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, 2024

☐ 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
		NYSE Chicago
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 25, 2024 was 509,580,190 shares.

BAXTER INTERNATIONAL INC.

FORM 10-Q

For the quarterly period ended March 31, 2024

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	42
Item 4.	Controls and Procedures	43
PART II.	OTHER INFORMATION	44
Item 1.	Legal Proceedings	44
Item 1A.	Risk Factors	44
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	44
Item 5.	Other Information	44
Item 6.	Exhibits	45
Signature		46

PART I. FINANCIAL INFORMATION

Item 1.    Financial Statements

Baxter International Inc.

Condensed Consolidated Balance Sheets (unaudited)

(in millions, except share information)

	March 31, 2024		December 31, 2023
Current assets:
Cash and cash equivalents	$	3,026	$	3,194
Accounts receivable, net of allowances of $121 in 2024 and $129 in 2023	2,521		2,690
Inventories	2,988		2,824
Prepaid expenses and other current assets	865		892
Total current assets	9,400		9,600
Property, plant and equipment, net	4,370		4,433
Goodwill	6,430		6,514
Other intangible assets, net	5,905		6,079
Operating lease right-of-use assets	531		524
Other non-current assets	1,152		1,126
Total assets	$	27,788	$	28,276
Current liabilities:
Current maturities of long-term debt and finance lease obligations	$	2,634	$	2,668
Accounts payable	1,329		1,241
Accrued expenses and other current liabilities	2,402		2,594
Total current liabilities	6,365		6,503
Long-term debt and finance lease obligations, less current portion	11,092		11,130
Operating lease liabilities	444		438
Other non-current liabilities	1,652		1,737
Total liabilities	19,553		19,808
Commitments and contingencies
Equity:
Common stock, $1 par value, authorized 2,000,000,000 shares, issued 683,494,944 shares in 2024 and 2023	683		683
Common stock in treasury, at cost, 173,930,493 shares in 2024 and 175,861,893 shares in 2023	(11,130)		(11,230)
Additional contributed capital	6,339		6,389
Retained earnings	16,003		16,114
Accumulated other comprehensive loss	(3,722)		(3,554)
Total Baxter stockholders’ equity	8,173		8,402
Noncontrolling interests	62		66
Total equity	8,235		8,468
Total liabilities and equity	$	27,788	$	28,276

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,
	2024		2023
Net sales	$	3,592	$	3,513
Cost of sales	2,205		2,238
Gross margin	1,387		1,275
Selling, general and administrative expenses	1,027		995
Research and development expenses	176		164
Other operating income, net	(3)		(13)
Operating income	187		129
Interest expense, net	78		117
Other income, net	(7)		(2)
Income from continuing operations before income taxes	116		14
Income tax expense	77		14
Income from continuing operations	39		—
Income from discontinued operations, net of tax	—		45
Net income	39		45
Net income attributable to noncontrolling interests	2		1
Net income attributable to Baxter stockholders	$	37	$	44
Income from continuing operations per common share
Basic	$	0.07	$	0.00
Diluted	$	0.07	$	0.00
Income from discontinued operations per common share
Basic	$	0.00	$	0.09
Diluted	$	0.00	$	0.09
Net income per common share
Basic	$	0.07	$	0.09
Diluted	$	0.07	$	0.09
Weighted-average number of shares outstanding
Basic	508		505
Diluted	510		505

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,
	2024		2023
Income from continuing operations	$	39	$	—
Other comprehensive income (loss) from continuing operations, net of tax:
Currency translation adjustments, net of tax expense (benefit) of $11 and $(13) for the three months ended March 31, 2024 and 2023, respectively.	(184)		81
Pension and other postretirement benefits, net of tax expense (benefit) of $3 and ($1) for the three months ended March 31, 2024 and 2023, respectively.	4		(6)
Hedging activities, net of tax expense (benefit) of $2 and ($1) for the three months ended March 31, 2024 and 2023, respectively.	8		(2)
Total other comprehensive income (loss) from continuing operations, net of tax	(172)		73
Comprehensive income (loss) from continuing operations	(133)		73
Income from discontinued operations, net of tax	—		45
Other comprehensive income from discontinued operations, net of tax - currency translation adjustments	—		21
Comprehensive income from discontinued operations	—		66
Comprehensive income (loss)	(133)		139
Less: Comprehensive income attributable to noncontrolling interests	2		1
Less: Other comprehensive income (loss) attributable to noncontrolling interests	(4)		—
Comprehensive income (loss) attributable to Baxter stockholders	$	(131)	$	138

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, 2024
	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, 2024	683	$	683	176	$	(11,230)	$	6,389	$	16,114	$	(3,554)	$	8,402	$	66	$	8,468
Net income	—	—		—	—		—		37		—		37		2		39
Other comprehensive income (loss)	—	—		—	—		—		—		(168)		(168)		(4)		(172)
Stock issued under employee benefit plans and other	—	—		(2)	100		(50)		—		—		50		—		50
Dividends declared on common stock	—	—		—	—		—		(148)		—		(148)		—		(148)
Change in noncontrolling interests	—	—		—	—		—		—		—		—		(2)		(2)
Balance as of March 31, 2024	683	$	683	174	$	(11,130)	$	6,339	$	16,003	$	(3,722)	$	8,173	$	62	$	8,235

