Baxter International (BAX) Risk Analysis

As a participant in the healthcare industry, our operations and products, and those of our customers, are regulated by numerous government agencies, both inside and outside the U.S. Laws and regulations, such as the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act (collectively, the Healthcare Reform Act), aim to decrease costs through comparative effectiveness research and pilot programs to evaluate alternative payment methodologies. Compliance with these and similar regulations could result in pricing pressure or negatively impact the demand for our products. In a number of situations, even though specific laws and regulations may not directly apply to us, our products must be capable of being used by our customers in a manner that complies with those laws and regulations. The manufacture, distribution, marketing, and use of our products are subject to extensive regulation and scrutiny by FDA and other regulatory authorities globally, and such regulations require that we obtain specific approval, clearance, or certifications from FDA or applicable non-U.S. regulatory authorities or notified bodies before we can market and sell most of our products in a particular country. Failure to obtain or maintain those approvals, clearances, or certifications have had, and could in the future have, an adverse impact on our business, including with respect to our ability to compete in the product markets in which we currently operate. Specific new products must undergo lengthy and rigorous testing and other extensive, costly, and time-consuming procedures mandated by FDA and foreign regulatory authorities. The same testing and procedures sometimes apply to our products that require authorization or renewal or are subject to changes in laws or regulations. For example, our medical devices that are sold or distributed in the EU have to comply with the EU Medical Device Regulation that entered into force in May 2021. The EU Medical Device Regulation currently provides a staggered phase-in period for manufacturers to comply with related regulations through December 2028. The regulation also requires companies that wish to manufacture and distribute medical devices in EU member states to meet certain quality system and safety requirements and ongoing product monitoring responsibilities and obtain a "CE" marking (i.e., a mandatory conformity marking for certain products sold within the European Economic Area (EEA)) for their products. Various penalties exist for non-compliance with the EU Medical Device Regulation which, if incurred, could have a material adverse impact on portions of our business, results of operations, financial condition, and cash flows. Changes to current products may be subject to vigorous review, including FDA 510(k) and other regulatory submissions, and marketing authorization or the time needed to secure approvals are not certain. We may not be able to obtain such approvals on the timing or conditions we expect, or at all. Our facilities must be registered, approved, and/or licensed prior to production and remain subject to inspection from time to time thereafter. Failure to comply with the requirements of FDA or other regulatory authorities, including requirements related to good manufacturing practice and adverse event reporting, has resulted in, and could in the future result in, warning letters, import restrictions, product recalls or seizures, monetary sanctions, reputational damage, injunctions to halt the manufacture and distribution of products, civil or criminal sanctions, refusal of a government to grant approvals or licenses, restrictions on operations, or withdrawal of existing approvals and licenses. The failure of our suppliers to comply with applicable regulations have also adversely affected certain segments of our business (and could do so in the future) as regulatory actions taken by FDA or other regulatory authorities against those manufacturers, or actions we are required to take to comply with regulatory requirements with respect to services and goods furnished by our suppliers, can result in product shortages, recalls, or modifications. Any of these actions could cause a loss of customer confidence in us and our products, which could adversely affect our sales. Our business is also subject to risks associated with U.S. and foreign legislation, regulations and trade agreements (including those resulting from the transition to new political administrations) relating to the materials we import, including quotas, duties, tariffs, or taxes, and other charges or restrictions on imports and the nature of materials that can be used in our products, which could adversely affect our operations and our ability to import materials used in our products at current or increased levels. For example, the U.S. has enacted and proposed to enact significant new tariffs. In addition, there continues to exist significant uncertainty about the future relationship between the U.S. and other countries with respect to trade policies, treaties, and tariffs. These developments, or the perception that they could occur, may have a significant adverse effect on global economic conditions and the stability of global financial markets, and may significantly reduce global trade and, in particular, trade between the impacted countries. We cannot predict whether additional U.S. and foreign customs quotas, duties (including antidumping or countervailing duties), tariffs and any retaliatory counter measures, taxes, or other charges or restrictions, requirements as to where raw materials and component parts