Baxter International 10-Q 2023-03-31

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, 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			x						Accelerated filer			o
Non-accelerated filer			o						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, 2023 was 505,850,082 shares.

BAXTER INTERNATIONAL INC.

FORM 10-Q

For the quarterly period ended March 31, 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			3
			Condensed Consolidated Statements of Comprehensive Income			4
			Condensed Consolidated Statements of Changes in Equity			5
			Condensed Consolidated Statements of Cash Flows			6
			Notes to Condensed Consolidated Financial Statements			7
Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			25
Item 3.			Quantitative and Qualitative Disclosures about Market Risk			38
Item 4.			Controls and Procedures			39
PART II.			OTHER INFORMATION			40
Item 1.			Legal Proceedings			40
Item 1A.			Risk Factors			40
Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds			40
Item 6.			Exhibits			41
Signature						42

PART I. FINANCIAL INFORMATION

Baxter International Inc.

Condensed Consolidated Balance Sheets (unaudited)

(in millions, except share information)

			March 31, 2023			December 31, 2022
Current assets:
Cash and cash equivalents			$	1,673		$	1,718
Accounts receivable, net of allowances of $122 in 2023 and $114 in 2022			2,547			2,659
Inventories			2,922			2,718
Prepaid expenses and other current assets			957			916
Total current assets			8,099			8,011
Property, plant and equipment, net			5,000			4,979
Goodwill			6,868			6,843
Other intangible assets, net			6,640			6,793
Operating lease right-of-use assets			554			550
Other non-current assets			1,130			1,111
Total assets			$	28,291		$	28,287
Current liabilities:
Short-term debt			$	50		$	299
Current maturities of long-term debt and finance lease obligations			1,103			1,105
Accounts payable			1,290			1,139
Accrued expenses and other current liabilities			2,317			2,202
Total current liabilities			4,760			4,745
Long-term debt and finance lease obligations, less current portion			15,278			15,232
Operating lease liabilities			458			456
Other non-current liabilities			1,854			1,959
Total liabilities			22,350			22,392
Commitments and contingencies
Equity:
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)
Additional contributed capital			6,312			6,322
Retained earnings			13,947			14,050
Accumulated other comprehensive income (loss)			(3,739)			(3,833)
Total Baxter stockholders’ equity			5,879			5,833
Noncontrolling interests			62			62
Total equity			5,941			5,895
Total liabilities and equity			$	28,291		$	28,287

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

Baxter International Inc.

Condensed Consolidated Statements of Income (unaudited)

(in millions, except per share data)

			Three months ended March 31,
			2023			2022
Net sales			$	3,649		$	3,707
Cost of sales			2,302			2,359
Gross margin			1,347			1,348
Selling, general and administrative expenses			1,010			1,052
Research and development expenses			164			150
Other operating income, net			(13)			(17)
Operating income			186			163
Interest expense, net			117			85
Other income, net			(1)			(16)
Income before income taxes			70			94
Income tax expense			25			21
Net income			45			73
Net income attributable to noncontrolling interests			1			2
Net income attributable to Baxter stockholders			$	44		$	71
Earnings per share
Basic			$	0.09		$	0.14
Diluted			$	0.09		$	0.14
Weighted-average number of shares outstanding
Basic			505			503
Diluted			507			509

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

Baxter International Inc.

Condensed Consolidated Statements of Comprehensive Income (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

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
			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

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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 months ended March 31, 2023 and 2022.

RECENTLY ANNOUNCED 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 Care and Acute Therapies product categories into an independent publicly traded company focused on kidney care (the proposed spinoff), (b) our development of a new operating model to simplify our operations and (c) our pursuit of strategic alternatives (including a potential sale) for our BioPharma Solutions (BPS) product category.

The proposed spinoff is currently expected to be completed by July 2024 or earlier, subject to the satisfaction of customary conditions. In the first quarter of 2023 we generated $1.1 billion of net sales from our Renal Care and Acute Therapies product categories, representing approximately 29% of our consolidated net sales. Additionally, in the first quarter of 2023 we generated $139 million of net sales from our BPS product category, representing approximately 4% of our consolidated net sales.