	For the three months ended March 31, 2023
	Baxter International Inc. stockholders' equity
	Common stock shares	Common stock		Common stock shares in treasury	Common stock in treasury		Additional contributed capital		Retained earnings		Accumulated other comprehensive income (loss)		Total Baxter stockholders' equity		Noncontrolling interests		Total equity
Balance as of January 1, 2023	683	$	683	179	$	(11,389)	$	6,322	$	14,050	$	(3,833)	$	5,833	$	62	$	5,895
Net income	—	—		—	—		—		44		—		44		1		45
Other comprehensive income (loss)	—	—		—	—		—		—		94		94		—		94
Stock issued under employee benefit plans and other	—	—		(1)	65		(10)		—		—		55		—		55
Dividends declared on common stock	—	—		—	—		—		(147)		—		(147)		—		(147)
Change in noncontrolling interests	—	—		—	—		—		—		—		—		(1)		(1)
Balance as of March 31, 2023	683	$	683	178	$	(11,324)	$	6,312	$	13,947	$	(3,739)	$	5,879	$	62	$	5,941

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,
	2024		2023
Cash flows from operations
Net income	$	39	$	45
Less: Income from discontinued operations, net of tax	—		45
Income from continuing operations	39		—
Adjustments to reconcile net income to cash flows from operations:
Depreciation and amortization	335		313
Deferred income taxes	(69)		(61)
Stock compensation	25		25
Net periodic pension and other postretirement costs	(5)		(4)
Other	9		14
Changes in balance sheet items:
Accounts receivable, net	137		148
Inventories	(204)		(163)
Prepaid expenses and other current assets	(10)		(31)
Accounts payable	131		144
Accrued expenses and other current liabilities	(190)		119
Other	(35)		(35)
Cash flows from operations - continuing operations	163		469
Cash flows from operations - discontinued operations	—		10
Cash flows from operations	163		479
Cash flows from investing activities
Capital expenditures	(176)		(165)
Acquisitions of developed technology and investments	(6)		(3)
Proceeds from sale of marketable equity securities	16		—
Other investing activities, net	—		5
Cash flows from investing activities - continuing operations	(166)		(163)
Cash flows from investing activities - discontinued operations	—		(7)
Cash flows from investing activities	(166)		(170)
Cash flows from financing activities
Repayments of debt	(15)		(3)
Net (decreases) increases in debt with original maturities of three months or less	—		(249)
Cash dividends on common stock	(147)		(146)
Proceeds from stock issued under employee benefit plans	40		36
Other financing activities, net	(18)		(10)
Cash flows from financing activities	(140)		(372)
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash	(25)		18
Decrease in cash, cash equivalents and restricted cash	(168)		(45)
Cash, cash equivalents and restricted cash at beginning of period (1)	3,198		1,722
Cash, cash equivalents and restricted cash at end of period (1)	$	3,030	$	1,677

(1) The following table provides a reconciliation of cash, cash equivalents and restricted cash shown above to the amounts reported within the condensed consolidated balance sheet as of March 31, 2024, December 31, 2023, and March 31, 2023 (in millions):

	March 31, 2024		December 31, 2023		March 31, 2023
Cash and cash equivalents	$	3,026	$	3,194	$	1,673
Restricted cash included in other non-current assets	4		4		4
Cash, cash equivalents and restricted cash	$	3,030	$	3,198	$	1,677

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, our or Baxter) have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial reporting. Accordingly, certain information and note disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (U.S. GAAP) in the United States have been condensed or omitted. These unaudited interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in our Annual Report on Form 10-K for the year ended December 31, 2023 (2023 Annual Report).

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

In January 2023, we announced our intention to separate our Kidney Care business into a new, publicly traded company. In March 2024, we announced that we have been in recent discussions with select private equity investors to explore a potential sale of our Kidney Care business in lieu of the proposed spinoff. Regardless of the separation structure ultimately selected, the separation of our Kidney Care business is currently expected to be completed during the second half of 2024, subject to the satisfaction of customary conditions.

Risks and Uncertainties

Supply Constraints and Global Economic Conditions

We have experienced significant challenges to our global supply chain in recent periods, including production delays and interruptions, increased costs and shortages of raw materials and component parts (including resins and electromechanical devices), and higher transportation costs, resulting from the pandemic and other exogenous factors including significant weather events, elevated inflation levels, disruptions to certain ports of call and access to shipping lanes around the world, the war in Ukraine, the conflict in the Middle East (including attacks on merchant ships in the Red Sea), tensions amongst China, Taiwan, and the U.S., and other geopolitical events. These challenges, including the unavailability of certain raw materials and component parts, have also had a negative impact on our sales for certain product categories due to our inability to fully satisfy demand. While we have seen meaningful improvements in the availability of certain component parts and improved pricing of certain raw materials and on certain transportation costs, these challenges may have a negative impact on our sales in the future.

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

2. DISCONTINUED OPERATIONS

On September 29, 2023, we sold our BioPharma Solutions (BPS) business to Advent International and Warburg Pincus (collectively, the "buyers").