must be purchased, additional workplace regulations, or other restrictions on our imports will be imposed in the future or adversely modified, or what effect such actions would have on our costs of operations. Recently imposed or future quotas, duties or tariffs and any retaliatory counter measures may have a significant adverse effect on the cost of our products and the related components and raw materials (and the availability of such related component parts and raw materials) and our ability to sell products and services outside the U.S. See also "Risks Relating to Our Operations-If reimbursement or other payment for our current or future products is reduced or modified in the U.S. or in foreign countries, including through the implementation or repeal of government-sponsored healthcare reform or other similar actions, cost containment measures, or there are changes to policies with respect to pricing, taxation, or rebates, our business could suffer." Future trade agreements or modifications to existing trade agreements could also provide our competitors with an advantage over us, which could have a significant adverse effect on our business, results of operations, financial condition and cash flows. The ultimate impact of any tariffs and any retaliatory counter measures will depend on various factors, including if any tariffs are ultimately implemented, the timing of implementation, the amount, scope and nature of the tariffs, and the applicability of such tariffs to Baxter's product portfolio. See also "Risks Relating to Our Operations-We are subject to risks associated with doing business globally." Our results have been adversely affected by, and we expect our results to continue to be negatively affected by, tariffs. The sales, marketing and pricing of products and relationships that medical device and pharmaceutical companies have with healthcare providers are under increased scrutiny by federal, state, and foreign government agencies. Compliance with the Anti-Kickback Statute, False Claims Act, Food, Drug and Cosmetic Act (including as these laws relate to off-label promotion of products), and other healthcare-related laws, as well as competition and export and import laws, is under increased focus by the agencies charged with overseeing such activities. The Department of Justice and the SEC are focused on the enforcement of the U.S. Foreign Corrupt Practices Act (FCPA), particularly as it relates to the conduct of medical product and pharmaceutical companies. The FCPA and similar anti-bribery laws generally prohibit companies and their employees, contractors, or agents from making improper payments to government officials for the purpose of obtaining or retaining business. Healthcare professionals in many countries are employed by the government and consequently may be considered government officials. Foreign governments are also focused on examining medical product and pharmaceutical companies' sales and marketing activities, relationships with healthcare providers, and competitive practices generally. The laws and standards governing the promotion, pricing, sale, and reimbursement of our products and those governing our relationships with healthcare providers and governments, including the Physician Payments Sunshine Act, are complicated, subject to frequent change, and may be violated unknowingly. Compliance with these and similar laws (or failure to comply with these laws) could have a significant adverse effect on our business, results of operations, financial condition, and cash flows. Additionally, failure to comply with applicable laws or our internal policies has resulted in, and may in the future result in, the departure or termination of key personnel, which has the potential of disrupting our operations or future performance. Furthermore, governments have chosen or may choose to prioritize anti-corruption efforts in the healthcare sector as part of their law enforcement activities. We are also subject to environmental laws, which are becoming more stringent throughout the world. For example, multiple jurisdictions, including the EEA and certain U.S. states have finalized, or are introducing, regulations associated with the use of Bis(2-ethylhexyl) (DEHP). We have obtained authorization to continue to use DEHP in certain of our products in the EEA, and our processes to remove DEHP from these products are in progress, but we cannot guarantee they will be completed prior to the effectiveness of all scheduled phase-outs, which may impact our ability to compete globally. Further, the EEA has restricted the use of desflurane, which is one of our anesthesia products, as an inhalation anesthetic by 2026, except in instances where alternatives cannot be used for medical grounds, and this legislation also requires fluorinated gases, which are included in our inhaled anesthetic portfolio, to be captured. Other governments globally are collecting information regarding, or have limited or prohibited, or are considering limiting or prohibiting, the use of certain chemicals, including, but not limited to, polyvinyl chloride, which is used in certain of our products, and per- and polyfluoroalkyl substances (PFAS) which may be used in certain of our products. These regulatory changes could materially adversely impact our ability to manufacture or supply certain products. Moreover, increased regulatory scrutiny around potential impurities, such as nitrosamines, in our products could lead to regulatory and legal actions, product recalls and seizures, fines and penalties, interruption of production leading to product shortages, import bans