UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

_________________________________________________________________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~March 31,~~September 30, 2023


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-4448

BAXTER INTERNATIONAL INC.

(Exact name of registrant as specified in its charter)

_________________________________________________________________________________

Delaware

36-0781620

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

One Baxter Parkway,

Deerfield,

Illinois

60015

(Address of Principal Executive Offices)

(Zip Code)

224.

948.2000

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, $1.00 par value

BAX (NYSE)

New York Stock Exchange

Chicago Stock Exchange

0.4% Global Notes due 2024

BAX 24

New York Stock Exchange

1.3% Global Notes due 2025

BAX 25

New York Stock Exchange

1.3% Global Notes due 2029

BAX 29

New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

The number of shares of the registrant’s Common Stock, par value $1.00 per share, outstanding as of ~~April 20,~~October 26, 2023 was ~~505,850,082~~507,323,509 shares.

BAXTER INTERNATIONAL INC.

FORM 10-Q

For the quarterly period ended ~~March 31,~~September 30, 2023

TABLE OF CONTENTS


		Page Number
PART I.	FINANCIAL INFORMATION	2
Item 1.	Financial Statements (unaudited)	2
	Condensed Consolidated Balance Sheets	2
	Condensed Consolidated Statements of Income (Loss)	3
	Condensed Consolidated Statements of Comprehensive Income (Loss)	4
	Condensed Consolidated Statements of Changes in Equity	5
	Condensed Consolidated Statements of Cash Flows	67
	Notes to Condensed Consolidated Financial Statements	78
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2534
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	3853
Item 4.	Controls and Procedures	3954

PART II.	OTHER INFORMATION	4055
Item 1.	Legal Proceedings	4055
Item 1A.	Risk Factors	4055
Item 2.	Unregistered Sales of Equity Securities ~~and~~ , Use of Proceeds and Issuer Purchases of Equity Securities	55
Item 5.	Other Information	4055
Item 6.	Exhibits	4156
Signature		4257

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

Baxter International Inc.

Condensed Consolidated Balance Sheets (unaudited)

(in millions, except share information)


		March 31, 2023		December 31, 2022			September 30, 2023		December 31, 2022
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	1,673	$	1,718	Cash and cash equivalents	$	5,788	$	1,718
Accounts receivable, net of allowances of $122 in 2023 and $114 in 2022		2,547		2,659
Accounts receivable, net of allowances of $132 in 2023 and $114 in 2022						Accounts receivable, net of allowances of $132 in 2023 and $114 in 2022	2,512		2,571
Inventories	Inventories	2,922		2,718		Inventories	2,873		2,679
Prepaid expenses and other current assets	Prepaid expenses and other current assets	957		916		Prepaid expenses and other current assets	861		857
Current assets of discontinued operations						Current assets of discontinued operations	—		186
Total current assets	Total current assets	8,099		8,011		Total current assets	12,034		8,011
Property, plant and equipment, net	Property, plant and equipment, net	5,000		4,979		Property, plant and equipment, net	4,278		4,695
Goodwill	Goodwill	6,868		6,843		Goodwill	6,407		6,452
Other intangible assets, net	Other intangible assets, net	6,640		6,793		Other intangible assets, net	6,230		6,793
Operating lease right-of-use assets	Operating lease right-of-use assets	554		550		Operating lease right-of-use assets	519		541
Other non-current assets	Other non-current assets	1,130		1,111		Other non-current assets	1,188		1,109
Non-current assets of discontinued operations						Non-current assets of discontinued operations	—		686
Total assets	Total assets	$	28,291	$	28,287	Total assets	$	30,656	$	28,287
Current liabilities:	Current liabilities:					Current liabilities:
Short-term debt	Short-term debt	$	50	$	299	Short-term debt	$	514	$	299
Current maturities of long-term debt and finance lease obligations	Current maturities of long-term debt and finance lease obligations	1,103		1,105		Current maturities of long-term debt and finance lease obligations	1,912		1,105
Accounts payable	Accounts payable	1,290		1,139		Accounts payable	1,246		1,110
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	2,317		2,202		Accrued expenses and other current liabilities	2,537		2,170
Current liabilities of discontinued operations						Current liabilities of discontinued operations	—		61
Total current liabilities	Total current liabilities	4,760		4,745		Total current liabilities	6,209		4,745
Long-term debt and finance lease obligations, less current portion	Long-term debt and finance lease obligations, less current portion	15,278		15,232		Long-term debt and finance lease obligations, less current portion	14,067		15,232
Operating lease liabilities	Operating lease liabilities	458		456		Operating lease liabilities	436		447
Other non-current liabilities	Other non-current liabilities	1,854		1,959		Other non-current liabilities	1,778		1,848
Non-current liabilities of discontinued operations						Non-current liabilities of discontinued operations	—		120
Total liabilities	Total liabilities	22,350		22,392		Total liabilities	22,490		22,392
Commitments and contingencies	Commitments and contingencies					Commitments and contingencies
Equity:	Equity:					Equity:
Common stock, $1 par value, authorized 2,000,000,000 shares, issued 683,494,944 shares in 2023 and 2022	Common stock, $1 par value, authorized 2,000,000,000 shares, issued 683,494,944 shares in 2023 and 2022	683		683		Common stock, $1 par value, authorized 2,000,000,000 shares, issued 683,494,944 shares in 2023 and 2022	683		683
Common stock in treasury, at cost,177,658,649 shares in 2023 and 179,062,594 shares in 2022		(11,324)		(11,389)
Common stock in treasury, at cost, 176,198,622 shares in 2023 and 179,062,594 shares in 2022						Common stock in treasury, at cost, 176,198,622 shares in 2023 and 179,062,594 shares in 2022	(11,249)		(11,389)
Additional contributed capital	Additional contributed capital	6,312		6,322		Additional contributed capital	6,368		6,322
Retained earnings	Retained earnings	13,947		14,050		Retained earnings	16,015		14,050
Accumulated other comprehensive income (loss)	Accumulated other comprehensive income (loss)	(3,739)		(3,833)		Accumulated other comprehensive income (loss)	(3,716)		(3,833)
Total Baxter stockholders’ equity	Total Baxter stockholders’ equity	5,879		5,833		Total Baxter stockholders’ equity	8,101		5,833
Noncontrolling interests	Noncontrolling interests	62		62		Noncontrolling interests	65		62
Total equity	Total equity	5,941		5,895		Total equity	8,166		5,895
Total liabilities and equity	Total liabilities and equity	$	28,291	$	28,287	Total liabilities and equity	$	30,656	$	28,287

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

Baxter International Inc.

Condensed Consolidated Statements of Income (Loss) (unaudited)

(in millions, except per share data)


		Three months ended March 31,					Three months ended September 30,						Nine months ended September 30,
		2023		2022					2023		2022			2023		2022
Net sales	Net sales	$	3,649	$	3,707			Net sales	$	3,708	$	3,609		$	10,928	$	10,761
Cost of sales	Cost of sales	2,302		2,359				Cost of sales	2,591		2,564			7,425		7,083
Gross margin	Gross margin	1,347		1,348				Gross margin	1,117		1,045			3,503		3,678
Selling, general and administrative expenses	Selling, general and administrative expenses	1,010		1,052				Selling, general and administrative expenses	1,002		941			2,961		2,958
Research and development expenses	Research and development expenses	164		150				Research and development expenses	166		151			495		448

Other operating income, net		(13)		(17)
Operating income		186		163
Goodwill impairments								Goodwill impairments	—		2,785			—		2,785
Other operating expense (income), net								Other operating expense (income), net	—		48			(14)		20
Operating income (loss)								Operating income (loss)	(51)		(2,880)			61		(2,533)
Interest expense, net	Interest expense, net	117		85				Interest expense, net	128		104			369		278
Other income, net		(1)		(16)
Income before income taxes		70		94
Income tax expense		25		21
Net income		45		73
Other (income) expense, net								Other (income) expense, net	(7)		61			33		1
Loss from continuing operations before income taxes								Loss from continuing operations before income taxes	(172)		(3,045)			(341)		(2,812)
Income tax benefit								Income tax benefit	(223)		(54)			(199)		(14)
Income (loss) from continuing operations								Income (loss) from continuing operations	51		(2,991)			(142)		(2,798)
Income from discontinued operations, net of tax								Income from discontinued operations, net of tax	2,460		57			2,559		192
Net income (loss)								Net income (loss)	2,511		(2,934)			2,417		(2,606)
Net income attributable to noncontrolling interests	Net income attributable to noncontrolling interests	1		2				Net income attributable to noncontrolling interests	3		3			6		8
Net income attributable to Baxter stockholders		$	44	$	71
Earnings per share
Net income (loss) attributable to Baxter stockholders								Net income (loss) attributable to Baxter stockholders	$	2,508	$	(2,937)		$	2,411	$	(2,614)
Income (loss) from continuing operations per common share								Income (loss) from continuing operations per common share
Basic								Basic	$	0.09	$	(5.94)		$	(0.29)	$	(5.58)
Diluted								Diluted	$	0.09	$	(5.94)		$	(0.29)	$	(5.58)
Income from discontinued operations per common share								Income from discontinued operations per common share
Basic								Basic	$	4.85	$	0.11		$	5.06	$	0.38
Diluted								Diluted	$	4.83	$	0.11		$	5.06	$	0.38
Net income (loss) per common share								Net income (loss) per common share
Basic	Basic	$	0.09	$	0.14			Basic	$	4.95	$	(5.83)		$	4.76	$	(5.20)
Diluted	Diluted	$	0.09	$	0.14			Diluted	$	4.93	$	(5.83)		$	4.76	$	(5.20)
Weighted-average number of shares outstanding	Weighted-average number of shares outstanding					Weighted-average number of shares outstanding
Basic	Basic	505		503				Basic	507		504			506		503
Diluted	Diluted	507		509				Diluted	509		504			506		503

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

Baxter International Inc.

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

(in millions)

Three months ended
March 31,
2023 2022
Net income $ 45 $ 73
Other comprehensive income (loss), net of tax:
Currency translation adjustments, net of tax expense (benefit) of ($13) and $(11) for the three months ended March 31, 2023 and 2022, respectively. 102 (15)
Pension and other postretirement benefits, net of tax expense (benefit) of ($1) and $3 for the three months ended March 31, 2023 and 2022, respectively. (6) 9
Hedging activities, net of tax expense (benefit) of ($1) for the three months ended March 31, 2023 and 2022. (2) (2)
Available-for-sale debt securities, net of tax expense of zero and $1 for the three months ended March 31, 2023 and 2022, respectively. — 1
Total other comprehensive income (loss), net of tax 94 (7)
Comprehensive income 139 66
Less: Comprehensive income attributable to noncontrolling interests 1 2
Comprehensive income attributable to Baxter stockholders $ 138 $ 64


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Income (loss) from continuing operations	$	51	$	(2,991)	$	(142)	$	(2,798)
Other comprehensive income (loss) from continuing operations, net of tax:
Currency translation adjustments, net of tax expense (benefit) of $10 and $(16) for the three months ended September 30, 2023 and 2022, respectively, and $1 and ($25) for the nine months ended September 30, 2023 and 2022, respectively.	(67)		(274)		(62)		(650)
Pension and other postretirement benefits, net of tax expense (benefit) of zero and $5 for the three months ended September 30, 2023 and 2022, respectively, and ($3) and $13 the nine months ended September 30, 2023 and 2022, respectively.	(1)		15		(12)		47
Hedging activities, net of tax expense (benefit) of $2 and $5 for the three months ended September 30, 2023 and 2022, respectively, and $3 and $8 for the nine months ended September 30, 2023 and 2022, respectively.	5		16		10		27
Available-for-sale debt securities, net of tax expense of zero for the three months ended September 30, 2023 and 2022 and zero and $1 for the nine months ended September 30, 2023 and 2022, respectively.	—		—		—		2
Total other comprehensive loss from continuing operations, net of tax	(63)		(243)		(64)		(574)
Comprehensive loss from continuing operations	(12)		(3,234)		(206)		(3,372)
Income from discontinued operations, net of tax	2,460		57		2,559		192
Other comprehensive income (loss) from discontinued operations
Currency translation adjustments, net of tax expense (benefit) of zero for the three and nine months ended September 30, 2023 and 2022	165		(45)		185		(101)
Pension and other postretirement benefits, net of tax expense (benefit) of zero for the three and nine months ended September 30, 2023 and 2022	(4)		1		(4)		1
Total other comprehensive income (loss) from discontinued operations	161		(44)		181		(100)
Comprehensive income from discontinued operations	2,621		13		2,740		92
Comprehensive income (loss)	2,609		(3,221)		2,534		(3,280)
Less: Comprehensive income attributable to noncontrolling interests	3		3		6		8
Comprehensive income (loss) attributable to Baxter stockholders	$	2,606	$	(3,224)	$	2,528	$	(3,288)

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

Baxter International Inc.

Condensed Consolidated Statements of Changes in Equity (unaudited)

(in millions)


		For the three months ended March 31, 2023																			For the three months ended September 30, 2023
		Baxter International Inc. stockholders' equity																			Baxter International Inc. stockholders' equity
		Common stock shares	Common stock		Common stock shares in treasury	Common stock in treasury		Additional contributed capital		Retained earnings		Accumulated other comprehensive income (loss)		Total Baxter stockholders' equity		Noncontrolling interests		Total equity			Common stock shares	Common stock		Common stock shares in treasury	Common stock in treasury		Additional contributed capital		Retained earnings		Accumulated other comprehensive income (loss)		Total Baxter stockholders' equity		Noncontrolling interests		Total equity
Balance as of January 1, 2023		683	$	683	179	$	(11,389)	$	6,322	$	14,050	$	(3,833)	$	5,833	$	62	$	5,895
Balance as of July 1, 2023																				Balance as of July 1, 2023	683	$	683	177	$	(11,296)	$	6,341	$	13,655	$	(3,814)	$	5,569	$	62	$	5,631

Net income	Net income	—	—		—	—		—		44		—		44		1		45		Net income	—	—		—	—		—		2,508		—		2,508		3		2,511
Other comprehensive income		—	—		—	—		—		—		94		94		—		94
Other comprehensive income (loss)																				Other comprehensive income (loss)	—	—		—	—		—		—		98		98		—		98

Stock issued under employee benefit plans and other	Stock issued under employee benefit plans and other	—	—		(1)	65		(10)		—		—		55		—		55		Stock issued under employee benefit plans and other	—	—		(1)	47		27		—		—		74		—		74
Dividends declared on common stock	Dividends declared on common stock	—	—		—	—		—		(147)		—		(147)		—		(147)		Dividends declared on common stock	—	—		—	—		—		(148)		—		(148)		—		(148)
Change in noncontrolling interests	Change in noncontrolling interests	—	—		—	—		—		—		—		—		(1)		(1)		Change in noncontrolling interests	—	—		—	—		—		—		—		—		—		—
Balance as of March 31, 2023		683	$	683	178	$	(11,324)	$	6,312	$	13,947	$	(3,739)	$	5,879	$	62	$	5,941
Balance as of September 30, 2023																				Balance as of September 30, 2023	683	$	683	176	$	(11,249)	$	6,368	$	16,015	$	(3,716)	$	8,101	$	65	$	8,166



	For the nine months ended September 30, 2023
	Baxter International Inc. stockholders' equity
	Common stock shares	Common stock		Common stock shares in treasury	Common stock in treasury		Additional contributed capital		Retained earnings		Accumulated other comprehensive income (loss)		Total Baxter stockholders' equity		Noncontrolling interests		Total equity
Balance as of January 1, 2023	683	$	683	179	$	(11,389)	$	6,322	$	14,050	$	(3,833)	$	5,833	$	62	$	5,895

Net income	—	—		—	—		—		2,411		—		2,411		6		2,417
Other comprehensive income (loss)	—	—		—	—		—		—		117		117		—		117

Stock issued under employee benefit plans and other	—	—		(3)	140		46		—		—		186		—		186
Dividends declared on common stock	—	—		—	—		—		(446)		—		(446)		—		(446)
Change in noncontrolling interests	—	—		—	—		—		—		—		—		(3)		(3)
Balance as of September 30, 2023	683	$	683	176	$	(11,249)	$	6,368	$	16,015	$	(3,716)	$	8,101	$	65	$	8,166

For the three months ended March 31, 2022
Baxter International Inc. stockholders' equity
Common stock shares Common stock Common stock shares in treasury Common stock in treasury Additional contributed capital Retained earnings Accumulated other comprehensive income (loss) Total Baxter stockholders' equity Noncontrolling interests Total equity
Balance as of January 1, 2022 683 $ 683 182 $ (11,488) $ 6,197 $ 17,065 $ (3,380) $ 9,077 $ 44 $ 9,121
Net income — — — — — 71 — 71 2 73
Other comprehensive income — — — — — — (7) (7) — (7)
Stock issued under employee benefit plans and other — — (2) 66 10 — — 76 — 76
Dividends declared on common stock — — — — — (142) — (142) — (142)
Change in noncontrolling interests — — — — — — — — (2) (2)
Balance as of March 31, 2022 683 $ 683 180 $ (11,422) $ 6,207 $ 16,994 $ (3,387) $ 9,075 $ 44 $ 9,119


	For the three months ended September 30, 2022
	Baxter International Inc. stockholders' equity
	Common stock shares	Common stock		Common stock shares in treasury	Common stock in treasury		Additional contributed capital		Retained earnings		Accumulated other comprehensive income (loss)		Total Baxter stockholders' equity		Noncontrolling interests		Total equity
Balance as of July 1, 2022	683	$	683	180	$	(11,409)	$	6,253	$	17,099	$	(3,767)	$	8,859	$	44	$	8,903

Net loss	—	—		—	—		—		(2,937)		—		(2,937)		3		(2,934)
Other comprehensive income (loss)	—	—		—	—		—		—		(287)		(287)		—		(287)
Purchases of treasury stock	—	—		—	(24)		—		—		—		(24)		—		(24)
Stock issued under employee benefit plans and other	—	—		(1)	27		44		—		—		71		—		71
Dividends declared on common stock	—	—		—	—		—		(147)		—		(147)		—		(147)
Change in noncontrolling interests	—	—		—	—		—		—		—		—		(3)		(3)
Balance as of September 30, 2022	683	$	683	179	$	(11,406)	$	6,297	$	14,015	$	(4,054)	$	5,535	$	44	$	5,579



	For the nine months ended September 30, 2022
	Baxter International Inc. stockholders' equity
	Common stock shares	Common stock		Common stock shares in treasury	Common stock in treasury		Additional contributed capital		Retained earnings		Accumulated other comprehensive income (loss)		Total Baxter stockholders' equity		Noncontrolling interests		Total equity
Balance as of January 1, 2022	683	$	683	182	$	(11,488)	$	6,197	$	17,065	$	(3,380)	$	9,077	$	44	$	9,121

Net loss	—	—		—	—		—		(2,614)		—		(2,614)		8		(2,606)
Other comprehensive income (loss)	—	—		—	—		—		—		(674)		(674)		—		(674)
Purchases of treasury stock	—	—		—	(32)		—		—		—		(32)		—		(32)
Stock issued under employee benefit plans and other	—	—		(3)	114		100		—		—		214		—		214
Dividends declared on common stock	—	—		—	—		—		(436)		—		(436)		—		(436)
Change in noncontrolling interests	—	—		—	—		—		—		—		—		(8)		(8)
Balance as of September 30, 2022	683	$	683	179	$	(11,406)	$	6,297	$	14,015	$	(4,054)	$	5,535	$	44	$	5,579

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

Baxter International Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)

(in millions)


		Three months ended March 31,					Nine Months Ended September 30,
		2023		2022			2023		2022
Cash flows from operations	Cash flows from operations					Cash flows from operations
Net income		$	45	$	73
Net income (loss)						Net income (loss)	$	2,417	$	(2,606)
Less: Income from discontinued operations, net of tax						Less: Income from discontinued operations, net of tax	2,559		192
Loss from continuing operations						Loss from continuing operations	(142)		(2,798)
Adjustments to reconcile net income to cash flows from operations:	Adjustments to reconcile net income to cash flows from operations:					Adjustments to reconcile net income to cash flows from operations:
Depreciation and amortization	Depreciation and amortization	319		380		Depreciation and amortization	939		1,054
Deferred income taxes	Deferred income taxes	(50)		(55)		Deferred income taxes	(597)		(189)
Stock compensation	Stock compensation	25		32		Stock compensation	103		122
Net periodic pension and other postretirement costs	Net periodic pension and other postretirement costs	(4)		14		Net periodic pension and other postretirement costs	(12)		42

Goodwill impairments						Goodwill impairments	—		2,785
Intangible asset impairments						Intangible asset impairments	77		332
Other long-lived asset impairments						Other long-lived asset impairments	461		—
Loss on product divestiture arrangement						Loss on product divestiture arrangement	—		54
Reclassification of cumulative translation loss to earnings						Reclassification of cumulative translation loss to earnings	—		65
Other	Other	14		(12)		Other	45		(34)
Changes in balance sheet items:	Changes in balance sheet items:					Changes in balance sheet items:
Accounts receivable, net	Accounts receivable, net	136		153		Accounts receivable, net	55		(74)
Inventories	Inventories	(181)		(105)		Inventories	(216)		(405)
Prepaid expenses and other current assets	Prepaid expenses and other current assets	(39)		(13)		Prepaid expenses and other current assets	(44)		(106)
Accounts payable	Accounts payable	157		5		Accounts payable	136		81
Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	93		(221)		Accrued expenses and other current liabilities	372		(238)
Other	Other	(36)		(43)		Other	(80)		(97)

Cash flows from operations - continuing operations						Cash flows from operations - continuing operations	1,097		594
Cash flows from operations - discontinued operations						Cash flows from operations - discontinued operations	98		178
Cash flows from operations	Cash flows from operations	479		208		Cash flows from operations	1,195		772
Cash flows from investing activities	Cash flows from investing activities					Cash flows from investing activities
Capital expenditures	Capital expenditures	(172)		(140)		Capital expenditures	(502)		(438)
Acquisitions, net of cash acquired, and investments	Acquisitions, net of cash acquired, and investments	(3)		(174)		Acquisitions, net of cash acquired, and investments	(6)		(206)
Other investing activities, net	Other investing activities, net	5		10		Other investing activities, net	19		10
Cash flows from investing activities - continuing operations						Cash flows from investing activities - continuing operations	(489)		(634)
Cash flows from investing activities - discontinued operations						Cash flows from investing activities - discontinued operations	3,932		(41)
Cash flows from investing activities	Cash flows from investing activities	(170)		(304)		Cash flows from investing activities	3,443		(675)
Cash flows from financing activities	Cash flows from financing activities					Cash flows from financing activities
Repayments of debt	Repayments of debt	(3)		(404)		Repayments of debt	(353)		(953)

Net decreases in debt with original maturities of three months or less		(249)		(45)
Net increases in debt with original maturities of three months or less						Net increases in debt with original maturities of three months or less	214		30
Cash dividends on common stock	Cash dividends on common stock	(146)		(140)		Cash dividends on common stock	(439)		(427)
Proceeds from stock issued under employee benefit plans	Proceeds from stock issued under employee benefit plans	36		66		Proceeds from stock issued under employee benefit plans	86		114

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

Other financing activities, net	Other financing activities, net	(10)		(25)		Other financing activities, net	(62)		(51)
Cash flows from financing activities	Cash flows from financing activities	(372)		(548)		Cash flows from financing activities	(554)		(1,319)
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash	Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash	18		(13)		Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash	(14)		(130)
Decrease in cash, cash equivalents and restricted cash		(45)		(657)
Increase (decrease) in cash, cash equivalents and restricted cash						Increase (decrease) in cash, cash equivalents and restricted cash	4,070		(1,352)
Cash, cash equivalents and restricted cash at beginning of period (1)	Cash, cash equivalents and restricted cash at beginning of period (1)	1,722		2,956		Cash, cash equivalents and restricted cash at beginning of period (1)	1,722		2,956
Cash, cash equivalents and restricted cash at end of period (1)	Cash, cash equivalents and restricted cash at end of period (1)	$	1,677	$	2,299	Cash, cash equivalents and restricted cash at end of period (1)	$	5,792	$	1,604

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


		March 31, 2023		December 31, 2022		March 31, 2022			September 30, 2023		December 31, 2022		September 30, 2022
Cash and cash equivalents	Cash and cash equivalents	$	1,673	$	1,718	$	2,294	Cash and cash equivalents	$	5,788	$	1,718	$	1,601
Restricted cash included in prepaid expenses and other current assets	Restricted cash included in prepaid expenses and other current assets	4		4		5		Restricted cash included in prepaid expenses and other current assets	4		4		3
Cash, cash equivalents and restricted cash	Cash, cash equivalents and restricted cash	$	1,677	$	1,722	$	2,299	Cash, cash equivalents and restricted cash	$	5,792	$	1,722	$	1,604

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

Baxter International Inc.

