10-Q

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, 2021

☐ 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 22, 2021 was 502,851,993 shares.

BAXTER INTERNATIONAL INC.

FORM 10-Q

For the quarterly period ended March 31, 2021

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 (Loss)	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	27
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

Item 1.    Financial Statements

Baxter International Inc.

Condensed Consolidated Balance Sheets (unaudited)

(in millions, except share information)

	March 31, 2021		December 31, 2020
Current assets:
Cash and cash equivalents	$	3,182	$	3,730
Accounts receivable, net of allowances of $120 in 2021 and $125 in 2020	1,915		2,007
Inventories	2,017		1,916
Prepaid expenses and other current assets	742		758
Total current assets	7,856		8,411
Property, plant and equipment, net	4,614		4,722
Goodwill	3,111		3,217
Other intangible assets, net	1,962		1,671
Operating lease right-of-use assets	567		603
Other non-current assets	1,356		1,395
Total assets	$	19,466	$	20,019
Current liabilities:
Current maturities of long-term debt and finance lease obligations	407		406
Accounts payable	1,023		1,043
Accrued expenses and other current liabilities	1,757		1,884
Total current liabilities	3,187		3,333
Long-term debt and finance lease obligations	5,681		5,786
Operating lease liabilities	472		501
Other non-current liabilities	1,636		1,673
Total liabilities	10,976		11,293
Commitments and contingencies
Equity:
Common stock, $1 par value, authorized 2,000,000,000 shares, issued 683,494,944 shares in 2021 and 2020	683		683
Common stock in treasury, at cost, 180,817,748 shares in 2021 and 178,580,208 shares in 2020	(11,296)		(11,051)
Additional contributed capital	6,043		6,043
Retained earnings	16,502		16,328
Accumulated other comprehensive (loss) income	(3,480)		(3,314)
Total Baxter stockholders’ equity	8,452		8,689
Noncontrolling interests	38		37
Total equity	8,490		8,726
Total liabilities and equity	$	19,466	$	20,019

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

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Baxter International Inc.

Condensed Consolidated Statements of Income (unaudited)

(in millions, except per share data)

	Three months ended March 31,
	2021		2020
Net sales	$	2,946	$	2,802
Cost of sales	1,801		1,639
Gross margin	1,145		1,163
Selling, general and administrative expenses	627		628
Research and development expenses	128		146
Other operating income, net	—		(20)
Operating income	390		409
Interest expense, net	34		21
Other expense, net	5		10
Income before income taxes	351		378
Income tax expense	51		45
Net income	300		333
Net income attributable to noncontrolling interests	2		1
Net income attributable to Baxter stockholders	$	298	$	332
Earnings per share
Basic	$	0.59	$	0.65
Diluted	$	0.58	$	0.64
Weighted-average number of shares outstanding
Basic	505		507
Diluted	511		516

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

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Baxter International Inc.

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

(in millions)

	Three months ended March 31,
	2021		2020
Net income	$	300	$	333
Other comprehensive income (loss), net of tax:
Currency translation adjustments, net of tax expense (benefit) of $17 and $(8) for the three months ended March 31, 2021 and 2020, respectively	(208)		(359)
Pension and other postretirement benefits, net of tax expense of $8 and $6 for the three months ended March 31, 2021 and 2020, respectively	30		22
Hedging activities, net of tax expense (benefit) of $3 and ($39) for the three months ended March 31, 2021 and 2020, respectively	12		(130)
Total other comprehensive income (loss), net of tax	(166)		(467)
Comprehensive income (loss)	134		(134)
Less: Comprehensive income attributable to noncontrolling interests	2		1
Comprehensive income (loss) attributable to Baxter stockholders	$	132	$	(135)

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

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Baxter International Inc.

Condensed Consolidated Statements of Changes in Equity (unaudited)

(in millions)

	For the three months ended March 31, 2021
	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, 2021	683	$	683	179	$	(11,051)	$	6,043	$	16,328	$	(3,314)	$	8,689	$	37	$	8,726
Net income	—	—		—	—		—		298		—		298		2		300
Other comprehensive income (loss)	—	—		—	—		—		—		(166)		(166)		—		(166)
Purchases of treasury stock	—	—		4	(300)		—		—		—		(300)		—		(300)
Stock issued under employee benefit plans and other	—	—		(2)	55		—		—		—		55		—		55
Dividends declared on common stock	—	—		—	—		—		(124)		—		(124)		—		(124)
Change in noncontrolling interests	—	—		—	—		—		—		—		—		(1)		(1)
Balance as of March 31, 2021	683	$	683	181	$	(11,296)	$	6,043	$	16,502	$	(3,480)	$	8,452	$	38	$	8,490

	For the three months ended March 31, 2020
	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, 2020	683	$	683	177	$	(10,764)	$	5,955	$	15,718	$	(3,710)	$	7,882	$	30	$	7,912
Adoption of new accounting standard	—	—		—	—		—		(4)		—		(4)		—		(4)
Net income	—	—		—	—		—		332		—		332		1		333
Other comprehensive income (loss)	—	—		—	—		—		—		(467)		(467)		—		(467)
Stock issued under employee benefit plans and other	—	—		(2)	87		(20)		—		—		67		—		67
Dividends declared on common stock	—	—		—	—		—		(111)		—		(111)		—		(111)
Balance as of March 31, 2020	683	$	683	175	$	(10,677)	$	5,935	$	15,935	$	(4,177)	$	7,699	$	31	$	7,730

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

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Baxter International Inc.

Condensed Consolidated Statements of Cash Flows (unaudited)

(in millions)

	Three months ended March 31,
	2021		2020
Cash flows from operations
Net income	$	300	$	333
Adjustments to reconcile net income to cash flows from operations:
Depreciation and amortization	217		199
Deferred income taxes	(25)		(17)
Stock compensation	22		29
Net periodic pension and other postretirement costs	26		20
Other	14		13
Changes in balance sheet items:
Accounts receivable, net	51		(57)
Inventories	(129)		(83)
Prepaid expenses and other current assets	2		(14)
Accounts payable	22		82
Accrued expenses and other current liabilities	(124)		(192)
Other	1		(39)
Cash flows from operations – continuing operations	377		274
Cash flows from operations – discontinued operations	—		(2)
Cash flows from operations	377		272
Cash flows from investing activities
Capital expenditures	(171)		(172)
Acquisitions, net of cash acquired, and investments	(381)		(443)
Other investing activities, net	14		11
Cash flows from investing activities	(538)		(604)
Cash flows from financing activities
Issuances of debt	—		1,240
Cash dividends on common stock	(125)		(111)
Proceeds from stock issued under employee benefit plans	48		66
Purchases of treasury stock	(253)		—
Other financing activities, net	(28)		(25)
Cash flows from financing activities	(358)		1,170
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash	(31)		(63)
Increase (decrease) in cash, cash equivalents and restricted cash	(550)		775
Cash, cash equivalents and restricted cash at beginning of period	3,736		3,335
Cash, cash equivalents and restricted cash at end of period (1)	$	3,186	$	4,110

(1)    We did not have any restricted cash balances as of March 31, 2020 or December 31, 2019. 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, 2021 and December 31, 2020 (in millions):

	March 31, 2021		December 31, 2020
Cash and cash equivalents	$	3,182	$	3,730
Restricted cash included in prepaid expenses and other current assets	4		6
Cash, cash equivalents and restricted cash	$	3,186	$	3,736

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

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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 or our) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, certain information and footnote 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, 2020 (2020 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.

Certain reclassifications have been made to conform the prior period condensed consolidated statements to the current period presentation.

Risks and Uncertainties Related to COVID-19

Our global operations expose us to risks associated with public health crises and epidemics/pandemics, such as the novel strain of coronavirus (COVID-19). COVID-19 has had, and we expect will continue to have, an adverse impact on our operations, supply chains and distribution systems and has increased and will continue to increase our expenses, including as a result of impacts associated with preventive and precautionary measures that we, other businesses and governments are taking. These measures have led to unprecedented restrictions on, disruptions in, and other related impacts on businesses and personal activities. In addition to travel restrictions put in place in early 2020, governments have closed borders, imposed prolonged quarantines and may continue those measures or implement other restrictions and requirements in light of the continuing spread of the pandemic. We expect that these evolving restrictions and requirements, as well as the corresponding need to adapt to new methods of conducting business remotely, will continue to have an adverse effect on our business.

2. ACQUISITIONS AND OTHER ARRANGEMENTS

Transderm Scop

In March 2021, we acquired the rights to Transderm Scop (TDS) for the U.S. and specified territories outside of the U.S. from subsidiaries of GlaxoSmithKline for an upfront purchase price of $60 million including the cost of acquired inventory and the potential for additional cash consideration of $30 million, which had an acquisition-date fair value of $24 million, based upon regulatory approval of a new contract manufacturer by a specified date. We previously sold this product under a distribution license to the U.S. institutional market. TDS is indicated for post-operative nausea and vomiting in the U.S. and motion sickness in European markets. We concluded that the acquired assets met the definition of a business and accounted for the transaction as a business combination using the acquisition method of accounting. The fair value of the potential contingent consideration payment was estimated by applying a probability-weighted expected payment model and is a Level 3 fair value measurement due to the significant estimates and assumptions used by management in establishing the estimated fair value.

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

(in millions)
Cash	$	60
Contingent Consideration	24
Total Consideration	$	84

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

(in millions)
Assets acquired
Inventory	$	14
Goodwill	3
Other intangible assets	67
Total assets required	$	84

The valuation of the assets acquired are preliminary and measurement period adjustments may be recorded in the future as we finalize our fair value estimates. The results of operations of the acquired business have been included in our consolidated statement of income since the date the business was acquired and were insignificant during the three months ended March 31, 2021.

We allocated $64 million of the total consideration to the TDS developed product rights with an estimated useful life of 9 years and $3 million to customer relationships with an estimated useful life of 7 years. The fair values of the intangible assets were determined using the income approach. The discount rates used to measure the intangible assets were 22.5% for developed product rights and 15.5% for customer relationships. We consider the fair value of the intangible assets to be Level 3 measurements due to the significant estimates and assumptions used by management in establishing the estimated fair values.

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

We have not presented pro forma financial information for the acquisition because its results are not material to our consolidated financial statements.

Caelyx and Doxil

In February 2021, we acquired the rights to Caelyx and Doxil, the branded versions of liposomal doxorubicin, from a subsidiary of Johnson & Johnson for specified territories outside of the U.S. We previously acquired the U.S. rights to this product in 2019. Liposomal doxorubicin is a chemotherapy medicine used to treat various types of cancer. The transaction was accounted for as an asset acquisition, as substantially all of the fair value of the gross assets acquired was concentrated in the developed technology intangible asset. The purchase price of $325 million was allocated to the assets acquired, which included a $314 million developed-technology intangible asset with an estimated useful life of 9 years and an $11 million customer relationship intangible asset with an estimated useful life of 8 years. Net sales related to this acquisition from the acquisition date through March 31, 2021 were $13 million.

3. SUPPLEMENTAL FINANCIAL INFORMATION

Interest Expense, Net

	Three months ended March 31,
(in millions)	2021		2020
Interest expense, net of capitalized interest	$	37	$	30
Interest income	(3)		(9)
Interest expense, net	$	34	$	21

Other Expense, Net

	Three months ended March 31,
(in millions)	2021		2020
Foreign exchange (gains) losses, net	$	(3)	$	11
Pension and other postretirement benefit plans	4		(1)
Other, net	4		—
Other expense, net	$	5	$	10

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Allowance for Doubtful Accounts

The following table is a summary of the changes in our allowance for doubtful accounts for the three months ended March 31, 2021 and 2020.

	Three months ended March 31,
(in millions)	2021		2020
Balance at beginning of period	$	125	$	112
Adoption of new accounting standard	—		4
Charged to costs and expenses	1		7
Currency translation adjustments	(6)		(9)
Balance at end of period	$	120	$	114

Inventories

(in millions)	March 31, 2021		December 31, 2020
Raw materials	$	457	$	460
Work in process	221		196
Finished goods	1,339		1,260
Inventories	$	2,017	$	1,916

Property, Plant and Equipment, Net

(in millions)	March 31, 2021		December 31, 2020
Property, plant and equipment, at cost	$	11,105	$	11,271
Accumulated depreciation	(6,491)		(6,549)
Property, plant and equipment, net	$	4,614	$	4,722

Non-Cash Operating and Investing Activities

Right-of-use operating lease assets obtained in exchange for lease obligations for the three months ended March 31, 2021 and 2020 were $5 million and $15 million, respectively. As of March 31, 2021, we have entered into lease agreements with aggregate future lease payments of approximately $46 million for facilities and equipment that have not yet commenced.

Purchases of property, plant and equipment included in accounts payable as of March 31, 2021 and 2020 were $63 million and $49 million, respectively.

Unsettled share repurchases included in accrued expenses and other current liabilities were $47 million as of March 31, 2021. There were no unsettled share repurchases as of March 31, 2020.

4. GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Goodwill

The following is a reconciliation of goodwill by business segment.

(in millions)	Americas		EMEA		APAC		Total
Balance as of December 31, 2020	$	2,574	$	406	$	237	$	3,217
Reallocation of goodwill	81		(81)		—		—
Acquisitions	2		1		—		3
Currency translation	(90)		(11)		(8)		(109)
Balance as of March 31, 2021	$	2,567	$	315	$	229	$	3,111

As of March 31, 2021, there were no reductions in goodwill relating to impairment losses.

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As discussed in Note 16 - Segment Information, we made a change to our reportable segments in the first quarter of 2021. As a result of this change, we reallocated goodwill from our EMEA segment to the Americas segment using a relative fair value approach. In addition, we completed an assessment of any potential goodwill impairment for all reporting units immediately prior to the reallocation and determined that no impairment existed.

Other intangible assets, net

The following is a summary of our other intangible assets.

(in millions)	Developed technology, including patents		Other amortized intangible assets		Indefinite-lived intangible assets		Total
March 31, 2021
Gross other intangible assets	$	3,023	$	491	$	169	$	3,683
Accumulated amortization	(1,394)		(327)		—		(1,721)
Other intangible assets, net	$	1,629	$	164	$	169	$	1,962
December 31, 2020
Gross other intangible assets	$	2,713	$	495	$	169	$	3,377
Accumulated amortization	(1,374)		(332)		—		(1,706)
Other intangible assets, net	$	1,339	$	163	$	169	$	1,671

Intangible asset amortization expense was $64 million and $52 million for the three months ended March 31, 2021 and 2020, respectively.

5. FINANCING ARRANGEMENTS

Credit Facilities

Our U.S. dollar-denominated revolving credit facility has a capacity of $2.0 billion and our Euro-denominated revolving credit facility has a capacity of approximately €200 million. As of March 31, 2021 and December 31, 2020, there were no borrowings outstanding under our U.S. dollar or Euro-denominated credit facilities.

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, 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, 2021 and December 31, 2020, our total recorded reserves with respect to legal and environmental matters were $53 million and $40 million, respectively, and there was a $7 million insurance receivable as of March 31, 2021.

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 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.

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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, we are involved in an ongoing voluntary environmental remediation associated with historic operations at our Irvine, California, United States facility. As of March 31, 2021 and December 31, 2020, our environmental reserves, which are measured on an undiscounted basis, were $19 million and $20 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 November 2016, a putative antitrust class action complaint seeking monetary and injunctive relief was filed in the United States District Court for the Northern District of Illinois. The complaint alleges a conspiracy among manufacturers of IV solutions to restrict output and affect pricing in connection with a shortage of such solutions. Similar parallel actions subsequently were filed. In January 2017, a single consolidated complaint covering these matters was filed in the Northern District of Illinois. We filed a motion to dismiss the consolidated complaint in February 2017. The court granted our motion to dismiss the consolidated complaint without prejudice in July 2018. The plaintiffs filed an amended complaint, which we moved to dismiss on November 9, 2018. The court granted our motion to dismiss the amended complaint with prejudice on April 3, 2020. The plaintiffs did not file an appeal.

In April 2017, we became aware of a criminal investigation by the U.S. Department of Justice (DOJ), Antitrust Division and a federal grand jury in the United States District Court for the Eastern District of Pennsylvania. We and an employee received subpoenas seeking production of documents and testimony regarding the manufacturing, selling, pricing and shortages of IV solutions and containers (including saline solutions and certain other injectable medicines sold by us) and communications with competitors regarding the same. On November 30, 2018, the DOJ notified us that it had closed the investigation. The New York Attorney General had also requested that we provide information regarding business practices in the IV saline industry. We cooperated with that request and have been advised that the matter has now been closed.

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.

In November 2019, we and certain of our officers were named in a class action complaint captioned Ethan E. Silverman 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 shares of our common stock during the specified class period, filed this putative class action on behalf of himself and shareholders who acquired Baxter common stock between February 21, 2019 and October 23, 2019. The plaintiff alleges that we and certain officers violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making allegedly false and misleading statements and failing to disclose material facts relating to certain intra-company transactions undertaken for the purpose of generating foreign exchange gains or avoiding foreign exchange losses, as well as our internal controls over financial reporting. On January 29, 2020, the Court appointed Varma Mutual Pension Insurance Company and Louisiana Municipal Police Employees Retirement System as lead plaintiffs in the case. Plaintiffs filed an amended complaint on June 25, 2020 containing substantially the same allegations. On August 24, 2020, we filed a motion to dismiss the amended complaint. On January 12, 2021, the Court granted our motion to dismiss the amended complaint but gave plaintiffs an opportunity to file a further-amended complaint. The parties reached an agreement to settle the case for $16 million, subject to the completion of confirmatory discovery and final approval by the Court. The Court granted preliminary approval of the settlement on April 20, 2021. A final approval hearing is currently scheduled for August 10, 2021. We are fully reserved for the settlement amount as of March 31, 2021.

In addition, we have received a stockholder request for inspection of our books and records in connection with the announcement made in our Form 8-K on October 24, 2019 that we had commenced an internal investigation into certain intra-company transactions that impacted our previously reported non-operating foreign exchange gains and

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losses. As initially disclosed on October 24, 2019, we also voluntarily advised the staff of the SEC of our internal investigation and we are continuing to cooperate with the staff of the SEC.

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 seek damages, including compensatory and punitive damages in an unspecified amount, and unspecified injunctive and declaratory relief.

7. STOCKHOLDERS’ EQUITY

Stock-Based Compensation

Stock compensation expense totaled $22 million and $29 million in the first quarter of 2021 and 2020, respectively. Approximately 75% of stock compensation expense is classified within SG&A expense with the remainder classified in cost of sales and R&D expense.

We awarded stock compensation grants which consisted of 4.0 million stock options, 0.5 million restricted stock units (RSUs) and 0.3 million performance stock units (PSUs) during the first quarter of 2021. The grant date fair values of stock options, RSUs and PSUs awarded in the first quarter of 2021 were $62 million, $40 million and $27 million, respectively. Stock options and RSUs generally vest in one-third increments over a three-year period. Approximately 12.5% of the PSUs with a grant date in the current period related to the establishment of the adjusted operating margin vesting condition for awards issued in 2019. The remainder of PSUs granted in the current period were awarded in March 2021, for which the vesting conditions are equally divided based on our compound annual sales growth rate performance, our adjusted return on invested capital performance and on our stock performance relative to a specified peer group. All of the PSUs vest at the end of the applicable three-year service period.

Stock Options

The weighted-average Black-Scholes assumptions used in establishing the fair value of stock options granted during the period, along with weighted-average grant date fair values, were as follows:

	Three months ended March 31,
	2021			2020
Expected volatility	25		%	26		%
Expected life (in years)	5.5			5.5
Risk-free interest rate	0.8		%	0.6		%
Dividend yield	1.3		%	1.2		%
Fair value per stock option	$	16		$	16

The total intrinsic value of stock options exercised was $21 million and $52 million during the first quarters of 2021 and 2020, respectively.

As of March 31, 2021, the unrecognized compensation cost related to all unvested stock options of $109 million is expected to be recognized as expense over a weighted-average period of 2.1 years.

RSUs

As of March 31, 2021, the unrecognized compensation cost related to all unvested RSUs of $75 million is expected to be recognized as expense over a weighted-average period of 2.1 years.

