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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, 2022
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)
_________________________________________________________________________________
Delaware36-0781620
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
One Baxter Parkway,Deerfield,Illinois60015
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, $1.00 par valueBAX (NYSE)New York Stock Exchange
Chicago Stock Exchange
0.4% Global Notes due 2024BAX 24New York Stock Exchange
1.3% Global Notes due 2025BAX 25New York Stock Exchange
1.3% Global Notes due 2029BAX 29New York Stock Exchange
3.95% Global Notes due 2030BAX 30New York Stock Exchange
1.73% Global Notes due 2031BAX 31New 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 filerxAccelerated filero
Non-accelerated fileroSmaller 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 21, 2022 was 503,528,678 shares.




BAXTER INTERNATIONAL INC.
FORM 10-Q
For the quarterly period ended March 31, 2022






























PART I. FINANCIAL INFORMATION
Item 1.    Financial Statements
Baxter International Inc.
Condensed Consolidated Balance Sheets (unaudited)
(in millions, except share information)
March 31,
2022
December 31,
2021
Current assets:
Cash and cash equivalents $2,294 $2,951 
Accounts receivable, net of allowances of $129 in 2022 and $122 in 2021
2,471 2,629 
Inventories2,548 2,453 
Prepaid expenses and other current assets860 839 
Total current assets8,173 8,872 
Property, plant and equipment, net 5,114 5,178 
Goodwill 9,816 9,836 
Other intangible assets, net 7,693 7,792 
Operating lease right-of-use assets609 630 
Other non-current assets 1,311 1,213 
Total assets $32,716 $33,521 
Current liabilities:
Short-term debt $200 $301 
Current maturities of long-term debt and finance lease obligations209 210 
Accounts payable 1,223 1,246 
Accrued expenses and other current liabilities2,258 2,479 
Total current liabilities 3,890 4,236 
Long-term debt and finance lease obligations, less current portion16,765 17,149 
Operating lease liabilities508 522 
Other non-current liabilities 2,434 2,493 
Total liabilities 23,597 24,400 
Commitments and contingencies
Equity:
Common stock, $1 par value, authorized 2,000,000,000 shares, issued 683,494,944 shares in 2022 and 2021
683 683 
Common stock in treasury, at cost,180,058,105 shares in 2022 and 181,879,516 shares in 2021
(11,422)(11,488)
Additional contributed capital6,207 6,197 
Retained earnings16,994 17,065 
Accumulated other comprehensive (loss) income(3,387)(3,380)
Total Baxter stockholders’ equity9,075 9,077 
Noncontrolling interests44 44 
Total equity9,119 9,121 
Total liabilities and equity$32,716 $33,521 
The accompanying notes are an integral part of these condensed consolidated financial statements.
2


Baxter International Inc.
Condensed Consolidated Statements of Income (unaudited)
(in millions, except per share data)
Three months ended
March 31,
20222021
Net sales$3,707 $2,946 
Cost of sales2,359 1,801 
Gross margin1,348 1,145 
Selling, general and administrative expenses1,052 627 
Research and development expenses150 128 
Other operating income, net(17) 
Operating income163 390 
Interest expense, net85 34 
Other (income) expense, net(16)5 
Income before income taxes94 351 
Income tax expense 21 51 
Net income 73 300 
Net income attributable to noncontrolling interests2 2 
Net income attributable to Baxter stockholders$71 $298 
Earnings per share
Basic$0.14 $0.59 
Diluted$0.14 $0.58 
Weighted-average number of shares outstanding
Basic503 505 
Diluted509 511 
The accompanying notes are an integral part of these condensed consolidated financial statements.
3


Baxter International Inc.
Condensed Consolidated Statements of Comprehensive Income (unaudited)
(in millions)
Three months ended
March 31,
20222021
Net income$73 $300 
Other comprehensive income (loss), net of tax:
Currency translation adjustments, net of tax expense (benefit) of ($11) and $17 for the three months ended March 31, 2022 and 2021, respectively.