Notes to Condensed Consolidated Financial Statements (unaudited)

1. BASIS OF PRESENTATION

The unaudited interim condensed consolidated financial statements of Baxter International Inc. and its subsidiaries (we, our or Baxter) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial reporting. Accordingly, certain information and ~~footnote~~note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) in the United States have been condensed or omitted. These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2022 (2022 Annual Report).

In the opinion of management, the unaudited interim condensed consolidated financial statements reflect all adjustments necessary for a fair presentation of the financial position, results of operations and cash flows for the periods presented. All such adjustments, unless otherwise noted herein, are of a normal, recurring nature. The results of operations for the current interim period are not necessarily indicative of the results of operations to be expected for the full year.

In January 2023, we announced our intention to separate our ~~Renal~~Kidney Care ~~and Acute Therapies product categories~~business into a new, publicly traded company. While the completion of the proposed spinoff is subject to satisfaction of customary conditions, we are targeting completion of the planned separation by July 2024 or earlier. ~~Additionally,~~

On September 29, 2023, we ~~announced that we are pursuing strategic alternatives (including a potential sale) for~~completed the sale of our BioPharma Solutions ~~product category.~~(BPS) business and received net pre-tax cash proceeds of $3.96 billion from that transaction. The financial position, results of operations and cash flows of our BPS business, including our gain from the sale of that business and the related cash proceeds received, are reported as discontinued operations in the accompanying condensed consolidated financial statements. See Note 2 for additional information.

Risks and Uncertainties

Supply Constraints and Global Economic Conditions

We have experienced significant challenges to our global supply chain in recent periods, including production delays and interruptions, increased costs and shortages of raw materials and component parts (including resins and electromechanical devices) and higher transportation costs, resulting from the pandemic and other exogenous factors including significant weather events, elevated inflation levels, increased interest rates, disruptions to certain ports of call around the world, the ~~war~~wars in Ukraine, Israel and Gaza and other geopolitical events. We expect to experience some of these and other challenges related to our supply chain in future periods. These challenges, including the unavailability of certain raw materials and component parts, have also had a negative impact on our sales for certain product categories due to our inability to fully satisfy ~~demand~~demand. While we have seen improvements in the availability of certain component parts and improved pricing in certain raw materials, these challenges have not completely subsided and may continue to have a negative impact on our sales in the future.

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

2. DISCONTINUED OPERATIONS

On September 29, 2023, we sold our BPS business to Advent International and Warburg Pincus (collectively, the "buyers"). Under the terms of the related Equity Purchase agreement entered into with the buyers in May 2023, we were entitled to aggregate consideration of $4.25 billion, subject to adjustment for specified items. After giving effect to those adjustments, we received cash proceeds of $3.96 billion. We recognized a pre-tax gain on the sale of $2.89 billion ($2.60 billion net of tax), which represents the excess of (a) the $3.91 billion in net consideration received, consisting of (i) $3.96 billion in cash proceeds from the buyers, less (ii) $47 million in transaction costs, over (b) the sum of (i) the $840 million net book value of the BPS business upon the closing of the transaction and (ii) BPS's $181 million other comprehensive loss, which was reclassified to earnings.

The BPS business, which was historically reported within our Americas segment, provides contract manufacturing and development services, which include sterile fill-finish manufacturing and support services across clinical and

commercial applications, primarily serving customers in the pharmaceutical industry. BPS was historically operated through our former, wholly-owned subsidiaries Baxter Pharmaceutical Solutions LLC, a Delaware limited liability company, and Baxter Oncology GmbH, a German limited liability company (collectively, the "divested entities"). We intend to use the net after-tax proceeds from this transaction to repay certain of our debt obligations.

We concluded that our BPS business met the criteria to be classified as held-for-sale in May 2023. A component of an entity is reported in discontinued operations after meeting the criteria for held-for-sale classification if the disposition represents a strategic shift that has (or will have) a major effect on the entity's operations and financial results. We analyzed the quantitative and qualitative factors relevant to the divestiture of our BPS business, including its significance to our overall net income (loss) and earnings (loss) per share, and determined that those conditions for discontinued operations presentation had been met. As such, the financial position, results of operations and cash flows of that business, including our gain from the sale of that business and the related cash proceeds received, are reported as discontinued operations in the accompanying condensed consolidated financial statements. Prior period amounts have been adjusted to reflect discontinued operations presentation.

At closing of the transaction, Baxter Pharmaceutical Solutions LLC included a BPS manufacturing facility in Bloomington Indiana and Baxter Oncology GmbH included a manufacturing facility in Halle Germany. Previously, Baxter Oncology GmbH included an additional manufacturing site in Bielefeld Germany that was not part of the BPS business and was transferred to another Baxter entity prior to closing of the divestiture. Accordingly, amounts related to the Bielefeld site continue to be presented as continuing operations in the accompanying condensed consolidated financial statements.

At closing of the transaction, Baxter entered into a Transition Services Agreement (TSA) and a Master Commercial Manufacturing and Supply Agreement (MSA) with the divested entities. Pursuant to the TSA, Baxter and the divested entities will provide to each other, on an interim basis, specific transition services for up to 24 months post-closing to help ensure business continuity and minimize disruptions. Services to be provided under the TSA include finance, information technology, human resources, integrated supply chain and certain other administrative services. Pursuant to the MSA, the divested entities will provide development, manufacturing, regulatory and other related services for certain Baxter pharmaceutical products for up to 5 years post-closing (with certain extension rights as provided therein).

Results of Discontinued Operations and Assets and Liabilities of Discontinued Operations

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


	Three months ended September 30,				Nine months ended September 30,
(in millions)	2023		2022		2023		2022
Net sales	$	191	$	164	$	469	$	465
Cost of sales	81		76		216		209
Gross margin	110		88		253		256
Selling, general and administrative expenses	15		6		44		17
Research and development expenses	1		1		2		2

Other (income) expense, net	2		2		2		2
Income from discontinued operations before gain on disposition and income taxes	92		79		205		235
Gain on disposition	2,890		—		2,890		—
Income tax expense	522		22		536		43
Income from discontinued operations, net of tax	$	2,460	$	57	$	2,559	$	192

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

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


(in millions)	December 31, 2022

Accounts receivable, net of allowances	$	88
Inventories	39
Prepaid expenses and other current assets	59
Property, plant and equipment, net	284
Goodwill	391
Operating lease right-of-use assets	9
Other non-current assets	2
Assets of discontinued operations	$	872
Accounts payable	$	29
Accrued expenses and other current liabilities	32
Operating lease liabilities	9
Other non-current liabilities	111
Liabilities of discontinued operations	$	181

3. SUPPLEMENTAL FINANCIAL INFORMATION

Allowance for Doubtful Accounts

The following table is a summary of the changes in our allowance for doubtful accounts for the three and nine months ended ~~March 31,~~September 30, 2023 and 2022.
Three months ended
March 31,
(in millions) 2023 2022
Balance at beginning of period $ 114 $ 122
Charged to costs and expenses 7 6
Write-offs (1) (1)
Currency translation adjustments 2 2
Balance at end of period $ 122 $ 129


	Three months ended September 30,				Nine months ended September 30,
(in millions)	2023		2022		2023		2022
Balance at beginning of period	$	128	$	125	$	114	$	122

Charged to costs and expenses	4		2		20		11
Write-offs	(1)		(2)		(7)		(4)
Currency translation adjustments	1		(5)		5		(9)
Balance at end of period	$	132	$	120	$	132	$	120

Inventories


(in millions)	(in millions)	March 31, 2023		December 31, 2022		(in millions)	September 30, 2023		December 31, 2022
Raw materials	Raw materials	$	812	$	738	Raw materials	$	713	$	698
Work in process	Work in process	316		293		Work in process	301		294
Finished goods	Finished goods	1,794		1,687		Finished goods	1,859		1,687
Inventories	Inventories	$	2,922	$	2,718	Inventories	$	2,873	$	2,679

Property, Plant and Equipment, Net


(in millions)	(in millions)	March 31, 2023		December 31, 2022		(in millions)	September 30, 2023		December 31, 2022
Property, plant and equipment, at cost	Property, plant and equipment, at cost	$	11,622	$	11,421	Property, plant and equipment, at cost	$	10,863	$	10,780
Accumulated depreciation	Accumulated depreciation	(6,622)		(6,442)		Accumulated depreciation	(6,585)		(6,085)
Property, plant and equipment, net	Property, plant and equipment, net	$	5,000	$	4,979	Property, plant and equipment, net	$	4,278	$	4,695

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

We review the carrying amounts of long-lived assets used in operations for potential impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating recoverability of long-lived assets other than goodwill and intangible assets not subject to amortization, we group assets and liabilities at the lowest level such that the identified cash flows relating to the group are largely independent of the cash flows of other assets and liabilities. If the carrying amount of an asset group is greater than the related estimated undiscounted future cash flows, the carrying value is not considered recoverable. In that case, an impairment charge is recorded if, and to the extent that, the amount by which the asset group's carrying amount exceeds its fair value. However, the portion of an impairment loss allocated to an individual long-lived asset within an asset group cannot reduce the carrying amount of that asset below its fair value is determinable without undue cost and effort.

Impairment of Opelika, Alabama Manufacturing Facility

Our manufacturing facility in Opelika, Alabama is one of three Baxter manufacturing facilities that currently produce dialyzers used in hemodialysis (HD) treatments. The current competitive environment has increased the global supply of those products and, in connection with our initiatives to streamline our manufacturing footprint and improve our profitability, we have made the decision to cease production of dialyzers at the Opelika facility near the end of 2023. We believe that there is more than adequate availability of dialyzers in the United States and globally, and we intend to continue to manufacture those products at volumes aligned with the related market demand at our other manufacturing facilities that currently produce them.

As a result of our decision to cease dialyzer production at this manufacturing facility, we performed a trigger-based recoverability assessment of its long-lived assets, which consist of a building and manufacturing equipment, including specialized equipment used in the production of dialyzers. The carrying amount of that asset group exceeded the estimated undiscounted cash flows expected to be generated, and we recognized an impairment charge of$243 million, classified within cost of sales in the accompanying condensed consolidated statements of income (loss), during the second quarter of 2023 to reduce the carrying amounts to their estimated fair values.

The fair values of the building and manufacturing equipment tested for impairment during the second quarter of 2023 were determined based on transaction prices of comparable assets (a market approach). Significant assumptions used in the determination of the fair values included the identification of representative comparable assets. Our long-lived asset fair value measurements are classified as Level 3 in the fair value hierarchy because they involve significant unobservable inputs.

Other Impairments of Long-Lived Assets Related to HD Business

In the third quarter of 2023, we completed the implementation of a new operating model intended to simplify and streamline our operations and better align our manufacturing and supply chain to our commercial activities. Our segments were changed during the third quarter of 2023 to align with our new operating model. See further discussion in Note 16, Segment Information. In connection with that segment change, we identified new reporting units for impairment testing purposes and performed fair value measurements of our reporting units to reallocate goodwill to the new reporting units based on their relative fair values and to assess those reporting units for impairment. We identified our HD business within our Kidney Care segment as one of the new reporting units. Based on the estimated fair value of that reporting unit, we allocated no goodwill to it. Additionally, we determined that a triggering event was present to review the carrying amounts of long-lived assets within the HD reporting unit, which include four manufacturing facilities that primarily manufacture HD products, HD equipment leased to customers under operating leases and developed technology intangible assets, for potential impairment. In connection with that evaluation, we determined that the carrying amount of the asset group represented by our HD reporting unit, which is the lowest level for which identifiable cash flows are largely independent of other assets and liabilities, exceeded its forecasted undiscounted cash flows. We then measured the excess of the carrying amount of that asset group over its fair value and allocated the resulting impairment to its long-lived assets, limiting the impairments of individual assets within the group to amounts that would not result in their carrying amounts being written down below their fair values. As a result, we recognized $267 million of long-lived asset impairment charges, comprised of (i) a $190 million impairment charge related to certain manufacturing equipment, operating lease right-of-use assets and HD equipment leased to customers and (ii) a $77 million impairment charge related to developed technology intangible assets. The impairments are classified within cost of sales in the accompanying consolidated statements of income (loss) for the three and nine months ended September 30, 2023.

The fair value of the HD asset group was based on a discounted cash flow model (an income approach). Significant assumptions used in the determination of its fair value include forecasted cash flows, discount rates and terminal growth rates. The discounted cash flow model used to determine the fair value of the HD asset group during the third quarter 2023 reflected our most recent cash flow projections, a discount rate of 8% and a terminal growth rate of 1.5%. We also measured the fair values of individual assets within that asset group to ensure that the allocation of the asset group’s impairment to the long-lived assets within that group would not reduce the carrying amount of any individual asset below its fair value. The fair values of the buildings, manufacturing equipment and HD equipment leased to customers within that asset group were determined based on transaction prices of comparable assets (a market approach). Significant assumptions used in the determination of those fair values included the identification of representative comparable assets. The fair value of the right-of-use asset within that group was determined based on market rents and discount rates. Our long-lived asset fair value measurements are classified as Level 3 in the fair value hierarchy because they involve significant unobservable inputs.

Interest Expense, Net


		Three months ended March 31,				Three months ended September 30,						Nine months ended September 30,
(in millions)	(in millions)	2023		2022			(in millions)	2023		2022			2023		2022
Interest expense, net of capitalized interest	Interest expense, net of capitalized interest	$	127	$	88		Interest expense, net of capitalized interest	$	136	$	109		$	395	$	290
Interest income	Interest income	(10)		(3)			Interest income	(8)		(5)			(26)		(12)
Interest expense, net	Interest expense, net	$	117	$	85		Interest expense, net	$	128	$	104		$	369	$	278

Other ~~Income,~~(Income) Expense, Net


		Three months ended March 31,				Three months ended September 30,						Nine months ended September 30,
(in millions)	(in millions)	2023		2022			(in millions)	2023		2022			2023		2022
Foreign exchange (gains) losses, net	Foreign exchange (gains) losses, net	$	14	$	(11)		Foreign exchange (gains) losses, net	$	13	$	—		$	49	(26)
Pension and other postretirement benefit plans	Pension and other postretirement benefit plans	(10)		(5)			Pension and other postretirement benefit plans	(11)		(6)			(32)		(18)

Pension curtailment							Pension curtailment	—		—			—		(11)
Change in fair value of marketable equity securities	Change in fair value of marketable equity securities	(5)		1			Change in fair value of marketable equity securities	(3)		3			3		(5)

Reclassification of cumulative translation loss to earnings							Reclassification of cumulative translation loss to earnings	—		65			—		65
Non-marketable investment impairments							Non-marketable investment impairments	—		—			23		—
Other, net	Other, net	—		(1)			Other, net	(6)		(1)			(10)		(4)
Other income, net		$	(1)	$	(16)
Other (income) expense, net							Other (income) expense, net	$	(7)	$	61		$	33	$	1

Non-Cash Operating and Investing Activities

Right-of-use operating lease assets obtained in exchange for lease obligations for the ~~three~~nine months ended ~~March 31,~~September 30, 2023 and 2022 were ~~$26~~$73 million and ~~$14~~$59 million, respectively.

Purchases of property, plant and equipment included in accounts payable as of ~~March 31,~~September 30, 2023 and 2022 were ~~$70~~$43 million and ~~$53~~$65 million, respectively.

4. GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Goodwill

The following is a reconciliation of goodwill by segment.


(in millions)	Americas		EMEA		APAC		Medical Products and Therapies		Healthcare Systems and Technologies1		Pharmaceuticals		Kidney Care		Total
Balance as of December 31, 2022	$	1,965	$	289	$	210	$	—	$	3,988	$	—	$	—	$	6,452
Currency translation and other	(27)		(4)		(3)		(2)		(7)		(1)		(1)		(45)
Reallocation of goodwill	(1,938)		(285)		(207)		1,195		—		542		693		—



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

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

We assess goodwill and indefinite-lived intangible assets for impairment annually during the fourth quarter or whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. We recognize a goodwill impairment charge for the amount by which a reporting unit's carrying amount exceeds its fair value.

Change in Reportable Segments

As discussed in Note 16, Segment Information, our reportable segments were previously comprised of the following geographic segments related to our legacy Baxter business: Americas (North and South America), EMEA (Europe, Middle East and Africa) and APAC (Asia Pacific), and a global segment for our Hillrom business. In the third quarter of 2023, we completed the implementation of a new operating model intended to simplify and streamline our operations and better align our manufacturing and supply chain to our commercial activities. Our segments were changed during the third quarter of 2023 to align with our new operating model. Our business ~~segment.~~
(in millions) Americas EMEA APAC Hillrom Total
Balance as of December 31, 2022 $ 2,356 $ 289 $ 210 $ 3,988 $ 6,843
Currency translation 18 2 2 3 25
Balance as of March 31, 2023 $ 2,374 $ 291 $ 212 $ 3,991 $ 6,868
is comprised of four segments under this new operating model: Medical Products and Therapies, Healthcare Systems and Technologies (formerly referred to as our Hillrom segment), Pharmaceuticals and Kidney Care. As a result of this segment change, we reallocated the goodwill from our previous Americas, EMEA and APAC segments to the reporting units within our new Medical Products and Therapies, Pharmaceuticals and Kidney Care segments based on the relative fair values of those reporting units. We also performed goodwill impairment assessments of all of our reporting units during the third quarter of 2023, including both our legacy reporting units and the reporting units of our new segments, and we did not identify any goodwill impairments.

~~For~~Goodwill Impairments

We acquired Hill-Rom Holdings, Inc. in December 2021 and recognized $6.83 billion of goodwill and $6.03 billion of other intangible assets, including $1.91 billion of indefinite-lived intangible assets, in connection with that acquisition. During the ~~periods ended March 31, 2023~~third quarter of 2022, we performed trigger-based impairment tests for each of the reporting units within our Hillrom segment (currently referred to as our Healthcare Systems and Technologies segment), as well as the indefinite-lived intangible assets, consisting primarily of trade names, that we acquired in connection with the Hillrom acquisition. We performed those tests as of September 30, 2022 ~~there~~due to (a) current macroeconomic conditions, including the rising interest rate environment and broad declines in equity valuations, and (b) reduced earnings forecasts for our Hillrom reporting units, driven primarily by shortages of certain component parts used in our products, raw materials inflation and increased supply chain costs. Those impairment tests resulted in total pre-tax goodwill impairment charges of $2.79 billion in the third quarter of 2022.

The fair values of the reporting units for which impairments were ~~no reductions~~recognized during the third quarter of 2022 were determined based on a discounted cash flow model (an income approach) and earnings multiples (a market approach) based on the guideline public company method. Significant assumptions used in ~~goodwill relating~~the determination of the fair values of our reporting units generally include forecasted cash flows, discount rates, terminal growth rates and earnings multiples. The discounted cash flow models used to ~~impairment losses.~~determine the fair values of our reporting units during 2022 reflected our most recent cash flow projections, discount rates ranging from 9% to 10% and terminal growth rates ranging from 2% to 3%. Our reporting unit fair value measurements are classified as Level 3 in the fair value hierarchy because they involve significant unobservable inputs.

813

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

Other intangible assets, net

The following is a summary of our other intangible assets.


								Indefinite-lived intangible assets													Indefinite-lived intangible assets
(in millions)	(in millions)	Customer relationships		Developed technology, including patents		Other amortized intangible assets		Trade names		In process Research and Development		Total		(in millions)	Customer relationships		Developed technology, including patents		Other amortized intangible assets		Trade names		In process Research and Development		Total
March 31, 2023
September 30, 2023														September 30, 2023
Gross other intangible assets	Gross other intangible assets	$	3,454	$	3,862	$	326	$	1,571	$	202	$	9,415	Gross other intangible assets	$	3,442	$	3,778	$	320	$	1,571	$	163	$	9,274
Accumulated amortization	Accumulated amortization	(529)		(2,000)		(246)		—		—		(2,775)		Accumulated amortization	(631)		(2,161)		(252)		—		—		(3,044)
Other intangible assets, net	Other intangible assets, net	$	2,925	$	1,862	$	80	$	1,571	$	202	$	6,640	Other intangible assets, net	$	2,811	$	1,617	$	68	$	1,571	$	163	$	6,230
December 31, 2022	December 31, 2022													December 31, 2022
Gross other intangible assets	Gross other intangible assets	$	3,452	$	3,836	$	325	$	1,571	$	202	$	9,386	Gross other intangible assets	$	3,442	$	3,836	$	325	$	1,571	$	202	$	9,376
Accumulated amortization	Accumulated amortization	(470)		(1,888)		(235)		—		—		(2,593)		Accumulated amortization	(460)		(1,888)		(235)		—		—		(2,583)
Other intangible assets, net	Other intangible assets, net	$	2,982	$	1,948	$	90	$	1,571	$	202	$	6,793	Other intangible assets, net	$	2,982	$	1,948	$	90	$	1,571	$	202	$	6,793

Intangible asset amortization expense was $162 million and ~~$217~~$168 million for the three months ended ~~March 31,~~September 30, 2023 and 2022, respectively, and $481 million and $578 million for the nine months ended September 30, 2023 and 2022, respectively.

Intangible Asset Impairments

Impairment of Developed Technology Intangible Asset Related to HD Business

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

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

Impairment of Indefinite-Lived Intangible Assets from Our Hillrom Acquisition

In the third quarter of 2022, we recognized pre-tax impairment charges of $332 million to reduce the carrying amounts of certain indefinite-lived intangible assets, which primarily related to the Hillrom and Welch Allyn trade names acquired in the Hillrom acquisition, to their estimated fair values. Those intangible asset impairment charges are classified within cost of sales in the accompanying consolidated statements of income (loss) for the three and nine months ended September 30, 2022.

The fair values of the trade name intangible assets were determined using the relief from royalty method. Significant assumptions used in the determination of the fair values of the trade name intangible assets included revenue growth rates, terminal growth rates, discount rates and royalty rates. The relief from royalty models used in the determination of the fair values of our trade name intangible assets during 2022 reflected our most recent revenue projections, a discount rate of 9.5%, royalty rates ranging from 3% to 5% and terminal growth rates ranging from 2% to 3%. Our trade name intangible asset fair value measurements are classified as Level 3 in the fair value hierarchy because they involve significant unobservable inputs.

4.5. FINANCING ARRANGEMENTS

Credit Facilities

In the first quarter of 2023, we amended the credit agreements governing our U.S. dollar-denominated term loan credit facility and revolving credit facility and the guaranty agreement with respect to our Euro-denominated revolving credit facility, in each case to amend the net leverage ratio covenant to increase the maximum net leverage ratio for the four fiscal quarters ending March 31, 2023, June 30, 2023, September 30, 2023 and December 31, 2023.

Our U.S. dollar-denominated revolving credit facility has a capacity of ~~$2.5~~$2.50 billion and our Euro-denominated revolving credit facility has a capacity of ~~€200 million.~~€200 million. Each of the facilities matures in 2026. There were no borrowings outstanding under these credit facilities as of ~~March 31,~~September 30, 2023 or December 31, 2022. Our commercial paper borrowing arrangements require us to maintain undrawn borrowing capacity under our credit facilities for an amount at least equal to our outstanding commercial paper borrowings. Based on our covenant calculations as of ~~March 31,~~September 30, 2023 we have capacity to draw ~~approximately $2.2 billion~~on the full amounts under our credit facilities, less commercial paper borrowings which were ~~$50~~$514 million as of ~~March 31,~~September 30, 2023.