or denials of import certifications, delays or denials in new product approvals or line extensions or supplemental approvals of current products pending resolution of the issues, and reputational harm, any of which could adversely affect our business. Other environmental laws may have similar consequences for us or our suppliers, or result in liability to us. Additionally, U.S. government (through agencies such as the U.S. Department of the Treasury's Office of Foreign Assets Control and the U.S. Department of Commerce, Bureau of Industry and Security) administers laws and regulations that restrict U.S. persons and, in some instances, non- U.S. persons, in conducting activities, transacting business or making investments in certain countries or regions, or with governments, entities and individuals subject to U.S. economic sanctions. Similar restrictions have been or may be enacted by other governments with respect to certain customers located in the U.S. From time to time, certain of our subsidiaries have limited business dealings with and/or provide humanitarian donations to jurisdictions subject to sanctions and/or embargoes. These dealings represent an insignificant amount of our combined net sales and income but expose us to an increased risk of operating in these jurisdictions, including foreign exchange risks or restrictions or limitations on our ability to access funds generated in these jurisdictions or the risk of violating applicable sanctions or regulations, which are complex and subject to frequent change. Such measures can also have a broader impact on costs associated with compliance with such laws and regulations across all jurisdictions. Our ethics and compliance programs, training, monitoring, and policies may not always protect us from conduct by individual employees that violate these laws. Violations or allegations of violations of these laws may result in large civil and criminal penalties, debarment, or exclusion from participating in government programs, diversion of management time, attention, and resources, and may otherwise have an adverse effect on our business, results of operations, financial condition, and cash flows. The laws and regulations discussed above are broad in scope and subject to evolving interpretations and changes, which may be violated unknowingly, could require us to incur substantial costs regarding compliance or to alter our sales and marketing practices, and may subject us to enforcement actions or litigation, and which could adversely affect our business, results of operations, financial condition, and cash flows. We cannot predict with certainty what laws, regulations, and healthcare initiatives, if any, will be implemented, or what the ultimate effect of healthcare reform or any future legislation or regulation will have on us. For more information related to ongoing government investigations, see Note 7 in Item 8 of this Annual Report on Form 10-K. For more information on regulatory matters currently affecting us, including quality-related matters, see "Certain Regulatory Matters" in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report on Form 10-K.

Changes to the tax laws in the U.S. or other countries in which we operate, such as the evolving two-pillared plan proposed by the Organization for Economic Cooperation & Development (OECD), could have an adverse effect on our operating results. Taxing authorities audit us from time to time and may disagree with certain positions we have taken in respect of our tax liabilities. Our tax liabilities are affected by many factors, including the amounts we charge in intra-company transactions for inventory, services, licenses, funding and other items, which are subject to the use of assumptions and judgment. Because we operate in multiple income tax jurisdictions both inside and outside the U.S., cross border transactions among our affiliates are a significant part of the manner in which we operate. Tax authorities may disagree with our intra-company charges, cross-jurisdictional transfer pricing or other matters, and may assess additional taxes as a result. In connection with strategic divestitures, we have agreed to indemnify acquiring parties for certain liabilities arising from our former businesses, including tax liabilities. If our tax expense were to increase, or if the ultimate determination of taxes owed or for which we are liable is for an amount in excess of amounts previously accrued, our operating results, financial condition and cash flows could be adversely affected. With respect to audits by the applicable tax authorities, we regularly assess the likely outcomes of these audits in order to determine the appropriateness of our tax provision. However, we may not accurately predict the outcome of these audits and, as a result, the actual outcome of these audits may have an adverse impact on our financial results. For more information on ongoing tax audits, see Note 13 in Item 8 of this Annual Report.

Some of our employees both in and outside of the U.S. work under collective bargaining agreements or national trade union agreements or are subject to works councils. Significant work stoppages as a result of labor disagreements may occur in the future, including as a result of any failure to maintain the collective bargaining agreements we have in place for one of our U.S. manufacturing facilities (which are scheduled to expire in January 2027 and January 2029). Our inability to negotiate satisfactory new agreements or a labor disturbance at any of our manufacturing facilities could have a significant adverse effect on our operations.