(15)(208)
Pension and other postretirement benefits, net of tax expense of $3 and $8 for the three months ended March 31, 2022 and 2021, respectively.
9 30 
Hedging activities, net of tax expense (benefit) of ($1) and $3 for the three months ended March 31, 2022 and 2021, respectively.
(2)12 
Debt securities, net of tax expense of $1 and zero for the three months ended March 31, 2022 and 2021, respectively
1  
Total other comprehensive loss, net of tax(7)(166)
Comprehensive income66 134 
Less: Comprehensive income attributable to noncontrolling interests2 2 
Comprehensive income attributable to Baxter stockholders$64 $132 
The accompanying notes are an integral part of these condensed consolidated financial statements.
4


Baxter International Inc.
Condensed Consolidated Statements of Changes in Equity (unaudited)
(in millions)
For the three months ended March 31, 2022
Baxter International Inc. stockholders' equity
Common stock sharesCommon stockCommon stock shares
in treasury
Common stock in
treasury
Additional contributed capitalRetained earningsAccumulated other comprehensive
income (loss)
Total Baxter stockholders' equityNoncontrolling interestsTotal equity
Balance as of January 1, 2022683 $683 182 $(11,488)$6,197 $17,065 $(3,380)$9,077 $44 $9,121 
Net income— — — — — 71 — 71 2 73 
Other comprehensive income (loss)— — — — — — (7)(7)— (7)
Stock issued under employee benefit plans and other— — (2)66 10 — — 76 — 76 
Dividends declared on common stock— — — — — (142)— (142)— (142)
Change in noncontrolling interests— — — — — — — — (2)(2)
Balance as of March 31, 2022
683 $683 180 $(11,422)$6,207 $16,994 $(3,387)$9,075 $44 $9,119 

For the three months ended March 31, 2021
Baxter International Inc. stockholders' equity
Common stock sharesCommon stockCommon stock shares in treasuryCommon stock in treasuryAdditional contributed capitalRetained earningsAccumulated other comprehensive income (loss)Total Baxter stockholders' equityNoncontrolling interestsTotal equity
Balance as of January 1, 2021683 $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, 2021683 $683 181 $(11,296)$6,043 $16,502 $(3,480)$8,452 $38 $8,490 
The accompanying notes are an integral part of these condensed consolidated financial statements.
5


Baxter International Inc.
Condensed Consolidated Statements of Cash Flows (unaudited)
(in millions)
Three months ended
March 31,
20222021
Cash flows from operations
Net income$73 $300 
Adjustments to reconcile net income to cash flows from operations:
Depreciation and amortization380 217 
Deferred income taxes(55)(25)
Stock compensation32 22 
Net periodic pension and other postretirement costs14 26 
Other(12)14 
Changes in balance sheet items:
Accounts receivable, net153 51 
Inventories(105)(129)
Prepaid expenses and other current assets(13)2 
Accounts payable 5 22 
Accrued expenses and other current liabilities(221)(124)
Other(43)1 
Cash flows from operations208 377 
Cash flows from investing activities
Capital expenditures(140)(171)
Acquisitions, net of cash acquired, and investments(174)(381)
Other investing activities, net10 14 
Cash flows from investing activities(304)(538)
Cash flows from financing activities
Repayments of debt(404) 
Net decreases in debt with original maturities of three months or less(45) 
Cash dividends on common stock(140)(125)
Proceeds from stock issued under employee benefit plans66 48 
Purchases of treasury stock (253)
Other financing activities, net(25)(28)
Cash flows from financing activities(548)(358)
Effect of foreign exchange rate changes on cash, cash equivalents and restricted cash(13)(31)
Decrease in cash, cash equivalents and restricted cash(657)(550)
Cash, cash equivalents and restricted cash at beginning of period (1)
2,956 3,736 
Cash, cash equivalents and restricted cash at end of period (1)
$2,299 $3,186 
(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, 2022, December 31, 2021, and March 31, 2021 (in millions):
March 31, 2022December 31, 2021March 31, 2021
Cash and cash equivalents$2,294 $2,951 $3,182 
Restricted cash included in prepaid expenses and other current assets5 5 4 
Cash, cash equivalents and restricted cash$2,299 $2,956 $3,186 
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) for interim financial reporting. 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, 2021 (2021 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.