In the first nine months of 2023, we repaid $350 million of our $2.00 billion three-year term loan facility. In October 2023, we repaid an additional $950 million under that term loan facility and our entire $514 million of outstanding commercial paper borrowings, both using proceeds from the sale of our BPS business. The losses from our early extinguishments of debt were not significant.

Commercial Paper

As of ~~March 31,~~September 30, 2023, we had ~~$50~~$514 million of commercial paper outstanding with a weighted-average interest rate of ~~5.42%~~5.53% and an original weighted-average term of 2813 days. As of December 31, 2022, we had $299 million of commercial paper outstanding with a weighted-average interest rate of 4.75% and an original weighted-average term of 32 days.

5.6. COMMITMENTS AND CONTINGENCIES

We are involved in product liability, patent, commercial, and other legal matters that arise in the normal course of our business. We record a liability when a loss is considered probable and the amount can be reasonably estimated. If the reasonable estimate of a probable loss is a range, and no amount within the range is a better estimate than any other amount, the minimum amount in the range is accrued. If a loss is not probable or a probable loss cannot be reasonably estimated, no liability is recorded. As of ~~March 31,~~September 30, 2023 and December 31, 2022, our total recorded reserves with respect to legal and environmental matters were ~~$29~~$33 million and $28 million, respectively.

We have established reserves for certain of the matters discussed below. We are not able to estimate the amount or range of any loss for certain contingencies for which there is no reserve or additional loss for matters already reserved. While our liability in connection with these claims cannot be estimated and the resolution thereof in any reporting period could have a significant impact on our results of operations and cash flows for that period, the outcome of these legal proceedings is not expected to have a material adverse effect on our consolidated financial

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

In addition to the matters described below, we remain subject to the risk of future administrative and legal actions. With respect to governmental and regulatory matters, these actions may lead to product recalls, injunctions, and other restrictions on our operations (including our ability to launch new products) and monetary sanctions, including significant civil or criminal penalties. With respect to intellectual property, we may be exposed to significant litigation concerning the scope of our and others’ rights. Such litigation could result in a loss of patent protection or the ability to market products, which could lead to a significant loss of sales, or otherwise materially affect future results of operations.

Environmental

We are involved as a potentially responsible party (PRP) for environmental clean-up costs at six Superfund sites. Under the U.S. Superfund statute and many state laws, generators of hazardous waste sent to a disposal or recycling site are liable for site cleanup if contaminants from that property later leak into the environment. The laws generally provide that a PRP may be held jointly and severally liable for the costs of investigating and remediating the site. Separate from these Superfund cases noted above, we are involved in an ongoing environmental remediations associated with historic operations at certain of our facilities. As of ~~March 31,~~September 30, 2023 and December 31, 2022, our environmental reserves, which are measured on an undiscounted basis, were ~~$17~~$16 million and $19 million, respectively. After considering these reserves, the outcome of these matters is not expected to have a material adverse effect on our financial position or results of operations.

General Litigation

In August 2019, we were named in an amended complaint filed by Fayette County, Georgia in the MDL In re: National Prescription Opiate Litigation pending in the U.S. District Court, Northern District of Ohio. The complaint alleges that

multiple manufacturers and distributors of opiate products improperly marketed and diverted these products, which caused harm to Fayette County. The complaint is limited in its allegations as to Baxter and does not distinguish between injectable opiate products and orally administered opiates. We manufactured generic injectable opiate products in our facility in Cherry Hill, NJ, which we divested in 2011. On July 17, 2023, we were voluntarily dismissed from the litigation without prejudice.

In March 2020, two lawsuits were filed against us in the Northern District of Illinois by plaintiffs alleging injuries as a result of exposure to ethylene oxide used in our manufacturing facility in Mountain Home, Arkansas to sterilize certain of our products. The plaintiffs sought damages, including compensatory and punitive damages in an unspecified amount, and unspecified injunctive and declaratory relief. The parties reached agreement to settle these lawsuits in the third quarter of 2021 for amounts that were not material to our financial results, which were paid in the fourth quarter of 2021. We have since resolved, without litigation, additional claims of injuries from exposure to ethylene oxide at Mountain Home for amounts within accruals previously established as of December 31, 2021. On October 20, 2022, a lawsuit was filed against us in the Western District of Arkansas alleging injury as a result of exposure to ethylene oxide at Mountain Home. On December 16, 2022, we filed a motion to dismiss and for a more definite statement. In response, Plaintiffs filed a First Amended Complaint on January 6, 2023. We answered the First Amended Complaint on January 27, 2023. The parties reached agreement to settle this lawsuit in the third quarter of 2023 for an amount that was not material to our financial results, which was paid in the fourth quarter of 2023. The case was dismissed on October 17, 2023.

We acquired Hill-Rom Holdings, Inc. (Hillrom) on December 13, 2021. In July 2021, Hill-Rom, Inc., a wholly-owned subsidiary of Hillrom, received a subpoena from the United States Office of Inspector General for the Department of Health and Human Services (the DHHS) requesting documents and information related to compliance with the False Claims Act and the Anti-Kickback Statute. Hillrom has been working with the DHHS and the Department of Justice (DOJ) to provide information responsive to the subpoena. Hillrom also voluntarily began a related internal review and Hillrom and now Baxter have been cooperating fully with the DHHS and the DOJ with respect to these matters. In October 2022, the DOJ issued a separate Civil Investigative Demand (CID) addressed to Hillrom, requesting documents and information related to compliance with the False Claims Act and the Anti-Kickback Statute. Baxter is cooperating fully with the DOJ in responding to the CID. The DHHS and DOJ often issue these types of requests when investigating alleged violations of the False Claims Act.

On December 28, 2021, Linet Americas, Inc. (Linet) filed a complaint against Hill-Rom Holdings, Inc., Hill-Rom Company, Inc., and Hill-Rom Services, Inc. in the United States District Court for the Northern District of Illinois, captioned Linet Americas, Inc. v. Hill-Rom Holdings, Inc.; Hill-Rom Company, Inc.; Hill-Rom Services, Inc. Linet alleges that Hillrom violated Sections 1, 2 and 3 of The Sherman Antitrust Act of 1890 and the Illinois Antitrust Act by allegedly engaging in anti-competitive conduct in alleged markets for standard, ICU and birthing beds. Hillrom filed an

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

In July 2023, we and certain of our officers were named in a class action complaint captioned Grover J. Kelley et al. v. Baxter International Inc. et al. that was filed in the United States District Court for the Northern District of Illinois. The plaintiff, who allegedly purchased securities during the specified class period, filed this putative class action on behalf of himself and shareholders who acquired Baxter securities on the public market between May 25, 2022, and February 8, 2023. The plaintiff alleges that we and certain officers violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder by making allegedly false and misleading statements and failing to disclose material facts relating to supply chain and financial guidance. The Court appointed Kelley as lead plaintiff on September 20, 2023.

7. STOCKHOLDERS’ EQUITY

Cash Dividends

Cash dividends declared per share for the three and nine months ended ~~March 31,~~September 30, 2023 were $0.29 and $0.87, respectively. Cash dividends declared per share for the three and nine months ended September 30, 2022 were $0.29 and ~~$0.28,~~$0.86, respectively.

Stock Repurchase Programs

In July 2012, our Board of Directors authorized a share repurchase program and the ~~repurchase~~related authorization amount was subsequently increased a number of up to $2.0 billion of our common stock. Our Board of Directors increased this authority by an additional $1.5 billion in each of November 2016 and February 2018, by an additional $2.0 billion in November 2018 and by an additional $1.5 billion in October 2020.times. During the first ~~quarter~~nine months of 2023 ~~and 2022,~~ we did not repurchase any shares

under this authority. During the first nine months of 2022 we repurchased 0.5 million shares under this authority pursuant to Rule 10b5-1 plans. We had ~~$1.3~~$1.30 billion remaining available under the authorization as of ~~March 31,~~September 30, 2023.

7.8. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

The following table is a net-of-tax summary of the changes in accumulated other comprehensive income (loss) (AOCI) by component for the ~~three~~nine months ended ~~March 31,~~September 30, 2023 and 2022.


		Gains (losses)											Gains (losses)
(in millions)	(in millions)	CTA		Pension and OPEB plans		Hedging activities		Available-for-sale debt securities		Total		(in millions)	CTA		Pension and OPEB plans		Hedging activities		Available-for-sale debt securities		Total

Balance as of December 31, 2022	Balance as of December 31, 2022	$	(3,386)	$	(331)	$	(119)	$	3	$	(3,833)	Balance as of December 31, 2022	$	(3,386)	$	(331)	$	(119)	$	3	$	(3,833)
Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	102		(3)		—		—		99		Other comprehensive income (loss) before reclassifications	(62)		—		15		—		(47)
Amounts reclassified from AOCI (a)	Amounts reclassified from AOCI (a)	—		(3)		(2)		—		(5)		Amounts reclassified from AOCI (a)	185		(16)		(5)		—		164
Net other comprehensive income (loss)	Net other comprehensive income (loss)	102		(6)		(2)		—		94		Net other comprehensive income (loss)	123		(16)		10		—		117
Balance as of March 31, 2023		$	(3,284)	$	(337)	$	(121)	$	3	$	(3,739)
Balance as of September 30, 2023												Balance as of September 30, 2023	$	(3,263)	$	(347)	$	(109)	$	3	$	(3,716)


		Gains (losses)											Gains (losses)
(in millions)	(in millions)	CTA		Pension and OPEB plans		Hedging activities		Available-for-sale debt securities		Total		(in millions)	CTA		Pension and OPEB plans		Hedging activities		Available-for-sale debt securities		Total

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

Other comprehensive income (loss) before reclassifications	Other comprehensive income (loss) before reclassifications	(15)		2		(1)		1		(13)		Other comprehensive income (loss) before reclassifications	(816)		29		33		2		(752)
Amounts reclassified from AOCI (a)	Amounts reclassified from AOCI (a)	—		7		(1)		—		6		Amounts reclassified from AOCI (a)	65		19		(6)		—		78
Net other comprehensive income (loss)	Net other comprehensive income (loss)	(15)		9		(2)		1		(7)		Net other comprehensive income (loss)	(751)		48		27		2		(674)
Balance as of March 31, 2022		$	(2,922)	$	(338)	$	(128)	$	1	$	(3,387)
Balance as of September 30, 2022												Balance as of September 30, 2022	$	(3,658)	$	(299)	$	(99)	$	2	$	(4,054)

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

1117

The following is a summary of the amounts reclassified from AOCI to net income during the three and nine months ended ~~March 31,~~September 30, 2023 and 2022.


		Amounts reclassified from AOCI (a)						Amounts reclassified from AOCI (a)
(in millions)	(in millions)	Three months ended March 31, 2023		Three months ended March 31, 2022		Location of impact in income statement	(in millions)	Three months ended September 30, 2023		Nine months ended September 30, 2023		Location of impact in income statement

CTA							CTA
Reclassification of cumulative translation loss to earnings from BPS divestiture							Reclassification of cumulative translation loss to earnings from BPS divestiture	$	(185)	$	(185)	Income from discontinued operations, net of tax
Less: Tax effect							Less: Tax effect	—		—		Income from discontinued operations, net of tax
								$	(185)	$	(185)	Net of tax
Pension and OPEB items	Pension and OPEB items						Pension and OPEB items
Amortization of net losses and prior service costs or credits	Amortization of net losses and prior service costs or credits	$	5	$	(9)	Other income, net	Amortization of net losses and prior service costs or credits	$	5	$	15	Other (income) expense, net
Pension settlement from BPS divestiture							Pension settlement from BPS divestiture	4		4		Income from discontinued operations, net of tax
								9		19
Less: Tax effect	Less: Tax effect	(2)		2		Income tax expense	Less: Tax effect	—		(3)		Income tax expense
		$	3	$	(7)	Net of tax		$	9	$	16	Net of tax
Gains (losses) on hedging activities	Gains (losses) on hedging activities						Gains (losses) on hedging activities
Foreign exchange contracts	Foreign exchange contracts	$	4	$	2	Cost of sales	Foreign exchange contracts	$	3	$	10	Cost of sales
Interest rate contracts	Interest rate contracts	(1)		(1)		Interest expense, net	Interest rate contracts	(1)		(4)		Interest expense, net
		3		1		Total before tax		2		6		Total before tax
Less: Tax effect	Less: Tax effect	(1)		—		Income tax expense	Less: Tax effect	—		(1)		Income tax expense
		$	2	$	1	Net of tax		$	2	$	5	Net of tax
Total reclassifications for the period	Total reclassifications for the period	$	5	$	(6)	Total net of tax	Total reclassifications for the period	$	(174)	$	(164)	Total net of tax

(a) Amounts in parentheses indicate reductions to net income



	Amounts reclassified from AOCI (a)
(in millions)	Three months ended September 30, 2022		Nine months ended September 30, 2022		Location of impact in income statement
CTA
Reclassification of cumulative translation loss to earnings	$	(65)	$	(65)	Other (income) expense, net
Less: Tax effect	—		—		Income tax expense
	$	(65)	$	(65)	Net of tax
Amortization of pension and OPEB items
Amortization of net losses and prior service costs or credits	$	(8)	$	(25)	Other (income) expense, net
Less: Tax effect	2		6		Income tax expense
	$	(6)	$	(19)	Net of tax
Gains on hedging activities
Foreign exchange contracts	$	6	$	11	Cost of sales
Interest rate contracts	(1)		(4)		Interest expense, net
	5		7		Total before tax
Less: Tax effect	(1)		(1)		Income tax expense
	$	4	$	6	Net of tax
Total reclassifications for the period	$	(67)	$	(78)	Total net of tax

Refer to Note 1011 for additional information regarding the amortization of pension and OPEB items and Note 1314 for additional information regarding hedging activity.

8.9. REVENUES

Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. A performance obligation is a promise in a contract to transfer a distinct good or service to the customer and is the unit of account in the contract. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Some of our contracts have multiple performance obligations. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using our best estimate of the standalone selling price of each distinct good or service in the contract. Our global payment terms are typically between 30-90 days.

Most of our performance obligations are satisfied at a point in time. This includes sales of our broad portfolio of essential healthcare products across our business segments. ~~Our three legacy Baxter geographic segments include~~We earn revenues from acute and chronic dialysis therapies; sterile IV solutions; infusion systems and devices; parenteral nutrition therapies; inhaled anesthetics; generic injectable pharmaceuticals; ~~and~~ surgical hemostat and sealant ~~products. Our legacy Hillrom segment includes~~products; smart bed systems; patient monitoring and diagnostic technologies; respiratory health devices; and advanced equipment for the surgical space. For most of those ~~sales,~~offerings, our performance obligation is satisfied upon delivery to the customer. Shipping and handling activities are considered to be fulfillment activities and are not considered to be a separate performance obligation.

To a lesser extent, we enter into arrangements for which revenue may be recognized over time. For example, our ~~Americas segment includes~~recently divested BPS business, which is reported within discontinued operations and included contract manufacturing arrangements, our ~~Hillrom~~Healthcare Systems and Technologies segment includes digital and connected care solutions and collaboration tools that are implemented over time and all of our segments include equipment leases and certain subscription software and licensing arrangements. We recognize revenue for these arrangements over time or at a point in time depending on our evaluation of when the customer obtains control of the promised goods or services. Revenue is recognized over time when we are creating or enhancing an asset that the customer controls as the asset is created or enhanced or our performance does not create an asset with an alternative use and we have an enforceable right to payment for performance completed.

As of ~~March 31,~~September 30, 2023, we had ~~$9.9~~$7.35 billion of transaction price allocated to remaining performance obligations related to executed contracts with an original duration of more than one year, which are primarily included in the ~~Americas segment.~~Medical Product and Therapies and Kidney Care segments. Some contracts in the United States included in this amount contain index-dependent price increases, which are not known at this time. We expect to recognize approximately ~~25%~~10% of this amount as revenue over the remainder of 2023, ~~35%~~45% in 2024, ~~20%~~25% in 2025, 10% in 2026 and 10% thereafter.

Significant Judgments

Revenues from product sales are recorded at the net sales price, which includes estimates of variable consideration primarily related to rebates and wholesaler chargebacks. These reserves are based on estimates of the amounts earned or to be claimed on the related sales and are included in accrued expenses and other current liabilities and accounts receivable, net on the condensed consolidated balance sheets. Management's estimates take into consideration historical experience, current contractual and statutory requirements, specific known market events and trends, industry data, and forecasted customer buying and payment patterns. Overall, these reserves reflect our best estimates of the amount of consideration to which we are entitled based on the terms of the contract using the expected value method. The amount of variable consideration included in the net sales price is limited to the amount for which it is probable that a significant reversal in revenue will not occur when the related uncertainty is resolved. Revenue recognized during the three and nine months ended ~~March 31,~~September 30, 2023 and 2022 related to performance obligations satisfied in prior periods was not material. Additionally, our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately and determining the allocation of the transaction price may require significant judgement.

Contract Balances

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

consolidated balance sheets. Net trade accounts receivable was ~~$2.3~~$2.28 billion and ~~$2.4~~$2.34 billion as of ~~March 31,~~September 30, 2023 and December 31, 2022, respectively.

For contract manufacturing arrangements, revenue is primarily recognized throughout the production cycle, which typically lasts up to 90 days, resulting in the recognition of contract assets until the related services are completed and the customers are billed. Additionally, for certain arrangements containing a performance obligation to deliver software that can be used with medical devices, we recognize revenue upon delivery of the software, which results in the recognition of contract assets when customers are billed over time, generally over one to five years. For bundled contracts involving equipment delivered up-front and consumable medical products to be delivered over time, total contract revenue is allocated between the equipment and consumable medical products. In certain of those arrangements, a contract asset is created for the difference between the amount of equipment revenue recognized upon delivery and the amount of consideration initially receivable from the customer. In those arrangements, the contract asset becomes a trade account receivable as consumable medical products are delivered and billed, generally over one to seven years.

The following table summarizes our contract assets:


(in millions)	(in millions)	March 31, 2023		December 31, 2022		(in millions)	September 30, 2023		December 31, 2022
Contract manufacturing services	Contract manufacturing services	$	49	$	51	Contract manufacturing services	$	3	$	10
Software sales	Software sales	42		43		Software sales	45		43
Bundled equipment and consumable medical products contracts	Bundled equipment and consumable medical products contracts	120		121		Bundled equipment and consumable medical products contracts	114		121
Contract assets	Contract assets	$	211	$	215	Contract assets	$	162	$	174

Contract liabilities represent deferred revenues that arise as a result of cash received from customers or where the timing of billing for services precedes satisfaction of our performance obligations. Such remaining performance obligations represent the portion of the contract price for which work has not been performed and are primarily related to our installation and service contracts. We expect to satisfy the majority of the remaining performance obligations and recognize revenue related to installation and service contracts within the next 12 months with most of the non-current performance obligations satisfied within 24 months.

The following table summarizes contract liability activity for the ~~three~~nine months ended ~~March 31,~~September 30, 2023 and 2022. The contract liability balance represents the transaction price allocated to the remaining performance obligations.


		Three Months Ended March 31,					Nine Months Ended September 30,
(in millions)	(in millions)	2023		2022		(in millions)	2023		2022
Balance at beginning of period	Balance at beginning of period	$	244	$	246	Balance at beginning of period	$	194	$	196
New revenue deferrals	New revenue deferrals	113		116		New revenue deferrals	491		457
Revenue recognized upon satisfaction of performance obligations	Revenue recognized upon satisfaction of performance obligations	(121)		(122)		Revenue recognized upon satisfaction of performance obligations	(493)		(462)
Currency translation	Currency translation	1		—		Currency translation	3		(3)
Balance at end of period	Balance at end of period	$	237	$	240	Balance at end of period	$	195	$	188

For the ~~three~~nine months ended ~~March 31,~~September 30, 2023 and 2022, ~~$68~~$119 million and ~~$50~~$99 million of revenue was recognized that was included in contract liabilities as of December 31, 2022 and 2021, respectively.

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


(in millions)	(in millions)	March 31, 2023		December 31, 2022		(in millions)	September 30, 2023		December 31, 2022
Prepaid expenses and other current assets	Prepaid expenses and other current assets	$	92	$	93	Prepaid expenses and other current assets	$	50	$	52
Other non-current assets	Other non-current assets	119		122		Other non-current assets	112		122
Contract assets	Contract assets	$	211	$	215	Contract assets	$	162	$	174

Accrued expenses and other current liabilities	Accrued expenses and other current liabilities	$	160	$	164	Accrued expenses and other current liabilities	$	154	$	154
Other non-current liabilities	Other non-current liabilities	77		80		Other non-current liabilities	41		40
Contract liabilities	Contract liabilities	$	237	$	244	Contract liabilities	$	195	$	194

Disaggregation of Net Sales

~~The following tables disaggregate~~Refer to Note 16 for additional information on our net sales ~~from contracts with customers by product category between~~including the ~~U.S. and international:~~
Three Months Ended March 31,
2023 2022
(in millions) U.S. International Total U.S. International Total
Renal Care 1
$ 232 $ 660 $ 892 $ 225 $ 669 $ 894
Medication Delivery 2
436 251 687 472 234 706
Pharmaceuticals 3
173 350 523 157 364 521
Clinical Nutrition 4
78 146 224 84 143 227
Advanced Surgery 5
144 102 246 136 92 228
Acute Therapies 6
61 119 180 68 120 188
BioPharma Solutions 7
69 70 139 52 104 156
Patient Support Systems 8
260 88 348 295 88 383
Front Line Care 9
221 81 302 207 87 294
Global Surgical Solutions 10
38 43 81 37 41 78
Other 11
22 5 27 24 8 32
Total Baxter $ 1,734 $ 1,915 $ 3,649 $ 1,757 $ 1,950 $ 3,707

1~~Renal Care includes~~disaggregation of net sales within each of our ~~peritoneal dialysis (PD), hemodialysis (HD)~~segments and ~~additional dialysis therapies and services.~~

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

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

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

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

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

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

8~~Patient Support Systems includes sales of our connected care solutions: devices, software, communications and integration technologies and smart beds.~~

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

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

11~~Other includes sales of miscellaneous product and service offerings.~~by geographic location.

Lease Revenue

We lease medical equipment, such as smart beds, renal dialysis equipment and infusion pumps, to customers, often in conjunction with arrangements to provide consumable medical products such as dialysis therapies, IV fluids and inhaled anesthetics. Certain of our equipment leases are classified as sales-type leases and the remainder are operating leases. The terms of the related contracts, including the proportion of fixed versus variable payments and any options to shorten or extend the lease term, vary by customer. We allocate revenue between equipment leases and medical products based on their standalone selling prices.

The components of lease revenue for the three and nine months ended ~~March 31,~~September 30, 2023 and 2022 were:


(in millions)	(in millions)	Three months ended March 31, 2023		Three months ended March 31, 2022		(in millions)	Three months ended September 30, 2023		Nine Months Ended September 30, 2023
Sales-type lease revenue	Sales-type lease revenue	$	4	$	3	Sales-type lease revenue	$	2	$	9
Operating lease revenue	Operating lease revenue	124		122		Operating lease revenue	124		380
Variable lease revenue	Variable lease revenue	15		20		Variable lease revenue	12		41
Total lease revenue	Total lease revenue	$	143	$	145	Total lease revenue	$	138	$	430



(in millions)	Three months ended September 30, 2022		Nine months ended September 30, 2022
Sales-type lease revenue	$	3	$	11
Operating lease revenue	145		380
Variable lease revenue	9		41
Total lease revenue	$	157	$	432

Our net investment in sales-type leases was ~~$82~~$68 million as of ~~March 31,~~September 30, 2023, of which ~~$24~~$10 million originated in 2019 and prior, ~~$21~~$19 million in 2020, ~~$20~~$19 million in 2021, ~~$14~~$13 million in 2022, and $3$7 million in 2023.