During the first quarter of 2023 we incurred significant separation and transaction-related costs related to the proposed spinoff and our pursuit of strategic alternatives (including a potential sale) for our BPS product category. For the remainder of 2023 and the first half of 2024 we expect to continue to incur such costs, which will adversely impact our earnings and operating cash flows. Additionally, if these proposed actions are 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 described above, or at all.

We are also starting to implement 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 new operating model will have significant impacts on our systems 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 during the second half of 2023. At that time, we expect that our reportable segments will be changed 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.

FACTORS AFFECTING OUR RESULTS OF OPERATIONS

Supply Constraints, Global Economic Conditions

We have experienced significant challenges to our global supply chain in recent periods, including production delays and interruptions, increased costs and shortages of raw materials and component parts (including resins and electromechanical devices) and higher transportation costs, resulting from the pandemic and other exogenous factors including significant weather events, elevated inflation levels, increased interest rates, disruptions to certain ports of call around the world, the war in Ukraine and other geopolitical events. 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 continue 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 (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 in Ukraine and the sanctions and other measures being imposed in response to this conflict have increased the levels of economic and political uncertainty. In response, we continue to monitor the developing situation with respect to

ongoing business in Russia and 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 do not constitute a material portion of our business, a significant escalation or expansion of economic disruption or the conflict’s current scope 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 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 exchange rates. 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 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.

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 attributable to Baxter stockholders for the three months ended March 31, 2023 totaled $44 million, or $0.09 per diluted share, compared to $71 million, or $0.14 per diluted share, for the three months ended March 31, 2022. Net income for the three months ended March 31, 2023 included special items which decreased net income by $253 million, or $0.50 per diluted share, respectively, as further discussed below. Net income for the three months ended March 31, 2022 included special items which decreased net income by $400 million, or $0.79 per diluted share, as further discussed below.

Special Items

The following table provides a summary of our special items and the related impact by line item on our results for the three months ended March 31, 2023 and 2022.

			Three months ended March 31,
(in millions)			2023			2022
Gross Margin
Intangible asset amortization expense			$	(110)		$	(122)
Business optimization items1			(35)			(2)
Acquisition and integration items2			—			(164)
European medical devices regulation3			(12)			(11)
Divestiture-related costs4			(1)			—
Product-related items5			—			(23)
Total Special Items			$	(158)		$	(322)
Impact on Gross Margin Ratio			(4.3 pts)			(8.6 pts)
Selling, General and Administrative (SG&A) Expenses
Intangible asset amortization expense			$	52		$	95
Business optimization items1			92			78
Acquisition and integration items2			6			24
Divestiture-related costs4			15			$	—
Total Special Items			$	165		$	197
Impact on SG&A Ratio			4.5 pts			5.3 pts
Research and Development (R&D) Expenses
Business optimization items1			$	7		$	1
Total Special Items			$	7		$	1
Impact on R&D Ratio			0.2 pts			0.0 pts
Other Operating Expense (Income), net
Acquisition and integration items2			$	(13)		$	(17)
Total Special Items			$	(13)		$	(17)
Income Tax Expense
Tax effects of special items6			$	(64)		$	(103)
Total Special Items			$	(64)		$	(103)
Impact on Effective Tax Rate			12.7 pts			1.5 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, our integration of Hillrom, rationalization of certain manufacturing and distribution facilities and transformation of certain general and administrative functions. Our results in 2023 and 2022 included business optimization charges of $134 million and $81 million, respectively. Refer to Note 9 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 million of net benefits from acquisition and integration-related items. Acquisition and integration benefits reflected $13 million of net gains 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. Our results in 2022 included $171 million of acquisition and integration-related expenses. Those costs included $29 million of integration-related costs and $159 million of incremental cost of sales from the fair value step-ups on acquired Hillrom inventory that was sold in 2022. 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 million of net gains from changes in the estimated fair values of contingent consideration liabilities assumed in the Hillrom acquisition.