Risks and Uncertainties Related to COVID-19 and Global Economic Conditions
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 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 have taken and continue to take. Initial measures taken in 2020 led to unprecedented restrictions on, disruptions in, and other related impacts on business and personal activities, including a shift in healthcare priorities, which resulted in a significant decline in medical procedures in 2020. The pandemic has created significant volatility in the demand for our products. For further information about our revenues by product category, refer to Note 9. Significant uncertainty remains regarding the duration and overall impact of the COVID-19 pandemic. For example, concerns remain regarding the pace of economic recovery due to virus resurgence across the globe from the Omicron variants, subvariants and other virus mutations as well as vaccine distribution and hesitancy. The U.S. and other governments may continue existing measures or implement new restrictions and other requirements in light of the continuing spread of the pandemic (including with respect to mandatory vaccinations for certain of our employees, moratoriums on elective procedures and mandatory quarantines and travel restrictions). Due to the uncertainty caused by the pandemic, our operating performance and financial results, particularly in the short term, may be subject to volatility. We have experienced significant challenges, including lengthy delays, shortages and interruptions, posed by the pandemic and other exogenous factors (including significant weather events, disruptions to certain ports of call around the world and certain geopolitical events) to our global supply chain, including the cost and availability of raw materials and component parts (including resins and electromechanical devices) and higher transportation costs, and may experience these and other challenges in future periods. Many of our manufacturing plant and distribution center personnel are currently unvaccinated, and we may also experience employee resistance in complying with current and future government vaccine and testing mandates, which may cause labor shortages significantly impacting manufacturing production and distribution center productivity. We expect that these challenges as well as evolving governmental restrictions and requirements, among other factors, may continue to have an adverse effect on our business.
New Accounting Standards
Recently adopted accounting pronouncements
As of January 1, 2022, we adopted Accounting Standards Update (ASU) 2021-05, Leases (Topic 842), which requires a lessor to classify a lease with variable lease payments (that do not depend on an index or rate) as an operating lease if (1) the lease would have been classified as a sales-type or direct financing lease, and (2) the lessor would have recognized a selling loss at lease commencement. These changes are intended to avoid recognizing a day-one loss for a lease with variable payments even though the lessor expects the arrangement will be profitable overall. The adoption of this ASU did not have a material impact on our condensed consolidated financial statements.
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2. ACQUISITIONS AND OTHER ARRANGEMENTS
Hillrom
On December 13, 2021, we completed our acquisition of all outstanding equity interests of Hill-Rom Holdings, Inc. (Hillrom) for a purchase price of $10.5 billion. Including the assumption of Hillrom's outstanding debt, the enterprise value of the transaction was approximately $12.8 billion. Under the terms of the transaction agreement, Hillrom shareholders received $156.00 in cash per outstanding Hillrom common share.
The following table summarizes the fair value of the total consideration paid:
(in millions)
Cash consideration paid to Hillrom shareholders(a)
$10,474 
Fair value of equity awards issued to Hillrom equity award holders(b)
2 
Total Consideration$10,476 
(a) Represents cash consideration transferred of $156.00 per outstanding Hillrom common share to existing shareholders and holders of equity awards that vested at closing pursuant to their original terms.
(b) Represents the pre-acquisition service portion of the fair value of 668 thousand replacement restricted stock units issued to Hillrom equity award holders at closing.