We need to successfully introduce or monetize new and existing products and services to achieve our strategic business objectives. We can provide no assurances that we will be able to develop new products and services, that our new products and services will achieve commercial acceptance in the marketplace, or that we will be able to separately bill for new or existing services. In addition, difficulties in manufacturing or in obtaining or maintaining regulatory approvals have delayed, and may in the future delay or prohibit, the introduction of new products into the marketplace or our ability to maintain or upgrade existing products. We may not be able to obtain patent protection on our new products or be able to defend our intellectual property rights globally. See "Risks Relating to Legal and Regulatory Matters – If we are unable to protect or enforce our patents or other proprietary rights, or if we become subject to claims or litigation alleging infringement of the patents or other proprietary rights of others, our competitiveness and business prospects may be materially damaged." Warranty claims and service costs relating to certain of our new products have been, and might in the future be, greater than anticipated, and we might be required to devote significant resources to address any quality issues associated with our new products, which could reduce the resources available for future new product development. In addition, the introduction of new products and services might also cause customers to defer purchases of existing products or services. Our future financial performance will also depend, in part, on our ability to influence, anticipate, identify, and respond to changing consumer preferences and needs. We might not correctly anticipate or identify future trends in customer preferences or needs or might identify or react to them later than competitors do. In order to successfully introduce or monetize new and existing products and services, we must commit substantial funds and other resources to R&D and other innovation initiatives, which ability may be negatively impacted by our current leverage levels. See "Our significant indebtedness requires us to use a substantial amount of our cash flow for debt service and constrains our ability to pursue growth strategies and advance our R&D capabilities" above. Failure to successfully introduce new products or services in a cost-effective manner, or delays in customer purchasing decisions related to the evaluation of new products or services, could cause us to lose market share and could significantly adversely affect our business. Furthermore, product development requires substantial investment and there is inherent risk in the R&D process. A successful product development process further depends on many other factors, including our ability to adapt to new technologies, demonstrate satisfactory clinical results, obtain the required regulatory approvals, and differentiate our products from those of our competitors. If we cannot successfully introduce new competitive products or adapt to changing technologies, our products may become obsolete and our net sales and profitability could suffer.

Patent and other proprietary rights are essential to our business. Our success depends to a significant degree on our ability to obtain and enforce patents and licenses to patent rights, both in the U.S. and in other countries. Our pending patent applications, and any future patent applications, may not result in issued patents, our patents issued or licensed may be challenged or circumvented by competitors, our patents may be found to be invalid or the intellectual property rights of others may prevent us from selling certain products or including key features in our products. Delays related to a prolonged shutdown of the U.S. government may also exacerbate delays and negatively affect our ability to obtain patent from U.S governmental agencies. The patent position of a healthcare company is often uncertain and involves complex legal and factual questions. Significant litigation concerning patents and products is pervasive in our industry. Patent claims include challenges to the coverage and validity of our patents on products or processes as well as allegations that our products infringe patents held by competitors or other third parties. An unfavorable litigation outcome in any of these types of cases 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 our business, results of operations, financial condition and cash flows. We also rely on trademarks, copyrights, trade secrets and know-how to develop, maintain and strengthen our competitive positions. Third parties may know, discover or independently develop equivalent proprietary information or techniques, or they may gain access to our trade secrets or publicly disclose our trade secrets. Our employees, consultants, parties to collaboration agreements and other business partners are generally subject to confidentiality or similar agreements to protect our confidential and proprietary information. These agreements may be breached, and we may not have adequate remedies for any breach. To the extent that our employees, consultants, parties to collaboration agreements and other business partners use intellectual property owned by others in their work for us, disputes may arise as to the rights in related or resulting know-how and inventions.

We rely upon information technology systems (IT systems) and infrastructure, including services provided by our partners and third parties, to support our business, facilities, operations, product development, products, and services. We also routinely rely on technology systems and infrastructure in the collection, use, storage and transfer, disclosure, and other processing of voluminous amounts of protected information, including personal data, protected health information, and sensitive data (of patients, employees, customers, and third parties) as well as internal confidential information (collectively, Protected Information). Our IT systems and Technology are vulnerable to breakdown, interruption, cyber and other security attacks, system malfunction, unauthorized access, inadvertent exposure or disclosure of information, theft, and other events and, at times, requires the manual application of security upgrades or patches on each machine or device that utilizes the Technology. Third-party systems and solutions that we rely on are also vulnerable to the same risks and may contain