ 37 million related to the Euro-denominated senior notes.

4 unchanged sentences

There were no cash flow hedge dedesignations in 2023, 2022 or 2021 resulting from changes in our assessment of the probability that the hedged forecasted transactions would occur.

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

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

2 unchanged sentences

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

In October 2023, we dedesignated one of our net investment hedges as discussed in the "Net Investment Hedges" section above.

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

13 unchanged sentences

Foreign exchange contracts 16 28 5 Cost of sales 16 26 ( 23 )

Fair value hedges

Foreign exchange contracts ( 4 ) — — Other (income) expense, net ( 3 ) — —

Net investment hedges ( 58 ) 141 200 Other (income) expense, net — — —

3 unchanged sentences

(in millions) 2023 2022 2021

Fair value hedges

Foreign exchange contracts Other (income) expense, net $ 38 $ — $ —

Undesignated derivative instruments

Foreign exchange contracts Other (income) expense, net 2 ( 30 ) ( 36 )

Total $ 40 $ ( 30 ) $ ( 36 )

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

4 unchanged sentences

Accumulated other comprehensive income (loss) balance at end of year $ ( 120 ) $ ( 119 ) $ ( 126 )

As of December 31, 2022, less than $ 1 million of deferred, net after-tax gains on derivative instruments included in AOCI are expected to be recognized in earnings during the next 12 months, coinciding with when the hedged items are expected to impact earnings.

As of December 31, 2023, $ 6 million of deferred, net after-tax losses on derivative instruments included in AOCI are expected to be recognized in earnings during the next 12 months, coinciding with when the hedged items are expected to impact earnings.

Derivative Assets and Liabilities

5 unchanged sentences

Prepaid expenses and other current assets $ 47 Accrued expenses and other current liabilities $ —

Total derivative instruments designated as hedges 8 5

Undesignated derivative instruments

8 unchanged sentences

Prepaid expenses and other current assets $ 8 Accrued expenses and other current liabilities $ 5

Total derivative instruments designated as hedges 6 3

Undesignated derivative instruments

47 unchanged sentences

Total $ 96 $ — $ 12 $ 84

As of December 31, 2022 and 2021, cash and cash equivalents of $ 1.7 billion and $ 3.0 billion, respectively, included money market and other short-term funds of approximately $ 341 million and $ 816 million, respectively, which are considered Level 2 in the fair value hierarchy.

As of December 31, 2023 and 2022, cash and cash equivalents of $ 3.19 billion and $ 1.72 billion, respectively, included money market and other short-term funds of approximately $ 1.63 billion and $ 341 million, respectively, that 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.

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

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

The key inputs, which are considered observable and vary depending on the type of derivative, include contractual terms, interest rate yield curves, foreign exchange rates and volatility.

2 unchanged sentences

The fair values of available-for-sale debt securities increase when interest rates decrease, equity volatility increases, or the fair values of the equity shares underlying the conversion options increase.

Contingent payments related to acquisitions, which consist of milestone payments and sales-based payments, are valued using discounted cash flow techniques.

The fair value of milestone payments reflects management’s expectations of probability of payment, and increases as the probability of payment increases or the expected timing of payments is accelerated.

The fair value of sales-based payments is based upon probability-weighted future

revenue estimates, and increases as revenue estimates increase, probability weighting of higher revenue scenarios increases or the expected timing of payment is accelerated.

Contingent payments related to acquisitions, which consist of milestone payments and sales-based payments, are valued using discounted cash flow techniques incorporating management's expectations of future outcomes.

The fair value of milestone payments increases as the estimated probability of payment increases or the expected timing of payments is accelerated.

The fair value of sales-based payments is based upon probability-weighted future revenue estimates, and increases as revenue estimates increase, probability weighting of higher revenue scenarios increases or the expected timing of payment is accelerated.

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

as of and for the years ended December 31 (in millions) Contingent payments related to acquisitions Available-for-sale debt securities Contingent payments related to acquisitions

as of and for the years ended December 31 (in millions) Contingent payments related to acquisitions Available-for-sale debt securities Contingent payments related to acquisitions Available-for-sale debt securities

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

5 unchanged sentences

Fair value at end of period $ 14 $ 22 $ 84 $ 47

During the year ended December 31, 2022, $ 10 million of available-for-sale debt securities were reclassified from Level 3, including $ 8 million that converted to marketable equity securities, which are classified as Level 1 in the fair value hierarchy, upon the initial public offering of the investee.

During the years ended December 31, 2023 and 2022, available-for-sale debt securities were reclassified from Level 3, upon conversion to marketable equity securities, which are classified as Level 1 in the fair value hierarchy, upon initial public offerings of the investees.