The BPS business, which was historically reported within our former Americas segment, provided contract manufacturing and development services, which include sterile fill-finish manufacturing and support services across clinical and commercial applications, primarily serving customers in the pharmaceutical industry. BPS was historically operated through our former, wholly-owned subsidiaries Baxter Pharmaceutical Solutions LLC, a Delaware limited liability company, and Baxter Oncology GmbH, a German limited liability company (collectively, the divested entities).

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

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business are reported as discontinued operations in the accompanying consolidated financial statements. Prior period amounts have been adjusted to reflect discontinued operations presentation.

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

Results of Discontinued Operations

The following table summarizes the major classes of line items included in income from discontinued operations, net of tax, for the three months ended March 31, 2023:

	Three months ended March 31,
(in millions)	2023
Net sales	$	136
Cost of sales	64
Gross margin	72
Selling, general and administrative expenses	15
Other income, net	1
Income from discontinued operations before income taxes	56
Income tax expense	11
Income from discontinued operations, net of tax	45

For the three months ended March 31, 2023, selling, general and administrative expenses (SG&A) include $7 million of separation-related costs incurred in connection with the sale of BPS.

3. SUPPLEMENTAL FINANCIAL INFORMATION

Allowance for Doubtful Accounts

The following table is a summary of the changes in our allowance for doubtful accounts for the three months ended March 31, 2024 and 2023.

	Three months ended March 31,
(in millions)	2024		2023
Balance at beginning of period	$	129	$	114
Charged to costs and expenses	(1)		7
Write-offs	(6)		(1)
Currency translation adjustments	(1)		2
Balance at end of period	$	121	$	122

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Inventories

(in millions)	March 31, 2024		December 31, 2023
Raw materials	$	750	$	731
Work in process	316		285
Finished goods	1,922		1,808
Inventories	$	2,988	$	2,824

Property, Plant and Equipment, Net

(in millions)	March 31, 2024		December 31, 2023
Property, plant and equipment, at cost	$	11,197	$	11,223
Accumulated depreciation	(6,827)		(6,790)
Property, plant and equipment, net	$	4,370	$	4,433

Interest Expense, Net

	Three months ended March 31,
(in millions)	2024		2023
Interest expense, net of capitalized interest	$	103	$	127
Interest income	(25)		(10)
Interest expense, net	$	78	$	117

Other Income, Net

	Three months ended March 31,
(in millions)	2024		2023
Foreign exchange losses, net	$	14	$	14
Pension and other postretirement benefit plans	(12)		(10)
Change in fair value of marketable equity securities	(4)		(5)
Other, net	(5)		(1)
Other income, net	$	(7)	$	(2)

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, 2024 and 2023 were $20 million and $26 million, respectively.

Purchases of property, plant and equipment included in accounts payable as of March 31, 2024 and 2023 were $52 million and $70 million, respectively.

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4. GOODWILL AND OTHER INTANGIBLE ASSETS, NET

Goodwill

The following is a reconciliation of goodwill by segment.

(in millions)	Medical Products and Therapies		Healthcare Systems and Technologies		Pharmaceuticals		Kidney Care		Total
Balance as of December 31, 2023	$	1,241	$	3,989	$	563	$	721	$	6,514
Currency translation	(38)		(7)		(17)		(22)		(84)
Balance as of March 31, 2024	$	1,203	$	3,982	$	546	$	699	$	6,430

For the periods ended March 31, 2024 and 2023, there were no reductions in goodwill relating to impairment losses.

Other intangible assets, net

The following is a summary of our other intangible assets.

									Indefinite-lived intangible assets
(in millions)	Customer relationships		Developed technology, including patents		Trade names		Other amortized intangible assets		Trade names		In process Research and Development		Total
March 31, 2024
Gross other intangible assets	$	3,444	$	3,807	$	1,097	$	118	$	680	$	157	$	9,303
Accumulated amortization	(745)		(2,366)		(188)		(99)		—		—		(3,398)
Other intangible assets, net	$	2,699	$	1,441	$	909	$	19	$	680	$	157	$	5,905
December 31, 2023
Gross other intangible assets	$	3,446	$	3,823	$	1,106	$	120	$	680	$	157	$	9,332
Accumulated amortization	(689)		(2,285)		(180)		(99)		—		—		(3,253)
Other intangible assets, net	$	2,757	$	1,538	$	926	$	21	$	680	$	157	$	6,079

Intangible asset amortization expense was $166 million and $162 million for the three months ended March 31, 2024 and 2023, respectively.

5. FINANCING ARRANGEMENTS

Credit Facilities

In the first quarter of 2024, we amended the credit agreements governing our U.S. dollar-denominated term loan credit facility and revolving credit facility and the guaranty agreement with respect to our Euro-denominated revolving credit facility, in each case to amend the net leverage ratio covenant to increase the maximum net leverage ratio for the six fiscal quarters ending June 30, 2024, September 30, 2024, December 31, 2024, March 31, 2025, June 30, 2025, and September 30, 2025. The amendment further provides for the reduction of the capacity under our U.S dollar-denominated revolving credit facility from $2.50 billion to $2.00 billion on the earlier of September 30, 2024 or the date of the sale or spinoff of our Kidney Care business. Costs incurred in connection with the amendment were not material.