PSUs

As of March 31, 2021, the unrecognized compensation cost related to all unvested PSUs of $46 million is expected to be recognized as expense over a weighted-average period of 1.8 years.

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Stock Options Award Modification

In the first quarter of 2020, we modified the terms of stock option awards granted to 123 employees. Specifically, we extended the term for certain stock options that were scheduled to expire in the first quarter of 2020 as applicable employees were not permitted to exercise these awards due to our announcement in February 2020 that our previously issued financial statements should no longer be relied upon. The stock options were extended in order to allow impacted employees to exercise their stock option awards for a brief period once we became current with our SEC reporting obligations, which occurred in March 2020. As a result of the modifications, we recognized an additional $8 million of stock compensation expense during the quarter ended March 31, 2020.

Cash Dividends

Cash dividends declared per share for the three months ended March 31, 2021 and March 31, 2020 were $0.245 and $0.22, respectively.

Stock Repurchase Programs

In July 2012, the Board of Directors authorized the repurchase of up to $2.0 billion of our common stock. The Board of Directors increased this authority by an additional $1.5 billion in each of November 2016 and February 2018, by an additional $2.0 billion in November 2018 and by an additional $1.5 billion in October 2020. During the first quarter of 2021, we repurchased 3.6 million shares under this authority pursuant to a Rule 10b5-1 plan. During the first quarter of 2020, we did not repurchase any shares under this authority. As of March 31, 2021, we recognized a liability within accrued expenses and other current liabilities of $47 million for share repurchases that settled in April 2021. We had $1.6 billion remaining available under the authorization as of March 31, 2021.

8. ACCUMULATED OTHER COMPREHENSIVE INCOME

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

The following table is a net-of-tax summary of the changes in accumulated other comprehensive (loss) income (AOCI) by component for the three months ended March 31, 2021 and 2020.

(in millions)	CTA		Pension and OPEB plans		Hedging activities		Total
Gains (losses)
Balance as of December 31, 2020	$	(2,587)	$	(574)	$	(153)	$	(3,314)
Other comprehensive income (loss) before reclassifications	(208)		13		3		(192)
Amounts reclassified from AOCI (a)	—		17		9		26
Net other comprehensive income (loss)	(208)		30		12		(166)
Balance as of March 31, 2021	$	(2,795)	$	(544)	$	(141)	$	(3,480)

(in millions)	CTA		Pension and OPEB plans		Hedging activities		Total
Gains (losses)
Balance as of December 31, 2019	$	(2,954)	$	(715)	$	(41)	$	(3,710)
Other comprehensive income (loss) before reclassifications	(359)		10		(131)		(480)
Amounts reclassified from AOCI (a)	—		12		1		13
Net other comprehensive income (loss)	(359)		22		(130)		(467)
Balance as of March 31, 2020	$	(3,313)	$	(693)	$	(171)	$	(4,177)

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

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The following is a summary of the amounts reclassified from AOCI to net income during the three months ended March 31, 2021 and 2020.

	Amounts reclassified from AOCI (a)
(in millions)	Three months ended March 31, 2021		Three Months Ended March 31, 2020		Location of impact in income statement
Amortization of pension and OPEB items
Amortization of net losses and prior service costs or credits	$	(21)	$	(15)	Other expense, net
Less: Tax effect	4		3		Income tax expense
	$	(17)	$	(12)	Net of tax
Gains (losses) on hedging activities
Foreign exchange contracts	$	(10)	$	(1)	Cost of sales
Interest rate contracts	$	(1)	—		Interest expense, net
	(11)		(1)		Total before tax
Less: Tax effect	2		—		Income tax expense
	$	(9)	$	(1)	Net of tax
Total reclassifications for the period	$	(26)	$	(13)	Total net of tax

(a)    Amounts in parentheses indicate reductions to net income.

Refer to Note 11 for additional information regarding the amortization of pension and OPEB items and Note 14 for additional information regarding hedging activity.

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.

The majority of our performance obligations are satisfied at a point in time. This includes sales of our broad portfolio of essential healthcare products across our geographic segments including acute and chronic dialysis therapies; sterile IV solutions; infusion systems and devices; parenteral nutrition therapies; inhaled anesthetics; generic injectable pharmaceuticals; and surgical hemostat and sealant products. For a majority of these sales, 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, in all of our segments, we enter into other types of contracts including contract manufacturing arrangements, 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, 2021, we had $7.9 billion of transaction price allocated to remaining performance obligations related to executed contracts with an original duration of one year or more, which are primarily included in the Americas segment. 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% of this amount as revenue over the remainder of 2021, 30% in 2022, 25% in 2023, and 10% in each of 2024 and 2025.

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Significant Judgments

Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration primarily related to rebates 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 accounts receivable, net and accrued expenses and other current liabilities 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 months ended March 31, 2021 and 2020 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 $1.6 billion and $1.7 billion as of March 31, 2021 and December 31, 2020, 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 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 provided and billed, generally over one to seven years.

The following table summarizes our contract assets:

(in millions)	March 31, 2021		December 31, 2020
Contract manufacturing services	$	49	$	47
Software sales	41		40
Bundled equipment and consumable medical products contracts	46		47
Contract assets	$	136	$	134

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

(in millions)	March 31, 2021		December 31, 2020
Prepaid expenses and other current assets	$	74	$	70
Other non-current assets	62		64
Contract assets	$	136	$	134
Accrued expenses and other current liabilities	$	38	$	32
Other non-current liabilities	42		34
Contract liabilities	$	80	$	66

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Contract liabilities are recognized when a customer pays consideration before we transfer goods or provide services. During the three months ended March 31, 2021 and 2020, the amount of revenue recognized that was included in contract liabilities as of December 31, 2020 and 2019 was not significant.

Disaggregation of Net Sales

Beginning in the first quarter of 2021, our product category net sales disclosures (previously referred to as global business units (GBUs)) separately present net sales from our BioPharma Solutions business, which was previously included within Other. Concurrent with that disaggregation of net sales from our BioPharma Solutions business, we have also allocated certain previously unallocated sales deductions from Other to various categories, primarily based on their respective net sales. Net sales for the first quarter of 2020 have been recast to conform to the current period presentation.

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

	Three Months Ended March 31,
	2021						2020
(in millions)	U.S.		International		Total		U.S.		International		Total
Renal Care 1	$	216	$	706	$	922	$	204	$	666	$	870
Medication Delivery 2	411		241		652		449		229		678
Pharmaceuticals 3	200		352		552		220		296		516
Clinical Nutrition 4	83		151		234		79		138		217
Advanced Surgery 5	126		91		217		137		87		224
Acute Therapies 6	81		126		207		60		96		156
BioPharma Solutions 7	44		91		135		48		66		114
Other 8	19		8		27		20		7		27
Total Baxter	$	1,180	$	1,766	$	2,946	$	1,217	$	1,585	$	2,802

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

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

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

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

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

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

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

8Other includes sales of miscellaneous product and service offerings.

Lease Revenue

We lease medical equipment, such as renal dialysis equipment and infusion pumps, to customers, primarily 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.

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The components of lease revenue for the three months ended March 31, 2021 and 2020 were:

	Three Months Ended March 31,
(in millions)	2021		2020
Sales-type lease revenue	$	6	$	6
Operating lease revenue	34		14
Variable lease revenue	17		18
Total lease revenue	$	57	$	38

Our net investment in sales-type leases was $131 million as of March 31, 2021, of which $19 million originated in 2017 and prior, $32 million in 2018, $36 million in 2019, $38 million in 2020 and $6 million in 2021.

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 through March 31, 2021, we have incurred cumulative pre-tax costs of $1.1 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 of approximately $12 million through the completion of the initiatives that are currently underway, primarily related to implementation costs. We continue to pursue cost savings initiatives and, to the extent further cost savings opportunities are identified, we may incur additional restructuring charges and costs to implement business optimization programs in future periods.

During the three months ended March 31, 2021 and 2020, we recorded the following charges related to business optimization programs.

	Three Months Ended March 31,
(in millions)	2021		2020
Restructuring charges	$	25	$	25
Costs to implement business optimization programs	2		7
Total business optimization charges	$	27	$	32

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

Costs to implement business optimization programs for the three months ended March 31, 2021 and 2020, 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 months ended March 31, 2021 and 2020, we recorded the following restructuring charges.

	Three months ended March 31, 2021
(in millions)	COGS		SG&A		R&D		Total
Employee termination costs	$	16	$	5	$	—	$	21
Asset impairments	4		—		—		4
Total restructuring charges	$	20	$	5	$	—	$	25

	Three months ended March 31, 2020
(in millions)	COGS		SG&A		R&D		Total
Employee termination costs	$	2	$	16	$	1	$	19
Asset impairments	6		—		—		6
Total restructuring charges	$	8	$	16	$	1	$	25

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In conjunction with our business optimization initiatives in 2020, we sold property that resulted in a gain of $17 million. This gain is reflected within other operating income, net in our condensed consolidated statement of income for the three months ended March 31, 2020.

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

(in millions)
Liability balance as of December 31, 2020	$	113
Charges	21
Payments	(24)
Currency translation	(3)
Liability balance as of March 31, 2021	$	107

Substantially all of our restructuring liabilities as of March 31, 2021 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 2022.

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,
(in millions)	2021		2020
Pension benefits
Service cost	$	22	$	21
Interest cost	18		24
Expected return on plan assets	(36)		(41)
Amortization of net losses and prior service costs	23		19
Net periodic pension cost	$	27	$	23
OPEB
Interest cost	$	1	$	1
Amortization of net loss and prior service credit	(2)		(4)
Net periodic OPEB cost (income)	$	(1)	$	(3)

12. INCOME TAXES

Our effective income tax rate was 14.5% and 11.9% for the three months ended March 31, 2021 and 2020, 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, increases or decreases in valuation allowances and liabilities for uncertain tax positions and excess tax benefits on stock compensation awards.

For the three months ended March 31, 2021, the difference between our effective income tax rate and the U.S. federal statutory rate was primarily attributable to decreases in accrued withholding taxes in several foreign jurisdictions and a favorable geographic earnings mix.

As of March 31, 2021, we had an uncertain tax position under appeal in a foreign jurisdiction for which we did not record income tax expense because we believed that the position had a more-likely-than-not chance of being sustained based on its technical merits under the applicable tax laws. On April 23, 2021, we received an unfavorable court decision related to this matter. As a result of that decision, we will record a discrete income tax expense of $22 million to reflect the resolution of this tax matter in the second quarter of 2021. 

For the three months ended March 31, 2020, the difference between our effective income tax rate and the U.S. federal statutory rate was primarily attributable to a favorable geographic earnings mix and excess tax benefits on stock compensation awards.

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13. EARNINGS PER SHARE

The numerator for both basic and diluted earnings per share (EPS) is net income 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 basic shares to diluted shares.

	Three months ended March 31,
(in millions)	2021	2020
Basic shares	505	507
Effect of dilutive securities	6	9
Diluted shares	511	516

The effect of dilutive securities includes unexercised stock options, unvested RSUs and contingently issuable shares related to granted PSUs. The computation of diluted EPS excludes 7 million and 1 million equity awards for the three months ended March 31, 2021, and 2020, respectively, because their inclusion would have had an anti-dilutive effect on diluted EPS. Refer to Note 7 for additional information regarding items impacting basic and diluted shares.

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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, 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 instruments to further reduce the net exposure to foreign exchange risk. Gains and losses on the hedging instruments offset losses and gains on the hedged transactions and reduce the earnings and equity volatility resulting from changes in foreign exchange rates. 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 instruments are recognized as either assets or liabilities at fair value in the condensed consolidated balance sheets and are generally 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 third-party sales denominated in foreign currencies, 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 $355 million and $345 million as of March 31, 2021 and December 31, 2020, respectively. The maximum term over which we have cash flow hedge contracts in place related to forecasted transactions at March 31, 2021 is 12 months for foreign exchange contracts. There were no outstanding interest rate contracts designated as cash flow hedges as of March 31, 2021 and December 31, 2020.

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.

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There were no outstanding interest rate contracts designated as fair value hedges as of March 31, 2021 and December 31, 2020.

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, 2021, we had an accumulated pre-tax unrealized translation loss in AOCI of $131 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 hedge dedesignations in the first three months of 2021 or 2020 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 months of 2021 or 2020.

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 months of 2021 or 2020.

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 $780 million as of March 31, 2021 and $1.0 billion as of December 31, 2020.

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, 2021 and 2020.

	Gain (loss) recognized in OCI				Location of gain (loss) in income statement	Gain (loss) reclassified from AOCI into income
(in millions)	2021		2020			2021		2020
Cash flow hedges
Interest rate contracts	$	—	$	(184)	Interest expense, net	$	(1)	$	—
Foreign exchange contracts	4		14		Cost of sales	(10)		(1)
Net investment hedges	114		49		Other expense, net	—		—
Total	$	118	$	(121)		$	(11)	$	(1)

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	Location of gain (loss) in income statement	Gain (loss) recognized in income
(in millions)		2021		2020
Undesignated derivative instruments
Foreign exchange contracts	Other expense, net	$	(22)	$	2

As of March 31, 2021, $12 million of deferred, net after-tax losses on derivative instruments included in AOCI are expected to be recognized in earnings during the next 12 months, coinciding with when the hedged items are expected to impact earnings.

Derivative Assets and Liabilities

The following table summarizes the classification and fair values of derivative instruments reported in the condensed consolidated balance sheet as of March 31, 2021.

	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	2		Accrued expenses and other current liabilities	8
Total derivative instruments designated as hedges		2			8
Undesignated derivative instruments
Foreign exchange contracts	Prepaid expenses and other current assets	1		Accrued expenses and other current liabilities	7
Total derivative instruments		$	3		$	15

The following table summarizes the classification and fair values of derivative instruments reported in the condensed consolidated balance sheet as of December 31, 2020.

	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	—		Accrued expenses and other current liabilities	17
Total derivative instruments designated as hedges		—			17
Undesignated derivative instruments
Foreign exchange contracts	Prepaid expenses and other current assets	11		Accrued expenses and other current liabilities	2
Total derivative instruments		$	11		$	19

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.

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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, 2021				December 31, 2020
(in millions)	Asset		Liability		Asset		Liability
Gross amounts recognized in the consolidated balance sheet	$	3	$	15	$	11	$	19
Gross amount subject to offset in master netting arrangements not offset in the consolidated balance sheet	(3)		(3)		(6)		(6)
Total	$	—	$	12	$	5	$	13

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)
(in millions)	Balance as of March 31, 2021		Balance as of December 31, 2020		Balance as of March 31, 2021		Balance as of December 31, 2020
Long-term debt	$	102	$	102	$	5	$	5

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

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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
(in millions)	Balance as of March 31, 2021		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	$	3	$	—	$	3	$	—
Debt securities	13		—		13		—
Marketable equity securities	2		2		—		—
Total	$	18	$	2	$	16	$	—
Liabilities
Foreign exchange contracts	$	15	$	—	$	15	$	—
Contingent payments related to acquisitions	38		—		—		38
Total	$	53	$	—	$	15	$	38

			Basis of fair value measurement
(in millions)	Balance as of December 31, 2020		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	$	11	$	—	$	11	$	—
Debt securities	13		—		13		—
Marketable equity securities	17		17		—		—
Total	$	41	$	17	$	24	$	—
Liabilities
Foreign exchange contracts	$	19	$	—	$	19	$	—
Contingent payments related to acquisitions	30		—		—		30
Total	$	49	$	—	$	19	$	30

As of March 31, 2021 and December 31, 2020, cash and cash equivalents of $3.2 billion and $3.7 billion, respectively, included money market and other short-term funds of approximately $1.7 billion and $1.8 billion, respectively, which are considered Level 2 in the fair value hierarchy.

For assets that are measured using quoted prices in active markets, the fair value is the published market price per unit multiplied by the number of units held, without consideration of transaction costs. The majority of the derivatives entered into by us are valued using internal valuation techniques as no quoted market prices exist for such instruments. 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.

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

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value measurements that use significant unobservable inputs (Level 3), which consist of contingent payments related to acquisitions.

	Three months ended March 31,
(in millions)	2021		2020
Fair value at beginning of period	$	30	$	39
Additions	24		4
Change in fair value recognized in earnings	—		(3)
Payments	(16)		(1)
Fair value at end of period	$	38	$	39

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, 2021 and December 31, 2020.

	Book values		Fair values(a)
(in millions)	2021	2020	2021	2020
Liabilities
Current maturities of long-term debt and finance lease obligations	407	406	409	409
Long-term debt and finance lease obligations	5,681	5,786	6,085	6,471

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

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

Equity investments not measured at fair value are comprised of other equity investments without readily determinable fair values and were $98 million at March 31, 2021 and $105 million at December 31, 2020. Those investments are included in Other non-current assets on our condensed consolidated balance sheets.

16. SEGMENT INFORMATION

We manage our business based on three geographical segments: Americas (North and South America), EMEA (Europe, Middle East and Africa) and APAC (Asia Pacific). Our segments provide a broad portfolio of essential healthcare products, including acute and chronic dialysis therapies; sterile IV solutions; infusion systems and devices; parenteral nutrition therapies; inhaled anesthetics; generic injectable pharmaceuticals; and surgical hemostat and sealant products. In the first quarter of 2021, the information provided to our Chief Executive Officer for purposes of allocating resources and assessing performance was updated to reallocate contracted services activities performed at a German manufacturing facility from our EMEA segment to our Americas segment. The contracted services performed at that facility are part of our BioPharma Solutions business, which is managed as part of the Americas segment. Accordingly, the reported financial results of the Americas segment now include the contracted services activities performed at that facility. Segment results for the first quarter of 2020 have been recast to conform to the current period presentation.

We use operating income on a segment basis to make resource allocation decisions and assess the ongoing performance of our business segments. Intersegment sales are eliminated in consolidation.

Certain items are maintained at Corporate and are not allocated to a segment. They primarily include corporate headquarters costs, certain R&D costs, certain product category support costs, stock compensation expense, certain employee benefit plan costs, certain foreign currency hedging activities, and certain gains, losses, and other charges (such as business optimization, acquisition and integration costs, intangible asset amortization and asset

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

Financial information for our segments is as follows.

	Three months ended March 31,
(in millions)	2021		2020
Net sales:
Americas	$	1,560	$	1,565
EMEA	738		688
APAC	648		549
Total net sales	$	2,946	$	2,802
Operating income:
Americas	$	599	$	588
EMEA	135		117
APAC	138		128
Total segment operating income	$	872	$	833

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)	2021		2020
Total segment operating income	$	872	$	833
Corporate and other	(482)		(424)
Total operating income	390		409
Net interest expense	34		21
Other expense, net	5		10
Income before income taxes	$	351	$	378

Refer to Note 9 for additional information on Net Sales by product category.

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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, 2020 (2020 Annual Report) for management’s discussion and analysis of our financial condition and results of operations. The following is management’s discussion and analysis of our financial condition and results of operations for the three months ended March 31, 2021 and 2020.

RESULTS OF OPERATIONS

Net income attributable to Baxter stockholders for the three months ended March 31, 2021 totaled $298 million, or $0.58 per diluted share, compared to $332 million, or $0.64 per diluted share for the three months ended March 31, 2020. Net income for the three months ended March 31, 2021 included special items which decreased net income by $88 million, or $0.18 per diluted share, as further discussed below. Net income for the three months ended March 31, 2020 included special items which decreased net income by $93 million, or $0.18 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, 2021 and 2020.

	Three months ended March 31,
(in millions)	2021		2020
Gross Margin
Intangible asset amortization expense	$	(64)	$	(52)
Business optimization items1	(21)		(10)
Acquisition and integration expenses2	—		(7)
European medical devices regulation3	(8)		(6)
Investigation and related costs4	—		(3)
Total Special Items	$	(93)	$	(78)
Impact on Gross Margin Ratio	(3.1 pts)		(2.8 pts)
Selling, General and Administrative (SG&A) Expenses
Business optimization items1	$	6	$	21
Acquisition and integration expenses2	1		3
Investigation and related costs4	11		14
Total Special Items	$	18	$	38
Impact on SG&A Ratio	0.6 pts		1.3 pts
Research and Development (R&D) Expenses
Business optimization items1	$	—	$	1
Acquisition and integration expenses2	—		21
Investigation and related costs4	—		1
Total Special Items	$	—	$	23
Impact on R&D Ratio	0.0 pts		0.8 pts
Other Operating Income, net
Business optimization items1	$	—	$	(17)
Acquisition and integration expenses2	—		(3)
Total Special Items	$	—	$	(20)
Income Tax Expense
Tax effects of special items5	$	(23)	$	(26)
Total Special Items	$	(23)	$	(26)
Impact on Effective Tax Rate	(1.5 pts)		(2.4 pts)

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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 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.

