What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-11-12 compared with 2024-08-06 · 218 added, 245 removed, 318 unchanged (59% of the section changed)

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Refer to our Annual Report on Form 10-K for the year ended December 31, 2023 (2023 Annual Report) for management’s discussion and analysis of our financial condition and results of operations.

The following is management’s discussion and analysis of our financial condition and results of operations for the three and six months ended June 30, 2024 and 2023.

The following is management’s discussion and analysis of our financial condition and results of operations for the three and nine months ended September 30, 2024 and 2023.

RECENT STRATEGIC ACTIONS

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In January 2023, following the completion of that review, we announced a number of planned strategic actions, as discussed below, which are intended to enhance our operational effectiveness, accelerate innovation and drive additional stockholder value.

Proposed Separation of Kidney Care Business

In January 2023, we announced a proposed spinoff of our Kidney Care business into an independent publicly traded company.

In March 2024, we announced that we have been in recent discussions with select private equity investors to explore a potential sale of our Kidney Care business in lieu of the proposed spinoff.

Regardless of the separation structure ultimately selected, the separation of our Kidney Care business is currently expected to be completed in late 2024 or early 2025, subject to the satisfaction of customary conditions.

During the three and six months ended June 30, 2024, we generated $1.12 billion and $2.22 billion, respectively, of net sales from our Kidney Care segment, representing approximately 29% and 30%, respectively, of our consolidated net sales.

Since the initial announcement of the proposed separation of our Kidney Care business, we have incurred significant separation-related costs that have adversely impacted our earnings and cash flows.

We expect to continue to incur significant separation costs, which will continue to adversely impact our earnings and cash flows, until the proposed separation is completed.

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

There can be no guarantees that the proposed separation or our cost savings initiatives will be completed in the manner or over the timeframe described above, or at all.

Pending Sale of Kidney Care Business

On August 12, 2024, we entered into an Equity Purchase Agreement (EPA) with certain affiliates of Carlyle Group Inc.

(Carlyle) to sell our Kidney Care business for an aggregate purchase price of $3.80 billion.

After giving effect to certain closing adjustments, we currently expect to receive approximately $3.50 billion in cash with net after-tax proceeds currently estimated to be in the range of $3.15 billion to $3.25 billion.

The transaction is currently expected to close in late 2024 or early 2025, subject to the receipt of customary regulatory approvals and satisfaction of other closing conditions.

We determined that our Kidney Care business met the criteria to be classified as held-for-sale in August 2024, and we also concluded that it met the conditions to be reported as a discontinued operation at that time.

Accordingly, our Kidney Care business is reported in discontinued operations in the accompanying condensed consolidated financial statements, and our prior period results have been adjusted to reflect discontinued operations presentation.

Since the initial announcement of the proposed separation of our Kidney Care business (which is now structured as a pending sale), we have incurred significant separation-related costs, which are reflected in discontinued operations, that have adversely impacted our earnings and cash flows.

We expect to continue to incur significant separation costs, which will continue to adversely impact our earnings and cash flows, in connection with the pending sale transaction.

Additionally, upon completion of the pending sale transaction, we expect to incur some amount of dis-synergies due to the reduced size of our company and, as a result, we will need to undertake various actions, including cost savings initiatives, to help ensure that our cost structure is appropriate to support our remaining businesses.

There can be no guarantees that the pending sale of our Kidney Care business or our proposed cost savings initiatives will be completed in the manner or over the timeframe described above, or at all, or that they will achieve their intended results.

Implementation of New Operating Model and Resulting Segment Change

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:

Medical Products and Therapies, Healthcare Systems and Technologies, Pharmaceuticals, and Kidney Care (which we are planning to divest through either a sale or spinoff, as discussed above).

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.

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

Medical Products and Therapies, Healthcare Systems and Technologies, Pharmaceuticals, and Kidney Care (which we are planning to divest through the pending sale and accordingly, the results are reported in discontinued operations as discussed in Note 1 in Item 1 of this Quarterly Report on Form 10-Q).

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

See Note 16 in Item 1 of this Quarterly Report on Form 10-Q for additional information.

As discussed above, we have entered into the EPA to sell our Kidney Care business in a transaction that is currently expected to close in late 2024 or early 2025, subject to the receipt of customary regulatory approvals and satisfaction of other closing conditions.

Sale of BioPharma Solutions (BPS) Business

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

The results of operations and cash flows of our BPS business for the three and six months ended June 30, 2023 are reported as discontinued operations in the accompanying condensed consolidated financial statements.

We intend to use substantially all of the after-tax proceeds from this transaction to repay certain of our debt obligations, including $514 million of commercial paper borrowings and $2.28 billion of long-term debt that we repaid during the fourth quarter of 2023, as well as €750 million of senior notes that we repaid during the second quarter of 2024.

The results of operations and cash flows of our BPS business for the three and nine months ended September 30, 2023 are reported as discontinued operations in the accompanying condensed consolidated financial statements.

We used substantially all of the after-tax proceeds from this transaction

to repay certain of our debt obligations, including $514 million of commercial paper borrowings and $2.28 billion of long-term debt that we repaid during the fourth quarter of 2023, as well as €750 million of senior notes that we repaid during the second quarter of 2024.

See Note 2 in Item 1 of this Quarterly Report on Form 10-Q for additional information.

FACTORS AFFECTING OUR RESULTS OF OPERATIONS

Hurricane Helene

In September 2024, Hurricane Helene, which brought significant rain and extensive flooding to Western North Carolina, caused damage to certain of our assets at our North Cove facility in Marion, N.C.

and disrupted operations at that facility.

We are actively working with customers, regulators and other stakeholders to manage inventory and minimize disruption to patient care as we work to fully restore our North Cove manufacturing operations.

Given the temporary disruptions to our facility as a result of the storm, we currently expect net sales in the fourth quarter to be negatively impacted by approximately $200 million, including an estimated $40 million to $50 million impact on Kidney Care sales and an estimated $150 million to $160 million impact on Medical Products & Therapies sales.

We also expect to incur an estimated $350 million to $400 million of charges in the fourth quarter primarily consisting of remediation costs, air freight (as we transfer product across our global network in the interest of increasing the availability of intravenous and peritoneal dialysis solutions for our customers while we work to fully remediate our North Cove facility) and other charges, which we expect to be partially offset by insurance recoveries.

Refer to Footnote 1 for further discussion of insurance recoveries related to Hurricane Helene.

Supply Constraints, Global Economic Conditions, and Regulatory Matters

We have experienced significant challenges to our global supply chain (which we experienced most acutely in 2022), 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 COVID-19 pandemic and other exogenous factors including significant weather events, elevated inflation levels, increased interest rates, disruptions to certain ports of call and access to shipping ports around the world, the war in Ukraine, the conflict in the Middle East (including attacks on merchant ships in the Red Sea), tensions amongst China, Taiwan, and the U.S., and other geopolitical events.

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

While we have seen meaningful improvements in the availability of certain component parts and improved pricing in certain raw materials and on certain transportation costs, these challenges may have a negative impact on our supply chain in future periods.

These challenges, including the unavailability of certain raw materials and component parts, have also had a negative impact on our sales for certain product categories (including those acquired in our December 2021 acquisition of Hill-Rom Holdings, Inc.

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

In recent years, we have experienced significant challenges to our global supply chain, including production delays and interruptions, increased costs and shortages of raw materials and component parts (including resins and electromechanical devices), higher transportation costs, adverse impacts from significant weather events (including Hurricane Helene and the flooding of our North Cove facility), elevated inflation levels and interest rates, disruptions to certain ports of call and access to shipping ports around the world, the war in Ukraine, the conflict in the Middle East, tensions amongst China, Taiwan, and the U.S., and other geopolitical events.

While we have seen improvements in the availability of component parts and improved pricing in raw materials and on transportation costs, some of these challenges (including certain of those set forth above as we work to fully remediate our North Cove facility) are expected to have a negative impact on our results of operations in the future.

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

The war in Ukraine, the conflict in the Middle East (including attacks on merchant ships in the Red Sea), tensions amongst China, Taiwan, and the U.S., and the sanctions and other measures being imposed in response to these conflicts (and the potential for escalation of these conflicts) have increased the levels of economic and political uncertainty and we continue to closely monitor the developing situations.

The war in Ukraine, the conflict in the Middle East, tensions amongst China, Taiwan, and the U.S., and the sanctions and other measures being imposed in response to these conflicts (and the potential for escalation of these conflicts) have increased the levels of economic and political uncertainty and we continue to closely monitor the developing situations.

While we have substantially completed our wind down efforts related to our business in Russia, a significant escalation or expansion of economic disruption or the current scope of the war in Ukraine could have an adverse effect on our operations (including our supply chain) in the region.

Our global operations expose us to risks associated with public health crises and epidemics/pandemics.

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

Any resurgence of the pandemic or any new public health crisis could again impact healthcare priorities and cause volatility in the demand for our products.

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

The existence of high inflation rates in the United States and in many of the countries where we conduct business has resulted in, and may in the future result in, higher interest rates, shipping costs, labor costs, and other costs and expenses.

Additionally, adverse changes in foreign currency exchange rates have increased, and could continue to increase, our costs of sourcing certain raw materials in some jurisdictions.