Our U.S. dollar-denominated revolving credit facility currently has a capacity of $2.50 billion and our Euro-denominated revolving credit facility has a capacity of €200 million. Each of the facilities matures in 2026. There were no borrowings outstanding under these credit facilities as of March 31, 2024 or December 31, 2023. Our commercial paper borrowing arrangements require us to maintain undrawn borrowing capacity under our credit facilities for an amount at least equal to our outstanding commercial paper borrowings. Based on our covenant calculations as of March 31, 2024 we have capacity to draw on the full amounts under our credit facilities.

In the first three months of 2024, we repaid $13 million of senior notes at maturity.

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6. COMMITMENTS AND CONTINGENCIES

We are involved in product liability, patent, commercial, and other legal matters that arise in the normal course of our business. We record a liability when a loss is considered probable and the amount can be reasonably estimated. If the reasonable estimate of a probable loss is a range, and no amount within the range is a better estimate than any other amount, the minimum amount in the range is accrued. If a loss is not probable or a probable loss cannot be reasonably estimated, no liability is recorded. As of March 31, 2024 and December 31, 2023, our total recorded reserves with respect to legal and environmental matters were $30 million and $31 million, respectively.

We have established reserves for certain of the matters discussed below. We are not able to estimate the amount or range of any loss for certain contingencies for which there is no reserve or additional loss for matters already reserved. While our liability in connection with these claims cannot be estimated and the resolution thereof in any reporting period could have a significant impact on our results of operations and cash flows for that period, the outcome of these legal proceedings is not expected to have a material adverse effect on our consolidated financial position. While we believe that we have valid defenses in the matters set forth below, litigation is inherently uncertain, excessive verdicts do occur, and we may incur material judgments or enter into material settlements of claims.

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

Environmental

We are involved as a potentially responsible party (PRP) for environmental clean-up costs at six Superfund sites. Under the U.S. Superfund statute and many state laws, generators of hazardous waste sent to a disposal or recycling site are liable for site cleanup if contaminants from that property later leak into the environment. The laws generally provide that a PRP may be held jointly and severally liable for the costs of investigating and remediating the site. Separate from these Superfund cases noted above, we are involved in ongoing environmental remediations associated with historic operations at certain of our facilities. As of March 31, 2024 and December 31, 2023, our environmental reserves, which are measured on an undiscounted basis, were $14 million and $15 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 March 2020, two lawsuits were filed against us in the Northern District of Illinois by plaintiffs alleging injuries as a result of exposure to ethylene oxide used in our manufacturing facility in Mountain Home, Arkansas to sterilize certain of our products. The plaintiffs sought damages, including compensatory and punitive damages in an unspecified amount, and unspecified injunctive and declaratory relief. The parties reached an agreement to settle these lawsuits in the third quarter of 2021 for amounts that were not material to our financial results, which were paid in the fourth quarter of 2021. We have since resolved, without litigation, additional claims of injuries from exposure to ethylene oxide at Mountain Home for amounts within accruals previously established as of December 31, 2021. On October 20, 2022, a lawsuit was filed against us in the Western District of Arkansas alleging injury as a result of exposure to ethylene oxide at Mountain Home. On December 16, 2022, we filed a motion to dismiss and for a more definite statement. In response, Plaintiffs filed a First Amended Complaint on January 6, 2023. We answered the First Amended Complaint on January 27, 2023. The parties reached an agreement to settle this lawsuit in the third quarter of 2023 for an amount that was not material to our financial results, which was paid in the fourth quarter of 2023. The case was dismissed on October 17, 2023. Starting in December 2023, a number of lawsuits have been filed against us in the Circuit Court of Cook County, Illinois by plaintiffs alleging injuries as a result of exposure to ethylene oxide used by several companies, including historic use by us for sterilization at our manufacturing facility in Round Lake, Illinois. The plaintiffs seek damages in an unspecified amount.

We acquired Hill-Rom Holdings, Inc. (Hillrom) on December 13, 2021. In July 2021, Hill-Rom, Inc., a wholly-owned subsidiary of Hillrom, received a subpoena from the United States Office of Inspector General for the Department of Health and Human Services (the DHHS) requesting documents and information related to compliance with the False Claims Act and the Anti-Kickback Statute. The subpoena was related to a lawsuit brought under the qui tam provisions

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of False Claims Act. The allegations included in the unsealed complaint relate to conduct prior to our acquisition of Hillrom, and the division involved is no longer operational. Hillrom voluntarily began a related internal review, and Hillrom and Baxter cooperated fully with the DHHS and the Department of Justice (DOJ) with respect to this matter. In January 2024, the parties reached an agreement to settle the allegations. We paid the settlement amounts, which were not material to our financial results, in January 2024 and the matter was dismissed in February 2024. In October 2022, the DOJ issued a separate Civil Investigative Demand (CID) addressed to Hillrom, requesting documents and information related to compliance with the False Claims Act and the Anti-Kickback Statute. Baxter is cooperating fully with the DOJ in responding to the CID. The DHHS and DOJ often issue these types of requests when investigating alleged violations of the False Claims Act.

