SUPPLEMENTAL FINANCIAL INFORMATION

9 Months Ended

Sep. 30, 2023

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Allowance for Doubtful Accounts

The following table is a summary of the changes in our allowance for doubtful accounts for the three and nine months ended September 30, 2023 and 2022.


	Three months ended September 30,				Nine months ended September 30,
(in millions)	2023		2022		2023		2022
Balance at beginning of period	$	128	$	125	$	114	$	122

Charged to costs and expenses	4		2		20		11
Write-offs	(1)		(2)		(7)		(4)
Currency translation adjustments	1		(5)		5		(9)
Balance at end of period	$	132	$	120	$	132	$	120

Inventories


(in millions)	September 30, 2023		December 31, 2022
Raw materials	$	713	$	698
Work in process	301		294
Finished goods	1,859		1,687
Inventories	$	2,873	$	2,679

Property, Plant and Equipment, Net


(in millions)	September 30, 2023		December 31, 2022
Property, plant and equipment, at cost	$	10,863	$	10,780
Accumulated depreciation	(6,585)		(6,085)
Property, plant and equipment, net	$	4,278	$	4,695

Impairments of Property, Plant and Equipment and Certain Other Long-Lived Assets

We review the carrying amounts of long-lived assets used in operations for potential impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating recoverability of long-lived assets other than goodwill and intangible assets not subject to amortization, we group assets and liabilities at the lowest level such that the identified cash flows relating to the group are largely independent of the cash flows of other assets and liabilities. If the carrying amount of an asset group is greater than the related estimated undiscounted future cash flows, the carrying value is not considered recoverable. In that case, an impairment charge is recorded if, and to the extent that, the amount by which the asset group's carrying amount exceeds its fair value. However, the portion of an impairment loss allocated to an individual long-lived asset within an asset group cannot reduce the carrying amount of that asset below its fair value is determinable without undue cost and effort.

Impairment of Opelika, Alabama Manufacturing Facility

Our manufacturing facility in Opelika, Alabama is one of three Baxter manufacturing facilities that currently produce dialyzers used in hemodialysis (HD) treatments. The current competitive environment has increased the global supply of those products and, in connection with our initiatives to streamline our manufacturing footprint and improve our profitability, we have made the decision to cease production of dialyzers at the Opelika facility near the end of 2023. We believe that there is more than adequate availability of dialyzers in the United States and globally, and we intend to continue to manufacture those products at volumes aligned with the related market demand at our other manufacturing facilities that currently produce them.

As a result of our decision to cease dialyzer production at this manufacturing facility, we performed a trigger-based recoverability assessment of its long-lived assets, which consist of a building and manufacturing equipment, including specialized equipment used in the production of dialyzers. The carrying amount of that asset group exceeded the estimated undiscounted cash flows expected to be generated, and we recognized an impairment charge of $243 million, classified within cost of sales in the accompanying condensed consolidated statements of income (loss), during the second quarter of 2023 to reduce the carrying amounts to their estimated fair values.

The fair values of the building and manufacturing equipment tested for impairment during the second quarter of 2023 were determined based on transaction prices of comparable assets (a market approach). Significant assumptions used in the determination of the fair values included the identification of representative comparable assets. Our long-lived asset fair value measurements are classified as Level 3 in the fair value hierarchy because they involve significant unobservable inputs.

Other Impairments of Long-Lived Assets Related to HD Business

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. Our segments were changed during the third quarter of 2023 to align with our new operating model. See further discussion in Note 16, Segment Information. In connection with that segment change, we identified new reporting units for impairment testing purposes and performed fair value measurements of our reporting units to reallocate goodwill to the new reporting units based on their relative fair values and to assess those reporting units for impairment. We identified our HD business within our Kidney Care segment as one of the new reporting units. Based on the estimated fair value of that reporting unit, we allocated no goodwill to it. Additionally, we determined that a triggering event was present to review the carrying amounts of long-lived assets within the HD reporting unit, which include four manufacturing facilities that primarily manufacture HD products, HD equipment leased to customers under operating leases and developed technology intangible assets, for potential impairment. In connection with that evaluation, we determined that the carrying amount of the asset group represented by our HD reporting unit, which is the lowest level for which identifiable cash flows are largely independent of other assets and liabilities, exceeded its forecasted undiscounted cash flows. We then measured the excess of the carrying amount of that asset group over its fair value and allocated the resulting impairment to its long-lived assets, limiting the impairments of individual assets within the group to amounts that would not result in their carrying amounts being written down below their fair values. As a result, we recognized $267 million of long-lived asset impairment charges, comprised of (i) a $190 million impairment charge related to certain manufacturing equipment, operating lease right-of-use assets and HD equipment leased to customers and (ii) a $77 million impairment charge related to developed technology intangible assets. The impairments are classified within cost of sales in the accompanying consolidated statements of income (loss) for the three and nine months ended September 30, 2023.

The fair value of the HD asset group was based on a discounted cash flow model (an income approach). Significant assumptions used in the determination of its fair value include forecasted cash flows, discount rates and terminal growth rates. The discounted cash flow model used to determine the fair value of the HD asset group during the third quarter 2023 reflected our most recent cash flow projections, a discount rate of 8% and a terminal growth rate of 1.5%. We also measured the fair values of individual assets within that asset group to ensure that the allocation of the asset group’s impairment to the long-lived assets within that group would not reduce the carrying amount of any individual asset below its fair value. The fair values of the buildings, manufacturing equipment and HD equipment leased to customers within that asset group were determined based on transaction prices of comparable assets (a market approach). Significant assumptions used in the determination of those fair values included the identification of representative comparable assets. The fair value of the right-of-use asset within that group was determined based on market rents and discount rates. Our long-lived asset fair value measurements are classified as Level 3 in the fair value hierarchy because they involve significant unobservable inputs.

Interest Expense, Net


	Three months ended September 30,				Nine months ended September 30,
(in millions)	2023		2022		2023		2022
Interest expense, net of capitalized interest	$	136	$	109	$	395	$	290
Interest income	(8)		(5)		(26)		(12)
Interest expense, net	$	128	$	104	$	369	$	278

Other (Income) Expense, Net


	Three months ended September 30,				Nine months ended September 30,
(in millions)	2023		2022		2023		2022
Foreign exchange (gains) losses, net	$	13	$	—	$	49	(26)
Pension and other postretirement benefit plans	(11)		(6)		(32)		(18)
Pension curtailment	—		—		—		(11)
Change in fair value of marketable equity securities	(3)		3		3		(5)
Reclassification of cumulative translation loss to earnings	—		65		—		65
Non-marketable investment impairments	—		—		23		—
Other, net	(6)		(1)		(10)		(4)
Other (income) expense, net	$	(7)	$	61	$	33	$	1

Non-Cash Operating and Investing Activities

Right-of-use operating lease assets obtained in exchange for lease obligations for the nine months ended September 30, 2023 and 2022 were $73 million and $59 million, respectively.

Purchases of property, plant and equipment included in accounts payable as of September 30, 2023 and 2022 were $43 million and $65 million, respectively.