defects in design or manufacture or other problems that could result in system disruption or compromise the information security of our own systems, products, and services. Security threats, including cyber and other attacks, have become very sophisticated, frequent, and adaptive. The adversarial use of AI also poses unique challenges and may impact real-time detection capabilities and containment efforts. In addition, we are at risk of our third-party service providers sustaining such attacks, which may impact our products, services, and operations. Further, we expect that the breadth and complexity of our information and technology systems and infrastructure will increase as we work to expand our product offerings to utilize and generate data analytics and potentially AI (which create emerging enterprise risks, including cybersecurity, monitoring, and oversight). See "Risks Relating to Our Operations – We are exposed to risks associated with incorporating AI, machine learning and other emerging technologies into our products, services and operations". The continuing evolution of technology we use, including cloud-based computing, open-source software, data hosting, AI, and reliance on third parties and Software as a Service (Saas) solutions, whom may also use open-source software, cloud-based computing, data hosting, or AI tools, create additional opportunities for the unintentional, intentional, unauthorized or unlawful disclosure, exposure, dissemination, loss, alteration, access or destruction of Protected Information stored or processed in our devices, systems, servers, infrastructure, and products (collectively, Technology), and those of our Saas providers and third party service providers. Additionally, certain of our products and systems collect Protected Information regarding customers, partners, patients and their therapies, and are internet enabled and connect to our systems, hospital networks, electronic medical record systems, or electronic health record systems, and are subject to the same risks, and could impact patient safety and lead to field actions or product recalls. We, like other global companies, have experienced cyber incidents in the past (including ones related to the unauthorized access to or disclosure of data and to certain of our third-party service providers), and may experience them in the future. These events have exposed and may continue to expose vulnerabilities in our information technology systems, and could expose Protected Information to unauthorized third parties and/or cause temporary or loss or unavailability of such information. While we continue to invest in improvements to our IT systems, there is no assurance that our investments have prevented or will prevent future breakdowns, attacks or breaches in our Technology, or cyber incidents. We could also suffer strained relationships with customers, business partners, physicians and other healthcare professionals, increased costs, litigation or other negative consequences as a result of such cyber incidents. The insurance we have procured related to cybersecurity risks may not cover a particular cyber incident or such coverage may be insufficient. Additionally, our ongoing integration of Hillrom and the sale of our Kidney Care business, as well as a number of our employees having fully remote or hybrid work arrangements expose us to, among other things, heightened risks related to our information technology systems and networks, including cyber attacks, computer viruses, malicious software, security breaches and telecommunication failures, both for systems and networks we control directly and for those that employees and third-party developers rely on to work remotely. We also face all of the same risks listed above and other heightened risks when acquiring a company, in particular if we need to transition or implement certain processes or controls with the acquired company. We are also subject to similar risks associated with the continued support for Vantive's information technology systems, through the transitional services period in the Vantive TSA, which could lead to breaches, disruption, interruptions and impact our financial condition or lead to reputational harm, litigation, and operational disruption.

We use both internally developed and third party-provided AI and machine learning (ML) technologies to support our functions and operations (including Generative AI tools) and anticipate integrating such technology in select products and services in the future (consistent with our internal AI-related governance procedures and policies). We further anticipate that AI and ML will become increasingly important to our innovation and competitiveness in the future. However, we face risks and uncertainties related to the development, adoption and use of AI, ML and other emerging technologies. Additionally, our internal AI-related policies may not be effective in managing AI use and reducing inherent risks associated with the use of AI, including but not limited to AI-specific cybersecurity risks. We may not be able to successfully develop, integrate or deploy AI technologies in our products and services, or we may face delays, increased costs or technical difficulties in doing so. We may also encounter difficulties in obtaining or maintaining the necessary regulatory approvals or clearances for these products and services, or face increased scrutiny or liability from regulators, customers, or other stakeholders regarding the safety, effectiveness, accuracy, reliability, security or ethical implications of such technology. We also may have more difficulty protecting or enforcing our regulated personal data, confidential data, and intellectual property rights as a result of these technologies, and there may be a risk of data leakage or infringing on the intellectual property or data rights of others which could lead to regulatory action, or litigation, arbitration or other disputes over the ownership, validity, scope or enforcement of our or others' patents, trademarks, copyrights, trade secrets or other proprietary rights. Such disputes could be costly, time-consuming and disruptive to our business. See "Risks Relating to Legal and Regulatory Matters – If we are unable to protect or enforce our patents or other proprietary rights, or if we become subject to claims or litigation alleging infringement of the patents or other proprietary rights of others, our competitiveness and business prospects may be materially damaged".