1In 2021 and 2020, our results were impacted by costs associated with our execution of programs to optimize our organization and cost structure. These actions included streamlining our international operations, rationalizing our manufacturing facilities, reducing our general and administrative infrastructure, re-aligning certain R&D activities and cancelling certain R&D programs. Our results in 2021 and 2020 included business optimization charges of $27 million and $32 million, respectively. Additionally, we recognized a gain of $17 million in 2020 for property we sold in conjunction with our business optimization initiatives. Refer to Note 10 in Item 1 of this Quarterly Report on Form 10-Q for further information regarding these charges and related liabilities.

2Our results in 2021 included $1 million of integration expenses related to our acquisition of the rights to Caelyx and Doxil for specified territories outside of the U.S. Our results in 2020 included $28 million of acquisition and integration expenses related to our acquisitions of Cheetah Medical Inc. (Cheetah), Seprafilm and in-process R&D assets, partially offset by the change in the estimated fair value of contingent consideration liabilities. Refer to Note 2 in Item 1 of this Quarterly Report on Form 10-Q for further information regarding business development activities.

3Our results in 2021 and 2020 included $8 million and $6 million, respectively, related to updating our quality systems and product labeling to comply with the new medical device reporting regulation and other requirements of the European Union’s regulations for medical devices that are scheduled to become effective in stages beginning in 2021.

4Our results in 2021 and 2020 included charges of $11 million and $18 million, respectively, for investigation and related costs. This included $2 million in 2021 and $10 million in 2020 of costs related to our investigation of foreign exchange gains and losses associated with certain intra-company transactions and related legal matters. We also recorded a charge of $9 million in the first quarter of 2021 for a proposed settlement of shareholder litigation related to that investigation. Additionally, we recorded incremental stock compensation expense of $8 million in 2020 as we extended the term of certain stock options that were scheduled to expire in the first quarter of 2020. Refer to Notes 6 and 7 in Item 1 of this Quarterly Report on Form 10-Q for further information regarding the investigation and related legal charge and stock compensation expense.

5Reflected 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)	2021		2020		At actual currency rates		At constant currency rates
United States	$	1,180	$	1,217	(3)	%	(3)	%
International	$	1,766	1,585		11	%	5	%
Total net sales	$	2,946	$	2,802	5	%	1	%

Foreign currency favorably impacted net sales by 4 percentage points during the first quarter of 2021 compared to the prior-year period principally due to the weakening of the U.S. Dollar relative to the Euro, Australian Dollar, British Pound and Chinese Renminbi.

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

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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.

Our global operations expose us to risks associated with public health crises and epidemics/pandemics, such as the COVID-19 pandemic. COVID-19 has had, and we expect will continue to have, an adverse impact on our operations, supply chains and distribution systems and has increased and we expect will continue to increase our expenses, including as a result of impacts associated with preventive and precautionary measures that we, other businesses and governments are taking. These measures have led to unprecedented restrictions on, disruptions in, and other related impacts on businesses and personal activities. In addition to travel restrictions put in place in early 2020, governments have closed borders, imposed prolonged quarantines and may continue those measures or implement other restrictions and requirements in light of the continuing spread of the pandemic. We expect that these evolving restrictions and requirements, as well as the corresponding need to adapt to new methods of conducting business remotely, will continue to have an adverse effect on our business. For further discussion, refer to the Product Category Net Sales Reporting section below and Item 1A. Risk Factors in our 2020 Annual Report.

Product Category Net Sales Reporting

Beginning in the first quarter of 2021, our product category net sales disclosures (previously referred to as global business units (GBUs)) separately present net sales from our BioPharma Solutions business, which was previously included within Other. Concurrent with that disaggregation of net sales from our BioPharma Solutions business, we have also allocated certain previously unallocated sales deductions from Other to various categories, primarily based on their respective net sales. Net sales for the first quarter of 2020 have been recast to conform to the current period presentation.

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 (PN) 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.

•    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)	2021		2020		At actual currency rates		At constant currency rates
Renal Care	$	922	$	870	6	%	2	%
Medication Delivery	652		678		(4)	%	(6)	%
Pharmaceuticals	552		516		7	%	1	%
Clinical Nutrition	234		217		8	%	3	%
Advanced Surgery	217		224		(3)	%	(6)	%
Acute Therapies	207		156		33	%	28	%
BioPharma Solutions	135		114		18	%	11	%
Other	27		27		0	%	(4)	%
Total Baxter	$	2,946	$	2,802	5	%	1	%

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Renal Care net sales increased 6% in the first quarter of 2021, as compared to the prior-year period. That increase was driven by global patient growth in PD and a 4% positive impact from foreign exchange rate changes, as compared to the prior-year period.

Medication Delivery net sales decreased 4% in the first quarter of 2021, as compared to the prior-year period. That decrease was primarily driven by lower demand for our infusion systems and related IV administration sets and solutions due to lower hospital admission rates and a reduction in elective surgeries resulting from the COVID-19 pandemic. Additionally, the prior-year period benefited from additional sales as our customers prepared for the impact of COVID-19. Those decreases were partially offset by changes in foreign exchange rates which had a favorable impact on Medication Delivery net sales of 2% in the first quarter of 2021, as compared to the prior-year period.

Pharmaceuticals net sales increased 7% in the first quarter of 2021, as compared to the prior-year period. That increase was driven by a 6% positive impact from foreign exchange rate changes, compared to the prior-year period. Additionally, the acquisition of the rights to Caelyx and Doxil for specified territories outside of the U.S. contributed $13 million of net sales in the first quarter of 2021. Those increases were partially offset by lower demand for inhaled anesthesia products resulting from the COVID-19 pandemic. Additionally, the prior-year period benefited from additional sales as our customers prepared for the impact of COVID-19.

Clinical Nutrition net sales increased 8% in the first quarter of 2021, as compared to the prior-year period. That increase was driven by a 5% positive impact from foreign exchange rate changes, compared to the prior-year period. Additionally, Clinical Nutrition net sales increased due to higher demand for our PN therapies and related products.

Advanced Surgery net sales decreased 3% in the first quarter of 2021, as compared to the prior-year period. That decrease was driven by the impact of the COVID-19 pandemic as many elective surgeries were postponed. Additionally, contributing to the decrease compared to the prior-year period was increased demand for our hemostats and sealants in the first quarter of 2020 due, in part, to competitive supply disruptions. Partially offsetting those decreases was the acquisition of Seprafilm in February of 2020, which contributed $8 million of incremental sales in the first quarter of 2021, and a 3% positive impact from foreign exchange rate changes, as compared to the prior-year period.

Acute Therapies net sales increased 33% in the first quarter of 2021, as compared to the prior-year period. That increase was driven by increased global demand for our CRRT systems to treat acute kidney injury during the COVID-19 pandemic and a 5% positive impact from foreign exchange rate changes, as compared to the prior-year period.

BioPharma Solutions net sales increased 18% in the first quarter of 2021, as compared to the prior-year period. That increase was driven by manufacturing services and supply packaging related to the production of COVID-19 vaccines on behalf of multiple pharmaceutical companies and a 7% positive impact from foreign exchange rate changes, as compared to the prior-year period.

Gross Margin and Expense Ratios

	Three months ended March 31,
	2021		% of net sales		2020		% of net sales		$ change		% change
Gross margin	$	1,145	38.9	%	$	1,163	41.5	%	$	(18)	(1.5)	%
SG&A	$	627	21.3	%	$	628	22.4	%	$	(1)	(0.2)	%
R&D	$	128	4.3	%	$	146	5.2	%	$	(18)	(12.3)	%

Gross Margin

The gross margin ratio was 38.9% and 41.5% in the first quarter of 2021 and 2020, respectively. The special items identified above had an unfavorable impact of approximately 3.1 and 2.8 percentage points on the gross margin ratio in the first quarter of 2021 and 2020, 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 2021 compared to the prior-year period due to an unfavorable product mix and higher manufacturing and supply chain costs resulting from the COVID-19 pandemic.

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SG&A

The SG&A expenses ratio was 21.3% and 22.4% in the first quarter of 2021 and 2020, respectively. The special items identified above had an unfavorable impact of approximately 0.6 and 1.3 percentage points on the SG&A expenses ratio in the first quarter of 2021 and 2020, respectively. Refer to the Special Items caption above for additional detail.

Excluding the impact of the special items, the SG&A expenses ratio decreased in the first quarter of 2021 compared to the prior-year period primarily due to actions we took to restructure our cost position and focus on expense management and reduced travel and related expenses due to the COVID-19 pandemic.

R&D

The R&D expenses ratio was 4.3% and 5.2% in the first quarter of 2021 and 2020, respectively. The special items identified above had no impact and an unfavorable impact of approximately 0.8 percentage points on the R&D expenses ratio in the first quarter of 2021 and 2020, respectively. Refer to the Special Items caption above for additional detail.

Excluding the impact of the special items, the R&D expenses ratio decreased in the first quarter of 2021 compared to the prior-year period as a result of actions we took to restructure our cost position and focus on expense management and reduced travel and related expenses due to the COVID-19 pandemic.    

Business Optimization Items

In recent years, we have undertaken actions to transform our cost structure and enhance operational efficiency. These efforts include 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, 2021, we have incurred cumulative pre-tax costs of $1.1 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 of approximately $12 million through the completion of the initiatives that are currently underway, primarily related to implementation costs. We continue to pursue cost savings initiatives and, to the extent further cost savings opportunities are identified, we may incur additional restructuring charges and costs to implement business optimization programs in future periods. The reductions in our cost base from these actions in the aggregate are expected to provide cumulative annual pre-tax savings of more than $1.2 billion once the remaining actions are complete. The savings from these actions will impact cost of sales, SG&A expenses, and R&D expenses. Approximately 99 percent of the expected annual pre-tax savings are expected to be realized by the end of 2021, with the remainder by the end of 2023.

Other Operating Income, Net

Other operating income, net was $20 million in the first quarter of 2020 as we recognized a $17 million gain on the sale of property in conjunction with our business optimization initiatives and a $3 million gain as a result of a change in the estimated fair value of contingent consideration liabilities.

In September 2013, we entered into an agreement with Celerity Pharmaceutical, LLC (Celerity) to develop certain acute care generic injectable premix and oncolytic products through regulatory approval. We transferred our rights in these products to Celerity and Celerity assumed ownership and responsibility for development of the products. We are obligated to purchase the individual product rights from Celerity if the products obtain regulatory approval. In December 2020, we entered into an agreement with a third party to divest one of the products that is currently being developed by Celerity if that product receives regulatory approval in the U.S. and/or European Union. If regulatory approval is obtained, we would incur a loss ranging from $30 million to $60 million for the difference between our purchase price and the divestiture proceeds in connection with that transaction.

Interest Expense, Net

Interest expense, net was $34 million and $21 million in the first quarter of 2021 and 2020, respectively. The increase in 2021 was primarily driven by higher average debt outstanding and lower interest income due to lower interest rates.

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Other Expense, Net

Other expense, net was $5 million and $10 million in the first quarter of 2021 and 2020, respectively. The decrease in the first quarter of 2021 compared to the prior year was primarily due to a foreign exchange net gain in the current year compared to a net loss in the prior year, partially offset by an investment impairment in the current year.

In the first quarter of 2021, we began to wind down our operations in Argentina. Upon substantial liquidation of those operations in the future, we expect to reclassify currency translation adjustments (CTA) from accumulated other comprehensive (loss) income to other expense, net and recognize a non-cash charge. As of March 31, 2021, the CTA for our Argentina operations was in excess of $60 million.

Income Taxes

Our effective income tax rate was 14.5% and 11.9% in the first quarter of 2021 and 2020, 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, increases or decreases in valuation allowances and liabilities for uncertain tax positions and excess tax benefits on stock compensation awards.

For the three months ended March 31, 2021, the difference between our effective income tax rate and the U.S. federal statutory rate was primarily attributable to decreases in accrued withholding taxes in several foreign jurisdictions and a favorable geographic earnings mix.

As of March 31, 2021, we had an uncertain tax position under appeal in a foreign jurisdiction for which we did not record income tax expense because we believed that the position had a more-likely-than-not chance of being sustained based on its technical merits under the applicable tax laws. On April 23, 2021, we received an unfavorable court decision related to this matter. As a result of that decision, we will record a discrete income tax expense of $22 million to reflect the resolution of this tax matter in the second quarter of 2021. 

For the three months ended March 31, 2020, the difference between our effective income tax rate and the U.S. federal statutory rate was primarily attributable to a favorable geographic earnings mix and excess tax benefits on stock compensation awards.

Segment Results

We use net sales and operating income on a segment basis to make resource allocation decisions and assess the ongoing performance of our segments. In the first quarter of 2021, the information provided to our Chief Executive Officer for purposes of allocating resources and assessing performance was updated to reallocate contracted services activities performed at a German manufacturing facility from our EMEA segment to our Americas segment. The contracted services performed at that facility are part of our BioPharma Solutions business, which is managed as part of the Americas segment. Accordingly, the reported financial results of the Americas segment now include the contracted services activities performed at that facility. Segment results for the first quarter of 2020 have been recast to conform to the current period presentation. 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)	2021		2020		2021		2020
Americas	$	1,560	$	1,565	$	599	$	588
EMEA	738		688		135		117
APAC	648		549		138		128
Total segments	2,946		2,802		872		833
Corporate and other	—		—		(482)		(424)
Total	$	2,946	$	2,802	$	390	$	409

Americas

Segment net sales and operating income were $1.6 billion and $599 million, respectively, in the first quarter of 2021 and $1.6 billion and $588 million, respectively, in the first quarter of 2020. The increase in operating profit in the first

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quarter was due to favorable sales performance in our Acute Therapies, BioPharma Solutions, Renal Care and Clinical Nutrition product categories, partially offset by unfavorable performance in Pharmaceuticals, Advanced Surgery and Medication Delivery.

EMEA

Segment net sales and operating income were $738 million and $135 million, respectively, in the first quarter of 2021 and $688 million and $117 million, respectively, in the first quarter of 2020. The increase in operating profit in the first quarter was due to the favorable impact of foreign exchange rates on results in the first quarter of 2021 as compared to 2020 and the acquisition of the rights to Caelyx and Doxil for specified territories outside of the U.S. which contributed $10 million of net sales and operating profit to the region.

APAC

Segment net sales and operating income were $648 million and $138 million, respectively, in the first quarter of 2021 and were $549 million and $128 million, respectively, in the first quarter of 2020. The increase in operating profit in the first quarter was due to the favorable impact of foreign exchange rates on results in the first quarter of 2021 as compared to 2020 and favorable sales performance in Acute Therapies.

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, certain product category support costs, stock compensation expense, certain employee benefit plan costs, certain foreign currency hedging activities, and certain gains, losses, and other charges (such as business optimization, acquisition and integration costs, intangible asset amortization and asset impairments). The operating loss in the first quarter of 2021 was higher than the prior-year period primarily due to higher intangible asset amortization expense, restructuring charges and employee benefits expenses in the current year that were partially offset by higher acquisition and integration expenses in the prior year.

LIQUIDITY AND CAPITAL RESOURCES

The following table is a summary of the statement of cash flows for the three-month periods ended March 31, 2021 and 2020.

	Three months ended March 31,
(in millions)	2021		2020
Cash flows from operations - continuing operations	$	377	$	274
Cash flows from investing activities	(538)		(604)
Cash flows from financing activities	(358)		1,170

Cash Flows from Operations — Continuing Operations

In the first three months of 2021, cash provided by operating activities was $377 million, as compared to cash provided by operating activities of $274 million in the first three months of 2020, an increase of $103 million. The increase was primarily due to favorable accounts receivable collections and lower employee incentive compensation payments in the current year compared to the prior year, partially offset by a higher increase in inventories in the current year and the timing of vendor payments.

Cash Flows from Investing Activities

In the first three months of 2021, cash used for investing activities included payments for acquisitions of $381 million, primarily related to Caelyx and Doxil and Transderm Scop, and capital expenditures of $171 million. In the first three months of 2020, cash used for investing activities included payments for acquisitions of $443 million, primarily related to Seprafilm and rights to multiple products we acquired, and capital expenditures of $172 million.

Cash Flows from Financing Activities

In the first three months of 2021, cash used in financing activities included payments for treasury stock repurchases of $253 million and dividend payments of $125 million, partially offset by proceeds from stock issued under employee benefit plans of $48 million. In the first three months of 2020, cash generated from financing activities included $1.2

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billion of net proceeds from the issuance of $1.25 billion of senior notes. Financing activities in the three months ended March 31, 2020 also included receipts from stock issued under employee benefit plans of $66 million and dividend payments of $111 million.

As authorized by the Board of Directors, we repurchase our stock depending upon our cash flows, net debt levels and market conditions. In July 2012, the Board of Directors authorized the repurchase of up to $2.0 billion of our common stock. The Board of Directors increased this authority by an additional $1.5 billion in each of November 2016 and February 2018, by an additional $2.0 billion in November 2018 and by an additional $1.5 billion in October 2020. We paid $253 million in cash to repurchase approximately 3.6 million shares under this authority pursuant to a Rule 10b5-1 plan in the first three months of 2021 and recognized a liability within accrued expenses and other current liabilities of $47 million for share repurchases that settled in April 2021. We had $1.6 billion remaining available under this authorization as of March 31, 2021.

Credit Facilities and Access to Capital and Credit Ratings

Credit Facilities

As of March 31, 2021, our U.S. dollar-denominated revolving credit facility and Euro-denominated senior revolving credit facility had a maximum capacity of $2.0 billion and €200 million, respectively. There were no borrowings outstanding under our U.S. dollar-denominated and Euro-denominated credit facilities as of March 31, 2021 or December 31, 2020. As of March 31, 2021, we were in compliance with the financial covenants in these agreements. 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.

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 $3.2 billion of cash and cash equivalents as of March 31, 2021, 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, 2021, we had approximately $6.1 billion of long-term debt and finance lease obligations, including current maturities. Subject to market conditions, we regularly evaluate opportunities with respect to our capital structure.

Our ability to generate cash flows from operations, issue debt 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. There have been no changes to our investment grade credit ratings that we disclosed in our 2020 Annual Report.

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 indicates 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. Currently, our credit facilities reference LIBOR-based rates. The discontinuation of LIBOR will require these arrangements to be modified in order to replace LIBOR with an alternative reference interest rate, which could impact our cost of funds. Our credit facilities include a provision specifying that we and the lenders will negotiate in good faith for the determination of a successor LIBOR 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 2020 Annual Report. Certain of our accounting policies are considered critical, as these policies are the most important to the depiction of our

34

financial statements and require significant, difficult or complex judgments, 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 2020 Annual Report. There have been no significant changes in the application of our critical accounting policies during the first three months of 2021.