On December 28, 2021, Linet Americas, Inc. (Linet) filed a complaint against Hill-Rom Holdings, Inc., Hill-Rom Company, Inc., and Hill-Rom Services, Inc. in the United States District Court for the Northern District of Illinois, captioned Linet Americas, Inc. v. Hill-Rom Holdings, Inc.; Hill-Rom Company, Inc.; Hill-Rom Services, Inc. Linet alleges that Hillrom violated Sections 1, 2 and 3 of The Sherman Antitrust Act of 1890 and the Illinois Antitrust Act by allegedly engaging in anti-competitive conduct in alleged markets for standard, ICU and birthing beds. Hillrom filed an answer to the complaint on January 28, 2022 and filed a motion challenging certain aspects of plaintiff's case on May 27, 2022, which was denied on January 17, 2024, subject to further discovery.

7. STOCKHOLDERS’ EQUITY

Cash Dividends

Cash dividends declared per share for the three months ended March 31, 2024 and 2023 were $0.29.

Stock Repurchase Programs

In July 2012, our Board of Directors authorized a share repurchase program and the related authorization amount was subsequently increased a number of times. During the first three months of 2024 and 2023 we did not repurchase any shares under this authority. We had $1.30 billion remaining available under the authorization as of March 31, 2024.

8. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

The following table is a net-of-tax summary of the changes in accumulated other comprehensive income (loss) (AOCI) by component for the three months ended March 31, 2024 and 2023.

	Gains (losses)
(in millions)	CTA		Pension and OPEB plans		Hedging activities		Available-for-sale debt securities		Total
Balance as of December 31, 2023	$	(2,985)	$	(452)	$	(120)	$	3	$	(3,554)
Other comprehensive income (loss) before reclassifications	(180)		5		6		—		(169)
Amounts reclassified from AOCI (a)	—		(1)		2		—		1
Net other comprehensive income (loss)	(180)		4		8		—		(168)
Balance as of March 31, 2024	$	(3,165)	$	(448)	$	(112)	$	3	$	(3,722)

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	Gains (losses)
(in millions)	CTA		Pension and OPEB plans		Hedging activities		Available-for-sale debt securities		Total
Balance as of December 31, 2022	$	(3,386)	$	(331)	$	(119)	$	3	$	(3,833)
Other comprehensive income (loss) before reclassifications	102		(3)		—		—		99
Amounts reclassified from AOCI (a)	—		(3)		(2)		—		(5)
Net other comprehensive income (loss)	102		(6)		(2)		—		94
Balance as of March 31, 2023	$	(3,284)	$	(337)	$	(121)	$	3	$	(3,739)

(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, 2024 and 2023.

	Amounts reclassified from AOCI (a)
(in millions)	Three months ended March 31, 2024		Three months ended March 31, 2023		Location of impact in income statement
Pension and OPEB items
Amortization of net losses and prior service costs or credits	$	2	$	5	Other income, net
Less: Tax effect	(1)		(2)		Income tax expense
	$	1	$	3	Net of tax
Gains (losses) on hedging activities
Foreign exchange contracts	$	2	$	4	Cost of sales
Interest rate contracts	(1)		(1)		Interest expense, net
Fair value hedges	(3)		—		Other income, net
	(2)		3		Total before tax
Less: Tax effect	—		(1)		Income tax expense
	$	(2)	$	2	Net of tax
Total reclassifications for the period	$	(1)	$	5	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.

Our primary customers are hospitals, healthcare distribution companies, dialysis providers, and government agencies that purchase healthcare products on behalf of providers. 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. We earn revenues from acute and chronic dialysis therapies; sterile IV solutions; infusion systems and devices; parenteral nutrition therapies; inhaled anesthetics; generic injectable pharmaceuticals; surgical hemostat and sealant products; smart bed systems; patient monitoring and diagnostic technologies; respiratory health devices; and advanced equipment for the surgical space. For most of those offerings, our performance obligation is satisfied upon delivery to

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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, we lease medical equipment to customers under operating lease arrangements and recognize the related revenues on a monthly basis over the lease term. Our Healthcare Systems and Technologies segment includes connected care solutions and collaboration tools that are implemented over time. 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. We also earn revenue from contract manufacturing activities, which is recognized over time as the services are performed. 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, 2024, we had $5.78 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 Medical Product and Therapies and Kidney Care segments. Some contracts in the United States included in this amount contain index-dependent price increases, which are not known at this time. We expect to recognize approximately 45% of this amount as revenue over the remainder of 2024, 30% in 2025, 15% in 2026, and 10% in 2027.

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 as reductions of 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 months ended March 31, 2024 and 2023 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 $2.26 billion and $2.43 billion as of March 31, 2024 and December 31, 2023, 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.

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The following table summarizes our contract assets:

(in millions)	March 31, 2024		December 31, 2023
Contract manufacturing services	$	7	$	5
Software sales	41		44
Bundled equipment and consumable medical products contracts	108		117
Contract assets	$	156	$	166

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

The following table summarizes contract liability activity for the three months ended March 31, 2024 and 2023. The contract liability balance represents the transaction price allocated to the remaining performance obligations.