3Our results in 2023 and 2022 included $12 million and $11 million, respectively, of incremental costs to comply with the European Union's medical device regulations for previously registered products, which primarily consist of contractor costs and other direct third-party costs. We consider the adoption of these regulations to be a significant one-time regulatory charge and believe that the costs of initial compliance for previously registered products over the implementation period are not indicative of our core operating results.

4Our results in 2023 included $16 million of divestiture-related costs, primarily reflecting costs of external advisors supporting our activities to prepare for the proposed spinoff of our Renal Care and Acute Therapies product categories and our pursuit of strategic alternatives (including a potential sale) for our BPS product category. Refer to "Recently Announced Strategic Actions" above for more information.

5Our results in 2022 included charges of $23 million related to warranty and remediation activities arising from two field corrective actions on certain of our infusion pumps.

6Reflected in this item is 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.

NET SALES

			Three Months Ended March 31,									Percent change
(in millions)			2023			2022						At actual currency rates			At constant currency rates
United States			$	1,734		$	1,757					(1)		%	(1)		%
International			$	1,915		1,950						(2)		%	4		%
Total net sales			$	3,649		$	3,707					(2)		%	2		%

Foreign currency unfavorably impacted net sales by 4 percentage points during the first quarter of 2023 compared to the prior-year period, principally due to the strengthening of the U.S. Dollar relative to the Euro, British Pound, Chinese Renminbi, Turkish Lira, Australian Dollar and Japanese Yen.

The comparisons presented at constant currency rates reflect 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

Our product categories include the following:

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

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

• Pharmaceuticals includes sales of our premixed and oncology drug platforms, inhaled anesthesia 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 surgical procedures for hemostasis, tissue sealing and adhesion prevention.

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

• BioPharma Solutions includes sales of contracted services we provide to various pharmaceutical 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 in the first quarter of 2023, as compared to the prior-year period. Sales performance for the period reflects a 4% negative impact from foreign exchange rates, as compared to the prior-year period, and lower sales in China primarily due to government-based procurement initiatives and the recent termination of a distribution agreement in the U.S., partially offset by patient growth in PD and recent government tender awards in EMEA.

Medication Delivery net sales decreased 3% in the first quarter of 2023, as compared to the prior-year period. The decrease was driven by lower sales of infusion pumps, primarily due to supply constraints, higher U.S. distributor chargebacks and customer rebates in the current year period 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 in the first quarter of 2023, as compared to the prior-year period, reflecting increased demand for our international pharmacy compounding services and U.S. injectable products, partially offset by a 5% negative impact from foreign exchange rates, as compared to the prior-year period, and lower demand internationally for injectable products.

Clinical Nutrition net sales decreased 1% in the first quarter of 2023, as compared to the prior-year period. The decrease was driven by a 4% negative impact from foreign exchange rate changes, as compared to the prior-year period, partially offset by increased demand for our nutrition compounding services.

Advanced Surgery net sales increased 8% in the first quarter of 2023, as compared 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.

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.

Gross Margin and Expense Ratios

			Three months ended March 31,
			2023			% of net sales			2022			% of net sales			$ change			% change
Gross margin			$	1,347		36.9		%	$	1,348		36.4		%	$	(1)		(0.1)		%
SG&A			$	1,010		27.7		%	$	1,052		28.4		%	$	(42)		(4.0)		%
R&D			$	164		4.5		%	$	150		4.0		%	$	14		9.3		%

Gross Margin

The gross margin ratio was 36.9% and 36.4% in the first quarter of 2023 and 2022, respectively. The special items identified above had an unfavorable impact of approximately 4.3 and 8.6 percentage points on the gross margin ratio in the first quarter of 2023 and 2022, respectively. Refer to the Special Items caption above for additional detail.

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

SG&A

The SG&A expenses ratio was 27.7% and 28.4% in the first quarter of 2023 and 2022, respectively. The special items identified above had an unfavorable impact of approximately 4.5 and 5.3 percentage points on the SG&A expenses ratio in the first quarter of 2023 and 2022, respectively. Refer to the Special Items caption above for additional detail.