9.10. BUSINESS OPTIMIZATION CHARGES

In recent years, we have undertaken actions to transform our cost structure and enhance operational efficiency. These efforts include restructuring the organization, optimizing the manufacturing footprint, R&D operations and supply chain network, employing disciplined cost management, and centralizing and streamlining certain support functions. ~~From the commencement of our business optimization activities in the second half of 2015 through March 31, 2023, we have incurred cumulative pre-tax~~The related costs of ~~$1.6 billion related to these actions. The costs~~those actions consisted primarily of employee termination costs, implementation costs, contract termination costs and asset ~~impairments and accelerated depreciation.~~impairments. We currently expect to incur additional pre-tax costs, primarily related to implementation of business optimization programs, of approximately ~~$24~~$25 million through the completion of initiatives that are currently underway. We continue to pursue cost savings initiatives, including those related ~~the ongoing implementation of~~to our ~~previously announced new~~newly implemented operating model, intended to simplify and streamline our operations, and to the extent further cost

savings opportunities are identified, we would incur additional restructuring charges and costs to implement business optimization programs in future periods.

During the three and nine months ended ~~March 31,~~September 30, 2023 and 2022, we recorded the following charges related to business optimization programs.


		Three Months Ended March 31,				Three Months Ended September 30,						Nine Months Ended September 30,
(in millions)	(in millions)	2023		2022			(in millions)	2023		2022			2023		2022
Restructuring charges	Restructuring charges	$	110	$	67		Restructuring charges	$	64	$	57		$	461	$	150
Costs to implement business optimization programs	Costs to implement business optimization programs	24		14			Costs to implement business optimization programs	17		16			47		46

Total business optimization charges	Total business optimization charges	$	134	$	81		Total business optimization charges	$	81	$	73		$	508	$	196

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

Costs to implement business optimization programs for the three and nine months ended ~~March 31,~~September 30, 2023 and 2022, respectively, consisted primarily of external consulting and transition costs, including employee compensation and related costs. These costs were primarily included within cost of sales and SG&A expense.

During the three and nine months ended ~~March 31,~~September 30, 2023 and 2022, we recorded the following restructuring charges.


		Three months ended March 31, 2023									Three months ended September 30, 2023
(in millions)	(in millions)	COGS		SG&A		R&D		Total		(in millions)	COGS		SG&A		R&D		Total
Employee termination costs	Employee termination costs	$	17	$	63	$	7	$	87	Employee termination costs	$	17	$	33	$	5	$	55
Contract termination and other costs	Contract termination and other costs	3		—		—		3		Contract termination and other costs	—		2		—		2
Asset impairments	Asset impairments	12		8		—		20		Asset impairments	7		—		—		7
Total restructuring charges	Total restructuring charges	$	32	$	71	$	7	$	110	Total restructuring charges	$	24	$	35	$	5	$	64

Three months ended March 31, 2022
(in millions) COGS SG&A R&D Total
Employee termination costs $ 2 $ 47 $ — $ 49
Contract termination and other costs — 12 — 12
Asset impairments — 6 — 6
Total restructuring charges $ 2 $ 65 $ — $ 67


	Three months ended September 30, 2022
(in millions)	COGS		SG&A		R&D		Total
Employee termination costs	$	13	$	36	$	4	$	53
Contract termination and other costs	—		2		—		2
Asset impairments	1		1		—		2
Total restructuring charges	$	14	$	39	$	4	$	57



	Nine months ended September 30, 2023
(in millions)	COGS		SG&A		R&D		Total
Employee termination costs	$	43	$	115	$	12	$	170
Contract termination and other costs	3		4		—		7
Asset impairments	276		8		—		284
Total restructuring charges	$	322	$	127	$	12	$	461



	Nine months ended September 30, 2022
(in millions)	COGS		SG&A		R&D		Total
Employee termination costs	$	19	$	99	$	4	$	122
Contract termination and other costs	—		19		—		19
Asset impairments	1		8		—		9
Total restructuring charges	$	20	$	126	$	4	$	150

For the three and nine months ended ~~March 31,~~September 30, 2023, ~~$78~~$14 million and $111 million, respectively, of the restructuring charges reflected in the table above, consisting of employee termination costs, were related to the ~~ongoing~~ implementation of our previously announced new operating model intended to simplify and streamline our operations. For the nine months ended September 30, 2023, $253 million of the restructuring charges reflected in the table above, consisting of $243 million of asset impairment charges and $10 million of employee termination costs, were related to

our decision to cease production of dialyzers at one of our manufacturing facilities in connection with our initiatives to streamline our manufacturing footprint and improve our profitability. See Note 3 for additional information.

For the three months ended ~~March 31,~~September 30, 2022, ~~$56~~$14 million of the restructuring charges reflected in the table above were related to integration activities for the Hillrom acquisition, consisting of ~~$38~~$12 million of employee termination costs ~~$12~~and $2 million of contract termination. For the nine months ended September 30, 2022, $97 million of the restructuring charges reflected in the table above were related to integration activities for the Hillrom acquisition, consisting of $71 million of employee termination costs, $19 million of contract termination and other costs and $6$7 million of asset impairments.

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


(in millions)
Liability balance as of December 31, 2022	$	107
Charges	93189
Payments	~~(23)~~(108)
Reserve adjustments	~~(3)~~(12)
Currency translation	1 (5)
Liability balance as of ~~March 31,~~September 30, 2023	$	~~175~~171

Substantially all of our restructuring liabilities as of ~~March 31,~~September 30, 2023 relate to employee termination costs, with the remaining liabilities attributable to contract termination costs. Substantially all of the cash payments for those liabilities are expected to be disbursed by the end of 2024.

~~10.~~11. PENSION AND OTHER POSTRETIREMENT BENEFIT PROGRAMS

The following is a summary of net periodic benefit cost relating to our pension and OPEB plans.


		Three months ended March 31,				Three months ended September 30,						Nine months ended September 30,
(in millions)	(in millions)	2023		2022			(in millions)	2023		2022			2023		2022
Pension benefits	Pension benefits						Pension benefits
Service cost	Service cost	$	6	$	19		Service cost	$	7	$	19		$	20	$	59
Interest cost	Interest cost	37		24			Interest cost	36		25			108		73
Expected return on plan assets	Expected return on plan assets	(44)		(39)			Expected return on plan assets	(44)		(39)			(131)		(118)
Amortization of net losses and prior service costs	Amortization of net losses and prior service costs	1		12			Amortization of net losses and prior service costs	1		10			3		33
Net periodic pension cost	Net periodic pension cost	$	—	$	16		Net periodic pension cost	$	—	$	15		$	—	$	47
OPEB	OPEB						OPEB
Interest cost	Interest cost	$	2	$	1		Interest cost	$	2	$	1		$	6	$	3
Amortization of net loss and prior service credit	Amortization of net loss and prior service credit	(6)		(3)			Amortization of net loss and prior service credit	(6)		(3)			(18)		(9)
Net periodic OPEB cost (income)	Net periodic OPEB cost (income)	$	(4)	$	(2)		Net periodic OPEB cost (income)	$	(4)	$	(2)		$	(12)	$	(6)

~~11.~~12. INCOME TAXES

Our effective income tax rate was ~~35.7%~~129.7% and ~~22.3%~~1.8% for the three months ended ~~March 31,~~September 30, 2023 and 2022, respectively, and 58.4% and 0.5% for the nine months ended September 30, 2023 and 2022, respectively. Our effective income tax rate can differ from the ~~21%~~21.0% U.S. federal statutory rate due to a number of factors, including foreign rate differences, tax incentives, non-deductible expenses, non-taxable income, increases or decreases in valuation allowances, increases or decreases in liabilities for uncertain tax positions and excess tax benefits or shortfalls on stock compensation awards.

Our effective income tax rate during interim periods reflects our estimated annual effective tax rate excluding discrete items. For the three and nine months ended ~~March 31,~~September 30, 2023, the difference between our effective income tax rate and the U.S. federal statutory rate was primarily ~~attributable~~driven by the jurisdictional mix of global earnings, which was impacted by the long-lived asset impairments we recognized during the second and third quarters of 2023, and by the significance of non-deductible items to ~~tax shortfalls on stock compensation awards and an increase in~~ our ~~liabilities~~anticipated pre-tax income for ~~uncertain tax positions, partially offset by a favorable geographic earnings mix.~~

the full year. For the three months ended ~~March 31,~~September 30, 2023, our effective tax rate was also impacted by $13 million of separation-related income tax costs.

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

For the three and nine months ended September 30, 2022, the difference between our effective income tax rate and the U.S. federal statutory rate was primarily attributable to discrete tax matters in various foreign jurisdictions, of which none were individually material, and an increase in our liabilities for uncertain tax positions, partially offset by excess tax benefits on stock compensation awards and a favorable geographic earnings mix.non-deductible goodwill impairments.

~~12.~~13. EARNINGS PER SHARE

The numerator for both basic and diluted earnings per share (EPS) is net income (loss) attributable to Baxter stockholders. The denominator for basic EPS is the weighted-average number of shares outstanding during the period. The dilutive effect of outstanding stock options, RSUs and PSUs is reflected in the denominator for diluted EPS using the treasury stock method.

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


	Three months ended September 30,				Nine months ended September 30,
(in millions)	2023		2022		2023		2022
Income (loss) from continuing operations	$	51	$	(2,991)	$	(142)	$	(2,798)
Less: Net income attributable to noncontrolling interests	3		3		6		8
Income (loss) from continuing operations attributable to Baxter stockholders	48		(2,994)		(148)		(2,806)
Income from discontinued operations	2,460		57		2,559		192
Net income (loss) attributable to Baxter stockholders	$	2,508	$	(2,937)	$	2,411	$	(2,614)

The following table is a reconciliation of basic shares toand diluted shares.
Three months ended
March 31,
(in millions) 2023 2022
Basic shares 505 503
Effect of dilutive securities 2 6
Diluted shares 507 509


	Three months ended September 30,		Nine months ended September 30,
(in millions)	2023	2022	2023	2022
Basic shares	507	504	506	503
Effect of dilutive securities	2	—	—	—
Diluted shares	509	504	506	503

The effect of dilutive securities for the three months ended September 30, 2023 includes unexercised stock options, unvested RSUs and contingently issuable shares related to granted PSUs. ~~The computation of~~Basic and diluted shares are the same for the three months ended September 30, 2022 and the nine months ended September 30, 2023 and 2022 due to our net losses from continuing operations for those periods.

Diluted EPS excludes 1718 million and 425 million shares issuable under equity awards for the three and nine months ended ~~March 31,~~September 30, 2023, respectively, and 23 million shares issuable under equity awards for the three and nine months ended September 30, 2022, respectively, because their inclusion would have had an anti-dilutive effect on diluted EPS.

~~13.~~14. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

We operate on a global basis and are exposed to the risk that our earnings, cash flows and equity could be adversely impacted by fluctuations in foreign exchange and interest rates. Our hedging policy attempts to manage these risks to an acceptable level based on our judgment of the appropriate trade-off between risk, opportunity and costs.

We are primarily exposed to foreign exchange risk with respect to recognized assets and liabilities, forecasted transactions and net assets denominated in the Euro, Chinese Renminbi, Japanese Yen, Swedish Krona, British Pound, ~~Chinese Renminbi, Korean Won,~~Polish Zloty, Mexican Peso, Australian Dollar, Canadian Dollar, ~~Japanese Yen,~~Korean Won, Colombian Peso, Brazilian Real, ~~Mexican Peso,~~Russian Ruble, Turkish Lira and Indian ~~Rupee and Swedish Krona.~~Rupee. We manage our foreign currency exposures on a consolidated basis, which allows us to net exposures and take advantage of any natural offsets. In addition, we use derivative and nonderivative instruments to further reduce ~~the~~our net exposure to foreign exchange risk. Gains and losses on the hedging instruments are intended to offset losses and gains on the hedged transactions and reduce the earnings and equity volatility resulting from changes in foreign exchange rates. Financial market and currency volatility may limit our ability to cost-effectively hedge these exposures.

We are also exposed to the risk that our earnings and cash flows could be adversely impacted by fluctuations in interest rates. Our policy is to manage interest costs using the mix of fixed- and floating-rate debt that we believe is appropriate at that time. To manage this mix in a cost-efficient manner, we periodically enter into interest rate swaps in which we agree to exchange, at specified intervals, the difference between fixed and floating interest amounts calculated by reference to an agreed-upon notional amount.

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

~~All derivative~~Derivative instruments are ~~generally~~ recognized as either assets or liabilities at fair value in the condensed consolidated balance sheets and are classified as short-term or long-term based on the scheduled maturity of the instrument. We designate certain of our derivatives and foreign-currency denominated debt as hedging instruments in cash flow, fair value or net investment hedges.

Cash Flow Hedges

We may use options, including collars and purchased options, forwards and cross-currency swaps to hedge the foreign exchange risk to earnings relating to forecasted transactions and recognized assets and liabilities. We periodically use treasury rate locks to hedge the risk to earnings associated with movements in interest rates relating to anticipated issuances of debt.

For each derivative instrument that is designated and effective as a cash flow hedge, the gain or loss on the derivative is recorded in AOCI and then recognized in earnings consistent with the underlying hedged item. Option premiums or net premiums paid are initially recorded as assets and reclassified to other comprehensive income (OCI) over the life of the option, and then recognized in earnings consistent with the underlying hedged item. Cash flow hedges are classified in cost of sales and interest expense, net, and are primarily related to forecasted intra-company sales denominated in foreign currencies and forecasted interest payments on anticipated issuances of debt, respectively.

The notional amounts of foreign exchange contracts designated as cash flow hedges were ~~$386~~$437 million and $398 million as of ~~March 31,~~September 30, 2023 and December 31, 2022, respectively. The maximum term over which we have cash flow hedge contracts in place related to forecasted transactions at ~~March 31,~~September 30, 2023 is 12 months for foreign exchange contracts. There were no outstanding interest rate contracts designated as cash flow hedges as of ~~March 31,~~September 30, 2023 and December 31, 2022.

Fair Value Hedges

We periodically use interest rate swaps to convert a portion of our fixed-rate debt into variable-rate debt. These instruments hedge our earnings from changes in the fair value of debt due to fluctuations in the designated benchmark interest rate. For each derivative instrument that is designated and effective as a fair value hedge, the gain or loss on the derivative is recognized immediately to earnings, and offsets changes in fair value attributable to a particular risk, such as changes in interest rates, of the hedged item, which are also recognized in earnings. Changes in the fair value of hedge instruments designated as fair value hedges are classified in interest expense, net, as they hedge the interest rate risk associated with certain of our fixed-rate debt.

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

Net Investment Hedges

In May 2017, we issued €600 million of senior notes due May 2025. In May 2019, we issued €750 million of senior notes due May 2024 and €750 million of senior notes due May 2029. We have designated these debt obligations as hedges of our net investment in our European operations and, as a result, mark to spot rate adjustments on the outstanding debt balances are recorded as a component of AOCI. As of ~~March 31,~~September 30, 2023, we had an accumulated pre-tax unrealized translation gain in AOCI of ~~$47~~$105 million related to the Euro-denominated senior notes.

Dedesignations

If it is determined that a derivative or nonderivative hedging instrument is no longer highly effective as a hedge, we discontinue hedge accounting prospectively. Gains or losses relating to terminations of effective cash flow hedges generally continue to be deferred and are recognized consistent with the loss or income recognition of the underlying

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

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

If we terminate a fair value hedge, an amount equal to the cumulative fair value adjustment to the hedged item at the date of termination is amortized to earnings over the remaining term of the hedged item. There were no fair value hedges terminated during the first ~~three~~nine months of 2023 or 2022.

If we remove a net investment hedge designation, any gain or loss recognized in AOCI is not reclassified to earnings until we sell, liquidate, or deconsolidate the foreign investments that were being hedged. There were no net investment hedges terminated during the first ~~three~~nine months of 2023 or 2022.

Undesignated Derivative Instruments

We use forward contracts to hedge earnings from the effects of foreign exchange relating to certain of our intra-company and third-party receivables and payables denominated in a foreign currency. These derivative instruments are generally not formally designated as hedges and the terms of these instruments generally do not exceed one month.

The total notional amount of undesignated derivative instruments was ~~$632~~$626 million as of ~~March 31,~~September 30, 2023 and $753 million as of December 31, 2022.

Gains and Losses on Hedging Instruments and Undesignated Derivative Instruments

The following tables summarize the gains and losses on our hedging instruments and the classification of those gains and losses within our condensed consolidated financial statements for the three months ended ~~March 31,~~September 30, 2023 and 2022.


		Gain (loss) recognized in OCI				Location of gain (loss) in income statement	Gain (loss) reclassified from AOCI into income					Gain (loss) recognized in OCI				Location of gain (loss) in income statement	Gain (loss) reclassified from AOCI into income
(in millions)	(in millions)	2023		2022			2023		2022		(in millions)	2023		2022			2023		2022
Cash flow hedges	Cash flow hedges										Cash flow hedges
Interest rate contracts	Interest rate contracts	$	—	$	—	Interest expense, net	$	(1)	$	(1)	Interest rate contracts	$	—	$	—	Interest expense, net	$	(1)	$	(1)
Foreign exchange contracts	Foreign exchange contracts	—		(3)		Cost of sales	4		2		Foreign exchange contracts	9		26		Cost of sales	3		6
Net investment hedges	Net investment hedges	(48)		42		Other income, net	—		—		Net investment hedges	48		126		Other (income) expense, net	—		—
Total	Total	$	(48)	$	39		$	3	$	1	Total	$	57	$	152		$	2	$	5


		Location of gain (loss) in income statement	Gain (loss) recognized in income					Location of gain (loss) in income statement	Gain (loss) recognized in income
(in millions)	(in millions)		2023		2022		(in millions)		2023		2022
Undesignated derivative instruments	Undesignated derivative instruments						Undesignated derivative instruments
Foreign exchange contracts	Foreign exchange contracts	Other income, net	$	(3)	$	3	Foreign exchange contracts	Other (income) expense, net	$	2	$	(11)

1926



	Gain (loss) recognized in OCI				Location of gain (loss) in income statement	Gain (loss) reclassified from AOCI into income
(in millions)	2023		2022			2023		2022
Cash flow hedges
Interest rate contracts	$	—	$	—	Interest expense, net	$	(4)	$	(4)
Foreign exchange contracts	19		42		Cost of sales	10		11
Net investment hedges	10		311		Other (income) expense, net	—		—
Total	$	29	$	353		$	6	$	7



	Location of gain (loss) in income statement	Gain (loss) recognized in income
(in millions)		2023		2022


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

As of ~~March 31,~~September 30, 2023, $3$7 million of deferred, net after-tax ~~losses~~gains on derivative instruments included in AOCI are expected to be recognized in earnings during the next 12 months, coinciding with when the hedged items are expected to impact earnings.

Derivative Assets and Liabilities

The following table summarizes the classification and fair values of derivative instruments reported in the condensed consolidated balance sheet as of ~~March 31,~~September 30, 2023.

Derivatives in asset positions

Derivatives in liability positions

Derivatives in asset positions

Derivatives in liability positions

(in millions)

Balance sheet location

Fair value

Balance sheet location

Fair value

(in millions)

Balance sheet location

Fair value

Balance sheet location

Fair value

Derivative instruments designated as hedges

Foreign exchange contracts

Prepaid expenses and other current assets

Accrued expenses and other current liabilities

Foreign exchange contracts

Prepaid expenses and other current assets

Accrued expenses and other current liabilities

Total derivative instruments designated as hedges

Undesignated derivative instruments

Foreign exchange contracts

Prepaid expenses and other current assets

Accrued expenses and other current liabilities

Foreign exchange contracts

Prepaid expenses and other current assets

Accrued expenses and other current liabilities

Total derivative instruments

The following table summarizes the classification and fair values of derivative instruments reported in the condensed consolidated balance sheet as of December 31, 2022.


	Derivatives in asset positions			Derivatives in liability positions
(in millions)	Balance sheet location	Fair value		Balance sheet location	Fair value
Derivative instruments designated as hedges

Foreign exchange contracts	Prepaid expenses and other current assets	$	8	Accrued expenses and other current liabilities	$	5

Total derivative instruments designated as hedges		8			5
Undesignated derivative instruments
Foreign exchange contracts	Prepaid expenses and other current assets	6		Accrued expenses and other current liabilities	7
Total derivative instruments		$	14		$	12

While some of our derivatives are subject to master netting arrangements, we present our assets and liabilities related to derivative instruments on a gross basis within the condensed consolidated balance sheets. Additionally, we are not required to post collateral for any of our outstanding derivatives.

The following table provides information on our derivative positions as if they were presented on a net basis, allowing for the right of offset by counterparty.
March 31, 2023 December 31, 2022
(in millions) Asset Liability Asset Liability
Gross amounts recognized in the condensed consolidated balance sheets $ 8 $ 8 $ 14 $ 12
Gross amount subject to offset in master netting arrangements not offset in the condensed consolidated balance sheet (3) (3) (4) (4)
Total $ 5 $ 5 $ 10 $ 8


	September 30, 2023				December 31, 2022
(in millions)	Asset		Liability		Asset		Liability
Gross amounts recognized in the condensed consolidated balance sheets	$	21	$	3	$	14	$	12
Gross amount subject to offset in master netting arrangements not offset in the condensed consolidated balance sheet	(1)		(1)		(4)		(4)
Total	$	20	$	2	$	10	$	8

The following table presents the amounts recorded on the condensed consolidated balance sheet related to fair value hedges:


		Carrying amount of hedged item				Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged item (a)					Carrying amount of hedged item				Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged item (a)
(in millions)	(in millions)	Balance as of March 31, 2023		Balance as of December 31, 2022		Balance as of March 31, 2023		Balance as of December 31, 2022		(in millions)	Balance as of September 30, 2023		Balance as of December 31, 2022		Balance as of September 30, 2023		Balance as of December 31, 2022
Long-term debt	Long-term debt	$	101	$	101	$	4	$	4	Long-term debt	$	100	$	101	$	3	$	4

(a) These fair value hedges were terminated in 2018 and earlier periods.

~~14.~~15. FAIR VALUE MEASUREMENTS

The following tables summarize our assets and liabilities that are measured at fair value on a recurring basis.


				Basis of fair value measurement									Basis of fair value measurement
(in millions)	(in millions)	Balance as of March 31, 2023		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)		(in millions)	Balance as of September 30, 2023		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Assets	Assets									Assets
Foreign exchange contracts	Foreign exchange contracts	$	8	$	—	$	8	$	—	Foreign exchange contracts	$	21	$	—	$	21	$	—

Available-for-sale debt securities	Available-for-sale debt securities	42		—		—		42		Available-for-sale debt securities	39		—		—		39
Marketable equity securities	Marketable equity securities	38		38		—		—		Marketable equity securities	39		39		—		—
Total	Total	$	88	$	38	$	8	$	42	Total	$	99	$	39	$	21	$	39
Liabilities	Liabilities									Liabilities
Foreign exchange contracts	Foreign exchange contracts	$	8	$	—	$	8	$	—	Foreign exchange contracts	$	3	$	—	$	3	$	—

Contingent payments related to acquisitions	Contingent payments related to acquisitions	70		—		—		70		Contingent payments related to acquisitions	19		—		—		19
Total	Total	$	78	$	—	$	8	$	70	Total	$	22	$	—	$	3	$	19


			Basis of fair value measurement
(in millions)	Balance as of December 31, 2022		Quoted prices in active markets for identical assets (Level 1)		Significant other observable inputs (Level 2)		Significant unobservable inputs (Level 3)
Assets
Foreign exchange contracts	$	14	$	—	$	14	$	—

Available-for-sale debt securities	47		—		—		47
Marketable equity securities	32		32		—		—
Total	$	93	$	32	$	14	$	47
Liabilities
Foreign exchange contracts	$	12	$	—	$	12	$	—

Contingent payments related to acquisitions	84		—		—		84
Total	$	96	$	—	$	12	$	84

As of ~~March 31,~~September 30, 2023 and December 31, 2022, cash and cash equivalents of ~~$1.7~~$5.79 billion and $1.72 billion, respectively, included money market and other short-term funds of approximately ~~$369 million~~$4.34 billion and $341 million, respectively, which are considered Level 2 in the fair value hierarchy.