We face substantial competition in all of our markets from international and domestic healthcare medical products and pharmaceutical companies and providers of all sizes, and these competitors often differ across our businesses. Competition is primarily focused on cost-effectiveness, price, service, product performance, technological innovation, clinical practices, and consistency of supply. Competition may increase further as additional companies begin to enter our markets, launch new products or modify their existing products to compete directly with ours. If our competitors respond more quickly to new or emerging technologies and changes in customer requirements, or we do not introduce new versions or upgrades to our product portfolio in response to those requirements, including due to constraints on our cash flows, our products may be less competitive and we may lose market share. If our competitors develop more effective or affordable products or achieve earlier patent protection or product commercialization than we do, our business, results of operations, financial condition and cash flows will likely be negatively affected. For example, innovations in technology and care delivery models could materially adversely affect the demand for and future pricing and sale of our products and services. Furthermore, if we are forced to reduce our prices due to increased competition, our business could become less profitable. Demand for our products and services, and our overall growth, depend in large part on overall demand and growth in the healthcare market. With the healthcare market's increased focus on asset and resource efficiency, as well as reimbursement constraints and competitive dynamics (including consolidation within healthcare systems, as discussed below in "Continued consolidation in the health care industry or additional governmental controls exerted over pricing and access in key markets could lead to increased demands for price concessions or limit or eliminate our ability to sell to certain of our significant market segments"), we have seen margins for some of our products decline and they may continue to do so over time. Any decline or lower-than-expected growth in the markets (or portions thereof) in which we operate could diminish demand for our products and services, which may adversely affect our financial performance. For example, new clinical practices implemented after Hurricane Helene appear to have reset demand levels in our IV solutions business and negatively impacted sales of certain of our premix products. Further, the competitive pressures in our industry could cause us to lose market share unless we increase our commercial investments or reduce our prices, which could adversely impact our operating results. These factors, along with possible legislative, regulatory, macroeconomic and other developments, might result in significant shifts in market share among the industry's major participants, which include us, and could permanently reduce demand for certain of our products. These challenges have made demand forecasting more difficult, resulting in heightened inventory levels in certain portions of our business, and may continue to do so in the future. Accordingly, if we are unable to effectively differentiate ourselves from our competitors in terms of new products and diversification of our product portfolio, then our business, results of operations, financial condition, and cash flows could be adversely impacted.

Sales of our products depend, in part, on the extent to which the costs of our products are paid by both public and private payers. These payers include Medicare, Medicaid, private healthcare insurers in the U.S. and foreign governments and third-party payers outside the U.S. Our work with government payers carries various risks inherent in working with government entities and agencies, including government reporting and auditing, additional regulatory oversight, mandated contractual terms, failure of government appropriations, and other complex procedural requirements. Public and private payers have challenged, and are expected to continue to challenge, prices charged for medical products and services. Such downward pricing pressures from any or all of these payers may result in an adverse effect on our business, results of operations, financial condition, and cash flows. Sales of our products are dependent, in part, on the availability of reimbursement by government agencies and healthcare programs, as well as insurance companies and other private payers. In much of Europe, Latin America, Asia, and Australia, governments provide healthcare at low cost to patients and control their expenditures by various means, such as purchasing products through public tenders, collective purchasing, regulating prices, setting reference prices in public tenders, and limiting reimbursement or patient access to certain products. Additionally, austerity measures or other reforms by foreign governments may limit, reduce, or eliminate payments for our products and adversely affect both pricing flexibility and demand for our products. In addition, operations within our Healthcare Systems & Technologies segment increase our exposure to risks related to reimbursement as certain portions of that business directly bill various government agencies. The Healthcare Reform Act includes several provisions which impact our businesses in the U.S., including increased Medicaid rebates and an expansion of the 340B Drug Pricing Program, which provides certain qualified entities with discounts on the purchase of drugs for outpatient use and an excise tax on the sale of certain drugs. The Healthcare Reform Act reduces Medicare and Medicaid payments to hospitals and other providers, which may cause us to experience downward pricing pressure. Certain portions of the Healthcare Reform Act could negatively impact the demand for our products, and therefore our results of operations, financial position, and cash flows. The Center for Medicaid Services (CMS) has proposed the expansion of its Competitive Bidding Program (CBP). This proposed expansion would introduce a pricing model that could significantly influence the cost structure of some medical devices in the U.S. healthcare system; specifically, those reimbursed under CMS' Durable Medical Equipment, Prosthetic, Orthotic and Supplies payment system. By leveraging supplier competition to establish payment rates, the CBP mirrors purchasing initiatives seen in international markets, where procurement strategies attempt to prioritize cost-efficiency, which could lead to uncertainty with respect to innovation, quality, and patient access challenges or supplier attrition, as seen in prior bidding cycles. If implemented, this could directly or indirectly adversely affect both the demand and prices customers are willing to pay for our products. In addition, a substantial portion of our revenues is dependent on federal healthcare program reimbursement, and any disruptions in federal government operations, including a federal government shutdown or failure of the U.S. government to enact annual appropriations, could have a significant adverse effect on our business, results of operations, financial condition, and cash flows. Additionally, disruptions in federal government operations have negatively impacted, and in the future may negatively impact, claims processing, regulatory reviews, approvals, rulemaking, and guidance that are important to our operations and create uncertainty about the pace of upcoming healthcare regulatory developments or approvals, and timing of reimbursements which, if prolonged or repeated, can negatively impact our results of operations, financial position, and cash flows. As a result of these and other measures, including future measures or reforms that cannot be predicted, reimbursement may not be available or sufficient to allow us to sell our products on a competitive basis. Legislation and regulations affecting reimbursement for our products may change at any time and in ways that may be adverse to us. We cannot predict the impact of these pressures and initiatives, or any negative effects of any additional regulations that may affect our business.