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 6 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

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 Claris’ facilities in Ahmedabad, India in July 2017. FDA completed the inspection and subsequently issued a Warning Letter based on observations identified in the 2017 inspection (Claris Warning Letter).1 FDA has not yet re-inspected the facilities and management cannot speculate on when the Claris Warning Letter will be lifted. However, we are continuing to implement corrective and preventive actions to address FDA’s prior observations and other items we identified and management continues to pursue and implement other manufacturing locations, including contract manufacturing organizations, to support the production of new products for distribution in the U.S. As December 31, 2020, we have secured alternative locations to produce a majority of the planned new products to be manufactured in Ahmedabad for distribution into 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 accounting estimates and assumptions, impacts of the COVID-19 pandemic, litigation-related matters including outcomes, impacts of the internal investigation related to foreign exchange gains and losses and the material weakness identified as a result thereof, future regulatory filings and our R&D pipeline, strategic objectives, sales from new product offerings, credit exposure to foreign governments, 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 and interest rate risks, potential tax liabilities associated with the separation of our biopharmaceuticals business from our medical products businesses, the impact of competition, future sales growth, business development activities (including the acquisitions of Cheetah , Seprafilm, certain outside of the U.S. (OUS) rights to Caelyx and Doxil, and full U.S. and specific OUS rights to Transderm Scop), business optimization initiatives, cost saving initiatives, future capital and R&D expenditures, future debt issuances, manufacturing expansion, the adequacy of credit facilities, 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

35

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:

• demand for and market acceptance risks for and competitive pressures related to new and existing products (including challenges with our ability to accurately predict these pressures 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;

• product development risks, including satisfactory clinical performance, 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;

• our ability to identify business development and growth opportunities and to successfully execute on business development strategies;

• product quality or patient safety issues, leading to product recalls, withdrawals, launch delays, warning letters, import bans, sanctions, seizures, litigation, or declining sales;

• the impact of global economic conditions (including potential trade wars) and continuing public health crises, pandemics and epidemics, such as the COVID-19 pandemic, including related resurgences, on us and our customers and suppliers, including foreign governments in countries in which we operate;

• the continuity, availability and pricing of acceptable raw materials and component supply, and the related continuity of our manufacturing and distribution;

• 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);

• breaches or failures of our information technology systems or products, including by cyber-attack, data leakage, unauthorized access or theft (as a result of increased 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 or proceedings related to the misstatements in previously reported non-operating income related to foreign exchange gains and losses;

• developments that would require the correction of additional misstatements in our previously issued financial statements;

• failures with respect to our quality, compliance or ethics programs;

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• future actions of third parties, including third-party payers, 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 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 litigation related to the investigation of foreign exchange gains and losses;

• failure to achieve our long-term financial improvement goals;

• the impact of competitive products and pricing, including generic competition, drug reimportation and disruptive technologies;

• global regulatory, trade and tax policies;

• 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;

• any failure by Baxalta or Shire to satisfy its obligations under the separation agreements, including the tax matters agreement, or that certain letter agreement entered into with Shire and Baxalta;

• 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), including income earned outside the United States and potential taxes associated with the Base Erosion and Anti-Abuse Tax;

• actions by tax authorities in connection with ongoing tax audits;

• loss of key employees or inability to identify and recruit new employees;

• 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, 2020, 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.

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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 use options and forwards 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, 2021 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 contracts 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, 2021, while not predictive in nature, indicated that if the U.S. Dollar uniformly weakened by 10% against all currencies, the net pre-tax liability balance of $12 million with respect to those contracts would decrease by $40 million, resulting in a net pre-tax asset balance.

The sensitivity analysis model recalculates the fair value of the foreign exchange contracts outstanding as of March 31, 2021 by replacing the actual exchange rates as of March 31, 2021 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.

Our subsidiary in Argentina is reported using highly inflationary accounting effective July 1, 2018. Changes in the value of the Argentine Peso applied to our peso-denominated net monetary asset positions are recorded in income at the time of the change. As of March 31, 2021, our net monetary assets denominated in Argentine Pesos are not significant.

Interest Rate and Other Risks

Refer to the caption “Interest Rate and Other Risks” in the “Financial Instrument Market Risk” section of the 2020 Annual Report. There were no significant changes during the quarter ended March 31, 2021.

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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, 2021. 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, 2021.

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, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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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 2020 Annual Report.

Item 2.    Unregistered Sales of Equity Securities and Use of Proceeds

Period	Total number of shares purchased (1)	Average price paid per share		Total number of shares purchased as part of publicly announced program(1)	Approximate dollar value of shares that may yet be purchased under the program(1)
January 1, 2021 through January 31, 2021	—	$	—	—
February 1, 2021 through February 28, 2021	—	$	—	—
March 1, 2021 through March 31, 2021	3,635,500	$	82.54	3,635,500
Total	3,635,500	$	82.54	3,635,500	$	1,597,200,466

(1)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 2021, we repurchased approximately 3.6 million shares for $300 million pursuant to this authority through a Rule 10b5-1 purchase plan. We had $1.6 billion remaining under this program as of March 31, 2021. This program does not have an expiration date.

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Item 6.    Exhibits

Exhibit Index:

Exhibit Number	Description
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

_____________________________________

*    Filed herewith.

41

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 29, 2021
	By:	/s/ James K. Saccaro
		James K. Saccaro Executive Vice President and Chief Financial Officer (duly authorized officer and principal financial officer)

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EX-31.1

EXHIBIT 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

I, José E. Almeida, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Baxter International Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ José E. Almeida

José E. Almeida

Chairman of the Board and

Chief Executive Officer

Date: April 29, 2021

EX-31.2

EXHIBIT 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

I, James K. Saccaro, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q of Baxter International Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ James K. Saccaro

James K. Saccaro

Executive Vice President and Chief Financial Officer

Date: April 29, 2021

EX-32.1

EXHIBIT 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

José E. Almeida, as Chairman of the Board and Chief Executive Officer of Baxter International Inc. (the “Company”), certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ José E. Almeida

José E. Almeida

Chairman of the Board and

Chief Executive Officer

April 29, 2021

EX-32.2

EXHIBIT 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

James K. Saccaro, as Executive Vice President and Chief Financial Officer of Baxter International Inc. (the “Company”), certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ James K. Saccaro

James K. Saccaro

Executive Vice President and Chief Financial Officer

April 29, 2021

XML

Document and Entity Information - shares	3 Months Ended
	Mar. 31, 2021	Apr. 22, 2021
Document Information [Line Items]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Mar. 31, 2021
Document Transition Report	false
Entity File Number	1-4448
Entity Registrant Name	BAXTER INTERNATIONAL INC.
Entity Incorporation, State or Country Code	DE
Entity Tax Identification Number	36-0781620
Entity Address, Address Line One	One Baxter Parkway,
Entity Address, City or Town	Deerfield,
Entity Address, State or Province	IL
Entity Address, Postal Zip Code	60015
City Area Code	224.
Local Phone Number	948.2000
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding (in shares)		502,851,993
Entity Central Index Key	0000010456
Current Fiscal Year End Date	--12-31
Amendment Flag	false
Document Fiscal Year Focus	2021
Document Fiscal Period Focus	Q1
Common Stock, $1.00 par value | New York Stock Exchange
Document Information [Line Items]
Title of 12(b) Security	Common Stock, $1.00 par value
Trading Symbol	BAX (NYSE)
Security Exchange Name	NYSE
Common Stock, $1.00 par value | Chicago Stock Exchange
Document Information [Line Items]
Title of 12(b) Security	Common Stock, $1.00 par value
Trading Symbol	BAX (NYSE)
Security Exchange Name	CHX
0.4% Global Notes due 2024 | New York Stock Exchange
Document Information [Line Items]
Title of 12(b) Security	0.4% Global Notes due 2024
Trading Symbol	BAX 24
Security Exchange Name	NYSE
1.3% Global Notes due 2025 | New York Stock Exchange
Document Information [Line Items]
Title of 12(b) Security	1.3% Global Notes due 2025
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Condensed Consolidated Balance Sheets (unaudited) - USD ($) $ in Millions	Mar. 31, 2021	Dec. 31, 2020
Current assets:
Cash and cash equivalents	$ 3,182	$ 3,730
Accounts receivable, net of allowances of $120 in 2021 and $125 in 2020	1,915	2,007
Inventories	2,017	1,916
Prepaid expenses and other current assets	742	758
Total current assets	7,856	8,411
Property, plant and equipment, net	4,614	4,722
Goodwill	3,111	3,217
Other intangible assets, net	1,962	1,671
Operating lease right-of-use assets	567	603
Other non-current assets	1,356	1,395
Total assets	19,466	20,019
Current liabilities:
Current maturities of long-term debt and finance lease obligations	407	406
Accounts payable	1,023	1,043
Accrued expenses and other current liabilities	1,757	1,884
Total current liabilities	3,187	3,333
Long-term debt and finance lease obligations	5,681	5,786
Operating lease liabilities	472	501
Other non-current liabilities	1,636	1,673
Total liabilities	10,976	11,293
Commitments and contingencies
Equity:
Common stock, $1 par value, authorized 2,000,000,000 shares, issued 683,494,944 shares in 2021 and 2020	683	683
Common stock in treasury, at cost, 180,817,748 shares in 2021 and 178,580,208 shares in 2020	(11,296)	(11,051)
Additional contributed capital	6,043	6,043
Retained earnings	16,502	16,328
Accumulated other comprehensive (loss) income	(3,480)	(3,314)
Total Baxter stockholders’ equity	8,452	8,689
Noncontrolling interests	38	37
Total equity	8,490	8,726
Total liabilities and equity	$ 19,466	$ 20,019

XML

Condensed Consolidated Balance Sheets (unaudited) (Parenthetical) - USD ($) $ in Millions	Mar. 31, 2021	Dec. 31, 2020
Statement of Financial Position [Abstract]
Allowance for accounts receivable, current	$ 120	$ 125
Common stock, par value (in dollars per share)	$ 1	$ 1
Common stock, authorized (in shares)	2,000,000,000	2,000,000,000
Common stock, issued (in shares)	683,494,944	683,494,944
Treasury stock, shares (in shares)	180,817,748	178,580,208

XML

Condensed Consolidated Statements of Income (unaudited) - USD ($) shares in Millions, $ in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Income Statement [Abstract]
Net sales	$ 2,946	$ 2,802
Cost of sales	1,801	1,639
Gross margin	1,145	1,163
Selling, general and administrative expenses	627	628
Research and development expenses	128	146
Other operating income, net	0	(20)
Operating income	390	409
Interest expense, net	34	21
Other expense, net	5	10
Income before income taxes	351	378
Income tax expense	51	45
Net income	300	333
Net income attributable to noncontrolling interests	2	1
Net income attributable to Baxter stockholders	$ 298	$ 332
Earnings per share
Basic (in dollars per share)	$ 0.59	$ 0.65
Diluted (in dollars per share)	$ 0.58	$ 0.64
Weighted-average number of shares outstanding
Basic (in shares)	505	507
Diluted (in shares)	511	516

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Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Statement of Comprehensive Income [Abstract]
Net income	$ 300	$ 333
Other comprehensive income (loss), net of tax:
Currency translation adjustments, net of tax expense (benefit) of $17 and $(8) for the three months ended March 31, 2021 and 2020, respectively	(208)	(359)
Pension and other postretirement benefits, net of tax expense of $8 and $6 for the three months ended March 31, 2021 and 2020, respectively	30	22
Hedging activities, net of tax expense (benefit) of $3 and ($39) for the three months ended March 31, 2021 and 2020, respectively	12	(130)
Total other comprehensive income (loss), net of tax	(166)	(467)
Comprehensive income (loss)	134	(134)
Less: Comprehensive income attributable to noncontrolling interests	2	1
Comprehensive income (loss) attributable to Baxter stockholders	$ 132	$ (135)

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Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited) (Parenthetical) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Statement of Comprehensive Income [Abstract]
Currency translation adjustments, tax	$ 17	$ (8)
Pension and other postretirement benefits, tax	8	6
Hedging activities, tax	$ 3	$ (39)

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Condensed Consolidated Statements of Changes in Equity (unaudited) - USD ($) $ in Millions	Total	Cumulative Effect, Period of Adoption, Adjustment	Common stock	Common stock in treasury	Additional contributed capital	Retained earnings	Retained earnings Cumulative Effect, Period of Adoption, Adjustment	Accumulated other comprehensive income (loss)	Total Baxter stockholders' equity	Total Baxter stockholders' equity Cumulative Effect, Period of Adoption, Adjustment	Noncontrolling interests
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Adoption of new accounting standard	$ 7,912	$ (4)	$ 683	$ (10,764)	$ 5,955	$ 15,718	$ (4)	$ (3,710)	$ 7,882	$ (4)	$ 30
Beginning of period (in shares) at Dec. 31, 2019			683,000,000
Beginning of period at Dec. 31, 2019	7,912	(4)	$ 683	$ (10,764)	5,955	15,718	(4)	(3,710)	7,882	(4)	30
Beginning of period, treasury shares (in shares) at Dec. 31, 2019				177,000,000
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Adoption of new accounting standard	7,730	$ (4)	$ 683	$ (10,677)	5,935	15,935	$ (4)	(4,177)	7,699	$ (4)	31
Net income	333					332			332		1
Other comprehensive income (loss)	(467)							(467)	(467)
Stock issued under employee benefit plans and other (in shares)				(2,000,000)
Stock issued under employee benefit plans and other	67			$ 87	(20)				67
Dividends declared on common stock	(111)					(111)			(111)
End of period (in shares) at Mar. 31, 2020			683,000,000
End of period at Mar. 31, 2020	7,730		$ 683	$ (10,677)	5,935	15,935		(4,177)	7,699		31
End of period, treasury shares (in shares) at Mar. 31, 2020				175,000,000
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Adoption of new accounting standard	7,730		683	$ (10,677)	5,935	15,935		(4,177)	7,699		31
Adoption of new accounting standard	$ 8,726		$ 683	(11,051)	6,043	16,328		(3,314)	8,689		37
Beginning of period (in shares) at Dec. 31, 2020	683,494,944		683,000,000
Beginning of period at Dec. 31, 2020	$ 8,726		$ 683	$ (11,051)	6,043	16,328		(3,314)	8,689		37
Beginning of period, treasury shares (in shares) at Dec. 31, 2020	178,580,208			179,000,000
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Adoption of new accounting standard	$ 8,490		$ 683	$ (11,296)	6,043	16,502		(3,480)	8,452		38
Net income	300					298			298		2
Other comprehensive income (loss)	$ (166)							(166)	(166)
Purchases of treasury stock (in shares)	3,600,000			4,000,000
Purchases of treasury stock	$ (300)			$ (300)					(300)
Stock issued under employee benefit plans and other (in shares)				(2,000,000)
Stock issued under employee benefit plans and other	55			$ 55					55
Dividends declared on common stock	(124)					(124)			(124)
Change in noncontrolling interests	$ (1)										(1)
End of period (in shares) at Mar. 31, 2021	683,494,944		683,000,000
End of period at Mar. 31, 2021	$ 8,490		$ 683	$ (11,296)	6,043	16,502		(3,480)	8,452		38
End of period, treasury shares (in shares) at Mar. 31, 2021	180,817,748			181,000,000
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Adoption of new accounting standard	$ 8,490		$ 683	$ (11,296)	$ 6,043	$ 16,502		$ (3,480)	$ 8,452		$ 38

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Condensed Consolidated Statements of Cash Flows (unaudited) - USD ($) $ in Millions		3 Months Ended
		Mar. 31, 2021	Mar. 31, 2020
Cash flows from operations
Net income		$ 300	$ 333
Adjustments to reconcile net income to cash flows from operations:
Depreciation and amortization		217	199
Deferred income taxes		(25)	(17)
Stock compensation		22	29
Net periodic pension and other postretirement costs		26	20
Other		14	13
Changes in balance sheet items:
Accounts receivable, net		51	(57)
Inventories		(129)	(83)
Prepaid expenses and other current assets		2	(14)
Accounts payable		22	82
Accrued expenses and other current liabilities		(124)	(192)
Other		1	(39)
Cash flows from operations – continuing operations		377	274
Cash flows from operations – discontinued operations		0	(2)
Cash flows from operations		377	272
Cash flows from investing activities
Capital expenditures		(171)	(172)
Acquisitions, net of cash acquired, and investments		(381)	(443)
Other investing activities, net		14	11
Cash flows from investing activities		(538)	(604)
Cash flows from financing activities
Issuances of debt		0	1,240
Cash dividends on common stock		(125)	(111)
Proceeds from stock issued under employee benefit plans		48	66
Purchases of treasury stock		(253)	0
Other financing activities, net		(28)	(25)
Cash flows from financing activities		(358)	1,170
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash		(31)	(63)
Increase (decrease) in cash, cash equivalents and restricted cash		(550)	775
Cash, cash equivalents and restricted cash at beginning of period		3,736	3,335
Cash, cash equivalents and restricted cash at end of period	[1]	$ 3,186	$ 4,110

[1] We did not have any restricted cash balances as of March 31, 2020 or December 31, 2019. 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, 2021 and December 31, 2020 (in millions): March 31, 2021December 31, 2020Cash and cash equivalents$3,182 $3,730 Restricted cash included in prepaid expenses and other current assets4 6 Cash, cash equivalents and restricted cash$3,186 $3,736 

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Condensed Consolidated Statements of Cash Flows (unaudited) (Parenthetical) - USD ($) $ in Millions	Mar. 31, 2021		Dec. 31, 2020
Statement of Cash Flows [Abstract]
Cash and cash equivalents	$ 3,182		$ 3,730
Restricted cash included in prepaid expenses and other current assets	4		6
Cash, cash equivalents and restricted cash	$ 3,186	[1]	$ 3,736

[1] We did not have any restricted cash balances as of March 31, 2020 or December 31, 2019. 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, 2021 and December 31, 2020 (in millions): March 31, 2021December 31, 2020Cash and cash equivalents$3,182 $3,730 Restricted cash included in prepaid expenses and other current assets4 6 Cash, cash equivalents and restricted cash$3,186 $3,736 

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BASIS OF PRESENTATION

3 Months Ended

Mar. 31, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

BASIS OF PRESENTATION

BASIS OF PRESENTATION

The unaudited interim condensed consolidated financial statements of Baxter International Inc. and its subsidiaries (we or our) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, certain information and footnote 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, 2020 (2020 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.

Certain reclassifications have been made to conform the prior period condensed consolidated statements to the current period presentation.

Risks and Uncertainties Related to COVID-19

Our global operations expose us to risks associated with public health crises and epidemics/pandemics, such as the novel strain of coronavirus (COVID-19). COVID-19 has had, and we expect will continue to have, an adverse impact on our operations, supply chains and distribution systems and has increased and will continue to increase our expenses, including as a result of impacts associated with preventive and precautionary measures that we, other businesses and governments are taking. These measures have led to unprecedented restrictions on, disruptions in, and other related impacts on businesses and personal activities. In addition to travel restrictions put in place in early 2020, governments have closed borders, imposed prolonged quarantines and may continue those measures or implement other restrictions and requirements in light of the continuing spread of the pandemic. We expect that these evolving restrictions and requirements, as well as the corresponding need to adapt to new methods of conducting business remotely, will continue to have an adverse effect on our business.

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ACQUISITIONS AND OTHER ARRANGEMENTS

3 Months Ended

Mar. 31, 2021

Business Combinations [Abstract]

ACQUISITIONS AND OTHER ARRANGEMENTS

ACQUISITIONS AND OTHER ARRANGEMENTS

Transderm Scop

In March 2021, we acquired the rights to Transderm Scop (TDS) for the U.S. and specified territories outside of the U.S. from subsidiaries of GlaxoSmithKline for an upfront purchase price of $60 million including the cost of acquired inventory and the potential for additional cash consideration of $30 million, which had an acquisition-date fair value of $24 million, based upon regulatory approval of a new contract manufacturer by a specified date. We previously sold this product under a distribution license to the U.S. institutional market. TDS is indicated for post-operative nausea and vomiting in the U.S. and motion sickness in European markets. We concluded that the acquired assets met the definition of a business and accounted for the transaction as a business combination using the acquisition method of accounting. The fair value of the potential contingent consideration payment was estimated by applying a probability-weighted expected payment model and is a Level 3 fair value measurement due to the significant estimates and assumptions used by management in establishing the estimated fair value.

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

(in millions)
Cash	$	60
Contingent Consideration	24
Total Consideration	$	84

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

(in millions)
Assets acquired
Inventory	$	14
Goodwill	3
Other intangible assets	67
Total assets required	$	84

The valuation of the assets acquired are preliminary and measurement period adjustments may be recorded in the future as we finalize our fair value estimates. The results of operations of the acquired business have been included in our consolidated statement of income since the date the business was acquired and were insignificant during the three months ended March 31, 2021.