	Three Months Ended March 31,
(in millions)	2024		2023
Balance at beginning of period	$	194	$	194
New revenue deferrals	116		115
Revenue recognized upon satisfaction of performance obligations	(114)		(120)
Currency translation	1		1
Balance at end of period	$	197	$	190

For the three months ended March 31, 2024 and 2023, $48 million and $65 million of revenue was recognized that was included in contract liabilities as of December 31, 2023 and 2022, respectively.

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

(in millions)	March 31, 2024		December 31, 2023
Prepaid expenses and other current assets	$	53	$	53
Other non-current assets	103		113
Contract assets	$	156	$	166
Accrued expenses and other current liabilities	$	155	$	148
Other non-current liabilities	42		46
Contract liabilities	$	197	$	194

Disaggregation of Net Sales

Refer to Note 16 for additional information on our net sales including the disaggregation of net sales within each of our segments and net sales by geographic location.

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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 months ended March 31, 2024 and 2023 were:

	Three Months Ended March 31,
(in millions)	2024		2023
Sales-type lease revenue	$	3	$	4
Operating lease revenue	144		124
Variable lease revenue	16		15
Total lease revenue	$	163	$	143

Our net investment in sales-type leases was $69 million as of March 31, 2024, of which $29 million originated in 2020 and prior, $16 million in 2021, $12 million in 2022, $10 million in 2023, and $2 million in 2024.

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. The related costs of those actions consisted primarily of employee termination costs, implementation costs, contract termination costs, and asset impairments. We currently expect to incur additional pre-tax costs, primarily related to implementation of business optimization programs, of approximately $15 million through the completion of initiatives that are currently underway. We continue to pursue cost savings initiatives, including those related to our newly implemented operating model, intended to simplify and streamline our operations, and to the extent further cost savings opportunities are identified, we would incur additional restructuring charges and costs to implement business optimization programs in future periods.

During the three months ended March 31, 2024 and 2023, we recorded the following charges related to business optimization programs.

	Three Months Ended March 31,
(in millions)	2024		2023
Restructuring charges	$	47	$	110
Costs to implement business optimization programs	10		24
Total business optimization charges	$	57	$	134

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

Costs to implement business optimization programs for the three months ended March 31, 2024 and 2023, 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.

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During the three months ended March 31, 2024 and 2023, we recorded the following restructuring charges.

	Three months ended March 31, 2024
(in millions)	COGS		SG&A		R&D		Total
Employee termination costs	$	5	$	15	$	16	$	36
Contract termination and other costs	1		5		—		6
Asset impairments	5		—		—		5
Total restructuring charges	$	11	$	20	$	16	$	47

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

For the three months ended March 31, 2024, our most significant restructuring actions, reflecting $24 million of the restructuring charges in the table above, were related to a program to centralize certain of our R&D activities into a new location and to our recent implementation of a new operating model intended to simplify and streamline our operations.

For the three months ended March 31, 2023, our most significant restructuring action, reflecting $78 million of the restructuring charges in the table above, was related to the implementation of our new operating model.

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

(in millions)
Liability balance as of December 31, 2023	$	128
Charges	42
Payments	(35)
Currency translation	1
Liability balance as of March 31, 2024	$	136

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

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)	2024		2023
Pension benefits
Service cost	$	7	$	6
Interest cost	38		37
Expected return on plan assets	(50)		(44)
Amortization of net losses and prior service costs	3		1
Net periodic pension cost	$	(2)	$	—
OPEB
Interest cost	$	2	$	2
Amortization of net loss and prior service credit	(5)		(6)
Net periodic OPEB cost (income)	$	(3)	$	(4)

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12. INCOME TAXES

Our effective income tax rate was 66.4% and 100.0% for the three months ended March 31, 2024 and 2023, respectively. Our effective income tax rate can differ from the 21% U.S. federal statutory rate due to a number of factors, including foreign rate differences, tax incentives, non-deductible expenses, non-taxable income, increases or decreases in valuation allowances, increases or decreases in liabilities for uncertain tax positions, and excess tax benefits or shortfalls on stock compensation awards.

For the three months ended March 31, 2024, the difference between our effective income tax rate and the U.S. federal statutory rate was primarily driven by $37 million of income tax expense resulting from internal reorganization transactions related to the proposed separation of our Kidney Care segment, an increase in a valuation allowance in a foreign jurisdiction resulting from changes in future projected income, and an increase in our liabilities for various uncertain tax positions.

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

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 income from continuing operations to net income attributable to Baxter stockholders.

	Three months ended March 31,
(in millions)	2024		2023
Income from continuing operations	$	39	$	—
Less: Net income attributable to noncontrolling interests	2		1
Income (loss) from continuing operations attributable to Baxter stockholders	37		(1)
Income from discontinued operations	—		45
Net income attributable to Baxter stockholders	$	37	$	44

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

	Three months ended March 31,
(in millions)	2024	2023
Basic shares	508	505
Effect of dilutive securities	2	—
Diluted shares	510	505

Basic and diluted shares are the same for the three months ended March 31, 2023 due to our loss from continuing operations attributable to Baxter stockholders. 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 16 million and 24 million shares issuable under equity awards for the three months ended March 31, 2024, and 2023, respectively, because their inclusion would have had an anti-dilutive effect on diluted EPS.

