REVENUES

6 Months Ended

Jun. 30, 2023

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.

Most of our performance obligations are satisfied at a point in time. This includes sales of our broad portfolio of essential healthcare products across our business segments. Our three legacy Baxter segments include acute and chronic dialysis therapies; sterile IV solutions; infusion systems and devices; parenteral nutrition therapies; inhaled anesthetics; generic injectable pharmaceuticals; and surgical hemostat and sealant products. Our legacy Hillrom segment includes smart bed systems; patient monitoring and diagnostic technologies; respiratory health devices; and advanced equipment for the surgical space. For most of those 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, we enter into arrangements for which revenue may be recognized over time. For example, our Americas segment includes contract manufacturing arrangements, our Hillrom segment includes digital and connected care solutions and collaboration tools that are implemented over time and all of our segments include equipment leases and certain subscription software and licensing arrangements. We recognize revenue for these arrangements over time or at a point in time depending on our evaluation of when the customer obtains control of the promised goods or services. Revenue is recognized over time when we are creating or enhancing an asset that the customer controls as the asset is created or enhanced or our performance does not create an asset with an alternative use and we have an enforceable right to payment for performance completed.

As of June 30, 2023, we had $7.99 billion of transaction price allocated to remaining performance obligations related to executed contracts with an original duration of more than one year, which are primarily included in the Americas segment. 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 20% of this amount as revenue over the remainder of 2023, 40% in 2024, 20% in 2025, 10% in 2026 and 10% thereafter.

Significant Judgments

Revenues from product sales are recorded at the net sales price, which includes estimates of variable consideration primarily related to rebates and wholesaler chargebacks. These reserves are based on estimates of the amounts

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

Contract Balances

The timing of revenue recognition, billings and cash collections results in the recognition of trade accounts receivable, unbilled receivables, contract assets and customer advances and deposits (contract liabilities) on our condensed consolidated balance sheets. Net trade accounts receivable was $2.27 billion and $2.34 billion as of June 30, 2023 and December 31, 2022, respectively.

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

The following table summarizes our contract assets:

(in millions)	June 30, 2023		December 31, 2022
Contract manufacturing services	$	4	$	10
Software sales	43		43
Bundled equipment and consumable medical products contracts	116		121
Contract assets	$	163	$	174

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

The following table summarizes contract liability activity for the six months ended June 30, 2023 and 2022. The contract liability balance represents the transaction price allocated to the remaining performance obligations.

	Six Months Ended June 30,
(in millions)	2023		2022
Balance at beginning of period	$	194	$	196
New revenue deferrals	271		282
Revenue recognized upon satisfaction of performance obligations	(267)		(289)
Currency translation	1		(5)
Balance at end of period	$	199	$	184

For the six months ended June 30, 2023 and 2022, $64 million and $77 million of revenue was recognized that was included in contract liabilities as of December 31, 2022 and 2021, respectively.

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

(in millions)	June 30, 2023		December 31, 2022
Prepaid expenses and other current assets	$	49	$	52
Other non-current assets	114		122
Contract assets	$	163	$	174
Accrued expenses and other current liabilities	$	158	$	154
Other non-current liabilities	41		40
Contract liabilities	$	199	$	194

Disaggregation of Net Sales

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

	Three Months Ended June 30,
	2023						2022
(in millions)	U.S.		International		Total		U.S.		International		Total
Renal Care 1	$	234	$	702	$	936	$	225	$	706	$	931
Medication Delivery 2	487		274		761		459		251		710
Pharmaceuticals 3	182		368		550		164		364		528
Clinical Nutrition 4	83		160		243		90		140		230
Advanced Surgery 5	150		122		272		151		112		263
Acute Therapies 6	60		120		180		58		115		173
Patient Support Systems 7	276		83		359		284		80		364
Front Line Care 8	227		80		307		202		80		282
Global Surgical Solutions 9	35		42		77		36		33		69
Other 10	17		5		22		31		13		44
Total Baxter	$	1,751	$	1,956	$	3,707	$	1,700	$	1,894	$	3,594

	Six Months Ended June 30,
	2023						2022
(in millions)	U.S.		International		Total		U.S.		International		Total
Renal Care 1	$	466	$	1,362	$	1,828	$	450	$	1,375	$	1,825
Medication Delivery 2	923		525		1,448		931		485		1,416
Pharmaceuticals 3	355		719		1,074		321		728		1,049
Clinical Nutrition 4	161		306		467		174		283		457
Advanced Surgery 5	294		224		518		287		204		491
Acute Therapies 6	121		239		360		126		235		361
Patient Support Systems 7	536		171		707		579		168		747
Front Line Care 8	448		161		609		409		167		576
Global Surgical Solutions 9	73		85		158		73		74		147
Other 10	41		10		51		62		21		83
Total Baxter	$	3,418	$	3,802	$	7,220	$	3,412	$	3,740	$	7,152

1Renal Care includes sales of our peritoneal dialysis (PD), 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 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).

7Patient Support Systems includes sales of our connected care solutions: devices, software, communications and integration technologies and smart beds.

8Front Line Care includes sales of our integrated patient monitoring and diagnostic technologies to help diagnose, treat and manage a wide variety of illness and diseases, including respiratory therapy, cardiology, vision screening and physical assessment.

9Global Surgical Solutions includes sales of our surgical video technologies, tables, lights, pendants, precision positioning devices and other accessories.

10Other includes sales of miscellaneous product and service offerings. Contract manufacturing revenues earned by our manufacturing facility in Round Lake Illinois, which totaled $2 million for the six months ended June 30, 2023 and $11 million and $18 million for the three and six months ended June 30, 2022, respectively, were historically presented as BPS sales. Those sales transactions, which are not impacted by the pending divestiture of our BPS business, continue to be presented as continuing operations in the accompanying consolidated financial statements and have been reclassified to our Other product category for all periods presented.

Lease Revenue

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

The components of lease revenue for the three and six months ended June 30, 2023 and 2022 were:

(in millions)	Three months ended June 30, 2023		Six Months Ended June 30, 2023
Sales-type lease revenue	$	3	$	7
Operating lease revenue	132		256
Variable lease revenue	14		29
Total lease revenue	$	149	$	292

(in millions)	Three months ended June 30, 2022		Six months ended June 30, 2022
Sales-type lease revenue	$	5	$	8
Operating lease revenue	113		235
Variable lease revenue	12		32
Total lease revenue	$	130	$	275

Our net investment in sales-type leases was $75 million as of June 30, 2023, of which $15 million originated in 2019 and prior, $21 million in 2020, $20 million in 2021, $14 million in 2022, and $5 million in 2023.