We have experienced and may continue to experience inflationary increases in manufacturing costs and operating expenses and we may not be able to pass these cost increases on to our customers in a timely manner or at all, which could have a material adverse impact on our profitability and results of operations.

We have experienced and may in the future experience inflationary increases in manufacturing costs and operating expenses and we may not be able to pass these cost increases on to our customers in a timely manner or at all, which could have a material adverse impact on our profitability and results of operations.

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

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regulatory authorities before we can market and sell most of our products in a particular country.

Failure to obtain or maintain those approvals or clearances could have a material adverse impact on our business (including with respect to our ability to compete in the product markets in which we currently operate).

Failure to obtain or maintain those approvals or clearances (including temporary importation authorizations) could have a material adverse impact on our business (including with respect to our ability to compete in the product

markets in which we currently operate).

Furthermore, the FDA in the United States, the European Medicines Agency in Europe, the China Food and Drug Administration in China, and other government agencies, inside and outside of the United States, administer requirements covering the testing, safety, effectiveness, manufacturing, labeling, promotion and advertising, pricing, distribution, and post-market surveillance of our products.

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RESULTS OF OPERATIONS

For the three months ended June 30, 2024, net loss attributable to Baxter stockholders was $314 million, or $0.62 per diluted share.

For the three months ended June 30, 2023, net loss from continuing operations attributable to Baxter stockholders was $195 million, or $0.39 per diluted share, and net income from discontinued operations was $54 million, or $0.11 per diluted share.

For the three months ended June 30, 2024, our results included special items that adversely impacted net loss attributable to Baxter stockholders by $659 million, or $1.30 per diluted share.

For the three months ended June 30, 2023, our results included special items that adversely impacted loss from continuing operations attributable to Baxter stockholders by $475 million, or $0.94 per diluted share, and decreased net income from discontinued operations by $1 million, or $0.00 per diluted share.

For the six months ended June 30, 2024, net loss attributable to Baxter stockholders was $277 million, or $0.54 per diluted share.

For the six months ended June 30, 2023, net loss from continuing operations attributable to Baxter stockholders was $196 million, or $0.39 per diluted share, and net income from discontinued operations was $99 million, or $0.20 per diluted share.

For the six months ended June 30, 2024, our results included special items that adversely impacted net loss attributable to Baxter stockholders by $953 million, or $1.87 per diluted share.

For the six months ended June 30, 2023, our results included special items that adversely impacted loss from continuing operations attributable to Baxter stockholders by $724 million, or $1.43 per diluted share, and decreased net income from discontinued operations by $5 million, or $0.01 per diluted share.

Net income attributable to Baxter stockholders for the three months ended September 30, 2024 was $140 million, or $0.27 per diluted share compared to $2.51 billion, or $4.93 per diluted share for the three months ended September 30, 2023.

For the three months ended September 30, 2024, our results included special items that adversely impacted net income attributable to Baxter stockholders by $271 million, or $0.53 per diluted share.

For the three months ended September 30, 2023, our results included special items which increased net income attributable to Baxter stockholders by $2.09 billion, or $4.11 per diluted share.

Net income (loss) attributable to Baxter stockholders for the nine months ended September 30, 2024 as $(137) million, or $(0.27) per diluted share compared to $2.41 billion, or $4.76 per diluted share for the nine months ended September 30, 2023.

For the nine months ended September 30, 2024, our results included special items that adversely impacted net income attributable to Baxter stockholders by $1.22 billion, or $2.40 per diluted share.

For the nine months ended September 30, 2023, our results included special items which increased net income attributable to Baxter stockholders by $1.36 billion, or $2.69 per diluted share.

Net income from continuing operations for the three months ended September 30, 2024 was $61 million, or $0.12 per diluted share compared to $37 million, or $0.07 per diluted share for the three months ended September 30, 2023.

Net income from continuing operations for the three months ended September 30, 2024 included special items that adversely impacted net income by $191 million, or $0.37 per diluted share.

Net income from continuing operations for the three months ended September 30, 2023 included special items that adversely impacted net income by $184 million, or $0.36 per diluted share.

Net income (loss) from continuing operations for the nine months ended September 30, 2024 was $162 million, or $0.32 per diluted share compared to $(38) million, or $(0.08) per diluted share for the nine months ended September 30, 2023.

For the nine months ended September 30, 2024, our results included special items that adversely impacted net income (loss) from continuing operations by $507 million, or $0.99 per diluted share.

For the nine months ended September 30, 2023, our results included special items that impacted net income (loss) from continuing operations by $571 million, or $1.13 per diluted share.

See the subsection entitled “Special Items” for information about special items for all periods presented.

CONSOLIDATED NET SALES

Three Months Ended June 30, Percent change

Three Months Ended September 30, Percent change

(in millions) 2024 2023 At actual

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Total net sales $ 2,699 $ 2,599 4 % 4 %

Six Months Ended June 30, Percent change

Nine Months Ended September 30, Percent change

(in millions) 2024 2023 At actual

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

Foreign currency adversely impacted net sales by 1 percentage point during the three months ended June 30, 2024, compared to the prior year period, primarily due to the strengthening of the U.S.

Dollar relative to the Turkish Lira, Chinese Renminbi, Japanese Yen, and Euro, partially offset by the weakening of the U.S.

Dollar relative to the Colombian Peso, British Pound, and Mexican Peso.

As set forth above, foreign currency had no impact on net sales during the three months ended September 30, 2024, compared to the prior year period, due to the strengthening of the U.S.

Dollar relative to the Turkish Lira, Mexican Peso, and Brazilian Real, offset by the weakening of the U.S.

Dollar relative to the Euro, British Pound, Australian Dollar and Chinese Renminbi.

Foreign currency had no impact on net sales during the nine months ended September 30, 2024, compared to the prior year period, due to the strengthening of the U.S.

Dollar relative to Turkish Lira, Japanese Yen, Chinese Renminbi, and Brazilian Real, offset by the weakening of the U.S.

Dollar relative to the Colombian Peso, British Pound, and Euro.

NET SALES BY SEGMENT

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Our 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.

Three Months Ended June 30, Percent change

Three Months Ended September 30, Percent change

(in millions) 2024 2023 At actual

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Total Medical Product and Therapies net sales $ 1,342 $ 1,258 7 % 7 %

Six Months Ended June 30, Percent change

Nine Months Ended September 30, Percent change

(in millions) 2024 2023 At actual

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See the section entitled “Non-GAAP Financial Measures” for additional information about our use of that measure.

Medical Product and Therapies segment net sales increased 4% in the second quarter and increased 5% in the first six months of 2024, as compared to the prior year periods.

Infusion Therapies and Technologies net sales increased 4% in the second quarter and increased 5% in the first six months of 2024, as compared to the prior year periods.

Sales performance primarily reflected growth in IV solutions and nutrition product offerings and was attributable to both pricing initiatives and increased sales volume.

currency exchange rates adversely impacted sales growth by 1% for the second quarter of 2024, as compared to the prior year period.

In April 2024, we received U.S.

Food and Drug Administration (FDA) 510(k) clearance of our Novum IQ large volume infusion pump (LVP) and we shipped our first Novum IQ LVP's in the United States in June 2024.

The launch of that product in the United States is expected to favorably impact the net sales generated by our Infusion Therapies and Technologies business during the second half of 2024.

Advanced Surgery net sales increased 2% in the second quarter and increased 4% in the first six months of 2024, as compared to the prior year periods.

Medical Product and Therapies segment net sales increased 7% in the third quarter and increased 5% in the first nine months of 2024, as compared to the prior year periods.

Infusion Therapies and Technologies net sales increased 7% in the third quarter and increased 6% in the first nine months of 2024, as compared to the prior year periods.

Sales performance in the third quarter primarily reflected growth in Infusion Systems as a result of our Novum IQ large volume infusion and syringe pump sales in the U.S., and to a lesser extent, sales of IV solutions and nutrition product offerings, which collectively were attributable to both pricing initiatives and increased sales volume.

Advanced Surgery net sales increased 7% in the third quarter and increased 5% in the first nine months of 2024, as compared to the prior year periods.

Sales performance primarily reflected growth in hemostats and sealants and was primarily attributable to increased sales volume.

Foreign currency exchange rates adversely impacted sales growth by 2% for the second quarter and the first six months of 2024, as compared to the prior year periods.

Foreign currency exchange rates adversely impacted sales growth by 1% for the first nine months of 2024, as compared to the prior year period.

Healthcare Systems and Technologies

Our 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 operating room integration technologies, precision positioning devices, and other accessories.

Three Months Ended June 30, Percent change

Three Months Ended September 30, Percent change

(in millions) 2024 2023 At actual

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Total Healthcare Systems and Technologies net sales $ 752 $ 744 1 % 1 %

Six Months Ended June 30, Percent change

Nine Months Ended September 30, Percent change

(in millions) 2024 2023 At actual

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See the section entitled “Non-GAAP Financial Measures” for additional information about our use of that measure.

Healthcare Systems and Technologies segment net sales increased 1% in the second quarter and decreased 4% in the first six months of 2024, as compared to the prior year periods.

Care and Connectivity Solutions net sales increased 4% in the second quarter and decreased 1% in the first six months of 2024, as compared to the prior year periods.