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.

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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, Japanese Yen, Swedish Krona, Polish Zloty, Mexican Peso, Australian Dollar, Canadian Dollar, Korean Won, Colombian Peso, Brazilian Real, Turkish Lira, and Indian Rupee. We manage our foreign currency exposures on a consolidated basis, which allows us to net exposures and take advantage of any natural offsets. In addition, we use derivative and nonderivative instruments to further reduce the 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.

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

Cash Flow Hedges

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

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

The notional amounts of foreign exchange contracts designated as cash flow hedges were $261 million and $340 million as of March 31, 2024 and December 31, 2023, respectively. The maximum term over which we have cash flow hedge contracts in place related to forecasted transactions at March 31, 2024 is 12 months for foreign exchange contracts. There were no outstanding interest rate contracts designated as cash flow hedges as of March 31, 2024 and December 31, 2023.

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, 2024 and December 31, 2023.

In October 2023, we entered into a foreign currency forward contract with a notional amount of $798 million maturing in May 2024 and designated that derivative as a fair value hedge of our €750 million of 0.40% senior notes due May 2024.

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Net Investment Hedges

In May 2017, we issued €600 million of 1.3% senior notes due May 2025. In May 2019, we issued €750 million of 1.3% 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.

In May 2019, we issued €750 million of 0.40% senior notes due May 2024. We had designated these debt obligations as hedges of our investment in our European operations and, as a result, mark to spot rate adjustments of the outstanding debt balances were previously recorded as a component of AOCI. In October 2023, we dedesignated this previously designated net investment hedge and concurrently entered into a fair value hedging relationship as discussed in the "Fair Value Hedges" section above.

As of March 31, 2024, we had an accumulated pre-tax unrealized translation gain in AOCI of $75 million related to the Euro-denominated senior notes.

Dedesignations

If it is determined that a derivative or nonderivative hedging instrument is no longer highly effective as a hedge, we discontinue hedge accounting prospectively. Gains or losses relating to terminations of effective cash flow hedges generally continue to be deferred and are recognized consistent with the loss or income recognition of the underlying hedged items. However, if it is probable that the hedged forecasted transactions will not occur, any gains or losses would be immediately reclassified from AOCI to earnings.

There were no cash flow hedge dedesignations in the first three months of 2024 or 2023 resulting from changes in our assessment of the probability that the hedged forecasted transactions would occur. The losses relating to these terminations continue to be deferred and are being recognized consistent with the underlying hedged item, interest expense on the issuance of debt.

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 2024 or 2023.

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 2024 or 2023.

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 $707 million as of March 31, 2024 and $709 million as of December 31, 2023.

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, 2024 and

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2023.

	Gain (loss) recognized in OCI				Location of gain (loss) in income statement	Gain (loss) reclassified from AOCI into income
(in millions)	2024		2023			2024		2023
Cash flow hedges
Interest rate contracts	$	—	$	—	Interest expense, net	$	(1)	$	(1)
Foreign exchange contracts	10		—		Cost of sales	2		4
Fair value hedges
Foreign exchange contracts	(2)		—		Other income, net	(3)		—
Net investment hedges	38		(48)		Other income, net	—		—
Total	$	46	$	(48)		$	(2)	$	3

	Location of gain (loss) in income statement	Gain (loss) recognized in income
(in millions)		2024		2023
Fair value hedges
Foreign exchange contracts	Other income, net	$	(23)	$	—
Undesignated derivative instruments
Foreign exchange contracts	Other income, net	(17)		(3)
Total		$	(40)	$	(3)

As of March 31, 2024, less than $1 million of deferred, net after-tax gains on derivative instruments included in AOCI are expected to be recognized in earnings during the next 12 months, coinciding with when the hedged items are expected to impact earnings.

Derivative Assets and Liabilities

The following table summarizes the classification and fair values of derivative instruments reported in the condensed consolidated balance sheet as of March 31, 2024.

	Derivatives in asset positions			Derivatives in liability positions
(in millions)	Balance sheet location	Fair value		Balance sheet location	Fair value
Undesignated derivative instruments
Foreign exchange contracts	Prepaid expenses and other current assets	$	13	Accrued expenses and other current liabilities	$	7
Derivative instruments designated as hedges
Foreign exchange contracts	Prepaid expenses and other current assets	6		Accrued expenses and other current liabilities	1
Total derivative instruments		$	19		$	8

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

	Derivatives in asset positions			Derivatives in liability positions
(in millions)	Balance sheet location	Fair value		Balance sheet location	Fair value
Undesignated derivative instruments
Foreign exchange contracts	Prepaid expenses and other current assets	$	47	Accrued expenses and other current liabilities	$	—
Derivative instruments designated as hedges
Foreign exchange contracts	Prepaid expenses and other current assets	4		Accrued expenses and other current liabilities	5
Total derivative instruments		$	51		$	5