Excluding the impact of the special items, the SG&A expenses ratio was flat in the first quarter of 2023 compared to the prior-year period.

R&D

The R&D expenses ratio was 4.5% and 4.0% in the first quarter of 2023 and 2022, respectively. The special items identified above had an unfavorable impact of approximately 0.2 percentage points on the R&D expenses ratio in the first quarter of 2023 and no impact on the R&D expenses ratio in the first quarter of 2022. Refer to the Special Items caption above for additional detail.

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

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 costs of $1.6 billion related to these actions. The costs consisted primarily of employee termination costs, implementation costs, contract termination costs, asset impairments, and accelerated depreciation.

We currently expect to incur additional pre-tax costs, primarily related to the implementation of business optimization programs, of approximately $24 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 9 in Item 1 of this Quarterly Report on Form 10-Q for additional information regarding our business optimization programs.

Other Operating Income, Net

Other operating income, net was $13 million in the first quarter of 2023 and $17 million in the first quarter of 2022. In both periods these amounts were comprised of changes in the estimated fair value of contingent consideration liabilities.

Interest Expense, Net

Interest expense, net was $117 million in the first quarter of 2023 and $85 million in the first quarter of 2022. The increase in 2023 was driven by higher interest rates on our floating rate debt.

Other Income, Net

Other income, net was $1 million in the first quarter of 2023 and $16 million in the first quarter of 2022. In the first quarter of 2023, other income, net was primarily due to 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 of 2022, other income, net was due to foreign exchange gains and pension and other postretirement benefits.

Income Taxes

Our effective income tax rate was 35.7% and 22.3% in the first quarter 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.

For the three months ended March 31, 2023, the difference between our effective income tax rate and the U.S. federal statutory rate was primarily attributable to tax shortfalls on stock compensation awards and an increase in our liabilities for uncertain tax positions, partially offset by a favorable geographic earnings mix.

For the three months ended March 31, 2022, the difference between our effective income tax rate and the U.S. federal statutory rate was primarily attributable to discrete tax matters in various foreign jurisdictions, of which none were individually material, and an increase in our liabilities for uncertain tax positions, partially offset by excess tax benefits on stock compensation awards and a favorable geographic earnings mix.

Segment Results

We manage our global operations based on four segments, consisting of the following geographic segments related to legacy Baxter business: Americas, EMEA and APAC, and a global segment for our Hillrom business. We use net

sales and operating income on a segment basis to make resource allocation decisions and assess the ongoing performance of our segments. The following is a summary of financial information for our reportable segments:

			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

Americas

Segment net sales and operating income were $1.6 billion and $481 million, respectively, in the first quarter of 2023 and $1.6 billion and $610 million, respectively, in the first quarter of 2022. 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 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 of foreign exchange rates on results, as compared to the prior-year period, an unfavorable product mix 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 the first quarter of 2022. The decrease in operating income was driven by the unfavorable impact of foreign exchange rates on results, as compared to the prior-year period, 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 due to lower sales in our Patient Support Systems product category, an unfavorable product mix and higher supply chain 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 are not allocated to a segment. They primarily include corporate headquarters costs, certain R&D costs, manufacturing variances and centrally managed supply chain costs, product category support costs, stock compensation expense, certain employee benefit plan costs, and certain gains, losses, and other charges (such as business optimization, acquisition and integration costs, intangible asset amortization and asset impairments).

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.

LIQUIDITY AND CAPITAL RESOURCES

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

			Three months ended March 31,
(in millions)			2023						2022
Cash flows from operations			$	479					$	208
Cash flows from investing activities			(170)						(304)
Cash flows from financing activities			(372)						(548)

Cash Flows from Operations

In the first three months of 2023, cash provided by operating activities was $479 million, as compared to cash provided by operating activities of $208 million in the first three months of 2022, an increase of $271 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 months of 2023, cash used for investing activities included payments for acquisitions and investments of $3 million and capital expenditures of $172 million. In the first three months of 2022, cash used for investing activities included payments for acquisitions and investments of $174 million and capital expenditures of $140 million.