The growth in the second quarter was primarily driven by increased order volume associated with capital spending as compared to the prior year quarterly period, partially offset by declines in care communications products driven by the shifting of installations to future periods and lower rental revenues.

The decline in the first six months of 2024 was primarily driven by declines in capital order volume during the first quarter, declines in sales of connected care products driven by the shifting of installations to future periods, and lower rental revenues.

We were also impacted by commercial execution challenges in the first quarter that we are continuing to address to improve the performance of this business.

Foreign currency exchange rates favorably impacted sales growth by 1% for the first six months of 2024, as compared to the prior year period.

Front Line Care net sales decreased 4% in the second quarter and decreased 8% in the first six months of 2024, as compared to the prior year periods.

Sales performance primarily reflected declines in our connected monitoring and intelligent diagnostics product offerings, partially offset by growth in our cardiology product offerings.

The sales decline as compared to the prior year was primarily driven by a backlog increase in the current year period, compared with a backlog reduction in the prior year period, as well as softer demand in the primary care market and lower government orders.

We currently expect the growth rate of our Healthcare Systems and Technologies segment to improve during the second half of 2024 as compared to growth rates during the first half of 2024.

Healthcare Systems and Technologies segment net sales increased 1% in the third quarter and decreased 2% in the first nine months of 2024, as compared to the prior year periods.

Care and Connectivity Solutions net sales increased 3% in the third quarter and were flat in the first nine months of 2024, as compared to the prior year periods.

The growth in the third quarter was primarily driven by increased order volume associated with capital spending as compared to the prior year quarterly period, partially offset by declines in care communications products driven by the shifting of installations to future periods and lower sales outside of the U.S.

Front Line Care net sales decreased 2% in the third quarter and decreased 6% in the first nine months of 2024, as compared to the prior year periods.

The sales decline as compared to the prior year periods was primarily driven by a backlog reduction in the prior year period, as well as softer demand in the primary care market and lower government orders, partially offset by growth in our cardiology products.

Pharmaceuticals

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

Three Months Ended June 30, Percent change

Three Months Ended September 30, Percent change

(in millions) 2024 2023 At actual

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Total Pharmaceuticals net sales $ 588 $ 580 1 % 1 %

Six Months Ended June 30, Percent change

Nine Months Ended September 30, Percent change

(in millions) 2024 2023 At actual

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See the section entitled “Non-GAAP Financial Measures” for additional information about our use of that measure.

Pharmaceuticals segment net sales increased 9% in the second quarter and increased 10% in the first six months of 2024, as compared to the prior year periods.

Injectables and Anesthesia net sales increased 3% in the second quarter and increased 5% for the first six months of 2024, as compared to the prior year periods, primarily due to growth in our U.S.

specialty injectable products, driven by strong sales volume in our core portfolio and, to a lesser extent, recent product launches, partially offset by lower sales of inhaled anesthesia products.

Foreign currency exchange rates adversely impacted sales growth by 1% for the second quarter and the first six months of 2024, as compared to the prior year periods.

Drug Compounding net sales increased 20% in the second quarter and increased 17% for the first six months of 2024, as compared to the prior year periods.

The increase in the current year periods was driven by increased demand for our international pharmacy compounding offerings due, in part, to customer capacity constraints that resulted in increased outsourcing of compounding activities, which is not currently expected to be as significant in the second half of the year.

Foreign currency exchange rates adversely impacted sales growth by 1% for the first six months of 2024, as compared to the prior year period.

Our Kidney Care segment includes Chronic Therapies, comprised of peritoneal dialysis (PD) and hemodialysis (HD), and Acute Therapies, comprised of continuous renal replacement therapies (CRRT) and other organ support therapies.

Three Months Ended June 30, Percent change

(in millions) 2024 2023 At actual

currency rates At constant currency rates 1

Chronic Therapies

$ 917 $ 928 (1) % 1 %

Acute Therapies 201 188 7 % 9 %

Total Kidney Care net sales $ 1,118 $ 1,116 0 % 3 %

Six Months Ended June 30, Percent change

(in millions) 2024 2023 At actual

currency rates At constant currency rates 1

Chronic Therapies

$ 1,805 $ 1,812 (0) % 1 %

Acute Therapies 415 376 10 % 12 %

Total Kidney Care net sales $ 2,220 $ 2,188 1 % 3 %

1 Percent change in net sales at constant currency rates is a non-GAAP financial measure.

See the section entitled “Non-GAAP Financial Measures” for additional information about our use of that measure.

Kidney Care segment net sales were flat in the second quarter and increased 1% in the first six months of 2024, as compared to the prior year periods.

Chronic Therapies net sales decreased 1% in the second quarter and were flat in the first six months of 2024, as compared to the prior year periods.

Sales performance in the current year periods was primarily due to lower sales in China, driven by government-based procurement initiatives and the impact of COVID-19 on that country’s renal patient population, and select product and market exits, including the closure of a dialyzer manufacturing facility in late 2023, partially offset by PD patient growth, particularly in the United States.

Foreign currency exchange rates adversely impacted sales growth by 2% for the second quarter and 1% for the first six months of 2024, as compared to the prior year periods.

Acute Therapies net sales increased 7% in the second quarter and increased 10% in the first six months of 2024, as compared to the prior year periods.

The increases in the current year periods were primarily driven by higher sales volume resulting from strong demand for our CRRT offerings, particularly in the United States.

Foreign currency exchange rates adversely impacted sales growth by 2% for the second quarter and the first six months of 2024, as compared to the prior year periods.

Other sales, which represent sales not attributable to our reportable segments, were $22 million for both the three months ended June 30, 2024 and 2023, and $38 million and $52 million for the six months ended June 30, 2024 and 2023, respectively.

Pharmaceuticals segment net sales increased 1% in the third quarter and increased 7% in the first nine months of 2024, as compared to the prior year periods.

Injectables and Anesthesia net sales decreased 9% in the third quarter and were flat for the first nine months of 2024, as compared to the prior year periods.

The decrease in the third quarter was driven by the the timing of certain orders shifting to the fourth quarter, a delay of an anticipated new product launch, as well as supply constraints impacting international sales.

Despite the decrease in the third quarter, we believe the Injectables fundamentals and growth prospects remain strong driven largely driven by strength in both core products and recent new product launches in the U.S., partially offset by inhaled anesthesia products.

Foreign currency exchange rates adversely impacted sales growth by 1% for the first nine months of 2024, as compared to the prior year period.

Drug Compounding net sales increased 17% in the third quarter and for the first nine months of 2024, as compared to the prior year periods.

Foreign currency exchange rates favorably impacted sales growth by 3% for the third quarter of 2024, as compared to the prior year period.

Other sales, which represent sales not attributable to our reportable segments, were $17 million for both the three months ended September 30, 2024 and 2023, and $55 million and $73 million for the nine months ended September 30, 2024 and 2023, respectively.

In the current and prior year periods, Other sales primarily represent revenues earned by certain of our manufacturing facilities from contract manufacturing activities.

The six-month period ended June 30, 2023 also included royalty income under a business development arrangement.

The decrease in other sales for the six months ended June 30, 2024 as compared to the prior year period primarily reflects lower contract manufacturing volume and, to a lesser extent, termination of the royalty arrangement following our acquisition of the rights to the underlying product.

The nine-month period ended September 30, 2023 also included royalty income under a business development arrangement.

The decrease in other sales for the nine months ended September 30, 2024 as compared to the prior year period primarily reflects lower contract manufacturing volume and, to a lesser extent, termination of the royalty arrangement following our acquisition of the rights to the underlying product.

COSTS AND EXPENSES

Special Items

The following table provides a summary of our special items from continuing operations and the related impact by line item on our results for the three and six months ended June 30, 2024 and 2023.

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

The following table provides a summary of our special items from continuing operations and the related impact by line item on our results for the three and nine months ended September 30, 2024 and 2023.

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

(in millions) 2024 2023 2024 2023

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Acquisition and integration items 2

— (1) (1) (1)

European medical devices regulation 3

(9) (12) (25) (32)

Separation-related costs 4

Product related items 4

Hurricane Helene costs 5

(25) — (25) —

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Acquisition and integration items 2

Separation-related costs 4

79 $ 33 167 41

Legal matters 6

Total Special Items $ 89 $ 109 $ 228 $ 317

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$ — $ 4 $ — $ 10

Separation-related costs 4

Total Special Items $ — $ 4 $ — $ 10

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

Goodwill Impairment

Goodwill impairment 5

$ 430 $ — $ 430 $ —

Total Special Items $ 430 $ — $ 430 $ —

Other Operating Income, net

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Investment impairments 7

$ — $ — $ — $ 10

Total Special Items $ — $ — $ — $ 10

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Impact on Effective Tax Rate (5.8) pts 19.5 pts 10.0 pts 259.5 pts

1 Our results for second quarter of 2024 and 2023 included business optimization charges of $20 million and $293 million, respectively.

Our results for the first six months of 2024 and 2023 included business optimization charges of $77 million and $427 million, respectively.