General global economic downturns and macroeconomic trends, including heightened inflation, capital markets volatility, interest rate and currency rate fluctuations, changes in monetary policy and economic slowdown or recession, have resulted in, and may continue to result in, unfavorable conditions that negatively affect demand for our products and exacerbate other risks described in this "Risk Factors" section that affect our business, results of operations, financial condition, and cash flows. Both domestic and international markets have been experiencing significant inflationary pressures in recent years and inflation rates in the U.S., as well as in other countries in which we operate, are currently expected to continue at elevated levels for the near term. Further, current or worsening economic conditions may impact the ability of our customers (including governments) to pay for our products and services and the amount spent on healthcare generally, which could result in decreased demand for our products and services, a decline in cash flows, longer sales cycles, increased inventory levels, slower adoption of new technologies, and increased price competition. These conditions may also adversely affect certain of our suppliers, which could disrupt our ability to produce products. We continue to do business with foreign governments in certain countries that have experienced deterioration in credit and economic conditions. Liquidity issues in certain countries have resulted, and may continue to result, in delays in the collection of receivables and credit losses and may also impact the stability of the U.S. Dollar, Euro, Renminbi, or other currencies.

Our operations are subject to risks inherent in conducting business globally and under the laws, regulations and customs of various jurisdictions and geographies. These risks include changes in exchange controls and other governmental actions, loss of business in government and public tenders that are held annually in many cases, increasingly complex labor environments, availability of raw materials and component parts, changes in taxation, tariffs, sanctions, embargos, export control restrictions, changes in or violations of U.S. or local laws, dependence on a few government entities as customers, pricing restrictions, economic and political instability, monetary or currency volatility or instability (including as it relates to the U.S. Dollar, the Euro, the Mexican Peso, and currencies in emerging market countries), disputes between countries, trade relationships and conflicts, diminished or insufficient protection of intellectual property, and disruption or destruction of operations in a significant geographic region regardless of cause, including natural disaster, pandemic, power loss, cyber-attack, data breach, war, terrorism, riot, labor disruption, civil insurrection, or social unrest. Failure to comply with, or material changes to, the laws and regulations that affect our global operations could have an adverse effect on our business, results of operations, financial condition, and cash flows. The escalating global economic competition and trade tensions among the U.S. and its trading partners could have an adverse effect on our business, results of operations, financial condition and cash flows, and there is risk of additional tariffs and other kinds of restrictions, including in connection with the transition to new political administrations. In addition, the U.S. Department of Commerce has initiated an investigation under Section 232 of the Trade Expansion Act of 1962, as amended, to determine the effects of importing pharmaceuticals and pharmaceutical ingredients and medical devices on national security. This investigation may lead to the imposition of tariffs on pharmaceutical imports, consistent with the current U.S. administration's stated policy objective of reshoring pharmaceutical manufacturing to the U.S. Tariff exclusions awarded to us by the U.S. Government require annual renewal, and policies for granting exclusions could shift. The U.S. and other countries could impose other types of restrictions such as limitations on government procurement or technology export restrictions, which could affect our access to the markets. See also "Risks Relating to Legal and Regulatory Matters-We are subject to laws and regulations globally, and our failure to comply with rapidly changing and increasingly divergent expectations of regulators in different jurisdictions could adversely impact the company." More generally, several governments have raised the possibility of policies to induce "re-shoring" of supply chains, less reliance on imported supplies and greater national production. If such steps triggered retaliation in other markets, such as by restricting access to foreign products by their government-owned healthcare systems, the outcomes could have an adverse effect on our business, results of operations, financial condition and cash flows.