Cash Flows from Financing Activities

In the first three months of 2023, cash used in financing activities included a net decrease in commercial paper borrowings of $249 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 million. In the first three months of 2022, cash used for financing activities included debt repayments of $404 million, dividend payments of $140 million, and a $45 million net repayment of short-term borrowings, partially offset by proceeds from stock issued under employee benefit plans of $66 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 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. We did not repurchase any shares under this authority in the first three months of 2023. We had $1.3 billion remaining available under this authorization as of March 31, 2023.

Credit Facilities and Access to Capital and Credit Ratings

Credit Facilities

As of March 31, 2023, our U.S. dollar-denominated revolving credit facility and Euro-denominated revolving credit facility had a maximum capacity of $2.5 billion and €200 million, respectively. There were no borrowings outstanding under these credit facilities as of March 31, 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.

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. As of March 31, 2023, we were in compliance with the financial covenants in these agreements. Based on our covenant calculations as of March 31, 2023, we had capacity to draw approximately $2.2 billion under our credit facilities, less outstanding commercial paper borrowings, which were $50 million as of March 31, 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, future cash flows from operations or by issuing additional debt. We had $1.7 billion of cash and cash equivalents as of March 31, 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, 2023, we had approximately $16.4 billion of long-term debt and finance lease obligations, including current maturities, and short-term debt. 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 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 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 billion U.S. dollar-denominated revolving credit facility and our $4.0 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 Patient Support Systems reporting unit 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 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 of the reporting unit’s fair value over its carrying amount during our most recent annual impairment test in the fourth quarter of 2022 and our expectations for its performance over the forecast period, we 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 goodwill impairment test during the first quarter of 2023. However, we are continuing to closely monitor the performance of our Patient Support Systems 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 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 5 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 Warning Letter).¹ FDA re-inspected the facilities and issued a Form 483 on May 17, 2022. On September 1, 2022, FDA notified us that the inspection had been classified as voluntary action indicated (VAI). On January 19, 2023, FDA arrived to re-inspect the facilities and issued a Form 483 on January 27, 2023. On April 26, 2023, FDA notified us that the inspection had been classified as official action indicated (OAI). Since the issuance of the Claris Warning Letter, we have implemented corrective and preventive actions to address FDA's prior observations and other items we identified and management has begun working with other manufacturing locations, including contract manufacturing organizations, to support the production of new products for distribution in the U.S.

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

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 Care and Acute Therapies product categories, review of strategic alternatives (including a potential sale) for our BPS product category and other potential portfolio management activities we may undertake in the future, accounting estimates and assumptions, 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 and our R&D pipeline, 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 Care and Acute Therapies product categories, 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 in Ukraine, the related economic sanctions being imposed globally in response to the conflict and potential trade wars) 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), 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 at our Ahmedabad facility;
			•			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;
			•			the impact of competitive products and pricing, including generic competition, drug reimportation and disruptive technologies;
			•			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.

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, 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, 2023, while not predictive in nature, indicated that if the U.S. Dollar uniformly weakened by 10% against all currencies, the net pre-tax balance of zero with respect to those contracts would change by $61 million.

The sensitivity analysis model recalculates the fair value of the foreign exchange contracts outstanding as of March 31, 2023 by replacing the actual exchange rates as of March 31, 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, 2023, our subsidiary in Turkey had net monetary assets of $29 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, 2023.

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, 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, 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, 2023 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

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

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

In July 2012, we announced that our Board of Directors authorized us to repurchase up to $2.0 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 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. During the first quarter of 2023, we did not repurchase any shares under this authority. We had $1.3 billion remaining under this program as of March 31, 2023. This program does not have an expiration date.

Exhibit Index:

Exhibit Number						Description
10.1						Baxter International Inc. Executive Officer Cash Severance Policy, effective February 13, 2023 (incorporated by reference to Exhibit 10.1 to Baxter International Inc.'s Current Report on Form 8-K, filed on February 14, 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.

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, 2023
			By:			/s/ James K. Saccaro
						James K. Saccaro Executive Vice President and Chief Financial Officer (duly authorized officer and principal financial officer)