For assets that are measured using quoted prices in active markets, the fair value is the published market price per unit multiplied by the number of units held, without consideration of transaction costs. ~~The~~A majority of the derivatives entered into by us are valued using internal valuation techniques as no quoted market prices exist for such instruments. The principal techniques used to value these instruments are discounted cash flow and Black-Scholes models. The key inputs, which are considered observable and vary depending on the type of derivative, include contractual terms, interest rate yield curves, foreign exchange rates and volatility.

Available-for-sale debt securities, which consist of convertible debt and convertible redeemable preferred shares issued by nonpublic entities, are measured using discounted cash flow and option pricing models. Those available-for-sale debt securities are classified as Level 3 fair value measurements when there are no observable transactions near the balance sheet date due to the lack of observable data over certain fair value inputs such as equity volatility. The fair values of available-for-sale debt securities increase when interest rates decrease, equity volatility increases, or the fair values of the equity shares underlying the conversion options increase.

Contingent payments related to acquisitions, which consist of milestone payments and sales-based payments, are valued using discounted cash flow techniques. The fair value of milestone payments reflects management’s expectations of probability of payment, and increases as the probability of payment increases or the expected timing of payments is accelerated. The fair value of sales-based payments is based upon probability-weighted future revenue estimates, and increases as revenue estimates increase, probability weighting of higher revenue scenarios increases or the expected timing of payment is accelerated.

The following table is a reconciliation of recurring fair value measurements that use significant unobservable inputs (Level 3), which consist of contingent payments related to acquisitions and available-for-sale debt securities.
Three months ended March 31,
2023 2022
(in millions) Contingent payments related to acquisitions Available-for-sale debt securities Contingent payments related to acquisitions Available-for-sale debt securities
Fair value at beginning of period $ 84 $ 47 $ 143 $ 30
Additions — — — 21
Change in fair value recognized in earnings (13) — (17) —
Change in fair value recognized in AOCI — — — 2
Transfers out of Level 3 — (5) — —
Payments (1) — (2) —
Fair value at end of period $ 70 $ 42 $ 124 $ 53


	Three months ended September 30,
	2023				2022
(in millions)	Contingent payments related to acquisitions		Available-for-sale debt securities		Contingent payments related to acquisitions		Available-for-sale debt securities
Fair value at beginning of period	$	21	$	37	$	113	$	44
Additions	—		2		—		—
Change in fair value recognized in earnings	—		—		(6)		—


Payments	(2)		—		(17)		—

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



	Nine months ended September 30,
	2023				2022
(in millions)	Contingent payments related to acquisitions		Available-for-sale debt securities		Contingent payments related to acquisitions		Available-for-sale debt securities
Fair value at beginning of period	$	84	$	47	$	143	$	30
Additions	—		2		—		21
Change in fair value recognized in earnings	(14)		(5)		(34)		—
Change in fair value recognized in AOCI	—		—		—		3
Transfers out of Level 3	—		(5)		—		(10)
Payments	(51)		—		(19)		—

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

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

Financial Instruments Not Measured at Fair Value

In addition to the financial instruments that we are required to recognize at fair value in the condensed consolidated balance sheets, we have certain financial instruments that are recognized at amortized cost or some basis other than fair value. For these financial instruments, the following table provides the values recognized in the condensed consolidated balance sheets and the estimated fair values as of ~~March 31,~~September 30, 2023 and December 31, 2022.


		Book values				Fair values(a)					Book values				Fair values(a)
(in millions)	(in millions)	2023		2022		2023		2022		(in millions)	2023		2022		2023		2022
Liabilities	Liabilities									Liabilities
Short-term debt		$	50	$	299	$	50	$	299
Current maturities of long-term debt and finance lease obligations	Current maturities of long-term debt and finance lease obligations	1,103		1,105		1,084		1,079		Current maturities of long-term debt and finance lease obligations	$	1,912	$	1,105	$	1,891	$	1,079
Long-term debt and finance lease obligations	Long-term debt and finance lease obligations	15,278		15,232		14,011		13,657		Long-term debt and finance lease obligations	14,067		15,232		12,462		13,657

(a) These fair value amounts are classified as Level 2 within the fair value hierarchy as they are estimated based on observable inputs.

The carrying value of short-term debt approximates its fair value due to the short-term maturities of the obligations. The estimated fair values of current and long-term debt were computed by multiplying price by the notional amount of the respective debt instruments. Price is calculated using the stated terms of the respective debt instrument and yield curves commensurate with our credit risk. The carrying values of other financial instruments not presented in the above table, such as accounts receivable, short-term debt and accounts payable, approximate their fair values due to the short-term maturities of most of those assets and liabilities.

Investments Without Readily Determinable Fair Values

The carrying values of equity investments without readily determinable fair values that we measure at cost, less impairment were ~~$103~~$74 million as of ~~March 31,~~September 30, 2023 and $104 million as of December 31, 2022. When applicable, we also adjust the measurement of such equity investments for observable prices in orderly transactions for an identical

or similar investment of the same issuer. Those investments are included in Other non-current assets on our condensed consolidated balance sheets. During the first nine months of 2023, several of our investees either completed or were in the process of undertaking new financing rounds at lower enterprise valuations as compared to their valuations at the time of our investments. As a result, we recognized $18 million of impairments of equity investments without readily determinable fair values in the second quarter. In addition, we recognized a $5 million impairment of a convertible debt investment, which is accounted for as an available-for-sale security, during the first nine months of 2023. The fair value measurements of investments in non-marketable equity and convertible debt securities are classified as Level 3 in the fair value hierarchy because they involve significant unobservable inputs.

~~15.~~

16. SEGMENT INFORMATION

~~We manage our business based on four~~Our reportable segments ~~consisting~~were previously comprised of the following geographic segments related to our legacy Baxter business: Americas (North and South America), EMEA (Europe, Middle East and Africa) and APAC (Asia Pacific), and a global segment for our Hillrom business. In the third quarter of 2023, we completed the implementation of a new operating model intended to simplify and streamline our operations and better align our manufacturing and supply chain to our commercial activities. Our business is comprised of four segments under this new operating model: Medical Products and Therapies, Healthcare Systems and Technologies (formerly referred to as our Hillrom segment), Pharmaceuticals and Kidney Care. Our segments were changed during the third quarter of 2023 to align with our new operating model and prior period segment disclosures have been revised to reflect the new segment presentation.

The ~~Americas, EMEA~~Medical Products and ~~APAC segments provide a broad portfolio~~Therapies segment includes sales of ~~essential healthcare products, including acute and chronic dialysis therapies;~~our sterile IV ~~solutions;~~solutions, infusion systems, ~~and devices;~~administration sets, parenteral nutrition ~~therapies; inhaled anesthetics; generic injectable pharmaceuticals;~~therapies and surgical hemostat, sealant and ~~sealant~~adhesion prevention products. The ~~Hillrom~~Healthcare Systems and Technologies segment ~~provides digital and~~includes sales of our connected care solutions and collaboration tools, including smart bed ~~systems;~~systems, patient monitoring systems and diagnostic ~~technologies;~~technologies, respiratory health ~~devices;~~devices and advanced equipment for the surgical ~~space.~~

~~We use operating income on~~space, including surgical video technologies, precision positioning devices and other accessories. The Pharmaceuticals segment includes sales of specialty injectable pharmaceuticals, inhaled anesthesia and drug compounding. The Kidney Care segment includes sales of chronic and acute dialysis therapies and services, including peritoneal dialysis, hemodialysis, continuous renal replacement therapies (CRRT) and other organ support therapies. Other sales not allocated to a segment ~~basis to make resource allocation decisions~~primarily include sales of products and ~~assess the ongoing performance~~services provided directly through certain of our manufacturing facilities and royalty income under a business ~~segments.~~development arrangement that ended in early 2023 when we acquired the related product rights.

Disaggregation of Net Sales

The following tables present our U.S. and International disaggregated net sales. Intersegment sales are eliminated in consolidation.


	Three Months Ended September 30,
	2023						2022
(in millions)	U.S.		International		Total		U.S.		International		Total
Infusion Therapies and Technologies	$	570	$	433	$	1,003	$	567	$	389	$	956
Advanced Surgery	139		116		255		141		106		247
Medical Products and Therapies	709		549		1,258		708		495		1,203
Care and Connectivity Solutions	317		126		443		339		117		456
Front Line Care	234		67		301		209		70		279
Healthcare Systems and Technologies	551		193		744		548		187		735
Injectables and Anesthesia	195		156		351		173		152		325
Drug Compounding	—		229		229		—		200		200
Pharmaceuticals	195		385		580		173		352		525
Chronic Therapies1	233		688		921		236		698		934

Acute Therapies1	66		122		188		57		109		166
Kidney Care	299		810		1,109		293		807		1,100
Other1	12		5		17		36		10		46
Total Baxter	$	1,766	$	1,942	$	3,708	$	1,758	$	1,851	$	3,609

~~Certain items~~


	Nine Months Ended September 30,
	2023						2022
(in millions)	U.S.		International		Total		U.S.		International		Total
Infusion Therapies and Technologies	$	1,654	$	1,264	$	2,918	$	1,672	$	1,157	$	2,829
Advanced Surgery	433		340		773		428		310		738
Medical Products and Therapies	2,087		1,604		3,691		2,100		1,467		3,567
Care and Connectivity Solutions	926		381		1,307		991		359		1,350
Front Line Care	681		230		911		618		237		855
Healthcare Systems and Technologies	1,607		611		2,218		1,609		596		2,205
Injectables and Anesthesia	550		437		987		494		467		961
Drug Compounding	—		665		665		—		613		613
Pharmaceuticals	550		1,102		1,652		494		1,080		1,574
Chronic Therapies1	689		2,041		2,730		675		2,069		2,744

Acute Therapies1	194		370		564		194		348		542
Kidney Care	883		2,411		3,294		869		2,417		3,286
Other1	56		17		73		98		31		129
Total Baxter	$	5,183	$	5,745	$	10,928	$	5,170	$	5,591	$	10,761

1In connection with our segment change in the third quarter of 2023, we made the following reclassifications of prior period sales amounts to conform to the current period presentation. We reclassified $16 million of sales from the first half of 2023 and $8 million and $23 million for the three and nine months ended September 30, 2022, respectively, from Chronic Therapies to Acute Therapies. Additionally, in connection with the reclassification of our BPS business to discontinued operations during the second quarter of 2023, we reclassified $2 million of contract manufacturing revenues from the first quarter of 2023 and $8 million and $26 million for the three and nine months ended September 30, 2022, respectively, from BPS to Other (within continuing operations), as the related manufacturing facility was not part of that divestiture transaction.

Geographic Sales Information

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


	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
United States	$	1,766	$	1,758	$	5,183	$	5,170
Emerging markets1	852		820		2,447		2,355
Rest of world2	1,090		1,031		3,298		3,236
Total Baxter	$	3,708	$	3,609	$	10,928	$	10,761

1Emerging markets include sales from our operations in Eastern Europe, the Middle East, Africa, Latin America and ~~are not allocated~~Asia (except for Japan).

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

Segment Operating Income

We use segment operating income to ~~a segment. They primarily include corporate headquarters costs, certain R&D costs, manufacturing variances~~evaluate the performance of our segments and ~~centrally managed supply chain costs, product category support costs, stock compensation expense, certain employee benefit plan costs, and certain gains, losses,~~to make resource allocation decisions. Segment operating income represents income before income taxes, interest and other ~~charges (such as business optimization, acquisition and integration~~non-operating income or expense, unallocated corporate costs, intangible asset amortization and ~~asset impairments).~~other special items. Special items, which are presented below in our reconciliations of segment operating income to income (loss) from continuing operations before income taxes, are excluded from segment operating income because they are highly variable, difficult to predict and of a size that may substantially impact our reported results of operations for the period.

Under our new operating model, most global functional support costs, overhead costs and other shared costs that benefit our segments are allocated to those segments. Corporate costs that are not allocated to our segments, as well as any differences between actual corporate costs and the amounts allocated to our segments, are presented as

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


	Three months ended September 30,				Nine months ended September 30,
(in millions)	2023		2022		2023		2022
Medical Products and Therapies	$	245	$	257	$	706	$	703
Healthcare Systems and Technologies	115		108		327		367
Pharmaceuticals	108		82		284		295
Kidney Care	96		103		208		307
Other	6		17		19		52
Total	570		567		1,544		1,724
Unallocated corporate costs	(5)		1		(51)		(41)
Intangible asset amortization expense	(162)		(168)		(481)		(578)
Long-lived asset impairments	(267)		(332)		(267)		(332)
Legal matters	(13)		—		(13)		—
Goodwill impairments	—		(2,785)		—		(2,785)
Business optimization items	(81)		(73)		(508)		(196)
Acquisition and integration items	(2)		(4)		(2)		(193)
Loss on product divestiture arrangement	—		(54)		—		(54)
Separation-related costs	(77)		—		(123)		—
European Medical Devices Regulation	(14)		(12)		(38)		(35)
Product-related items	—		(20)		—		(43)
Total operating income (loss)	(51)		(2,880)		61		(2,533)
Interest expense, net	128		104		369		278
Other (income) expense, net	(7)		61		33		1
Loss from continuing operations before income taxes	$	(172)	$	(3,045)	$	(341)	$	(2,812)

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

~~Financial information for our segments is as follows.~~

Three months ended
March 31,
(in millions) 2023 2022
Net sales:
Americas $ 1,602 $ 1,626
EMEA 714 699
APAC 602 627
Hillrom 731 755
Total net sales $ 3,649 $ 3,707
Operating income:
Americas $ 481 $ 610
EMEA 106 119
APAC 107 151
Hillrom 158 200
Total segment operating income $ 852 $ 1,080

~~The following is a reconciliation of segment operating income to income before income taxes per the condensed consolidated statements of income.~~
Three months ended
March 31,
(in millions) 2023 2022
Total segment operating income $ 852 $ 1,080
Corporate and other (666) (917)
Total operating income 186 163
Interest expense, net 117 85
Other income, net (1) (16)
Income before income taxes $ 70 $ 94

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

2433

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Refer to our Annual Report on Form 10-K for the year ended December 31, 2022 for management’s discussion and analysis of our financial condition and results of operations. The following is management’s discussion and analysis of our financial condition and results of operations for the three and nine months ended ~~March 31,~~September 30, 2023 and 2022.

~~RECENTLY ANNOUNCED~~RECENT STRATEGIC ACTIONS

In January 2023, we announced the following planned strategic actions that are intended to enhance our operational effectiveness, accelerate innovation and drive additional stockholder value: (a) a proposed spinoff of our ~~Renal~~Kidney Care ~~and Acute Therapies product categories~~business into an independent publicly traded company focused on kidney care and organ support (the proposed spinoff), (b) our development of a new operating model to simplify our operations and better align our manufacturing and supply chain to our commercial activities and (c) our pursuit of strategic alternatives ~~(including a potential sale)~~ for our BioPharma Solutions (BPS) ~~product category.~~

business.

The proposed spinoff is currently expected to be completed by July 2024 or earlier, subject to the satisfaction of customary conditions. InDuring the third quarter and first ~~quarter~~nine months of 2023 we generated ~~$1.1~~$1.11 billion and $3.29 billion, respectively, of net sales from our ~~Renal~~Kidney Care ~~and Acute Therapies product categories,~~segment, representing approximately ~~29%~~30% of our consolidated net ~~sales. Additionally,~~sales, in both periods.

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 financial position, results of operations and cash flows of our BPS business, including our gain from the sale of that business and the related cash proceeds received, are reported as discontinued operations in the ~~first quarter~~accompanying condensed consolidated financial statements. See Note 2 in Item 1 of ~~2023 we generated $139 million of net sales from our BPS product category, representing approximately 4% of our consolidated net sales.~~

this Quarterly Report on Form 10-Q for additional information.

During the third quarter and first ~~quarter~~nine months of 2023 we incurred significant ~~separation and transaction-related~~separation-related costs ~~related to~~in connection with the proposed spinoff and ~~our pursuit~~the recently completed sale of ~~strategic alternatives (including a potential sale) for~~ our BPS ~~product category.~~business. For the remainder of 2023 and the first half of 2024 we expect to continue to incur such costs in connection with the proposed spinoff, which will adversely impact our earnings and operating cash flows. Additionally, if ~~these~~the proposed ~~actions are~~spinoff is consummated, we expect to incur some amount of dis-synergies ~~following those transactions~~ due to the reduced size of our company and, as a result, we will need to undertake actions to help ensure that our cost structure is appropriate to support our remaining businesses. There can be no guarantees that the proposed spinoff ~~or the sale of, or other strategic transaction involving, our BPS product category~~ will be completed in the manner or over the ~~timeframes~~timeframe described above, or at all.

~~We are also starting~~Our reportable segments were previously comprised of the following geographic segments related to ~~implement~~our legacy Baxter business: Americas (North and South America), EMEA (Europe, Middle East and Africa) and APAC (Asia Pacific), and a global segment for our Hillrom business. 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 ~~footprint~~ and supply chain to our commercial activities. ~~The~~Our business is comprised of four segments under this new operating ~~model will have significant impacts on~~model: Medical Products and Therapies, Healthcare Systems and Technologies (formerly referred to as our ~~systems~~Hillrom segment), Pharmaceuticals and ~~processes across our entire company and we expect to have those broader operational changes, including our updated management reporting framework for the new operating model, fully implemented~~Kidney Care. Our segments were changed during the ~~second half~~third quarter of ~~2023. At that time, we expect that our reportable segments will be changed~~2023 to align with ~~the new operating model. However, there could be no guarantees that the implementation of~~ our new operating model ~~will be completed within that timeframe.~~and prior period segment disclosures have been revised to reflect the new segment presentation. See Note 16 in Item 1 of this Quarterly Report on Form 10-Q for additional information.

FACTORS AFFECTING OUR RESULTS OF OPERATIONS

Supply Constraints, Global Economic Conditions and Regulatory Matters

We have experienced significant challenges to our global supply chain in recent periods, including production delays and interruptions, increased costs and shortages of raw materials and component parts (including resins and electromechanical devices) and higher transportation costs, resulting from the pandemic and other exogenous factors including significant weather events, elevated inflation levels, increased interest rates, disruptions to certain ports of call around the world, the ~~war~~wars in Ukraine, Israel and Gaza and other geopolitical events. Due to the nature of our products, which include dense consumable medical products such as IV fluids, and the geographic locations of our manufacturing facilities, which often require us to transport our products long distances, we are more susceptible to increases in freight costs and other supply chain challenges than certain of our industry peers. ~~We expect to~~While we have seen improvements in the availability of certain component parts and improved pricing in certain raw materials, these challenges have not completely subsided and may continue to ~~experience some of these and other challenges related to~~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.

Our results of operations are also affected by macroeconomic conditions and levels of business confidence. The ~~war~~wars in Ukraine, Israel and Gaza and the sanctions and other measures being imposed in response to ~~this conflict~~these conflicts (and the potential for escalation of these conflicts) have increased the levels of economic and political ~~uncertainty. In response,~~uncertainty and we continue to closely monitor the developing ~~situation with~~situations. With respect to

the war in Ukraine and our ongoing business in Russia, ~~and~~we are working on reducing our product offerings in Russia while remaining compliant with all applicable U.S. and European Union sanctions and regulations. While ~~Russia and Ukraine~~these countries do not constitute a material portion of our business, a significant escalation or expansion of economic disruption or the ~~conflict’s~~ current scope of these conflicts could have an adverse effect on our business.

Our global operations expose us to risks associated with public health crises and epidemics/pandemics, such as COVID-19. COVID-19 had, and COVID-19 or any other future public health crisis could in the future have an adverse impact on, among other things, our expenses, operations, supply chains and distribution systems. Over the course of the COVID-19 pandemic, our business was impacted by shifting healthcare priorities and significant volatility in the demand for our products, and any resurgence of the pandemic or any new public health crisis could again impact healthcare priorities and cause volatility in the demand for our products.

~~In addition, the~~The existence of high inflation rates in the United States and in many of the countries where we conduct business has resulted in, and may continue to result in, higher interest rates, shipping costs, labor costs and other costs and ~~expenses, as well as weakening~~expenses. Additionally, adverse changes in foreign currency exchange ~~rates.~~rates have increased 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 ~~as well as negative impacts from weakening exchange rates as a result of general macroeconomic factors,~~ 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.

As a medical products company, our operations and many of the products manufactured or sold by us are subject to extensive regulation by numerous government agencies, both within and outside the United States. These regulations (as described in Item 1, Government Regulation, of our Annual Report for the fiscal year ended December 31, 2022) require that we obtain specific approval from FDA and non-U.S. 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). Furthermore, FDA in the United States, the European Medicines Agency in Europe, the China Food and Drug Administration (CFDA) 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, distribution and post-market surveillance of our products. Our failure to comply with these requirements may subject us to various actions, including warning letters, product recalls or seizures, monetary sanctions, injunctions to halt the manufacture and distribution of products, civil or criminal sanctions, refusal of a government to grant approvals or licenses, restrictions on operations or withdrawal of existing approvals and licenses and may have a material adverse impact on our results of operations.

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

RESULTS OF OPERATIONS

Net income (loss) attributable to Baxter stockholders for the three and nine months ended ~~March 31,~~September 30, 2023 totaled ~~$44~~$2.51 billion, or $4.93 per diluted share, and $2.41 billion, or $4.76 per diluted share, compared to $(2.94) billion, or $(5.83) per diluted share, and $(2.61) billion, or $(5.20) per diluted share, for the three and nine months ended September 30, 2022. Net income (loss) attributable to Baxter stockholders for the three and nine months ended September 30, 2023 included special items which increased net income (loss) by $2.09 billion and $1.36 billion, respectively, or $4.11 and $2.69, per diluted share, respectively. See the following subsection for information about special items for all periods presented. Net income (loss) for the three and nine months ended September 30, 2022 included special items which decreased net income (loss) by $3.35 billion and $3.94 billion, respectively, or $6.65 and $7.82 per diluted share, respectively.

Net income (loss) from continuing operations for both the three and nine months ended September 30, 2023 totaled $51 million, or $0.09 per diluted share and $(142) million, or $(0.29) per diluted share, compared to ~~$71 million,~~$(2.99) billion, or ~~$0.14~~$(5.94) per diluted share, and $(2.80) billion, or $(5.58) per diluted share, for the three and nine months ended ~~March 31, 2022.~~September 30, 2022, respectively. Net income (loss) from continuing operations for the three and nine months ended ~~March 31,~~September 30, 2023 included special items which decreased net income by ~~$253~~$296 million and $1.02 billion respectively, or ~~$0.50~~$0.59 and $2.01 per diluted share, ~~respectively, as further discussed below.~~respectively. Net income (loss) from continuing operations for the three and nine months ended ~~March 31,~~September 30, 2022 included special items which decreased net income by ~~$400 million,~~$3.36 billion and $3.95 billion, respectively, or ~~$0.79~~$6.66 and $7.83 per diluted share, ~~as further discussed below.~~respectively.

2636

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 nine months ended ~~March 31,~~September 30, 2023 and 2022.