We allocated $64 million of the total consideration to the TDS developed product rights with an estimated useful life of 9 years and $3 million to customer relationships with an estimated useful life of 7 years. The fair values of the intangible assets were determined using the income approach. The discount rates used to measure the intangible assets were 22.5% for developed product rights and 15.5% for customer relationships. We consider the fair value of the intangible assets to be Level 3 measurements due to the significant estimates and assumptions used by management in establishing the estimated fair values.

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

We have not presented pro forma financial information for the acquisition because its results are not material to our consolidated financial statements.

Caelyx and Doxil

In February 2021, we acquired the rights to Caelyx and Doxil, the branded versions of liposomal doxorubicin, from a subsidiary of Johnson & Johnson for specified territories outside of the U.S. We previously acquired the U.S. rights to this product in 2019. Liposomal doxorubicin is a chemotherapy medicine used to treat various types of cancer. The transaction was accounted for as an asset acquisition, as substantially all of the fair value of the gross assets acquired was concentrated in the developed technology intangible asset. The purchase price of $325 million was allocated to the assets acquired, which included a $314 million developed-technology intangible asset with an estimated useful life of 9 years and an $11 million customer relationship intangible asset with an estimated useful life of 8 years. Net sales related to this acquisition from the acquisition date through March 31, 2021 were $13 million.

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SUPPLEMENTAL FINANCIAL INFORMATION

3 Months Ended

Mar. 31, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

SUPPLEMENTAL FINANCIAL INFORMATION

SUPPLEMENTAL FINANCIAL INFORMATION

Interest Expense, Net

	Three months ended March 31,
(in millions)	2021		2020
Interest expense, net of capitalized interest	$	37	$	30
Interest income	(3)		(9)
Interest expense, net	$	34	$	21

Other Expense, Net

	Three months ended March 31,
(in millions)	2021		2020
Foreign exchange (gains) losses, net	$	(3)	$	11
Pension and other postretirement benefit plans	4		(1)
Other, net	4		—
Other expense, net	$	5	$	10

Allowance for Doubtful Accounts

The following table is a summary of the changes in our allowance for doubtful accounts for the three months ended March 31, 2021 and 2020.

	Three months ended March 31,
(in millions)	2021		2020
Balance at beginning of period	$	125	$	112
Adoption of new accounting standard	—		4
Charged to costs and expenses	1		7
Currency translation adjustments	(6)		(9)
Balance at end of period	$	120	$	114

Inventories

(in millions)	March 31, 2021		December 31, 2020
Raw materials	$	457	$	460
Work in process	221		196
Finished goods	1,339		1,260
Inventories	$	2,017	$	1,916

Property, Plant and Equipment, Net

(in millions)	March 31, 2021		December 31, 2020
Property, plant and equipment, at cost	$	11,105	$	11,271
Accumulated depreciation	(6,491)		(6,549)
Property, plant and equipment, net	$	4,614	$	4,722

Non-Cash Operating and Investing Activities

Right-of-use operating lease assets obtained in exchange for lease obligations for the three months ended March 31, 2021 and 2020 were $5 million and $15 million, respectively. As of March 31, 2021, we have entered into lease agreements with aggregate future lease payments of approximately $46 million for facilities and equipment that have not yet commenced.

Purchases of property, plant and equipment included in accounts payable as of March 31, 2021 and 2020 were $63 million and $49 million, respectively.

Unsettled share repurchases included in accrued expenses and other current liabilities were $47 million as of March 31, 2021. There were no unsettled share repurchases as of March 31, 2020.

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GOODWILL AND OTHER INTANGIBLE ASSETS, NET

3 Months Ended

Mar. 31, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

GOODWILL AND OTHER INTANGIBLE ASSETS, NET

GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Goodwill

The following is a reconciliation of goodwill by business segment.

(in millions)	Americas		EMEA		APAC		Total
Balance as of December 31, 2020	$	2,574	$	406	$	237	$	3,217
Reallocation of goodwill	81		(81)		—		—
Acquisitions	2		1		—		3
Currency translation	(90)		(11)		(8)		(109)
Balance as of March 31, 2021	$	2,567	$	315	$	229	$	3,111

As of March 31, 2021, there were no reductions in goodwill relating to impairment losses.

As discussed in Note 16 - Segment Information, we made a change to our reportable segments in the first quarter of 2021. As a result of this change, we reallocated goodwill from our EMEA segment to the Americas segment using a relative fair value approach. In addition, we completed an assessment of any potential goodwill impairment for all reporting units immediately prior to the reallocation and determined that no impairment existed.

Other intangible assets, net

The following is a summary of our other intangible assets.

(in millions)	Developed technology, including patents		Other amortized intangible assets		Indefinite-lived intangible assets		Total
March 31, 2021
Gross other intangible assets	$	3,023	$	491	$	169	$	3,683
Accumulated amortization	(1,394)		(327)		—		(1,721)
Other intangible assets, net	$	1,629	$	164	$	169	$	1,962
December 31, 2020
Gross other intangible assets	$	2,713	$	495	$	169	$	3,377
Accumulated amortization	(1,374)		(332)		—		(1,706)
Other intangible assets, net	$	1,339	$	163	$	169	$	1,671

Intangible asset amortization expense was $64 million and $52 million for the three months ended March 31, 2021 and 2020, respectively.

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FINANCING ARRANGEMENTS	3 Months Ended
	Mar. 31, 2021
Debt Disclosure [Abstract]
FINANCING ARRANGEMENTS	FINANCING ARRANGEMENTS Credit Facilities Our U.S. dollar-denominated revolving credit facility has a capacity of $2.0 billion and our Euro-denominated revolving credit facility has a capacity of approximately €200 million. As of March 31, 2021 and December 31, 2020, there were no borrowings outstanding under our U.S. dollar or Euro-denominated credit facilities.

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COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2021

Commitments and Contingencies Disclosure [Abstract]

COMMITMENTS AND CONTINGENCIES

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, 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, 2021 and December 31, 2020, our total recorded reserves with respect to legal and environmental matters were $53 million and $40 million, respectively, and there was a $7 million insurance receivable as of March 31, 2021.

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 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, we are involved in an ongoing voluntary environmental remediation associated with historic operations at our Irvine, California, United States facility. As of March 31, 2021 and December 31, 2020, our environmental reserves, which are measured on an undiscounted basis, were $19 million and $20 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 November 2016, a putative antitrust class action complaint seeking monetary and injunctive relief was filed in the United States District Court for the Northern District of Illinois. The complaint alleges a conspiracy among manufacturers of IV solutions to restrict output and affect pricing in connection with a shortage of such solutions. Similar parallel actions subsequently were filed. In January 2017, a single consolidated complaint covering these matters was filed in the Northern District of Illinois. We filed a motion to dismiss the consolidated complaint in February 2017. The court granted our motion to dismiss the consolidated complaint without prejudice in July 2018. The plaintiffs filed an amended complaint, which we moved to dismiss on November 9, 2018. The court granted our motion to dismiss the amended complaint with prejudice on April 3, 2020. The plaintiffs did not file an appeal.

In April 2017, we became aware of a criminal investigation by the U.S. Department of Justice (DOJ), Antitrust Division and a federal grand jury in the United States District Court for the Eastern District of Pennsylvania. We and an employee received subpoenas seeking production of documents and testimony regarding the manufacturing, selling, pricing and shortages of IV solutions and containers (including saline solutions and certain other injectable medicines sold by us) and communications with competitors regarding the same. On November 30, 2018, the DOJ notified us that it had closed the investigation. The New York Attorney General had also requested that we provide information regarding business practices in the IV saline industry. We cooperated with that request and have been advised that the matter has now been closed.

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.

In November 2019, we and certain of our officers were named in a class action complaint captioned Ethan E. Silverman 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 shares of our common stock during the specified class period, filed this putative class action on behalf of himself and shareholders who acquired Baxter common stock between February 21, 2019 and October 23, 2019. The plaintiff alleges that we and certain officers violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making allegedly false and misleading statements and failing to disclose material facts relating to certain intra-company transactions undertaken for the purpose of generating foreign exchange gains or avoiding foreign exchange losses, as well as our internal controls over financial reporting. On January 29, 2020, the Court appointed Varma Mutual Pension Insurance Company and Louisiana Municipal Police Employees Retirement System as lead plaintiffs in the case. Plaintiffs filed an amended complaint on June 25, 2020 containing substantially the same allegations. On August 24, 2020, we filed a motion to dismiss the amended complaint. On January 12, 2021, the Court granted our motion to dismiss the amended complaint but gave plaintiffs an opportunity to file a further-amended complaint. The parties reached an agreement to settle the case for $16 million, subject to the completion of confirmatory discovery and final approval by the Court. The Court granted preliminary approval of the settlement on April 20, 2021. A final approval hearing is currently scheduled for August 10, 2021. We are fully reserved for the settlement amount as of March 31, 2021.

In addition, we have received a stockholder request for inspection of our books and records in connection with the announcement made in our Form 8-K on October 24, 2019 that we had commenced an internal investigation into certain intra-company transactions that impacted our previously reported non-operating foreign exchange gains and

losses. As initially disclosed on October 24, 2019, we also voluntarily advised the staff of the SEC of our internal investigation and we are continuing to cooperate with the staff of the SEC.

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 seek damages, including compensatory and punitive damages in an unspecified amount, and unspecified injunctive and declaratory relief.

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STOCKHOLDERS’ EQUITY

3 Months Ended

Mar. 31, 2021

Share-based Payment Arrangement [Abstract]

STOCKHOLDERS' EQUITY

STOCKHOLDERS’ EQUITY

Stock-Based Compensation

Stock compensation expense totaled $22 million and $29 million in the first quarter of 2021 and 2020, respectively. Approximately 75% of stock compensation expense is classified within SG&A expense with the remainder classified in cost of sales and R&D expense.

We awarded stock compensation grants which consisted of 4.0 million stock options, 0.5 million restricted stock units (RSUs) and 0.3 million performance stock units (PSUs) during the first quarter of 2021. The grant date fair values of stock options, RSUs and PSUs awarded in the first quarter of 2021 were $62 million, $40 million and $27 million, respectively. Stock options and RSUs generally vest in one-third increments over a three-year period. Approximately 12.5% of the PSUs with a grant date in the current period related to the establishment of the adjusted operating margin vesting condition for awards issued in 2019. The remainder of PSUs granted in the current period were awarded in March 2021, for which the vesting conditions are equally divided based on our compound annual sales growth rate performance, our adjusted return on invested capital performance and on our stock performance relative to a specified peer group. All of the PSUs vest at the end of the applicable three-year service period.

Stock Options

The weighted-average Black-Scholes assumptions used in establishing the fair value of stock options granted during the period, along with weighted-average grant date fair values, were as follows:

	Three months ended March 31,
	2021			2020
Expected volatility	25		%	26		%
Expected life (in years)	5.5			5.5
Risk-free interest rate	0.8		%	0.6		%
Dividend yield	1.3		%	1.2		%
Fair value per stock option	$	16		$	16

The total intrinsic value of stock options exercised was $21 million and $52 million during the first quarters of 2021 and 2020, respectively.

As of March 31, 2021, the unrecognized compensation cost related to all unvested stock options of $109 million is expected to be recognized as expense over a weighted-average period of 2.1 years.

RSUs

As of March 31, 2021, the unrecognized compensation cost related to all unvested RSUs of $75 million is expected to be recognized as expense over a weighted-average period of 2.1 years.

PSUs

As of March 31, 2021, the unrecognized compensation cost related to all unvested PSUs of $46 million is expected to be recognized as expense over a weighted-average period of 1.8 years.

Stock Options Award Modification

In the first quarter of 2020, we modified the terms of stock option awards granted to 123 employees. Specifically, we extended the term for certain stock options that were scheduled to expire in the first quarter of 2020 as applicable employees were not permitted to exercise these awards due to our announcement in February 2020 that our previously issued financial statements should no longer be relied upon. The stock options were extended in order to allow impacted employees to exercise their stock option awards for a brief period once we became current with our SEC reporting obligations, which occurred in March 2020. As a result of the modifications, we recognized an additional $8 million of stock compensation expense during the quarter ended March 31, 2020.

Cash Dividends

Cash dividends declared per share for the three months ended March 31, 2021 and March 31, 2020 were $0.245 and $0.22, respectively.

Stock Repurchase Programs

In July 2012, the Board of Directors authorized the repurchase of up to $2.0 billion of our common stock. The Board of Directors increased this authority by an additional $1.5 billion in each of November 2016 and February 2018, by an additional $2.0 billion in November 2018 and by an additional $1.5 billion in October 2020. During the first quarter of 2021, we repurchased 3.6 million shares under this authority pursuant to a Rule 10b5-1 plan. During the first quarter of 2020, we did not repurchase any shares under this authority. As of March 31, 2021, we recognized a liability within accrued expenses and other current liabilities of $47 million for share repurchases that settled in April 2021. We had $1.6 billion remaining available under the authorization as of March 31, 2021.

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ACCUMULATED OTHER COMPREHENSIVE INCOME

3 Months Ended

Mar. 31, 2021

Equity [Abstract]

ACCUMULATED OTHER COMPREHENSIVE INCOME

ACCUMULATED OTHER COMPREHENSIVE INCOME

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

The following table is a net-of-tax summary of the changes in accumulated other comprehensive (loss) income (AOCI) by component for the three months ended March 31, 2021 and 2020.

(in millions)	CTA		Pension and OPEB plans		Hedging activities		Total
Gains (losses)
Balance as of December 31, 2020	$	(2,587)	$	(574)	$	(153)	$	(3,314)
Other comprehensive income (loss) before reclassifications	(208)		13		3		(192)
Amounts reclassified from AOCI (a)	—		17		9		26
Net other comprehensive income (loss)	(208)		30		12		(166)
Balance as of March 31, 2021	$	(2,795)	$	(544)	$	(141)	$	(3,480)

(in millions)	CTA		Pension and OPEB plans		Hedging activities		Total
Gains (losses)
Balance as of December 31, 2019	$	(2,954)	$	(715)	$	(41)	$	(3,710)
Other comprehensive income (loss) before reclassifications	(359)		10		(131)		(480)
Amounts reclassified from AOCI (a)	—		12		1		13
Net other comprehensive income (loss)	(359)		22		(130)		(467)
Balance as of March 31, 2020	$	(3,313)	$	(693)	$	(171)	$	(4,177)

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

The following is a summary of the amounts reclassified from AOCI to net income during the three months ended March 31, 2021 and 2020.

	Amounts reclassified from AOCI (a)
(in millions)	Three months ended March 31, 2021		Three Months Ended March 31, 2020		Location of impact in income statement
Amortization of pension and OPEB items
Amortization of net losses and prior service costs or credits	$	(21)	$	(15)	Other expense, net
Less: Tax effect	4		3		Income tax expense
	$	(17)	$	(12)	Net of tax
Gains (losses) on hedging activities
Foreign exchange contracts	$	(10)	$	(1)	Cost of sales
Interest rate contracts	$	(1)	—		Interest expense, net
	(11)		(1)		Total before tax
Less: Tax effect	2		—		Income tax expense
	$	(9)	$	(1)	Net of tax
Total reclassifications for the period	$	(26)	$	(13)	Total net of tax

(a)    Amounts in parentheses indicate reductions to net income.

Refer to Note 11 for additional information regarding the amortization of pension and OPEB items and Note 14 for additional information regarding hedging activity.

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REVENUES

3 Months Ended

Mar. 31, 2021

Revenue from Contract with Customer [Abstract]

REVENUES

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.

The majority of our performance obligations are satisfied at a point in time. This includes sales of our broad portfolio of essential healthcare products across our geographic segments including acute and chronic dialysis therapies; sterile IV solutions; infusion systems and devices; parenteral nutrition therapies; inhaled anesthetics; generic injectable pharmaceuticals; and surgical hemostat and sealant products. For a majority of these sales, 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, in all of our segments, we enter into other types of contracts including contract manufacturing arrangements, 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, 2021, we had $7.9 billion of transaction price allocated to remaining performance obligations related to executed contracts with an original duration of one year or more, which are primarily included in the Americas segment. 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% of this amount as revenue over the remainder of 2021, 30% in 2022, 25% in 2023, and 10% in each of 2024 and 2025.

Significant Judgments

Revenues from product sales are recorded at the net sales price (transaction price), which includes estimates of variable consideration primarily related to rebates 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 accounts receivable, net and accrued expenses and other current liabilities 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 months ended March 31, 2021 and 2020 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 $1.6 billion and $1.7 billion as of March 31, 2021 and December 31, 2020, 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 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 provided and billed, generally over one to seven years.

The following table summarizes our contract assets:

(in millions)	March 31, 2021		December 31, 2020
Contract manufacturing services	$	49	$	47
Software sales	41		40
Bundled equipment and consumable medical products contracts	46		47
Contract assets	$	136	$	134

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

(in millions)	March 31, 2021		December 31, 2020
Prepaid expenses and other current assets	$	74	$	70
Other non-current assets	62		64
Contract assets	$	136	$	134
Accrued expenses and other current liabilities	$	38	$	32
Other non-current liabilities	42		34
Contract liabilities	$	80	$	66

Contract liabilities are recognized when a customer pays consideration before we transfer goods or provide services. During the three months ended March 31, 2021 and 2020, the amount of revenue recognized that was included in contract liabilities as of December 31, 2020 and 2019 was not significant.

Disaggregation of Net Sales

Beginning in the first quarter of 2021, our product category net sales disclosures (previously referred to as global business units (GBUs)) separately present net sales from our BioPharma Solutions business, which was previously included within Other. Concurrent with that disaggregation of net sales from our BioPharma Solutions business, we have also allocated certain previously unallocated sales deductions from Other to various categories, primarily based on their respective net sales. Net sales for the first quarter of 2020 have been recast to conform to the current period presentation.

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

	Three Months Ended March 31,
	2021						2020
(in millions)	U.S.		International		Total		U.S.		International		Total
Renal Care 1	$	216	$	706	$	922	$	204	$	666	$	870
Medication Delivery 2	411		241		652		449		229		678
Pharmaceuticals 3	200		352		552		220		296		516
Clinical Nutrition 4	83		151		234		79		138		217
Advanced Surgery 5	126		91		217		137		87		224
Acute Therapies 6	81		126		207		60		96		156
BioPharma Solutions 7	44		91		135		48		66		114
Other 8	19		8		27		20		7		27
Total Baxter	$	1,180	$	1,766	$	2,946	$	1,217	$	1,585	$	2,802

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

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

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

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

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

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

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

8Other includes sales of miscellaneous product and service offerings.

Lease Revenue

We lease medical equipment, such as renal dialysis equipment and infusion pumps, to customers, primarily 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 months ended March 31, 2021 and 2020 were:

	Three Months Ended March 31,
(in millions)	2021		2020
Sales-type lease revenue	$	6	$	6
Operating lease revenue	34		14
Variable lease revenue	17		18
Total lease revenue	$	57	$	38

Our net investment in sales-type leases was $131 million as of March 31, 2021, of which $19 million originated in 2017 and prior, $32 million in 2018, $36 million in 2019, $38 million in 2020 and $6 million in 2021.

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BUSINESS OPTIMIZATION CHARGES

3 Months Ended

Mar. 31, 2021

Restructuring and Related Activities [Abstract]

BUSINESS OPTIMIZATION CHARGES

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 through March 31, 2021, we have incurred cumulative pre-tax costs of $1.1 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 of approximately $12 million through the completion of the initiatives that are currently underway, primarily related to implementation costs. We continue to pursue cost savings initiatives and, to the extent further cost savings opportunities are identified, we may incur additional restructuring charges and costs to implement business optimization programs in future periods.

During the three months ended March 31, 2021 and 2020, we recorded the following charges related to business optimization programs.

	Three Months Ended March 31,
(in millions)	2021		2020
Restructuring charges	$	25	$	25
Costs to implement business optimization programs	2		7
Total business optimization charges	$	27	$	32

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

Costs to implement business optimization programs for the three months ended March 31, 2021 and 2020, 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 months ended March 31, 2021 and 2020, we recorded the following restructuring charges.