These restructuring and other business optimization costs included third-party costs incurred to support the transformation of certain general and administrative functions, property, plant and equipment impairments in connection with the transfer of a manufacturing production line as part of our initiative to optimize our global manufacturing and supply chain organization, costs to centralize certain of our R&D activities, our implementation of a new operating model intended to simplify and streamline our operations and better align our manufacturing and supply chain to our commercial activities, our decision to close one of our U.S.-based manufacturing facilities in the second quarter of 2023, which resulted in a $243 million noncash impairment of property, plant and equipment and rationalization of certain other manufacturing and

distribution facilities.

1 Our results for third quarter of 2024 and 2023 included business optimization charges of $18 million and $48 million, respectively.

Our results for the first nine months of 2024 and 2023 included business optimization charges of $49 million and $167 million, respectively.

These restructuring and other business optimization costs included costs primarily related to our 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, third-party costs incurred to support the transformation of certain general and administrative functions, and rationalization of certain other manufacturing and distribution facilities.

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

2 Our results for the second quarter of 2024 and 2023 included $6 million and $8 million, respectively, and for the first six months of 2024 and 2023 included $11 million and $14 million, respectively, of integration costs which primarily reflected third party consulting costs related to our integration of Hillrom.

In 2023, those costs were partially offset by a $1 million benefit in the second quarter and fully offset by a $14 million benefit in the first six months related to changes in the estimated fair values of contingent consideration liabilities.

3 Our results for the second quarter of 2024 and 2023 included $10 million and $12 million, respectively, and for the first six months of 2024 and 2023 included $18 million and $24 million, respectively, of incremental costs to comply with the European Union's medical device regulations for previously registered products, which primarily consist of contractor costs and other direct third-party costs.

2 Our results for the third quarter of 2024 and 2023 included $5 million and $2 million, respectively, and for both the first nine months of 2024 and 2023 included $16 million, of integration costs which primarily reflected third party consulting costs related to our integration of Hillrom.

In 2023, those costs were partially offset by a $14 million benefit in the first nine months related to changes in the estimated fair values of contingent consideration liabilities.

3 Our results for the third quarter of 2024 and 2023 included $9 million and $12 million, respectively, and for the first nine months of 2024 and 2023 included $25 million and $32 million, respectively, of incremental costs to comply with the European Union's medical device regulations for

previously registered products, which primarily consist of contractor costs and other direct third-party costs.

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

4 Our results for the second quarter of 2024 and 2023 included $81 million and $37 million, respectively, and for the first six months of 2024 and 2023 included $173 million and $46 million, respectively, of separation-related costs primarily reflecting costs of external advisors supporting our activities to prepare for the proposed separation of our Kidney Care segment.

We also incurred $8 million and $15 million of additional separation-related costs in the second quarter and first six months of 2023, respectively, related to the sale of our BPS business that are reported in discontinued operations and are not presented in the table above.

5 Our results in the second quarter and first six months of 2024 included charges of $430 million for a goodwill impairment of the Chronic Therapies reporting unit within our Kidney Care segment.

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

6 Our results in 2023 included $20 million of pre-tax losses from non-marketable investments in several early stage companies in the second quarter, consisting of $23 million of noncash impairment write-downs, partially offset by a $3 million gain from the sale of an investment.

7 Our results for the second quarter and first six months of 2024 included $5 million and $42 million, respectively, of income tax expenses resulting from internal reorganization transactions related to the proposed separation of our Kidney Care segment.

Our results in 2023 included a $30 million valuation allowance recorded to reduce the carrying amount of a deferred tax asset for a tax basis step-up related to previously enacted Swiss tax reform legislation to reflect our current estimate of its recoverability and $4 million of tax costs from separation-related activities.

4 Our results for the third quarter and first nine months of 2024 included charges of $3 million related to a revised estimate of warranty and remediation activities arising from a field corrective action on certain of our infusion pumps initially recorded in 2022.

5 Our results in the third quarter and first nine months of 2024 included net charges of $25 million related to Hurricane Helene.

This amount consisted of a charge of $44 million related to the write-off of damaged inventory and fixed assets, partially offset by a $19 million benefit related to insurance recoveries expected as a result of those asset write-offs.

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

6 Our results in the third quarter and first nine months of 2024 included charges of $17 million related to environmental reserves for remediation actions associated with historic operations at certain of our facilities.

Our results in the third quarter and first nine months of 2023 included costs, including associated legal fees, of $13 million related to matters involving alleged violations of the False Claims Act related to a now-discontinued legacy Hillrom sales line and alleged injury from environmental exposure.

7 Our results in 2023 included $10 million of pre-tax losses from non-marketable investments in several early stage companies in the first nine months, consisting of $13 million of noncash impairment write-downs, partially offset by a $3 million gain from the sale of an investment.

8 Our results for the third quarter of 2024 included $11 million of income tax expense consisting of a $26 million valuation allowance recorded to reduce the carrying amount of a tax attribute carryforward in the U.S.

related to the pending sale of our Kidney Care segment, partially offset by application of the intraperiod tax allocation between continuing operations and discontinued operations.

Our results for the third quarter of 2023 included $16 million of income tax expense resulting from separation-related income tax costs associated with the sale of our BPS business.

Our results for the first nine months of 2024 included $45 million of income tax expense consisting of a $26 million valuation allowance recorded to reduce the carrying amount of a tax attribute carryforward in the U.S.

and internal reorganization transactions related to the pending sale of our Kidney Care segment.

Our results for the first nine months of 2023 included $67 million of income tax expense consisting of a $30 million valuation allowance recorded to reduce the carrying amount of a deferred tax asset for a tax basis step-up related to previously enacted Swiss tax reform legislation to reflect our current estimate of its recoverability and separation-related income tax costs associated with the sale of our BPS business.

9 This item reflects the income tax impact of the special items identified in this table.

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Gross Margin and Expense Ratios

Three Months Ended June 30,

Three Months Ended September 30,

2024 % of net sales 2023 % of net sales $ change % change

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R&D $ 129 4.8 % $ 133 5.1 % $ (4) (3.0) %

Six Months Ended June 30,

Nine Months Ended September 30,

2024 % of net sales 2023 % of net sales $ change % change

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R&D $ 379 4.8 % $ 391 5.1 % $ (12) (3.1) %

Our gross margin ratio was 37.5% and 30.0% for the three months ended June 30, 2024 and 2023, respectively.

The special items identified earlier in this section had an unfavorable impact of approximately 3.7 and 10.4 percentage points on the gross margin ratio for the three months ended June 30, 2024 and 2023, respectively.

Our gross margin ratio was 38.1% and 33.0% for the six months ended June 30, 2024 and 2023, respectively.

The special items identified earlier in this section had an unfavorable impact of approximately 3.7 and 7.6 percentage points on the gross margin ratio for the six months ended June 30, 2024 and 2023, respectively.

Our gross margin ratio was 38.3% and 40.6% for the three months ended September 30, 2024 and 2023, respectively.

The special items identified earlier in this section had an unfavorable impact of approximately 5.4 and 4.2 percentage points on the gross margin ratio for the three months ended September 30, 2024 and 2023, respectively.

Our gross margin ratio was 38.4% and 40.0% for the nine months ended September 30, 2024 and 2023, respectively.

The special items identified earlier in this section had an unfavorable impact of approximately 4.8 and 4.3 percentage points on the gross margin ratio for the nine months ended September 30, 2024 and 2023, respectively.

Refer to the Special Items caption above for additional detail.

Excluding the impact of special items, the gross margin ratio increased by 0.8 and 1.2 percentage points in the second quarter and first six months of 2024, respectively, compared to the prior year periods.

Those gross margin improvements were primarily attributable to our Kidney Care segment, driven by initiatives to reduce our manufacturing and supply chain costs, a favorable product mix, reflecting select exits from lower margin products and markets, and Acute Therapies sales growth, partially offset by lower gross margins in the current year periods in our Pharmaceuticals and Medical Products and Therapies segments.

Our SG&A expenses ratio was 26.8% and 26.0% for the three months ended June 30, 2024 and 2023, respectively.

The special items identified earlier in this section had an unfavorable impact of approximately 3.9 and 3.2 percentage points on the SG&A expenses ratio for the three months ended June 30, 2024 and 2023, respectively.

Our SG&A expenses ratio was 27.7% and 27.1% for the six months ended June 30, 2024 and 2023, respectively.

The special items identified earlier in this section had an unfavorable impact of approximately 4.3 and 3.8 percentage points on the SG&A expenses ratio for the six months ended June 30, 2024 and 2023, respectively.

Excluding the impact of special items, the SG&A expenses ratio increased by 0.1 percentage point in the both second quarter and first six months of 2024, compared to the prior year periods.

SG&A for the current year periods reflected annual compensation increases and higher accruals under our annual employee incentive compensation plans.

Our R&D expenses ratio was 4.5% for the three months ended June 30, 2024 and 2023, respectively.

The special items identified earlier in this section had a favorable impact of 0.1 percentage points on the R&D expenses ratio in the second quarter of 2024.

The R&D expenses ratio was 4.7% and 4.6% for the six months ended June 30, 2024 and 2023, respectively.

The special items identified earlier in this section had an unfavorable impact of approximately 0.2 and 0.1 percentage points on the R&D expenses ratio for the six months ended June 30, 2024 and 2023, respectively.

Excluding the impact of special items, the R&D expenses ratio increased by 0.1 percentage points and remained flat in the second quarter and first six months of 2024, respectively, compared to the prior year periods.