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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, 2024				December 31, 2023
(in millions)	Asset		Liability		Asset		Liability
Gross amounts recognized in the condensed consolidated balance sheets	$	19	$	8	$	51	$	5
Gross amount subject to offset in master netting arrangements not offset in the condensed consolidated balance sheet	(2)		(2)		(5)		(5)
Total	$	17	$	6	$	46	$	—

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, 2024		Balance as of December 31, 2023		Balance as of March 31, 2024		Balance as of December 31, 2023
Long-term debt	$	100	$	100	$	3	$	3

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

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, 2024		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	$	19	$	—	$	19	$	—
Available-for-sale debt securities	22		—		—		22
Marketable equity securities	31		31		—		—
Total	$	72	$	31	$	19	$	22
Liabilities
Foreign exchange contracts	$	8	$	—	$	8	$	—
Contingent payments related to acquisitions	14		—		—		14
Total	$	22	$	—	$	8	$	14

22

			Basis of fair value measurement
(in millions)	Balance as of December 31, 2023		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	$	51	$	—	$	51	$	—
Available-for-sale debt securities	22		—		—		22
Marketable equity securities	44		44		—		—
Total	$	117	$	44	$	51	$	22
Liabilities
Foreign exchange contracts	$	5	$	—	$	5	$	—
Contingent payments related to acquisitions	14		—		—		14
Total	$	19	$	—	$	5	$	14

As of March 31, 2024 and December 31, 2023, cash and cash equivalents of $3.03 billion and $3.19 billion, respectively, included money market funds of approximately $1.47 billion and $1.63 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. A majority of the derivatives entered into by us are valued using internal valuation techniques as no quoted market prices exist for such instruments. The principal techniques used to value these instruments are discounted cash flow and Black-Scholes models. The key inputs, which are considered observable and vary depending on the type of derivative, include contractual terms, interest rate yield curves, foreign exchange rates and volatility.

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

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

The following table is a reconciliation of recurring fair value measurements that use significant unobservable inputs (Level 3), which consist of contingent payments related to acquisitions and available-for-sale debt securities.

	Three months ended March 31,
	2024				2023
(in millions)	Contingent payments related to acquisitions		Available-for-sale debt securities		Contingent payments related to acquisitions		Available-for-sale debt securities
Fair value at beginning of period	$	14	$	22	$	84	$	47
Change in fair value recognized in earnings	—		—		(13)		—
Transfers out of Level 3	—		—		—		(5)
Payments	—		—		(1)		—
Fair value at end of period	$	14	$	22	$	70	$	42

23

During the three months ended March 31, 2023, available-for-sale debt securities were reclassified from Level 3, upon conversion to marketable equity securities, which are classified as Level 1 in the fair value hierarchy, upon initial public offerings of the investees.

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, 2024 and December 31, 2023.

	Book values				Fair values(a)
(in millions)	2024		2023		2024		2023
Liabilities
Current maturities of long-term debt and finance lease obligations	$	2,634	$	2,668	$	2,606	$	2,621
Long-term debt and finance lease obligations	11,092		11,130		9,872		10,067

(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 not presented in the above table, such as accounts receivable, and accounts payable, approximate their fair values due to the short-term maturities of most of those assets and liabilities.

Investments Without Readily Determinable Fair Values

The carrying values of equity investments without readily determinable fair values that we measure at cost, less impairment were $67 million as of March 31, 2024 and $66 million as of December 31, 2023. When applicable, we also adjust the measurement of such equity investments for observable prices in orderly transactions for an identical or similar investment of the same issuer. Those investments are included in Other non-current assets on our condensed consolidated balance sheets.

16. SEGMENT INFORMATION

In the third quarter of 2023, we completed the implementation of a new operating model intended to simplify and streamline our operations and better align our manufacturing and supply chain to our commercial activities. Under this new operating model, our business is comprised of four segments: Medical Products and Therapies, Healthcare Systems and Technologies, Pharmaceuticals, and Kidney Care (which we are planning to divest during the second half of 2024 through either a sale or spinoff, as discussed above). Our segments were changed during the third quarter of 2023 to align with our new operating model and prior period segment disclosures have been revised to reflect the new segment presentation.

The Medical Products and Therapies segment includes sales of our sterile IV solutions, infusion systems, administration sets, parenteral nutrition therapies and surgical hemostat, sealant, and adhesion prevention products. The Healthcare Systems and Technologies segment includes sales of our connected care solutions and collaboration tools, including smart bed systems, patient monitoring systems and diagnostic technologies, respiratory health devices, and advanced equipment for the surgical space, including surgical video technologies, precision positioning devices, and other accessories. The Pharmaceuticals segment includes sales of specialty injectable pharmaceuticals, inhaled anesthesia, and drug compounding. The Kidney Care segment includes sales of chronic and acute dialysis therapies and services, including peritoneal dialysis, hemodialysis, continuous renal replacement therapies, and other organ support therapies. Other sales not allocated to a segment primarily include sales of products and services provided directly through certain of our manufacturing facilities and royalty income under a business development arrangement that ended in early 2023 when we acquired the related product rights.

24

Disaggregation of Net Sales

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

Three months ended March 31,

2024