The long-term effects of climate change are difficult to predict and may be widespread. Climate change has increased, and in the future may continue to increase, physical risks (such as water scarcity, rising sea levels, or frequency and severity of extreme weather conditions, including natural disasters such as hurricanes, cyclones, and typhoons), social and human effects (such as population dislocations or harm to health and well-being), compliance costs and transition risks (including due to changes in regulation, technology, or stakeholder expectations), shifts in market trends (for example if customers increasingly prioritize purchasing products that can be reused or recycled or have a lower perceived carbon footprint). Impacts of climate change have included and may in the future include, damage to manufacturing facilities (including as a result of Hurricane Helene), disruption to local infrastructure and utilities, loss of sales, and interruption to our supply chain and manufacturing operations by adversely affecting our ability to procure goods or services required for the operation of our business at the quantities and levels we require due to impairment of the availability and increases in the cost of certain products, materials, commodities, and energy. For example, material or sustained increases in the price of oil have had an adverse impact on the cost of many of the plastic materials or resins we use to make and package our products, as well as our transportation/freight costs. Further, the impacts of climate change, particularly severe weather events and droughts, have negatively impacted, and may in the future negatively impact, our ability to obtain material energy and water sources and other resources, including employee availability and access to shipping routes. Any of these outcomes could result in customers transitioning to available competitive products, loss of market share, negative publicity, reputational damage, loss of customer confidence, or other negative consequences, such as a decline in stock price. Further, any perceived increase in the potential of severe weather events and business interruption may put an upward pressure on the cost of our risk insurance premiums, which could adversely impact our business, results of operations, financial condition, and cash flows. In addition, new or expanded local, state, regional, federal, and global legal and regulatory requirements relating to climate change and other sustainability topics have been proposed or adopted in recent years and may continue to emerge in the future. As a result of these developments, we may experience disruptions in or increases in the costs associated with R&D, sourcing, manufacturing, distributing, and end of life of our products. These requirements continue to evolve, and jurisdictions in which we operate may adopt additional laws and regulations on such topics or may continue to change their enforcement of existing laws and regulations. Additionally, as local, state, regional, federal, and global legal and regulatory requirements relating to climate change and other sustainability topics continue to evolve, they may create inconsistent or conflicting obligations that have led to, and could continue to lead to, increased compliance costs, and regulatory uncertainty for us, our suppliers, and customers, any of which could have a significant adverse effect on our business, financial condition, result of operations and cash flows. If we or our suppliers are unable or unwilling to comply with regulatory sustainability requirements, we may experience an adverse impact on our ability to manufacture or supply certain products as well as increased costs and interruptions in the supply chain. We could be subject to litigation, substantial fines, and other damages if we fail to comply with related risk assessment requirements, which could adversely impact our financial condition and results of operations. Furthermore, companies across all industries are facing continued scrutiny from investors, regulators, and other stakeholders related to their sustainability and corporate responsibility commitments, performance, and disclosures. See "Risks Relating to Our Operations – Our commitments, goals, activities, and disclosures related to sustainability and corporate responsibility matters, and the perception of our activities in these areas, may fail to satisfy the differing expectations of key stakeholders on these matters."

We generate a meaningful portion of our net sales and profit outside the U.S. and currency exchange rates have been especially volatile in recent years. As a result, currency fluctuations have affected, and may continue to affect, the reported value of our assets and liabilities, as well as our cash flows and results of operations. We cannot predict with any certainty changes in foreign currency exchange rates or our ability to mitigate these risks. We have experienced, and may continue to experience, additional volatility as a result of inflation and other macroeconomic factors, including in emerging market countries. We are also exposed to changes in interest rates, and our ability to access the money markets and capital markets on terms that are favorable to us, or at all, could be impeded if market conditions are not favorable. For example, the Federal Reserve in the U.S. and other central banks in various countries have raised, and may again raise, interest rates in response to concerns about inflation, which, coupled with reduced government spending and volatility in financial markets, has had, and may continue to have, the effect of further increasing economic uncertainty and heightening these risks. Interest rate increases or other government actions taken to reduce inflation have resulted in, and may continue to result in, recessionary pressures in many parts of the world. For more information see "Financial Instrument Market Risk" in Item 7. Management's Discussion of Analysis and Financial Condition and Results of Operations of this Annual Report on Form 10-K.