Financial Instruments Not Measured at Fair Value

10 unchanged sentences

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

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

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

The carrying values of equity investments without readily determinable fair values that we measure at cost, less impairment were $ 66 million and $ 104 million at December 31, 2023 and 2022, respectively.

2 unchanged sentences

SEGMENT INFORMATION

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

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

The Americas, EMEA and

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

sterile IV solutions;

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 reportable segments were previously comprised of the following geographic segments related to our legacy Baxter business:

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

Under this new operating model, our business is comprised of four segments:

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 PD, HD, 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).

For the period from our acquisition of Hillrom on December 13, 2021 through December 31, 2021, we previously included all costs incurred by the Hillrom business within that segment, including $ 127 million related to the types of costs described in the preceding sentence that are maintained at Corporate for our legacy Baxter segments.

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

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

Financial information for our segments is as follows:

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

Americas $ 6,710 $ 6,666 $ 6,321

EMEA 2,879 3,115 2,877

APAC 2,585 2,791 2,475

Hillrom 2,939 212 —

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

Operating income (loss):

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

EMEA 607 632 523

APAC 623 623 591

Hillrom 730 ( 80 ) —

Total segment operating income $ 4,344 $ 3,787 $ 3,503

Depreciation Expense:

Americas $ 236 $ 257 $ 249

EMEA 134 147 150

APAC 103 98 94

Hillrom 95 4 —

Corporate and other 82 86 108

Total depreciation expense $ 650 $ 592 $ 601

Capital expenditures:

Americas $ 339 $ 394 $ 380

EMEA 125 156 157

APAC 81 82 103

Hillrom 65 5 —

Corporate and other 78 72 84

Total capital expenditures $ 688 $ 709 $ 724

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

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

Total segment operating income $ 4,344 $ 3,787 $ 3,503

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

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

Net interest expense 395 192 134

Other (income) expense, net 15 41 190

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

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

for the years ended December 31 2023 2022 2021

(in millions) U.S.

International Total U.S.

International Total

Infusion Therapies and Technologies

$ 2,227 $ 1,733 $ 3,960 $ 2,241 $ 1,576 $ 3,817 $ 2,202 $ 1,642 $ 3,844

Advanced Surgery

582 469 1,051 574 424 998 545 432 977

Medical Products and Therapies 2,809 2,202 5,011 2,815 2,000 4,815 2,747 2,074 4,821

Care and Connectivity Solutions

1,263 537 1,800 1,295 496 1,791 98 44 142

Front Line Care

905 308 1,213 840 308 1,148 51 19 70

Healthcare Systems and Technologies

2,168 845 3,013 2,135 804 2,939 149 63 212

Injectables and Anesthesia

759 588 1,347 682 623 1,305 753 637 1,390

Drug Compounding — 902 902 — 821 821 — 901 901

Pharmaceuticals 759 1,490 2,249 682 1,444 2,126 753 1,538 2,291

Chronic Therapies 1

927 2,756 3,683 923 2,791 3,714 869 2,993 3,862

Acute Therapies 1

271 499 770 263 472 735 308 512 820

Kidney Care 1,198 3,255 4,453 1,186 3,263 4,449 1,177 3,505 4,682

66 21 87 137 40 177 112 28 140

Total Baxter $ 7,000 $ 7,813 $ 14,813 $ 6,955 $ 7,551 $ 14,506 $ 4,938 $ 7,208 $ 12,146

1 In connection with our segment change in the third quarter of 2023, we reclassified $ 16 million of sales from the first half of 2023, $ 34 million of sales for the year ended December 31, 2022 and $ 38 million of sales for the year ended December 31, 2021 from Chronic Therapies to Acute Therapies to conform to the current period presentation.

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, $ 37 million of sales for the year ended December 31, 2022 and $ 31 million of sales for the year ended December 31, 2021 from BPS to Other (within continuing operations), as the related manufacturing facility was not part of that divestiture transaction.

Geographic Information

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

for the years ended December 31 (in millions) 2023 2022 2021

United States $ 7,000 $ 6,955 $ 4,938

Latin America and Canada 1,429 1,249 1,191

EMEA 3,709 3,552 3,129

APAC 2,752 2,803 2,475

Emerging markets 1

3,319 3,222 3,012

Rest of world 2

4,494 4,329 4,196

Total net sales $ 14,813 $ 14,506 $ 12,146

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.