Excluding the impact of special items, the gross margin ratio decreased by 1.1 percentage points in both the third quarter and first nine months of 2024, respectively, compared to the prior year periods.

The lower gross margins were driven by an unfavorable product mix, partially offset by initiatives to reduce our manufacturing and supply chain costs.

Our SG&A expenses ratio was 27.9% and 28.6% for the three months ended September 30, 2024 and 2023, respectively.

The special items identified earlier in this section had an unfavorable impact of approximately 3.3 and 4.2

percentage points on the SG&A expenses ratio for the three months ended September 30, 2024 and 2023, respectively.

Our SG&A expenses ratio was 28.0% and 29.7% for the nine months ended September 30, 2024 and 2023, respectively.

The special items identified earlier in this section had an unfavorable impact of approximately 2.9 and 4.1 percentage points on the SG&A expenses ratio for the nine months ended September 30, 2024 and 2023, respectively.

Excluding the impact of special items, the SG&A expenses ratio increased by 0.2 percentage points in the third quarter compared to the prior year period, due to higher corporate function costs and annual compensation increases, partially offset by lower accruals under our annual employee incentive compensation plans.

Excluding the impact of special items, the SG&A expenses ratio decreased 0.5 percentage points in first nine months of 2024 compared to the prior year period, due to lower accruals under our annual employee incentive compensation plans, partially offset by annual compensation increases.

Our R&D expenses ratio was 4.8% and 5.1% for the three months ended September 30, 2024 and 2023, respectively.

The special items identified earlier in this section had no impact and an unfavorable impact of 0.1 percentage points on the R&D expense ratio in the third quarter of 2024 and 2023, respectively.

The R&D expenses ratio was 4.8% and 5.1% for the nine months ended September 30, 2024 and 2023, respectively.

The special items identified earlier in this section had no impact and an unfavorable impact of 0.1 percentage points on the R&D expenses ratio for the nine months ended September 30, 2024 and 2023, respectively.

Excluding the impact of special items, the R&D expenses ratio decreased by 0.2 percentage points in both the third quarter and first nine months of 2024, compared to the prior year periods.

Business Optimization Items

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

For the three months ended months ended June 30, 2024, $6 million of the restructuring charges related to a transfer of a manufacturing production line as part of our initiatives to optimize our global manufacturing and supply chain organization.

For the six months ended June 30, 2024, $27 million of the restructuring charges related to a program to centralize certain of our R&D activities into a new location, and to our recent implementation of a new operating model intended to simplify and streamline our operations.

For the three months ended months ended September 30, 2024, $7 million and $14 million of the restructuring charges, consisting of employee termination costs, related to business optimization initiatives within our Healthcare Systems and Technologies segment.

Additionally, for the nine months ended September 30, 2024, $7 million of the restructuring charges, consisting of employee termination costs, related to our recent implementation of a new operating model intended to simplify and streamline our operations.

We currently expect to incur additional pre-tax costs, primarily related to the implementation of business optimization programs, of approximately $5 million through the completion of initiatives that are currently underway.

We continue to pursue cost savings initiatives and, to the extent further cost savings opportunities are identified (including after the completion of the proposed Kidney Care separation), we would incur additional restructuring charges and costs to implement business optimization programs in future periods.

We continue to pursue cost savings initiatives and, to the extent further cost savings opportunities are identified (including after the completion of the pending sale of our Kidney Care business), we would incur additional restructuring charges and costs to implement business optimization programs in future periods.

Refer to Note 10 in Item 1 of this Quarterly Report on Form 10-Q for additional information regarding our business optimization programs.

Goodwill Impairment

During the second quarter of 2024, we recognized a $430 million goodwill impairment related to our Chronic Therapies reporting unit within our Kidney Care segment.

See Note 4 for additional information.

Other Operating Income, Net

Other operating income, net was $1 million for the three months ended June 30, 2024 and 2023.

In the second quarter of 2024, this amount was comprised of income from transition services arrangements related to the divestiture of our BPS business.

In the second quarter of 2023, this amount was comprised of gains from changes in the estimated fair value of contingent consideration arrangements.

Other operating income, net was $4 million and $14 million for the six months ended June 30, 2024 and 2023, respectively.

In the first six months of 2024, this amount was comprised of income from transition services arrangements related to the divestiture of our BPS business.

first six months of 2023, this amount was comprised of gains from changes in the estimated fair value of contingent consideration arrangements.

Other operating income, net was $5 million for the three months ended September 30, 2024.

In the third quarter of 2024, this amount was comprised of income from transition services arrangements related to the divestiture of our BPS business.

Other operating income, net was $9 million and $14 million for the nine months ended September 30, 2024 and 2023, respectively.

In the first nine months of 2024, this amount was comprised of income from transition services arrangements related to the divestiture of our BPS business.

In the first nine months of 2023, this amount was comprised of gains from changes in the estimated fair value of contingent consideration arrangements.

Interest Expense, Net

Interest expense, net was $85 million and $124 million in the second quarter of 2024 and 2023, respectively and $163 million and $241 million for the first six months of 2024 and 2023, respectively.

Interest expense, net was $87 million and $127 million for the three months ended September 30, 2024 and 2023, respectively and $251 million and $367 million for the nine months ended September 30, 2024 and 2023, respectively.

The decrease in 2024 was driven by debt repayments in the fourth quarter of 2023 and, to a lesser extent, higher interest income due to a higher average cash balance and higher interest rates during the current year period.

Other (Income) Expense, net

Other (income) expense, net was income of $20 million and expense of $42 million for the three months ended June 30, 2024 and 2023, respectively, and income of $27 million and expense of $40 million for the six months ended June 30, 2024 and 2023, respectively.

Other (income) expense, net was income of $1 million and income of $12 million for the three months ended September 30, 2024 and 2023, respectively, and income of $34 million and expense of $15 million for the nine months ended September 30, 2024 and 2023, respectively.

In the current year periods, other income, net was primarily driven by pension and other postretirement benefits, partially offset by foreign exchange losses.

In the prior year periods, other expense, net was primarily driven by foreign exchange losses, non-marketable investment impairments and decreases in the fair value of marketable equity securities, partially offset by pension and postretirement benefits.

Our effective income tax rate was (21.0)% and (5.5)% in the second quarter of 2024 and 2023, respectively, and (92.9)% and (14.2)% for the first six months of 2024 and 2023, respectively.

In the three months ended September 30, 2023 , other income, net was primarily driven by pension and other postretirement benefits.

In the nine months ended September 30, 2023, other expense, net was primarily driven by foreign exchange losses, non-marketable investment impairments and decreases in the fair value of marketable equity securities, partially offset by pension and postretirement benefits.

Our effective income tax rate was 11.6% and 42.2% in the third quarter of 2024 and 2023, respectively, and 30.2% and 281.0% for the first nine months of 2024 and 2023, respectively.

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

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

For the three months ended June 30, 2024, the difference between our effective income tax rate and the U.S.

For the six months ended June 30, 2024, the difference between our effective income tax rate and the U.S.

federal statutory rate was primarily driven by a non-deductible goodwill impairment, an increase in income tax expense resulting from internal reorganization transactions related to the proposed separation of our Kidney Care segment, an increase in a valuation allowance in a foreign jurisdiction resulting from changes in future projected income, an increase in our liabilities for various uncertain tax positions, an unfavorable geographic earnings mix, and separation costs that are partially non-deductible.

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

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

For the three months ended September 30, 2024, the difference between our effective income tax rate and the U.S.

federal statutory rate was primarily attributable to a favorable geographic earnings mix, the tax impacts of the write-off of damaged inventory and fixed assets at our North Cove facility caused by Hurricane Helene, and a change in our assertion on the reinvested foreign earnings related to the pending sale of our Kidney Care segment allocated to continuing operations, partially offset by a $26 million valuation allowance recorded to reduce the carrying amount of a tax attribute carryforward in the U.S.

related to the pending sale of our Kidney Care segment.

For the nine months ended September 30, 2024, the difference between our effective income tax rate and the U.S.

federal statutory rate was primarily attributable to a $26 million valuation allowance recorded to reduce the carrying amount of a tax attribute carryforward in the U.S.

related to the pending sale of our Kidney Care segment, an increase in a valuation allowance in a foreign jurisdiction resulting from changes in future projected income, an increase in income tax expense resulting from internal reorganization transactions related to the pending sale of our Kidney Care segment, and an increase in our liabilities for various uncertain tax positions, partially offset by a favorable geographic earnings mix.

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

federal statutory rate was primarily attributable to an increase in the valuation allowance in a foreign jurisdiction resulting from changes in future projected income, partially offset by a favorable geographic earnings mix.

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

federal statutory rate was primarily attributable to a $30 million increase in the valuation allowance related to a deferred tax asset from a tax basis step-up that arose from previously enacted Swiss tax reform legislation, an increase in the valuation allowance in a foreign jurisdiction resulting from changes in future projected income, and excess tax shortfalls on stock compensation awards.

The Organization of Economic Co-operation and Development (OECD) and the G20 Inclusive Framework on Base Erosion and Profit Shifting (the Inclusive Framework) has put forth two proposals—Pillar One and Pillar Two—that (i) revise the existing profit allocation and nexus rules and (ii) ensure a minimal level of taxation, respectively.