The valuation of assets acquired and liabilities assumed has not yet been finalized as of March 31, 2022. Finalization of the valuation during the measurement period could result in a change in the amounts recorded for acquired intangible assets, goodwill and income taxes among other items. The completion of the valuation will occur no later than one year from the acquisition date.The following table summarizes the preliminary fair values of the assets acquired and liabilities assumed as of the acquisition date:
(in millions)
Assets acquired and liabilities assumed
Cash and cash equivalents$399 
Accounts receivable590 
Inventories557 
Prepaid expenses and other current assets49 
Property, plant and equipment502 
Goodwill6,795 
Other intangible assets6,029 
Operating lease right-of-use assets74 
Other non-current assets125 
Short-term debt(250)
Accounts payable(140)
Accrued expenses and other current liabilities(552)
Long-term debt and finance lease obligations(2,118)
Operating lease liabilities(57)
Other non-current liabilities(1,527)
Total assets acquired and liabilities assumed$10,476 
In the first quarter of 2022, we recorded measurement period adjustments to increase other intangible assets of $7 million, increase deferred income tax liabilities of $11 million, other individually insignificant adjustments for a net
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decrease to assets acquired and liabilities assumed of $6 million and a corresponding increase to goodwill of $10 million. The measurement period adjustments did not have a significant impact our results of operations.
The goodwill, which is not deductible for tax purposes, includes the value of an assembled workforce as well as the overall strategic benefits provided to our product portfolio and is included in the Hillrom segment.
For the three months ended March 31, 2022, we recognized $159 million of incremental costs of sales from the fair value step-ups on acquired Hillrom inventory that was sold in the current period.
Other Business Development Activities
In March 2022, we entered into an agreement with a subsidiary of Pfizer Inc. to acquire the rights to Zosyn, a premixed frozen piperacillin-tazobactam product, in the U.S. and Canada. Zosyn is used for the treatment of intra-abdominal infections, nosocomial pneumonia, skin and skin structure infections, female pelvic infections and community-acquired pneumonia. Under the terms of the acquisition, we paid the acquisition price of $122 million currently, received specified intellectual property, including patent rights, in the current period and will receive additional intellectual property, including the product rights to Zosyn, in one year. Under the arrangement, we are entitled to receive profit sharing payments from sales of Zosyn until the product rights transfer to us in March 2023.
The transaction has been accounted for as an asset acquisition, as substantially all of the fair value of the assets being acquired under the arrangement was concentrated in the product rights that we will receive, which we classify as a developed technology intangible asset. Accordingly, the $122 million purchase price was primarily allocated to the developed technology intangible asset class and will be amortized over an estimated useful life of 9 years.
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, 2022 and 2021.
Three months ended
March 31,
(in millions)20222021
Balance at beginning of period$122 $125 
Charged to costs and expenses6 1 
Write-offs(1) 
Currency translation adjustments2 (6)
Balance at end of period$129 $120 
Inventories
(in millions)March 31,
2022
December 31,
2021
Raw materials$656 $591 
Work in process285 300 
Finished goods1,607 1,562 
Inventories$2,548 $2,453 
Property, Plant and Equipment, Net
(in millions)March 31,
2022
December 31,
2021
Property, plant and equipment, at cost$11,757 $11,728 
Accumulated depreciation(6,643)(6,550)
Property, plant and equipment, net$5,114 $5,178 
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Interest Expense, Net
Three months ended
March 31,
(in millions)20222021
Interest expense, net of capitalized interest$88 $37 
Interest income(3)(3)
Interest expense, net$85 $34 
Other (Income) Expense, Net
Three months ended
March 31,
(in millions)20222021
Foreign exchange (gains) losses, net$(11)$(3)
Pension and other postretirement benefit plans(5)4 
Other, net 4 
Other (income) expense, net$(16)$5 
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, 2022 and 2021 were $14 million and $5 million, respectively.
Purchases of property, plant and equipment included in accounts payable as of March 31, 2022 and 2021 were $53 million and $63 million, respectively.