Our property, plant and equipment and operating lease right-of-use assets, net are attributed to the following geographic regions.

as of December 31 (in millions) 2023 2022

1 unchanged sentence

United States $ 1,995 $ 2,011

EMEA 1,452 1,576

Latin America and Canada 929 917

Emerging markets 1,485 1,492

Rest of world 1,477 1,733

Total property, plant and equipment and operating lease right-of-use assets, net $ 4,957 $ 5,236

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.

for the years ended December 31 (in millions) 2023 2022 2021

Medical Products and Therapies $ 972 $ 962 $ 955

Healthcare Systems and Technologies 483 494 60

Pharmaceuticals 401 391 523

Kidney Care 300 408 488

Other 18 77 59

Total 2,174 2,332 2,085

Unallocated corporate costs ( 51 ) ( 54 ) ( 49 )

Intangible asset amortization expense ( 652 ) ( 753 ) ( 298 )

Business optimization items ( 534 ) ( 225 ) ( 114 )

European Medical Devices Regulation ( 48 ) ( 48 ) ( 42 )

Long-lived asset impairments ( 267 ) ( 344 ) —

Separation-related costs ( 225 ) ( 7 ) —

Legal matters ( 7 ) — ( 13 )

Acquisition and integration items — ( 213 ) ( 188 )

Product-related items — ( 44 ) —

Loss on product divestiture arrangement — ( 54 ) —

Goodwill impairments — ( 2,812 ) —

Loss on subsidiary liquidation — ( 21 ) —

Investigation and related costs — — ( 31 )

Total operating income (loss) 390 ( 2,243 ) 1,350

Interest expense, net 442 395 193

Other (income) expense, net 51 12 41

Loss from continuing operations before income taxes $ ( 103 ) $ ( 2,650 ) $ 1,116

Additional financial information for our segments is as follows:

for the years ended December 31 (in millions) 2023 2022 2021

Depreciation Expense 1 :

Medical Products and Therapies $ 202 $ 204 $ 213

Healthcare Systems and Technologies 91 95 3

Pharmaceuticals 41 57 71

Kidney Care 277 271 282

Total depreciation expense $ 611 $ 627 $ 569

1 Depreciation expense related to Corporate property, plant and equipment has been fully allocated to our segments and those allocations are reflected in the depreciation amounts presented herein.

Our chief operating decision maker does not receive asset or capital expenditure information by segment and, accordingly, we do not report that information for our segments.

QUARTERLY FINANCIAL DATA (UNAUDITED)

The following table represents data from our unaudited consolidated statements of operations for the most recent eight quarters.

This quarterly information has been prepared on the same basis as the consolidated financial statements and includes all normal recurring adjustments necessary to fairly state the information for the periods

The results of operations of any quarter are not necessarily indicative of the results that may be expected for any future period.

(in millions, except per share data) First

Quarter Second Quarter 2

Fourth Quarter Full Year 1

Net sales $ 3,513 $ 3,707 $ 3,708 $ 3,885 $ 14,813

Gross margin 1,275 1,111 1,117 1,472 4,975

Income (loss) from continuing operations — ( 193 ) 51 73 ( 69 )

Income (loss) from discontinued operations 45 54 2,460 173 2,732

Net income (loss) 45 ( 139 ) 2,511 246 2,663

Net income (loss) attributable to Baxter stockholders 44 ( 141 ) 2,508 245 2,656

Income (loss) from continuing operations per common share

Basic $ 0.00 $ ( 0.39 ) $ 0.09 $ 0.14 $ ( 0.15 )

Diluted $ 0.00 $ ( 0.39 ) $ 0.09 $ 0.14 $ ( 0.15 )

Income (loss) from discontinued operations per common share

Basic $ 0.09 $ 0.11 $ 4.85 $ 0.34 $ 5.40

Diluted $ 0.09 $ 0.11 $ 4.83 $ 0.34 $ 5.40

Net Income (loss) per common share

Basic $ 0.09 $ ( 0.28 ) $ 4.95 $ 0.48 $ 5.25

Diluted $ 0.09 $ ( 0.28 ) $ 4.93 $ 0.48 $ 5.25

(in millions, except per share data) First

Quarter Second Quarter Third

Fourth Quarter Full Year 1

Net sales $ 3,558 $ 3,594 $ 3,609 $ 3,745 $ 14,506

Gross margin 1,262 1,371 1,045 1,388 5,066

Income (loss) from continuing operations 8 185 ( 2,991 ) 144 ( 2,654 )

Income from discontinued operations 65 70 57 41 233

Net income (loss) 73 255 ( 2,934 ) 185 ( 2,421 )

Net income (loss) attributable to Baxter stockholders 71 252 ( 2,937 ) 181 ( 2,433 )