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Discontinued Operations

On September 29, 2023, we completed the sale of our BPS business.

The results of operations and cash flows of our BPS business are reported as discontinued operations in the condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

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

In August 2024, we entered into a definitive agreement to sell our Kidney Care business and its results have been presented as discontinued operations for the three and nine months ended September 30, 2024 and 2023.

On September 29, 2023, we completed the sale of our BPS business and it's results have been presented as discontinued operations for the three and nine months ended September 30, 2023.

Income from discontinued operations, net of tax was $83 million in the third quarter of 2024, compared to $2.47 billion in the third quarter of 2023.

Income (loss) from discontinued operations, net of tax was $(290) million in the first nine months of 2024, compared to $2.46 billion in the first nine months of 2023.

The decreases were primarily driven by the $2.89 billion pre-tax gain from the sale of BPS ($2.60 billion net of tax).

Refer to Note 2 within Item 1 for additional information.

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The following is a summary of our operating income for our reportable segments.

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

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

(in millions) 2024 2023 2024 2023

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% of Segment Net Sales 9.9 % 18.6 % 11.9 % 17.2 %

Kidney Care 83 55 242 112

% of Segment Net Sales 7.4 % 4.9 % 10.9 % 5.1 %

Other 2 6 15 19

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Intangible asset amortization expense (159) (147) (471) (434)

Goodwill impairment (430) — (430) —

Legal matters (17) (13) (17) (13)

Business optimization items (18) (48) (49) (167)

Acquisition and integration items (5) (2) (16) (2)

Separation-related costs (81) (37) (173) (46)

European Medical Devices Regulation (9) (12) (25) (32)

Product-related items (3) — (3) —

Hurricane Helene Costs (25) — (25) —

Total operating income 155 179 449 403

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Medical Products and Therapies

Segment operating income was $238 million and $264 million for the second quarter of 2024 and 2023, respectively, and $465 million and $461 million for the first six months of 2024 and 2023, respectively.

The decrease in segment operating income in the second quarter compared to the prior year period was primarily due to increased allocations of Corporate shared costs, increased investments in R&D activities, increased shipping and fulfillment costs, annual compensation increases, and higher accruals under our annual employee incentive compensation plans, partially offset by higher sales in the current year period.

The increased segment operating income for the six months ended June 30, 2024 compared to the prior year period was primarily driven by higher sales in the current year period, partially offset by increased operating costs due to the factors described above.

Segment operating income was $268 million and $245 million for the third quarter of 2024 and 2023, respectively, and $733 million and $706 million for the first nine months of 2024 and 2023, respectively.

The increase in segment operating income in the third quarter and the nine months ended September 30, 2024 compared to the prior year periods was primarily driven by higher sales in the current year periods, partially offset by increased allocations of manufacturing and supply chain overheads, annual compensation increases, and higher corporate shared costs.

Healthcare Systems and Technologies

Segment operating income was $120 million and $100 million for the three months ended June 30, 2024 and 2023, respectively, and $187 million and $212 million for the six months ended June 30, 2024 and 2023, respectively.

Segment operating income increased in the second quarter compared to the prior year period primarily due to lower operating expenses from cost savings initiatives and increased gross profit from higher sales of Care and Connectivity Solutions product offerings, partially offset by lower sales of our Front Line Care product offerings.

Segment operating

income decreased in the six months ended June 30, 2024 compared to the prior year period primarily due to decreased gross profit from lower sales, partially offset by lower operating expenses from cost savings initiatives.

Segment operating income was $136 million and $115 million for the three months ended September 30, 2024 and 2023, respectively, and $323 million and $327 million for the nine months ended September 30, 2024 and 2023, respectively.

Segment operating income increased in the third quarter compared to the prior year period primarily due to increased gross profit and lower operating expenses from margin improvement initiatives and increased gross profit from higher sales of Care and Connectivity Solutions product offerings, partially offset by lower sales of our Front Line

Care product offerings.

Segment operating income decreased in the nine months ended September 30, 2024 compared to the prior year period primarily due to decreased gross profit from lower sales.

Pharmaceuticals

Segment operating income was $75 million and $89 million for the three months ended June 30, 2024 and 2023, respectively, and $153 million and $176 million for the six months ended June 30, 2024 and 2023, respectively.

The decreases in segment operating income for these periods were driven by lower gross margin percentages, reflecting the increased cost of certain inventory manufactured by our former BPS business, which now includes a third-party mark-up following our divestiture of that business in September 2023, and increased operating expenses, including marketing-related costs in connection with recent product launches.

Segment operating income was $83 million and $55 million for the three months ended June 30, 2024 and 2023, respectively, and $242 million and $112 million for the six months ended June 30, 2024 and 2023, respectively.

The increases in segment operating income for these periods were driven by higher gross margins, primarily as a result of initiatives to reduce our manufacturing and supply chain costs, a favorable product mix, reflecting select exits from lower margin products and markets, Acute Therapies sales growth, and, for the six-month period, improved margins on dialyzers sold in the first quarter of 2024 driven by higher production volumes and better absorption in advance of our closure of a dialyzer manufacturing facility at the end of 2023.

These gross margin improvements were partially offset by higher operating expenses, including annual compensation increases and higher accruals under our annual employee incentive compensation plans.

Other operating income, which represents operating income not attributable to our reportable segments, was $9 million and $6 million for the three months ended June 30, 2024 and 2023, respectively, and $13 million for both the six months ended June 30, 2024 and 2023.

Segment operating income was $58 million and $108 million for the three months ended September 30, 2024 and 2023, respectively, and $211 million and $284 million for the nine months ended September 30, 2024 and 2023, respectively.

The decreases in segment operating income for these periods were driven by lower gross margin percentages, due to an unfavorable product mix in the third quarter and reflecting the increased cost of certain inventory manufactured by our former BPS business, which now includes a third-party mark-up following our divestiture of that business in September 2023, and increased operating expenses, including marketing-related costs in connection with recent product launches.

Other operating income, which represents operating income not attributable to our reportable segments, was $2 million and $6 million for the three months ended September 30, 2024 and 2023, respectively, and $15 million and $19 million for both the nine months ended September 30, 2024 and 2023, respectively.

In the current and prior year periods, other operating income primarily represents income from revenues earned by certain of our manufacturing facilities from contract manufacturing activities.

The prior year period also includes royalty income under a business development arrangement.

The increase in the second quarter of 2024 as compared to the prior year period reflects improved gross margins from contract manufacturing.

Other operating income for the six months ended June 30, 2024 was flat to the prior year period, as improved gross margins from contract manufacturing were offset by termination of the royalty arrangement following our acquisition of the rights to the underlying product.

The decrease in the third quarter of 2024 as compared to the prior year periods reflects the termination of the royalty arrangement following our acquisition of the rights to the underlying product, partially offset by improved gross margins from contract manufacturing.

Unallocated Corporate Costs

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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.

With the results of our Kidney Care segment reported in discontinued operations, corporate costs that had previously been allocated to the Kidney Care segment which will not convey with the Kidney Care segment in the pending sale, are now presented as unallocated corporate costs.

Additionally, intangible asset amortization and other special items are not allocated to our segments.

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LIQUIDITY AND CAPITAL RESOURCES

The following table is a summary of the statement of cash flows for the six-month periods ended June 30, 2024 and 2023.

Six Months Ended June 30,

The following table is a summary of the statement of cash flows for the nine-month periods ended September 30, 2024 and 2023.

Nine Months Ended September 30,

(in millions) 2024 2023

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Cash Flows from Operations - Continuing Operations

For the six months ended June 30, 2024 and 2023, operating cash flows from continuing operations were $278 million and $780 million, respectively.

Operating cash flows from continuing operations in the current year period were unfavorably impacted, as compared to the prior year period, by higher annual payouts under our employee incentive compensation plans, which were determined based on our 2023 performance, payments for costs incurred in connection with the separation of our Kidney Care business, and by the timing of accounts receivable collections and accounts payable payments.

For the nine months ended September 30, 2024 and 2023, operating cash flows from continuing operations were $376 million and $792 million, respectively.

Operating cash flows from continuing operations in the current year period were unfavorably impacted, as compared to the prior year period, by higher annual payouts under our employee incentive compensation plans, which were determined based on our 2023 performance and the timing of accounts receivable collections and accounts payable payments.

Cash Flows from Investing Activities - Continuing Operations

For the first six months ended June 30, 2024, cash used in investing activities from continuing operations primarily included capital expenditures of $292 million, partially offset by $34 million of proceeds from sales of marketable securities.

For the six months ended June 30, 2023 , cash used in investing activities from continuing operations primarily included capital expenditures of $328 million.

For the nine months ended September 30, 2024, cash used in investing activities from continuing operations primarily included capital expenditures of $314 million, partially offset by $34 million of proceeds from sales of marketable securities.

For the nine months ended September 30, 2023 , cash used in investing activities from continuing operations primarily included capital expenditures of $340 million.

Cash Flows from Financing Activities

For the first six months ended June 30, 2024, cash used in financing activities included debt repayments of $824 million and dividend payments of $295 million, partially offset by proceeds from stock issued under employee benefit plans of $52 million.