		Three months ended March 31,				Three months ended September 30,						Nine months ended September 30,
(in millions)	(in millions)	2023		2022			(in millions)	2023		2022			2023		2022
Gross Margin	Gross Margin						Gross Margin
Intangible asset amortization expense	Intangible asset amortization expense	$	(110)	$	(122)		Intangible asset amortization expense	$	(111)	$	(110)		$	(326)	$	(344)

Business optimization items1	Business optimization items1	(35)		(2)			Business optimization items1	(26)		(13)			(327)		(21)
Acquisition and integration items2	Acquisition and integration items2	—		(164)			Acquisition and integration items2	(1)		2			(1)		(171)

European medical devices regulation3	European medical devices regulation3	(12)		(11)			European medical devices regulation3	(14)		(12)			(38)		(35)
Divestiture-related costs4		(1)		—
Separation-related costs4							Separation-related costs4	(10)		—			(15)		—
Product-related items5	Product-related items5	—		(23)			Product-related items5	—		(20)			—		(43)

Long-lived asset impairments6							Long-lived asset impairments6	(267)		(332)			(267)		(332)

Total Special Items	Total Special Items	$	(158)	$	(322)		Total Special Items	$	(429)	$	(485)		$	(974)	$	(946)
Impact on Gross Margin Ratio	Impact on Gross Margin Ratio	(4.3 pts)		(8.6 pts)			Impact on Gross Margin Ratio	(11.6 pts)		(13.4 pts)			(8.9 pts)		(8.8 pts)
Selling, General and Administrative (SG&A) Expenses	Selling, General and Administrative (SG&A) Expenses						Selling, General and Administrative (SG&A) Expenses
Intangible asset amortization expense	Intangible asset amortization expense	$	52	$	95		Intangible asset amortization expense	$	51	$	58		$	155	$	234
Business optimization items1	Business optimization items1	92		78			Business optimization items1	50		57			169		171
Acquisition and integration items2	Acquisition and integration items2	6		24			Acquisition and integration items2	1		11			15		55

Divestiture-related costs4		15		$	—
Separation-related costs4							Separation-related costs4	67		$	—		108		—
Legal matters7							Legal matters7	13		$	—		13		—
Total Special Items	Total Special Items	$	165	$	197		Total Special Items	$	182	$	126		$	460	$	460
Impact on SG&A Ratio	Impact on SG&A Ratio	4.5 pts		5.3 pts			Impact on SG&A Ratio	4.9 pts		3.5 pts			4.2 pts		4.3 pts
Research and Development (R&D) Expenses	Research and Development (R&D) Expenses						Research and Development (R&D) Expenses
Business optimization items1	Business optimization items1	$	7	$	1		Business optimization items1	$	5	$	3		$	12	$	4

Acquisition and integration expenses2							Acquisition and integration expenses2	—		1			—		1

Total Special Items	Total Special Items	$	7	$	1		Total Special Items	$	5	$	4		$	12	$	5
Impact on R&D Ratio	Impact on R&D Ratio	0.2 pts		0.0 pts			Impact on R&D Ratio	0.2 pts		0.1 pts			0.1 pts

Goodwill Impairments							Goodwill Impairments
Goodwill impairments6							Goodwill impairments6	$	—	$	2,785		$	—	$	2,785
Total Special Items							Total Special Items	$	—	$	2,785		$	—	$	2,785
Other Operating Expense (Income), net	Other Operating Expense (Income), net						Other Operating Expense (Income), net

Loss on product divestiture arrangement10							Loss on product divestiture arrangement10	$	—	$	54		$	—	$	54
Acquisition and integration items2	Acquisition and integration items2	$	(13)	$	(17)		Acquisition and integration items2	—		(6)			(14)		(34)

Total Special Items	Total Special Items	$	(13)	$	(17)		Total Special Items	$	—	$	48		$	(14)	$	20

Other (Income) Expense, net							Other (Income) Expense, net
Pension curtailment8							Pension curtailment8	$	—	$	—		$	—	$	(11)
Investment impairments9							Investment impairments9	—		—			20		—
Reclassification of cumulative translation loss to earnings11							Reclassification of cumulative translation loss to earnings11	—		65			—		65
Total Special Items							Total Special Items	$	—	$	65		$	20	$	54
Income Tax Expense	Income Tax Expense						Income Tax Expense

Tax effects of special items6		$	(64)	$	(103)
Tax matters12							Tax matters12	$	(196)	$	5		$	(152)	$	5
Tax effects of special items13							Tax effects of special items13	(124)		$	(162)		(280)		(328)
Total Special Items	Total Special Items	$	(64)	$	(103)		Total Special Items	$	(320)	$	(157)		$	(432)	$	(323)
Impact on Effective Tax Rate	Impact on Effective Tax Rate	12.7 pts		1.5 pts			Impact on Effective Tax Rate	107.9 pts		(20.2 pts)			37.4 pts		(20.7 pts)

Intangible asset amortization expense is identified as a special item to facilitate an evaluation of current and past operating performance and is consistent with how management and our Board of Directors assess performance. Additional special items are identified above because they are highly variable, difficult to predict and of a size that may substantially impact our reported results of operations for the period. Management believes that providing the separate impact of those items on our results in accordance with U.S. GAAP may provide a more complete understanding of our operations and can facilitate a fuller analysis of our results of operations, particularly in evaluating performance from one period to another.

1Our results in 2023 and 2022 were impacted by costs associated with our execution of programs to optimize our organization and cost structure. These restructuring and other business optimization costs included actions related to our current implementation of a new operating model intended to simplify and streamline our operations an better align our manufacturing and supply chain to our commercial activities, our integration of Hillrom, the decision to close one of our U.S.-based manufacturing facilities later this year, which resulted in a $243 million noncash impairment of property, plant and equipment in the second quarter of 2023, rationalization of certain other manufacturing and distribution facilities and transformation of certain general and administrative functions. Our results in 2023 included business optimization charges of $81 million in the third quarter and $508 million in the first nine months. Our results in 2022 included business optimization charges of ~~$134~~$73 million in the third quarter and ~~$81~~$196 million ~~respectively.~~in the first nine months. Refer to Note 910 in Item 1 of this Quarterly Report on Form 10-Q for further information regarding these charges and related liabilities.

2Our results in 2023 included $7$2 million in the third quarter and $2 million in the first nine months of ~~net benefits from~~ acquisition and integration-related items. ~~Acquisition~~These amounts reflected $2 million in the third quarter and $16 million in the first nine months of integration ~~benefits reflected $13~~costs, which primarily included costs related to our integration of Hillrom, partially offset by a $14 million ~~of net gains~~benefit in the first nine months from changes in the estimated fair

values of contingent consideration ~~liabilities, partially offset by $6 million of integration costs, which primarily included third party consulting costs related to our integration of Hillrom.~~liabilities. Our results in 2022 included ~~$171~~$4 million in the third quarter and $193 million in the first nine months of acquisition and integration-related ~~expenses. Those costs~~items. These amounts included ~~$29~~$10 million in the third quarter and $227 million in the first nine months related to our acquisition of ~~integration-related costs and~~Hillrom, primarily reflecting $159 million of incremental cost of sales from the fair value step-ups on acquired Hillrom inventory that was sold in 2022. Other integration expenses in 2022 included third party consulting costs related to our integration and related cost savings activities. Those acquisition and integration-related expenses related to Hillrom were partially offset by ~~$17~~an $6 million ~~of net gains~~benefit in the third quarter and a $34 million benefit in the first nine months from changes in the estimated fair values of contingent consideration ~~liabilities assumed in the Hillrom acquisition.~~liabilities.

3Our results in 2023 included $14 million in the third quarter and ~~2022 included $12~~$38 million ~~and $11 million, respectively,~~in the first nine months 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. Our results in 2022 included $12 million in the third quarter and $35 million in the first nine months related to these requirements.

4Our results in 2023 included ~~$16~~$77 million in the third quarter and $123 million in the first nine months of ~~divestiture-related~~separation-related costs, primarily reflecting costs of external advisors supporting our activities to prepare for the proposed spinoff of our ~~Renal~~Kidney Care segment. We also incurred $4 million and ~~Acute Therapies product categories~~$19 million of additional separation-related costs in the third quarter and ~~our pursuit~~first nine months of ~~strategic alternatives (including a potential sale) for~~2023, respectively, related to the sale of our BPS ~~product category.~~business that are reported in discontinued operations and are not presented in the table above. Refer to ~~"Recently Announced~~"Recent Strategic Actions" above for more ~~information.~~information about those proposed and recently completed transactions.

5Our results in 2022 included charges of ~~$23~~$20 million in the third quarter and $43 million in the first nine months related to warranty and remediation activities arising from two field corrective actions on certain of our infusion pumps.

6~~Reflected~~Our results in 2023 included long-lived asset impairment charges of $267 million in the third quarter and first nine months related to the Hemodialysis (HD) business within our Kidney Care segment, comprised of (i) a $190 million impairment charge related to certain manufacturing equipment, operating lease right-of-use assets and HD equipment leased to customers and (ii) a $77 million impairment charge related to a developed technology intangible asset. Those 2023 impairments exclude the $243 million noncash impairment of property, plant and equipment in the second quarter of 2023 described in footnote 1 above that related to a restructuring action and is presented within the Business Optimization special item in the above table. Our results in 2022 included impairment charges of $3.12 billion in the third quarter and first nine months related to assets acquired in our December 2021 acquisition of Hill-Rom Holdings, Inc., comprised of

(i) a $2.79 billion goodwill impairment and (ii) $332 million of indefinite-lived intangible asset impairments. Refer to Notes 3 and 4 in Item 1 of this Quarterly Report on Form 10-Q for further information regarding the impairments.

7Our results in 2023 included costs, including associated legal fees, of $13 million in the third quarter and first nine months 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.

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

9Our results in 2023 included $20 million of net pre-tax losses from non-marketable investments in several early-stage companies in the first nine months, consisting of $23 million of noncash impairment write-downs, partially offset by a $3 million gain from the sale of an investment.

10Our results in 2022 included a loss of $54 million in the third quarter and first nine months under an arrangement to divest certain product rights for an amount that is less than our cost of those product rights, which was triggered by U.S. and European Union regulatory approvals of the related products. Refer to Note 2 in Item 1 of this Quarterly Report on Form 10-Q for further information about the related transactions.

11Our results in 2022 included a charge of $65 million in the third quarter and first nine months for cumulative translation adjustments (CTA) reclassified from accumulated other comprehensive income (loss) as a result of the substantial liquidation of our operations in Argentina.

12Our results in 2023 included income tax benefits of $209 million in the third quarter and $199 million in the first nine months resulting from application of the intraperiod tax allocation between continuing operations and discontinued operations. Our results in 2023 included a $30 million valuation allowance in the first nine months 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. We also incurred separation-related income tax costs of $13 million in the third quarter and $17 million in the first nine months. Our results in 2022 included a $5 million reallocation of income taxes between continuing operations and discontinued operations resulting from the application of a intraperiod tax allocation.

13This item isreflects the income tax impact of the special items identified in this table. The tax effect of each special item is based on the jurisdiction in which the item was incurred and the tax laws in effect for each such jurisdiction.

CONSOLIDATED NET SALES


		Three Months Ended March 31,				Percent change					Three Months Ended September 30,				Percent change
(in millions)	(in millions)	2023		2022		At actual currency rates		At constant currency rates		(in millions)	2023		2022		At actual currency rates		At constant currency rates
United States	United States	$	1,734	$	1,757	(1)	%	(1)	%	United States	$	1,766	$	1,758	0	%	0	%
International		$	1,915	1,950		(2)	%	4	%
Emerging markets1										Emerging markets1	852		820		4	%	3	%
Rest of world2										Rest of world2	1,090		1,031		6	%	3	%
Total net sales	Total net sales	$	3,649	$	3,707	(2)	%	2	%	Total net sales	$	3,708	$	3,609	3	%	2	%


	Nine Months Ended September 30,				Percent change
(in millions)	2023		2022		At actual currency rates		At constant currency rates
United States	$	5,183	$	5,170	0	%	0	%
Emerging markets1	2,447		$	2,355	4	%	6	%
Rest of world2	3,298		$	3,236	2	%	4	%
Total net sales	$	10,928	$	10,761	2	%	3	%

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

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

Foreign currency ~~unfavorably~~favorably impacted net sales by 41 percentage ~~points~~point during the ~~first~~third quarter of 2023, compared to the ~~prior-year~~prior year period, ~~principally~~primarily due to the weakening of the U.S. Dollar relative to the Euro, British Pound and Mexican

Peso, partially offset by strengthening of the U.S. Dollar relative to the Turkish Lira and Chinese Renminbi. Foreign currency adversely impacted net sales by 1 percentage point during the first nine months of 2023, compared to the prior year period primarily due to the strengthening of the U.S. Dollar relative to the ~~Euro, British Pound,~~ Chinese Renminbi, Turkish Lira, Australian Dollar, Canadian Dollar, Japanese Yen and ~~Japanese Yen.~~the Colombian Peso, partially offset by the weakening of the U.S. Dollar relative to the Mexican Peso.

The comparisons presented at constant currency rates reflect current period local currency sales at the prior period’s foreign exchange rates. This measure provides information on the change in net sales assuming that foreign currency exchange rates had not changed between the prior and the current period. We believe that the non-GAAP measure of change in net sales at constant currency rates, when used in conjunction with the U.S. GAAP measure of change in net sales at actual currency rates, may provide a more complete understanding and facilitate a fuller analysis of our results of operations, particularly in evaluating performance from one period to another.

~~Product Category Net Sales Reporting~~NET SALES BY SEGMENT

~~Our product categories include the following:~~Medical Products and Therapies

• ~~Renal Care~~ Our Medical Products and Therapies segment includes sales of our ~~peritoneal dialysis (PD), hemodialysis (HD) and additional dialysis~~sterile IV solutions, infusion systems, administration sets, parenteral nutrition therapies and ~~services.~~surgical hemostat, sealant and adhesion prevention products.


	Three Months Ended September 30,				Percent change
(in millions)	2023		2022		At actual currency rates		At constant currency rates
Infusion Therapies and Technologies	$	1,003	$	956	5	%	4	%
Advanced Surgery	255		247		3	%	3	%
Total Medical Product and Therapies net sales	$	1,258	$	1,203	5	%	4	%

• ~~Medication Delivery~~


	Nine Months Ended September 30,				Percent change
(in millions)	2023		2022		At actual currency rates		At constant currency rates
Infusion Therapies and Technologies	$	2,918	$	2,829	3	%	4	%
Advanced Surgery	773		738		5	%	6	%
Total Medical Product and Therapies net sales	$	3,691	$	3,567	3	%	4	%

Medical Product and Therapies segment net sales increased 5% in the third quarter and 3% in the first nine months of 2023, as compared to the prior year periods.

Infusion Therapies and Technologies net sales increased 5% in the third quarter and 3% in the first nine months of 2023, as compared to the prior year periods. Sales performance in the third quarter and first nine months reflected strong demand for our infusion systems and administration sets, as well as growth in IV solutions and international nutrition compounding, partially offset by lower sales of parenteral nutrition products in the U.S. Sales performance in the first nine months was also partially offset by higher U.S. distributor chargebacks and customer rebates as compared to the prior year periods. Foreign currency exchange rates favorably impacted sales growth by 1% for the third quarter of 2023 and adversely impacted sales growth by 1% for the first nine months of 2023 as compared to the prior year periods.

Advanced Surgery net sales increased 3% in the third quarter and 5% in the first nine months of 2023, as compared to the prior year periods. The increase in the third quarter and first nine months was driven by continued recovery in surgical procedures, partially offset by temporary supply constraints, the exit of a product distribution arrangement and a comparison against prior year periods that benefited from competitor supply constraints. Foreign currency exchange rates favorably impacted sales growth by 1% in the third quarter and adversely impacted sales growth by 1% for the first nine months as compared to the prior year periods.

Healthcare Systems and Technologies

Our Healthcare Systems and Technologies segment includes sales of our ~~intravenous (IV) therapies, infusion pumps, administration sets~~connected care solutions and ~~drug reconstitution devices.~~

• ~~Pharmaceuticals~~ ~~includes sales of our premixed~~collaboration tools, including smart bed systems, patient monitoring systems and ~~oncology drug platforms, inhaled anesthesia~~diagnostic technologies, respiratory health devices and ~~critical care products and pharmacy compounding services.~~

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

• ~~Advanced Surgery~~ ~~includes sales of our biological products and medical devices used in~~advanced equipment for the surgical ~~procedures for hemostasis, tissue sealing and adhesion prevention.~~space, including surgical video technologies, precision positioning

2840

• devices and other accessories.


	Three Months Ended September 30,				Percent change
(in millions)	2023		2022		At actual currency rates		At constant currency rates
Care and Connectivity Solutions	$	443	$	456	(3)	%	(4)	%
Front Line Care	301		279		8	%	8	%
Total Healthcare Systems and Technologies net sales	$	744	$	735	1	%	0	%


	Nine Months Ended September 30,				Percent change
(in millions)	2023		2022		At actual currency rates		At constant currency rates
Care and Connectivity Solutions	$	1,307	$	1,350	(3)	%	(3)	%
Front Line Care	911		855		7	%	7	%
Total Healthcare Systems and Technologies net sales	$	2,218	$	2,205	1	%	1	%

Healthcare Systems and Technologies segment net sales increased 1% in the third quarter and first nine months of 2023, as compared to the prior year periods.

Care and Connectivity Solutions net sales decreased 3% in the third quarter and first nine months of 2023, as compared to the prior year periods, driven by lower demand for hospital beds, which we believe is being driven by current capital spending constraints at certain of our customers, and lower rental revenues, partially offset by international demand and sales generated from recent product launches in the U.S. Foreign currency exchange rates favorably impacted sales growth by 1% for the quarter and did not impact sales growth for first nine months as compared to the prior year periods.

Front Line Care net sales increased 8% in the third quarter and 7% in the first nine months of 2023, as compared to the prior year periods. The increase was driven by increased demand for our physical assessment tools, respiratory health products and cardiology products. Performance in the current year periods benefited from backlog reductions due to improved availability of component parts used in certain of our products. Foreign currency exchange rates did not impact sales growth in the third quarter or the first nine months as compared to the prior year periods.

Pharmaceuticals

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


	Three Months Ended September 30,				Percent change
(in millions)	2023		2022		At actual currency rates		At constant currency rates
Injectables and Anesthesia	$	351	$	325	8	%	7	%
Drug Compounding	229		200		15	%	13	%
Total Pharmaceuticals net sales	$	580	$	525	10	%	9	%


	Nine Months Ended September 30,				Percent change
(in millions)	2023		2022		At actual currency rates		At constant currency rates
Injectables and Anesthesia	$	987	$	961	3	%	4	%
Drug Compounding	665		613		8	%	12	%
Total Pharmaceuticals net sales	$	1,652	$	1,574	5	%	7	%

Pharmaceuticals segment net sales increased 10% in the third quarter and 5% in the first nine months of 2023, as compared to the prior year periods.

Injectables and Anesthesia net sales increased 8% in the third quarter and 3% in the first nine months of 2023, as compared to the prior year periods. The increases in the third quarter and first nine months reflect growth from our U.S. injectable products, driven by our recent launches of Zosyn, following the transfer of the related product rights to us earlier this year, Bendamustine and Norepinephrine, partially offset by lower sales of Suprane, an inhaled anesthesia product. Foreign currency exchange rates favorably impacted sales growth by 1% for the third quarter of 2023 and adversely impacted sales growth by 1% in the first nine months as compared to the prior year periods.

Drug Compounding net sales increased 15% in the third quarter and 8% in the first nine months of 2023, as compared to the prior year periods. The increase was driven by increased demand for our international pharmacy compounding services. Foreign currency exchange rates favorably impacted sales growth by 2% for the third quarter of 2023 and adversely impacted sales growth by 4% for the first nine months of 2023 as compared to the prior year periods.

Kidney Care

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 focused~~therapies.


	Three Months Ended September 30,				Percent change
(in millions)	2023		2022		At actual currency rates		At constant currency rates
Chronic Therapies	$	921	$	934	(1)	%	(3)	%

Acute Therapies	188		166		13	%	12	%
Total Kidney Care net sales	$	1,109	$	1,100	1	%	0	%


	Nine Months Ended September 30,				Percent change
(in millions)	2023		2022		At actual currency rates		At constant currency rates
Chronic Therapies	$	2,730	$	2,744	(1)	%	1	%

Acute Therapies	564		542		4	%	6	%
Total Kidney Care net sales	$	3,294	$	3,286	0	%	2	%

Kidney Care segment net sales increased 1% in the ~~intensive care unit (ICU).~~

• ~~BioPharma Solutions~~ ~~includes sales of contracted services we provide to various pharmaceutical~~third quarter and ~~biopharmaceutical companies.~~

• ~~Patient Support Systems~~ ~~includes sales of our connected care solutions: devices, software, communications and integration technologies and smart beds.~~

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

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

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

~~The following is a summary of net sales by product category:~~
Three Months Ended March 31, Percent change
(in millions) 2023 2022 At actual currency rates At constant currency rates
Renal Care $ 892 $ 894 (0) % 4 %
Medication Delivery 687 706 (3) % (0) %
Pharmaceuticals 523 521 0 % 5 %
Clinical Nutrition 224 227 (1) % 3 %
Advanced Surgery 246 228 8 % 11 %
Acute Therapies 180 188 (4) % (1) %
BioPharma Solutions 139 156 (11) % (9) %
Patient Support Systems 348 383 (9) % (8) %
Front Line Care 302 294 3 % 4 %
Global Surgical Solutions 81 78 4 % 8 %
Other 27 32 (16) % (16) %
Total Baxter $ 3,649 $ 3,707 (2) % 2 %

~~Renal Care net sales~~ were flat infor the first ~~quarter~~nine months of 2023, as compared to the ~~prior-year period. Sales performance for~~prior year periods.

Chronic Therapies sales decreased 1% in the ~~period reflects a 4% negative impact from foreign exchange rates,~~third quarter and the first nine months of 2023, as compared to the ~~prior-year period,~~prior year periods. Sales performance in the current year periods was primarily due to patient growth in PD, pricing initiatives and recent government tender awards in EMEA, partially offset by lower sales in China, primarily due to government-based procurement initiatives and the ~~recent~~impact of COVID-19 on that country’s renal patient population, and the termination of a distribution agreement in the U.S.~~, partially offset~~ Foreign currency exchange rates favorably impacted sales growth by ~~patient~~2% for the third quarter of 2023 and adversely impacted sales growth ~~in PD and recent government tender awards in EMEA.~~

~~Medication Delivery net sales decreased 3% in~~by 2% for the first ~~quarter~~nine months of 2023 as compared to the ~~prior-year period. The decrease was driven by lower~~prior year periods.

Acute Therapies net sales ~~of infusion pumps, primarily due to supply constraints, higher U.S. distributor chargebacks and customer rebates~~increased 13% in the ~~current year period~~third quarter and a 3% negative impact from foreign exchange rates, partially offset by increased international demand for our IV administration sets and solutions, reflecting a recovery in hospital admission rates and surgical procedures.

~~Pharmaceuticals net sales were flat~~4% in the first ~~quarter~~nine months of 2023, as compared to the ~~prior-year period, reflecting increased~~prior year periods. The increases in the current year periods were driven by strong demand for our ~~international pharmacy compounding services and U.S. injectable products, partially offset~~CRRT offerings. Sales growth for the first nine months of 2023 was adversely impacted by a ~~5% negative impact from foreign~~comparison against a prior year period that included strong COVID-related demand for our CRRT offerings during the first quarter. Foreign currency exchange rates ~~as compared to~~favorably impacted sales growth by 1% for the ~~prior-year period,~~third quarter of 2023 and ~~lower demand internationally~~adversely impacted sales growth by 2% for ~~injectable products.~~

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

Other

During the three months ended September 30, 2023 and 2022, we earned $17 million and $46 million, respectively, and for the nine months ended September 30, 2023 and 2022, we earned $73 million and $129 million, respectively, of revenues that were not attributable to our reportable segments. In the current and prior year periods, those other sales primarily represent ancillary revenues earned by certain of our manufacturing facilities from contract manufacturing activities and royalty income under a business development arrangement. The ~~decrease was driven by a 4% negative impact from foreign exchange rate changes,~~decreases in the current year as compared to the ~~prior-year period, partially offset by increased demand for~~prior year periods reflect lower contract manufacturing volume and the termination of the royalty arrangement following our ~~nutrition compounding services.~~

~~Advanced Surgery net sales increased 8% in~~acquisition of the ~~first quarter of 2023, as compared~~rights to the prior-year period. The increase was driven by continued recovery in surgical procedures, partially offset by a 3% negative impact from foreign exchange rate changes, as compared to the prior-year period.underlying product.