Income (loss) from continuing operations per common share

Basic $ 0.01 $ 0.36 $ ( 5.94 ) $ 0.28 $ ( 5.29 )

Diluted $ 0.01 $ 0.36 $ ( 5.94 ) $ 0.28 $ ( 5.29 )

Income from discontinued operations per common share

Basic $ 0.13 $ 0.14 $ 0.11 $ 0.08 $ 0.46

Diluted $ 0.13 $ 0.14 $ 0.11 $ 0.08 $ 0.46

Net Income (loss) per common share

Basic $ 0.14 $ 0.50 $ ( 5.83 ) $ 0.36 $ ( 4.83 )

Diluted $ 0.14 $ 0.50 $ ( 5.83 ) $ 0.36 $ ( 4.83 )

1 The sum of per share amounts for quarterly periods may not equal full year amounts due to rounding.

2 Our results from continuing operations for the quarter ended June 30, 2023 included $ 243 million of long-lived asset impairment charges resulting from our decision to cease production at one of our dialyzer manufacturing facilities.

3 Our results from continuing operations for the quarter ended September 30, 2023 included $ 267 million of long-lived asset impairment charges related to our HD business and our results from discontinued operations for that quarterly period included a gain of $ 2.88 billion from the sale of our BPS business.

4 Our results from continuing operations for the quarter ended September 30, 2022 included $ 2.79 billion of goodwill impairments and $ 332 million of long-lived asset impairments related to assets acquired in connection with our December 2021 acquisition of Hillrom.

Report of Independent Registered Public Accounting Firm

2 unchanged sentences

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

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

and its subsidiaries (the “Company”) as of December 31, 2023 and 2022, and the related consolidated statements of income (loss), of comprehensive income (loss), of changes in equity and of cash flows for each of the three years in the period ended December 31, 2023, including the related notes (collectively referred to as the “consolidated financial statements”).

We also have audited the Company's internal control over financial reporting as of December 31, 2023, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 in conformity with accounting principles generally accepted in the United States of America.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.

Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, based on criteria established in I nternal Control - Integrated Framework (2013) issued by the COSO.

Basis for Opinions

14 unchanged sentences

A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(ii) provide reasonable

assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

(ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance

with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

2 unchanged sentences

Critical Audit Matters

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

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

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

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

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

The Hillrom segment includes the following three reporting units:

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

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

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

Goodwill Impairment Assessments – Front Line Care and Chronic Therapies Reporting Units

As described in Notes 1 and 5 to the consolidated financial statements, the Company’s consolidated goodwill balance as of December 31, 2023 was $6,514 million.

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

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

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

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

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

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

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

In the third quarter of 2023, the Company completed the implementation of a new operating model and the Company’s segments were changed to align with the new operating model.

As disclosed by management, the Company identified new reporting units as a result of the segment change and performed goodwill impairment assessments both before and after the reporting unit change and did not identify any goodwill impairments.

As disclosed by management, in connection with the Company’s November 1, 2023 annual goodwill impairment tests, the fair values of the Front Line Care reporting unit within the Company’s Healthcare Systems and Technologies segment and the Chronic Therapies reporting unit within the Company’s Kidney Care segment exceeded their carrying values.

As of December 31, 2023, the carrying amounts of goodwill for the Front Line Care and Chronic Therapies reporting units were $2.42 billion and $444 million, respectively.

The fair values of the Company’s reporting units are generally determined based on a discounted cash flow model (an income approach) and earnings multiples (a market approach).

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

The principal considerations for our determination that performing procedures relating to the goodwill impairment assessments of the Front Line Care and Chronic Therapies reporting units is a critical audit matter are (i) the significant judgment by management when developing the fair value estimate of these reporting units;

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

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

1 unchanged sentence

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

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

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

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

These procedures also included, among others (i) testing management’s process for developing the fair value estimate of the Front Line Care and Chronic Therapies reporting units;

(ii) evaluating the appropriateness of the income approach and market approach;

(iii) testing the completeness and accuracy of underlying data used in the income approach and market approach;

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

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

Professionals with specialized skill and knowledge

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Evaluating management’s significant assumption related to the forecasted cash flows involved evaluating whether the assumption used was reasonable considering (i) the current and past performance of the Front Line Care and Chronic Therapies reporting units;

(ii) the consistency with external market and industry data;

and (iii) whether the assumption was consistent with evidence obtained in other areas of the audit.

Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of the income approach and market approach and the reasonableness of the discount rate, terminal growth rate and earnings multiple assumptions.

/s/ PricewaterhouseCoopers LLP

4 unchanged sentences

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-K

Item 8. Financial Statements and Supplementary Data