There were no unsettled share repurchases as of March 31, 2022. Unsettled share repurchases included in accrued expenses and other current liabilities were $47 million as of March 31, 2021.
4. GOODWILL AND OTHER INTANGIBLE ASSETS, NET
Goodwill
The following is a reconciliation of goodwill by business segment.
(in millions)AmericasEMEAAPACHillromTotal
Balance as of December 31, 2021$2,517 $309 $224 $6,786 $9,836 
Acquisition accounting adjustments   10 10 
Currency translation(29)(3)(3)5 (30)
Balance as of March 31, 2022$2,488 $306 $221 $6,801 $9,816 
As of March 31, 2022, there were no reductions in goodwill relating to impairment losses.
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Other intangible assets, net
The following is a summary of our other intangible assets.
(in millions)Customer relationshipsDeveloped technology, including patentsOther amortized intangible assetsIndefinite-lived intangible assets
Total
March 31, 2022
Gross other intangible assets$3,457 $3,883 $340 $2,140 $9,820 
Accumulated amortization(262)(1,638)(227) (2,127)
Other intangible assets, net$3,195 $2,245 $113 $2,140 $7,693 
December 31, 2021
Gross other intangible assets$3,437 $3,801 $344 $2,140 $9,722 
Accumulated amortization(162)(1,556)(212) (1,930)
Other intangible assets, net$3,275 $2,245 $132 $2,140 $7,792 
Intangible asset amortization expense was $217 million and $64 million for the three months ended March 31, 2022 and 2021, respectively.
5. FINANCING ARRANGEMENTS
Significant Debt Activity
In March 2022, we repaid $170 million of our $2.0 billion three-year term loan facility and $175 million of our $2.0 billion five-year term loan facility. The loss from the early extinguishment of this debt was not significant.
Credit Facilities
Our U.S. dollar-denominated revolving credit facility has a capacity of $2.5 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, 2022 or December 31, 2021.
Commercial Paper
As of March 31, 2022, we had $200 million of commercial paper outstanding with a weighted-average interest rate of 0.5% and an original weighted-average term of 89 days. As of December 31, 2021, we had $300 million of commercial paper outstanding with a weighted-average interest rate of 0.27% and an original weighted-average term of 88 days.
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, 2022 and December 31, 2021, our total recorded reserves with respect to legal and environmental matters were $57 million and $72 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 and monetary sanctions, including significant civil or criminal penalties. With respect to
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intellectual property, we may be exposed to significant litigation concerning the scope of our and others’ rights. Such litigation could result in a loss of patent protection or the ability to market products, which could lead to a significant loss of sales, or otherwise materially affect future results of operations.
Environmental
We are involved as a potentially responsible party (PRP) for environmental clean-up costs at six Superfund sites. Under the U.S. Superfund statute and many state laws, generators of hazardous waste sent to a disposal or recycling site are liable for site cleanup if contaminants from that property later leak into the environment. The laws generally provide that a PRP may be held jointly and severally liable for the costs of investigating and remediating the site. Separate from these Superfund cases noted above, we are involved in an ongoing environmental remediations associated with historic operations at certain of our facilities. As of March 31, 2022 and December 31, 2021, our environmental reserves, which are measured on an undiscounted basis, were $18 million, respectively. After considering these reserves, the outcome of these matters is not expected to have a material adverse effect on our financial position or results of operations.
General Litigation
In August 2019, we were named in an amended complaint filed by Fayette County, Georgia in the MDL In re: National Prescription Opiate Litigation pending in the U.S. District Court, Northern District of Ohio. The complaint alleges that multiple manufacturers and distributors of opiate products improperly marketed and diverted these products, which caused harm to Fayette County. The complaint is limited in its allegations as to Baxter and does not distinguish between injectable opiate products and orally administered opiates. We manufactured generic injectable opiate products in our facility in Cherry Hill, NJ, which we divested in 2011.