2942

Acute Therapies net sales decreased 4% in the first quarter of 2023, as compared to the prior-year period. The decrease was driven by a 3% negative impact from foreign exchange rate changes, as compared to the prior-year period, and lower COVID-related demand for our CRRT systems.

BioPharma Solutions net sales decreased 11% in the first quarter of 2023, as compared to the prior-year period. The decrease was primarily driven by lower sales of manufacturing services and supply packaging related to the production of COVID-19 vaccines on behalf of multiple pharmaceutical companies, reflecting a challenging comparison against a strong prior-year period. The decrease also includes a 2% negative impact from foreign exchange rates, as compared to the prior-year period.

Patient Support Systems net sales decreased 9% in the first quarter of 2023, as compared to the prior-year period. The decrease reflects lower demand for hospital beds, which we believe was driven by current capital spending constraints at certain of our customers, lower rental revenues and a 1% negative impact from foreign exchange rates, as compared to the prior-year period, partially offset by increased sales in our connected care offerings.

Front Line Care net sales increased 3% in the first quarter of 2023, as compared to the prior-year period. The increase was driven by increased demand for our physical assessment tools and cardiology products, partially offset by a 1% negative impact from foreign exchange rates, as compared to the prior-year period.

Global Surgical Solutions net sales increased 4% in the first quarter of 2023, as compared to the prior-year period. The increase was driven by strong international demand, partially offset by a 4% negative impact from foreign exchange rates, as compared to the prior-year period.COSTS AND EXPENSES

Gross Margin and Expense Ratios


		Three months ended March 31,													Three months ended September 30,
		2023		% of net sales		2022		% of net sales		$ change		% change			2023		% of net sales		2022		% of net sales		$ change		% change
Gross margin	Gross margin	$	1,347	36.9	%	$	1,348	36.4	%	$	(1)	(0.1)	%	Gross margin	$	1,117	30.1	%	$	1,045	29.0	%	$	72	6.9	%
SG&A	SG&A	$	1,010	27.7	%	$	1,052	28.4	%	$	(42)	(4.0)	%	SG&A	$	1,002	27.0	%	$	941	26.1	%	$	61	6.5	%
R&D	R&D	$	164	4.5	%	$	150	4.0	%	$	14	9.3	%	R&D	$	166	4.5	%	$	151	4.2	%	$	15	9.9	%



	Nine months ended September 30,
	2023		% of net sales		2022		% of net sales		$ change		% change
Gross margin	$	3,503	32.1	%	$	3,678	34.2	%	$	(175)	(4.8)	%
SG&A	$	2,961	27.1	%	$	2,958	27.5	%	$	3	0.1	%
R&D	$	495	4.5	%	$	448	4.2	%	$	47	10.5	%

Gross Margin

The gross margin ratio was ~~36.9%~~30.1% and ~~36.4%~~32.1% in the third quarter and first ~~quarter~~nine months of 2023, ~~and 2022,~~ respectively. The special items identified ~~above~~earlier in this section had an unfavorable impact of approximately ~~4.3~~11.6 and ~~8.6~~8.9 percentage points on the gross margin ratio in the third quarter and first ~~quarter~~nine months of 2023, respectively. The gross margin ratio was 29.0% and 34.2% in the third quarter and first nine months of 2022, respectively. Special items had an unfavorable impact of approximately 13.4 and 8.8 percentage points on the gross margin ratio in the third quarter and first nine months of 2022, respectively. Refer to the Special Items caption ~~above~~earlier in this section for additional detail.

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

SG&A

The SG&A expenses ratio was ~~27.7%~~27.0% and ~~28.4%~~27.1% in the third quarter and first ~~quarter~~nine months of 2023, ~~and 2022,~~ respectively. The special items identified ~~above~~earlier in this section had an unfavorable impact of approximately ~~4.5~~4.9 and ~~5.3~~4.2 percentage points on the SG&A expenses ratio in the third quarter and first ~~quarter~~nine months of 2023, respectively. The SG&A expenses ratio was 26.1% and 27.5% in the third quarter and first nine months of 2022, respectively. Special items had an unfavorable impact of approximately 3.5 and 4.3 percentage points on the SG&A expenses ratio in the third quarter and first nine months 2022, respectively. Refer to the Special Items caption ~~above~~earlier in this section for additional detail.

Excluding the impact of ~~the~~ special items, the SG&A expenses ratio ~~was flat~~decreased in the third quarter and first ~~quarter~~nine months of 2023 compared to the ~~prior-year period.~~prior year periods primarily due to savings from restructuring actions implemented in recent periods, partially offset by higher bonus accruals under our annual employee incentive compensation plans.

R&D

The R&D expenses ratio was 4.5% in both the third quarter and ~~4.0% in the~~ first ~~quarter~~nine months of ~~2023 and 2022, respectively.~~2023. The special items identified ~~above~~earlier in this section had an unfavorable impact of approximately 0.2 and 0.1 percentage points on the R&D expenses ratio in the third quarter and first nine months of 2023. The R&D expenses ratio was 4.2% in both the third quarter and first nine months of ~~2023 and no~~2022. Special items had an unfavorable impact of approximately 0.1 percentage point on the R&D expenses ratio in the third quarter and first ~~quarter~~nine months of 2022. Refer to the Special Items caption ~~above~~earlier in this section for additional detail.

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

portfolio in our Healthcare Systems and Technology segment.

Business Optimization Items

In recent years, we have undertaken actions to transform our cost structure and enhance operational efficiency. These efforts have included restructuring the organization, optimizing our manufacturing footprint, R&D operations and

supply chain network, employing disciplined cost management, and centralizing and streamlining certain support functions. ~~From the commencement of our business optimization actions in the second half of 2015 through March 31, 2023, we have incurred cumulative pre-tax~~The related costs of ~~$1.6 billion related to~~ these ~~actions. The costs~~actions consisted primarily of employee termination costs, implementation costs, contract termination costs and asset ~~impairments,~~impairments.

For the three and ~~accelerated depreciation.~~nine months ended September 30, 2023, $14 million and $111 million, respectively, of the restructuring charges, consisting of employee termination costs, were related to the ongoing implementation of our previously announced new operating model intended to simplify and streamline our operations. For the nine months ended September 30, 2023, $253 million of the restructuring charges, consisting of $243 million of asset impairment charges and $10 million of employee termination costs, were related to our decision to cease production of dialyzers at one of our manufacturing facilities in connection with our initiatives to streamline our manufacturing footprint and improve our profitability.

We currently expect to incur additional pre-tax costs, primarily related to the implementation of business optimization programs, of approximately ~~$24~~$25 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, we would incur additional restructuring charges and costs to implement business optimization programs in future periods. For example, we expect to incur additional restructuring charges during 2023 related to our implementation of a new operating model intended to simplify and streamline our operations (including our manufacturing footprint), as discussed above under "Recently Announced Strategic Actions." Refer to Note 910 in Item 1 of this Quarterly Report on Form 10-Q for additional information regarding our business optimization programs.

Goodwill Impairments

We acquired Hillrom on December 13, 2021 and recognized $6.83 billion of goodwill and $6.03 billion of other intangible assets, including $1.91 billion of indefinite-lived intangible assets, in connection with that acquisition. During the third quarter of 2022, we performed trigger-based impairment tests for each of the reporting units within our Hillrom segment (currently referred to as our Healthcare Systems and Technologies segment), as well as the indefinite-lived intangible assets, consisting primarily of trade names, that we acquired in connection with the Hillrom acquisition. We performed those tests as of September 30, 2022 due to (a) current macroeconomic conditions, including the rising interest rate environment and broad declines in equity valuations, and (b) reduced earnings forecasts for our three Hillrom reporting units, driven primarily by shortages of certain component parts used in our products, raw materials inflation and increased supply chain costs. Those goodwill impairment tests resulted in total pre-tax goodwill impairment charges of $2.79 billion in the third quarter of 2022. Refer to Note 4 in Item 1 of this Quarterly Report on Form 10-Q for additional information regarding these goodwill impairment charges, as well as information about related indefinite-lived intangible asset impairment charges.

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

Other Operating ~~Income,~~Expense (Income), Net

Other operating ~~income,~~expense (income), net was ~~$13~~zero and income of $14 million in the third quarter and first ~~quarter~~nine months of 2023, respectively, and ~~$17~~expense of $48 million and $20 million in the third quarter and first ~~quarter~~nine months of ~~2022. In both periods these amounts were~~2022, respectively. The income in the first nine months of 2023 was comprised of gains from changes in the ~~estimated~~ fair ~~value~~values of contingent consideration ~~liabilities.~~arrangements. The expense in the three and nine months of 2022 included a loss of $54 million under an arrangement to divest certain product rights for an amount that was less than our cost of those product rights, which was triggered by U.S. and European Union regulatory approvals of the related products. That loss in 2022 was partially offset by gains from changes in the fair values of contingent consideration arrangements.

Interest Expense, Net

Interest expense, net was ~~$117~~$128 million and $369 million in the third quarter and first ~~quarter~~nine months of 2023, respectively, and ~~$85~~$104 million and $278 million in the third quarter and first ~~quarter~~nine months of ~~2022.~~2022, respectively. The increase in 2023 was driven by higher interest rates on our floating rate ~~debt.~~debt, partially offset by net repayments in the current year periods.

We expect that our net interest expense will decrease in future periods as we earn additional interest income and repay a portion of our outstanding borrowings with the proceeds we received from the recent sale of our BPS business.

Other ~~Income,~~(Income) Expense, Net

Other ~~income,~~(income) expense, net was income of $7 million and an expense of $33 million in the third quarter and first nine months of 2023, respectively, and an expense of $61 million and $1 million in the third quarter and first nine months of 2022, respectively. In the third quarter of 2023, ~~and $16 million in~~ the ~~first quarter of 2022. In the first quarter of 2023, other~~net income ~~net~~ was primarily ~~due to~~driven by pension and other postretirement benefits and increases in the fair value of marketable equity securities, partially offset by foreign exchange losses. In the first ~~quarter~~nine months of ~~2022, other income,~~2023, the net expense was ~~due to~~primarily driven by foreign exchange ~~gains~~losses, non-marketable investment impairments and decreases in the fair value of marketable equity securities, partially offset by pension and other postretirement benefits. In the third quarter of 2022, the net income was primarily due to the reclassification of a cumulative translation loss from accumulated other comprehensive income (loss) to earnings due to the substantial liquidation of our operations in Argentina, partially offset by pension benefits. In the first nine months of 2022, the net expense was primarily related to the reclassification of the Argentina cumulative translation loss, partially offset by foreign exchange gains, pension and other postretirement benefits, a pension curtailment gain and increases in the fair value of marketable equity securities.

Income Taxes

Our effective income tax rate was ~~35.7%~~129.7% and ~~22.3%~~1.8% in the third quarter, and 58.4% and 0.5% in the first ~~quarter~~nine months of 2023 and 2022, respectively. Our effective income tax rate can differ from the 21% U.S. federal statutory rate due to a number of factors, including foreign rate differences, tax incentives, non-deductible expenses, non-taxable income, increases or decreases in valuation allowances, increases or decreases in liabilities for uncertain tax positions and excess tax benefits or shortfalls on stock compensation awards.

the full year. For the three months ended ~~March 31,~~September 30, 2023, our effective tax rate was also impacted by $13 million of separation-related income tax costs. For the nine months ended September 30, 2023, our effective tax rate was also impacted by a $30 million valuation allowance recorded to reduce the carrying amount of a deferred tax asset for a tax basis step-up related to previously enacted Swiss tax legislation and by $17 million of separation-related income tax costs.

For the three and nine months ended September 30, 2022, the difference between our effective income tax rate and the U.S. federal statutory rate from discrete was primarily attributable to ~~discrete~~non-deductible goodwill impairments.

Discontinued Operations

On September 29, 2023, we completed the sale of our BPS business and received cash proceeds of $3.96 billion from that transaction. The financial position, results of operations and cash flows of our BPS business, including our gain from the sale of that business and the related cash proceeds received, are reported as discontinued operations in the condensed consolidated financial statements included in Item 1 of this Quarterly Report on Form 10-Q.

Income from discontinued operations, net of tax, ~~matters~~was $2.46 billion and $2.56 billion, respectively, in ~~various foreign jurisdictions,~~the third quarter and first nine months of ~~which none~~2023, compared to $57 million and $192 million, respectively, in the third quarter and first nine months of 2022. The increases in the current year periods were ~~individually material,~~primarily driven by the $2.89 billion pre-tax gain from the sale of the BPS business ($2.60 billion net of tax). Excluding that gain on sale, pre-tax income from discontinued operations increased by $13 million in the third quarter and andecreased by $30 million in the first nine months compared to the prior year periods. The increase ~~in our liabilities for uncertain tax positions,~~during the third quarter was primarily driven by incremental revenue from a customer that did not meet its contractual minimum purchase commitments, partially offset by ~~excess tax benefits on stock compensation awards and~~ a ~~favorable geographic earnings mix.~~

~~Segment Results~~

~~We manage our global operations based on four segments, consisting~~comparison against prior year results that included significant sales from contract manufacturing of COVID-19 vaccines. The decrease in the ~~following geographic segments related to legacy Baxter business: Americas, EMEA and APAC, and a global segment for our Hillrom business. We use net~~first nine months was primarily driven by the comparison against prior year results that included

3145

significant sales from contract manufacturing of COVID-19 vaccines and increased SG&A expense in the current year period from separation-related costs. Refer to Note 2 within Item 1 for additional information.

SEGMENT OPERATING INCOME

We use segment operating income ~~on a segment basis~~to evaluate the performance of our segments and to make resource allocation ~~decisions~~decisions. Segment operating income represents income before income taxes, interest and ~~assess~~other non-operating income or expense, unallocated corporate costs, intangible asset amortization expense and special items. Special items, which are presented below in our reconciliations of segment operating income to income (loss) from continuing operations before income taxes, are excluded from segment operating income because they are highly variable, difficult to predict and of a size that may substantially impact our reported results of operations for the ~~ongoing performance of our segments.~~ period.

The following ~~is a summary of financial information for~~table presents our ~~reportable segments:~~segment operating income and reconciliations to loss from continuing operations before income taxes.

Net sales Operating income (loss)
Three months ended March 31, Three months ended March 31,
(in millions) 2023 2022 2023 2022
Americas $ 1,602 $ 1,626 $ 481 $ 610
EMEA 714 699 106 119
APAC 602 627 107 151
Hillrom 731 755 158 200
Total segments 3,649 3,707 852 1,080
Corporate and other — — (666) (917)
Total $ 3,649 $ 3,707 $ 186 $ 163


	Operating income (loss)
	Three months ended September 30,						Nine months ended September 30,
(in millions)	2023			2022			2023			2022
Medical Products and Therapies	$	245		$	257		$	706		$	703
% of Segment Net Sales	19.5		%	21.4		%	19.1		%	19.7		%
Healthcare Systems and Technologies	115			108			327			367
% of Segment Net Sales	15.5		%	14.7		%	14.7		%	16.6		%
Pharmaceuticals	108			82			284			295
% of Segment Net Sales	18.6		%	15.6		%	17.2		%	18.7		%
Kidney Care	96			103			208			307
% of Segment Net Sales	8.7		%	9.4		%	6.3		%	9.3		%
Other	6			17			19			52
Total	570			567			1,544			1,724
Unallocated corporate costs	(5)			1			(51)			(41)
Intangible asset amortization expense	(162)			(168)			(481)			(578)
Long-lived assets impairments	(267)			(332)			(267)			(332)
Legal matters	(13)			—			(13)			—
Goodwill impairments	—			(2,785)			—			(2,785)
Business optimization items	(81)			(73)			(508)			(196)
Acquisition and integration items	(2)			(4)			(2)			(193)
Loss on product divestiture arrangement	—			(54)			—			(54)
Separation-related costs	(77)			—			(123)			—
European Medical Devices Regulation	(14)			(12)			(38)			(35)
Product-related items	—			(20)			—			(43)
Total operating income (loss)	(51)			(2,880)			61			(2,533)
Interest expense, net	128			104			369			278
Other (income) expense, net	(7)			61			33			1
Loss from continuing operations before income taxes	$	(172)		$	(3,045)		$	(341)		$	(2,812)

~~Americas~~Medical Products and Therapies

Segment ~~net sales and~~ operating income ~~were $1.6 billion~~was $245 million and ~~$481~~$706 million in the third quarter and first nine months of 2023, respectively, and $257 million and $703 million in the third quarter and first nine months of 2022. Segment operating income decreased in the third quarter compared to the prior year period due to higher SG&A and R&D expenses, partially offset by the gross profit from higher sales. The increase in segment operating income in the first nine months of 2023 reflected the gross profit from higher sales, partially offset by increases in SG&A and R&D expenses.

Healthcare Systems and Technologies

Segment operating income was $115 million and $327 million in the third quarter and first nine months of 2023, respectively, and $108 million and $367 million in the third quarter and first nine months of 2022. The increase in segment operating income in the third quarter of 2023 was primarily due to increased sales and ~~$1.6 billion~~improved gross margins, primarily driven by a favorable product mix and ~~$610 million, respectively,~~improved component availability. The decrease in segment operating income in the first nine months of 2023 resulted from a lower gross margin, primarily driven by raw material inflation.

Pharmaceuticals

Segment operating income was $108 million and $284 million in the third quarter and first nine months of 2023, respectively, and $82 million and $295 million in the third quarter and first nine months of 2022. The increase in segment operating income in the third quarter of 2023 was primarily due to the gross profit from higher sales driven by recent product launches. The decrease in segment operating income in the first nine months of 2023 was due to a lower gross margin, primarily driven by raw materials inflation, and increased R&D expense, partially offset by income from recent product launches.

Kidney Care

Segment operating income was $96 million and $208 million in the third quarter and first nine months of 2023, respectively, and $103 million and $307 million in the third quarter and first nine months of 2022. The increase in segment operating income in the third quarter of 2023 reflected lower operating expenses that were almost entirely offset by lower gross margins, primarily driven by raw materials inflation. The decrease in operating income was due to raw materials inflation, higher supply chain costs and lower sales in our BioPharma Solutions and Acute Therapies product categories, partially offset by higher sales in our Pharmaceuticals, Advanced Surgery and Renal Care product categories.

~~EMEA~~

~~Segment net sales and operating income were $714 million and $106 million, respectively,~~ in the first ~~quarter~~nine months of 2023 ~~and $699 million and $119 million, respectively, in the first quarter of 2022. The decrease in operating income~~ was primarily due to ~~an unfavorable impact~~lower gross margins, partially offset by lower operating expenses.

Other

During the three months ended September 30, 2023 and 2022, we earned $6 million and $17 million, respectively, and for the nine months ended September 30, 2023 and 2022, we earned $19 million and $52 million, respectively, of ~~foreign exchange rates on results,~~operating income that was not attributable to our reportable segments. Operating income generated by activities not attributable to our reportable segments is presented as Other. In the current and prior year periods, other operating income primarily represents income from ancillary revenues earned by certain of our manufacturing facilities from contract manufacturing activities and royalty income under a business development arrangement. The decreases in the current year as compared to the ~~prior-year period, an unfavorable product mix~~prior year periods reflect lower contract manufacturing volume and ~~higher supply chain and raw materials costs.~~

~~APAC~~

~~Segment net sales and operating income were $602 million and $107 million, respectively, in~~ the ~~first quarter 2023 and $627 million and $151 million, respectively, in~~termination of the ~~first quarter~~royalty arrangement following our acquisition of ~~2022. The decrease in operating income was driven by~~ the ~~unfavorable impact of foreign exchange rates on results, as compared~~rights to the ~~prior-year period,~~underlying product.

Unallocated Corporate Costs

Under our new operating model, most global functional support costs, overhead costs and ~~higher supply chain and raw materials costs.~~

~~Hillrom~~

Segment net sales and operating income were $731 million and $158 million, respectively, in the first quarter of 2023 and $755 million and $200 million, respectively, in the first quarter of 2022. The decrease in operating income was dueother shared costs that benefit our segments are allocated to ~~lower sales in our Patient Support Systems product category, an unfavorable product mix and higher supply chain~~those segments. Corporate costs ~~partially offset by higher sales in our Front Line Care and Global Surgical Solutions product categories.~~

~~Corporate and Other~~

~~Certain items are maintained at Corporate and~~that are not allocated to ~~a segment. They primarily~~our segments, as well as any differences between actual corporate costs and the amounts allocated to our segments, are presented as unallocated corporate costs. Additionally, intangible asset amortization and other special items are not allocated to our segments. Prior to the implementation of our new operating model in the third quarter of 2023, more costs were maintained at corporate and were not allocated to our previous segments. Certain of the costs that were previously maintained at corporate under our prior segment structure that are now allocated to our segments include ~~corporate headquarters costs, certain R&D costs,~~ manufacturing variances and centrally managed supply chain costs, certain R&D costs, product category support costs, stock compensation expense and certain employee benefit plan ~~costs, and certain gains, losses, and other charges (such as business optimization, acquisition and integration costs, intangible asset amortization and asset impairments).~~

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

3247

LIQUIDITY AND CAPITAL RESOURCES

The following table is a summary of the statement of cash flows for the ~~three-month~~nine-month periods ended ~~March 31,~~September 30, 2023 and 2022.


		Three months ended March 31,					Nine months ended September 30,
(in millions)	(in millions)	2023		2022		(in millions)	2023		2022
Cash flows from operations		$	479	$	208
Cash flows from investing activities		(170)		(304)
Cash flows from operations - continuing operations						Cash flows from operations - continuing operations	$	1,097	$	594
Cash flows from investing activities - continuing operations						Cash flows from investing activities - continuing operations	(489)		$	(634)
Cash flows from financing activities	Cash flows from financing activities	(372)		(548)		Cash flows from financing activities	(554)		$	(1,319)

Cash Flows from Operations - Continuing Operations

In the first ~~three~~nine months of 2023, cash provided by operating activities - continuing operations was ~~$479 million,~~$1.10 billion, as compared to cash provided by operating activities of ~~$208~~$594 million in the first ~~three~~nine months of 2022, an increase of ~~$271~~$503 million. Cash flows from operations in the current year period was favorably impacted, as compared to the prior year period, by lower annual payouts under our employee incentive compensation plans, which were determined based on our 2022 performance, and by the timing of accounts payable payments.

Cash Flows from Investing Activities

In the first ~~three~~nine months of 2023, cash used for investing activities - continuing operations included payments for acquisitions and investments of $3$6 million and capital expenditures of ~~$172~~$502 million. In the first ~~three~~nine months of 2022, cash used for investing activities included payments for acquisitions and investments of ~~$174~~$206 million, primarily related to our payment to acquire the rights to Zosyn, and capital expenditures of ~~$140~~$438 million.

In the first nine months of 2023, cash provided by investing activities - discontinued operations included proceeds of $3.96 billion from the sale of our BPS business.

Cash Flows from Financing Activities

In the first ~~three~~nine months of 2023, cash used in financing activities included debt repayments of $353 million and dividend payments of $439 million, partially offset by a net ~~decrease~~increase in commercial paper borrowings of ~~$249~~$214 million ~~dividend payments of $146 million~~ and ~~debt repayments of $3 million, partially offset by~~ proceeds from stock issued under employee benefit plans of ~~$36~~$86 million. In the first ~~three~~nine months of 2022, cash used for financing activities included debt repayments of ~~$404~~$953 million and dividend payments of ~~$140~~$427 million, ~~and a $45 million net repayment of short-term borrowings,~~ partially offset by an increase of commercial paper borrowings of $30 million and proceeds from stock issued under employee benefit plans of ~~$66~~$114 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 the repurchase of up to ~~$2.0~~$2.00 billion of our common stock. Our Board of Directors increased this authority by an additional ~~$1.5~~$1.50 billion in each of November 2016 and February 2018, by an additional ~~$2.0~~$2.00 billion in November 2018 and by an additional ~~$1.5~~$1.50 billion in October 2020. We did not repurchase any shares under this authority in the first ~~three~~nine months of 2023. We had ~~$1.3~~$1.30 billion remaining available under this authorization as of ~~March 31,~~September 30, 2023.