	Three months ended March 31, 2021
(in millions)	COGS		SG&A		R&D		Total
Employee termination costs	$	16	$	5	$	—	$	21
Asset impairments	4		—		—		4
Total restructuring charges	$	20	$	5	$	—	$	25

	Three months ended March 31, 2020
(in millions)	COGS		SG&A		R&D		Total
Employee termination costs	$	2	$	16	$	1	$	19
Asset impairments	6		—		—		6
Total restructuring charges	$	8	$	16	$	1	$	25

In conjunction with our business optimization initiatives in 2020, we sold property that resulted in a gain of $17 million. This gain is reflected within other operating income, net in our condensed consolidated statement of income for the three months ended March 31, 2020.

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

(in millions)
Liability balance as of December 31, 2020	$	113
Charges	21
Payments	(24)
Currency translation	(3)
Liability balance as of March 31, 2021	$	107

Substantially all of our restructuring liabilities as of March 31, 2021 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 2022.

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PENSION AND OTHER POSTRETIREMENT BENEFIT PROGRAMS

3 Months Ended

Mar. 31, 2021

Retirement Benefits [Abstract]

PENSION AND OTHER POSTRETIREMENT BENEFIT PROGRAMS

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,
(in millions)	2021		2020
Pension benefits
Service cost	$	22	$	21
Interest cost	18		24
Expected return on plan assets	(36)		(41)
Amortization of net losses and prior service costs	23		19
Net periodic pension cost	$	27	$	23
OPEB
Interest cost	$	1	$	1
Amortization of net loss and prior service credit	(2)		(4)
Net periodic OPEB cost (income)	$	(1)	$	(3)

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INCOME TAXES

3 Months Ended

Mar. 31, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

INCOME TAXES

Our effective income tax rate was 14.5% and 11.9% for the three months ended March 31, 2021 and 2020, 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, increases or decreases in valuation allowances and liabilities for uncertain tax positions and excess tax benefits on stock compensation awards.

For the three months ended March 31, 2021, the difference between our effective income tax rate and the U.S. federal statutory rate was primarily attributable to decreases in accrued withholding taxes in several foreign jurisdictions and a favorable geographic earnings mix.

As of March 31, 2021, we had an uncertain tax position under appeal in a foreign jurisdiction for which we did not record income tax expense because we believed that the position had a more-likely-than-not chance of being sustained based on its technical merits under the applicable tax laws. On April 23, 2021, we received an unfavorable court decision related to this matter. As a result of that decision, we will record a discrete income tax expense of $22 million to reflect the resolution of this tax matter in the second quarter of 2021. 

For the three months ended March 31, 2020, the difference between our effective income tax rate and the U.S. federal statutory rate was primarily attributable to a favorable geographic earnings mix and excess tax benefits on stock compensation awards.

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EARNINGS PER SHARE

3 Months Ended

Mar. 31, 2021

Earnings Per Share [Abstract]

EARNINGS PER SHARE

EARNINGS PER SHARE

The numerator for both basic and diluted earnings per share (EPS) is net income 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 basic shares to diluted shares.

	Three months ended March 31,
(in millions)	2021	2020
Basic shares	505	507
Effect of dilutive securities	6	9
Diluted shares	511	516

The effect of dilutive securities includes unexercised stock options, unvested RSUs and contingently issuable shares related to granted PSUs. The computation of diluted EPS excludes 7 million and 1 million equity awards for the three months ended March 31, 2021, and 2020, respectively, because their inclusion would have had an anti-dilutive effect on diluted EPS. Refer to Note 7 for additional information regarding items impacting basic and diluted shares.

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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

3 Months Ended

Mar. 31, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES

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, 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 instruments to further reduce the net exposure to foreign exchange risk. Gains and losses on the hedging instruments offset losses and gains on the hedged transactions and reduce the earnings and equity volatility resulting from changes in foreign exchange rates. 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 instruments are recognized as either assets or liabilities at fair value in the condensed consolidated balance sheets and are generally 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 third-party sales denominated in foreign currencies, 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 $355 million and $345 million as of March 31, 2021 and December 31, 2020, respectively. The maximum term over which we have cash flow hedge contracts in place related to forecasted transactions at March 31, 2021 is 12 months for foreign exchange contracts. There were no outstanding interest rate contracts designated as cash flow hedges as of March 31, 2021 and December 31, 2020.

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, 2021 and December 31, 2020.

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, 2021, we had an accumulated pre-tax unrealized translation loss in AOCI of $131 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 hedge dedesignations in the first three months of 2021 or 2020 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 months of 2021 or 2020.

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 months of 2021 or 2020.

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 $780 million as of March 31, 2021 and $1.0 billion as of December 31, 2020.

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, 2021 and 2020.

	Gain (loss) recognized in OCI				Location of gain (loss) in income statement	Gain (loss) reclassified from AOCI into income
(in millions)	2021		2020			2021		2020
Cash flow hedges
Interest rate contracts	$	—	$	(184)	Interest expense, net	$	(1)	$	—
Foreign exchange contracts	4		14		Cost of sales	(10)		(1)
Net investment hedges	114		49		Other expense, net	—		—
Total	$	118	$	(121)		$	(11)	$	(1)

	Location of gain (loss) in income statement	Gain (loss) recognized in income
(in millions)		2021		2020
Undesignated derivative instruments
Foreign exchange contracts	Other expense, net	$	(22)	$	2

As of March 31, 2021, $12 million of deferred, net after-tax losses on derivative instruments included in AOCI are expected to be recognized in earnings during the next 12 months, coinciding with when the hedged items are expected to impact earnings.

Derivative Assets and Liabilities

The following table summarizes the classification and fair values of derivative instruments reported in the condensed consolidated balance sheet as of March 31, 2021.

	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	2		Accrued expenses and other current liabilities	8
Total derivative instruments designated as hedges		2			8
Undesignated derivative instruments
Foreign exchange contracts	Prepaid expenses and other current assets	1		Accrued expenses and other current liabilities	7
Total derivative instruments		$	3		$	15

The following table summarizes the classification and fair values of derivative instruments reported in the condensed consolidated balance sheet as of December 31, 2020.

	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	—		Accrued expenses and other current liabilities	17
Total derivative instruments designated as hedges		—			17
Undesignated derivative instruments
Foreign exchange contracts	Prepaid expenses and other current assets	11		Accrued expenses and other current liabilities	2
Total derivative instruments		$	11		$	19

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, 2021				December 31, 2020
(in millions)	Asset		Liability		Asset		Liability
Gross amounts recognized in the consolidated balance sheet	$	3	$	15	$	11	$	19
Gross amount subject to offset in master netting arrangements not offset in the consolidated balance sheet	(3)		(3)		(6)		(6)
Total	$	—	$	12	$	5	$	13

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)
(in millions)	Balance as of March 31, 2021		Balance as of December 31, 2020		Balance as of March 31, 2021		Balance as of December 31, 2020
Long-term debt	$	102	$	102	$	5	$	5

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

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FAIR VALUE MEASUREMENTS

3 Months Ended

Mar. 31, 2021

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

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
(in millions)	Balance as of March 31, 2021		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	$	3	$	—	$	3	$	—
Debt securities	13		—		13		—
Marketable equity securities	2		2		—		—
Total	$	18	$	2	$	16	$	—
Liabilities
Foreign exchange contracts	$	15	$	—	$	15	$	—
Contingent payments related to acquisitions	38		—		—		38
Total	$	53	$	—	$	15	$	38

			Basis of fair value measurement
(in millions)	Balance as of December 31, 2020		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	$	11	$	—	$	11	$	—
Debt securities	13		—		13		—
Marketable equity securities	17		17		—		—
Total	$	41	$	17	$	24	$	—
Liabilities
Foreign exchange contracts	$	19	$	—	$	19	$	—
Contingent payments related to acquisitions	30		—		—		30
Total	$	49	$	—	$	19	$	30

As of March 31, 2021 and December 31, 2020, cash and cash equivalents of $3.2 billion and $3.7 billion, respectively, included money market and other short-term funds of approximately $1.7 billion and $1.8 billion, respectively, which are considered Level 2 in the fair value hierarchy.

For assets that are measured using quoted prices in active markets, the fair value is the published market price per unit multiplied by the number of units held, without consideration of transaction costs. The majority of the derivatives entered into by us are valued using internal valuation techniques as no quoted market prices exist for such instruments. 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.

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.

	Three months ended March 31,
(in millions)	2021		2020
Fair value at beginning of period	$	30	$	39
Additions	24		4
Change in fair value recognized in earnings	—		(3)
Payments	(16)		(1)
Fair value at end of period	$	38	$	39

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, 2021 and December 31, 2020.

	Book values		Fair values(a)
(in millions)	2021	2020	2021	2020
Liabilities
Current maturities of long-term debt and finance lease obligations	407	406	409	409
Long-term debt and finance lease obligations	5,681	5,786	6,085	6,471

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

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

Equity investments not measured at fair value are comprised of other equity investments without readily determinable fair values and were $98 million at March 31, 2021 and $105 million at December 31, 2020. Those investments are included in Other non-current assets on our condensed consolidated balance sheets.

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SEGMENT INFORMATION

3 Months Ended

Mar. 31, 2021

Segment Reporting [Abstract]

SEGMENT INFORMATION

SEGMENT INFORMATION

We manage our business based on three geographical segments: Americas (North and South America), EMEA (Europe, Middle East and Africa) and APAC (Asia Pacific). Our segments provide a broad portfolio of essential healthcare products, including acute and chronic dialysis therapies; sterile IV solutions; infusion systems and devices; parenteral nutrition therapies; inhaled anesthetics; generic injectable pharmaceuticals; and surgical hemostat and sealant products. In the first quarter of 2021, the information provided to our Chief Executive Officer for purposes of allocating resources and assessing performance was updated to reallocate contracted services activities performed at a German manufacturing facility from our EMEA segment to our Americas segment. The contracted services performed at that facility are part of our BioPharma Solutions business, which is managed as part of the Americas segment. Accordingly, the reported financial results of the Americas segment now include the contracted services activities performed at that facility. Segment results for the first quarter of 2020 have been recast to conform to the current period presentation.

We use operating income on a segment basis to make resource allocation decisions and assess the ongoing performance of our business segments. Intersegment sales are eliminated in consolidation.

Certain items are maintained at Corporate and are not allocated to a segment. They primarily include corporate headquarters costs, certain R&D costs, certain product category support costs, stock compensation expense, certain employee benefit plan costs, certain foreign currency hedging activities, and certain gains, losses, and other charges (such as business optimization, acquisition and integration costs, intangible asset amortization and asset

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

Financial information for our segments is as follows.

	Three months ended March 31,
(in millions)	2021		2020
Net sales:
Americas	$	1,560	$	1,565
EMEA	738		688
APAC	648		549
Total net sales	$	2,946	$	2,802
Operating income:
Americas	$	599	$	588
EMEA	135		117
APAC	138		128
Total segment operating income	$	872	$	833

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)	2021		2020
Total segment operating income	$	872	$	833
Corporate and other	(482)		(424)
Total operating income	390		409
Net interest expense	34		21
Other expense, net	5		10
Income before income taxes	$	351	$	378

Refer to Note 9 for additional information on Net Sales by product category.

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BASIS OF PRESENTATION (Policies)

3 Months Ended

Mar. 31, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Basis of Presentation

The unaudited interim condensed consolidated financial statements of Baxter International Inc. and its subsidiaries (we or our) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Accordingly, certain information and footnote 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, 2020 (2020 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.

Certain reclassifications have been made to conform the prior period condensed consolidated statements to the current period presentation.

Risks and Uncertainties Related to COVID-19

Our global operations expose us to risks associated with public health crises and epidemics/pandemics, such as the novel strain of coronavirus (COVID-19). COVID-19 has had, and we expect will continue to have, an adverse impact on our operations, supply chains and distribution systems and has increased and will continue to increase our expenses, including as a result of impacts associated with preventive and precautionary measures that we, other businesses and governments are taking. These measures have led to unprecedented restrictions on, disruptions in, and other related impacts on businesses and personal activities. In addition to travel restrictions put in place in early 2020, governments have closed borders, imposed prolonged quarantines and may continue those measures or implement other restrictions and requirements in light of the continuing spread of the pandemic. We expect that these evolving restrictions and requirements, as well as the corresponding need to adapt to new methods of conducting business remotely, will continue to have an adverse effect on our business.

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ACQUISITIONS AND OTHER ARRANGEMENTS (Tables)

3 Months Ended

Mar. 31, 2021

Business Combinations [Abstract]

Schedule Of Asset Acquisition Consideration

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

(in millions)
Cash	$	60
Contingent Consideration	24
Total Consideration	$	84

Schedule Of Asset Acquisition

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

(in millions)
Assets acquired
Inventory	$	14
Goodwill	3
Other intangible assets	67
Total assets required	$	84

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SUPPLEMENTAL FINANCIAL INFORMATION (Tables)

3 Months Ended

Mar. 31, 2021

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Interest Expense, Net

Interest Expense, Net

	Three months ended March 31,
(in millions)	2021		2020
Interest expense, net of capitalized interest	$	37	$	30
Interest income	(3)		(9)
Interest expense, net	$	34	$	21

Other (Income) Expense, Net

Other Expense, Net

	Three months ended March 31,
(in millions)	2021		2020
Foreign exchange (gains) losses, net	$	(3)	$	11
Pension and other postretirement benefit plans	4		(1)
Other, net	4		—
Other expense, net	$	5	$	10

Allowance for Doubtful Accounts

Allowance for Doubtful Accounts

The following table is a summary of the changes in our allowance for doubtful accounts for the three months ended March 31, 2021 and 2020.

	Three months ended March 31,
(in millions)	2021		2020
Balance at beginning of period	$	125	$	112
Adoption of new accounting standard	—		4
Charged to costs and expenses	1		7
Currency translation adjustments	(6)		(9)
Balance at end of period	$	120	$	114

Inventories

Inventories

(in millions)	March 31, 2021		December 31, 2020
Raw materials	$	457	$	460
Work in process	221		196
Finished goods	1,339		1,260
Inventories	$	2,017	$	1,916

Property, Plant and Equipment, Net

Property, Plant and Equipment, Net

(in millions)	March 31, 2021		December 31, 2020
Property, plant and equipment, at cost	$	11,105	$	11,271
Accumulated depreciation	(6,491)		(6,549)
Property, plant and equipment, net	$	4,614	$	4,722

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GOODWILL AND OTHER INTANGIBLE ASSETS, NET (Tables)

3 Months Ended

Mar. 31, 2021

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill

The following is a reconciliation of goodwill by business segment.

(in millions)	Americas		EMEA		APAC		Total
Balance as of December 31, 2020	$	2,574	$	406	$	237	$	3,217
Reallocation of goodwill	81		(81)		—		—
Acquisitions	2		1		—		3
Currency translation	(90)		(11)		(8)		(109)
Balance as of March 31, 2021	$	2,567	$	315	$	229	$	3,111

Other Intangible Assets, Net

The following is a summary of our other intangible assets.

(in millions)	Developed technology, including patents		Other amortized intangible assets		Indefinite-lived intangible assets		Total
March 31, 2021
Gross other intangible assets	$	3,023	$	491	$	169	$	3,683
Accumulated amortization	(1,394)		(327)		—		(1,721)
Other intangible assets, net	$	1,629	$	164	$	169	$	1,962
December 31, 2020
Gross other intangible assets	$	2,713	$	495	$	169	$	3,377
Accumulated amortization	(1,374)		(332)		—		(1,706)
Other intangible assets, net	$	1,339	$	163	$	169	$	1,671

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STOCKHOLDERS’ EQUITY (Tables)

3 Months Ended

Mar. 31, 2021

Share-based Payment Arrangement [Abstract]

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions

The weighted-average Black-Scholes assumptions used in establishing the fair value of stock options granted during the period, along with weighted-average grant date fair values, were as follows:

	Three months ended March 31,
	2021			2020
Expected volatility	25		%	26		%
Expected life (in years)	5.5			5.5
Risk-free interest rate	0.8		%	0.6		%
Dividend yield	1.3		%	1.2		%
Fair value per stock option	$	16		$	16

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ACCUMULATED OTHER COMPREHENSIVE INCOME (Tables)

3 Months Ended

Mar. 31, 2021

Equity [Abstract]

Summary of Changes in AOCI by Component

The following table is a net-of-tax summary of the changes in accumulated other comprehensive (loss) income (AOCI) by component for the three months ended March 31, 2021 and 2020.

(in millions)	CTA		Pension and OPEB plans		Hedging activities		Total
Gains (losses)
Balance as of December 31, 2020	$	(2,587)	$	(574)	$	(153)	$	(3,314)
Other comprehensive income (loss) before reclassifications	(208)		13		3		(192)
Amounts reclassified from AOCI (a)	—		17		9		26
Net other comprehensive income (loss)	(208)		30		12		(166)
Balance as of March 31, 2021	$	(2,795)	$	(544)	$	(141)	$	(3,480)

(in millions)	CTA		Pension and OPEB plans		Hedging activities		Total
Gains (losses)
Balance as of December 31, 2019	$	(2,954)	$	(715)	$	(41)	$	(3,710)
Other comprehensive income (loss) before reclassifications	(359)		10		(131)		(480)
Amounts reclassified from AOCI (a)	—		12		1		13
Net other comprehensive income (loss)	(359)		22		(130)		(467)
Balance as of March 31, 2020	$	(3,313)	$	(693)	$	(171)	$	(4,177)

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

Summary of Reclassification from AOCI to Net Income

The following is a summary of the amounts reclassified from AOCI to net income during the three months ended March 31, 2021 and 2020.

	Amounts reclassified from AOCI (a)
(in millions)	Three months ended March 31, 2021		Three Months Ended March 31, 2020		Location of impact in income statement
Amortization of pension and OPEB items
Amortization of net losses and prior service costs or credits	$	(21)	$	(15)	Other expense, net
Less: Tax effect	4		3		Income tax expense
	$	(17)	$	(12)	Net of tax
Gains (losses) on hedging activities
Foreign exchange contracts	$	(10)	$	(1)	Cost of sales
Interest rate contracts	$	(1)	—		Interest expense, net
	(11)		(1)		Total before tax
Less: Tax effect	2		—		Income tax expense
	$	(9)	$	(1)	Net of tax
Total reclassifications for the period	$	(26)	$	(13)	Total net of tax

(a)    Amounts in parentheses indicate reductions to net income.

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REVENUES (Tables)

3 Months Ended

Mar. 31, 2021

Revenue from Contract with Customer [Abstract]

Contract with Customer, Contract Asset

The following table summarizes our contract assets:

(in millions)	March 31, 2021		December 31, 2020
Contract manufacturing services	$	49	$	47
Software sales	41		40
Bundled equipment and consumable medical products contracts	46		47
Contract assets	$	136	$	134

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

(in millions)	March 31, 2021		December 31, 2020
Prepaid expenses and other current assets	$	74	$	70
Other non-current assets	62		64
Contract assets	$	136	$	134
Accrued expenses and other current liabilities	$	38	$	32
Other non-current liabilities	42		34
Contract liabilities	$	80	$	66

Net Sales from Contracts with Customers by Global Business Unit

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

	Three Months Ended March 31,
	2021						2020
(in millions)	U.S.		International		Total		U.S.		International		Total
Renal Care 1	$	216	$	706	$	922	$	204	$	666	$	870
Medication Delivery 2	411		241		652		449		229		678
Pharmaceuticals 3	200		352		552		220		296		516
Clinical Nutrition 4	83		151		234		79		138		217
Advanced Surgery 5	126		91		217		137		87		224
Acute Therapies 6	81		126		207		60		96		156
BioPharma Solutions 7	44		91		135		48		66		114
Other 8	19		8		27		20		7		27
Total Baxter	$	1,180	$	1,766	$	2,946	$	1,217	$	1,585	$	2,802

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

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

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

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

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

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

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

8Other includes sales of miscellaneous product and service offerings.