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 alleged 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 final approval of the settlement on August 11, 2021 and the settlement became effective on September 13, 2021.
As initially disclosed in our Form 8-K on October 24, 2019, we voluntarily advised the staff of the SEC of an internal investigation into certain intra-company transactions that impacted our previously reported non-operating foreign exchanges gains and losses. We also received a stockholder request for inspection of our books and records in connection with the October 24, 2019 announcement. The Company has cooperated with the staff of the SEC in its investigation into related matters, and on February 18, 2022, we reached a settlement with the SEC. Without admitting or denying the findings in the administrative order issued by the SEC, we agreed to pay a civil penalty of $18 million and to cease and desist from violations of specified provisions of the federal securities laws and related rules. In the order, the SEC acknowledged the Company’s cooperation. We paid the penalty in the first quarter of 2022.
In March 2020, two lawsuits were filed against us in the Northern District of Illinois by plaintiffs alleging injuries as a result of exposure to ethylene oxide used in our manufacturing facility in Mountain Home, Arkansas to sterilize certain of our products. The plaintiffs sought damages, including compensatory and punitive damages in an unspecified amount, and unspecified injunctive and declaratory relief. The parties reached agreement to settle these lawsuits in the third quarter of 2021 for amounts that are not material to our financial results, which were paid in the fourth quarter of 2021. The settlement of these claims does not preclude potential future lawsuits.
In July 2021, Hill-Rom, Inc. 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
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with the False Claims Act and the Anti-Kickback Statute. Hillrom has been working with the DHHS and the DOJ to provide information responsive to the subpoena. Hillrom also voluntarily began a related internal review and Hillrom and now Baxter have been cooperating fully with the DHHS and the DOJ with respect to these matters.

The DHHS often issues this type of subpoena 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.
7. STOCKHOLDERS’ EQUITY
Stock-Based Compensation
Stock compensation expense totaled $32 million and $22 million in the first quarter of 2022 and 2021, respectively. Approximately 75% of stock compensation expense is classified within selling, general and administrative (SG&A) expense with the remainder classified in cost of sales and research and development (R&D) expense.
We awarded stock compensation grants which consisted of 1.8 million stock options, 1.2 million restricted stock units (RSUs) and 0.4 million performance stock units (PSUs) during the first quarter of 2022. The grant date fair values of stock options, RSUs and PSUs awarded in the first quarter of 2022 were $33 million, $102 million and $34 million, respectively. Stock options and RSUs generally vest in one-third increments over a three-year period. The vesting conditions for PSUs granted 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,
20222021
Expected volatility24 %25 %
Expected life (in years)5.55.5
Risk-free interest rate1.8 %0.8 %
Dividend yield1.3 %1.3 %
Fair value per stock option$18 $16 
The total intrinsic value of stock options exercised was $27 million and $21 million during the first quarters of 2022 and 2021, respectively.
As of March 31, 2022, the unrecognized compensation cost related to all unvested stock options of $80 million is expected to be recognized as expense over a weighted-average period of 1.9 years.
RSUs
As of March 31, 2022, the unrecognized compensation cost related to all unvested RSUs of $163 million is expected to be recognized as expense over a weighted-average period of 2.2 years.
PSUs
As of March 31, 2022, the unrecognized compensation cost related to all unvested PSUs of $50 million is expected to be recognized as expense over a weighted-average period of 1.9 years.
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Cash Dividends
Cash dividends declared per share for the three months ended March 31, 2022 and 2021 were $0.28 and $0.245, 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 2022, we did not repurchase any shares under this authority. During the first quarter of 2021, we repurchased 3.6 million shares under this authority pursuant to a Rule 10b5-1 plan. We had $1.3 billion remaining available under the authorization as of March 31, 2022.
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, 2022 and 2021.