Credit Facilities and Access to Capital and Credit Ratings

Credit Facilities

As of ~~March 31,~~September 30, 2023, our U.S. dollar-denominated revolving credit facility and Euro-denominated revolving credit facility had a maximum capacity of $~~2.5~~2.50 billion and €200 million, respectively. There were no borrowings outstanding under these credit facilities as of ~~March 31,~~September 30, 2023 or December 31, 2022. Our commercial paper borrowing arrangements require us to maintain undrawn borrowing capacity under our credit facilities for an amount at least equal to our outstanding commercial paper borrowings.

September 30, 2023, we were in compliance with the financial covenants in these agreements. Based on our covenant calculations as of ~~March 31,~~September 30, 2023, we had capacity to draw ~~approximately $2.2 billion~~on the full amounts under our credit facilities, less outstanding commercial paper borrowings, which were ~~$50~~$514 million as of ~~March 31,~~September 30, 2023. The non-performance of any financial institution supporting either of the credit facilities would reduce the maximum capacity of these facilities by

the institution’s respective commitment. Additionally, a deterioration in our financial performance may further reduce our ability to draw on our credit facilities.

Access to Capital and Credit Ratings

We intend to fund short-term and long-term obligations as they mature through cash on hand, including the proceeds from the recently completed sale of our BPS business, future cash flows from operations or by issuing additional debt. We had ~~$1.7~~$5.79 billion of cash and cash equivalents as of ~~March 31,~~September 30, 2023, with adequate cash available to meet operating requirements in each jurisdiction in which we operate. We invest our excess cash in money market and other funds and diversify the concentration of cash among different financial institutions. As of ~~March 31,~~September 30, 2023, we had approximately ~~$16.4~~$16.49 billion of long-term debt and finance lease obligations, including current maturities, and short-term debt. We currently expect to use substantially all of the $3.70 billion of estimated net after-tax cash proceeds from the BPS divestiture to pay down or retire certain short- and long-term indebtedness beginning in the fourth quarter of 2023 and continuing through the first half of 2024. Subject to market conditions, we regularly evaluate opportunities with respect to our capital structure.

Our ability to generate cash flows from operations, issue debt, including commercial paper, or enter into other financing arrangements on acceptable terms could be adversely affected if there is a material decline in the demand for our products or in the solvency of our customers or suppliers, deterioration in our key financial ratios or credit ratings or other significantly unfavorable changes in 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-acquisition~~post-Hillrom acquisition debt levels as we take actions consistent with our capital allocation priorities. In January 2023, Fitch revised our senior debt credit rating outlook from negative to rating watch negative. There have been no changes to our investment grade credit ratings that we disclosed in our 2022 Annual Report.

LIBOR Reform

In 2017, the United Kingdom’s Financial Conduct Authority announced that after 2021 it would no longer compel banks to submit the rates required to calculate the London Interbank Offered Rate (LIBOR) and other interbank offered rates, which have been widely used as reference rates for various securities and financial contracts, including loans, debt and derivatives. This announcement indicated that the continuation of LIBOR on the current basis was not guaranteed after 2021. Regulators in the U.S. and other jurisdictions have been working to replace these rates with alternative reference interest rates that are supported by transactions in liquid and observable markets, such as the Secured Overnight Financing Rate (SOFR). In 2020, it was announced that certain U.S. dollar LIBOR tenors would not cease until 2023. In September 2022, our ~~$2.5~~$2.50 billion U.S. dollar-denominated revolving credit facility and our ~~$4.0~~$4.00 billion Term Loan Credit Agreement were amended to reference SOFR-based rates. Currently, our €200 million Euro-denominated revolving credit facility references EURIBOR-based rates. A discontinuation would require this arrangement to be modified in order to replace EURIBOR with an alternative reference interest rate, which could impact our cost of funds. That credit facility agreement includes provisions related to the determination of a successor rate.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. A summary of our significant accounting policies is included in Note 1 to our consolidated financial statements in our 2022 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. Such policies are summarized in the Management’s Discussion and Analysis of Financial Condition and Results of Operations section in our 2022 Annual Report.

The valuation of goodwill and intangible assets is one of our critical accounting policies and we recognized significant impairment charges during 2022. During the current year-to-date period, our Care and Connectivity Solutions (CCS) reporting unit, which is comprised of our previous Patient Support Systems (PSS) and Global Surgical Solutions (GSS) reporting ~~unit~~units, has been experiencing lower levels of customer orders for certain products than what we had

previously expected. Certain of the products sold by that reporting unit are subject to our customers’ capital budgets and we believe that many of those customers are delaying significant capital purchases due to uncertainty in the current economic environment. We currently expect that such capital spending constraints will likely continue ~~throughout much~~for the remainder of 2023. However, ~~we have not reduced our longer-term outlook for that reporting unit as~~ we currently expect that such capital spending constraints, which are often cyclical and closely aligned with broader economic conditions, will improve in the foreseeable future. ~~Based on the excess~~As a result of the combination of our previous PSS and GSS reporting ~~unit’s fair value over its carrying amount~~units into our new CCS reporting unit during ~~our most recent annual impairment test in~~ the ~~fourth~~third quarter of ~~2022~~2023, which occurred in connection with the broader organizational changes related to our new operating model discussed in Note 16 in Item 1 of this Quarterly Report on Form 10-Q, we performed impairment tests both before and ~~our expectations for its performance over~~after the ~~forecast period, we~~reporting unit changed and determined that ~~it is not more likely than not that the goodwill of that reporting unit was impaired as of~~

~~March 31, 2023. Therefore, we did not perform a trigger-based quantitative~~no goodwill impairment ~~test during the first quarter of 2023.~~had occurred. However, we are continuing to closely monitor the performance of our ~~Patient Support Systems~~CCS reporting unit and if there is a significant adverse change in our outlook for that business in the future a goodwill impairment could arise at that time.

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

RECENT ACCOUNTING PRONOUNCEMENTS

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

LEGAL CONTINGENCIES

Refer to Note 56 within Item 1 for a discussion of our legal contingencies. Upon resolution of any of these uncertainties, we may incur charges in excess of presently established liabilities. While our liability in connection with certain claims cannot be estimated with any certainty, and although the resolution in any reporting period of one or more of these matters could have a significant impact on our results of operations and cash flows for that period, the outcome of these legal proceedings is not expected to have a material adverse effect on our consolidated financial position. While we believe that we have valid defenses in these matters, litigation is inherently uncertain, excessive verdicts do occur, and we may in the future incur material judgments or enter into material settlements of claims.

CERTAIN REGULATORY MATTERS

In July 2017, immediately prior to the closing of our acquisition of Claris Injectables Limited (Claris), the U.S. Food and Drug Administration (FDA) commenced an inspection of the Claris’ facilities in Ahmedabad, India. FDA completed the inspection and subsequently issued a Warning Letter based on observations identified in the 2017 inspection ~~(Claris~~(2017 Warning Letter).¹ FDA re-inspected the facilities and issued a Form FDA 483 on May 17, 2022. On September 1, 2022, FDA notified us that the inspection had been classified as voluntary action ~~indicated (VAI). On~~indicated. From January 19, 2023 to January 27, 2023, FDA ~~arrived to re-inspect~~performed an inspection at the ~~facilities and issued~~Ahmedabad site, concluding with the issuance of a Form ~~483 on January 27, 2023.~~FDA 483. On April 26, 2023, FDA notified us that the inspection had been classified as official action ~~indicated (OAI)~~indicated. We received a Warning Letter on July 25, 2023 based on observations identified in the January 2023 inspection (2023 Warning Letter)2. Since the issuance of the ~~Claris~~2017 Warning Letter, we have implemented corrective and preventive actions to address FDA's ~~prior~~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 to continue to engage with FDA regarding the agency's observations. In addition, since the issuance of the 2017 Warning Letter, we have secured other ~~items we identified~~sites in our manufacturing network and ~~management has begun working with other manufacturing locations, including contract manufacturing organizations, to support the production of new~~have launched and distribute select products ~~for distribution~~from those sites in the U.S.

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

2 Available online at https://www.fda.gov/inspections-compliance-enforcement-and-criminal-investigations/warning-letters/baxter-healthcare-corporation-654136-07252023

FORWARD-LOOKING INFORMATION

This quarterly report on Form 10-Q includes forward-looking statements. Use of the words “may,” “will,” “would,” “could,” “should,” “believes,” “estimates,” “projects,” “potential,” “expects,” “plans,” “seeks,” “intends,” “evaluates,” “pursues,” “anticipates,” “continues,” “designs,” “impacts,” “affects,” “forecasts,” “target,” “outlook,” “initiative,” “objective,” “designed,” “priorities,” “goal,” or the negative of those words or other similar expressions is intended to identify forward-looking statements that represent our current judgment about possible future events. These forward-looking statements ~~may~~ include statements with respect to ~~plan to implement a simplified operating model,~~ the proposed spinoff of our ~~Renal~~Kidney Care ~~and Acute Therapies product categories, review of strategic alternatives (including a potential sale) for our BPS product category~~business and other ~~potential~~

portfolio management activities we may undertake in the future, the costs and timing associated with strategic initiatives including the proposed spinoff, the viability and accuracy of anticipated benefits of our strategic actions, accounting estimates and assumptions (including with respect to goodwill and other intangible asset impairments), global economic conditions, ~~and the impacts of the COVID-19 pandemic,~~ litigation-related matters, ~~including outcomes, impacts of the internal investigation related to foreign exchange gains and losses,~~ future regulatory filings (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, ~~(including as a result of recent banking crises),~~ the impact of inflation on our business, the impact of competition, future sales growth, business development activities, cost saving initiatives, future capital and R&D expenditures, future debt issuances, the adequacy of tax provisions and reserves, the effective tax rate and all other statements that do not relate to historical facts.

These forward-looking statements are based on certain assumptions and analyses made in light of our experience and perception of historical trends, current conditions, and expected future developments as well as other factors that we believe are appropriate in the circumstances. While these statements represent our judgment on what the future may hold, and we believe these judgments are reasonable, these statements are not guarantees of any events or financial results. 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 spinoff of our ~~Renal~~Kidney Care ~~and Acute Therapies product categories,~~business, our plans to simplify our ~~operating model and~~ manufacturing footprint and ~~our evaluation of strategic alternatives for our BPS product category,~~ the timing for such transactions, the ability to satisfy any applicable conditions and the expected proceeds, consideration and benefits;
			•			failure to accurately forecast or achieve our short-and long-term financial improvement performance and goals (including with respect to our strategic actions) and related impacts on our liquidity;
			•			our ability to execute on our capital allocation plans, including our debt repayment plans, the timing and amount of any dividends, share repurchases and divestiture proceeds and the capital structure of the public company that we expect to form as a result of the proposed spinoff (and the resulting capital structure for the remaining company);
			•			the impact of global economic conditions (including, among other things, inflation levels, interest rates, financial market volatility, banking crises, the potential for a recession, the ongoing ~~war~~wars in Ukraine, Israel and Gaza, the related economic sanctions being imposed globally in response to the ~~conflict~~conflicts and potential trade ~~wars)~~wars or further escalation of those conflicts) and continuing public health crises, pandemics and epidemics, such as the ~~ongoing~~ COVID-19 pandemic, or the anticipation of any of the foregoing, on our operations and our employees, customers and suppliers, including foreign governments in countries in which we operate;
			•			downgrades to our credit ratings or ratings outlooks, and the related impact on our funding costs and liquidity;
			•			demand for and market acceptance risks for and competitive pressures related to new and existing products (including challenges with our ability to accurately predict changing customer preferences and future expenditures, which has led to and may continue to lead to increased inventory levels, and needs and advances in technology and the resulting impact on customer inventory levels and the impact of reduced hospital admission rates and elective surgery volumes), and the impact of those products on quality and patient safety concerns;
			•			the continuity, availability and pricing of acceptable raw materials and component parts (and our ability to pass some or all of these costs to our customers through recent price increases), and the related continuity of our manufacturing and distribution and those of our suppliers;
			•			inability to create additional production capacity in a timely manner or the occurrence of other manufacturing, sterilization or supply difficulties (including as a result of natural disaster, public health crises and epidemics/pandemics, regulatory actions or otherwise);
			•			product development risks, including satisfactory clinical performance and obtaining and maintaining required regulatory approvals (including as a result of evolving regulatory ~~requirements)~~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;
			•			~~our ability to finance and develop new products or enhancements on commercially acceptable terms or at all;~~
			•			~~loss of key employees, the occurrence of labor disruptions or the inability to identify and recruit new employees;~~
			•			product quality or patient safety issues leading to product recalls, withdrawals, launch delays, warning letters, import bans, sanctions, seizures, litigation, or declining sales, including the focus on evaluating product portfolios for the potential presence or formation of nitrosamines;
			•			~~breaches or failures of our information technology systems or products, including by cyber-attack, data leakage, unauthorized access or theft (as a result of remote working arrangements or otherwise);~~


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


			•			demand for and market acceptance risks for and competitive pressures related to new and existing products (including challenges with our ability to accurately predict changing customer preferences and future expenditures, which has led to and may continue to lead to increased inventory levels, and needs and advances in technology and the resulting impact on customer inventory levels), and the impact of those products on quality and patient safety concerns;
			•			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 and our ability to pass some or all of these costs to our customers through recent price increases or otherwise, and the related continuity of our manufacturing and distribution and those of our suppliers;
			•			inability to create additional production capacity in a timely manner or the occurrence of other manufacturing, sterilization or supply difficulties (including as a result of natural disaster, public health crises and epidemics/pandemics, regulatory actions or otherwise);
			•			our ability to finance and develop new products or enhancements on commercially acceptable terms or at all;
			•			loss of key employees, the occurrence of labor disruptions or the inability to identify and recruit new employees;
			•			failures with respect to our quality, compliance or ethics programs;
			•			future actions of third parties, including third-party payers and our customers and distributors (including GPOs and IDNs), the impact of healthcare reform and its implementation, suspension, repeal, replacement, amendment, modification and other similar actions undertaken by the United States or foreign governments, including with respect to pricing, reimbursement, taxation and rebate policies; legislation, regulation and other governmental pressures in the United States or globally, including the cost of compliance and potential penalties for purported noncompliance thereof, all of which may affect pricing, reimbursement, taxation and rebate policies of government agencies and private payers or other elements of our business, including new or amended laws, rules and regulations (such as the California Consumer Privacy Act of 2018, the European Union’s General Data Protection Regulation and annual proposed regulatory changes of the U.S. Department of Health and Human Services in kidney health policy and reimbursement, which may substantially change the U.S. end stage renal disease market and demand for our peritoneal dialysis products, necessitating significant multi-year capital expenditures, which are difficult to estimate in advance);
			•			the outcome of pending or future ~~litigation, including the opioid litigation and ethylene oxide litigation or other claims;~~litigation;
			•			the impact of competitive products and pricing, including generic competition, drug reimportation and disruptive ~~technologies;~~technologies (including pharmacological advances such as SGLT2 antagonists, GLP-1 agonists and selective MRAs that may impact our Kidney Care business);
			•			global regulatory, trade and tax policies (including with respect to climate change and other sustainability matters);
			•			the ability to protect or enforce our owned or in-licensed patent or other proprietary rights (including trademarks, copyrights, trade secrets and know-how) or patents of third parties preventing or restricting our manufacture, sale or use of affected products or technology;
			•			the impact of any goodwill or other intangible asset impairments on our operating results;
			•			fluctuations in foreign exchange and interest rates;
			•			any changes in law concerning the taxation of income (whether with respect to current or future tax reform);
			•			actions by tax authorities in connection with ongoing tax audits;
			•			other factors identified elsewhere in this report and other filings with the SEC, including those factors described in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2022, all of which are available on our website.

Actual results may differ materially from those projected in the forward-looking statements. We do not undertake to update our forward-looking statements.

3752

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Currency Risk

We are primarily exposed to foreign exchange risk with respect to revenues generated outside of the United States denominated in the Euro, British Pound, Chinese Renminbi, Korean Won, Australian Dollar, Canadian Dollar, Japanese Yen, Colombian Peso, Brazilian Real, Mexican Peso, Indian Rupee and Swedish Krona. We manage our foreign currency exposures on a consolidated basis, which allows us to net exposures and take advantage of any natural offsets. In addition, we use derivative and nonderivative financial instruments to further reduce the net exposure to foreign exchange. Gains and losses on the hedging instruments offset losses and gains on the hedged transactions and reduce the earnings and stockholders’ equity volatility relating to foreign exchange. However, we don't hedge our entire foreign exchange exposure and are still subject to earnings and stockholders' equity volatility relating to foreign exchange risk. Financial market and currency volatility may limit our ability to cost-effectively hedge these exposures.

We primarily use forward contracts to hedge the foreign exchange risk to earnings relating to forecasted transactions and recognized assets and liabilities denominated in foreign currencies. The maximum term over which we have cash flow hedge contracts in place related to foreign exchange risk on forecasted transactions as of ~~March 31,~~September 30, 2023 is 12 months. We also enter into derivative instruments to hedge foreign exchange risk on certain intra-company and third-party receivables and payables and debt denominated in foreign currencies.

As part of our risk-management program, we perform sensitivity analyses to assess potential changes in the fair value of our foreign exchange instruments relating to hypothetical and reasonably possible near-term movements in foreign exchange rates.

A sensitivity analysis of changes in the fair value of foreign exchange contracts outstanding as of ~~March 31,~~September 30, 2023, while not predictive in nature, indicated that if the U.S. Dollar uniformly weakened by 10% against all currencies, the net pre-tax asset balance of ~~zero~~$18 million with respect to those contracts would change by ~~$61~~$79 million.

The sensitivity analysis model recalculates the fair value of the foreign exchange contracts outstanding as of ~~March 31,~~September 30, 2023 by replacing the actual exchange rates as of ~~March 31,~~September 30, 2023 with exchange rates that are 10% weaker compared to the actual exchange rates for each applicable currency. All other factors are held constant. These sensitivity analyses disregard the possibility that currency exchange rates can move in opposite directions and that gains from one currency may or may not be offset by losses from another currency. The analyses also disregard the offsetting change in value of the underlying hedged transactions and balances.

In February 2022, the three-year cumulative inflation rate in Turkey exceeded 100 percent. As a result, on April 1, 2022, we began reporting the results of our subsidiary in that jurisdiction using highly inflationary accounting, which requires that the functional currency of the entity be changed to the reporting currency of its parent. As of ~~March 31,~~September 30, 2023, our subsidiary in Turkey had net monetary assets of ~~$29~~$16 million.

Interest Rate and Other Risks

Refer to the caption “Interest Rate and Other Risks” in the “Financial Instrument Market Risk” section of the 2022 Annual Report. There were no significant changes during the quarter ended ~~March 31,~~September 30, 2023.

3853

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the ~~Securities~~ Exchange Act ~~of 1934, as amended (the Exchange Act))~~ as of ~~March 31,~~September 30, 2023. Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~March 31,~~September 30, 2023.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the quarter ended ~~March 31,~~September 30, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

3954

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The information in Part I, Item 1, Note 6 is incorporated herein by reference.

Item 1A. Risk Factors

We do not believe that there have been any material changes to the risk factors previously disclosed in our 2022 Annual Report.

Item 2. Unregistered Sales of Equity Securities, ~~and~~ Use of Proceeds and Issuer Purchases of Equity Securities

In July 2012, we announced that our Board of Directors authorized us to repurchase up to ~~$2.0~~$2.00 billion of our common stock on the open market or in private transactions. The Board of Directors increased this authority by an additional ~~$1.5~~$1.50 billion in each of November 2016 and February 2018, by an additional ~~$2.0~~$2.00 billion in November 2018 and by an additional ~~$1.5~~$1.50 billion in October 2020. During the ~~first~~third quarter of 2023, we did not repurchase any shares under this authority. We had ~~$1.3~~$1.30 billion remaining under this program as of ~~March 31,~~September 30, 2023. This program does not have an expiration date.

Item 5. Other Information

Certain of our officers and directors have made elections to participate in, and are participating in, our employee stock purchase plan or have made, and may from time to time make, elections to have shares withheld to cover withholding taxes or pay the exercise price of options, which may constitute non-Rule 10b5-1 trading arrangements (as defined in Item 408(c) of Regulation S-K).

On September 6, 2023, Jeanne Mason, our Chief Human Resources Officer, entered into a modification to her existing trading plan for the sale of certain shares of our common stock in connection with the exercise of expiring stock options, which is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) under the Exchange Act. As modified, the plan terminates on March 3, 2025. The aggregate number of shares to be sold under the modified plan is 218,731 shares.

Item 6. Exhibits

Exhibit Index:


Exhibit Number						Description

10.1						Offer Letter, dated September 2 6 , 2023, by and between Baxter International Inc. ~~Executive Officer Cash Severance Policy, effective February 13, 2023~~and Joel Grade (incorporated by reference to Exhibit 10.1 to ~~Baxter International Inc~~.'sthe Company's Current Report on Form 8-K, filed on ~~February 1~~4 ,October 3, 2023).

~~10.2~~						Third Amendment, dated as of March 13, 2023, to the Credit Agreement, dated as of September 30, 2021, as amended by that certain First Amendment, dated as of September 28, 2022, and that certain Second Amendment, dated as of September 28, 2022, among Baxter International Inc. as Borrower, JPMorgan Chase Bank, National Association, as Administrative Agent and certain other financial institutions named therein ~~(incorporated by reference to~~ ~~Exhibit 10.1~~ to ~~Baxter International Inc.'s Current Report on Form 8-K, filed on March 13, 2023)~~.

~~10.3~~						Third Amendment, dated as of March 13, 2023, to the Five-Year Credit Agreement, dated as of September 30, 2021, as amended by that certain First Amendment, dated as of September 28, 2022, and that certain Second Amendment, dated as of September 28, 2022, among Baxter International Inc. as Borrower, JPMorgan Chase Bank, National Association, as Administrative Agent and certain other financial institutions named therein ~~(incorporated by reference to Exhibit 10.2 to~~ ~~Baxter International Inc.'s Current Report on Form 8-K, filed on March 13, 2023)~~.

~~10.4~~						Second Guaranty Amendment, dated as of March 13, 2023, to the Amended and Restated Guaranty, dated as of October 1, 2021, as amended by that certain Second Amendment, dated as of September 28, 2022, among Baxter Healthcare SA and Baxter World Trade SRL, as Borrowers, J.P. Morgan SE, as Administrative Agent and certain other financial institutions named therein ~~(incorporated by reference to~~ ~~Exhibit 10.3 to~~ ~~Baxter International Inc.'s Current Report on Form 8-K, filed on March 13, 2023)~~.

31.1*						Certification of Chief Executive Officer Pursuant to Rules 13a-14 (a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.

31.2*						Certification of Chief Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) of the Securities Exchange Act of 1934, as amended.

32.1**						Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2**						Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*						XBRL Instance Document

101.SCH*						XBRL Taxonomy Extension Schema Document

101.CAL*						XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB*						XBRL Taxonomy Extension Label Linkbase Document
101.PRE*						XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF*						XBRL Taxonomy Extension Definition Linkbase Document
104*						Cover Page Interactive Data File (formatted as Inline XBRL and contained within the Inline XBRL Instance Document in Exhibit 101)

* Filed herewith.

** Furnished herewith. This exhibit shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, or otherwise subject to the liability of that Section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934.

4156

Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.


		BAXTER INTERNATIONAL INC.
		(Registrant)
Date: ~~April 27,~~November 2, 2023
	By:	/s/ ~~James K. Saccaro~~Joel T. Grade
		~~James K. Saccaro~~Joel T. Grade Executive Vice President and Chief Financial Officer, ~~(duly~~ (duly authorized officer and principal financial officer)

4257