Sales-type Lease, Lease Income

The components of lease revenue for the three months ended March 31, 2021 and 2020 were:

	Three Months Ended March 31,
(in millions)	2021		2020
Sales-type lease revenue	$	6	$	6
Operating lease revenue	34		14
Variable lease revenue	17		18
Total lease revenue	$	57	$	38

Operating Lease, Lease Income

The components of lease revenue for the three months ended March 31, 2021 and 2020 were:

	Three Months Ended March 31,
(in millions)	2021		2020
Sales-type lease revenue	$	6	$	6
Operating lease revenue	34		14
Variable lease revenue	17		18
Total lease revenue	$	57	$	38

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BUSINESS OPTIMIZATION CHARGES (Tables)

3 Months Ended

Mar. 31, 2021

Restructuring and Related Activities [Abstract]

Summary of Business Optimization Charges

During the three months ended March 31, 2021 and 2020, we recorded the following charges related to business optimization programs.

	Three Months Ended March 31,
(in millions)	2021		2020
Restructuring charges	$	25	$	25
Costs to implement business optimization programs	2		7
Total business optimization charges	$	27	$	32

Components of Restructuring Charges

During the three months ended March 31, 2021 and 2020, we recorded the following restructuring charges.

	Three months ended March 31, 2021
(in millions)	COGS		SG&A		R&D		Total
Employee termination costs	$	16	$	5	$	—	$	21
Asset impairments	4		—		—		4
Total restructuring charges	$	20	$	5	$	—	$	25

	Three months ended March 31, 2020
(in millions)	COGS		SG&A		R&D		Total
Employee termination costs	$	2	$	16	$	1	$	19
Asset impairments	6		—		—		6
Total restructuring charges	$	8	$	16	$	1	$	25

Summary of Activity in Reserves Related to Restructuring Initiatives

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

(in millions)
Liability balance as of December 31, 2020	$	113
Charges	21
Payments	(24)
Currency translation	(3)
Liability balance as of March 31, 2021	$	107

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PENSION AND OTHER POSTRETIREMENT BENEFIT PROGRAMS (Tables)

3 Months Ended

Mar. 31, 2021

Retirement Benefits [Abstract]

Net Periodic Benefit Cost Relating to Pension and Other Postemployment Employee Benefit Plans

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

	Three months ended March 31,
(in millions)	2021		2020
Pension benefits
Service cost	$	22	$	21
Interest cost	18		24
Expected return on plan assets	(36)		(41)
Amortization of net losses and prior service costs	23		19
Net periodic pension cost	$	27	$	23
OPEB
Interest cost	$	1	$	1
Amortization of net loss and prior service credit	(2)		(4)
Net periodic OPEB cost (income)	$	(1)	$	(3)

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EARNINGS PER SHARE (Tables)

3 Months Ended

Mar. 31, 2021

Earnings Per Share [Abstract]

Reconciliation of Basic Shares to Diluted Shares

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

	Three months ended March 31,
(in millions)	2021	2020
Basic shares	505	507
Effect of dilutive securities	6	9
Diluted shares	511	516

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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES (Tables)

3 Months Ended

Mar. 31, 2021

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Summary of Gains and Losses on 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, 2021 and 2020.

	Gain (loss) recognized in OCI				Location of gain (loss) in income statement	Gain (loss) reclassified from AOCI into income
(in millions)	2021		2020			2021		2020
Cash flow hedges
Interest rate contracts	$	—	$	(184)	Interest expense, net	$	(1)	$	—
Foreign exchange contracts	4		14		Cost of sales	(10)		(1)
Net investment hedges	114		49		Other expense, net	—		—
Total	$	118	$	(121)		$	(11)	$	(1)

	Location of gain (loss) in income statement	Gain (loss) recognized in income
(in millions)		2021		2020
Undesignated derivative instruments
Foreign exchange contracts	Other expense, net	$	(22)	$	2

Classification and Fair Values of Derivative Instruments

The following table summarizes the classification and fair values of derivative instruments reported in the condensed consolidated balance sheet as of March 31, 2021.

	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	2		Accrued expenses and other current liabilities	8
Total derivative instruments designated as hedges		2			8
Undesignated derivative instruments
Foreign exchange contracts	Prepaid expenses and other current assets	1		Accrued expenses and other current liabilities	7
Total derivative instruments		$	3		$	15

The following table summarizes the classification and fair values of derivative instruments reported in the condensed consolidated balance sheet as of December 31, 2020.

	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	—		Accrued expenses and other current liabilities	17
Total derivative instruments designated as hedges		—			17
Undesignated derivative instruments
Foreign exchange contracts	Prepaid expenses and other current assets	11		Accrued expenses and other current liabilities	2
Total derivative instruments		$	11		$	19

Derivative Positions Presented On Net Basis

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, 2021				December 31, 2020
(in millions)	Asset		Liability		Asset		Liability
Gross amounts recognized in the consolidated balance sheet	$	3	$	15	$	11	$	19
Gross amount subject to offset in master netting arrangements not offset in the consolidated balance sheet	(3)		(3)		(6)		(6)
Total	$	—	$	12	$	5	$	13

Amounts Recorded on Condensed Consolidated Balance Sheet Related to Fair Value Hedges

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)
(in millions)	Balance as of March 31, 2021		Balance as of December 31, 2020		Balance as of March 31, 2021		Balance as of December 31, 2020
Long-term debt	$	102	$	102	$	5	$	5

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

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FAIR VALUE MEASUREMENTS (Tables)

3 Months Ended

Mar. 31, 2021

Fair Value Disclosures [Abstract]

Summary of Financial Instruments Measured at Fair Value on Recurring Basis

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

			Basis of fair value measurement
(in millions)	Balance as of March 31, 2021		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	$	3	$	—	$	3	$	—
Debt securities	13		—		13		—
Marketable equity securities	2		2		—		—
Total	$	18	$	2	$	16	$	—
Liabilities
Foreign exchange contracts	$	15	$	—	$	15	$	—
Contingent payments related to acquisitions	38		—		—		38
Total	$	53	$	—	$	15	$	38

			Basis of fair value measurement
(in millions)	Balance as of December 31, 2020		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	$	11	$	—	$	11	$	—
Debt securities	13		—		13		—
Marketable equity securities	17		17		—		—
Total	$	41	$	17	$	24	$	—
Liabilities
Foreign exchange contracts	$	19	$	—	$	19	$	—
Contingent payments related to acquisitions	30		—		—		30
Total	$	49	$	—	$	19	$	30

Reconciliation of Fair Value Measurements that Use Significant Unobservable Inputs

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.

	Three months ended March 31,
(in millions)	2021		2020
Fair value at beginning of period	$	30	$	39
Additions	24		4
Change in fair value recognized in earnings	—		(3)
Payments	(16)		(1)
Fair value at end of period	$	38	$	39

Book Values and Fair Values of Financial Instruments

the following table provides the values recognized in the condensed consolidated balance sheets and the estimated fair values as of March 31, 2021 and December 31, 2020.

	Book values		Fair values(a)
(in millions)	2021	2020	2021	2020
Liabilities
Current maturities of long-term debt and finance lease obligations	407	406	409	409
Long-term debt and finance lease obligations	5,681	5,786	6,085	6,471

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

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SEGMENT INFORMATION (Tables)

3 Months Ended

Mar. 31, 2021

Segment Reporting [Abstract]

Summary of Financial Information for Our Segments

Financial information for our segments is as follows.

	Three months ended March 31,
(in millions)	2021		2020
Net sales:
Americas	$	1,560	$	1,565
EMEA	738		688
APAC	648		549
Total net sales	$	2,946	$	2,802
Operating income:
Americas	$	599	$	588
EMEA	135		117
APAC	138		128
Total segment operating income	$	872	$	833

Operating Income to Income Before Income Taxes Reconciliation

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)	2021		2020
Total segment operating income	$	872	$	833
Corporate and other	(482)		(424)
Total operating income	390		409
Net interest expense	34		21
Other expense, net	5		10
Income before income taxes	$	351	$	378

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ACQUISITIONS AND OTHER ARRANGEMENTS - Additional Information (Details) $ in Millions	1 Months Ended		2 Months Ended	3 Months Ended
	Mar. 31, 2021 USD ($)	Feb. 28, 2021 USD ($)	Mar. 31, 2021 USD ($)	Mar. 31, 2021 USD ($)	Mar. 31, 2020 USD ($)
Business Acquisition [Line Items]
Payments to acquire productive assets				$ 171	$ 172
Net sales				2,946	$ 2,802
Caelyx and Doxil
Business Acquisition [Line Items]
Payments to acquire productive assets		$ 325
Net sales			$ 13
Caelyx and Doxil | Customer Relationships
Business Acquisition [Line Items]
Weighted-average useful life		8 years
Payments to acquire productive assets		$ 11
Caelyx and Doxil | Developed Technology Intangible Asset
Business Acquisition [Line Items]
Weighted-average useful life		9 years
Payments to acquire productive assets		$ 314
Transderm Scop | Glaxo Smith Kline
Business Acquisition [Line Items]
Cash	$ 60
Contingent Consideration	30		$ 30	$ 30
Contingent consideration, fair value	24
Transderm Scop | Developed Product Rights | Glaxo Smith Kline
Business Acquisition [Line Items]
Fair value of asset acquired	$ 64
Weighted-average useful life	9 years
Transderm Scop | Developed Product Rights | Measurement Input, Discount Rate | Glaxo Smith Kline
Business Acquisition [Line Items]
Discount rate used to measure intangible assets	0.225		0.225	0.225
Transderm Scop | Customer Relationships | Glaxo Smith Kline
Business Acquisition [Line Items]
Fair value of asset acquired	$ 3
Weighted-average useful life	7 years
Transderm Scop | Customer Relationships | Measurement Input, Discount Rate | Glaxo Smith Kline
Business Acquisition [Line Items]
Discount rate used to measure intangible assets	0.155		0.155	0.155

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ACQUISITIONS AND OTHER ARRANGEMENTS - Schedule of Fair Value of Consideration Transferred (Details) - Transderm Scop - Glaxo Smith Kline - USD ($) $ in Millions	1 Months Ended	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2021
Business Acquisition [Line Items]
Cash	$ 60
Contingent Consideration	$ 24
Total Consideration		$ 84

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ACQUISITIONS AND OTHER ARRANGEMENTS - Fair Value of Assets Acquired (Details) - USD ($) $ in Millions	Mar. 31, 2021	Dec. 31, 2020
Assets acquired
Goodwill	$ 3,111	$ 3,217
Transderm Scop | Glaxo Smith Kline
Assets acquired
Inventory	14
Goodwill	3
Other intangible assets	67
Total assets required	$ 84

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SUPPLEMENTAL FINANCIAL INFORMATION - Interest Expense, Net (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Interest Income Expense Net
Interest expense, net of capitalized interest	$ 37	$ 30
Interest income	(3)	(9)
Interest expense, net	$ 34	$ 21

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SUPPLEMENTAL FINANCIAL INFORMATION - Other Expense, Net (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Other Income, net
Foreign exchange (gains) losses, net	$ (3)	$ 11
Pension and other postretirement benefit plans	4	(1)
Other, net	4	0
Other expense, net	$ 5	$ 10

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SUPPLEMENTAL FINANCIAL INFORMATION - Allowance for Doubtful Accounts (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Allowance for Doubtful Accounts Receivable [Roll Forward]
Balance at beginning of period	$ 125	$ 112
Adoption of new accounting standard	0	4
Charged to costs and expenses	1	7
Currency translation adjustments	(6)	(9)
Balance at end of period	$ 120	$ 114

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SUPPLEMENTAL FINANCIAL INFORMATION - Inventories (Details) - USD ($) $ in Millions	Mar. 31, 2021	Dec. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Raw materials	$ 457	$ 460
Work in process	221	196
Finished goods	1,339	1,260
Inventories	$ 2,017	$ 1,916

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SUPPLEMENTAL FINANCIAL INFORMATION - Property, Plant and Equipment, Net (Details) - USD ($) $ in Millions	Mar. 31, 2021	Dec. 31, 2020
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Property, plant and equipment, at cost	$ 11,105	$ 11,271
Accumulated depreciation	(6,491)	(6,549)
Property, plant and equipment, net	$ 4,614	$ 4,722

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SUPPLEMENTAL FINANCIAL INFORMATION - Additional Information (Details) - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Property, Plant and Equipment [Line Items]
Right-of-use asset obtained in exchange for operating lease liability	$ 5,000,000	$ 15,000,000
Lease not yet commenced, assumption and judgment, value of underlying asset, amount	46,000,000
Unsettled share repurchase	47,000,000	0
Property, Plant and Equipment
Property, Plant and Equipment [Line Items]
Capital expenditures incurred but not yet paid	$ 63,000,000	$ 49,000,000

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GOODWILL AND OTHER INTANGIBLE ASSETS, NET - Goodwill (Details) $ in Millions	3 Months Ended
	Mar. 31, 2021 USD ($)
Goodwill [Roll Forward]
Goodwill, beginning balance	$ 3,217
Reallocation of goodwill	0
Acquisitions	3
Currency translation	(109)
Goodwill, ending balance	3,111
Americas
Goodwill [Roll Forward]
Goodwill, beginning balance	2,574
Reallocation of goodwill	81
Acquisitions	2
Currency translation	(90)
Goodwill, ending balance	2,567
EMEA
Goodwill [Roll Forward]
Goodwill, beginning balance	406
Reallocation of goodwill	(81)
Acquisitions	1
Currency translation	(11)
Goodwill, ending balance	315
APAC
Goodwill [Roll Forward]
Goodwill, beginning balance	237
Reallocation of goodwill	0
Acquisitions	0
Currency translation	(8)
Goodwill, ending balance	$ 229

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GOODWILL AND OTHER INTANGIBLE ASSETS, NET - Additional Information (Details) - USD ($)	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Goodwill and Intangible Assets Disclosure [Abstract]
Goodwill, impairment loss	$ 0
Intangible asset amortization expense	$ 64,000,000	$ 52,000,000

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GOODWILL AND OTHER INTANGIBLE ASSETS, NET - Other Intangible Assets, Net (Details) - USD ($) $ in Millions	Mar. 31, 2021	Dec. 31, 2020
Intangible Asset Excluding Goodwill [Line Items]
Gross other intangible assets	$ 3,683	$ 3,377
Accumulated amortization	(1,721)	(1,706)
Other intangible assets	169	169
Other intangible assets, net	1,962	1,671
Developed technology, including patents
Intangible Asset Excluding Goodwill [Line Items]
Gross other intangible assets	3,023	2,713
Accumulated amortization	(1,394)	(1,374)
Other intangible assets, net	1,629	1,339
Other amortized intangible assets
Intangible Asset Excluding Goodwill [Line Items]
Gross other intangible assets	491	495
Accumulated amortization	(327)	(332)
Other intangible assets, net	$ 164	$ 163

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FINANCING ARRANGEMENTS (Details) - Mar. 31, 2021 € in Millions, $ in Billions	USD ($)	EUR (€)
Domestic Line of Credit
Debt Instrument [Line Items]
Line of credit, current borrowing capacity | $	$ 2.0
Foreign Line of Credit
Debt Instrument [Line Items]
Line of credit, current borrowing capacity | €		€ 200

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COMMITMENTS AND CONTINGENCIES (Details) $ in Millions		3 Months Ended
	Apr. 20, 2021 USD ($)	Mar. 31, 2021 USD ($) site	Dec. 31, 2020 USD ($)	Mar. 31, 2020 lawsuit
Loss Contingencies [Line Items]
Litigation reserve		$ 53	$ 40
Litigation related receivables		$ 7
Number of lawsuits | lawsuit				2
Subsequent Event
Loss Contingencies [Line Items]
Agreement to settle the case	$ 16
Superfund Sites | Environmental Clean-up
Loss Contingencies [Line Items]
Number of sites | site		6
Environmental reserves		$ 19	$ 20

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STOCKHOLDERS' EQUITY - Additional Information (Details) $ / shares in Units, shares in Millions, $ in Millions	3 Months Ended
	Mar. 31, 2021 USD ($) $ / shares shares	Mar. 31, 2020 USD ($) employee $ / shares
Stockholders Equity Note [Line Items]
Stock compensation expense	$ 22	$ 29
Total intrinsic value of stock options exercised	$ 21	$ 52
Number of employees affected | employee		123
Cash dividends declared per common share (in dollars per share) | $ / shares	$ 0.245	$ 0.22
SG&A
Stockholders Equity Note [Line Items]
Stock compensation expense allocation percentage	75.00%
Employee Stock Option
Stockholders Equity Note [Line Items]
Grants in period (in shares) | shares	4.0
Stock granted, value, share-based compensation, gross	$ 62
Target service period	3 years
Unrecognized compensation cost related to all unvested stock options	$ 109
Weighted-average period for all unvested stock options	2 years 1 month 6 days
Incremental compensation cost		$ 8
Restricted Stock Units (RSUs)
Stockholders Equity Note [Line Items]
Grants in period (in shares) | shares	0.5
Stock granted, value, share-based compensation, gross	$ 40
Vesting percentage	33.33%
Unrecognized compensation cost related to all unvested stock options	$ 75
Weighted-average period for all unvested stock options	2 years 1 month 6 days
Performance Shares
Stockholders Equity Note [Line Items]
Grants in period (in shares) | shares	0.3
Stock granted, value, share-based compensation, gross	$ 27
Vesting percentage, adjusted operating margin	12.50%
Target service period	3 years
Unrecognized compensation cost related to all unvested stock options	$ 46
Weighted-average period for all unvested stock options	1 year 9 months 18 days

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STOCKHOLDERS' EQUITY - Stock Options Fair Value Assumptions (Details) - $ / shares	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Share-based Compensation Arrangement by Share-based Payment Award, Fair Value Assumptions and Methodology [Abstract]
Expected volatility	25.00%	26.00%
Expected life (in years)	5 years 6 months	5 years 6 months
Risk-free interest rate	0.80%	0.60%
Dividend yield	1.30%	1.20%
Fair value per stock option (in USD per share)	$ 16	$ 16

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STOCKHOLDERS' EQUITY - Stock Repurchase Programs Narrative (Details) - USD ($) shares in Millions	3 Months Ended
	Mar. 31, 2021	Oct. 31, 2020	Mar. 31, 2020	Nov. 30, 2018	Feb. 28, 2018	Nov. 30, 2016	Jul. 31, 2012
Share-based Payment Arrangement [Abstract]
Stock repurchase program, authorized amount							$ 2,000,000,000.0
Stock repurchase program, additional authorized amount		$ 1,500,000,000		$ 2,000,000,000.0	$ 1,500,000,000	$ 1,500,000,000
Purchases of treasury stock (in shares)	3.6
Stock repurchase program, liability			$ 47,000,000
Remaining value available under stock repurchase programs	$ 1,600,000,000

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ACCUMULATED OTHER COMPREHENSIVE INCOME - Summary of Changes in AOCI by Component (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning of period	$ 8,726	$ 7,912
Other comprehensive income (loss) before reclassifications	(192)	(480)
Amounts reclassified from AOCI	26	13
Total other comprehensive income (loss), net of tax	(166)	(467)
End of period	8,490	7,730
CTA
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning of period	(2,587)	(2,954)
Other comprehensive income (loss) before reclassifications	(208)	(359)
Amounts reclassified from AOCI	0	0
Total other comprehensive income (loss), net of tax	(208)	(359)
End of period	(2,795)	(3,313)
Pension and OPEB plans
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning of period	(574)	(715)
Other comprehensive income (loss) before reclassifications	13	10
Amounts reclassified from AOCI	17	12
Total other comprehensive income (loss), net of tax	30	22
End of period	(544)	(693)
Hedging activities
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning of period	(153)	(41)
Other comprehensive income (loss) before reclassifications	3	(131)
Amounts reclassified from AOCI	9	1
Total other comprehensive income (loss), net of tax	12	(130)
End of period	(141)	(171)
Accumulated Other Comprehensive Income (Loss)
Accumulated Other Comprehensive Income (Loss) [Line Items]
Beginning of period	(3,314)	(3,710)
End of period	$ (3,480)	$ (4,177)