(in millions)CTAPension and OPEB plansHedging activitiesDebt securitiesTotal
Gains (losses)
Balance as of December 31, 2021
$(2,907)$(347)$(126)$ $(3,380)
Other comprehensive income (loss) before reclassifications(15)2 (1)1 (13)
Amounts reclassified from AOCI (a) 7 (1) 6 
Net other comprehensive income (loss)(15)9 (2)1 (7)
Balance as of March 31, 2022$(2,922)$(338)$(128)$1 $(3,387)
(in millions)CTAPension and OPEB plansHedging activitiesTotal
Gains (losses)
Balance as of December 31, 2020$(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)$(3,480)
(a)    See table below for details about these reclassifications.
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The following is a summary of the amounts reclassified from AOCI to net income during the three months ended March 31, 2022 and 2021.
Amounts reclassified from AOCI (a)
(in millions)Three months ended March 31, 2022Three months ended March 31, 2021Location of impact in income statement
Pension and OPEB items
Amortization of net losses and prior service costs or credits$(9)$(21)Other (income) expense, net
Less: Tax effect2 4 Income tax expense
$(7)$(17)Net of tax
Gains (losses) on hedging activities
Foreign exchange contracts$2 $(10)Cost of sales
Interest rate contracts(1)(1)Interest expense, net
1 (11)Total before tax
Less: Tax effect 2 Income tax expense
$1 $(9)Net of tax
Total reclassifications for the period$(6)$(26)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.
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 geographic segments including 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; hospital beds and services; surgical tables, lights and pendants; and patient monitoring and diagnostic technologies. 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, 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, 2022, we had $8.2 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 30% of this amount as revenue over the remainder of 2022, 30% in 2023, 20% in 2024, 15% in 2025 and 5% thereafter.
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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 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 months ended March 31, 2022 and 2021 related to performance obligations satisfied in prior periods was not material. Additionally, our contracts with customers often include promises to transfer multiple products and services to a customer. Determining whether products and services are considered distinct performance obligations that should be accounted for separately and determining the allocation of the transaction price may require significant judgement.
Contract Balances
The timing of revenue recognition, billings and cash collections results in the recognition of trade accounts receivable, unbilled receivables, contract assets and customer advances and deposits (contract liabilities) on our condensed consolidated balance sheets. Net trade accounts receivable was $2.3 billion and $2.4 billion as of March 31, 2022 and December 31, 2021, 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.
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The following table summarizes our contract assets:
(in millions)March 31,
2022
December 31,
2021
Contract manufacturing services$47 $50 
Software sales42 45 
Bundled equipment and consumable medical products contracts111 100 
Contract assets$200 $195 
The following table summarizes the classification of contract assets and contract liabilities as reported in the condensed consolidated balance sheets:
(in millions)March 31,
2022
December 31,
2021
Prepaid expenses and other current assets$84 $84 
Other non-current assets116 111 
Contract assets$200 $195 
Accrued expenses and other current liabilities$166 $162 
Other non-current liabilities74 84 
Contract liabilities$240 $246 
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, 2022. The contract liability balance represents the transaction price allocated to the remaining performance obligations.
Three Months Ended March 31, 2022
Balance at beginning of period$246 
New revenue deferrals116 
Revenue recognized upon satisfaction of performance obligations(122)
Balance at end of period$240 
During the three months ended March 31, 2021, the amount of revenue recognized that was included in contract liabilities as of December 31, 2020 was not significant.
Disaggregation of Net Sales
In connection with our acquisition of Hillrom in December 2021, we have added three new product categories: Patient Support Systems, Front Line Care and Surgical Solutions.
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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,
20222021
(in millions)U.S.InternationalTotalU.S.InternationalTotal
Renal Care 1
$225 $669 $894 $216 $706 $922 
Medication Delivery 2
472 234 706 411 241 652 
Pharmaceuticals 3
157 364 521 200 352 552 
Clinical Nutrition 4
84 143 227 83 151 234 
Advanced Surgery 5
136 92 228 126 91 217 
Acute Therapies 6
68 120 188 81 126 207 
BioPharma Solutions 7
52 104