For the six months ended June 30, 2023 , cash used for financing activities included dividend payments of $292 million and debt repayments of $142 million and a net decrease in commercial paper borrowings of $51 million, partially offset by proceeds from stock issued under employee benefit plans of $54 million.

For the nine months ended September 30, 2024, cash used in financing activities included debt repayments of $827 million and dividend payments of $443 million, partially offset by proceeds from stock issued under employee benefit plans of $63 million.

For the nine months ended September 30, 2023 , cash used for financing activities included dividend payments of $439 million and debt repayments of $353 million and a net increase in commercial paper borrowings of $214 million, partially offset by proceeds from stock issued under employee benefit plans of $86 million.

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

In July 2012, our 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 the first six months of 2024.

We had $1.30 billion remaining available under this authorization as of June 30, 2024.

We did not repurchase any shares under this authority in the first nine months of 2024.

We had $1.30 billion remaining available under this authorization as of September 30, 2024.

Credit Facilities, Commercial Paper Program and Access to Capital and Credit Ratings

Credit Facilities and Commercial Paper Program

As of June 30, 2024 , we had a U.S.

As of September 30, 2024 , 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.

As of June 30, 2024 , we had $130 million outstanding under one tranche of our U.S.

As of September 30, 2024 , we had $130 million outstanding under one tranche of our U.S.

dollar-denominated term loan credit facility that matures in 2024 and $1.64 billion outstanding under the other tranche of our U.S.

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

As of June 30, 2024, our U.S.

As of September 30, 2024, our U.S.

dollar-denominated revolving credit facility and Euro-denominated revolving credit facility had a maximum capacity of $2.00 billion and €200 million, respectively.

There were no borrowings outstanding under these credit facilities as of June 30, 2024 or December 31, 2023.

There were no borrowings outstanding under these credit facilities as of September 30, 2024 or December 31, 2023.

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.

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Borrowings under the bridge facility will be available in up to three drawings to fund (a) the refinancing of our 1.322% Senior Notes due November 29, 2024, our Floating Rate Notes due November 29, 2024, and certain borrowings under our existing term loan facility and (b) payment of certain U.S.

tax liabilities arising from internal reorganization transactions related to the proposed separation of our Kidney Care business.

tax liabilities arising from internal reorganization transactions related to the pending sale of our Kidney Care business.

Borrowings under the bridge facility will bear interest at a rate based on our long-term debt ratings in effect from time to time and the interest rate on any borrowings outstanding beyond December 31, 2024 would increase by 0.25%.

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The banks’ funding commitments under the bridge facility will terminate upon the earliest to occur of:

(i) our consummation of the debt repayments and tax payments described above without us having borrowed under the bridge facility, (ii) our election to terminate the commitments under the bridge facility, (iii) our receipt of net cash proceeds from certain transactions (including from the separation of our Kidney Care business), (iv) the occurrence of three drawings under the bridge facility, and (v) December 31, 2024.

(i) our consummation of the debt repayments and tax payments described above without us having borrowed under the bridge facility, (ii) our election to terminate the commitments under the bridge facility, (iii) our receipt of net cash proceeds from certain transactions (including from the pending sale of our Kidney Care business), (iv) the occurrence of three drawings under the bridge facility, and (v) December 31, 2024.

Outstanding borrowings under the bridge facility will mature on the earlier of 364 days from the first funding date and November 24, 2025.

Additionally, we are required to use the net cash proceeds from certain transactions (including from the separation of our Kidney Care business) to repay any outstanding borrowings under the bridge facility.

The bridge facility contains financial and other covenants, including a net leverage covenant, and provides for customary events of default.

Additionally, we are required to use the net cash proceeds from certain transactions (including from the pending sale of our Kidney Care business) to repay any outstanding borrowings under the bridge facility.

The bridge facility contains financial and other covenants, including a net leverage covenant, and provides for

customary events of default.

There were no borrowings outstanding under this bridge facility as of September 30, 2024.

In the first quarter of 2024, we amended the credit agreements governing our U.S.

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The amendment further provides for the reduction of the capacity under our U.S dollar-denominated revolving credit facility from $2.50 billion to $2.00 billion on the earlier of September 30, 2024 or the date of the sale or spinoff of our Kidney Care business.

As of June 30, 2024, we were in compliance with the financial covenants in these agreements.

Based on our covenant calculations as of June 30, 2024, we had capacity to draw on the full amounts under our credit facilities.

As of September 30, 2024, we were in compliance with the financial covenants in these agreements.

Based on our covenant calculations as of September 30, 2024, we had capacity to draw on the full amounts under our credit facilities.

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

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however, electing to do so would result in higher interest expense.

We had no commercial paper borrowings outstanding as of June 30, 2024.

We had no commercial paper borrowings outstanding as of September 30, 2024.

Access to Capital and Credit Ratings

We intend to fund short-term and long-term obligations as they mature through cash on hand, future cash flows from operations, and potentially by issuing debt, which could include commercial paper, bond issuances, or other financing arrangements, including the bridge facility.

We had $2.10 billion of cash and cash equivalents as of June 30, 2024, with adequate cash available to meet operating requirements in each jurisdiction in which we operate.

We had $1.42 billion of cash and cash equivalents as of September 30, 2024, with adequate cash available to meet operating requirements in each jurisdiction in which we operate.

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

As of June 30, 2024, we had approximately $12.90 billion of long-term debt and finance lease obligations, including current maturities, and no short-term debt.

As of September 30, 2024, we had approximately $12.94 billion of long-term debt and finance lease obligations, including current maturities, and no short-term debt.

We used substantially all of the remaining net after-tax cash proceeds from the BPS divestiture to repay indebtedness in the first half of 2024.

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

We intend to use the net after-tax proceeds from the pending sale of our Kidney Care business to repay certain of our debt obligations, consistent with our stated capital allocation priorities.

Prior to the pending sale of our Kidney Care business, we plan to bring back a portion of the cash related to our Kidney Care business after giving effect to any applicable taxes and which is currently classified in discontinued operations.

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

However, we believe we have sufficient financial flexibility to issue debt, enter into other financing arrangements, and attract long-term capital on acceptable terms to support our growth objectives and reduce our post-Hillrom acquisition debt levels as we take actions consistent with our capital allocation priorities and strategic initiatives (including completion of the proposed Kidney Care separation).

In January 2024, Fitch revised our senior debt credit rating from BBB to BBB-, our senior debt credit rating outlook from rating watch negative to stable and our short-term debt credit rating from F2 to F3.

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A summary of our significant accounting policies is included in Note 1 to our consolidated financial statements in our 2023 Annual Report.

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

about the effects of matters that are inherently uncertain.

Such policies are summarized in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in our 2023 Annual Report.

Impairment of Goodwill and Other Long-Lived Assets

Chronic Therapies Reporting Unit

In March 2024, we announced that we had been in recent discussions with select private equity investors to explore a potential sale of our Kidney Care business in lieu of the previously announced proposed spinoff of that business.

While we have not finalized our decision with respect to the ultimate structure of the proposed Kidney Care separation at the time of this filing, we received bids from prospective buyers in June 2024 following the completion of a related due diligence process in connection with a potential sale transaction.

If we were to sell our overall Kidney Care business at a price consistent with the bid we received that we believe to be most representative of fair value, we would recognize a significant gain, although the expected net pre-tax proceeds would be less than the sum of the individual fair values that we previously estimated for the two reporting units within our Kidney Care segment in connection with our most recent goodwill impairment assessments.

Additionally, the fair value of our Chronic Therapies reporting unit within our Kidney Care segment exceeded its carrying value by only 6% as of November 1, 2023, the date of our most recent goodwill impairment test for that reporting unit.

As a result of those factors, we performed an interim goodwill impairment assessment of our Chronic Therapies reporting unit in the second quarter of 2024, which resulted in a pre-tax goodwill impairment charge of $430 million, representing all of the goodwill of that reporting unit.

The fair value of our Chronic Therapies reporting unit was determined based on a discounted cash flow model (an income approach) and earnings multiples (a market approach) based on the guideline public company method.

Significant assumptions used in the determination of the fair value of the reporting unit included forecasted cash flows, discount rates, terminal growth rates, and earnings multiples.

The discounted cash flow model used to determine the fair value of our Chronic Therapies reporting unit included our most recent cash flow projections, a 12.5% discount rate, and a 2.5% terminal growth rate, and multiples of forward-looking EBITDA ranged from 4.75 to 5.00.

Our Chronic Therapies reporting unit fair value measurement is classified as Level 3 in the fair value hierarchy because it involves significant unobservable inputs.

The fair value of the remaining reporting unit within our Kidney Care segment, Acute Therapies, significantly exceeded its carrying value as of its most recent goodwill impairment test and we determined that an interim goodwill impairment test of that reporting unit was not required.

However, in connection with the interim goodwill impairment test of our Chronic Therapies reporting unit during the second quarter of 2024, we also performed a fair value measurement of our Acute Therapies reporting unit and we calibrated the sum of the fair values of those two Kidney Care reporting units to the bid we received for the overall Kidney Care business that we believe to be most representative of fair value.

The discounted cash flow projections used in the valuation of our Chronic Therapies reporting unit for the goodwill impairment test as of June 30, 2024 did not change significantly from the projections used in connection with the November 1, 2023 test.