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ACCUMULATED OTHER COMPREHENSIVE INCOME - Summary of Amounts Reclassification from AOCI to Net Income (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Other expense, net	$ (5)	$ (10)
Income tax expense	(51)	(45)
Cost of sales	(1,801)	(1,639)
Income before income taxes	351	378
Net income (loss) attributable to Baxter	298	332
Amounts reclassified from AOCI
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Net income (loss) attributable to Baxter	(26)	(13)
Amortization of pension and OPEB items | Amounts reclassified from AOCI
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Other expense, net	(21)	(15)
Income tax expense	(4)	(3)
Net income (loss) attributable to Baxter	(17)	(12)
Gains (losses) on hedging activities | Amounts reclassified from AOCI
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Income tax expense	2	0
Income before income taxes	(11)	(1)
Net income (loss) attributable to Baxter	(9)	(1)
Gains (losses) on hedging activities | Foreign exchange contracts | Amounts reclassified from AOCI
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Cost of sales	(10)	(1)
Gains (losses) on hedging activities | Interest rate contracts | Amounts reclassified from AOCI
Reclassification Adjustment out of Accumulated Other Comprehensive Income [Line Items]
Interest expense, net	$ (1)	$ 0

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REVENUES - Additional Information (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2021	Dec. 31, 2020	Mar. 31, 2020	Mar. 31, 2019	Mar. 31, 2018	Mar. 31, 2017
Revenue From Contract With Customer [Line Items]
Net trade accounts receivable	$ 1,600	$ 1,700
Sales-type lease, net of investment in lease	131
Sales-type leases, receivables	$ 6		$ 38	$ 36	$ 32	$ 19
Minimum
Revenue From Contract With Customer [Line Items]
Global payment terms	30 days
Minimum | Software Arrangements
Revenue From Contract With Customer [Line Items]
Revenue recognized contract period	1 year
Minimum | Consumable Medical Products
Revenue From Contract With Customer [Line Items]
Revenue recognized contract period	1 year
Maximum
Revenue From Contract With Customer [Line Items]
Global payment terms	90 days
Maximum | Manufacturing Arrangements
Revenue From Contract With Customer [Line Items]
Revenue recognized contract period	90 days
Maximum | Software Arrangements
Revenue From Contract With Customer [Line Items]
Revenue recognized contract period	5 years
Maximum | Consumable Medical Products
Revenue From Contract With Customer [Line Items]
Revenue recognized contract period	7 years

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REVENUES - Remaining Performance Obligations (Details) $ in Billions	Mar. 31, 2021 USD ($)
Revenue from Contract with Customer [Abstract]
Transaction price allocated to remaining performance obligations	$ 7.9
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2021-04-01
Revenue From Contract With Customer [Line Items]
Remaining revenue performance obligation, percentage of revenue expected to be recognized	25.00%
Remaining performance obligations period	9 months
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2022-01-01
Revenue From Contract With Customer [Line Items]
Remaining revenue performance obligation, percentage of revenue expected to be recognized	30.00%
Remaining performance obligations period	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2023-01-01
Revenue From Contract With Customer [Line Items]
Remaining revenue performance obligation, percentage of revenue expected to be recognized	25.00%
Remaining performance obligations period	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2024-01-01
Revenue From Contract With Customer [Line Items]
Remaining revenue performance obligation, percentage of revenue expected to be recognized	10.00%
Remaining performance obligations period	1 year
Revenue, Remaining Performance Obligation, Expected Timing of Satisfaction, Start Date: 2025-01-01
Revenue From Contract With Customer [Line Items]
Remaining revenue performance obligation, percentage of revenue expected to be recognized	10.00%
Remaining performance obligations period	1 year

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REVENUES - Contract Assets and Contract Liabilities (Details) - USD ($) $ in Millions	Mar. 31, 2021	Dec. 31, 2020
Revenue From Contract With Customer [Line Items]
Contract assets	$ 136	$ 134
Contract liabilities	80	66
Prepaid expenses and other current assets
Revenue From Contract With Customer [Line Items]
Contract assets	74	70
Other non-current assets
Revenue From Contract With Customer [Line Items]
Contract assets	62	64
Accrued expenses and other current liabilities
Revenue From Contract With Customer [Line Items]
Contract liabilities	38	32
Other non-current liabilities
Revenue From Contract With Customer [Line Items]
Contract liabilities	42	34
Manufacturing Arrangements
Revenue From Contract With Customer [Line Items]
Contract assets	49	47
Software Arrangements
Revenue From Contract With Customer [Line Items]
Contract assets	41	40
Bundled equipment and consumable medical products contracts
Revenue From Contract With Customer [Line Items]
Contract assets	$ 46	$ 47

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REVENUES - Net Sales from Contracts with Customers by Global Business Unit (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Revenue From Contract With Customer [Line Items]
Net sales	$ 2,946	$ 2,802
U.S.
Revenue From Contract With Customer [Line Items]
Net sales	1,180	1,217
International
Revenue From Contract With Customer [Line Items]
Net sales	1,766	1,585
Renal Care
Revenue From Contract With Customer [Line Items]
Net sales	922	870
Renal Care | U.S.
Revenue From Contract With Customer [Line Items]
Net sales	216	204
Renal Care | International
Revenue From Contract With Customer [Line Items]
Net sales	706	666
Medication Delivery
Revenue From Contract With Customer [Line Items]
Net sales	652	678
Medication Delivery | U.S.
Revenue From Contract With Customer [Line Items]
Net sales	411	449
Medication Delivery | International
Revenue From Contract With Customer [Line Items]
Net sales	241	229
Pharmaceuticals
Revenue From Contract With Customer [Line Items]
Net sales	552	516
Pharmaceuticals | U.S.
Revenue From Contract With Customer [Line Items]
Net sales	200	220
Pharmaceuticals | International
Revenue From Contract With Customer [Line Items]
Net sales	352	296
Clinical Nutrition
Revenue From Contract With Customer [Line Items]
Net sales	234	217
Clinical Nutrition | U.S.
Revenue From Contract With Customer [Line Items]
Net sales	83	79
Clinical Nutrition | International
Revenue From Contract With Customer [Line Items]
Net sales	151	138
Advanced Surgery
Revenue From Contract With Customer [Line Items]
Net sales	217	224
Advanced Surgery | U.S.
Revenue From Contract With Customer [Line Items]
Net sales	126	137
Advanced Surgery | International
Revenue From Contract With Customer [Line Items]
Net sales	91	87
Acute Therapies
Revenue From Contract With Customer [Line Items]
Net sales	207	156
Acute Therapies | U.S.
Revenue From Contract With Customer [Line Items]
Net sales	81	60
Acute Therapies | International
Revenue From Contract With Customer [Line Items]
Net sales	126	96
BioPharma Solutions
Revenue From Contract With Customer [Line Items]
Net sales	135	114
BioPharma Solutions | U.S.
Revenue From Contract With Customer [Line Items]
Net sales	44	48
BioPharma Solutions | International
Revenue From Contract With Customer [Line Items]
Net sales	91	66
Other
Revenue From Contract With Customer [Line Items]
Net sales	27	27
Other | U.S.
Revenue From Contract With Customer [Line Items]
Net sales	19	20
Other | International
Revenue From Contract With Customer [Line Items]
Net sales	$ 8	$ 7

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REVENUES - Lease Revenue (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Revenue from Contract with Customer [Abstract]
Sales-type lease revenue	$ 6	$ 6
Operating lease revenue	34	14
Variable lease revenue	17	18
Total lease revenue	$ 57	$ 38

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BUSINESS OPTIMIZATION CHARGES - Additional Information (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2021
Restructuring and Related Activities [Abstract]
Cumulative pre-tax costs incurred		$ 1,100
Expected additional pre-tax costs		$ 12
Sale of properties	$ 17

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BUSINESS OPTIMIZATION CHARGES - Summary of Business Optimization Charges (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Restructuring Cost and Reserve [Line Items]
Restructuring charges	$ 25	$ 25
Business Optimization Programs
Restructuring Cost and Reserve [Line Items]
Restructuring charges	25	25
Costs to implement business optimization programs	2	7
Total business optimization charges	$ 27	$ 32

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BUSINESS OPTIMIZATION CHARGES - Components of Restructuring Charges (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Restructuring Cost and Reserve [Line Items]
Restructuring charges	$ 25	$ 25
COGS
Restructuring Cost and Reserve [Line Items]
Restructuring charges	20	8
SG&A
Restructuring Cost and Reserve [Line Items]
Restructuring charges	5	16
R&D
Restructuring Cost and Reserve [Line Items]
Restructuring charges	0	1
Employee termination costs
Restructuring Cost and Reserve [Line Items]
Restructuring charges	21	19
Employee termination costs | COGS
Restructuring Cost and Reserve [Line Items]
Restructuring charges	16	2
Employee termination costs | SG&A
Restructuring Cost and Reserve [Line Items]
Restructuring charges	5	16
Employee termination costs | R&D
Restructuring Cost and Reserve [Line Items]
Restructuring charges	0	1
Asset impairments
Restructuring Cost and Reserve [Line Items]
Restructuring charges	4	6
Asset impairments | COGS
Restructuring Cost and Reserve [Line Items]
Restructuring charges	4	6
Asset impairments | SG&A
Restructuring Cost and Reserve [Line Items]
Restructuring charges	0	0
Asset impairments | R&D
Restructuring Cost and Reserve [Line Items]
Restructuring charges	$ 0	$ 0

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BUSINESS OPTIMIZATION CHARGES - Summary of Activity in Reserves Related to Restructuring Initiatives (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Restructuring Reserve [Roll Forward]
Charges	$ 25	$ 25
Severance and Other Employee Related Costs
Restructuring Reserve [Roll Forward]
Reserve, beginning balance	113
Charges	21
Payments	(24)
Currency translation	(3)
Reserve, ending balance	$ 107

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PENSION AND OTHER POSTRETIREMENT BENEFIT PROGRAMS - Net Periodic Benefit Cost Relating to Pension and Other Postemployment Employee Benefit Plans (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Pension benefits
Net periodic benefit cost
Service cost	$ 22	$ 21
Interest cost	18	24
Expected return on plan assets	(36)	(41)
Amortization of net losses and prior service costs	23	19
Net periodic cost	27	23
OPEB
Net periodic benefit cost
Interest cost	1	1
Amortization of net losses and prior service costs	(2)	(4)
Net periodic cost	$ (1)	$ (3)

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INCOME TAXES (Details) - USD ($) $ in Millions	3 Months Ended
	Jun. 30, 2021	Mar. 31, 2021	Mar. 31, 2020
Operating Loss Carryforwards [Line Items]
Effective income tax rate		14.50%	11.90%
U.S. Federal statutory rate		21.00%
Forecast
Operating Loss Carryforwards [Line Items]
Discrete income tax expense	$ 22

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EARNINGS PER SHARE - Reconciliation of Basic Shares to Diluted Shares (Details) - shares shares in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Reconciliation of Basic Shares to Diluted Shares
Basic (in shares)	505	507
Effect of dilutive securities (in shares)	6	9
Diluted (in shares)	511	516

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EARNINGS PER SHARE - Additional Information (Details) - shares shares in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Earnings Per Share [Abstract]
Anti-dilutive securities excluded from computation of EPS (in shares)	7	1

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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - Additional Information (Details)	3 Months Ended
	Mar. 31, 2021 USD ($)	Mar. 31, 2020 USD ($)	Dec. 31, 2020 USD ($)	May 31, 2019 EUR (€)	May 31, 2017 EUR (€)
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Derivative, notional amount	$ 0	$ 0
Derivative, fair value, terminated	0	0
Derivative, net investment terminated	0	$ 0
Deferred, net after-tax gains on derivative instruments	12,000,000
Undesignated derivative instruments
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Derivative, notional amount	780,000,000		$ 1,000,000,000.0
1.30% Senior Notes due May 2025
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Senior notes | €					€ 600,000,000
0.4% Senior Notes Due in May 2024
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Senior notes | €				€ 750,000,000
1.3% Senior Notes Due in May 2029
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Senior notes | €				€ 750,000,000
Net investment hedge
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Accumulated pre-tax unrealized translation gain in AOCI	131,000,000
Foreign exchange contracts
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Derivative, notional amount	$ 355,000,000		345,000,000
Maximum length of time hedge in cash flow hedge	12 months
Interest rate swap
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Derivative, fair value, net	$ 0		0
Interest rate contracts
Derivative Instruments and Hedging Activities Disclosures [Line Items]
Derivative, fair value, net	$ 0		$ 0

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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - Summary of Gains and Losses on Hedging Instruments (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Derivative Instruments, Gain (Loss) [Line Items]
Other comprehensive income (loss), net investment hedge, gain (loss), before reclassification and tax	$ 114	$ 49
Other comprehensive income (loss), cash flow hedge and net investment hedge, gain (loss), before reclassification, tax	118	(121)
Other comprehensive income (loss), reclassification adjustment from AOCI, cash flow hedges and net investment hedges, net of tax	(11)	(1)
Other expense, net
Derivative Instruments, Gain (Loss) [Line Items]
Other comprehensive income (loss), net investment hedge, gain (loss), before reclassification and tax	0	0
Interest rate contracts
Derivative Instruments, Gain (Loss) [Line Items]
Other comprehensive income (loss), cash flow hedge, gain (loss), before reclassification, tax	0	(184)
Interest rate contracts | Interest expense, net
Derivative Instruments, Gain (Loss) [Line Items]
Other comprehensive income (loss), cash flow hedge, gain (loss), reclassification, before tax	(1)	0
Foreign exchange contracts
Derivative Instruments, Gain (Loss) [Line Items]
Other comprehensive income (loss), cash flow hedge, gain (loss), before reclassification, tax	4	14
Foreign exchange contracts | Cost of sales
Derivative Instruments, Gain (Loss) [Line Items]
Other comprehensive income (loss), cash flow hedge, gain (loss), reclassification, before tax	(10)	(1)
Foreign exchange contracts | Other expense, net
Derivative Instruments, Gain (Loss) [Line Items]
Gain (loss) recognized in income, undesignated derivative instruments	$ (22)	$ 2

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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - Classification and Fair Value Amounts of Derivative Instruments (Details) - USD ($) $ in Millions	Mar. 31, 2021	Dec. 31, 2020
Derivatives, Fair Value [Line Items]
Derivative asset, fair value	$ 3	$ 11
Derivative liability, fair value	15	19
Derivative instruments designated as hedges
Derivatives, Fair Value [Line Items]
Derivative asset, fair value	2	0
Derivative liability, fair value	8	17
Derivative instruments designated as hedges | Foreign exchange contracts | Prepaid expenses and other current assets
Derivatives, Fair Value [Line Items]
Derivative asset, fair value	2	0
Derivative instruments designated as hedges | Foreign exchange contracts | Accrued expenses and other current liabilities
Derivatives, Fair Value [Line Items]
Derivative liability, fair value	8	17
Undesignated derivative instruments | Foreign exchange contracts | Prepaid expenses and other current assets
Derivatives, Fair Value [Line Items]
Derivative asset, fair value	1	11
Undesignated derivative instruments | Foreign exchange contracts | Accrued expenses and other current liabilities
Derivatives, Fair Value [Line Items]
Derivative liability, fair value	$ 7	$ 2

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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - Derivative Positions Presented On Net Basis (Details) - USD ($) $ in Millions	Mar. 31, 2021	Dec. 31, 2020
Asset
Gross amounts recognized in the consolidated balance sheet	$ 3	$ 11
Gross amount subject to offset in master netting arrangements not offset in the consolidated balance sheet	(3)	(6)
Total, asset	0	5
Liability
Gross amounts recognized in the consolidated balance sheet	15	19
Gross amount subject to offset in master netting arrangements not offset in the consolidated balance sheet	(3)	(6)
Total, liability	$ 12	$ 13

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DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - Amounts Recorded on Condensed Consolidated Balance Sheet Related to Fair Value Hedges (Details) - Long-term debt - USD ($) $ in Millions	Mar. 31, 2021	Dec. 31, 2020
Derivatives, Fair Value [Line Items]
Carrying amount of hedged item	$ 102	$ 102
Cumulative amount of fair value hedging adjustment included in the carrying amount of the hedged item	$ 5	$ 5

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FAIR VALUE MEASUREMENTS - Summary of Financial Instruments Measured at Fair Value on Recurring Basis (Details) - Fair Value, Measurements, Recurring - USD ($) $ in Millions	Mar. 31, 2021	Dec. 31, 2020
Assets
Foreign exchange contracts	$ 3	$ 11
Debt securities	13	13
Marketable equity securities	2	17
Total assets	18	41
Liabilities
Foreign exchange contracts	15	19
Contingent payments related to acquisitions	38	30
Total liabilities	53	49
Quoted prices in active markets for identical assets (Level 1)
Assets
Foreign exchange contracts	0	0
Debt securities	0	0
Marketable equity securities	2	17
Total assets	2	17
Liabilities
Foreign exchange contracts	0	0
Contingent payments related to acquisitions	0	0
Total liabilities	0	0
Significant other observable inputs (Level 2)
Assets
Foreign exchange contracts	3	11
Debt securities	13	13
Marketable equity securities	0	0
Total assets	16	24
Liabilities
Foreign exchange contracts	15	19
Contingent payments related to acquisitions	0	0
Total liabilities	15	19
Significant unobservable inputs (Level 3)
Assets
Foreign exchange contracts	0	0
Debt securities	0	0
Marketable equity securities	0	0
Total assets	0	0
Liabilities
Foreign exchange contracts	0	0
Contingent payments related to acquisitions	38	30
Total liabilities	$ 38	$ 30

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FAIR VALUE MEASUREMENTS - Additional Information (Details) - USD ($) $ in Millions	Mar. 31, 2021	Dec. 31, 2020
Fair Value Disclosures [Line Items]
Cash and cash equivalents	$ 3,182	$ 3,730
Other Assets
Fair Value Disclosures [Line Items]
Other equity investments without readily determinable fair values	98	105
Significant other observable inputs (Level 2)
Fair Value Disclosures [Line Items]
Money market funds, at carrying value	$ 1,700	$ 1,800

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FAIR VALUE MEASUREMENTS - Reconciliation of Fair Value Measurements that Use Significant Unobservable Inputs (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Fair value at beginning of period	$ 30	$ 39
Additions	24	4
Change in fair value recognized in earnings	0	(3)
Payments	(16)	(1)
Fair value at end of period	$ 38	$ 39

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FAIR VALUE MEASUREMENTS - Book Values and Fair Values of Financial Instruments (Details) - USD ($) $ in Millions	Mar. 31, 2021	Dec. 31, 2020
Book values
Fair Value And Carrying Value By Balance Sheet Grouping [Line Items]
Current maturities of long-term debt and finance lease obligations	$ 407	$ 406
Long-term debt and finance lease obligations	5,681	5,786
Fair values
Fair Value And Carrying Value By Balance Sheet Grouping [Line Items]
Current maturities of long-term debt and finance lease obligations	409	409
Long-term debt and finance lease obligations	$ 6,085	$ 6,471

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SEGMENT INFORMATION - Summary of Financial Information for Our Segments (Details) $ in Millions	3 Months Ended
	Mar. 31, 2021 USD ($) segment	Mar. 31, 2020 USD ($)
Segment Reporting Information [Line Items]
Number of operating segments | segment	3
Total net sales	$ 2,946	$ 2,802
Total segment operating income	390	409
Operating Segments
Segment Reporting Information [Line Items]
Total net sales	2,946	2,802
Total segment operating income	872	833
Operating Segments | Americas
Segment Reporting Information [Line Items]
Total net sales	1,560	1,565
Total segment operating income	599	588
Operating Segments | EMEA
Segment Reporting Information [Line Items]
Total net sales	738	688
Total segment operating income	135	117
Operating Segments | APAC
Segment Reporting Information [Line Items]
Total net sales	648	549
Total segment operating income	$ 138	$ 128

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SEGMENT INFORMATION - Operating Income to Income Before Income Taxes Reconciliation (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 31, 2021	Mar. 31, 2020
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Total operating income	$ 390	$ 409
Net interest expense	(34)	(21)
Other expense, net	5	10
Income before income taxes	351	378
Operating Segments
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Total operating income	872	833
Corporate and Other
Segment Reporting, Reconciling Item for Operating Profit (Loss) from Segment to Consolidated [Line Items]
Total operating income	$ (482)	$ (424)

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Label	Element	Value
Accounting Standards Update [Extensible List]	us-gaap_AccountingStandardsUpdateExtensibleList	us-gaap:AccountingStandardsUpdate201613Member