However, for purposes of the June 30, 2024 valuation, the discount rate used in the discounted cash flow model was increased and the earnings multiples used in the guideline public company model were decreased to reflect our current understanding, based on the bids received during the proposed sale process, of how market participants view the risks associated with the business.

We also evaluated whether to perform impairment testing for other long-lived assets within our Kidney Care segment, including property, plant, and equipment related to our HD business.

However, given the significant impairment that we recently recognized for the long-lived assets of the HD business during the third quarter of 2023, improvements in undiscounted cash flow projections for that business since that time, and the significant excess of fair value over carrying value for the remaining asset groups within our Kidney Care segment at the time of their most recent valuations during the second half of 2023, we determined that a quantitative impairment test of other long-lived assets was not required in the current period.

Front Line Care Reporting Unit

In connection with our November 1, 2023 annual goodwill impairment tests, we determined that the fair value of the Front Line Care reporting unit within our Healthcare Systems and Technologies segment exceeded its carrying value by approximately 5%.

While no triggering events were identified during the six months ended June 30, 2024, we are continuing to closely monitor the performance of this reporting unit, and if there is a significant adverse change in our outlook for this business in the future, a goodwill impairment could arise at that time.

As of June 30, 2024, the carrying amount of goodwill for our Front Line Care reporting unit was $2.42 billion.

There have been no significant changes in the application of our critical accounting policies during the first six months of 2024.

While no triggering events were identified during the nine months ended September 30, 2024, we are continuing to closely monitor the performance of this reporting unit, and if there is a significant adverse change in our outlook for this business in the future, a goodwill impairment could arise at that time.

As of September 30, 2024, the carrying amount of goodwill for our Front Line Care reporting unit was $2.42 billion.

There have been no significant changes in the application of our critical accounting policies during the first nine months of 2024.

RECENT ACCOUNTING PRONOUNCEMENTS

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Since the issuance of the 2017 Warning Letter, we have implemented corrective and preventive actions to address FDA's related observations, as well as other enhancements at the site.

We have fully responded to

the 2023 Warning Letter, have implemented additional corrective and preventive actions, and continue to engage with FDA regarding the agency's observations.

In addition, since the issuance of the 2017 Warning Letter, we have secured other sites in our manufacturing network and have launched and distribute select products from those sites in the U.S.

We have fully responded to the 2023 Warning Letter, have implemented additional corrective and preventive actions, and continue to engage with FDA regarding the agency's observations.

In addition, since the issuance of the 2017 Warning Letter, we have

secured other sites in our manufacturing network and have launched and distribute select products from those sites in the U.S.

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

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Use of the words “may,” “will,” “would,” “could,” “should,” “believes,” “estimates,” “projects,” “potential,” “expects,” “plans,” “seeks,” “intends,” “evaluates,” “pursues,” “anticipates,” “continues,” “designs,” “impacts,” “affects,” “forecasts,” “target,” “outlook,” “initiative,” “objective,” “designed,” “priorities,” “goal,” or the negative of those words or other similar expressions may identify forward-looking statements, although not all forward-looking statements contain such words.

These forward-looking statements may include statements with respect to the proposed separation of our Kidney Care business and other portfolio management activities we may undertake in the future, the costs, structure, and timing associated with strategic initiatives including the proposed separation, the viability and accuracy of anticipated benefits of our strategic actions, the expected growth rates for our segments, accounting estimates and assumptions (including with respect to goodwill and other intangible asset impairments), global economic conditions, litigation-related matters, future regulatory filings (or the withdrawal or resubmission of any pending submissions) and our R&D pipeline (including anticipated product approvals or clearances), sales from new product offerings, credit exposure to foreign governments, the adequacy of cash flows and credit facilities, potential developments with respect to credit ratings, investment of foreign earnings, estimates of liabilities including those related to uncertain tax positions, contingent payments, future pension plan contributions, costs, discount rates and rates of return, our exposure to financial market volatility and foreign currency, interest rate and credit risks, our net interest expense, the impact of inflation on our business, the impact of competition, future sales growth, business development activities, cost saving initiatives, future capital and R&D expenditures, future debt issuances and refinancings, the adequacy of tax provisions and reserves, the effective income tax rate, and all other statements that do not relate to historical facts.

These forward-looking statements may include statements with respect to the pending sale of our Kidney Care business and other portfolio management activities we may undertake in the future, the costs, structure, and timing associated with strategic initiatives including the pending sale, the viability and accuracy of anticipated benefits of our strategic actions, our ability to successfully integrate acquisitions and complete divestitures, the expected growth rates for our segments, accounting estimates and assumptions (including with respect to goodwill and other intangible asset impairments), global economic conditions, severe storms and storm-related impacts, litigation-related matters, future regulatory filings (or the withdrawal or resubmission of any pending submissions) and our R&D pipeline (including anticipated product approvals or clearances), sales from new product offerings, credit exposure to foreign governments, the adequacy of cash flows and credit facilities, potential developments with respect to credit ratings, investment of foreign earnings, estimates of liabilities including those related to uncertain tax positions, contingent payments, future pension plan contributions, costs, discount rates and rates of return, our exposure to financial market volatility and foreign currency, interest rate and credit risks, our net interest expense, the impact of inflation on our business, the impact of competition, future sales growth, business development activities, cost saving initiatives, future capital and R&D expenditures, future debt issuances and refinancings, the adequacy of tax provisions and reserves, the effective income tax rate, and all other statements that do not relate to historical facts.

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

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

• our ability to execute and complete strategic initiatives, asset dispositions, and other transactions, including the proposed separation of our Kidney Care business, our plans to simplify our manufacturing footprint and the timing for such transactions, the ability of the parties to secure any required regulatory approvals or satisfy any applicable conditions, and our ability to realize the expected proceeds, consideration, and benefits of these transactions (including with respect to any post-separation arrangements or cost savings initiatives);

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

• our ability to execute on our capital allocation plans, including our debt repayment plans, the timing and amount of any dividends, share repurchases and divestiture proceeds, and, if we proceed with the separation of the Kidney Care business in the form of a spinoff, the capital structure of the public company that would be formed (and the resulting capital structure for the remaining company);

• our ability to successfully integrate acquisitions;

Middle East (including recent attacks on merchant ships in the Red Sea), tensions amongst China, Taiwan, and the U.S.

• our ability to execute and complete strategic initiatives, asset dispositions, and other transactions, including the pending sale of our Kidney Care business, our plans to simplify our manufacturing footprint and the timing for such transactions, the ability of the parties to secure any required regulatory approvals or satisfy any applicable conditions, and our ability to realize the expected proceeds, consideration, and benefits of these transactions (including with respect to any post-sale arrangements or cost savings initiatives);

• failure to accurately forecast or achieve our short-and long-term financial performance and goals (including with respect to our strategic initiatives and other actions), market and category growth rates, and related impacts on our liquidity;

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

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

levels and with being able to monetize new and existing products and services (and to sustain any related price increases), the impact of those products on quality and patient safety concerns, and the need for ongoing training and support for our products;

• our ability to successfully integrate acquisitions including the acquisition of Hillrom, and the related impact on our organization structure, senior leadership, culture, functional alignment, outsourcing and other areas, our management of resulting related personnel capacity constraints and potential institutional knowledge loss, and our ability to achieve anticipated performance or financial targets and maintain our reputation following integration;

• the impact of global economic conditions (including, among other things, inflation levels, interest rates, financial market volatility, banking crises, the potential for a recession, the war in Ukraine, the conflict in the Middle East (including recent attacks on merchant ships in the Red Sea), tensions amongst China, Taiwan, and the U.S.

and the potential for escalation of these conflicts, the related economic sanctions being imposed globally in response to the conflicts and potential trade wars and global public health crises, pandemics and epidemics, or the anticipation of any of the foregoing, on our operations and our employees, customers, suppliers, and foreign governments in countries in which we operate;

• the impact of physical effects of climate change, severe storms (including Hurricane Helene) and storm-related events, including our ability to import and distribute product from other facilities in connection with temporary importation authorizations, the reallocation of manufacturing capacity, the ability to receive necessary regulatory or other approvals required to reopen all or a portion of impacted facilities, the ability to resume production at our North Cove facility on the expected time frame or at all and physical, environmental or other obstacles identified during the course of remediation, including with respect to the availability of third party contractors and any equipment, transportation or other supplies needed to support the remediation efforts;

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

• downgrades to our credit ratings or ratings outlooks, or withdrawals by rating agencies from rating us and our indebtedness, and the related impact on our funding costs and liquidity;

• the impact of any goodwill, intangible asset, or other long-lived asset impairments on our operating results;

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

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

• demand and market acceptance risks for, and competitive pressures related to, new and existing products, challenges with accurately predicting changing customer preferences and future expenditures and inventory levels and with being able to monetize new and existing products and services, the impact of those products on quality and patient safety concerns, and the need for ongoing training and support for our products;

• breaches, including by cyber-attack, data leakage, unauthorized access or theft, or failures of or vulnerabilities in, our information technology systems, or products;

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

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

• loss of key employees (including those involved with any key strategic actions), the occurrence of labor disruptions (including as a result of labor disagreements under bargaining agreements or national trade union agreements or disputes with works councils) or the inability to attract, develop, retain, and engage employees;

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis